TOPDANMARK Q1-Q RESULTS

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1 TOPDANMARK Q1-Q RESULTS

2 HIGHLIGHTS Q1-Q Post-tax profit: DKK 854 m (Q1-Q3 2014: DKK 1,253m) EPS: DKK 8.4 (Q1-Q3 2014: DKK 11.5) CR: 85.9 (Q1-Q3 2014: 86.7) CR excl. run-off: 89.7 (Q1-Q3 2014: 90.6) Premium growth: 1.5% decline in non-life and 36.0% increase in life Q Post-tax profit: DKK 207m (Q3 2014: DKK 308m) EPS: DKK 2.1 (Q3 2014: DKK 2.9) CR: 86.2 (Q3 2014: 88.3) CR excl. run-off: 89.9 (Q3 2014: 92.3) Premium growth: 2.5% decline in non-life and 42.4% increase in life insurance Profit forecast model for 2015 Unchanged assumed decline of 1%-2% in non-life premiums For the full year 2015 assumed CR adjusted from to around 87, excl. run-off in Q Profit forecast model for 2015 unchanged at DKK 1,050-1,150m, excl. run-off in Q ~ EPS of DKK 10.9 Share buy-back Unchanged buy-back programme of DKK 1.95bn Balance of DKK 564m of buy-back programme Assumptions for 2016 Assumed premium growth of around minus 1% for 2016 and assumed combined ratio of around 91%, excl. run-off 2 2

3 TREND IN PRE-TAX RESULTS Q1-Q Q1-Q Q Q Q1-Q Technical result Investment return (non-life) Life Parent company etc. Q1-Q Q Technical result Investment return (non-life) Life Parent company etc. Q

4 60 CLAIMS TREND Q1-Q Q1-Q ,0 1,0 0,5 0,3 0,9 0,1 70,2 Q1-Q Fire Weather Theft Discounting Other Q1-Q

5 60 CLAIMS TREND Q Q ,9 2,2 1,3 0,3 0,5 0,3 0,1 0,2 71,2 Q Weather Fire Theft Illness/accident and unemployment Run-off Discounting Other Q

6 TOPDANMARK EXAMPLES OF TREND IN CLAIMS PAID Fire claims, gross (DKKm) Theft claims (DKKm) Q1 Q2 Q3 Q4 0 Q1 Q2 Q3 Q4 Motor claims (DKKm) Q1 Q2 Q3 Q4 6 6

7 TREND IN TECHNICAL RESULT (2001-Q3 2015) (40) Q Q Q Q Q rd and 4th largest Snow loading storms in Denmark claims 7 7

8 Combined ratio incl. and excl. run-off (white) ~90 90,3 88,0 91,5 86, ~87 1) Q1-Q E 1) Excl. run-off in Q

9 ASSUMED CR ADJUSTED FROM T0 AROUND 87 FOR 2015 EXCL. RUN-OFF IN Q ~87 0,9 0,4 0,2 Assumed CR for 2015 in H1 report for 2015 excl. run-off in H2 Run-off in Q3 Weather in Q3 Other Assumed CR for 2015 excl. run-off in Q4 Assumptions for CR in 2015 A normal year for weather with weather-related claims of DKK 50m in Q4 A level of interest rates corresponding to the interest rate curve on 6 November 2015 An expense ratio of around

10 ASSUMED CR OF AROUND 91 FOR 2016 EXCL. RUN-OFF 2,9 0,8 ~91 ~87 Assumed CR for 2015 Run-off in Q1-Q Weather in Q1-Q as compared to normal level Assumed CR for 2016 excl. run-off 10 10

11 PREMIUM GROWTH (%) Q1-Q Q1-Q ,5 0,2 0,2 0 (1) (2) SME Illness/accident and unemployment Personal Loss of major industrial customers 1.4 Motor 0.9 Premium growth 1.5 (3) 11 11

