8 March 2011 Announcement No. 05/2011 2010 Key features Q4 2010 • Post-tax profit of DKK 488m (Q4 2009: DKK 337m). • Combined ratio improved to 89.2% this quarter (Q4 2009: 91.1%); excluding run-off profits it was 93.2% (Q4 2009: 94.3%).
On www.topdanmark.com → Presentations a webcast is available in which Topdanmark's CEO, Christian Sagild, presents the financial highlights and comments on the forecast.
Premiums earned increased 1.8% to DKK 4,720m in 2010 and in Q4 growth was 0.6%. Premium increases on house, contents and health policies increased premiums earned by just over 2pp.
For details on the liquidity base see Market risk in this report.
On 6 April 2010 the DFSA issued a new contribution order taking effect on 1 January 2011. This new order clarifies the rules for bonus distribution among customers and sets increased requirements on the transparency of bonus distribution. As a result there will be shift from a high to a lower degree of solidarity between customers, with requirements for homogeneous groups to be created within each of interest rate, risk and cost categories. The order applies to all life insurance policies entitled to a bonus, with classical saving in with-profits schemes.
From 1 January 2011 all insurance policies have been split into interest rate, risk and cost groups of homogeneous characteristics. The spread of the interest rate groups must not exceed 1 pp. Accordingly, each policy will belong to one interest rate group, one or more risk groups and one cost group.
However, it is uncertain how the implementation of the new contribution order will impact competition as in future it will not be allowed to set off losses / profits between the interest rate, risk and cost groups. Future losses on the risk and cost groups are to be transferred to a shadow account, which means that the shareholders' equity of the companies will finance these losses until the group returns to being in profit and the shadow account can be recognised as income.
As can be seen, the investment return forecast model is not based on a specific estimate of the expected
In 2010 the actual share buy-back totalled DKK 833m, DKK 167m lower than the programme previously announced, representing a buy-back yield of 8.0%.
The elements of the overall risk profile are brought together in the central risk management function which is responsible for ensuring that the data for and processes of risk calculations and profiling are of a high quality. The risk management function reports to the Risk Committee which is responsible for the SCR (solvency capital requirements) calculation, internal model, use test, risk limits, risk policies, standard calculation and ORSA (own risk and solvency assessment). The members of the Risk Committee are the CFO of the Group, a representative from the board of management of the life insurance company and the heads of the primary risk areas: Asset Management, Statistical Services, Life Actuarial Services, Group Finance, Life Finance and Reinsurance. The Risk Committee reports, recommends and proposes to the Board of Directors via the Group Board of Management.
The Workers' Compensation Act has been changed such that the cover of industrial injuries caused by any type of terror has now been taken over by the Government except that those injured persons whose job it is to hinder, prevent or avert acts of terror and those rescuers deployed in the aftermath of terror attacks are not covered. This also applies to individuals sent out to work in countries where there is a particular risk of terror.
Workers' compensation and illness / accident insurance differ from the general principles regarding the inclusion of an allowance for inflation. The provisions in workers' compensation insurance are directly linked to the expected future indexation of wages and salaries and those in illness / accident insurance are directly linked to the net price index.
Liquidity risk In 2007 the parent company Topdanmark issued EUR 55m (nominal value) of hybrid capital (subordinated notes). This hybrid capital has no defined maturity and in terms of capital management it is considered to be equivalent to shareholders' equity. Topdanmark's other loan capital is primarily short-term money market loans, with a typical maturity of a maximum of one month. Outstanding debt is reduced after receiving dividends from the subsidiaries. Any further loan repayments are made by raising similar new loans. To secure a sufficiently liquid base in situations where the possibility of utilising this source of financing might decline, Topdanmark has purchased an irrevocable right to raise two loans on normal terms. One of these can be up to DKK 250m with expiry no later than in 2012 and another up to DKK 500m with expiry no later than in 2013.
If there are tests that have not been met, the return will be allocated only to those tranches specified in the Articles of Association. Normally the tests will include factors such as excess cover, rating quality, diversification and liquidity security.
The investors of the top tranche will incur losses only if these are of such a size that the lower tranches lose their value. Accordingly the risk of the investors of the top CDO tranche is much lower than that of the investors of the underlying portfolio. The risk profile is comparable to an investment in an underlying asset where cash security has been provided to cover any losses. This protection is
During 2010 the parent company and the Group have observed the current solvency requirements.
The externally imposed caution following the financial crisis has forced Topdanmark to operate with a higher solvency capital than what is required by its risk base. Against this background Topdanmark needs to meet the regulatory requirements in the most cost efficient way through the composition of tier 1, tier 2 and tier 3 solvency capital. The immediate consequence of this is that much of the financing should be by way of tier 2 and tier 3 solvency capital but Topdanmark believes that the uncertainty of the refinancing of such supplementary capital requires some prudence.
At 31 December 2010 Topdanmark’s share capital totalled DKK 170,869,530 divided into 17,086,953 shares of DKK 10 each, corresponding to 17,086,953 voting rights. Following the implementation of the reduction in share capital decided at the extraordinary general meeting on 23 November 2010, the share capital has now been reduced to DKK 155,267,500 divided into 15,526,750 shares of DKK 10 each, corresponding to 15,526,750 voting rights. As of 8 March 2011, Topdanmark's holds 1,490,025 of own shares representing 9.6% of the share capital, of which 649,371 shares are held by Topdanmark to cover Management's share option scheme.
