Topdanmark A/S. annual report Reg.No

Transcription

1 Topdanmark A/S annual report 2012 Reg.No

2 Share profile The Topdanmark share is a value case not a growth case Focused strategy }} Danish player }} Stable insurance risks }} Low expense ratio }} Limited financial risk }} Efficient capital management }} Limited top line growth }} Profitable growth - in that order }} High net result }} Large share buy-back programme }} No protection against a take-over in the Articles of Association Read more about Topdanmark s equity story on Share profile.

3 Topdanmark Annual Report March 2013 Announcement No. 03/2013 Key features of Annual Report 2012 Post-tax profit of DKK 1,823m (2011: DKK 1,023m) 78.2% increase Better than assumed result in Q1-Q interim report Profit per share increase 91.0% to DKK Combined ratio improved to 88.0% (2011: 90.3%) primarily due to lower weather-related claims Combined ratio excluding run-off profits improved to 90.3% (2011: 92.0%) Premiums increased 1.1% in non-life insurance and declined 4.3% in life insurance Investment return increased to DKK 1,336m (2011: DKK 652m) Result of life insurance increased to DKK 210m (2011: DKK 187m) Topdanmark bought back own shares of DKK 1,200m, which was in line with the buy-back assumed in the Q1-Q interim report. Q Post-tax profit increased to DKK 453m (Q4 2011: DKK 350m) Combined ratio improved to 88.2% (Q4 2011: 89.6%) Combined ratio excluding run-off profits was 91.7% (Q4 2011: 91.5%) Premiums increased 0.3% in non-life insurance and declined 21.7% in life insurance Investment return increased to DKK 343m (Q4 2011: DKK 233m). Profit forecast model for 2013 Assumed combined ratio for 2013 has been increased from around 91% to 91-92%, excluding run-off profits / losses due to reforms affecting the level of compensation for loss of earnings potential Assumed premium growth in non-life insurance continues at 1-2% Post-tax profit forecast model is DKK 1,050-1,150m, excluding run-off profits / losses, being DKK 95 profit per share. As this model is now in place, the DKK 500m from 2012 has been included in the share buy-back programme for 2013 Consequently, the share buy-back programme for 2013 is now DKK 2,000m including the DKK 500m transferred from the 2012 buy-back programme. The buy-back of DKK 2,000m represents a yield of 12.4%. In a webcast today Topdanmark's CEO, Christian Sagild, will present the financial highlights and comment on the forecast. A 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. In order to participate in the conference call, please phone: UK dial in number: +44 (0) US dial in number: quoting reference minutes before the conference asking the operator to connect you to the Topdanmark conference call or listen to the live transmission of the call. Please direct any queries to: Christian Sagild Chief Executive Officer Direct tel.: Lars Thykier Chief Financial Officer Direct tel.: Steffen Heegaard Group Communications and IR Director Direct tel.: , mobile: Share buy-back In its Q1-Q interim report Topdanmark announced that DKK 500m of the share buy-back programme had been postponed because it wanted to develop a new model for calculation of individual solvency in life insurance before the amount was paid out. Page 1 of 101

4 Contents Management s review 1 Key features of Annual report 3 Financial highlights 4 Profit of DKK 1,823m in Profit of DKK 453m in Q Non-life insurance 11 Life insurance 13 Investment activities 16 Parent company etc. 16 Taxation 16 Prospects for Share buy-back 20 Share split 20 Value creation in Topdanmark 22 Risk management 25 Solvency 27 Capital model 28 Board of Directors and Articles of Association 29 Severance pay 29 Remuneration structure 30 Corporate Governance 30 CSR 30 Investor Relations 32 Annual General Meeting 32 Financial calendar 33 List of company announcements and trading reports 34 Board of Directors and Executive Board 39 Five-year summary - Group Annual financial statements - Group 40 Income statement 41 Statement of comprehensive income 42 Assets 43 Shareholders' equity and liabilities 44 Cash flow statement 45 Statement of changes in equity 46 Notes to the financial statements 79 Accounting policies 89 Annual financial statements - Parent company 97 Disclaimer 98 Statement by Management on the Annual Report Auditors' reports 99 Internal audit's reports 100 Independent auditor's reports 101 Group Structure Page 2 of 101

5 Financial highlights Q4 Q4 (DKKm) Premiums earned: Non-life insurance 8,952 8,665 8,548 8,668 8,759 2,201 2,209 Life insurance 3,980 3,208 3,395 3,303 3, ,932 11,873 11,943 11,971 11,920 3,169 2,966 Results: Non-life insurance 91 1,592 1,092 1,086 2, Life insurance (57) Parent company etc. (58) (21) Pre-tax profit / (loss) (24) 1,863 1,506 1,349 2, Tax (165) (417) (338) (326) (512) (106) (140) Profit / (loss) (189) 1,446 1,168 1,023 1, Run-off profits, net of reinsurance Shareholders' equity of parent company at 1 January 3,716 3,243 4,465 4,900 4,915 4,738 5,489 Profit / (loss) (189) 1,446 1,168 1,023 1, Share buy-back (371) (376) (892) (1,159) (1,200) (186) (272) Share-based payments Other movements in shareholders' equity Shareholders' equity of parent company end of period 3,243 4,465 4,900 4,915 5,716 4,915 5,716 Deferred tax on security funds (348) (348) (348) (348) (348) (348) (348) Shareholders' equity of Group end of period 2,895 4,117 4,553 4,567 5,368 4,567 5,368 Capital base, parent company*) 3,645 4,868 5,305 5,319 6,122 5,319 6,122 Total assets, parent company 4,819 5,467 5,712 6,408 6,895 6,408 6,895 Total assets, Group 52,035 56,554 57,542 61,013 59,435 61,013 59,435 Provisions for insurance and investment contracts: Non-life insurance 13,685 14,478 15,139 16,228 16,251 16,228 16,251 Life insurance 24,938 28,882 31,166 30,618 32,553 30,618 32,553 Financial ratios (parent company) Post-tax profit / (loss) as a % of shareholders' equity (5.6) Post-tax profit / (loss) per share (DKK) (12.1) Post-tax profit / (loss) per share, diluted (DKK) (12.1) Net asset value per share (DKK) Share buy-back per share (DKK) Listed share price end of period , ,213 Average number of shares ('000) 15,640 15,688 15,131 13,741 12,828 13,448 12,461 Average number of shares, diluted ('000) 15,640 15,769 15,159 13,746 12,828 13,448 12,461 Number of shares end of period ('000) 15,663 15,496 14,472 13,332 12,394 13,332 12,394 Ratios non-life insurance (%) Gross loss ratio Net reinsurance ratio (3.6) Claims trend Gross expense ratio Combined ratio Operating ratio Combined ratio excl. run-off profits *) Shareholders' equity and loan capital Page 3 of 101

6 Profit of DKK 1,823m in 2012 Topdanmark s post-tax profit for 2012 increased 78.2% to DKK 1,823m (2011: DKK 1,023m). Profit per share increased 91.0% to DKK for 2012 in the Q1-Q interim report due to a combination of a better investment return and a better than assumed technical result in Q This profit of DKK 1,823m was better than the DKK 1,550-1,650m assumed in the most recent profit forecast model Comparison between actual results and profit forecast model results Actual Forecast for 2012 Actual results for as in Q1-Q3 results for (DKKm) 2011 interim report 2012 Non-life insurance - Technical result ,000 1,068 - Investment return after transfer to technical result etc ,036 Profit on non-life insurance 1,086 1,770 1,870 2,103 Life insurance Parent company etc Pre-tax profit 1,349 1,960 2,100 2,335 Taxation (326) (410) (450) (512) Profit for the year 1,023 1,550 1,650 1,823 Pre-tax profit increased DKK 986m to DKK 2,335m from 2011 to The technical result increased DKK 161m to DKK 1,068m mostly due to lower weather-related claims and higher run-off profits. On the other hand, the technical result was adversely affected by the declining interest rates. The investment return increased DKK 857m to DKK 1,036m due to the generally positive financial markets for equities and credit products in Trend in pre-tax result (DKKm) Non-life insurance - Technical result 907 1,068 - Investment return after transfer to technical result etc ,036 Profit on non-life insurance 1,086 2,103 Life insurance Parent company etc Pre-tax profit 1,349 2,335 Profit on life insurance increased DKK 23m to DKK 210m due to, among other factors, a higher investment return. Profit of the parent company etc. declined DKK 54m to DKK 22m. This decline was due to a DKK 25m writedown of a property and particularly high earnings in Topdanmark Kapitalforvaltning in Profit of DKK 453m in Q Post-tax profit increased to DKK 453m in Q (Q4 2011: DKK 350m) which was somewhat better than assumed in the profit forecast model for 2012 in the Q1- Q interim report (Q4 2012: DKK m). As described above, the improvement was due to a combination of a better investment return and a better than assumed technical result. Page 4 of 101

7 Pre-tax profit was DKK 593m in Q (Q4 2011: DKK 457m). The technical result increased DKK 27m to DKK 263m due to lower weather-related claims and higher run-off profits. The investment return increased DKK 128m to DKK 266m. Profit on life insurance declined DKK 23m to DKK 46m primarily due to a slightly lower risk allowance, lower recognition as income from the shadow account of Life V and a lower return on Topdanmark Link. Profit of the parent company etc. increased DKK 5m to DKK 18m. Trend in pre-tax result Q4 Q4 (DKKm) Non-life insurance - Technical result Investment return after transfer to technical result etc Profit on non-life insurance Life insurance Parent company etc Pre-tax profit Non-life insurance Danish non-life insurance market Key features of the Danish non-life insurance market in 2012: Positive effect of price increases 1% growth in premiums Exceptionally low level of weather-related claims improved the combined ratio by around 1.5pp Lower average premium in motor insurance In spite of declining theft frequency for contents insurance policies, an increase in the average claim increased the overall claims trend Increase in claims level of policies covering loss of earnings potential due to a reform of early retirement pension Lower interest rates had a 1-2pp adverse effect on the combined ratio Overall, it is believed that the combined ratio for 2012 was around 92% excluding run-off profits Run-off profits had a positive effect on the combined ratio of around 3pp. The general price increases from most of the insurance companies in the Danish market in 2011 were replaced by more selective price increases in The price increases were mainly effected in house, contents, SME insurance and workers' compensation insurance. In 2012 a new house inspection scheme took effect providing new minimum conditions for change of ownership policies. Due to the new conditions the cover of the policy has been increased, and consequently the price of change of ownership policies has also been increased. Overall, the price increases are estimated to have had a % positive effect on gross premiums earned. Automatic price indexation in the personal and SME market was 1.9%, which is estimated to have an overall effect of around 1.4% for the entire market. Also in 2012 prices in the industrial market were under pressure. Including the effect of price increases growth in gross premiums earned is estimated to be around 1%. The level of rainstorm claims was lower than normal. This applies to both storm and rainstorm claims, which are the highest weather-related risks. The lower level of weatherrelated claims is estimated to have had a favourable effect on the combined ratio of around 1.5pp. Car sales moved towards relatively smaller and more roadworthy cars from 2011 to 2012, which contributed to a decline of around 0.8% in average premium, in spite of automatic indexation of 1.9%. The number of reported incidents of car damage declined 9% from 2011 to In contents insurance recent years' trend of declining claims frequency but increasing average claims continued into Efforts by the police to get closer to the public seem to have helped reduce the number of thefts. On the other hand, the size of average claims increased due to, among other factors, more organised burglary behaviour and an increase in the value of theft attracting items. Overall, it is believed that the claims trend in contents insurance has increased in At the end of 2012, the Danish Parliament adopted a reform of the rules for early retirement pension taking effect on 1 January As there is a relation between workers' compensation, motor liability, illness / accident insurance claims and the reform, the reform will have financial consequences for the size of the compensation. Generally, the public subsidy to people in flex-jobs will decline, meaning that a larger share of the loss incurred by a claimant in a flex-job needs to be covered by the Page 5 of 101

8 insurance policy. Furthermore, the reform provides that temporary annuities in workers' compensation will be paid for a longer period than today which, other things being equal, will have an adverse effect on the claims. The Danish National Board of Industrial Injuries has estimated that Danish workers' compensation insurance companies alone will incur a retrospective loss of about DKK 250m on the private companies, while in the future the annual claims will increase around DKK 90m, representing about 2% of premiums earned on workers' compensation insurance policies. Additionally, there will be an increase in expenses on other policies covering loss of earnings potential. As provisions for outstanding claims are discounted to present value, lower interest rates will increase the payments on claims. Interest rates were lower in 2012 than in 2011 which, depending on the composition of the portfolio, increased the combined ratio by 1-2pp. It is estimated that the overall combined ratio, excluding any run-off profits / losses, was around 92% for the entire market in However, there are significant differences between the combined ratios of the individual companies. The run-off profits are estimated to have had a favourable effect of around 3pp on the combined ratio. The run-off profits, which are estimated to be slightly higher than normally, are typically in long-tail lines such as workers' compensation, accident and motor liability. Result of non-life insurance in Topdanmark Premiums earned Premiums earned increased 1.1% to DKK 8,759m in 2012, which was slightly lower than the assumed premium growth of 1-2% (as in the Q1-Q interim report). The growth in premiums was affected by a run-off profit in a captive, administered by Topdanmark, releasing a premium bonus of DKK 19m. Premium bonuses are deducted from premiums earned. Premiums earned benefitted from automatic price indexation of 1.9pp with an effect of around 1.4pp on total premiums. On the other hand, premiums earned were only marginally impacted by extraordinary price increases. In 2012 Topdanmark increased market pressure on the personal segment, the SME segment and farms which improved its competitive situation. For example, the customer exchange ratio in the personal segment gradually improved during the year due to, among other factors, an increase in the retention percentage. The improved customer exchange ratio was not reflected in premiums earned in 2012 but is expected to have a favourable effect on premium growth in Typically, profitability for major businesses does not meet Topdanmark's return requirements, leading to a loss of some major unprofitable customers in Claims trend The claims trend improved to 72.2% in 2012 (2011: 74.6%) This 2.4pp improvement was mostly due to a decline in weather-related claims to DKK 48m net of reinsurance (2011: DKK 285m net of reinsurance), representing a 2.7pp improvement of the claims trend at group level. Topdanmark assumes DKK 170m net of reinsurance as a normal level of weather-related claims. Weather-related claims were DKK 122m lower than this level in 2012, corresponding to a 1.4pp effect on the claims trend. Run-off profits net of reinsurance were DKK 201m in 2012 (2011: DKK 148m). As compared to 2011 run-off profits had a 0.6pp positive effect on the claims trend. Run-off profits in workers' compensation insurance represented DKK 148m of run-off profits in Fire claims net of reinsurance declined DKK 32m, corresponding to a 0.4pp improvement of the claims trend. The improvement was mainly due to a favourable claims trend in the personal segment. The interest rate curve used to discount the provisions for outstanding claims was lower in 2012 than the previous year, which impacted the claims trend adversely by 1.6pp. The reform on the rules on early retirement pension increased the claims level for those policies covering loss of earnings potential, with a 0.4pp adverse effect on the claims trend. Page 6 of 101

9 Expense ratio The expense ratio increased marginally to 15.8% (2011: 15.7%). Combined ratio Overall expenses on claims, reinsurance, sales and administration as a percentage of gross premiums earned (combined ratio) improved to 88.0% (2011: 90.3%). Excluding run-off profits the combined ratio improved to 90.3% (2011: 92.0%). Weather-related claims of the year had an effect on the combined ratio, which was 1.4pp lower than the normal effect. Accordingly, the underlying combined ratio was 91.7% (2011: 90.7%) excluding run-off profits. Page 7 of 101

10 Financial highlights Non-life insurance Q4 Q4 (DKKm) Gross premiums earned 2,201 2,209 8,668 8,759 Technical interest Claims incurred (1,587) (1,541) (6,773) (6,131) Expenses (351) (353) (1,365) (1,388) Net reinsurance (35) (54) 312 (193) Technical profit ,068 Investment return after transfer to technical result ,015 Other items Profit on non-life insurance ,086 2,103 Run-off profits, net of reinsurance Gross loss ratio (%) Net reinsurance ratio (%) (3.6) 2.2 Claims trend (%) Gross expense ratio (%) Combined ratio (%) Operating ratio (%) Combined ratio excl. run-off profits (%) Developments in Q4 Premiums earned in Q increased 0.3% to DKK 2,209m. This moderate premium growth was due to the DKK 19m payment of bonus in a captive, referred to previously, corresponding to an adverse effect of 0.8pp on premium growth. The claims trend improved 1.5pp to 72.2% in Q (Q4 2011: 73.7%) due to a lower level of weather-related claims (2.9pp) and higher run-off profits (1.6pp). On the other hand, the lower interest rates had a 1.1pp adverse effect on the claims trend. Furthermore, a worse claims trend in fire had a 0.9pp adverse effect on Topdanmark's claims trend. Finally, the reform referred to in The Danish non-life insurance market increased payments on claims. The size of these extra costs is very uncertain, but it has been decided to recognise extra claims of DKK 35m, which had a 1.6pp adverse effect on the claims trend in Q The expense ratio increased to 16.0% in Q (Q4 2011: 15.9%). The combined ratio improved to 88.2% in Q (Q4 2011: 89.6%). Excluding run-off profits it was 91.7% (Q4 2011: 91.5%). Page 8 of 101

11 Segment reporting Personal The Personal segment sells policies for individual households in Denmark. Premiums earned increased 0.2% to DKK 4,767m in 2012 reflecting growth in house and contents insurance while there was a decline in motor insurance. Furthermore, premiums were affected by a decline in premiums earned in illness / accident insurance (I/A). The growth in premiums was 0.3% negative in Q4. Adjusted for I/A, premium growth was 0.5% in 2012 and 0.8% in Q4. Topdanmark's competitive situation improved gradually in Sales through Topdanmark's own sales channels increased 6.4%. Topdanmark has changed its decentralised sales organisation from insurance outlets to larger sales centres and has expanded its sales team. The new sales organisation was in place at the end of Premiums earned on motor insurance declined 2.4% in 2012 due to, among other things, a lower average premium because increasingly smaller and more roadworthy cars are sold. The claims trend improved 1.2pp to 73.2% primarily due to an improved claims trend for weather-related claims. Run-off profits were DKK 31m in 2012 (2011: DKK 23m) which had a 0.2pp positive effect on the claims trend as compared to The run-off result in 2012 was a combination of a loss on I/A and profits on, among others, accident and motor liability insurance. The expense ratio increased to 16.2% from 15.8% due to the strengthening of distribution efficiency in the personal segment, see Distribution power. The combined ratio improved to 89.4% from 90.2%. Excluding run-off it improved to 90.1% from 90.7%. Page 9 of 101

12 Personal Q4 Q4 (DKKm) Gross premiums earned 1,210 1,206 4,756 4,767 Technical interest Claims incurred (903) (855) (3,762) (3,464) Expenses (197) (201) (753) (774) Net reinsurance 0 (40) 226 (24) Technical result Run-off profits / (losses), net of reinsurance 14 (5) Gross loss ratio (%) Net reinsurance ratio (%) (0.0) 3.3 (4.7) 0.5 Claims trend (%) Gross expense ratio (%) Combined ratio (%) Operating ratio (%) Combined ratio excl. run-off (%) SME and Industrial The SME and Industrial segment offers policies for Danish-based SME, agricultural and industrial businesses. Premiums earned increased 2.0% to DKK 4,011m in 2012 and in Q4 they increased 0.9%. The growth in premiums was impacted by severe competition in workers' compensation insurance and a premium bonus of DKK 19m on a captive scheme a premium bonus which was deducted from premiums earned. Generally, the loss of customers was lower except for workers' compensation insurance due to, among other factors, a new servicing concept. SME and Industrial saw a 2.6% increase in motor insurance customers which more than offset the decline in these customers in the personal segment. The claims trend improved 3.7pp to 71.2% primarily due to a favourable agricultural claims trend caused by, among other factors, a low level of weather-related claims. In Q4 fire claims net of reinsurance were DKK 21m higher than the level of Q4 2011, which had a 0.5pp adverse effect on the claims trend. Run-off profits increased to DKK 170m in 2012 (2011: DKK 125m) giving a 1.1pp positive impact on the claims trend. This run-off profit related mainly to workers' compensation insurance. The expense ratio declined 0.3pp to 15.3%. The combined ratio improved to 86.5% in 2012 (2011: 90.5%). Excluding run-off profits it declined to 90.8% (2011: 93.7%). Page 10 of 101

13 SME and Industrial Q4 Q4 (DKKm) Gross premiums earned 997 1,006 3,934 4,011 Technical interest Claims incurred (689) (688) (3,034) (2,686) Expenses (155) (152) (614) (615) Net reinsurance (35) (14) 86 (169) Technical result Run-off profits, net of reinsurance Gross loss ratio (%) Net reinsurance ratio (%) (2.2) 4.2 Claims trend (%) Gross expense ratio (%) Combined ratio (%) Operating ratio (%) Combined ratio excl. run-off (%) Life insurance Danish life and pension market In 2012 the Danish life and pension market was characterised as follows: Reduction in deductibility of term life premiums Pension return tax increased from 15.0% to 15.3% It is believed that the level of overall payments into regular premiums was relatively unchanged. It is believed that overall pension payments into regular premiums were relatively unchanged in Result of life insurance in Topdanmark The result from life insurance was a profit of DKK 210m in 2012 (2011: DKK 187m) mainly due to an improved investment return. The deductibility of payments into term life premiums and terminable annuities was reduced from an annual DKK 100,000 to DKK 50,000 with effect from 1 January This lowering of the deductibility ceiling reduced the savings of term life insurance. On the other hand, there was an increased demand for annuities for which there is full deductibility. With effect from 1 January 2012 the tax rate for pension returns was increased from 15.0% to 15.3%. Profit on life insurance activities comprises the sum of the profits generated by Life I and Life V plus the investment return of Life Holding. These profits were calculated in accordance with the stated policy on the calculation of profit for the life insurance companies: see Investor Business Life insurance Policy for the calculation of profit in life insurance. Result of life insurance (DKKm) Life I Life V Group Life I Life V Group Investment return Risk allowance Transferred, shadow account (112) (2) (114) (116) (2) (117) Other Profit on life insurance Shadow account end of period Page 11 of 101