12 ASSUMED PREMIUM GROWTH FOR 2016 Net effect of price indexation ~ 1.0% Motor insurance incl. primarily decline in average premium ~ minus 1.0% Loss of unprofitable industrial customers ~ minus 0.6% Profitability-promoting initiatives for less profitable customers, etc. ~ minus 0.4% Assumed premium growth ~ minus 1.0% 12 12

13 GOOD CUSTOMER MEASUREMENTS 10% 50% 9% 8% 8.1% 7.7% 39% 43% 45% 46% 45% 40% 7% 37% 6.8% 6% 34% 6.0% 6.2% 6.1% 35% 5% YTD 30% Dissatisfied customers Ambassadors Source: ASMA telephone survey 1 November

14 EFFECT OF INCREASE IN INTEREST RATES Claims provisions are matched by corresponding assets In respect of assumptions, changes in interest rates have no effect on overall value of claims provisions and matching investment assets A 1pp increase in the interest rate curve reduces the CR by about 1.0pp corresponding to DKK 90m before tax Premiums reserve invested in short-term interestbearing assets A 1pp increase in short-term interest rates increases the pre-tax result by about DKK 40m 3-month and 10-year forward interest rates in DKK 2.10% 1,86% 1,67% 1.60% 1,47% 1,25% 1.10% 0,75% 0.60% 0,50% 0,25% 0,01% 0.10% (0.40)% month forward interest rate 10-year forward interest rate 14 14

15 MOVEMENTS IN THE ADJUSTED INTEREST RATE (0.5) 31/12/ /06/ /08/ /09/ /11/

16 INVESTMENT RETURN - FOR TOPDANMARK GROUP EXCL. LIFE INSURANCE Investment return Portfolio 30 Sep (DKKbn) Return Q Return Q Return Q1-Q Return Q1-Q (DKKm) % (DKKm) % (DKKm) % (DKKm) % Danish equities Foreign equities (59) (6.8) (19) (2.3) Government and mortgage bonds (57) (0.5) Credit bonds CDOs (7) (0.9) Properties Assets related to I/A (21) (0.9) Money market etc (5) (0.1) (14) (0.8) (17) (0.5) (42) (1.7) Subordinated loan capital (1.2) (0.8) (15) (1.4) (9) (1.2) (46) (3.9) (39) (3.9) Interest-bearing debt (0.4) (1.3) (1) (0.2) (0) 0.1 (2) (0.7) (1) (0.3) (38) (0.2) Asset management Total investment return 112 (20) Transferred return technical provisions Discounting (35) (30) (118) (79) Technical interest (1) (1) (7) 2 The exposure in foreign equities and credit bonds has been adjusted by the use of derivatives. The return percentages are calculated as the ratio between the return on financial instruments and the size of the exposure of the underlying asset. The return on government and mortgage bonds and assets related to I/A (illness/accident) includes revaluations of claims provisions. The return on properties includes revaluation and reversed revaluation of owner-occupied property, which has been included in other comprehensive income

17 RESULTS LIFE INSURANCE Result of life insurance Full year Q3 Q3 Q1-Q3 Q1-Q3 (DKKm ) Investment return on shareholders' equity Sales and administration (65) (8) (5) (44) (23) Insurance risk Risk return on shareholders' equity Risk return transferred to (minus)/from shadow account (10) (0) (28) (2) (21) Profit on life insurance Estimated value of shadow account end of period

18 PROSPECTS FOR LIFE INSURANCE 2015 Strong competitiveness due to good investment returns and low cost contributions from customers Assumed growth in regular premiums unchanged at more than 10% Assumed profit for 2015 reduced by DKK 20m to DKK m The following assumptions have changed from the most recent forecast for 2015: The value of the shadow account has increased DKK 19m to DKK 33m at the end of