Control environment The Board of Directors has adopted a working plan to ensure that at least once a year it considers the Group's: • Organisation • Plans and budgets • Risk of fraud • Existence of internal rulings and guidelines
Prior to each annual and quarterly report being published the report is discussed at a Board of Management / Audit meeting also attended by the IR and accounting departments.
On its website Topdanmark discloses information on holding of shares, options etc. at a group level, for the entire Board of Directors and the entire Board of Management etc., see Note 45.
Options For 2011 Topdanmark has already granted 42,546 share options to its Board of Management and a number of executives. The strike price of DKK 808 was fixed at 110% of the market price of Topdanmark's shares on 30 December 2010 (average of all trades). The options were paid for by the individuals concerned.
Goals Topdanmark aims to behave responsibly and contribute to value creation in terms of its products and services. This requires, among other things, that it: • Operates an efficient and responsible insurance business • Focuses on loss prevention • Provides a workplace that attracts and keeps competent and well-qualified employees • Includes social and environmental considerations in investment and procurement matters
Daily share trading on all trading platforms was DKK 62m in 2010 (2009: DKK 44m). At Nasdaq OMX Copenhagen daily trading was DKK 55m in 2010 (2009: DKK 42m). New trading platforms such as Chi-X, BATS Europe, Turquoise and Burgundy represented 8% of the trading in Topdanmark's shares in 2010.
One of the specific initiatives which will reduce the CO2 emission in future years is an investment in lighting and ventilation at Topdanmark's head office expected to reduce its annual CO2 emission by 525 tons or just over 7%.
List of company announcements and trading reports Company announcements Topdanmark 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.
Per Mathiesen** DOB: 1966 Joined Topdanmark’s Board of Directors: 2007 Current position held: Case handler
Annette Sadolin*,*** DOB: 14 January 1947 Joined Topdanmark’s Board of Directors: 2004 Current position held: Since 2003 solely directorships Previous positions held: 1980-1986: Assistant to management and subsequently Divisional
Member of the Boards of Directors of: • The Danish Insurance Association • Bornholms Brandforsikring A/S • The Danish Employers’ Association for the Financial Sector
TECHNICAL PROFIT ON NON-LIFE INSURANCE 1,437 1,601 1,824 905 660 LIFE INSURANCE
Change in the life insurance provisions 7 (2,829) (900) Change in the reinsurers' share 1 3 Change in the life insurance provisions, net of reinsurance (2,828) (897)
Shares in associated companies 64 324 0 388 Loans to associated companies 0 762 0 762 Other financial investment assets 15,246 29,703 2 44,951 Investment assets related to unit-linked contracts 0 3,264 0 3,264 Reinsurers' share of provisions 732 36 0 768 Amounts due from affiliated companies 468 5 28 (502) 0
Technical interest, net of reinsurance 17 10 1 0 21 13
Reinsurers' share of the provisions for claims at 31 December 551 667
Share of loan included in capital base 403 404 Interest charges 15 11
Portfolios analysed by capitalisation rates Guaranteed future paid-up 2009 benefits premiums benefits
Less paid incl. inflation swaps 3,336 4,644 4,995 5,187 4,857 5,849 5,077 4,636 4,909 4,486 47,976 Provisions before discounting
Claims handling etc. at 1 January 2004 127 37 27 191 Discounting / revaluation workers' compensation insur-
Note 27. Provisions for unit-linked contracts Insurance Investment 2009 contracts contracts Total Gross provisions at 1 January 1,398 422 1,820 Retrospective provisions at 1 January 1,398 422 1,820
Investment assets related to unit-linked contracts 2.3 0.1 0.1 2.5 Total financial assets at fair value 29.2 16.4 1.6 47.2
Shares bought back (506) (1,288) Shares issued 221 180 Shares sold 118 84
Assets at book value registered as security for technical provisions 51,621 55,084
In 2010 Topdanmark organisationally merged its SME and industrial business and consequently its business segments now comprise "Personal", "SME and Industrial" and "Life Insurance".
Income and expenses of foreign companies which prepare their accounts 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 the shareholders' equity's reserve for currency translation of foreign companies.
The options are settled with own shares and the proceeds are taken to shareholders' equity. The fair value calculated at the date of granting and any amount received on the exercise of the options are both taken to shareholders’ equity.
The interest rate structure is published by the DFSA as the combined weighting of swap rates and option adjusted mortgage credit rates. It is published as the "adjusted interest rate curve" on the DFSA's website. For policies subject to pension return tax each interest rate used of the interest rate structure is reduced by the tax rate of 15%.
Announcement No. 05/2011 from Topdanmark A/S Page 92 of 107 to shareholders' equity unless the revaluation is a reversal of a previous impairment. Impairments are included in the profit and loss account unless the impairment is a reversal of previous revaluation included in the shareholders' equity.
Amounts due from affiliated companies 70 77 TOTAL DEBTORS 70 77
Weighted items 2,617 3,025 Core capital as a percentage of weighted items 127.3 124.1 Solvency ratio 68.7 72.9