14 Most of the customers are spread across Life I, Life V and Topdanmark Link. Policies written since 1 July 1994 with guaranteed pension benefits of 2.5%, 1.5% and 0.5% are placed in Life I which is also the company for new customers with guaranteed benefits. Schemes written before 1 July 1994 with guaranteed pension benefits of 4.5% are placed in Life V. Unit-linked schemes are written by Topdanmark Link. The return on funds owned by customers, before pension return tax, was 6.0% in Life I and 12.0% in Life V. The investment return on shareholders' equity increased from DKK 105m in 2011 to DKK 129m in 2012 representing 5.2% in Life I and 5.8% in Life V. The investment return on shareholders' equity is different from that on customers' funds due to different investment strategies and separate portfolios for each; for example, at present shareholders' equity does not invest in equities nor does it use instruments to hedge the guaranteed benefits. The risk allowance was DKK 165m in 2012 (2011: DKK 178m). The insurance technical result before bonus of Life I and Life V was not sufficient to fully include in income a risk allowance in all the contribution groups. Therefore DKK 117m was transferred to the shadow account which totalled DKK 236m at the end of The amount in the shadow account will be recognised as income in line with profits being generated in those contribution groups which have made transfers to the shadow account. "Other" comprises primarily the investment return of Life Holding of DKK 14m and the result from Topdanmark Link of DKK 11m. The improvement of DKK 16m to DKK 34m was mainly due to a DKK 16m improvement in Topdanmark Link. Trend in premiums Gross premiums declined 4.3% to DKK 3,161m in 2012 (2011: DKK 3,303m). Regular premiums declined 6.7% to DKK 2,157m in 2012 as per the forecast set out in the Q1-Q interim report. Single premiums increased 1.4% to DKK 1,004m in 2012 (2011: DKK 991m). There was an overall increase of 5.8% in premiums in unit-linked pension schemes. Regular premiums increased 9.9% to DKK 572m and single premiums 2.7% to DKK 685m. The share of new business written by unitlinked savings increased to DKK 60.6% in 2012 (2011: 52.6%). Sources of gross premiums Q4 Q4 (DKKm) Individual schemes Corporate schemes , Group life Unit-linked schemes Regular premiums ,312 2,157 Individual schemes Corporate schemes Unit-linked schemes Single premiums ,004 Gross premiums ,303 3,161 Page 12 of 101

15 Developments in Q The decline in profit to DKK 46m in Q (Q4 2011: DKK 69m) was primarily due to a slightly lower risk allowance, lower recognition as income from the shadow account of Life V and a lower return on Topdanmark Link. Overall premiums declined 21.7% to DKK 757m in Q4 due to a 46.2% decline in single premiums to DKK 218m while regular premiums declined 4.1% to DKK 539m. Result of life insurance Q4 Q (DKKm) Life I Life V Group Life I Life V Group Investment return Risk allowance Transferred, shadow account (27) 7 (19) (27) (0) (28) Other Profit on life insurance Rate of interest on policyholders savings in 2012 and 2013 On 1 July 2012 the rate of interest on policyholders' savings was reduced in Life I and Life V. In Life I it was reduced from 2.25% to 1.8% before pension return tax and in Life V from 4.35% to 2.0% before pension return tax. Due to the improvement in the investment return the rate of interest on policyholders' savings has been increased with effect from 1 January In the interest rate group writing new business in Life I, the rate of interest on policyholders' savings was increased from 1.8% to 2.0% before pension return tax and in all of the interest rate groups of Life V from 2.0% to 4.35% before pension return tax. These rates may be subject to change if the development in the financial markets is different from expectations. Loss participation scheme Loss participation is a temporary measure introduced in periods where the market value of the customers' assets is lower than the sum of their savings and only serves a purpose when customers who want to leave the scheme prematurely need to have their surrender value calculated correctly. Should customers choose to leave their schemes prematurely, the loss participation is taken into account in the calculation of the surrender value of their policies in order to ensure that those customers who leave do not take with them funds owned by those who stay. Loss participation only applies to with-profits products and it is not deductible in the event of retirement, death and disability. Due to the development in the financial markets with a decline in equity prices and declining interest rates, Life I had to introduce loss participation in The loss participation scheme is calculated and adjusted once a month and was 0.8% on 5 March 2013 in interest rate group 2 in Life I. There are no loss participation schemes in the other interest rate groups of Life I. As long as the loss participation scheme is in force, the risk allowance will be transferred from the interest rate group concerned to the shadow account from where it will be brought into income when the scheme has been removed. Loss participation has at no time been introduced in Life V. Investment activities Topdanmark Group excluding life insurance The investment return in the Topdanmark Group excluding life insurance was DKK 1,336m in 2012 including a revaluation of provisions and income from associated companies but before the transfer to the technical result (2011: DKK 652m). It is Topdanmark's policy to accept a certain level of financial risk, given its strong liquid position and stable, high earnings from insurance operations. Topdanmark has invested in, among others, equities, properties and CDOs in order to improve the average investment return. The return in Q and in 2012 on the most significant classes of assets is disclosed in the following table: Page 13 of 101

16 Investment return Portfolio 31 Dec (DKKbn) Return Q Return Q Return 2011 Return 2012 (DKKm) % (DKKm) % (DKKm) % (DKKm) % Danish equities (13) (3.6) (55) (14.1) Foreign equities (56) (6.8) Government and mortgage bonds Credit bonds (7) (0.8) CDOs Properties (7) (0.5) Assets related to I/A Money market etc (1) (0.1) (12) (0.3) Subordinated loan capital (1.2) (1.2) (17) (1.4) (15) (1.4) (52) (5.3) (63) (5.4) Interest-bearing debt (2.7) (0.4) (8) (0.2) (2) (0.2) (27) (1.0) (11) (0.6) , Asset management Total investment return ,336 Transferred return technical provisions Discounting (65) (49) (323) (217) Technical interest (7) (2) (65) (20) The exposure in foreign equities and credit bonds have 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 (illness/accident) includes revaluations of claims provisions. From 2012 the return related to I/A has been calculated before pension return tax whereas in 2011 it was calculated after pension return tax. The comparatives for 2011 have been restated. The investment return after the transfer to the technical result was DKK 1,099m, which generated an exceptionally large deviation from the expected return given Topdanmark's current risk profile. This high deviation should be viewed in the light of the highly positive investment year 2012 when the returns on both equities and bonds were high. Furthermore, Topdanmark's relatively high exposure in credit products, including CLOs, contributed to a significant excess return. Danish mortgage bonds, in which Topdanmark's exposure is high, performed well in Also a fortunate positioning in European government bonds, primarily from the core countries, contributed to the excess return. Finally, a change in the discount curve used by Danish insurance companies to value liabilities (see below) generated a gain of DKK 76m. Generally, the difference between the interest rate exposure of assets and liabilities has been relatively small. Therefore, given the expected development in general interest rates, the positioning has only contributed modestly to the excess return. The equity portfolios are well diversified with no large individual positions. The composition of the portfolios is based on OMXCCAP for Danish equities (representing around 30% of the portfolio at 31 December 2012) and MSCI World in the original currency for foreign equities. The 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. Since 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 has been adjusted as convergence towards a fixed forward interest rate of 4.2% has been incorporated from the 20-year point. Therefore, the revaluation of longtail provisions is less sensitive to changes in the market rate for long-term assets. The post-tax equity exposure was DKK 682m (pre-tax: DKK 909m) excluding associated companies but including the impact of derivatives. Page 14 of 101

17 Most of the portfolio comprises high-quality mortgage bonds, which ensures consistency between the investment return and the discount rate. The class of government and mortgage bonds comprises primarily Danish mortgage bonds and revaluation of technical provisions. In addition, there are government bonds mainly from European core countries, covered bonds and derivatives. Covered bonds are AAA-rated mortgage bonds where the size of the loan may not exceed 70% of the value of the security. If the value of the security declines so much that the requirement is not fulfilled, the issuer will provide further security. Credit bonds with a rating lower than BBB (DKK 209m) comprise senior secured bank loans and 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 344m) are ordinary and convertible corporate bonds, annuity policies and subordinated bank capital issued by EU banks. Credit bonds with a rating higher than A (DKK 11m) are corporate bonds. The underlying assets of CDOs are mostly senior secured bank loans while the remainder are primarily CDOs with investment grade investments as the underlying assets. The maturity of the CDO investments is dependent on any changes in the payments made by the underlying assets which in turn are dependent on changes in the general economy and, therefore, it is not possible to outline the maturity distribution for the portfolio. The property portfolio comprises mainly owner-occupied property (DKK 861m), 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. In this connection Topdanmark has chosen to write down a property by DKK 25m. The office property is rented under contracts with no option to terminate prior to Over 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. The class of "Assets related to IA" (illness / accident) comprises the investments in Topdanmark Livsforsikring corresponding to the size of the illness / accident provisions. "Money market etc." comprises primarily money market deposits and intra-group balances but also the result of currency positions. "Subordinated loan capital" comprises hybrid capital issued by the parent company and subordinated loans issued by Topdanmark Forsikring. "Interest-bearing debt" comprises other debt. CDOs Returns and portfolios Group excl. life insurance (DKKm) Q4 11 Q Return AAA and AA Lower than AA Total return Interest Revaluations Total return Book value 31 December AAA and AA Lower than AA Total book value Page 15 of 101

18 Financing It is expected that Solvency II will require a minimum level of solvency capital in insurance holding companies corresponding to the solvency requirements of the underlying group companies. When Solvency II has taken effect, the capital base of the parent company will be sufficient to finance the investments in the group companies. In accordance with the relevant rules Topdanmark is only allowed to use, for solvency cover, a small portion of the tier 2 capital issued as solvency resources in relation to Solvency II. As a consequence, some of the planned distribution of dividend from the insurance group to the holding company needs to be postponed until the rules are changed. In the meantime, the parent company Topdanmark continues to have some loan financing via intergroup accounts with the insurance group or in the money market. Parent company etc. The parent company Topdanmark A/S does not perform any independent activities. The result of the parent company etc. includes the results of subsidiaries excluding insurance business (primarily Topdanmark Kapitalforvaltning, the asset management company) and financing costs. Profit declined to DKK 22m in 2012 (2011: DKK 76m) due to the DKK 25m write-down of a property and particularly high earnings in Topdanmark Kapitalforvaltning in Topdanmark Kapitalforvaltning manages the Group's financial assets and liabilities and its result is dependent on the investment performance. Taxation The tax charge was DKK 512m on a pre-tax profit of DKK 2,335m corresponding to an effective tax rate of 21.9% (2011: 24.2%). The deviation from the nominal tax rate of 25% was primarily due to Topdanmark's utilisation of an uncapitalised equity loss carried forward and adjustment of previous years. Mostly all of the tax charge is paid in Denmark: About Topdanmark CSR Society Social accounting. Prospects for 2013 Expected trend in Danish non-life insurance market It is expected that in 2013 the Danish non-life insurance market will be characterised as follows: Continued low economic growth Most of the insurance companies have completed their general price increases 1-2% growth in premiums Increase in claims level of policies covering loss of earnings potential due to a reform of the early retirement pension Continued disciplined market The level of weather-related claims was exceptionally low in If the level of weather-related claims is normal in 2013, the combined ratio will deteriorate around 1.5pp from the 2012 level Overall, excluding any run-off profits / losses, the combined ratio is expected to be around 95% Run-off profits for 2013 are expected to be lower than in is expected to be affected by continued low economic growth. It is expected that BNP growth in the Danish economy will be around 1%. It is believed that most of the insurance companies in the Danish market have completed their general price increases. A number of those companies with a high combined ratio are expected to continue to implement selective price increases. In the personal and SME markets automatic price indexation, allowing for claims inflation, is 1.8% (though 5.6% for workers' compensation insurance) which, in turn, is estimated to have an effect of around 1.3% on the overall market. As in 2012, the average premium in motor insurance is expected to decline in 2013, primarily due to the sale of new cars, to a greater extent than previously, being smaller and cheaper cars, i.e. cars with a lower average insurance premium than bigger and more expensive cars. In addition, generally the claims trend in motor insurance has declined in recent years. Prices in the industrial market are expected to be under pressure also in 2013 due to competition from, among others, foreign insurance companies. Overall growth in gross premiums earned is estimated to be 1-2%. The reform of the rules for early retirement pension, see Danish non-life insurance market, will also in the future Page 16 of 101

19 increase claims paid on policies covering loss of earnings potential. A continued disciplined market is expected in Denmark. All of the six largest insurance companies, representing a market share of 71%, are quoted on the stock exchange or owned by a quoted company. Additionally, the low interest rates will continue to influence the companies to ensure profitability of their primary operations. The claims trend was affected by low storm and rainstorm claims in If the level of weather-related claims is normal in 2013, the claims trend will deteriorate around 1.5pp from the 2012 level. Assuming a normal level of large-scale claims, it is expected that the combined ratio for the market, excluding any run-off profits / losses, will be around 95% in Run-off profits improved the combined ratio by around 3pp in 2012 which is estimated to be higher than the normal level. A more normal level of run-off profits is expected in Expected trend in Danish life and pension market It is expected that in 2013 the life and pension market will be characterised by: Tax reform Increased need for pension saving Movement from with-profits to unit-linked schemes Decline in regular premiums New rules for calculation of individual solvency. Due to the tax reform, which took effect on 1 January 2013, the deductibility of payments into capital pension schemes has been removed. Furthermore, the opportunity has been given to prepay the tax on capital pension schemes which otherwise should be paid when the capital pension is paid out. The tax will be 37.3% in 2013 and 2014 while normally 40%. It is believed that most of the payments previously made into capital pension schemes will be paid into annuity schemes with full deductibility in the future. Due to the increase in life expectancy and expected lower investment returns pension customers will need larger savings. The trend towards customers moving their pension savings from with-profits to unit-linked schemes is expected to continue. For example, more pension fund companies are offering their customers a grant or a share of unallocated resources if they choose to move their pension schemes from with-profits to unit-linked schemes. Due to the tax reform overall payments into regular premiums are expected to decline in The growth in premiums is expected to follow wage increases in the future. The DFSA has announced that in 2013 it will prepare new rules for the calculation of individual solvency: Individual solvency requirement. Topdanmark's profit forecast model for 2013 Traditionally Topdanmark does not publish actual profit forecasts but instead the expected level of results if a number of assumptions of the return in the financial markets are met. As the return in the financial markets changes on a daily basis, Topdanmark's profit forecast model will already deviate from actual expectations by the time it is published. Therefore set out in Risk scenarios is additional information on how changes in the assumptions underlying the profit forecast model will affect the results. As can be seen, the investment return forecast model is not based on a specific estimate of the expected investment return for the rest of the year but solely on a long-term standard assumption of the return. Non-life insurance In the interim report for Q1-Q Topdanmark expected, for 2013, premium growth of 1-2% and a combined ratio of 91%, excluding any run-off profits / losses, based on the following assumptions: Premium growth in personal lines is expected to be higher than the assumed 1-2% overall premium growth for Topdanmark. Correspondingly, premium growth in the SME and industrial segment is expected to be lower than 1-2% Topdanmark has increased market pressure in the personal segment, SME businesses and farms. This helped to gradually improve the customer exchange ratio in the personal segment during 2012 and is assumed to have a favourable effect on premiums earned in 2013 Page 17 of 101

20 Topdanmark has no wish to participate in unprofitable competition, which is mostly seen in the market of major industrial businesses. Topdanmark's return requirements are expected to generate some loss of large businesses In order to improve the quality of its customer portfolio Topdanmark is implementing profitability promoting initiatives for less profitable customers, which is also expected to generate some loss of customers: Activities associated with pricing. A normal year for weather-related claims of DKK 170m, broken down by quarter: Q1: DKK 50m Q2: DKK 25m Q3: DKK 45m Q4: DKK 50m A level of interest rates corresponding to the interest rate curve on 2 November 2012 An expense ratio of 16%. Since the most recent profit forecast model was published in the interim report for Q1-Q3 2012, the reform of early retirement pension, referred to above, has increased payments on claims by around 0.4pp. Therefore the assumed combined ratio, excluding run-off profits / losses, has been increased from around 91% to 91-92%. The assumed growth in premiums continues to be 1-2%. Overall the pre-tax result of non-life insurance is assumed to be DKK 960-1,060m. Life insurance Due to the tax reform limiting deductibility of term life premiums and the opportunity to prepay the tax on capital pension schemes, Topdanmark assumes a decline in regular premiums of around 5% in In the profit forecast model for 2013 it is assumed that the investment return will be sufficiently high to include in income an allowance for risk of DKK m and around DKK 140m from the shadow account. Consequently, the balance of the shadow account including interest will be around DKK 105m at the end of Assuming that interest rates do not change and the total return for 2013 exceeds 4.1% and 6.3% respectively, the shadow account relating to interest rate group 1 (shadow account: DKK 150m) and interest rate group 2 (shadow account: DKK 53m) will be recognised as income in The DFSA has announced that the rules for calculation of individual solvency requirement will be changed with effect from 1 January 2014 and that concept of shadow account will be removed at the same time. 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 In such a scenario it is assessed that Topdanmark will have to write down DKK 30-40m of the remainder of the shadow account at 31 December 2013, after which the balance of the shadow account will be DKK 65-75m. The results are highly sensitive to fluctuations in the investment return. The risk allowance and shadow account are not finally calculated until the preparation of the 2013 Annual Report. Overall, pre-tax profit on life insurance is assumed to be DKK m. Parent company The profit forecast model for the parent company including subsidiaries outside of the insurance group shows a pre-tax profit of DKK 30-40m. Taxation Given a corporation tax rate of 25%, the tax charge is expected to be DKK m. The Danish Government has introduced a bill for reducing corporation tax, probably from 25% to 22%. It has also introduced a bill for increasing the payroll tax (tax on payroll costs in the financial sector) offsetting the reduction in corporation tax. Total Group profit The overall post-tax profit forecast model is assumed to be DKK 1,050-1,150m in 2013 representing a profit per share of DKK 95. This profit forecast model is subject to an annual 7.0% return on equities and unchanged foreign exchange rates from the level on 22 February Furthermore it is assumed that the return on interest-bearing assets hedging the discounted provisions is just sufficient to cover discounting and revaluation of the provisions, while the return on the remaining interest-bearing assets will be 2.48% (risk-free interest rate plus 2.0pp). Page 18 of 101

21 Profit forecast 2013 (DKKm) 2012 Forecast for February 2013 Non-life insurance - Technical result 1, Investment return after transfer to technical result etc. 1, Profit on non-life insurance 2, ,060 Life insurance Parent company etc Pre-tax profit 2,335 1,380 1,520 Taxation (512) (330) (370) Profit for the year 1,823 1,050 1,150 Share buy-back In the interim report for Q1-Q Topdanmark said that it had increased the share buy-back programme for 2012 by DKK 250m to DKK 1,700m, of which DKK 500m would be postponed to The actual buy-back for 2012 was DKK 1,200m representing a buy-back yield of 9.4%. The reduction in shareholders' equity of DKK 1,200m was partly offset by a DKK 177m strengthening of shareholders' equity through the issue of share options, exercise of share options and issue of employee shares. The postponement of the buy-back of DKK 500m was due to a general notification from the DFSA to the industry which provided that the model which Topdanmark, among other companies, used to calculate solvency requirements in life insurance cannot be used until Solvency II has taken effect. At the time of the presentation of the interim report it was not clear whether Topdanmark had time to prepare an alternative solvency calculation by the end of the year. Therefore, assuming that it would not be the case Topdanmark chose to allocate capital. This issue is now in place and the DKK 500m can be used for share buy-back. In 2013 the intention is to buy back own shares of a total of DKK 2,000m including the buy-back of DKK 500m transferred from The buy-back of DKK 2,000m assumes a profit in line with the profit forecast model of DKK 1,050-1,150m for The share buy-back programme for 2013 represents a buy-back yield of 12.4% (calculated on the basis of the price of Topdanmark's shares on 22 February 2013). To date in 2013 Topdanmark has bought back own shares of DKK 294m which leaves a balance of DKK 1,706m of the 2013 programme. If Topdanmark buys back own shares for less than DKK 2,000m in 2013, the balance will be transferred to the ordinary buy-back for On 22 February 2013 Topdanmark's share capital comprised 13,750,000 shares, of which Topdanmark held 1,595,000 own shares. If before the AGM on 17 April 2013, contrary to expectation no further shares are bought back, the number of voting shares will be 12,155,000 shares. Since 1998 when Topdanmark started buying back own shares, it has made decisions to cancel DKK 10.4bn of own shares representing a 66.6% write-down of the share capital, with an average price of DKK 378 per cancelled share. In the years the annual average buy-back yield has been 9.3%. Topdanmark 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. Furthermore it does not buy back own shares during the period of five banking days after the announcement of a quarterly report as this is the period in which the executives may exercise their share options. Below is a table of the periods when Topdanmark is allowed to buy back own shares. Page 19 of 101

22 Share buy-back allowable 13 Mar Apr May Jul Aug Oct Nov Feb 2014 Topdanmark's value creation efforts are intended to increase the cash flow it can pay out to investors while at the same time reduce the discount rate used by the market to discount the future cash flow to net present value. Share buy-back not allowable 12 Feb Mar Apr May Jul Aug Oct Nov Feb Mar 2014 Topdanmark's systematic value creation efforts have built a strong business model which, with relatively limited financial risk, substantially ensures that a profit is made even in years with extremely poor financial markets. Cash flow Topdanmark believes that success in the Danish Share split In order to increase the liquidity of its shares Topdanmark intends to reduce the denomination from DKK 10 per share to DKK 1 per share with effect from 13 March This is the second time Topdanmark has effected a share split. The previous time was on 20 October 1999 when the share was split from DKK 100 per share to DKK 10 per share. On 20 October 1999 the price of the new 10 kroner share was DKK Value creation in Topdanmark insurance market is best achieved by combining distribution power with risk-appropriate prices, an efficient organisation and satisfied customers. Distribution power Topdanmark has a multi-distribution strategy in which its own sales channels (certified insurance sales representatives, sales centres, telephone sales etc.) are supplemented by sales or referral of leads through its distribution partners such as banks, car dealers and insurance brokers. Activities associated with distribution power Topdanmark has renewed its distribution agreement for non-life insurance with Danske Bank with effect from September Non-life insurance continues to be a strategically important product for Danske Bank. Topdanmark is now responsible for sale and advice while Danske Bank refers leads to Topdanmark's sales Page 20 of 101