19 INTERNAL MODEL Topdanmark s partial internal non-life model has been approved 19 19

20 Solvency cover 31 Dec Dec Sep 2015 Individual solvency requirement 1) 3,885 3,416 3,385 Capital base 6,794 6,764 5,947 New issue 1,350 2) 7,297 Solvency cover 207% 198% 216% 1) Individual solvency requirement is reported to the DFSA on single company level. Here the individual solvency requirements for each of the subsidiaries are consolidated according to Solvency II standards 2) Cannot be fully included until after 1 January Not included in the report of 30 September 2015 to the DFSA

21 TOPDANMARK ISSUES SUBORDINATED NOTES OF UP TO DKK 750M Indikative Obligationsvilkår Udsteder: Retsstilling: Hovedstol: Forfaldsdag: Førtidig indfrielse: Kupon: Rentefastsættelse: Margin for Serien: Udskydelse af Kuponbetalinger: Nedskrivning af Hovedstol: Topdanmark Forsikring A/S. Kapitalbeviserne har status som ansvarlig lånekapital jf. Lov om Finansiel Virksomhed, samt fra den 1. januar 2016, som Tier 2- Kapital. op til DKK 750 millioner, fordelt på en eller flere Serier. Hver Serie kan have en forskellig Forfaldsdag, forventet [ ]. december 202[ ]. Udsteder kan førtidsindfri Kapitalbeviserne 5 år før Forfaldsdagen, og derefter på hver rentebetalingsdag indtil Forfaldsdagen. Anden førtidig indfrielse vil være betinget af at Kapitalbeviserne ikke kan medregnes fuldt ud i Udsteders basiskapital eller Tier- 2 kapital. Hver Serie kan have en forskellig kuponbetaling med enten en fast rente eller en variabel rente, indtil 5 år før Forfaldsdagen. Herefter vil kuponbetalingen i alle tilfælde være en variabel rente. For fast rente, DKK Swap Renten for [løbetid indtil 5 år før Forfaldsdag] + [Margin for Serien] og for variabel rente, 3 mdrs. CIBOR + [Margin for Serien]. [ ]% p.a indtil Forfaldsdagen. Udsteder har ret til, og i visse tilfælde pligt til, at udskyde Kuponbetalinger. Ikke-betalte Kuponer forfalder til betaling, hvis Udsteder udlodder udbytte til sine aktionærer eller betaler rente eller andre beløb på gæld, som er efterstillet eller sidestillet med Kapitalbeviserne. Kun mulig til og med 31. december 2015 iht gældende lovgivning. Notering: Stykstørrelse / Registrering: Lovvalg og værneting: Arrangør: Nasdaq OMX Copenhagen A/S. 10,000 / VP Securities A/S. Dansk ret. Danske Bank

22 PROFIT FORECAST MODEL FOR 2015 Profit forecast 2015 Results (DKKm) 2014 Forecast August 2015 Forecast November 2015 Non-life insurance - Technical result 1,289 1,000 1,050 1,100 1,150 - Investment return after transfer to technical result etc Profit on non-life insurance 1,803 1,220 1,320 1,220 1,320 Life insurance Parent company etc Pre-tax profit 2,010 1,380 1,520 1,360 1,500 Taxation (452) (330) (370) (310) (350) Profit for the year 1,558 1,050 1,150 1,050 1,150 Representing EPS of DKK

23 SHARE BUY-BACK POTENTIAL 2015 (DKKm) 30 September 2015 Shareholders' equity 31 Dec ,442 Hybrid capital 407 Intangible assets (610) 5,239 Expected post-tax profit 2015 (average value) 1,100 Change in intangible assets 0 Movements in shareholders' equity (particularly issue and exercise of options) 50 1,150 Expected capital cover 31 Dec ,389 Estimated necessary Solvency II capital ,700 Subordinated loan capital - Insurance 1) (500) Necessary solvency capital - Holding 4,200 Surplus capital / buy-back potential in ,189 Buy-back 1,950 Topdanmark Forsikring has issued Tier 2 subordinated loan capital of DKK 400m with step-up in 2016 and expiry in The intention is to issue around further DKK 750m in A maximum of DKK 500m Tier 2 capital can be used for solvency cover in ) Including DKK 100m from the future issue of subordinated notes

