Earnings distribution for 2018 • The Board of Directors will recommend to the AGM
Contents Management’s review 1 Key features 3 Financial highlights 4 Results for 2018 4 Results for Q4 2018 4 Non-life insurance in 2018 8 Life insurance in 2018 9 Investment activities 10 Parent company etc. 10 Taxation 10 Profit forecast model 12 Risk management 13 Solvency calculation and capital requirements 14 Capital structure and ownership 15 Board of Directors and Articles of Association 16 Severance pay 16 Remuneration structure 18 Distribution of dividend for 2018 18 Corporate Governance 18 CSR 18 Annual General Meeting 18 Financial calendar 18 Company announcements 19 Board of Directors 23 Executive Board
The profit of DKK 1,331m is better than assumed in the latest profit forecast model in the interim report for Q1-Q3 2018, showing a post-tax profit of DKK 1,200 – 1,300m. The profit improvement is mainly due to run-off profits in Q4 2018 and a lower level of weather-related claims than assumed.
In 2018, the distribution agreements with Nykredit and Sydbank within life insurance were terminated resulting in an adverse growth within non-life insurance premiums of 0.6pp. This is due to the fact that distribution agreements with Nykredit and Sydbank within life insurance comprised sale of illness/accident insurance policies related to pension schemes but recognized as non-life insurance for accounting purposes.
The expense ratio increased by 0.4pp to 16.4 due to increased expenses in connection with a preliminary analysis ahead of a new IT-system.
Investment activities Topdanmark Group excl. life insurance The investment return in the Topdanmark Group excluding life insurance was DKK 102m in 2018 (2017: DKK 539m). Return and revaluation of non-life insurance provisions were DKK 86m (loss) in 2018 (2017: DKK 143m (loss)).
The investment return after return and revaluation of non-life insurance provisions was DKK 16m (2017: DKK 396m). The lower investment return is due to the declining financial markets mainly in Q4 2018, where equities and to some extent CDOs generated a lower investment return compared with 2017.
The class “Credit bonds” is composed of a minor share of a well-diversified portfolio of credit bonds, primarily issued by businesses in Europe.
As a consequence of this policy, for a number of years the Company has identified and reduced or eliminated the risks which could potentially cause losses exceeding what Topdanmark considers to be acceptable. For example, major strategic shareholdings have been sold, the catastrophe cover for weather-related events or terror has been increased significantly and the financial risk has been reduced.
Topdanmark works to maintain and develop openness in the company culture to counter any form of discrimination due to gender, race, colour, nationality, social and ethnic origin, religion, beliefs, political opinion, disability, age and sexual orientation. Topdanmark believes that diversity provides business value and that it is important that all employees may advance to managerial positions at all levels.
Besides the revolving scheme referred to above, a further 115,000 share options have been granted for 2019 to a number of other executives who have made a special effort or otherwise contributed extraordinarily to value creation in the Company.
The recommended dividend distribution represents a dividend yield of 5.2 and a dividend of DKK 15 per share.
Divisional Manager, Baltica Re / BalticaNordisk Re 1986-1989: Ass. General Manager, Baltica-Nordisk Re. 1989-1993: Deputy General Manager, Employers
Information on the Executive Board’s responsibilities, as required by Article 80 of the Danish Financial Business Act, is shown in the Annual Report for Topdanmark Forsikring A/S.
Interest charges (79) (81) Expenses on investment activities (39) (47) Total investment return 4,124 (1,990)
Shareholders' equity at 31 December prior year 90 13 1,146 64 3,168 1,710 6,191
Average value of claim (DKK '000) 37 36 5 5 96 83 Frequency of claims (per thousand value) 24 25 441 327 107 119
Run-off profits, net of reinsurance 29 13 13 18 6 12 Claims provisions, net of reinsurance 424 481 73 57 445 414
Gross premiums written, direct business, by the policyholders' location: Other EU-countries 69 13 Other countries 15 9
Per granting: Average strike price exercised options 2017 128 139 136 137 Average strike price exercised options 2018 175 198 177 190 Average current price on date of exercise 2017 211 Average current price on date of exercise 2018 290 Fair value of granting 2017 2 8 10
The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK 268.73 (2017: DKK 179.44) per share, an interest rate corresponding to the zero coupon rate based on the swap curve on 31 December the previous year, future volatility of 22% (2017: 22%) p.a. and a pattern of exercise similar to Topdanmark's previous granting of share options, resulting in an average life of the options of approximately 4 years.
Thus, salaries and compensations disbursed for present and former members of the Executive Board amount to DKK 36.0m of which variable salaries amount to DKK 2.2m.
Financial assets recorded at fair value Held for trading: Unit trusts 6 6
Note 44. Companies Name Registered office Activity Topdanmark A/S Ballerup Holding Non-life: Topdanmark Forsikring A/S Ballerup Insurance TDP.0007 A/S Ballerup Property Topdanmark EDB A/S Ballerup Internal IT services Topdanmark EDB IV ApS Ballerup IT services E. & G. Business Holding A/S Ballerup Holding Topdanmark Holding S.A. Luxembourg Holding Risk & Insurance Services S.A. Luxembourg Administration
Investment Topdanmark may suffer a loss due to the inability of bond, loan or financial contract counterparties to meet their obligations. Most of Topdanmark's interest-bearing assets comprise Danish mortgage bonds and debt issued or guaranteed by top-rated European states. The risk of losses is considered to be very small due to the high quality of the issuers and a desired spread on both issuers and issues. To limit the risk on other bond and loan debtors, the portfolio is well diversified both geographically and with regard to type of debtor - and therefore, the exposure to the concentration of risks is insignificant.
Topdanmark Group's 2018 Annual Report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the additional Danish disclosure requirements of NASDAQ Copenhagen A/S and the Danish Financial Business Act on annual reports prepared by listed financial services companies.
The Executive Order on Financial Reports The DFSA’s Executive Order on Financial Reports for Insurance Companies has been updated effective as of 2019. The update is not expected to affect the recognition and measurement in the annual report. In 2018, a few revised disclosure requirements have been implemented.
The risk return is transferred to shareholders' equity if it can be covered by collective bonus potentials before recognition of profit margin.
Provisions for insurance and investment contracts Provisions for unearned premiums These provisions are calculated at present value of best estimate of expected payments of future insurance events covered by insurance contracts concluded. Topdanmark’s insurance contracts are usually written for a 1-year period.
Claims provisions 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 models developed in-house. 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.
Shareholders' equity at 31 December prior year 95 1,894 3,019 0 5,009 Profit / (loss) for the year 1,771 (1,748) 1,710 1,733 Other comprehensive income in affiliates 0 0 0 Total comprehensive income for the year 1,772 (1,748) 1,710 1,733 Dividends received from subsidiaries (839) 839 0 Other movements in capital of subsidiaries 48 48 Cancellation of own shares (5) 5 0 Share buy-back (410) (410) Share-based payments 10 10 Exercise of share options 108 108
Note 2. Other expenses Holding expenses 42 42 Other expenses 42 42
Our audit has included assessing models, methods, assumptions and data applied by Management in connection with the measurement of fair value of unlisted investments.