23 organisation. This new distribution agreement is expected to improve growth from 2013 Topdanmark has concentrated sales through its own sales channels in the personal market. It closed down 26 small insurance outlets in Instead it increased the number of large sales centres from four to seven. This is intended to increase market pressure including the creation of more efficient outbound sales environments in the sales centres. It is expected that premium growth will benefit from the change in the sales organisation from 2013 Topdanmark has increased market pressure in the personal market, SMEs and farms. Market pressure was improved by outbound telephone sales and the employment of more certified insurance sales representatives Typically, profitability for major industrial businesses does not meet Topdanmark's return requirements. Therefore Topdanmark has chosen to let other insurance companies win some major unprofitable schemes. Pricing Topdanmark works with differentiated pricing based on risk-appropriate prices, i.e. micro rating. This makes Topdanmark an attractive insurance company to customers with relatively favourable claims trends while customers with less favourable claims trends are incentivised to change to other insurance companies with a less risk-dependent pricing structure. Activities associated with pricing Topdanmark continues its work with more finely meshed and risk-based prices Topdanmark has no current plans to make general price increases. Instead it is implementing measures for less profitable customers (e.g. loss prevention, lower sums insured, increased retention and selective price increases) The rejection of general price increases improved competitive strength in profitable customer segments in 2012 In 2012 Topdanmark introduced a new policy and pricing system in the SME market Change of ownership insurance policies covering hidden defects and deficiencies in houses being sold have been loss-making since this type of policy was introduced in In 2012 the Danish Parliament adopted a new set of minimum requirements on the cover provided by a change of ownership policy. When introducing this new change of ownership product Topdanmark increased prices, in line with the other players in this market segment, to ensure better consistency between price and risk Workers' compensation insurance policies for the industrial segments have been unprofitable for a number of years. As Topdanmark's risk-based prices have not been competitive, its workers' compensation portfolio has declined one-third since Topdanmark maintains its risk-based prices which, among other things, take into account the lower interest rates, the increase in retirement age up to 70 years and the new reform of early retirement. Efficiency Topdanmark wishes to operate its insurance business as efficiently as possible in order to combine value creation for customers by providing good service and offering competitive prices with value creation for shareholders by generating a significant return. A number of activities have been implemented which impact upon both the expense ratio and the claims trend. Activities associated with efficiency With payments of just over DKK 6bn on claims Topdanmark is a significant buyer of work time and materials. Therefore it is focusing on utilising the Company's purchasing power Focus on digital communication with customers. Topdanmark continuously works to reduce paperintensive mailings to customers including both policies and insurance details. The number of customers using e-boks increased to more than 440,000 in All insurance conditions have been published on the website making it easy for customers to find their conditions Topdanmark has an internal Lean concept (TRIM) which regularly reviews relevant departments in the Company in order to increase efficiency in customeroriented processes. Customer satisfaction Topdanmark's ambition is for its customers to feel "wellhelped" in all communication between them and the Company. Therefore all customer contacts are regularly evaluated: telephone, , letters or personal contact showing the customers' opinion of their contact with Topdanmark. Around 60,000 customer interviews are conducted each year and if a customer's answer indicates that Topdanmark's services were not satisfactory, they will be contacted within 24 hours. Besides the internal monitoring, Topdanmark also participates in the annual Page 21 of 101

24 EPSI survey across most major insurance companies. For the last two years Topdanmark has been the insurance company that has achieved the highest growth in customer satisfaction in this survey. Activities associated with customer satisfaction Topdanmark continues to work to improve customers' experience which is an important factor in increasing a customer's relationship with Topdanmark. In 2012 Topdanmark held an internal competition to ensure that the entire organisation would give priority to customers' experience as the most important goal for our customer services. In 2013 the improvement of customers' experience will be integrated into the success criteria of the customer-oriented departments During 2012 and at the beginning of 2013, it has been the subject of executive meetings and after-hours meetings with the Executive Board to make the entire organisation work to create the best customer experience Topdanmark has set up retention teams to ensure that the number of customers leaving Topdanmark continues to decline Topdanmark wishes to achieve increasing customer loyalty as a basis for profitable growth. Generally, profitability is better for existing customers than for new customers. Therefore Topdanmark has implemented a number of initiatives in order to increase its retention percentage which is estimated to have increased in both the personal and SME segments in Risk management Topdanmark'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. As a consequence of this policy the Company has for a number of years identified and reduced or eliminated those 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 storm or terror has been increased significantly and the financial risk reduced. In this light it is Topdanmark's opinion that the Company's future annual results would, with a very high probability, be a profit even in the event of, for example, another collapse in the financial markets as in In order to ensure strict control of the overall risk, the exposures are calculated as often as deemed necessary, i.e. daily, monthly or in a few cases more rarely according to the nature of the exposure. The Board of Directors determines the overall risk policies and limits. The internal auditors refer to the Board of Directors and report on, among other things, the observance of the risk policies and limits set within them. Topdanmark's Risk management function identifies, assesses and quantifies risks. It refers to the Risk Committee which is responsible for risk policies, risk limits, solvency calculation, capital plans, Topdanmark's own risk and solvency assessment (ORSA) and Topdanmark's partial, internal model for non-life insurance risks. The members of the Risk Committee are the CFO of the Group, the CEO of Topdanmark Livsforsikring and the heads of the primary risk areas: Asset Management, Statistical Services, Reinsurance, Finance, Life Actuarial Services and Life Finance. The Risk Committee reports and recommends to the Board of Directors via the Executive Board. The Risk Committee has set up the Model Committee, which is responsible for developing and operating Topdanmark's internal model for calculation of the risk of the non-life insurance portfolio based on random simulation. In 2012 the internal model was replaced by a new version in which the greatest improvement is the calculation of correlations between premium and provisioning risk and between the lines of insurance business. The model is used for, among other things, optimising the reinsurance programme and calculating capital requirements. Review Topdanmark believes that the Group's most important risks relate to the following main areas: Non-life insurance risks Life insurance risks Market risks Credit and counterparty risks Operational risks Strategic risks. The most important risks are described in the following survey. A more detailed description is available in note 1. Page 22 of 101

25 Risk survey Topdanmark Group Non-life insurance risks Personal, liability and property insurance for the personal, SME, industrial and agricultural markets Most important risks Risk preferences Risk reducing activities Underwriting risk Acceptance policy Follow-up policy Provisioning risk Disaster risks Storm and rainstorm Fire Terror Cumulative risk Workers' comp Profit on both product and customer level Spread of risk on different types of insurance / customer groups Limited effect on results from individual damage by using reinsurance Risk-based price models allowing for market situation Clear rules for new business Risk equalisation through extensive reinsurance programme Systematic follow-up on profitability High data quality Use of statistical models for pricing and calculation of provisions Life insurance risks Life insurance contracts entitled to a bonus, unit-linked contracts with no investment guarantees and group life Most important risks Risk preferences Risk reducing activities Limited loss-absorbing buffers in the event of low interest rates Disability For agreements entitled to a bonus we aim at balancing return and risk so that ordinary risks are covered by the related bonus potential All policies are classified by the guaranteed benefit, and the investment policy is intended to ensure the ability to meet the benefits guaranteed Lifetime The calculation of profit is viewed as a risk return on shareholders' equity where fluctuations are adjusted via bonus potential and shadow account The market risk is freely adjustable in relation to each customer group's risk capacity Normal fluctuations in investment return and risk results are provided for by the bonus potential per contribution group Bonus potential on paid-up benefits is protected by loss participation schemes Reinsurance Interest rate risk is hedged in Life V. In Life I movements in interest rates are followed and risk reducing actions are performed as required Market risks Most important risks Risk preferences Risk reducing activities Interest rate risk Topdanmark's policy is to accept a certain level of market risk in order to profit from Equity risk the Group's strong liquid position and its high, stable earnings from insurance Property risk operations Currency risk Inflation risk Liquidity risk In order to improve the average investment return and limit the overall market risk Topdanmark invests in a wide range of asset categories Topdanmark'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 Compliance with these limits is regularly controlled Page 23 of 101

26 Credit and counterparty risks Most important risks Risk preferences Risk reducing activities Reinsurance Investment To obtain efficient and secure reinsurance cover which is price competitive, a certain level of counterparty concentration is required Counterparty risk is limited by mainly buying hedging from reinsurance companies which as a minimum has a rating of A- A certain level of credit risk is accepted as an element of the creation of return. Counterparty risk is due to the use of derivatives which are primarily used to control and reduce market risk Credit risk is limited by diversification both geographically and in terms of type of debtor Counterparty risk on financial contracts is limited by the required security when overall risk on any given counterparty reaches a relatively low threshold value Operational risks Most important risks Risk preferences Risk reducing activities IT Generally, operational risks are to be reduced to a low level Errors in internal processes, human errors insurance fraud and deceit IT security policy, guidelines and controls based on ISO27001 IT security function Policy for routines, process descriptions, controls and division of duties Strategic risks Most important risks Risk preferences Risk reducing activities Generally, strategic risks are related to the Company's business model, political conditions, reputation, alliance partners' and competitors' behaviour as well as macroeconomic conditions Low strategic risk due to strong business model Topdanmark's business model stands strong against strategic risks. The results of the Company will, with a very high probability, be a profit even in the event of another collapse in the financial markets as in The results of the Company will also be a profit if it is hit by a storm like the 1999-hurricane, which was the largest storm event in the Company's history In a situation when Topdanmark's solvency might come under pressure, the share buy-back will be stopped. Additionally, the cancellation of own shares bought under the buy-back programme will be effected with a certain delay giving Topdanmark the opportunity to increase its solvency capital by selling own shares Page 24 of 101

27 Risk scenarios The Group's risk factors are illustrated in the following table on the most significant risk factors. The given assumptions do not reflect Topdanmark's expected risks, but are shown only as examples which could be used as a basis for assessing the Company's exposure to the risks mentioned. In 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 768m at 31 December 2012 (2011: DKK 540m) and the bonus potential on paid-up benefits DKK 1,849m (2011: 2,306m). Risk factors in the event of different scenarios (DKKm) after taxation and pension return tax Non-life insurance Underwriting risk Combined ratio 1pp increase (65) (66) Provisioning risk Provisions on own account 1% increase (93) (96) Storm claims up to DKK 5,100m (75) (75) (Plus reinstatement premium) Life insurance Disability intensity - 10% increase 0 0 Mortality intensity - 10% decline (6) (8) Market risk Interest-bearing assets 1 pp increase (493) (509) Provisions for claims in effective and benefits etc. interest rate Index-linked bonds 5% loss (30) (30) Equities 10% loss (62) (73) CDOs < AA 10% loss (61) (72) Properties 10% loss (172) (179) Annual currency loss with an up to 2.5% probability (15) (19) Solvency Danish 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 rules are: Solvency I the current European solvency rules Individual solvency requirement Traffic light rules. Those rules imposing the greatest requirements on the Group's capital are the rules on individual solvency requirement, and in reality Topdanmark's capital planning is based on these rules. It is uncertain when the Solvency II rules will take effect but following several postponements, the beginning of 2016 is currently considered to be the earliest possible effective date. Individual solvency requirement Individual solvency requirement is a set of Danish rules in force until the Solvency II rules take effect. Each insurance company is to calculate a solvency requirement representing their minimum required capital based on the risks they accept. Additionally, the companies are required to provide documentation for how they identify, manage, limit and calculate risks. The DFSA has announced that the rules of individual solvency requirement will be changed during From 2014, individual solvency requirement is to be calculated on the basis of the QIS5 test calculation from the EU with later updates from EIOPA and the coming results of the LTGA assessment of long-term guarantees. The companies' internal models are intended to continue to be used for calculating the solvency requirement. The individual solvency requirement is to be in line with the expected requirements of Solvency II. Topdanmark already bases its calculation of individual solvency requirement on the expectations for the future rules on solvency calculation under Solvency II. Therefore, it is not expected that the changes of the rules will increase Topdanmark's individual solvency requirements. On the contrary, Topdanmark is looking forward to the new rules which are assumed to mitigate or eliminate some of the inappropriateness caused by the simultaneous use of several different sets of rules. In recent years Topdanmark has calculated the solvency requirement of life insurance using a method based on the QIS5 test calculations with adjustments towards the expected final Solvency II model. However, at the end of 2012 the DFSA informed the industry that the inclusion of the life insurance provisions in individual solvency requirement must be in accordance with the relevant accounting rules. This implies a mismatch between the handling of assets (Solvency II risk) and liabilities (inclusion of buffers in compliance with Solvency I). Page 25 of 101

28 In this light Topdanmark has chosen to use a new method for calculation of the individual solvency requirement in life insurance with effect from 31 December According to the accounting rules, the accounting life insurance provisions are included in a risk scenario of paid-up benefits in which the total portfolio is converted into paid-up benefits immediately, which means that the bonus potential on future premiums lapses. This risk scenario of paid-up benefits is included in the calculation of the individual solvency requirement, which, incidentally, continues to be based on QIS5. Topdanmark believes that this method gives the most true and fair result taking into account the current accounting rules and the movement towards Solvency II. For the sake of good order it should be noted that the life insurance company has surplus capital over the individual solvency requirement irrespective of the risk scenario of paid-up benefits referred to above being included in the QIS5 calculation or handled separately. Solvency II Solvency 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. The completion of the rules is taking time and it is highly uncertain when Solvency II will take effect. At present it is not considered probable that Solvency II will take effect until 2016 at the earliest. Solvency calculation and capital requirements An important goal of Solvency II is to promote good risk management based on market values and actual risk calculations. Solvency II will include a standard model for calculation of solvency requirements which will be common to all insurance companies in the EU. Although the model will provide the opportunity for companyspecific values for some variables, the standard model will not provide a fair view of all the risk elements of all companies. Therefore, 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. Topdanmark is in constant dialogue with the DFSA on the model. It is expected that the application for the Solvency II approval will be submitted to the DFSA in 2014 and that the model will be approved before Solvency II takes effect. 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. The necessary solvency capital is assumed to comprise shareholders' equity (DKK 4,050m), hybrid capital (DKK 400m) and subordinated loan capital (DKK 250m), see Investor Relations Capital Model. If the capital requirement is higher than expected, the difference will be covered by issuing further supplementary loan capital. Additionally, Topdanmark Forsikring has already issued 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. Under the Solvency II rules the companies may influence the solvency requirement themselves by adjusting their risk. This means that if the solvency requirement increases, Topdanmark will consider an adjustment of the risk before increasing its capital base. The necessary capital of DKK 4,700m under Solvency II has been based on an expected approval of Topdanmark's internal model for non-life insurance risk. If it is not approved, the necessary capital will increase by DKK m. This potential increase in the capital requirement can be covered by the safety margin of DKK 500m referred to above supplemented by a marginal adjustment of the financial risk. Topdanmark's Solvency II project Topdanmark 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. Page 26 of 101

29 The three most important elements of this project are to prepare new, very detailed external reports to the DFSA and for publication on the website, to adapt data processes and calculation methods in the life insurance business and to adapt Topdanmark's own risk model for non-life insurance risk to be approved as a partial, internal model under Solvency II. The reporting to the DFSA and reporting for publication are the most resourcedemanding parts of the Solvency II project. which 457,083 shares are earmarked to cover Management's share option scheme. Shareholders At 31 January 2013 Topdanmark had 48,148 shareholders registered by name. Topdanmark's Solvency II project regularly revises contents, resources and use of time to ensure that Topdanmark will meet the Solvency II rules when they take effect. Capital model Topdanmark pursues a policy of keeping its shareholders' equity at a relatively low level and paying out to shareholders any amounts in excess of the conservatively estimated shareholders' equity sufficient to support the underlying business. In spite of this policy Topdanmark has decided on a capital model that has a relatively high proportion of shareholders' equity. This ensures that any regulatory requirements on solvency capital in excess of expectations could be covered solely by issuing further supplementary capital. Detailed information on, among other subjects, Topdanmark's capital structure model and model for calculation of share buy-back potential is available on Investor Relations Capital Model. Capital structure and ownership For the period until the Annual General Meeting in 2015, the Board of Directors is authorised to acquire own shares 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 10.5 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. At 31 December 2012 Topdanmark s share capital totalled DKK 137,500,000 divided into 13,750,000 shares of DKK 10 each, corresponding to 13,750,000 voting rights. As of 5 March 2013, Topdanmark holds 1,595,000 of own shares representing 11.6% of the share capital, of The following shareholders own more than 5% of the share capital: Holding (%) Shareholder 31 Dec 2012 If P&C Insurance Holding Ltd (publ) Barks Väg, Solna Stockholm Sweden If P&C Insurance Company Ltd Barks Väg, Solna Stockholm Sweden Page 27 of 101

30 Board of Directors and Articles of Association Appointment and replacement of members of the Company's Board of Directors The Board of Directors, which is elected at the general meeting and 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. Topdanmark's Board of Directors comprises nine members, six of them elected by shareholders at the general meeting and three by Topdanmark's employees in accordance with the Danish Companies Act. In accordance with this Act the number of Board members elected by employees should be equivalent to no fewer than half the number of those elected by shareholders in general meeting. The rights, duties and responsibility of the Board members elected by employees are the same as those of the Board members elected by shareholders at the general meeting. Shareholders who are not associated with the Company by their employment or who are not employed by a competing company are eligible for election to the Board of Directors by shareholders at the general meeting. The 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. Board members are elected individually, and no Board member may be appointed by any individual shareholder. Topdanmark has no fixed general selection criteria. It believes that by imposing very specific requirements on the Board of Directors it may prevent the election of an obviously qualified Board candidate who does not fully meet the requirements. Instead an individual decision will be made on each Board candidate based upon an overall consideration of their qualifications, the Company's present needs and the composition of the rest of the Board of Directors. Topdanmark believes that in a company like Topdanmark, between them its Board members ought to possess skills within accounting, finance, financing, insurance operations, reinsurance and marketing and sales in the personal and professional markets. With its current composition Topdanmark's Board of Directors possesses all these skills. Topdanmark s current Board of Directors reflects diversity in many areas including professional background and education, sex and age. Its members have experience from the financial, industrial and agricultural sectors, nationally and internationally. The Board of Directors believes that this composition enables it to consider a given problem from many different angles which is confirmed by experience from the day-to-day Board work. Read more about each Board member s background and competence on About Topdanmark Executive Board and Board of Directors and Board of Directors and Executive Board in this Annual Report. Four of the nine Board members are women, one of them elected at the general meeting and three by Topdanmark's employees. The proportion of female Board members elected at the AGM has been stable since Under AGM the Board of Directors proposes that another female Board member is elected. In 2011 the number of female Board members elected by employees increased from one to three. Topdanmark has joined "Operation Chain Reaction" initiated by the Danish Ministry of Gender Equality. The aim is to increase the diversity of boards of directors of businesses without imposing real quotas for female managers. Correspondingly Topdanmark has signed up to the UN Global Compact intended to ensure, among other things, the prevention of discrimination in businesses. Topdanmark believes that diversity provides business value and that it is important that the greatest management talents, irrespective of gender, nationality, religion or other characteristic achieve the highest executive positions at all levels. Topdanmark has no wish to favour women over men and therefore it has not imposed real quotas. Instead it has defined initiatives and policies for diversity which it aims to meet. Amendments to the Company's Articles of Association The general meeting is Topdanmark's supreme 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 Page 28 of 101

31 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. Severance pay In order to ensure full loyalty, focus and performance for Topdanmark during the period until a potential take-over is finalised, Topdanmark has agreed with the Executive Board and four 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 they resign or are dismissed, or if their position is made redundant because 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. Remuneration structure Topdanmark'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." Besides salary policy, the remuneration policy also includes Topdanmark's general guidelines for performance-related pay, its pension policy and its guidelines for the granting of severance pay. The remuneration policy covers Topdanmark's Board of Directors, Executive Board, significant risk takers and, as provided by legislation, employees involved in control functions and audit work. If specifically stated, Topdanmark's remuneration policy also covers its executive team, comprising a number of the heads of business sectors and administrative departments ("the Friday Team") and certain other employees at the discretion of the Board of Directors. The remuneration policy etc., as adopted by the AGM, is available on Investor Relations Corporate Governance Remuneration structure. The 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. The 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. Besides options, which in accordance with the revolving option scheme are paid to the Executive Board, significant risk takers and the Friday Team as part of their fixed salaries, the Executive Board may grant a total of up to 20,000 options to employees who are expected to make a special effort or otherwise contribute extraordinarily to value creation in the Company in that year of granting. No special pension contribution is paid to the Executive Board, and therefore they are paid a personal allowance of 25% of their cash salary. Consequently Topdanmark has no pension commitments towards the Executive Board and no type of pension compensation on retirement is granted. The Friday Team and significant risk takers receive a pension contribution of up to 25% of their cash salary. The amount is paid to the chosen pension provider and consequently all pension obligations are fully covered by them. Employee shares Topdanmark issued employee shares in The allocation was effected simultaneously with a reduction in the recipient's cash salary. Due to a change in tax rules it is no longer advantageous to receive employee shares. The Board of Directors has therefore decided not to issue employee shares for In 2012 Topdanmark allocated 26,203 free employee shares and sold 21,002 employee shares at an advantageous price. The cost of the issue of employee shares was DKK 43m in 2012 compensated for by a corresponding reduction in salaries. The cost has been calculated at fair value according to the IFRS 2 on share-based payments. Page 29 of 101

32 Options Besides the revolving scheme above a further 19,850 For 2013 Topdanmark has granted 34,824 share options to its Executive Board and a number of executives. The strike price of DKK 1,333 was fixed at 110% of the market price of Topdanmark's shares on 28 December 2012 (average of all trades). share options have been granted for 2013 to a number of other executives who are expected to make a special effort or otherwise contribute extraordinarily to value creation in the Company. Breakdown of share options / warrants granted since 2009 Executive Senior Year Board Executives Total , , ,000 Market value of those options granted (DKKm) , , ,000 Market value of those options granted (DKKm) ,222 49,549 62,771 Market value of those options granted (DKKm) ,669 47,492 60,161 Market value of those options granted (DKKm) ,715 43,959 54,674 Market value of those options granted (DKKm) The options granted for 2013 may not be exercised any earlier than subsequent to the publication of the 2015 Annual Report in 2016 and no later than subsequent to the publication of the 2017 Annual Report in 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. The market value of the options for 2013 has been calculated to be DKK 9m at the time of granting. The value was calculated using the Black and Scholes model based on a share price of DKK 1,211.42, an interest rate corresponding to the zero coupon rate based on the swap curve on 28 December 2012, future annual volatility of 22%, corporation tax rate of 25% and a pattern of exercise similar to Topdanmark's previous granting of share options, see IFRS 2 on share-based payments. Corporate Governance Topdanmark's "Statutory Corporate Governance Report, see Section 131 of Executive Order on Financial Reports for insurance Companies and Lateral Pension Funds" ( Accounting Order ) is available on Investor Relations Reports and presentations Statutory Corporate Governance Reports ( CSR Topdanmark'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 Investor Relations Reports and presentations CSR reports ( At the end of 2012 the exposure of the options held by the Executive Board represented 0.9% of the number of outstanding shares. Detailed information on Topdanmark's option scheme is available on Investor Relations Corporate Governance Remuneration structure Investor Relations Topdanmark 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: Value creating activities are reflected in a fair price for Topdanmark's shares The liquidity of its shares is high enough in order that they are not traded at a discount due to lack of liquidity Page 30 of 101