24 BUY-BACK OF DKK 1.95BN Buy-back programme unchanged at DKK 1.95bn To date this year, buy-back of DKK 1,386m of buy-back programme Leaving a balance of DKK 564m From 2000 to 2014 average buy-back yield of 9.5% Since 1998, Topdanmark has cancelled 74.5% of outstanding shares Average share price: DKK 48.6 In the future, Topdanmark s buy-back programme will be executed under the Safe Harbour method Danske Bank will be the lead manager for the buy-back Buy-back of up to DKK 564m from 17 November 2015 to 10 February

25 AVERAGE YIELD OF 9.5% ( ) Yield Average

26 DISCLAIMER This presentation 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 presentation. Such factors could be, for example, cyclical movements, changes in the financial markets, the financial effect of non-anticipated events like acts of terror or exceptional weather conditions, changes in Danish and EU rules, competitive factors in the insurance industry and trends in the reinsurance market. See also Investor 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 give their own careful consideration to 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 the interim report for Q1-Q This publication is a translation. In case of any divergence, the original Danish text shall prevail

27 APPENDIX 27 27

28 FINANCIAL CALENDAR Announcement of 2015 Annual Results 11 Feb 2016 Deadline for submitting items for AGM agenda 24 Feb Annual Report 2 Mar 2016 AGM 7 Apr 2016 Q Interim Report 10 May Half-year Report 16 Aug 2016 Q1-Q Interim Report 15 Nov

29 SHARE PROFILE Focused strategy Danish player Stable insurance risks Low expense ratio Limited financial risk Synergy between life and non-life Efficient capital management Limited top line growth Profitable growth in that order The Topdanmark share is a value case not a growth case High net result Large share buy-back programme No protection against a take-over in the Articles of Association 29 29

30 COMPARISON CR INCL. AND EXCL. RUN-OFF (WHITE) 2011 Q1-Q (DANISH BUSINESS) 92,0 90,3 90,3 88,0 95,0 91,5 89,8 89,7 86, ,1 90,4 91,2 85,4 93,4 87,5 90,1 90,1 84, ,4 93,2 94,5 93,7 96,6 88,6 94,9 94,3 100,2 95,7 95,5 92,3 88,1 83,3 91, , , ) 1) Scandinavian business (from 2012 incl. Tryg Hansa) From 2011 to H

31 Topdanmark Tryg Codan Alm. Brand Gjensidige If GF A lk a Lærerst anden Købst æderne COMPARISON CR EXCL. RUN-OFF 2011-Q1-Q (GROUP LEVEL) 93,4 95,7 96, ,0 93,0 89,7 86,6 86,1 83,7 1) 2) 3) 4) 3) 3) 1) From 2011 to H Scandinavian business 2) From 2012 (2015 adjusted for exceptional conditions) 3) From 2011 to H ) From 2011 to

32 Topdanmark Tryg Codan Alm. Brand Gjensidige If COMPARISON EXPENSE RATIO 2011-Q1-Q (GROUP LEVEL) 20,9 15,7 15,7 15,9 14,8 3) 11,8 1) 2) 1) From 2011 to H Scandinavian business 2) From ) Impacted by extraordinary income Norway 32 32

33 RATIOS BY SEGMENTS Personal SME and Industrial Group Q1-Q Q1-Q Q1-Q Q1-Q Q1-Q Q1-Q Premium grow th 3.2 (0.8) 2.4 (2.3) 2.8 (1.5) Gross loss ratio (%) Net reinsurance ratio (%) (0.1) Claims trend (%) Gross expense ratio (%) Combined ratio (%) CR adjusted for run-off (%)

34 PREMIUM INCLUDED AT THE DATE OF CONCLUSION OF CONTRACT Year (1) 12-month period after balance sheet date Year 0 Year 1 Year Contract 1 SII premium included in year (1) Period 2 SII premium included in year 0 of cover 3 SII premium included in year 1 4 and 5 Actural period of cover for 6 premium included on the same contract 7 line signing 8 period

35 VALUE CREATION Distribution power Customer satisfaction Pricing Efficiency 35 35

36 ENTRY BARRIERS Example based on experience from Topdanmark: - Premium volume DKK 1,000m portfolio in personal market - CR = 90 or a profit of DKK 100m - Expense ratio 18%, of which 10% new business Premium profile (%) Combined ratio Age of policies number of years Age of policies number of years Total = 100% Weighted CR Total =

37 ENTRY BARRIERS Example based on experience from Topdanmark: - Premium volume DKK 1,000m portfolio in personal market - CR = 90 or a profit of DKK 100m - Expense ratio 18%, of which 10% new business Accumulated profit shows result of new business after x years Profit (DKKm) Accumulated profit (DKKm) (50) 0 (50) (100) Age of policies number of years (100) Age of policies number of years Total = DKK 100m Profit 20+ = DKK 100m Milestones 37 37

38 NORMAL EARNINGS (DDKm) Non-life CR = 91 DKK 9.1bn x 9pp 820 Run-off (CR effect 1.7pp) DKK 9.1bn x 1.7pp 155 Technical interest excl. discounting DKK 4bn x 0% 0 Life 140 Parent company etc. 30 Risk premium assets: DKK 5bn x 2% 100 Equities: DKK 0.8bn x 7% 55 Pre-tax profit 1,300 Tax (300) Post-tax profit 1,

39 HOW TO MAKE MONEY ON NON-LIFE INSURANCE Assumptions: Shareholders equity 40% of premiums earned Combined ratio 91.0 (claims + costs) / premiums earned Interest income on provisions for unearned premiums equal to 0.5% of premiums earned Return on shareholders equity 5% Return on operations: Income Interest income Expenditure ~ ROE = 24% ROE: 5% Pre-tax ROE 29% 39 39

40 LARGE-SCALE AND WEATHER-RELATED CLAIMS Large-scale claims (DKKm) Q1 Q2 Q3 Q4 Full year (12) (11) Weather-related claims (DKKm) Q1 Q2 Q3 Q4 Full year ,000 1, Large-scale claims are defined as gross claims exceeding DKK 5m. Comprises property claims in SME and Industrial. Comprises gross claims exceeding DKK 4.5m per event. Assumed weather-related claims (DKKm) Q1 Q2 Q3 Q4 Full year From profit forecast model

41 BREAKDOWN OF RUN-OFF PROFITS / LOSSES Run-off profits / losses, net of reinsurance Full year Q3 Q3 Q1-Q3 Q1-Q3 (DKKm) IIIness / accident Workers' compensation Third party and comprehensive Other Total run-off profits, net of reinsurance

42 RUN-OFF (NET OF REINSURANCE) AS A PERCENTAGE OF PREMIUMS EARNED 3, ,4 1,7 2, Q1-Q

43 SOURCES OF PREMIUMS Premiums by product 2008 Premiums by product Q ,8% 6,2% 27,1% 7.2% 6.6% 16.1% 34.3% 16,2% 11.0% 9,2% 27,5% 24.8% Personal Motor Agricultural SME and Industrial Workers' comp Illness, Accident and Unemployment Personal Motor Agricultural SME and Industrial Workers' comp Illness, Accident and Unemployment 43 43

44 Number of accidents Number of road accidents annually Denmark 12,000 10,000 8,000 6,000 4,000 Material damage Personal injury 2, Number of personal injuries in road accidents Denmark 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 Killed Seriously injured Slightly injured 1,

45 NUMBER OF REPORTED BURGLARIES QUARTERLY DENMARK Number of burglaries Burglary of shops, businesses etc. Burglary of dwellings Burglary of uninhabited buildings 45 45