33 There is a high level of knowledge of and confidence in Topdanmark's shares There is low price volatility in Topdanmark's shares secured through the provision of uniform and consistent information. Communication to investors and analysts is performed through the following information channels: Investor meetings Telephone meetings Share price movement Conference calls Web casts Investment and insurance conferences. The regular contact with investors and analysts is supported by Topdanmark's website Shares Topdanmark's shares are listed on NASDAQ OMX Copenhagen and included in a number of share indices, one of them being the OMX Copenhagen 20 index (OMXC20). Distribution policy Topdanmark's policy is to pay out to shareholders all surplus capital by way of share buy-backs. Since the buy-back programme was initiated in 1998, Topdanmark has cancelled DKK 10.4bn of own shares representing a 66.6% write-down of the share capital. In the years the average buy-back yield has been 9.3%. Trading in Topdanmark's shares Daily share trading on all trading platforms was DKK 39m in 2012 (2011: DKK 49m). NASDAQ OMX Copenhagen continues to be the primary stock exchange for trading in Topdanmark's shares with a market share of 81% in 2012 (2011: 85%). Consequently, the share of the trading was 19% on other trading platforms such as BATS, Chi-x and Turquoise. Page 31 of 101

34 Most active brokers at NASDAQ OMX Copenhagen in 2012 % Danske Bank 22 Credit Suisse 9 Morgan Stanley 7 Deutsche Bank 7 Merrill Lynch 6 Nordea 5 Carnegie 4 Citadel 4 SEB Enskilda 4 Nomura 4 Topdanmark is monitored by 20 analysts. Share analysts' recommendations of Topdanmark's shares are available on Topdanmark's investor site Investor Relations Share profile Analysts. Annual General Meeting The AGM will be held on 17 April 2013, 15:00 (CET) at: Tivoli Hotel & Congress Center Arni Magnussons Gade Copenhagen V All of Topdanmark's Board members elected by the AGM are up for election. Anders Knutsen does not offer himself for re-election. The Board of Directors proposes that Birgitte Nielsen is elected as a new member of the Board; all other members of the Board are to be re-elected. The Board of Directors proposes the election of: Anders Colding Friis Jens Maaløe Birgitte Nielsen Michael Pram Rasmussen Annette Sadolin Søren Thorup Sørensen Proposals to be transacted at the AGM must be received by Topdanmark no later than 5 March Financial calendar Deadline for submitting items for AGM agenda 05 Mar 2013 AGM 17 Apr 2013 Q Interim Report 21 May Half-year Report 20 Aug 2013 Q1-Q Interim Report 19 Nov Annual Report 04 Mar 2014 Page 32 of 101

35 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. The announcements are available on Investor Relations Company announcements Jan 02/2013: Topdanmark increases its holding of own shares 02 Jan 01/2013: Issue of options Nov 12/2012: Result of sale of employee shares 13 Nov 11/2012: Topdanmark Interim Report Q1-Q Aug 10/2012: Reduction in ATP's shareholding in Topdanmark 21 Aug 09/2012: Topdanmark 2012 Half Year Report 29 Jun 08/2012: Share capital and voting rights in Topdanmark 25 Jun 07/2012: Topdanmark's holding of own shares under 10% 25 Jun 06/2012: Write-down of share capital 22 May 05/2012: Topdanmark Interim Report for Q Apr 04/2012: Annual General Meeting of Topdanmark 19 April Mar 03/2012: Notice convening AGM of Topdanmark 06 Mar 02/2012: Topdanmark's Annual Report Jan 01/2012: Issue of options Trading reports Jan 01/2013: Trading in Topdanmark's shares by insiders Nov 05/2012: Trading in Topdanmark's shares by insiders 21 Nov 04/2012: Trading in Topdanmark's shares by insiders 29 Aug 03/2012: Trading in Topdanmark's shares by insiders 14 Mar 02/2012: Trading in Topdanmark's shares by insiders 02 Jan 01/2012: Trading in Topdanmark's shares by insiders Page 33 of 101

36 Boards of Directors and Executive Board Board of Directors Michael Pram Rasmussen, Chairman*, ***, **** DOB: 14 January 1955 Joined Topdanmark s Board of Directors: 2006 Current position held: Chairman Previous positions held: : Nye Danske Lloyd A/S : Baltica Forsikring A/S : Deputy General Manager, Baltica Forsikring A/S : General Manager, Baltica Forsikring A/S : Group Managing Director, Baltica Forsikring A/S : Group Managing Director, Tryg-Baltica Forsikring A/S : CEO of Topdanmark A/S and Topdanmark Forsikring A/S Education: Law degree, University of Copenhagen Offices held: Member of the Boards of Directors of: A.P. Møller-Mærsk A/S (Chairman) and one subsidiary Coloplast A/S (Chairman) Semler Holding A/S (Chairman) and one subsidiary Louisiana Museum of Modern Art Independence: Michael Pram Rasmussen meets the definition of independence set out by the Committee on Corporate Governance Anders Knutsen, Deputy Chairman*, **** DOB: 4 May 1947 Joined Topdanmark s Board of Directors: 1999 Current position held: Chairman Previous positions held: : Factory Manager, Bang & Olufsen A/S : Production Manager, Alcatel Danmark A/S : Technical Manager, Bang & Olufsen A/S : CEO, Bang & Olufsen Holding A/S Education: MSc (Economics) Offices held: Member of the Boards of Directors of: Rossini Caviar A/S (Chairman) Rossi Organics ApS (Chairman) Hersild & Heggov A/S (Chairman) kaluna Nordic AS (Chairman) kaluna Norge AS (Chairman) Purix ApS Fritz Hansen A/S Augustinus Fabrikker A/S kk-group A/S Independence: As Anders Knutsen has been member of the Board of Directors for more than 12 years, he does not meet the definition of independence set by the Committee on Corporate Governance Page 34 of 101

37 Anders Colding Friis* DOB: 25 August 1963 Joined Topdanmark's Board of Directors: 2012 Current position held: Group CEO of Scandinavian Tobacco Group A/S Previous positions held: : Marketing trainee, Mölnlycke Kemtekniske Produkter : Product Manager, Mölnlycke Kemtekniske Produkter Göteborg : Product Group Manager, Mölnlycke Kemtekniske Produkter Allerød : Market Manager, Estrella A/S : Sales and Marketing Manager, Schulstad Brød A/S : Sales and Marketing Manager, Schulstad Gruppen A/S : Group Managing Director, Schulstad Gruppen A/S and CEO, Schulstad Brød A/S : Group Managing Director, Skandinavisk Tobakskompagni A/S and CEO, House of Prince A/S Education: MSc Offices held: Member of the Boards of Directors of: Monberg & Thorsen A/S (Chairman) Dagrofa (Chairman) and two subsidiaries Industral Employers in Copenhagen (Deputy Chairman) The Foundation of Ejnar and Meta Thorsen IC Companys A/S Executive Committee and Governing Body of DI (The Confederation of Danish Industry) Independence: Anders Colding Friis meets the definition of independence set out by the Committee on Corporate Governance Charlotte Hougaard** DOB: 1 October 1964 Joined Topdanmark s Board of Directors: 2007 Current position held: Chairman of Topdanmark's staff association Jens Maaløe* DOB: 10 January 1955 Joined Topdanmark s Board of Directors: 2003 Current position held: CEO of TERMA A/S Previous positions held: : Development / Sales Manager, NKT Elektronik A/S : CEO, NKT Dedicom A/S : Managing Director, DSC Communications A/S : Regional Manager, Tele Danmark A/S : CEO, NetTest Danmark A/S Education: MSc (Engineering), DTU Licentiate (Tech.), thesis: radar technology and optical communication Offices held: Member of the Boards of Directors of: The Research and Education Committee of DI (The Confederation of Danish Industry) (Chairman) Grundfos Holding A/S The Poul Due Jensen Foundation NKT A/S Governing Body of DI (The Confederation of Danish Industry) FAD (Danish Defence and Aerospace Industry) PA (Federation of Employers in the Provincial Industry) Independence: Jens Maaløe meets the definition of independence set out by the Committee on Corporate Governance Page 35 of 101

38 Annette Sadolin*,*** DOB: 4 January 1947 Joined Topdanmark s Board of Directors: 2004 Current position held: Since 2003 solely directorships Previous positions held: : Assistant to management and subsequently Divisional Manager, Baltica Re / Baltica-Nordisk Re : Ass. General Manager, Baltica-Nordisk Re : Deputy General Manager, Employers Reinsurance International, Copenhagen : CEO, Employers Reinsurance International, Copenhagen : Member of Executive Board, GE Frankona Rückversicherungs-Aktiengesellschaft, Munich Education: Law degree, University of Copenhagen Special law programme, Columbia University, NY, USA GE training programmes incl. Six Sigma GB Certificate Offices held: Member of the Boards of Directors of: DSB DSV A/S Ratos AB Blue Square Re Skodsborg Kurhotel & Spa A/S Independence: Annette Sadolin meets the definition of independence set out by the Committee on Corporate Governance Desirée Schultz** DOB: 11 May 1952 Joined Topdanmark s Board of Directors: 2011 Current position held: Head of department Offices held: Chairman of Topdanmark's Senior Officers' Association Søren Thorup Sørensen*, *** DOB: 29 September 1965 Joined Topdanmark s Board of Directors: 2010 Current position held: CEO of KIRKBI A/S Previous positions held: : KPMG Denmark and UK : Group CFO and member of Group Executive Board, A.P. Møller-Mærsk A/S Education: MSc (Business Administration and Auditing), Copenhagen Business School, Denmark State-authorised public accountant Advanced Management Programme, Harvard Business School, USA Offices held: Member of the Boards of Directors of: TDC A/S Lego A/S 3 subsidiaries of KIRKBI A/S Koldingvej 2, Billund A/S KIRKBI AG Merlin Entertainments Ltd. Falck Holding A/S and two subsidiaries Boston Holding A/S Independence: Søren Thorup Sørensen meets the definition of independence set out by the Committee on Corporate Governance Page 36 of 101

39 Trine Zappe** DOB: 5 April 1977 Joined Topdanmark s Board of Directors: 2011 Current position held: Claims handler * Elected by shareholders in general meeting ** Elected by employees *** Member of Topdanmark s Audit Committee **** Member of Topdanmark's Remuneration Committee Page 37 of 101

40 Executive Board Christian Sagild CEO of Topdanmark A/S DOB 1959, joined Topdanmark in 1996, joined Topdanmark's Executive Board on 1 January 2006 Managerial responsibilities: Life insurance HR IT Group Development Communications, IR, CSR Group Secretariat, Corporate Legal Matters Member of the Boards of Directors of: The Danish Insurance Association The Danish Employers Association for the Financial Sector Ambu A/S Bruhn Holding ApS Kim Bruhn-Petersen Group Managing Director of Topdanmark A/S DOB 1956, joined Topdanmark in 1989, joined Topdanmark's Executive Board on 1 January 2006 Managerial responsibilities: Personal SME and Industrial Marketing Claims Administration Member of the Boards of Directors of: Forsikringsakademiet A/S (Danish Insurance Academy) Bornholms Brandforsikring A/S Lars Thykier CFO of Topdanmark A/S DOB 1955, joined Topdanmark in 1986, joined Topdanmark's Executive Board on 1 June 2009 Managerial responsibilities: Asset Management Finance Accounting Statistical Services Reinsurance Tax Credits 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. Page 38 of 101

41 Topdanmark s Annual Report 2012 Five-year summary Group (DKKm) NON-LIFE INSURANCE Gross premiums earned* 9,029 8,707 8,622 8,709 8,823 Technical interest Gross claims incurred (5,770) (6,324) (6,444) (6,759) (6,122) Bonuses and rebates (77) (42) (74) (41) (64) Total operating expenses (1,308) (1,272) (1,298) (1,340) (1,372) Net reinsurance (272) (266) (204) 312 (193) TECHNICAL PROFIT ON NON-LIFE INSURANCE 1, ,092 LIFE INSURANCE Gross premiums written 3,980 3,208 3,395 3,303 3,161 Allocated investment return, net of reinsurance (2,143) 2,443 2, ,364 Claims and benefits (2,038) (1,423) (2,875) (3,691) (3,251) Change in the life insurance provisions (1,223) (2,829) (900) 435 (684) Bonus 1,766 (118) (369) 14 (228) Change in the provisions for unit-linked contracts (61) (851) (968) (294) (1,032) Total operating expenses (320) (305) (302) (308) (324) Net reinsurance (2) (2) TECHNICAL PROFIT / (LOSS) ON LIFE INSURANCE (41) Profit / (loss) on investment activities after transfer to technical results (1,765) ,263 Other income Other expenses (48) (48) (47) (40) (40) PRE-TAX PROFIT / (LOSS) (24) 1,863 1,506 1,349 2,335 Taxation (165) (417) (338) (326) (512) PROFIT / (LOSS) FOR THE YEAR (189) 1,446 1,168 1,023 1,823 Run-off profits, net of reinsurance Provisions for insurance and investment contracts: Non-life insurance 13,685 14,478 15,139 16,228 16,251 Life insurance 24,938 28,882 31,166 30,618 32,553 Total insurance assets , Total shareholders' equity 2,895 4,117 4,553 4,567 5,368 Total assets 52,035 56,554 57,542 61,013 59,435 Gross loss ratio (%) Net reinsurance ratio (%) (3.6) 2.2 Claims trend (%) Gross expense ratio (%) Combined ratio (%) Operating ratio (%) Relative run-off profits, net of reinsurance (%) Return on shareholders' equity (%) (6.3) Solvency ratio (%) * Before deducting bonuses and rebates Page 39 of 101

42 Topdanmark s Annual Report 2012 Income statement Group (DKKm) Note NON-LIFE INSURANCE Gross premiums written 4 8,734 8,851 Reinsurance ceded (703) (660) Change in the provisions for unearned premiums, gross 4 (26) (29) Change in the reinsurers' share of the provisions for unearned premiums 2 8 Premiums earned, net of reinsurance 8,008 8,170 Technical interest, net of reinsurance 5 65 Gross claims paid (6,750) (6,682) Reinsurance cover received Change in the provisions for claims, gross (9) 560 Change in the reinsurers' share of the provisions for claims 390 (407) Claims incurred, net of reinsurance 6 (5,814) (5,738) Bonuses and rebates (41) (64) Acquisition costs (797) (853) Administrative expenses (543) (519) Reinsurance commission and share of profits Total operating expenses, net of reinsurance (1,273) (1,297) TECHNICAL PROFIT ON NON-LIFE INSURANCE ,092 LIFE INSURANCE Gross premiums written 8 3,303 3,161 Reinsurance ceded (5) (4) Premiums, net of reinsurance 3,298 3,156 Allocated investment return, net of reinsurance 579 2,364 Claims and benefits paid 9 (3,702) (3,248) Reinsurance cover received 5 7 Change in the provisions for claims and benefits 11 (3) Claims and benefits paid, net of reinsurance (3,686) (3,244) Change in the life insurance provisions (684) Change in the reinsurers' share 2 1 Change in the life insurance provisions, net of reinsurance 437 (683) Bonus 14 (228) Change in provisions for unit-linked contracts (294) (1,032) Acquisition costs (108) (108) Administrative expenses (201) (217) Reinsurance commission and share of profits (1) (0) Total operating expenses, net of reinsurance (309) (325) TECHNICAL PROFIT ON LIFE INSURANCE Page 40 of 101

43 Topdanmark s Annual Report 2012 Income statement Group (DKKm) Note NON-TECHNICAL ACTIVITIES Technical profit on non-life insurance 945 1,092 Technical profit on life insurance 38 7 Income from associated companies Income from investment properties Interest income and dividends etc. 1,970 1,877 Revaluations 12 (595) 2,291 Interest charges (113) (89) Expenses on investment business (35) (43) Total investment return 1,463 4,261 Technical interest transferred to non-life insurance business (388) (238) Pension return tax 13 (138) (396) Investment return transferred to life insurance business (579) (2,364) Other income Other expenses 15 (40) (40) PRE-TAX PROFIT 1,349 2,335 Taxation 16 (326) (512) PROFIT FOR THE YEAR 1,023 1,823 Profit per share, DKK Profit per share, diluted DKK Statement of comprehensive income Group Profit for the year 1,023 1,823 Exchange rate adjustment of foreign business 0 1 Revaluation of owner-occupied properties 1 1 Taxation (0) (1) Other comprehensive income 1 2 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,024 1,825 Page 41 of 101

44 Topdanmark s Annual Report 2012 Assets Group (DKKm) Note INTANGIBLE ASSETS Machinery and equipment Owner-occupied properties TOTAL TANGIBLE ASSETS ,007 Investment properties 20 4,104 3,983 Shares in associated companies Loans to associated companies Total investment in associated companies 1,091 1,101 Shares 5,593 5,805 Bonds 39,070 36,882 Loans guaranteed by mortgages 9 8 Other loans 1 1 Deposits with credit institutions 2,025 1,657 Derivatives 1,342 1,450 Total other financial investment assets 48,039 45,803 TOTAL INVESTMENT ASSETS 53,235 50,887 INVESTMENT ASSETS RELATED TO UNIT-LINKED CONTRACTS 23 3,283 4,313 Reinsurers' share of the provisions for unearned premiums Reinsurers' share of the life insurance provisions Reinsurers' share of the provisions for claims and benefits 25 1, Total reinsurers' share of provisions 1, Amounts due from policyholders Amounts due from insurance companies Amounts due from associated companies 4 22 Other debtors TOTAL DEBTORS 1,774 1,559 Assets held temporarily 0 1 Deferred tax assets Liquid funds Other TOTAL OTHER ASSETS Accrued interest and rent Other prepayments and accrued income TOTAL PREPAYMENTS AND ACCRUED INCOME TOTAL ASSETS 61,013 59,435 Page 42 of 101

45 Topdanmark s Annual Report 2012 Shareholders equity and liabilities Group (DKKm) Note Share capital Revaluation reserve Security fund 1,104 1,104 Other reserves Total reserves 1,126 1,133 Profit carried forward 3,275 4,079 TOTAL SHAREHOLDERS' EQUITY 4,567 5,368 SUBORDINATED LOAN CAPITAL 27 1,150 1,153 Provisions for unearned premiums 28 2,678 2,713 Guaranteed pension benefits 20,233 21,402 Bonus potential on future premiums 3,718 3,689 Bonus potential on paid-up benefits 2,306 1,849 Total life insurance provisions 29 26,257 26,941 Provisions for claims and benefits 30 13,545 13,521 Collective bonus potential Provisions for bonuses and rebates Provisions for unit-linked contracts 32 3,737 4,757 TOTAL PROVISIONS FOR INSURANCE AND INVESTMENT CONTRACTS 46,846 48,804 Pensions and similar commitments Deferred tax liabilities Deferred tax on security funds TOTAL LIABILITIES PROVIDED DEPOSITS RECEIVED FROM REINSURERS Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Bond loans Amounts due to credit institutions 5,997 2,007 Amounts due to associated companies 0 7 Current tax liabilities Derivatives Other creditors 952 1,097 TOTAL CREDITORS 7,738 3,390 ACCRUALS AND DEFERRED INCOME TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 61,013 59,435 Page 43 of 101

46 Topdanmark s Annual Report 2012 Cash flow statement Group (DKKm) Cash flow from operations Gross premiums written 8,648 8,827 Claims paid (6,641) (6,596) Expenses paid (1,239) (1,248) Reinsurance ceded 1 99 Cash flow from non-life insurance 770 1,082 Gross premiums written 3,374 3,151 Claims and benefits (3,704) (3,251) Expenses paid (315) (318) Reinsurance ceded Cash flow from life insurance (626) (384) Total cash flow from insurance business Payments made and received on investment contracts (382) (12) Dividends from associated companies Interest income and dividends etc. 2,201 2,181 Interest charges etc. (124) (131) Pension return tax (325) (227) Corporation tax (207) (506) Other items 2 (28) Total cash flow from operations 1,336 2,040 Investments Intangible assets, machinery and equipment (73) (105) Properties (88) (58) Shares in associated companies 4 (86) Shares Bonds (1,721) 3,696 Loans 2 1 Derivatives 396 (560) Investment assets related to unit-linked contracts (385) (582) Balances with associated companies Total investments (1,769) 2,809 Financing Shares bought back (1,159) (1,200) Share-based payments Subordinated loan capital 398 (0) Amounts due to credit institutions 2,157 (3,990) Total financing 1,490 (5,067) Change in cash and cash equivalents 1,058 (218) Cash and cash equivalents at 1 January 1,205 2,266 Revaluation of cash and cash equivalents 3 (22) Cash and cash equivalents at 31 December 2,266 2,025 Cash and cash equivalents comprise: Liquid funds Deposits with credit institutions 2,025 1,657 2,266 2,025 The majority of the Group's companies are subject to the relevant legislation on insurance business. Consequently, there are certain restrictions on lending and placement of money. Page 44 of 101

47 Topdanmark s Annual Report 2012 Statement of changes in equity Group (DKKm) Revalu- Profit Share ation Security Other carried capital reserve fund reserves forward Total 2011 Shareholders' equity at 31 December prior year , ,241 4,553 Profit for the year 2 1,021 1,023 Other comprehensive income (0) 1 Total comprehensive income for the year ,021 1,024 Cancellation of own shares (24) 24 0 Share buy-back (1,159) (1,159) Sale of employee shares Issue of share options 7 7 Exercise of share options / warrants Taxation 3 3 Other transactions (23) (987) (1,009) Shareholders' equity at 31 December , ,275 4, Shareholders' equity at 31 December prior year , ,275 4,567 Profit for the year 7 1,816 1,823 Other comprehensive income Total comprehensive income for the year ,817 1,825 Cancellation of own shares (11) 11 0 Share buy-back (1,200) (1,200) Sale of employee shares Issue of share options 7 7 Exercise of share options Taxation 3 3 Other transactions (11) (1,013) (1,024) Shareholders' equity at 31 December , ,079 5,368 Page 45 of 101

48 Topdanmark s Annual Report 2012 Notes to the financial statements Group Risk factors 1 Segment information income statement 2 Segment information balance sheet 3 Gross premiums earned - non-life insurance 4 Technical interest, net of reinsurance - non-life insurance 5 Claims incurred, net of reinsurance - non-life insurance 6 Technical result - non-life insurance 7 Gross premiums written - life insurance 8 Claims and benefits paid - life insurance 9 Change in life insurance provisions 10 Income from investment properties 11 Revaluations 12 Pension return tax 13 Other income 14 Other expenses 15 Taxation 16 Profit per share 17 Intangible assets 18 Tangible assets 19 Investment properties 20 Shares in associated companies 21 Loans to associated companies 22 Investment assets related to unit-linked contracts 23 Reinsurers' share of the provisions for unearned premiums 24 Reinsurers' share of the provisions for claims 25 Deferred tax 26 Subordinated loan capital 27 Provisions for unearned premiums 28 Life insurance provisions 29 Provisions for claims 30 Collective bonus potential 31 Provisions for unit-linked contracts 32 Pensions and similar commitments 33 Profit on life insurance 34 Expenses 35 Auditors' fee 36 Staff costs 37 Related parties 38 Financial assets 39 Financial liabilities 40 Settlement of assets and liabilities 41 Analysis of assets and their return - life insurance 42 Exposure information 43 Shares analysed by industry and region (%) - life insurance 44 Leasing 45 Core capital and capital base 46 Number of shares 47 Own shares 48 Provision of security 49 Contingent liabilities 50 Comparatives 51 Companies 52 Other disclosures 53 Accounting policies 54 Page 46 of 101

49 Notes to the financial statements Group Note 1. Risk factors The following description of risks in the Topdanmark Group elaborates on Risk management in Management's review. Non-life insurance Underwriting risk Acceptance policy Topdanmark's acceptance policy is based on the desire to make a profit from both products and customer segments. Topdanmark varies the pricing of its products depending on the relevant risk criteria and the costs of administering those products. Topdanmark's pricing is aligned with the individual markets and types of customers. In the personal and commercial markets prices are mostly based on standardised rates while major SME and industrial customers are offered more individualised charges. Danish insurance companies do not cover damage arising from floods or the cost of replanting forests following storms, industrial diseases, war or warlike acts, earthquake or other natural disasters and with certain exceptions damage due to nuclear energy or radioactivity. Follow-up policy In order that both products and customers are profitable, Topdanmark systematically acts upon changes in its customer portfolios. The historical profitability of major industrial and SME customers with individual insurance schemes is monitored using customer assessment systems. General insurance rates are re-calculated at least every three years and motor and workers' compensation rates are reviewed annually. Provisions 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. Topdanmark continues to improve its administration systems to achieve more finely meshed data capture which in turn enables it to identify the claims trends at an earlier point in time and compile information on the constituent parts of the various types of claims. Provisioning risk Provisions for outstanding claims Traditionally, the insurance classes are divided into short-tail (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). Examples of short-tail lines are building, personal property and comprehensive motor insurance. Longtail lines relate to personal injury and liability such as workers' compensation, accident, third party insurance and commercial liability. The following table shows a breakdown of Topdanmark's total provisions for outstanding claims: % Short-tail Annuity provisions in workers' compensation Other claims provisions in workers' compensation Accident Motor personal liability Commercial liability 4 4 Page 47 of 101

50 The much higher provisioning risk in long-tail than in short-tail lines is due to the longer period of claims settlement. It is not unusual that claims in long-tail lines are settled three to five years after notification and in rare cases up to years. During 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. The practice adopted by the Danish National Board of Industrial Injuries also has some impact on the levels of compensation for accident and personal injury within motor, liability and commercial liability insurance. The 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. The 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. The actuarial team is in constant dialogue with the claims departments on any changes in the practices stemming from new legislation, case law or compensation awards as well as the impact of such changes on the routines used to calculate individual provisions. Provisions for unearned premiums The risk on provisions for unearned premiums is relevant particularly within change of ownership insurance where typically the policy covers a period of ten years and the full 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. Disaster risks Topdanmark limits its insurance risk on significant events through a comprehensive reinsurance programme. Storm and rainstorms Reinsurance covers storm claims of up to DKK 5.1bn with a retention of DKK 100m. Snow loading, snow thawing and rainstorms are also covered. When using its reinsurance cover, Topdanmark will have to pay a reinstatement premium. In the event of another storm within the same year there is cover of up to a further DKK 5.1bn with a retention of DKK 100m. In the event of a third or fourth storm there is cover of DKK 670m with a retention of DKK 20m. 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. Specific reinsurance cover of DKK 100m for rainstorms takes effect if accumulated annual rainstorm claims exceed DKK 50m. For a claim to be accumulated, the event must exceed DKK 10m. The maximum retention in the event of an extreme rainstorm is DKK 75m plus reinstatement premiums. Fire Topdanmark has a proportional reinsurance programme for fire with a maximum retention of DKK 25m per claim on any one business. Terror With certain restrictions terror is covered by the reinsurance contracts. A national guarantee scheme of DKK 15bn covering terror claims including an element of NBCR (nuclear, biological, chemical, radiological) has been established. The national guarantee scheme covers any market retention in excess of DKK 5bn. The Danish non-life insurance companies have established a terror pool to protect the market retention. Industrial injuries caused by any form of terror is covered by the Government with a few exceptions. Page 48 of 101

51 Cumulative risk Known cumulative risk is where it has been recognised prior to the event that several policyholders could be affected by the same event. In personal lines Topdanmark's retention is DKK 15m for the first claim, DKK 5m for the second and DKK 15m for any third or subsequent risk. The retention is a maximum of DKK 25m in SME and industrial lines. Unknown cumulative risk is where several policyholders could be affected by the same individual event without the common risk being recognised prior to the event occurring. The retention is a maximum of DKK 50m. Workers' compensation In workers' compensation up to DKK 1bn is covered with a retention of DKK 50m. Life insurance Limited loss absorbing buffers in the event of low interest rates Bonus 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. Low interest rates mean that the market value of the guarantees granted is high and that the related bonus potential is low. The lower bonus potential, the higher risk of any losses being wholly or partially born by shareholder's equity. If interest rates are high, the same losses could to a larger degree be absorbed by the bonus potential. In Life V, in which company policies with 4.5% guaranteed benefits are placed, the interest rate risk in interest groups with such schemes has been counted by EURO CMS floors with a strike rate of 5%. In Life I, where the portfolio comprises 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. Disability Disability risk 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. Losses may be incurred due to a general increase in disability frequency or due to inadequate health evaluation when the policy is written. Extra costs due to a permanent change in disability risk will be partially covered by collective bonus potential and bonus potential on paid-up benefits. The remainder affects profit / loss for the year and consequently shareholders' equity. Lifetime Lifetime risk is the risk customers with life dependent policies, primarily annuities, live longer than expected, which will increase provisions for lifetime products. Extra costs due to longer lifetimes will be partially covered by collective bonus potential and bonus potential on paid-up benefits. The remainder affects profit / loss for the year and consequently shareholders' equity. Declines in the collective bonus potential are most frequently due to the investment return being lower than the addition of interest to deposits. Declines in collective bonus potential are also possible if interest rates are relatively high. In order to protect shareholders' equity it will be relevant to reduce market risks in the event of low interest rates. All policies have been split into contribution groups according to the guaranteed benefit scheme. In each contribution group the investment policy is intended to ensure the ability to meet the guaranteed benefits, and the market risk is adjusted in accordance with the risk capacity of the contribution groups. Market risk Market 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. The 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. Page 49 of 101

52 Market risks Interest rate risk Topdanmark is exposed to interest rate risk due to provisions for outstanding claims in non-life insurance and guaranteed benefits in life insurance Risk reducing activities Generally, the interest rate risk is limited and controlled by investing in interest-bearing assets in order to reduce the overall interest rate exposure of the assets and liabilities to the desired level Equity risk Topdanmark is exposed to equity risk from direct investments as well as those investments made via derivatives Property risk Topdanmark is exposed to property risk from investments in properties rented out for business or private residence Currency risk Topdanmark's currency risk relates in practice only to investments Inflation risk Future inflation is implicitly included in a number of the models Topdanmark uses to calculate its provisions In life V the interest rate risk on guaranteed benefits are hedged by interest rate options by EURO CMS floors with a strike rate of 5% Since 2007 the equity exposure in the Topdanmark group excluding life insurance has been halved The risk on the property portfolio is limited by a strategy focusing on the four largest cities in Denmark, where Topdanmark invests in well situated properties within the segments of housing and flexible office properties The currency risk is alleviated by derivatives An expected higher future inflation rate would generally be included in the provisions with a certain time delay while at the same time the result would be impacted by higher future indexation of premiums 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 insurance companies the liquidity risk is very limited as premiums are paid prior to the beginning of the risk period In order to reduce the risk of inflation within workers' compensation and illness / accident insurance Topdanmark has written inflation swap contracts and bought index-linked bonds hedging a significant proportion of the expected cash flows Topdanmark finances its activities and share buy-back programme by using its subsidiaries' surplus liquidity via inter-group accounts, which are reduced by paying dividends Topdanmark's liquidity risk is therefore primarily related to the parent company Further financing requirements are covered by shortterm money market loans, typically with a maturity of one month or less Page 50 of 101

53 The liabilities of the Group's insurance companies are primarily technical provisions on which the payment obligation is met by means of the cash flow generated from operations. Undiscounted expected cash flows for the Group's most significant liabilities: Book >36 (DKKm) value year years years years years years 2011 Provisions for claims 13,545 4,094 6,087 3,331 1, Life insurance provisions 26, ,427 11,785 11,196 5, Provisions for claims 13,521 3,919 6,363 3,262 1, Life insurance provisions 26, ,082 10,950 9,431 4,499 Future cash flows for life insurance will deviate from those expected due to observed insurance events, surrenders etc. The 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. Topdanmark 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. Generally, there are no maturity concentrations on derivative contracts. All of the Group's insurance companies may raise money market loans as part of the day-to-day liquidity management. Typically the maturity of such loans is less than a month. Both the subordinated loans raised by Topdanmark Forsikring and any outstanding money market loans will be repaid from the cash generated from operations. Furthermore, the Group has a significant liquidity base of high-quality liquid bonds. Credit and counterparty risk Credit risk is the risk of losses caused by one or more counterparties' full or partial breach of their payment obligations. Topdanmark is exposed to credit risk in both its insurance and investment business. Reinsurance Within insurance the reinsurance companies' ability to pay is the most important risk factor. Topdanmark minimises this risk by spreading and primarily buying reinsurance cover from reinsurance companies with a minimum rating of A-. Accordingly almost all of its storm cover has been placed with such reinsurance companies. Investment Topdanmark's investment risk is 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. Interest-bearing assets by rating: % A 4 3 BBB 1 4 <BBB 7 7 AAA+AA Money market deposits 9 9 To limit the counterparty risk of financial contracts the choice of counterparties is restrictive and security is required when the value of the financial contracts exceeds the predetermined limits. The size of the limits depends on the counterparty's credit rating and the term of the contract. Page 51 of 101

54 At the end of 2012 Topdanmark received cash margin payments of DKK 1,234m securing unrealised gains on derivatives (2011: DKK 937m). Operational risk Operational risk includes errors in internal processes, human errors, system errors, breakdowns of IT systems and losses incurred due to external events. Topdanmark regularly develops and improves IT systems, routines and procedures. The responsible business units are also responsible for the risk management of this development. Projects are to carry out a risk assessment with a description of the risks, possible consequences and measures to limit these risks. IT Group IT Security is responsible for IT security reporting to the IT manager. Risk assessments of each operational IT risk are made regularly. Group IT Security reports quarterly on risks and events to the Executive Board. Topdanmark's IT security policy and IT emergency strategy (both based on IS027001) are revised each year by the Executive Board to be accepted by the Board of Directors. The actual IT emergency plan includes plans for reestablishing the IT environment if the systems suffer breakdowns. The IT emergency plan is tested regularly. Topdanmark's business critical systems can be inaccessible for 24 hours without causing significant business problems. In order to reduce the probability of breakdowns of the IT systems and limit their duration, Topdanmark has invested in, for example, emergency power plants with a diesel generator, disk mirroring, alarms and automatic fire fighting equipment. Critical IT equipment is in duplicate and placed in two physically separated machine rooms. Periodically Topdanmark s critical IT systems are tested to see if they can be compromised from outside and whether the IT systems have vulnerabilities to be repaired. These tests are made by an external company with special expertise in this area. Topdanmark s IT security committee discusses and prioritizes the performance and results of the tests. It is Topdanmark's goal that the accessibility of its main systems is no less than 99.5%. In 2012 it was 99.9%. For many years the accessibility for the central applications has exceeded this goal. The implementation of new IT systems is only effected after extensive testing procedures. Errors in internal processes, human errors, insurance fraud and deceit Topdanmark's well-documented routines, procedures and efficient control environment minimise these risks. It has made emergency plans for the most significant areas. The routines and procedures in all critical areas are regularly checked by the auditors in order to assess the risks and recommend measures to limit each individual risk. Page 52 of 101

55 Notes to the financial statements Group (DKKm) Note 2. Segment information income statement SME and Eli- Eli- Per- Indus- min- Parent minsonal trial ated Non-life Life etc. ated Group 2011 Non-life insurance Gross premiums earned 4,756 3,934 (22) 8,668 8,668 Technical interest* Claims incurred (3,762) (3,034) 23 (6,773) 14 (6,759) Expenses (753) (614) 2 (1,365) 24 (1,340) Net reinsurance (0) Technical profit on non-life insurance Life insurance Gross premiums written 3,303 3,303 Allocated investment return Benefits and change in provisions (3,536) (3,536) Expenses (314) 5 (308) Net reinsurance 1 1 Technical profit on life insurance Total investment return ,463 Pension return tax (30) (108) (138) Transferred to technical result (388) (579) (966) Investment return Other items (34) (60) 7 Pre-tax profit 1, ,349 Taxation (326) Profit for the year 1, Non-life insurance Gross premiums earned 4,767 4,011 (19) 8,759 8,759 Technical interest* Claims incurred (3,464) (2,686) 19 (6,131) 9 (6,122) Expenses (774) (615) 1 (1,388) 16 (1,372) Net reinsurance (24) (169) (0) (193) (193) Technical profit on non-life insurance , ,092 Life insurance Gross premiums written 3,161 3,161 Allocated investment return 2,364 2,364 Benefits and change in provisions (5,195) (5,195) Expenses (328) 4 (324) Net reinsurance 3 3 Technical profit on life insurance Total investment return 1,281 2, ,261 Pension return tax (28) (368) (396) Transferred to technical result (238) (2,364) (2,601) Investment return 1, ,263 Other items (34) (64) (28) Pre-tax profit 2, ,335 Taxation (512) Profit for the year 1,823 Amortisations: * After discounting DKK 217m (2011: DKK 323m) Page 53 of 101

56 Notes to the financial statements Group (DKKm) Note 3. Segment information balance sheet Parent Elimin- Non-life Life etc. ated Group 2011 Intangible assets Tangible assets Investment properties 428 3, ,104 Loans to affiliated companies (300) 0 Shares in associated companies Loans to associated companies Other financial investment assets 18,050 29, ,039 Investment assets related to unit-linked contracts 0 3, ,283 Reinsurers' share of provisions 1, ,184 Amounts due from affiliated companies 3, (3,546) 0 Other assets ,665 Total assets 25,639 39, (3,846) 61,013 Subordinated loan capital (300) 1,150 Total provisions for insurance and investment contracts 16,228 30, ,846 Amounts due to affiliated companies 461 2, (3,546) 0 Other liabilities 4,429 3, ,449 Total liabilities 21,864 37,193 1,234 (3,846) 56,446 Purchase of tangible and intangible assets Results from associated companies Intangible assets Tangible assets ,007 Investment properties 429 3, ,983 Loans to affiliated companies (300) 0 Shares in associated companies Loans to associated companies Other financial investment assets 16,766 29, ,803 Investment assets related to unit-linked contracts 0 4, ,313 Reinsurers' share of provisions Amounts due from affiliated companies 1, (1,833) 0 Other assets ,779 Total assets 22,656 38, (2,133) 59,435 Subordinated loan capital (300) 1,153 Total provisions for insurance and investment contracts 16,251 32, ,804 Amounts due to affiliated companies 157 1, (1,833) 0 Other liabilities 1,529 2, ,109 Total liabilities 18,685 36, (2,133) 54,067 Purchase of tangible and intangible assets Results from associated companies Technical provisions, net of reinsurance, relating to illness / accident insurance administered by life insurance, and assets and other liabilities allocated to this portfolio are included in non-life insurance. Page 54 of 101

57 Notes to the financial statements Group (DKKm) Note 4. Gross premiums earned - non-life insurance Gross premiums written 8,734 8,851 Change in gross provisions for unearned premiums (26) (29) Gross premiums earned 8,709 8,823 Gross premiums earned, direct business, by location of the risk: Denmark 8,703 8,818 Other EU-countries 4 4 Other countries 1 1 8,709 8,823 Note 5. Technical interest, net of reinsurance - non-life insurance Calculated interest Discounting (annual amortisation) of technical provisions and reinsurers' share (323) (217) Technical interest, net of reinsurance Note 6. Claims incurred, net of reinsurance - non-life insurance Run-off profit: Gross business Reinsurance ceded (73) 1 Run-off profit, net of reinsurance Specification of run-off profit in Note 7. Claims incurred include revaluation of inflation swaps hedging the inflation risk in workers' compensation and illness / accident insurance 103 (32) Note 7. Technical result - non-life insurance Gross premiums written 8,734 8,851 Gross premiums earned 8,709 8,823 Gross claims incurred (6,759) (6,122) Bonuses and rebates (41) (64) Gross operating expenses (1,340) (1,372) Net reinsurance 312 (193) Technical interest, net of reinsurance Technical profit 945 1,092 Gross loss ratio (%) Combined ratio (%) Run-off profits, net of reinsurance Claims provisions, net of reinsurance 12,382 12,750 Number of claims incurred ('000) Average value of claim (DKK '000) Annual frequency of claims The loss ratio and the combined ratio have been calculated before elimination of internal rent. The annual frequency of claims has been calculated as a per thousand value. Technical profit / (loss) analysed by industry is disclosed on the next page. Page 55 of 101

58 Notes to the financial statements Group (DKKm) Note 7. Technical result - non-life - continued Workers' Illness and accident Health insurance compensation Gross premiums written 1,142 1, Gross premiums earned 1,137 1, Gross claims incurred (785) (828) (92) (92) (515) (533) Bonuses and rebates (4) (5) (6) (3) 0 (5) Gross operating expenses (152) (161) (11) (9) (96) (95) Net reinsurance (10) (16) Technical interest, net of reinsurance Technical profit Gross loss ratio (%) Combined ratio (%) Run-off profits / (losses), net of reinsurance (1) Claims provisions, net of reinsurance 2,752 3, ,845 5,882 Number of claims incurred ('000) Average value of claim (DKK '000) Annual frequency of claims Motor third-party Motor Fire and property liability own damage Personal Gross premiums written ,474 1,478 1,837 1,877 Gross premiums earned ,483 1,465 1,809 1,853 Gross claims incurred (736) (726) (852) (773) (1,758) (1,361) Bonuses and rebates (2) (3) (3) (5) (3) (5) Gross operating expenses (148) (151) (202) (202) (267) (279) Net reinsurance (4) (11) (8) (4) 246 (15) Technical interest, net of reinsurance Technical profit / (loss) (56) (82) Gross loss ratio (%) Combined ratio (%) Run-off profits / (losses), net of reinsurance (49) 30 2 (4) 8 24 Claims provisions, net of reinsurance 1,697 1, Number of claims incurred ('000) Average value of claim (DKK '000) Annual frequency of claims Fire and property SME Liability Other insurance Gross premiums written 1,712 1, Gross premiums earned 1,694 1, Gross claims incurred (1,423) (1,136) (262) (242) (336) (431) Bonuses and rebates (7) (29) (1) (2) (15) (8) Gross operating expenses (314) (315) (59) (61) (93) (99) Net reinsurance 90 (109) 6 (29) (10) (17) Technical interest, net of reinsurance Technical profit / (loss) (23) Gross loss ratio (%) Combined ratio (%) Run-off profits / (losses), net of reinsurance (18) (11) 16 (47) Claims provisions, net of reinsurance Number of claims incurred ('000) Average value of claim (DKK '000) Annual frequency of claims Page 56 of 101

59 Notes to the financial statements Group (DKKm) Note 8. Gross premiums written - life insurance Individual policies Policies which are part of a tenure 1,526 1,392 Group life Regular premiums 2,312 2,157 Individual policies Policies which are part of a tenure Single premiums 991 1,004 Gross premiums 3,303 3,161 Gross premiums written, direct business, by the policyholders' location: Denmark 3,272 3,134 Other EU-countries Other countries 5 3 3,303 3,161 Proportion of gross premiums represented by premiums related to unit-linked contracts not eligible for bonus 1,188 1,257 Investment risk is taken by the policyholder. All other gross premiums relate to bonus eligible insurance contracts. Number of policyholders at 31 December ('000): Individual policies Policies which are part of a tenure Group life Note 9. Claims and benefits paid - life insurance Claims payable on death Claims payable on maturity Pension and annuity payments Surrenders 2,543 2,082 Bonuses paid in cash Claims and benefits paid 3,702 3,248 Note 10. Change in life insurance provisions Guaranteed benefits (3,632) (1,169) Bonus potential on future premiums 2, Bonus potential on paid-up benefits 1, Change in life insurance provisions 435 (684) Note 11. Income from investment properties Rental income Operating expenses from properties rented out (40) (50) Operating expenses from properties not rented out (5) (4) Gross profit Administrative expenses (11) (8) Income from investment properties Page 57 of 101

60 Notes to the financial statements Group (DKKm) Note 12. Revaluations Held for trading: Shares (678) 694 Bonds 516 1,508 Derivatives Total held for trading 488 2,230 Designated at fair value: Deposits with credit institutions 2 1 Investment assets related to unit-linked contracts: Shares (261) 206 Unit trusts (59) 78 Bonds (39) 130 Derivatives (6) 34 Total designated at fair value (363) 449 Revaluations of financial assets and liabilities at fair value through income statement 125 2,679 Of which revaluation of inflation swaps transferred to claims incurred (103) 32 Investment properties 31 (52) Provisions for unearned premiums (2) (4) Provisions for claims and benefits (654) (343) Reinsurers' share 12 6 Liquid funds 1 (23) Other (3) (4) Revaluations (595) 2,291 Note 13. Pension return tax Percentage of return exempt from tax Note 14. Other income Gain on sale of workers' compensation portfolio 32 0 Other Other income Note 15. Other expenses Holding expenses Other 8 7 Other expenses Note 16. Taxation Current tax Change in deferred tax 33 (20) Prior year adjustment (4) (49) Tax in foreign companies 5 2 Tax for the year Current tax taken to shareholders' equity 3 3 Taxation Page 58 of 101