46 NORMAL RETURN IN LIFE INSURANCE Assumptions: Necessary shareholders' equity in Topdanmark life insurance: DKK 1,500m Investment return on shareholders ' equity: 2.0% CR illness/accident business 95.0% Earnings asset management 0.15% 46 46

47 NORMAL RETURN IN LIFE INSURANCE (DKKm) Normal Return on life insurance: return Investment return on shareholders' equity 2.0% 30 Risk return 130 Loss on policies outside of contribution (35) Profit on Nykredit Life 3 Asset management Life ~17% ROE Other life-related results: Life-related non-life (loss of earnings potential, health, critical illness, unemployment insurance etc.) 38 Other synergies in e.g. distribution ~23% ROE 47 47

48 INVESTMENT RETURN TOPDANMARK EXCL. LIFE INSURANCE % 6,9 4,8 3,1 4, Q1-Q

49 CDOs RETURNS AND PORTFOLIOS CDOs Group excl. life insurance Full year Q3 Q3 Q1-Q3 Q1-Q3 (DKKm) Return AAA and AA Low er than AA (8) Total return (7) Book value 30 September AAA and AA Low er than AA Total book value

50 DISTRIBUTION CHANNELS Non-life 2014 Life % 4% 23% 23% 36 % 42% 4 % 26 % Cert insurance sales reps Telephone sales etc. Brokers Car dealers and "Home" Danske Bank Danica Pension 4% Cert insurance sales reps Brokers Other (banks etc.) Head office and life sales team 31% 50 50

51 MARKET SHARE Non-life insurance Q Life insurance ,5 % 18,0 % 8,7 % 5,9 % 1,6 % 0,5 % 0,6 % 2,9 % 6,7 % 37,0 % 3,8 % 4,5 % 17,6 % 6,0 % 16,1 % 6,3 % 9,7 % 11,7 % 22,9 % Tryg Topdanmark Codan Alm. Brand Gjensidige If Lærerstanden Alka Forsikring GF-Forsikring Other PFA Nordea Liv & Pension Topdanmark Liv Alka Liv Skandia Danica Pension SEB Pension AP Pension Alm. Brand 51 51

52 DEVELOPMENT IN SHARE CAPITAL AND SHARE PRICE Share capital (number of shares) 450,000, ,000, ,000,000 Share capital (number of shares) Share price end of period Price ,000, ,000, ,000, ,000, ,000,000 50,000, Oct

53 TAX ADVANTAGE ON SHARE BUY-BACK VS. DIVIDEND Post-tax index-linked value 9 8 Share buy-back Dividend Assumptions: Return 9% p.a., distribution of total profit, investor's tax rate 42%, no transaction costs. Value of post-tax dividend to be reinvested

54 FINANCIAL HIGHLIGHTS FOR (CONSENSUS FOR ) CONSENSUS COLLECTED IMMEDIATELY BEFORE PUBLISHING INTERIM REPORT FOR Q1-Q Highlights: Consensus Gross premiums earned, non-life 8,548 8,668 8,759 8,889 9,116 8,996 9,060 Non-life insurance: Technical result , ,289 1,232 1,109 Investment return etc , Profit on non-life insurance 1,092 1,086 2,103 1,361 1,803 1,431 1,330 Life insurance Parent company etc Pre-tax profit 1,506 1,349 2,335 1,875 2,010 1,569 1,504 Tax (338) (326) (512) (407) (452) Profit 1,168 1,023 1,823 1,468 1,558 1,214 1,172 Buy-back 833 1,159 1,200 1,836 1,716 1,902 1,507 Ratios (%): EPS Claims trend Expense ratio Combined ratio Combined ratio excl. run-off

55 MACROECONOMICS FOR DANMARK % 2015E 2016E GDP growth Private consumption Public consumption Inflation Unemployment rate (DST definition) General government debt % of GDP General government balance % of GDP (1.9) (2.4) Current account % of GDP House prices Source: Danske Research (

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