61 Notes to the financial statements Group (DKKm) Note 16. Taxation - continued Calculated tax on profit for the year (25%) Adjusted for the tax effect of: Returns on shares etc. not liable to tax (3) (22) Non-deductible expenses / income not liable to tax (5) (9) Prior year adjustment (4) (40) Effective rate of taxation Note 17. Profit per share Profit for the year 1,023 1,823 Average number of shares ('000) 13,741 12,828 Diluting impact of options ('000) 5 0 Average number of shares, diluted ('000) 13,746 12,828 Profit per share, DKK Profit per share, diluted DKK Note 18. Intangible assets Developm't Completed projects IT developm't under con Goodwill software projects struction Total Cost / valuation at 1 January ,037 Purchased Transferred (105) 0 Sold (12) (12) Cost / valuation at 31 December ,057 Impairment and amortisation at 1 January (12) (117) (140) 0 (269) Amortisation for the year 0 (20) (78) 0 (98) Sold during the year Impairment and amortisation at 31 December 0 (136) (218) 0 (355) Intangible assets Cost / valuation at 1 January ,057 Purchased Transferred (34) 0 Sold 0 (6) 0 0 (6) Cost / valuation at 31 December ,085 Impairment and amortisation at 1 January 0 (136) (218) 0 (355) Amortisation for the year 0 (20) (64) 0 (84) Sold during the year Impairment and amortisation at 31 December 0 (151) (282) 0 (433) Intangible assets Completed development projects included primarily the Group's new claims system. Amortisation of intangible assets is mainly included in claims incurred and operating expenses. Goodwill and development projects under construction are subjected to an impairment test at the end of the financial year. The discounted value of future cash flows is compared with its carrying value. The future cash flows are based on three years' expected technical result and a terminal value of the segments to which goodwill and development projects under constructions relate. The pre-tax discount rate used is 12% (2011: 12%) corresponding to 9% (2011: 9%) post-tax. Goodwill relates to the personal segment. Page 59 of 101

62 Notes to the financial statements Group (DKKm) Note 19. Tangible assets Machinery Owner- & equip- occupied 2011 ment properties Total Cost / revaluation at 1 January ,314 Additions, including improvements Disposals (24) 0 (24) Revaluations taken to shareholders' equity Revaluations recorded in the income statement 0 (1) (1) Cost / revaluation at 31 December ,404 Impairment and amortisation at 1 January (409) 0 (409) Amortisation for the year (60) (1) (61) Transferred on revaluation Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year Impairment and amortisation at 31 December (461) 0 (461) Tangible assets Cost / revaluation at 1 January ,404 Additions, including improvements Disposals (197) 0 (197) Revaluations taken to shareholders' equity Revaluations recorded in the income statement 0 (1) (1) Cost / revaluation at 31 December ,340 Impairment and amortisation at 1 January (461) 0 (461) Amortisation for the year (60) (1) (61) Transferred on revaluation Reversal of total impairment and amortisation of assets sold or withdrawn from operations during the year Impairment and amortisation at 31 December (333) 0 (333) Tangible assets , The valuation of the owner-occupied properties has been based on a required average return of: 5.3% 5.3% Cost of revalued owner-occupied properties Machinery and equipment includes assets under finance leases of 7 15 Note 20. Investment properties Fair value at 1 January 4,046 4,104 Additions - acquistions 10 0 Additions - improvements Disposals (1) (87) Revaluation to fair value 31 (49) Investment properties 4,104 3,983 Non-residential 3,195 3,160 Residential and part residential ,104 3,983 The valuation of the properties has been based on a required average return of: Non-residential 6.0% 6.0% Residential and part residential 4.6% 4.7% Page 60 of 101

63 Notes to the financial statements Group (DKKm) Note 21. Shares in associated companies Book value at 1 January Additions Disposals (4) (0) Share of profit Share of other comprehensive income 0 1 Dividends received (28) (65) Shares in associated companies Shareholders' Percentage Liabi share equity Assets lities Income Result Bornholms Brandforsikring A/S, Rønne Captives, Luxembourg EjendomsSelskabet af Januar 2002 A/S, Copenhagen (6) Dantop Ejendomme ApS, Copenhagen (8) Det Tyske Ejendomsselskab P/S, Ballerup ,494 1, ,120 3,061 1, Bornholms Brandforsikring A/S, Rønne Captives, Luxembourg (1) EjendomsSelskabet af Januar 2002 A/S, Copenhagen (27) Dantop Ejendomme ApS, Copenhagen Det Tyske Ejendomsselskab P/S, Ballerup 50 1,206 1, Margretheholm P/S, Hellerup ,137 2, Bornholms Brandforsikring A/S has been recognised on the basis of the most recent financial information at 30 September. The accounting information is according to the companies' most recent annual reports. Note 22. Loans to associated companies Average effective interest rate 1.1% 1.7% Note 23. Investment assets related to unit-linked contracts Shares 1,515 1,741 Unit trusts Bonds 1,077 1,642 Deposits with credit institutions 0 8 Derivatives 1 18 Investment assets related to unit-linked contracts 3,283 4,313 The return on the above assets and derivatives is allocated to customers. Note 24. Reinsurers' share of the provisions for unearned premiums Reinsurers' share at 1 January Reinsurance ceded Reinsurance earned (700) (652) Reinsurers' share of the provisions for unearned premiums at 31 December Page 61 of 101

64 Notes to the financial statements Group (DKKm) Note 25. Reinsurers' share of the provisions for claims Non-life insurance Reinsurers' share at 1 January 667 1,079 Reimbursement of claims relating to previous years (246) (683) Change in expected income relating to previous years (73) 1 Reimbursement of claims relating to this year (309) (108) Expected income relating to this year 1, Discounting effect (annual amortisation) 10 6 Revaluation 12 6 Reinsurers' share of the provisions for claims at 31 December 1, Note 26. Deferred tax Properties (62) (63) (65) Machinery and equipment (35) (41) (35) Provisions 0 (17) (9) Liabilities provided Restriction on deductability Other Deferred tax (75) (109) (88) Recognised as: Deferred tax assets Deferred tax liabilities (94) (121) (109) (75) (109) (88) Changes relating to the year (33) 20 Non-capitalised balance of equity losses that can be carried forward Note 27. Subordinated loan capital Hybrid Subordinated Subordinated core capital loan capital loan capital Borrower Topdanmark A/S Topdanmark Forsikring A/S Principal EUR 55m DKK 350m DKK 400m Date of issue July 2007 June 2010 June 2011 Maturity Bullet 18 June June 2019 If permitted by the DFSA, the borrower can give notice of termination from 15 Sep June June 2016 Interest rate EURIBOR 3 months+1.90% to % to % to 2016 Subsequently EURIBOR 3 months+2.90% Cibor 3 months+625bp Cibor 3 months+525bp Interest charges Costs of raising the loan 2 0 Hybrid core capital has been fully included in the parent company's capital base Subordinated loan capital of Topdanmark Forsikring A/S has been included in the Company's capital base at up to 25% of the solvency margin Page 62 of 101

65 Notes to the financial statements Group (DKKm) Note 28. Provisions for unearned premiums Provisions for unearned premiums at 1 January 2,646 2,678 Gross premiums written 8,734 8,851 Premiums earned (8,709) (8,823) Discounting 4 2 Revaluation 2 4 Provisions for unearned premiums at 31 December 2,678 2,713 Note 29. Life insurance provisions Life insurance provisions at 1 January 26,692 26,257 Accumulated revaluation at 1 January (870) (897) Retrospective provisions at 1 January 25,821 25,360 Gross premiums written 2,115 1,903 Accrued interest Claims and benefits (3,110) (2,555) Expense loading inclusive of expense bonus (184) (165) Risk gain after allocating policyholders' risk bonus (48) (28) Other (8) 68 Retrospective provisions at 31 December 25,360 25,138 Accumulated revaluation at 31 December 897 1,803 Life insurance provisions at 31 December 26,257 26,941 Guaranteed benefits 20,233 21,402 Bonus potential on future premiums 3,718 3,689 Bonus potential on paid-up benefits 2,306 1,849 Life insurance provisions 26,257 26,941 Reduction in bonus potential on paid-up benefits when allocating "the insurance technical result before bonus contribution" in Topdanmark Livsforsikring A/S Increase in guaranteed benefits as life insurance provisions must not be lower than the guaranteed surrender value 3 5 The increases have been calculated excluding surrender probabilities. Portfolios analysed by capitalisation rates Guaranteed Bonus potential on Capitalisation future paid-up 2011 rate benefits premiums benefits Topdanmark Livsforsikring A/S: Interest rate group 1 2% 7,079 3,253 1,836 Interest rate group 2 3% 3, Outside of contribution ,698 3,558 2,228 Topdanmark Livsforsikring V A/S: Interest rate group 3 [1%-2%] Interest rate group 4 ]2%-3%] Interest rate group 5 ]3%-4%] 1, Interest rate group 6 ]4%-5%[ 6, Interest rate group 7 5% Interest rate group 8 above 5% , Group Life U74-life annuities Other Total ,233 3,718 2,306 Page 63 of 101

66 Notes to the financial statements Group (DKKm) Note 29. Life insurance provisions - continued Portfolios analysed by capitalisation rates Guaranteed Bonus potential on Capitalisation future paid-up 2012 rate benefits premiums benefits Topdanmark Livsforsikring A/S: Interest rate group 9 1% (164) Interest rate group 1 2% 7,915 2,468 1,482 Interest rate group 2 3% 3, Outside of contribution ,584 3,544 1,795 Topdanmark Livsforsikring V A/S: Interest rate group 10 1% Interest rate group 3 ]1%-2%] Interest rate group 4 ]2%-3%] Interest rate group 5 ]3%-4%] 1, Interest rate group 6 ]4%-5%[ 6, Interest rate group 7 5% Interest rate group 8 above 5% , Group Life U74-life annuities Other Total ,402 3,689 1,849 The 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%. Note 30. Provisions for claims Non-life insurance: Gross Provisions at 1 January 12,364 13,461 Claims paid relating to previous years (3,306) (3,642) Change in expected claims payments relating to previous years (221) (201) Claims paid relating to this year (3,444) (3,040) Expected claims payments relating to this year 6,980 6,323 Inflation swaps 103 (32) Discounting (annual amortisation) Revaluation Gross provisions at 31 December 13,461 13,434 Net of reinsurance Provisions at 1 January 11,697 12,382 Claims paid relating to previous years (3,060) (2,958) Change in expected claims payments relating to previous years (148) (201) Claims paid relating to this year (3,135) (2,932) Expected claims payments relating to this year 5,962 5,939 Inflation swaps 103 (32) Discounting (annual amortisation) Revaluation Non-life insurance, net of reinsurance, at 31 December 12,382 12,750 Life insurance Provisions for claims, net of reinsurance 12,467 12,837 Provisions for workers' compensation insurance, net of reinsurance 5,845 5,882 Average period of settlement 7 years 7 years Illness / accident insurance, net of reinsurance, administered by the life insurance business 1,791 2,020 Average period of settlement 14 years 14 years Page 64 of 101

67 Notes to the financial statements Group (DKKm) Note 30. Provisions for claims - continued Claims liabilities analysed by claims year Gross Total End of year 6,414 7,203 6,814 6,730 6,559 6,400 6,122 7,079 5,888 4,831 1 year later 7,347 6,834 6,526 6,753 6,426 5,934 6,776 5,677 4,946 2 years later 6,952 6,585 6,769 6,473 5,778 6,612 5,574 4,906 3 years later 6,583 6,887 6,492 5,682 6,538 5,611 4,982 4 years later 6,851 6,576 5,718 6,465 5,652 4,987 5 years later 6,576 5,737 6,499 5,638 4,994 6 years later 5,721 6,476 5,656 4,933 7 years later 6,482 5,661 4,986 8 years later 5,651 5,029 9 years later 5,022 63,599 Less paid incl. inflation swaps 3,041 5,342 5,420 5,452 5,607 5,597 5,135 6,028 5,244 4,742 51,607 Provisions before discounting at 31 December 3,374 2,006 1,531 1,131 1, ,991 Discounting (27) (16) (9) (5) (3) (1) (1) (0) (0) (0) (62) 3,347 1,990 1,522 1,126 1, ,929 Provisions relating to previous years at 31 December 1,504 Gross provisions at 31 December non-life insurance 13,434 Net of reinsurance End of year 6,028 6,164 6,385 6,389 6,227 6,073 5,813 5,733 5,316 4,508 1 year later 6,268 6,433 6,191 6,429 6,096 5,651 5,455 5,057 4,611 2 years later 6,564 6,286 6,467 6,148 5,505 5,321 4,936 4,561 3 years later 6,295 6,594 6,168 5,407 5,252 4,949 4,634 4 years later 6,556 6,249 5,451 5,192 4,983 4,638 5 years later 6,247 5,470 5,226 4,962 4,643 6 years later 5,456 5,213 4,981 4,584 7 years later 5,224 4,986 4,635 8 years later 4,983 4,674 9 years later 4,666 58,286 Less paid incl. inflation swaps 2,933 4,440 5,106 5,212 5,352 5,285 4,876 4,779 4,599 4,390 46,973 Provisions before discounting at 31 December 3,095 1,828 1,459 1,083 1, ,314 Discounting (25) (14) (8) (5) (2) (1) (1) (0) (0) (0) (57) 3,070 1,813 1,451 1,078 1, ,257 Provisions relating to previous years at 31 December 1,494 Provisions, net of reinsurance, at 31 December non-life insurance 12,750 Reconciliation: Provisions for claims 13,521 Less amount relating to life insurance (87) Less reinsurers' share of provisions (683) Provisions, net of reinsurance, at 31 December non-life insurance 12,750 Composition of expected payments, net of reinsurance: Original payment 5,991 6,062 6,379 6,361 6,148 6,068 5,807 5,714 5,264 4,496 58,291 Loss / (gain) on settlement (287) 25 (193) (621) (693) (535) (131) (2,336) Claims handling etc. at 1 January Discounting / revaluation workers' compensation insurance and illness / accident ,205 6,028 6,268 6,564 6,295 6,556 6,247 5,456 5,224 4,983 4,666 58,286 The table shows the historical development in the estimated final liability (the sum of claims payments and provisions) for each claims year from Significant proportions of the liabilities shown have been calculated without discounting which to a great extent eliminates changes in discounting rates and methods after the change to IFRS. However, workers' compensation and illness / accident administered by the life insurance business are included at discounted values. Page 65 of 101

68 Notes to the financial statements Group (DKKm) Note 31. Collective bonus potential Capitalisation Bonus ratio Topdanmark Livsforsikring A/S: rate Interest rate group 9 1% 0.0% 3.3% 0 26 Interest rate group 1 2% 0.0% 0.0% 0 0 Interest rate group 2 3% 0.0% 0.0% 0 0 Risk groups Cost groups Topdanmark Livsforsikring V A/S: Interest rate group 10 1% 0.0% 5.0% 0 19 Interest rate group 3 ]1%-2%] 4.9% 6.9% Interest rate group 4 ]2%-3%] 4.3% 5.5% Interest rate group 5 ]3%-4%] 6.8% 7.2% Interest rate group 6 ]4%-5%[ 6.1% 9.2% Interest rate group 7 5% 12.6% 22.9% Interest rate group 8 above 5% 0.0% 0.0% 0 0 Risk groups Cost groups Collective bonus potential Note 32. Provisions for unit-linked contracts Insurance Investment 2011 contracts contracts Total Gross provisions at 1 January 2, ,826 Retrospective provisions at 1 January 2, ,826 Gross premiums 1, ,247 Return (221) (38) (259) Claims and benefits (581) (442) (1,022) Expense loading inclusive of expense bonus (35) (7) (42) Risk gain after addition of risk bonus Premiums waived transferred to life insurance provisions (14) 0 (14) Other (3) 0 (3) Retrospective provisions at 31 December 3, ,737 Provisions for unit-linked contracts , , Gross provisions at 1 January 3, ,737 Retrospective provisions at 1 January 3, ,737 Gross premiums 1, ,329 Return Claims and benefits (696) (84) (780) Expense loading inclusive of expense bonus (36) (5) (40) Risk gain after addition of risk bonus Premiums waived transferred to life insurance provisions (12) 0 (12) Other 2 (0) 2 Retrospective provisions at 31 December 4, ,757 Provisions for unit-linked contracts , , Number of customers with investment contracts 2,810 2,728 The contracts written do not have guarantees. Page 66 of 101

69 Notes to the financial statements Group (DKKm) Note 33. Pensions and similar commitments Retirement benefits 13 9 Anniversaries Other pension commitments 3 0 Pensions and similar commitments Other pension commitments cover former senior executives and their widows. Note 34. Profit on life insurance Life I Life V Total Life I Life V Total Total insurance technical result ,360 Customers' share of insurance technical result (245) 217 (28) Illness / accident (investment return) Share of insurance technical result allocated to shareholders' equity Profit on life insurance: Share of insurance technical result allocated to shareholders' equity Tax etc. in subsidiaries included in insurance technical result but included in tax in the Group Policies outside of contribution etc Life Holding and Group eliminations Specification of profit on life insurance: Investment return Risk allowance Transferred to shadow account (112) (2) (114) (116) (2) (117) Pre-tax profit / (loss) Topdanmark Link (5) (5) Pre-tax profit Nykredit Livsforsikring Acquisitions cost result (4) 0 (4) (4) 0 (4) Profit on policies outside of contribution etc Investment return Life Holding 6 14 Group eliminations 2 1 Profit on life insurance Life I Life V Total Life I Life V Total Shadow account at 1 January Return Transferred Shadow account at 31 December Shadow account by interest rate, risk and cost groups: Capitalisation rate Interest rate group 1 2% Interest rate group 2 3% Risk groups Cost groups Total shadow account The allocation of the insurance technical result before bonus to policyholders is in accordance with the order on contribution principle. Page 67 of 101

70 Notes to the financial statements Group (DKKm) Note 35. Expenses Expenses by their nature: Commission - non-life insurance Commission - life insurance Staff costs (excl. commission) 1,622 1,672 Other staff costs Premises costs etc IT operations and maintenance Impairment and amortisation Other expenses Total expenses 2,587 2,634 These expenses have been disclosed in: Non-life insurance: Acquisition costs Administrative expenses Claims paid (claims handling and assessment) ,148 2,165 Life insurance: Acquisition costs Administrative expenses Income from investment properties (administration and operation) Expenses on investment business Other expenses Total expenses 2,587 2,634 Note 36. Auditors' fee Fee to the auditors elected by the Annual General Meeting Deloitte: Fee for statutory audit of the annual accounts 4 4 Fee for other assurance engagements 0 0 Fee for tax advice 0 0 Fee for services, other than audit work* *Primarily fee for one-off services related to the acquisition of an IT system in the life insurance group in The Group has an internal audit department which carries out most of the audit work. Note 37. Staff costs Salaries 1,309 1,387 Pensions Social security costs Payroll tax Share options 6 6 Employee shares ,786 1,871 Average number of full-time employees 2,533 2,572 Page 68 of 101

71 Notes to the financial statements Group (DKKm) Note 37. Staff costs - continued Share options Topdanmark's share option scheme is for its Executive Board and senior executives. The strike price has been fixed at 110% of the market price on the last trading date in the prior financial year (average of all trades). The options can be exercised 3-5 years subsequent to the granting. The scheme is settled by shares (equity instruments). The table below is categorised by the option holders' current standing: Senior Strike Executive execu- Total number of options ('000) price Board tives Resigned Total 2011 Outstanding at 1 January Granted Transferred 0 (4) 4 0 Exercised (31) (66) (54) (151) Forfeited 0 0 (3) (3) Outstanding at 31 December Average strike price at 31 December Outstanding at 1 January Granted Expired (26) (80) (42) (148) Exercised (18) (103) (35) (155) Outstanding at 31 December Average strike price at 31 December Per granting: 2008 Exercise period - March March March March March March March March March Outstanding at 31 December Average strike price exercised options Average strike price exercised options Fair value of granting Fair value of granting Fair value at 31 December Fair value at 31 December The fair value of the granting for the year has been calculated using the Black and Scholes model assuming a price of DKK (2011: DKK ) 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% (2011: 22%) p.a., corporate tax rate of 25% (2011: 25%) and a pattern of exercise similar to Topdanmark's previous granting of share options. The volatility has been calculated on the basis of previous years' volatility, which continues to be Management's best estimate of future volatility Number of options which could be exercised on 31 December ('000) Employee shares In 2012 Topdanmark issued 47,205 (2011: 68,501) employee shares offset by a reduction in their respective cash salaries. The costs have been calculated to be DKK 43m (2011: DKK 46m) in accordance with IFRS 2. Severance pay Severance pay has been described in "Severance pay" in "Management's review". Page 69 of 101

72 Notes to the financial statements Group (DKKm) Note 38. Related parties The Group has no related parties with controlling influence. Related parties with significant influence comprise the Board of Directors, the Executive Board and their families. Remuneration of the Board of Directors Directors' fees were DKK 4,631,000 (2011: DKK 4,275,000) of which DKK 244,000 (2011: 225,000) related to Topdanmark Forsikring A/S. Fee (DKK '000): Michael Pram Rasmussen 1,200 1,300 Anders Knutsen Anders Colding Friis Charlotte Hougaard Jens Maaløe Annette Sadolin Desiree Schultz Søren Thorup Sørensen Trine Zappe Knud J. Vest Ole Døssing Christensen 83 - Per Krogsgaard Mathiesen 83 - Total fee paid to nine Board members 4,275 4,631 The Board of Directors receive only a fixed remuneration. Remuneration of the Executive Board Salaries etc Employee shares 1 1 Share options 1 2 Total remuneration to three members of the Executive Board Christian Sagild Kim Bruhn-Petersen Lars Thykier % of the fixed basic salary etc. paid to the Executive Board is paid as share options. The Executive Board receives only a fixed remuneration. The Group has no unhedged pension commitments. Significant risk taker Besides the Executive Board one employee of the Group has significant influence on its risk profile. In accordance with an exemption clause this remuneration is not disclosed. Shares, bonds and subordinated notes held by the Board of Directors and Executive Board Board of Directors Number of shares 2,908 3,083 Bonds, nominal value DKK ' Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 19,610 19,610 Executive Board Number of shares 35,630 30,635 Bonds, nominal value DKK '000 1,364 1,364 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 3,850 0 Page 70 of 101

73 Notes to the financial statements Group (DKKm) Note 38. Related parties - continued Associated companies Premiums ceded Commission received (6) (6) Reimbursed claims (58) (100) 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 39. Financial assets Financial assets at fair value where the revaluation is taken to the income statement Held for trading: Shares 5,593 5,805 Bonds 39,070 36,882 Loans guaranteed by mortgages and other loans 10 9 Derivatives 1,342 1,450 46,015 44,146 Designated at fair value: Deposits with credit institutions 2,025 1,657 Investment assets related to unit-linked contracts 3,283 4,313 5,308 5,970 Total financial assets at fair value where the revaluation is taken to the income statement 51,323 50,117 Loans and receivables at amortised cost Loans to associated companies Amounts due from policyholders Amounts due from insurance companies Other debtors Liquid funds Other ,704 1,405 Total financial assets 53,027 51,522 The book value of loans and receivables at amortised cost approximately corresponds to fair value. (DKKbn) Inputs based 2011 Quoted on observable Financial assets recorded at fair value prices market data Total Held for trading: Shares Government bonds Mortgage bonds CDOs Credits Other Bonds Loans guaranteed by mortgages and other loans Derivatives Designated at fair value: Deposits with credit institutions Shares Unit trusts Bonds Derivatives Investment assets related to unit-linked contracts Total financial assets at fair value Page 71 of 101

74 Notes to the financial statements Group (DKKbn) Note 39. Financial assets - continued Inputs based 2012 Quoted on observable Financial assets recorded at fair value prices market data Total Held for trading: Shares Government bonds Mortgage bonds CDOs Credits Other Bonds Loans guaranteed by mortgages and other loans Derivatives Designated at fair value: Deposits with credit institutions Shares 1.7 (0.0) 1.7 Unit trusts Bonds Derivatives Investment assets related to unit-linked contracts Total financial assets at fair value The Group has no financial assets recorded at fair value using valuation models based on non-observable inputs. (DKKm) Allowance account (policyholders and insurance companies): 1 January Changes 7 ( 5) 31 December Group companies have agreed to lend equities against security: Book value of equities lent 1,591 1,156 Fair value of bonds received as security for the loan 2,881 1,526 Note 40. Financial liabilities Financial liabilities measured at fair value through the income statement Held for trading: Derivatives Designated at fair value: Amounts due to credit institutions 5,997 2,007 Total financial liabilities measured at fair value through the income statement 6,534 2,029 Financial liabilities measured at amortised cost Subordinated loan capital 1,150 1,153 Deposits with ceding undertakings Creditors arising out of direct insurance operations Creditors arising out of reinsurance operations Bond loans Amounts due to associated companies 0 7 Current tax liabilities Other creditors 952 1,097 Total financial liabilities measured at amortised cost 2,471 2,655 Total financial liabilities 9,005 4,684 Book value of financial liabilities at amortised cost approximately corresponds to fair value, except for hybrid core capital (DKK 406m) with an assumed value lower than nominal value. Page 72 of 101

75 Notes to the financial statements Group (DKKm) Note 40. Financial liabilities - continued Financial liabilities payable after five years or more: Subordinated loan capital Amounts due to credit institutions 5 5 Financial liabilities recorded at fair value Observable inputs Held for trading: Derivatives Designated at fair value: Amounts due to credit institutions 5,997 2,007 Total financial liabilities recorded at fair value 6,534 2,029 Note 41. Settlement of assets and liabilities Except for tangible and intangible assets, investment properties, investments in associated companies and CDOs most other assets are expected to be settled within a year. It is expected that the following significant liabilities will be settled 12 months or more after the balance sheet date: Subordinated loan capital 1,150 1,153 Provisions for unearned premiums Guaranteed benefits 18,121 19,410 Bonus potential on future premiums 3,345 3,338 Bonus potential on paid-up benefits 2,033 1,673 Provisions for claims and benefits 9,564 10,121 Collective bonus potential Provisions for unit-linked contracts 3,162 4,121 Deferred tax on security funds ,410 41,067 Note 42. Analysis of assets and their return - life insurance Book value Net Return 1 January 31 December investment (%)* Land and buildings, directly owned 3,522 3,425 (70) 4.1 Limited property companies 1,038 1,041 (23) 2.0 Total land and buildings 4,560 4,466 (93) 3.6 Listed Danish shares 1,208 1,257 (161) 22.4 Unlisted Danish shares (1.0) Listed foreign shares 2,686 2,375 (568) 6.2 Unlisted foreign shares Total other shares 4,568 4,725 (373) 10.8 Government bonds (Zone A) 1,335 2, Mortgage bonds 18,156 15,043 (3,516) 2.8 Index-linked bonds 1,622 1,561 (137) 7.1 Credit bonds investment grade 1,841 2, Credit bonds non-investment grade and emerging market bonds 2,239 2, Other bonds 8 2 (5) 1.1 Total bonds 25,201 24,186 (1,883) 7.1 Other financial investment assets 1,541 1,173 (435) 0.1 Derivatives to hedge against the net change in assets and liabilities** 1,218 1,340 Page 73 of 101

76 Notes to the financial statements Group (DKKm) Note 42. Analysis of assets and their return - life insurance - continued * Annual return as a percentage before pension return and corporation tax. ** Life V has invested in interest rate options - Euro-CMS-floors with a strike rate of 5% - to hedge the guaranteed benefits. 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 2012 was DKK 4,130m (2011: DKK 3,703m). Note 43. Exposure information Non-life insurance Event Effect on shareholders' equity pp increase in interest rates (35) (157) pp decline in interest rates (3) % decline in equity prices (122) (137) 8% decline in property prices (100) (103) Exchange rate exposure (VaR 99.0%) (11) (10) Loss on counterparties of 8% (180) (186) Life insurance Max. effect on bonus potential on benefits on paid-up policies Max. effect on Max. effect on before change bonus potential collective in bonus poten- used for 2011 Min. effect on bonus tial used for benefits on Event capital base potential such benefits paid-up policies pp increase in interest rates (127) (48) 718 (26) pp decline in interest rates (910) (95) 12% decline in equity prices (7) (96) 0 (366) 8% decline in property prices (61) (77) 0 (157) Exchange rate exposure (VaR 99.0%) (3) (4) 0 (3) Loss on counterparties of 8% (86) (108) 0 (185) 10% decline in mortality intensity (6) (83) (10) (22) 10% increase in mortality intensity % increase in disability intensity 0 (16) (6) (4) 2012 Event pp increase in interest rates (148) (106) 1, pp decline in interest rates (1,008) (130) 12% decline in equity prices (12) (131) 0 (368) 8% decline in property prices (59) (92) 0 (146) Exchange rate exposure (VaR 99.0%) (3) (2) 0 (3) Loss on counterparties of 8% (74) (115) 0 (182) 10% decline in mortality intensity (8) (86) (9) (24) 10% increase in mortality intensity % increase in disability intensity 0 (19) (4) (5) Page 74 of 101

77 Notes to the financial statements Group (DKKm) Note 44. Shares analysed by industry and region (%) - life insurance Other North South Other Other Not 2012 Denmark Europe America America Japan Far East countries analysed Total Energy Materials Industrial Consumer durables Consumer goods Health care Financial IT Tele-communication Supply Not analysed Total A list of the shares held by the companies can be ordered from the company. Note 45. Leasing Finance lease for mainframe CPU: Minimum lease Present Book 2011 payment Interest value liabilities 0-1 years years years years Operational finance leases: years years years years Note 46. Core capital and capital base Shareholders' equity according to Danish rules * 4,915 5,716 Deferred tax assets (0) (1) Hybrid core capital Capital adequacy requirements for insurance companies 50% (1,540) (1,521) Core capital 3,779 4,600 Capital adequacy requirements for insurance companies 50% (1,540) (1,521) Capital base 2,240 3,078 Weighted items 3,689 4,238 Core capital as a percentage of weighted items Solvency ratio Solvency requirement (%) * 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. Page 75 of 101

78 Notes to the financial statements Group (DKKm) Note 47. Number of shares Reconciliation of the number of shares ('000) Shares issued at 1 January 17,087 14,826 Own shares at 1 January (2,615) (1,494) Number of shares at 1 January 14,472 13,332 Shares bought back (1,360) (1,141) Shares issued Shares sold Shares issued at 31 December 14,826 13,750 Own shares at 31 December (1,494) (1,356) Number of shares at 31 December 13,332 12,394 Note 48. Own shares Number of Nominal Percentage Bought shares value of share /sold '000 DKKm capital DKKm Held at 1 January , Bought back in , ,159 Sold (80) (1) 0.5 (69) Written down (2,401) (24) - Held at 31 December , Bought back in , ,200 Sold (203) (2) 1.5 (179) Written down (1,076) (11) - Held at 31 December , Number of shares held to cover the granting of options: 402,000 (2011: 498,000) Note 49. Provision of security The Group's insurance companies have registered the following assets as security for technical provisions: Shares in associated companies Loans to associated companies Shares 4,390 4,516 Bonds 32,406 33,479 Deposits with credit institutions 1,641 1,560 Investment assets related to unit-linked contracts 3,282 4,278 Liquid funds Accrued interest Shares in and amounts due from affiliated companies eliminated in the consolidated accounts 7,767 7,464 50,862 52,608 Bonds provided as security for loans in accordance with standard repo-contracts for Danish mortgage and government bonds 5, Other provision of security Page 76 of 101

79 Notes to the financial statements Group (DKKm) Note 50. Contingent liabilities Adjustments to VAT liabilities Other liabilities 9 10 Capital commitments made to loan funds and private equity funds Share of associated companies' liabilities: Contract liabilities The Group companies participate in technical insurance collaboration where they are jointly liable for the insurance liabilities. The companies are also jointly liable for A-tax and payroll tax etc. and VAT chargeable to the jointly registered companies. Note 51. Comparatives The Group has made a change in the presentation of interest rate options, see accounting polices. The change has effect on a few items in the income statement and the cash flow statement. Annual Comreport Adjust- paratives Adjustment of comparatives for 2011: 2011 ment in 2012 Income statement Interest income and dividends etc. 2,058 (88) 1,970 Revaluations (683) 88 (595) Cash flow statment Interest income and dividends etc. 2,289 (88) 2,201 Total cash flow from operations 1,424 (88) 1,336 Derivatives Total investments (1,856) 88 (1,769) Note 52. Companies Name Registered office Activity Topdanmark A/S Ballerup Holding 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 Topdanmark Livsforsikring V A/S Ballerup Insurance Topdanmark Link Livsforsikring A/S Ballerup Insurance Topdanmark Livsforsikring II A/S Ballerup Insurance Topdanmark Livsforsikring III A/S Ballerup Insurance Nykredit Livsforsikring A/S Ballerup Insurance Topdanmark EDB II ApS Ballerup IT services TDLII.0018 ApS Ballerup Holding Topdanmark Ejendom A/S Ballerup Property TDE.200 ApS Ballerup Property TDE.201 ApS Ballerup Property Page 77 of 101

80 Notes to the financial statements Group Note 52. Companies - continued Name Registered office Activity Other companies: Topdanmark Kapitalforvaltning A/S Ballerup Asset management Topdanmark Invest A/S Ballerup Investment Hotel Kongens Ege ApS Ballerup Property Topdanmark Ejendomsadministration A/S Ballerup Property All of the companies are 100% owned. In the financial year TDE.700 A/S merged with Topdanmark Ejendom A/S. TDF.0141 ApS and TD.0151 ApS were liquidated by submitting a statement to the authorities. Note 53. Other disclosures The five-year summary in accordance with Section 91(a) of the Danish executive order on financial reports for insurance companies and lateral pension funds is the last page of Management's review. For further details see "Risk management", "Risk scenarios" and "Capital model" in "Management's review". Page 78 of 101

81 Notes to the financial statements Group Note 54. Accounting policies Topdanmark Group's 2012 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. For the financial year 2012, Topdanmark implemented a number of new standards and interpretations and revised others; the impact of this on the recognition and measurement was nil but there were minor clarifications to the notes. In 2013 the DFSA has updated its Executive Order on financial reporting for insurance companies and lateral pension funds. The Group has implemented part of this revision already for The changes relate to disclosure requirements having no impact on recognition and measurement. Change in accounting policies Topdanmark has made a change in the presentation of interest rate options in the income statement and consequently also in the cash flow statement. Principally derivatives are included in the income statement under equity gains. However, so far and most recently in Q3 2012, settled interest rate options to hedge guaranteed benefits calculated as the difference between the interest rate agreed and the market rate, have been presented under interest income and dividends etc. From Q this accounting policy has been amended to comply with the principal rule. Due to the change DKK 181m (2011: DKK 88m), which were included in interest income and dividends etc. in Q3, were transferred to equity gains. The change has no effect on the profit for the year, earnings per share or other principal statements of the consolidated financial statements, except for the consequent effect on the cash flow statement. The comparatives have been restated: see note on comparatives. There have been no other changes in accounting policies from those adopted in the 2011 Annual Report. Change in accounting estimates Inflation and interest rates Up to and including 2011, in workers' compensation insurance the calculation of the discounted value of expected future payouts was based on the assumption that the wage and salary indexation and the interest on mortgage bonds could be forecast as the forward inflation and the forward swap rate, respectively, with fixed allowances. With effect from 2012, this model has been changed to now using a specific estimate for development in each year. On the date of change the change in model had no effect on the size of overall provisions in workers' compensation. In illness / accident insurance the inflation assumptions used to calculate the value of the expected future payouts have changed from forward inflation to a specific estimate. On the date of change, 30 September 2012, the change had no effect on the size of overall provisions in illness / accident. Discount curve Technical provisions and other provisions have been calculated using the DFSA's changed discount curve which, for cash flows with maturity exceeding 20 years, was extrapolated using a fixed forward interest rate of 4.2%. On the date of change, 30 June 2012, this change in the discount curve reduced the provisions for outstanding claims by DKK 76m and life insurance provisions by DKK 102m. Acquisition costs and administrative expenses In 2011 and 2012 the decentralised sales organisation was converted from insurance outlets to larger sales centres. Subsequently the estimates and methods applied to allocate expenses between acquisition and administration were reconsidered. Thus the decline in administrative expenses and the increase in acquisition costs from 2011 to 2012 reflect partly the change in the use of resources, and partly the change in estimates. It has not been possible to calculate the value effect of the changed estimates, seen in isolation. Page 79 of 101

82 Future accounting regulation The IASB has issued a number of new and revised standards and interpretations which have not yet taken effect. Future changes to the rules are not expected to materially change Topdanmark Group s accounting policies. Accounting estimates and judgements In 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. The most significant estimates and judgements are made ín the calculation of the provisions for outstanding claims. Provisions for outstanding claims 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). The provision risk is significant, in particular in lines with a long period of claims settlement such as workers' compensation, accident, commercial and motor liability. The levels of compensation could be significantly affected by any changes in legislation, case-law or the practice in the award of damages adopted by, for example, the Danish National Board of Industrial Injuries. The 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. General Consolidated financial statements The consolidated financial statements include the parent company Topdanmark A/S and all of the companies that are controlled by the parent company. The parent company is considered to control the companies through direct or indirect ownership of more than 50% of the voting rights or when it can have or has an otherwise controlling influence. The income statement and balance sheet are presented in accordance with the DFSA's IFRS-compatible accounting order for insurance companies and lateral pension funds. Consolidation The consolidated financial statements have been prepared by aggregating items within the financial statements of the parent company and the subsidiaries on a line-by-line basis. The same accounting policies are applied by the subsidiaries as by the parent company. Properties owned by the subsidiaries and used by the Group have been re-classified from investment properties to owner-occupied properties. Intra-group income and expenses, shareholdings, balances and dividends as well as gains and losses on intra-group transactions have all been eliminated. Companies acquired during the year have been included in the consolidation from the date of assumption of control and those companies sold during the year, until the date of relinquishment of control. Recognition and measurement Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the Group and where the asset has a value that can be measured reliably. Liabilities are recognised in the balance sheet when 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. Income is recognised in the income statement when earned. Similarly, all expenses are recognised which relate to the financial year, including amortisation and impairment. The 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 Page 80 of 101

83 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. True sale and repurchase transactions and true purchase and resale transactions (repo / reverse transactions) are recognised and measured as secured loans. Insurance and investment contracts classification The Topdanmark Group writes contracts which transfer insurance risk, investment risk or both. An insurance contract is a contract under which the insurer accepts significant insurance risk from the policyholder by agreeing to compensation if a specified uncertain future event adversely affects the policyholder. Insurance risk is always considered to be material in nonlife insurance. In life insurance it is considered to be material when it covers the effect of disability (including the effect of premiums waived) and mortality (where the benefit exceeds the total savings of the policy). An 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. Currencies As the predominant rule, DKK is the Group companies' functional currency and the presentation currency of the Annual Report. The initial recognition of transactions in currencies other than DKK is made at the exchange rates prevailing at the date of the transactions. Debtors, creditors and other monetary items which have not been settled on 31 December are translated at the closing exchange rates on 31 December. Translation differences are disclosed in Revaluations in the Income Statement. Income 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. Exchange rate differences on the translation of foreign associated companies are included in Other comprehensive income. Expenses Expenses 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. Expenses which do not directly relate to a function are allocated proportionally on the basis of the size of the direct expenses. Share-based payments Share options The Executive Board and Senior Executives participate in a share option scheme. The fair value, on the date the option is granted less the subscription proceeds, is included in staff costs in the income statement, with the relevant credit shown as a change in equity. The fair value is calculated using the Black & Scholes model and in accordance with IFRS 2 on share-based payments. The options are settled with own shares. Any strike amount received on the exercise of the options is taken to shareholders equity. Employee shares The 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. Calculation of profit in life insurance The calculation of profit for those life insurance companies with portfolios of bonus-participating policies (Topdanmark Livsforsikring and Topdanmark Livsforsikring V) is regulated by the Danish Financial Business Act. The definition of Topdanmark's policy on the calculation of the profit for the year has been reported to the DFSA. Page 81 of 101

84 The result of life insurance comprises unconditional and conditional profit elements. The unconditional profit elements comprise the return on assets allocated to shareholders' equity including subsidiaries with unit-linked activities, acquisition cost result and the profit on policies outside of contribution. The 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. The risk return is only transferred to shareholders' equity where it can be covered by a sufficient "insurance technical profit before bonus contribution" for each contribution group. Any surplus risk return is transferred to a shadow account which will be included as income when the group returns to being in profit. If there is an "insurance technical loss before bonus contribution", which exceeds the collective bonus potential and the individual bonus potential, the excess will be debited to shareholders' equity. The result of life insurance and how the "insurance technical result before bonus contribution" is allocated is disclosed in a note. Segment information Topdanmark has divided its non-life insurance business into the following two business segments: Personal includes policies for individual households sold by Topdanmark's own sales channels and its distribution partners. SME 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. Management reporting at this segment level comprises only reporting on the technical result but no reporting on assets and liabilities. Life insurance is considered to be a separate business segment. The recognition and measurement of the information reported by each segment follow the same accounting policies as those applied by the Group. Topdanmark conducts insurance business only in Denmark and therefore no specific geographical segmental information is provided. Ratios The financial ratios have been calculated in accordance with the definitions of ratios issued by the Danish Society of Investment Professionals in 2010, except for profit per share and diluted profit per share which have been calculated in accordance with IAS 33 Earnings per share. 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. Recognising that the interests of different portfolios are different, Topdanmark has established a portfolio-based structure of life insurance companies offering, among other services, different investment strategies to different groups of customers. Each company presents its ratios in its own annual report where further details are available. Cash flow statement The 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. Income statement Premiums earned Gross premiums in non-life insurance comprise those premiums receivable during the year and an estimate of premiums on insurance contracts written, either directly or indirectly, for which the period of risk has commenced before the end of the financial year. They do not include own risks. Premiums earned net of reinsurance comprise Page 82 of 101

85 gross premiums for the year adjusted for changes in the provisions for unearned premiums and net of reinsurance. Effectively, this means the premiums are being recognised in line with the distribution of risk over the period of cover. In 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. Technical interest net of reinsurance in non-life insurance The technical result on non-life insurance includes a return on the technical provisions net of reinsurance. The interest on the provisions is calculated using the relevant interest rate corresponding to the expected date of settlement. The discount expense of the regular revaluation of the present value of the provisions until the expected time of settlement is offset against the interest income. The interest and discount expense on discounted provisions, primarily provisions for outstanding claims net of reinsurance, are calculated on the same basis. Accordingly the interest and discount expense on discounted provisions are exactly netted off each other. For non-discounted provisions, primarily provisions for unearned premiums net of reinsurance, the interest on the average value of the provisions is calculated using the relevant interest rate corresponding to the weighted average date of settlement. Allocated investment return net of reinsurance in life insurance The investment return is calculated as the overall investment return in the life insurance group net of the proportion of the investment return relating to illness and accident insurance and the proportion transferred to shareholders' equity in accordance with the definition of profit reported to the DFSA. Claims incurred and benefits paid In non-life insurance, claims incurred net of reinsurance comprise claims paid during the year adjusted for changes in the provisions for outstanding claims and net of the reinsurers' share. Accordingly, claims incurred comprise known and expected claims relating to the year as well as any adjustments to the provisions made in previous years. Furthermore they comprise direct and indirect expenses on claims handling. However, the proportion of the change in provisions for outstanding claims relating to changes in discounting and revaluation is included in technical interest net of reinsurance and revaluations respectively. Topdanmark has entered into swaps partially hedging the provisions for workers compensation and annuities in illness and accident insurance against changes in future wage and price indexation. The revaluation of these swaps is included in Claims incurred. In life insurance, claims and benefits paid net of reinsurance comprise payments relating to claims, surrenders and cash bonuses. Bonuses and rebates Bonuses 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 Technical 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. Investment activities Income from associated companies comprises a share of the post-tax results of the associated companies calculated in accordance with the Group's accounting policies. Income from investment properties comprises the operating results excluding interest charges and revaluations that have been disclosed separately in the financial statements. Interest, dividends etc. comprise all interest, dividends etc. earned in the financial year. Realised and unrealised gains and losses on investment assets and changes in the provisions for outstanding claims net of reinsurance due to changes in the interest rate structure are included in revaluations, which also includes exchange rate adjustments and realised gains and losses on owner-occupied properties. Administrative Page 83 of 101

86 expenses on investment activities comprise the cost of asset management including transaction costs. Pension return tax Pension 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. Other income and expenses Other income and expenses that do not relate to the administration of insurance portfolios or investment assets are included in Other income and expenses. Taxation The tax charge for the year comprises the current corporation tax for the year and any changes in deferred tax. The 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. Topdanmark 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. The 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 Goodwill 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. Acquired software licences are measured at cost and amortised on a straight-line basis over the expected useful life of a maximum of three years. Development projects which are clearly defined and definable are measured at cost at the amount of external costs incurred and 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. Intangible 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 Machinery 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 an indication of impairment, the book value is written down to its recoverable amount. Finance 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. 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 Owner-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 over their expected life of 50 years, although 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. Page 84 of 101

87 Investment properties The initial recognition of investment properties is made at cost and subsequent recognitions are made at fair value with revaluations in the income statement. A value has been calculated for each property on the basis of an expected future return on its operations and a rate of return (required yield). This value is adjusted for any special conditions having a temporary effect on the earning capacity of the property as well as the level of maintenance required on each property. The yield has been fixed taking into account the relevant market conditions for each type of property, its position, use, tenure of lease etc. and sales efforts within a reasonable time frame. The properties are reviewed and assessed annually by the Group's own valuation experts. Associated companies Shares held in associated companies are measured at their net asset value, in accordance with the Group's accounting policies. Associated companies are companies which are not subsidiaries although the Group has substantial influence through a significant shareholding and representation on the board of the company. Financial assets Financial assets are classified at the time of their initial recognition as: Financial assets which are measured at fair value with any value adjustment taken to the income statement or Loans and receivables which are measured at amortised cost. Financial assets at fair value with any value adjustment taken to the income statement are financial assets which either are included in a trading portfolio, are derivatives or at the time of their first recognition are included in this classification because the assets are managed and measured on a fair value basis or because this eliminates or significantly reduces accounting inconsistency. All financial assets included in "other financial investments assets" and "investment assets related to unit-linked contracts" are measured at fair value with any value adjustment taken to the income statement. Measurement of fair value The calculation at fair value is based on the listed prices of transactions in active markets. If there is an active market for listed shares, bonds, derivatives etc., the measuring is generally based on the closing price on 31 December. If there is no closing price, another public price is used which is believed to be the most appropriate. Valuation methods or other publicly available information are used to value listed securities where the closing price does not reflect the fair value. Valuation methods are based on publicly available market data. If there is no active market for the financial instrument, depending on the nature of the asset or liability, the calculation is based on underlying parameters such as interest and foreign exchange rates, volatility or comparison with the market prices of corresponding instruments. Receivables that are measured at amortised cost The initial recognition of receivables is made at fair value and subsequent recognitions are made at amortised cost. Amounts due from finance leases are included at the net investment in the lease contract. The receivables are regularly assessed for impairment and written down to their recoverable amount, as required. Such impairments are generally made collectively on the basis of the receivable ageing analysis. When an individual receivable is considered irrevocable, the value of the impairment is transferred out of the account for collective allowances. Reinsurers' share Reinsurers' share of the provisions for unearned premiums represents the proportion of reinsurance premiums paid which, net of commission received and based on the spread of risk during the period of cover, relate to the period after the end of the financial year. Reinsurers' share of the provisions for 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 impairment and written down to its recoverable amount, as required. Liabilities Shareholders' equity Revaluation reserves Gains 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. Page 85 of 101

88 Security fund reserves The security funds are special funds under shareholders' equity. Prior to 1989 they were transferred to shareholders' equity for capital adequacy and were taxdeductible. The security funds can only be used for strengthening the technical provisions or otherwise for the benefit of policyholders and only if permitted by the DFSA. Other reserves Other reserves comprise a reserve at net asset value relating to non-life insurance. Subordinated loan capital The initial recognition of subordinated loan capital is made at fair value less transaction costs and subsequently measured at amortised cost. Provisions for insurance and investment contracts Provisions for unearned premiums These provisions represent the proportion of premiums collected which, based on the spread of risk during the period of cover, relates to the period after the end of the financial year. The provisions for unearned premiums cover future payments of claims not yet incurred in the remaining period of risk as well as administration costs of the insurance contracts written. Therefore they are calculated per line of business at the present value of these amounts, as a minimum. The sufficiency of the provisions is regularly tested on the basis of the current expectations of future cash flow. Life insurance provisions Life insurance provisions are measured at fair value. Accordingly, the liabilities are calculated on the basis of the market value independent of the original technical base. The fair value of the life insurance provisions is based on the realistically expected future premiums to be received, benefit payments to be made and administrative expenses incurred on the contracts written. The 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. Remaining life expectancy for a 60 year old man and a 60 year old woman is as follows: Remaining 60 year old 60 year old life expectancy man woman Life I Life V DFSA's benchmark Provisions for claims incurred are calculated using an inhouse statistical model that is based on the relationship between the possibility of resumption of work and the period passed since the occurrence of the claim. The provisions include amounts to cover the expected expenses on the future administration of the insurance contracts written. These expenses have been calculated using an annual indexation of 2%. The 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%. The 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%. Guaranteed benefits have been calculated without taking into account the conversion of insurance contracts into paid-up policies and surrenders. The liabilities are disclosed in the balance sheet as follows: Guaranteed pension benefits are measured as the present value of current guaranteed benefits plus future administrative expenses less the present value of the agreed premiums. Guaranteed benefits also include provisions for group life policies and provisions for claims incurred but not reported (IBNR). Page 86 of 101

89 Bonus potential on future premiums comprises the present value of the agreed future premiums less the present value of the guaranteed benefits originating from these premiums. Bonus 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 Provisions for claims and benefits cover future payments of claims incurred and their administration. Provisions 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. Inflation is taken into account when calculating the value of the provisions as future inflation is implicitly included in a number of the statistical models used. Therefore, an expected higher future inflation rate would generally be included in the provisions with a specific time delay. Provisions for claims and benefits in workers' compensation insurance comprise provisions for annuities and other provisions for claims and benefits. The assessment of the future annuities is based on the present annuities including the expected wage and salary indexation and a rate of mortality corresponding to G82 with monthly age write-downs. Workers compensation claims are often paid as the capitalised value of an annuity. The capitalisation rate at the time of capitalisation is to be calculated as a moving average of the most recent five years interest rate on leading mortgage bonds less tax. The capitalisation rate is calculated as the forward swap rates plus 0.85% p.a. and less a deduction for tax corresponding to the base tax rate. The 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. Topdanmark has entered into swaps partially hedging the provisions for workers compensation and annuities in illness and accident insurance against changes in future wage and price indexation. The revaluation of these swaps is included in claims incurred. The 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. All provisions have been measured at present value by discounting the expected future payments using DFSA's interest rate structure. In illness and accident insurance, which is administered by the life insurance companies, each interest rate used of the interest rate structure is reduced by the tax rate of 15.3%. Page 87 of 101

90 The sufficiency of the provisions is regularly tested on the basis of the current expectations of future cash flow. Provisions for claims and benefits in life insurance comprise insurance benefits due but not yet paid. Provisions for bonuses and rebates Provisions for bonuses and rebates are the amounts payable to policyholders as the result of a favourable claims trend. Collective bonus potential The 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 "insurance technical losses before bonus contribution" relating to bonus eligible insurance contracts. Provisions for unit-linked contracts Provisions 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 Provisions for anniversary bonuses and retirement benefits are built up on an on-going basis over the period of employment. The liability is calculated taking into account the expected level of staff reduction based on the 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 Current tax liabilities and tax receivable, including joint tax contributions, are included in the balance sheet as calculated tax on taxable income for the year adjusted for tax on previous years' taxable income and prepaid tax on account. Deferred tax on temporary differences between the accounting and tax value of assets and liabilities is charged in accordance with the balance sheet liability method. Deferred tax on 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. Deferred 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 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. Deposits received from reinsurers Deposits received from reinsurers represent amounts deposited to cover reinsurers' liabilities to the Company. Creditors Amounts 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. Other loans, including employee bonds, are measured at their amortised cost. Other Generally all the amounts in the report are disclosed in whole numbers of DKKm. The amounts have been rounded and consequently the sum of the rounded amounts and totals may differ slightly. Page 88 of 101

91 Topdanmark s Annual Report 2012 Income statement Parent company (DKKm) Note Income from affiliated companies 1 1,068 1,825 Revaluations 2 1 (1) Interest charges (27) (20) Total investment return 1,042 1,804 Other expenses 3 (33) (34) PRE-TAX PROFIT 1,009 1,770 Taxation PROFIT FOR THE YEAR 1,023 1,823 Proposed appropriation of profit for the year: Transfer to net revaluation reserve at net asset value 1,068 1,825 Transfer to profit carried forward (45) (2) 1,023 1,823 Statement of comprehensive income Parent company Profit for the year 1,023 1,823 Other comprehensive income in affiliated companies 1 2 Other comprehensive income 1 2 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,024 1,825 Page 89 of 101

92 Topdanmark s Annual Report 2012 Balance sheet Parent company (DKKm) Note Assets Machinery and equipment TOTAL TANGIBLE ASSETS 4 3 Shares in affiliated companies 6 6,285 6,714 Total investment in affiliated companies 6,285 6,714 Bonds 1 1 Total other financial investment assets 1 1 TOTAL INVESTMENT ASSETS 6,286 6,715 Amounts due from affiliated companies TOTAL DEBTORS Deferred tax assets Liquid funds 4 3 TOTAL OTHER ASSETS 4 4 TOTAL ASSETS 6,408 6,895 Shareholders' equity and liabilities Share capital Other reserves 2,563 2,991 Total reserves 2,563 2,991 Profit carried forward 2,204 2,587 TOTAL SHAREHOLDERS' EQUITY 4,915 5,716 SUBORDINATED LOAN CAPITAL Bond loans Amounts due to affiliated companies Current tax liabilities Other creditors TOTAL CREDITORS 1, TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 6,408 6,895 Related parties 10 Core capital and capital base 11 Own shares 12 Contingent liabilities 13 Other note disclosures 14 Accounting policies 15 Page 90 of 101

93 Topdanmark s Annual Report 2012 Statement of changes in equity Parent company (DKKm) Share Other Profit carried capital reserves forward Total 2011 Shareholders' equity at 31 December prior year 171 1,845 2,884 4,901 Profit / (loss) for the year 1,068 (45) 1,023 Other comprehensive income in affiliated companies Total comprehensive income for the year 1,069 (45) 1,024 Dividends received from subsidiaries (341) Other movements in capital of subsidiaries (10) 14 4 Cancellation of own shares (24) 24 0 Share buy-back (1,159) (1,159) Sale of employee shares Issue of share options 7 7 Exercise of share options / warrants Other transactions (23) (351) (635) (1,009) Shareholders' equity at 31 December ,563 2,204 4, Shareholders' equity at 31 December prior year 148 2,563 2,204 4,915 Profit / (loss) for the year 1,825 (2) 1,823 Other comprehensive income in affiliated companies Total comprehensive income for the year 1,826 (2) 1,825 Dividends received from subsidiaries (1,388) 1,388 0 Other movements in capital of subsidiaries (9) 13 4 Taxation (1) (1) Cancellation of own shares (11) 11 0 Share buy-back (1,200) (1,200) Sale of employee shares Issue of share options 7 7 Exercise of share options Other transactions (11) (1,398) 385 (1,024) Shareholders' equity at 31 December ,991 2,587 5,716 Page 91 of 101

94 Topdanmark s Annual Report 2012 Notes to the financial statements Parent company (DKKm) Note 1. Income from affiliated companies Topdanmark Forsikring A/S 955 1,761 Adjustment 10 9 Topdanmark Invest A/S 15 (17) Topdanmark Kapitalforvaltning A/S Other (1) 0 Income from affiliated companies 1,068 1,825 Note 2. Revaluations Subordinated loan capital 1 (1) Revaluations 1 (1) Note 3. Other expenses Holding expenses Other expenses Note 4. Taxation Current tax Change in deferred tax (1) 1 Prior year adjustment 1 39 Taxation Pre-tax profit excl. income from affiliated companies Calculated tax (25%) Adjusted for the tax effect of: Non-deductible expenses / income not liable to tax (1) (1) Prior year adjustment Effective rate of taxation Note 5. Machinery and equipment Cost at 1 January 5 4 Disposals (1) 0 Cost at 31 December 4 4 Impairment and amortisation at 1 January (1) (0) Impairment and amortisation at 31 December (0) (1) Machinery and equipment 4 3 Note 6. Shares in affiliated companies Topdanmark Forsikring A/S 5,964 6,427 Topdanmark Invest A/S (investment) Topdanmark Kapitalforvaltning A/S TD.0151 ApS (Investment) Other 0 1 Shares in affiliated companies 6,285 6,714 The affiliated companies are domiciled in Ballerup. Page 92 of 101

95 Topdanmark s Annual Report 2012 Notes to the financial statements Parent company (DKKm) Note 7. Deferred tax assets Other Deferred tax assets Changes relating to the year (1) 1 Note 8. Share capital DKK Share capital at 1 January 170,869, ,258,960 Reduction in capital (24,008,570) (10,758,960) Increase in capital 1,398,000 0 Share capital 148,258, ,500,000 Each of Topdanmark's 13,750,000 (2011: 14,825,896) shares has a nominal value of DKK 10. No share enjoys any special rights. The shares are freely tradeable. Each share has one vote. Note 9. Subordinated loan capital In 2007 Topdanmark A/S issued EUR 55m of hybrid core capital. This bullet loan has no final maturity date but if permitted by the DFSA, the debtor can give notice of termination as from 15 September 2017 at par. The loan carries a floating interest rate determined as EURIBOR 3 months %. From 15 September 2017 increased to EURIBOR 3 months %. Share of loan included in capital base Interest charges Note 10. Related parties Topdanmark A/S has no related parties with controlling influence. Related parties with significant influence comprise the Board of Directors, the Executive Board and their families. Remuneration of the Board of Directors Directors' fees were DKK 4,631,000 (2011: DKK 4,275,000) of which DKK 244,000 (2011: 225,000) related to Topdanmark Forsikring A/S. Fee (DKK '000): Michael Pram Rasmussen 1,200 1,300 Anders Knutsen Anders Colding Friis Charlotte Hougaard Jens Maaløe Annette Sadolin Desiree Schultz Søren Thorup Sørensen Trine Zappe Knud J. Vest Ole Døssing Christensen 83 - Per Krogsgaard Mathiesen 83 - Total fee paid to nine Board members 4,275 4,631 The Board of Directors receive only a fixed remuneration. Page 93 of 101

96 Topdanmark s Annual Report 2012 Notes to the financial statements Parent company (DKKm) Note 10. Related parties - continued Remuneration of the Executive Board The Company has paid no remuneration to the Executive Board but an adminstration agreement provides that it pays a share of the overall remuneration paid to the Executive Board Salaries etc Employee shares 1 1 Share options 1 2 Total remuneration to three members of the Executive Board Christian Sagild Kim Bruhn-Petersen Lars Thykier % of the fixed salary etc. paid to the Executive Board is paid as share options. The Executive Board receives only a fixed remuneration. The Group has no unhedged pension commitments. Significant risk taker Besides the Executive Board one employee of the Group has significant influence on its risk profile. In accordance with an exemption clause this remuneration is not disclosed. Shares, bonds and subordinated notes held by the Board of Directors and Executive Board Board of Directors Number of shares 2,908 3,083 Bonds, nominal value DKK ' Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 19,610 19,610 Executive Board Number of shares 35,630 30,635 Bonds, nominal value DKK '000 1,364 1,364 Subordinated notes (subordinated loan capital) Topdanmark Forsikring, nominal value DKK '000 3,850 0 Share options Topdanmark's share option scheme is for its Executive Board and senior executives. The strike price has been fixed at 110% of the market price on the last trading date in the prior financial year (average of all trades). The options can be exercised 3-5 years subsequent to the granting. The scheme is settled by shares (equity instruments). The Group's overall option scheme is disclosed in the Group note on staff costs. Affiliated companies Expenses charged Dividends received 341 1,388 Interest charged 6 1 Expenses on investment business are settled on market conditions. Other expenses are charged to cover costs incurred. Average effective interest rate on balances is 0.13% (2011: 0.90%). Shares are disclosed in the balance sheet and specified in the note on Shares in affiliated companies. Balances are disclosed in the balance sheet. Page 94 of 101

97 Topdanmark s Annual Report 2012 Notes to the financial statements Parent company (DKKm) Note 11. Core capital and capital base Shareholders' equity 4,915 5,716 Deferred tax assets (0) (1) Hybrid core capital Capital adequacy requirements for insurance companies 50% (1,540) (1,521) Core capital 3,779 4,600 Capital adequacy requirements for insurance companies 50% (1,540) (1,521) Capital base 2,240 3,079 Weighted items 3,846 4,390 Core capital as a percentage of weighted items Solvency ratio Solvency requirement (%) Solvency has been calculated according to the rules for financial services holding companies. Note 12. Own shares Number of Nominal Percentage Bought shares value of share /sold Parent company '000 DKKm capital DKKm Held at 1 January , Bought back in , ,159 Sold (80) (1) 0.5 (69) Written down (2,401) (24) - Held at 31 December , Bought back in , ,200 Sold (203) (2) 1.5 (179) Written down (1,076) (11) - Held at 31 December , Note 13. Contingent liabilities Other liabilities 0 1 A number of subsidiaries have been liquidated by submitting a statement to the authorities. The Company guarantees that debt in these companies has been paid. Note 14. Other disclosures The five-year summary in accordance with Section 91(a) of the Danish executive order on financial reports for insurance companies and lateral pension funds is included in financial highlights on page 3. Risk disclosures in accordance with Section 91(b) are included in Management's review for the Group in Risk management and Risk scenarios and in Note 1 of the consolidated financial statements. Page 95 of 101

98 Topdanmark s Annual Report 2012 Notes to the financial statements Parent company Note 15. Accounting policies The annual financial statements for the parent company Topdanmark A/S have been prepared in accordance with the Danish Financial Business Act, including the executive order issued by the Danish Financial Supervisory Authority (DFSA) on financial reports for insurance companies and lateral pension funds (nationwide, occupational pension funds specific to Denmark). There have been no other changes in accounting policies from those adopted in the 2011 Annual Report. Differences from the Group's accounting policies The company's accounting policies for recognition and measurement are in accordance with the Group's accounting policies with the following exceptions: Shares held in affiliated companies are recognised and measured at their net asset value. If the net asset value exceeds the recoverable amount, the investment is written down to this lower amount. The share of the posttax results of 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. The 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 Generally all the amounts in the report are disclosed in whole numbers of DKKm. The amounts have been rounded and consequently the sum of the rounded amounts and totals may differ slightly. Page 96 of 101

99 Topdanmark s Annual Report 2012 Disclaimer This Annual Report includes statements relating to the future. Such statements are uncertain and involve both general and specific risks. Many 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. Also see Risk management. The above description of risk factors is not exhaustive. Investors and others, who may base decisions relating to Topdanmark on statements relating to the future, should make their own careful considerations on these and other factors of uncertainty. Topdanmark s statements relating to the future are solely based on information known at the time of the preparation of this Annual Report. This publication is a translation. In case of any divergence, the original Danish text shall prevail. Page 97 of 101

100 Topdanmark s Annual Report 2012 Statement by Management on the Annual Report We have today considered and approved the Annual Report of Topdanmark A/S for The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU, and the annual financial statements for the Company are presented in accordance with the Danish Financial Business Act. Further, the Annual Report is presented in accordance with additional Danish disclosure requirements for listed financial services companies. In our opinion, the consolidated financial statements and annual financial statements give a true and fair view of the Group s and the Company's assets, liabilities and financial position at 31 December 2012 as well as of the Group s and the Company s financial performance and the Group s cash flow for the financial year 1 January to 31 December We believe that the management review contains a fair review of the development of the Group s and Company s activities and financial position, together with a description of the most material risks and uncertainties by which the Group and the Company can be affected. We recommend the Annual Report for adoption at the Annual General Meeting. Ballerup, 5 March 2013 Executive Board: Christian Sagild Kim Bruhn-Petersen Lars Thykier (CEO) Board of Directors: Michael Pram Rasmussen Anders Knutsen Anders Colding Friis (Chairman) (Deputy Chairman) Charlotte Hougaard Jens Maaløe Annette Sadolin Desirée Schultz Søren Thorup Sørensen Trine Zappe Page 98 of 101

101 Topdanmark s Annual Report 2012 Statements by the auditors Internal audit s reports Report on the consolidated financial statements and annual financial statements We have audited the consolidated financial statements and annual financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2012, 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. Management 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. Audit for the year We conducted our audit on the basis of the Danish Financial Supervisory Authority s regulation on the preparation of the audit in financial services companies etc. and financial services groups and in accordance with International Standards on Auditing. This requires that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and annual financial statements are free from material misstatement. We have participated in the audit of the material and risky areas. An 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated financial statements give a true and fair view of the Group s assets, liabilities and financial position at 31 December 2012, and of the results of its activities and cash flows for the financial year 1 January to 31 December 2012 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies. Further, in our opinion, the annual financial statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2012, and of the results of its activities for the financial year 1 January to 31 December 2012 in accordance with the Danish Financial Business Act. Statement on the management review Pursuant 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. On this basis, it is our opinion that the information provided in the management review is consistent with the consolidated financial statements and annual financial statements. Ballerup, 5 March 2013 Leif Zilmer Head of Internal Audit Page 99 of 101

102 Topdanmark s Annual Report 2012 Independent auditor s reports To the shareholders of Topdanmark A/S Report on the consolidated financial statements and annual financial statements We have audited the consolidated financial statements and annual financial statements of Topdanmark A/S for the financial year 1 January to 31 December 2012, 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. Management s responsibility for the consolidated financial statements and annual financial statements Management 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. Auditor s responsibility Our responsibility is to express an opinion on the consolidated financial statements and annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and annual financial statements are free from material misstatement. An 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated financial statements give a true and fair view of the Group s assets, liabilities and financial position at 31 December 2012, and of the results of its activities and cash flows for the financial year 1 January to 31 December 2012 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial services companies. Further, in our opinion, the annual financial statements give a true and fair view of the Company's assets, liabilities and financial position at 31 December 2012, and of the results of its activities for the financial year 1 January to 31 December 2012 in accordance with the Danish Financial Business Act. Statement on the management review Pursuant 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. On this basis, it is our opinion that the information provided in the management review is consistent with the consolidated financial statements and annual financial statements. Copenhagen, 5 March 2013 Deloitte Statsautoriseret Revisionspartnerselskab Erik Holst Jørgensen State Authorised Public Accountant Martin Faarborg State Authorised Public Accountant Page 100 of 101

103 Topdanmark s Annual Report 2012 Page 101 of 101

104 Topdanmark A/S Borupvang 4 DK-2750 Ballerup Tel REG.NO UK [email protected] web: TRYKSAG 473