TOPDANMARK Q1 2018 RESULT
Highlights Q1 2018 Post-tax profit: DKK 267m (Q1 2017: DKK 415m) CR: 85.2 (Q1 2017: 85.8) CR excl. run-off: 88.0 (Q1 2017: 89.0) Premium growth: 1.7% increase in non-life and 18.6% in life insurance Profit in life insurance: DKK 44m (Q1 2017: DKK 72m) Investment return: DKK 19m loss (Q1 2017: DKK 152m) Profit forecast model for 2018 Topdanmark still expects a positive premium growth in non-life For the full year 2018, the assumed CR improves from 90-91 to 88-89 excl. run-off in Q2-Q4 2018 Still incl. additional expenses of 0.5-1pp due to the investment in increased digitalisation and automation Profit forecast model for 2018 adjusted by DKK 100m to DKK 1,050-1,150m excl. run-off in Q2-Q4 2018 2
Trend in pre-tax result Q1 2017-Q1 2018 534 19 166 28 15 344 Q1 2017 Technical result Investment return (non-life) Life Parent company etc. Q1 2018 3
Claims trend excl. run-off, weather and large-scale claims Claims trend Full year Q1 Q1 2017 2017 2018 Claims trend 65.8 68.5 67.9 Run-off 3.8 3.2 2.7 Weather-related claims (0.4) 0.0 0.0 Large-scale claims (0.2) (0.1) (0.4) Claims before run-off, weather and large-scale claims 69.1 71.6 70.2 4
Claims trend excl. run-off, weather and large-scale claims moving average Q1 2016-Q1 2018 Claims trend excl. run-off, weather and large-scale claims 73 72 71 71.1 71.7 70.8 71.4 71.3 Improvement in claims trend excl. run-off, weather and large-scale claims 70 70.0 70.0 2.4pp 69 69.1 68.7 68 67 Q1 2016 Q1 2018 5
Trend in combined ratio 8.0 CR 100 Effect of decline in interest rate level in pp of CR 4.8pp 6.0 4.0 2.0 0.0 91.1 1.3 93.3 1.1 90.3 88.0 1.6 91.5 86.0 0.5 0.4 86.8 0.7 85.1 85.2 82.0 0.1 0.1 0.2 95 90 85 80 75 (2.0) (1.0) 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2018 70 6
Efficiency Digitalisation Self-service Online purchase Efficiency Process optimisation and automation 17.6% of new sales are initiated digitally and processed digitally in full or partly 59.9% of claims are reported digitally via Topdanmark s website or glass portal and 17.6% are automated in full or partly 38 processes are executed via RPA (Robot Process Automation) Experimenting with ML (Machine Learning) for two processes Outsourcing of business processes and IT development Topdanmark has reduced the number of FTEs by 11% since 2016 Transformation Culture Digital readiness Since 2016, Topdanmark has established Innovation Lab to ensure digital readiness Topdanmark has entered into an agreement with SingularityU in Denmark 7
Premium classification Premiums classified by products 2008 Premiums classified by products Q1 2018 6.2% 7.4% 13.8% 27.1% 7.2% 35.3% 15.9% 16.2% 9.2% 27.5% 11.0% 23.2% Personal Motor Agricultural SME Workers' compensation Illness/accident and unemployment Personal Motor Agricultural SME Workers' compensation Illness/accident and unemployment 8
Assumed CR adjusted from 90-91 to 88-89 for 2018 Excl. run-off in Q2-Q4 90-91 1) 0.6 0.7 0.2 0.2 0.3 88-89 Assumed CR for 2018 in annual report for 2017 excl. run-off Weather Run-off Large-scale claims Discounting Better than assumed claims trend in Q1 2018 Assumed CR for 2018 excl. run-off in Q2-Q4 Assumptions for CR in 2018 A normal year for weather with weather-related claims of DKK 120m in Q2-Q4 A level of interest rates corresponding to the interest rate curve on 28 March 2018 An expense ratio of around 16 1) Incl. additional expenses of 0.5-1pp due to an update in investments in digitalisation and automation 9
Trend in combined ratio Run-off (white) 90.3 88.0 95.0 91.5 89.8 86.0 91.1 90.4 86.8 85.1 85.8 82.0 88.0 85.2 88-89 ~88 1) 2012 2013 2014 2015 2016 2017 Q1 2018 2018 E 1) Incl. additional expenses representing 0.5-1pp due to investment in increased digitalisation and automation 10
Trend in premiums (%) 2017-2018 3.0 1.5 0.0 2.5 0.4 2.0 1.5 0.5 1.7 1.2 1.0 0.5 0.0 SME and Agricultural Personal Motor Illness/accident-defection (Sydbank) One-off effects in Q1 2017 Trend in premiums 11
Trend in retention ratio Personal segment Index 100 100.1 100.4 100.6 100.7 100.1 100.3 100.7 100.8 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 12
Still good customer ratings Ambassadors Dissatisfied customers Source: ASMA telephone surveys, 16 April 2018 13
Cooperation agreement with Coop Coop is the largest supermarket chain in Denmark counting 1,750,000 customers >800,000 customers use the Coop app Digital set-up Simple, modular products Competitive prices Digital first in Sales, Service and Claims handling Push strategy insurances must be sold Fully integrated with Coop s bonus scheme for members Launch Soft launch of Coop motor insurances in April 2018 Other products to be launched later Contents, accident, house etc. 14
Rationalet - Medlemsbase +800.000 15
Rationalet Coop s App univers Coop app ens brugere ift. klassiske medier 2. mest sete program 2. mest sete program Mest sete program Mest sete program Gns. læsere på en hverdag Gns. læsere på en hverdag
Effect of increase in interest rates Claims provisions are matched by corresponding assets 3-months and 10-years forward interest rate in DKK 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 Premium provisions invested in short-term interest bearing assets A 1pp increase in short-term interest rates increases the pre-tax result by about DKK 40m 17
Movements in the adjusted interest rate curve 18
Investment return for the Topdanmark Group excl. Life insurance Investment return Portfolio 31 March 2017 2018 (DKKbn) Return Q1 2017 Return Q1 2018 (DKKm ) % (DKKm ) % Danish equities 0.3 0.3 26 8.7 (1) (0.2) Foreign equities 0.6 0.7 35 5.7 (24) (3.5) Unlisted equities and hedge funds 0.3 0.3 16 5.1 3 0.7 Government and mortgage bonds 12.0 13.6 17 0.1 (14) (0.1) Credit bonds 0.1 0.0 5 2.7 (1) (1.2) Index linked bonds 0.4 0.3 6 1.6 0 0.1 CDOs 0.6 0.6 25 4.5 14 2.4 Properties 1.0 1.1 13 1.3 12 1.1 Assets related to I/A 2.5 2.6 3 0.1 (6) (0.2) Money market etc. 4.1 3.9 (3) (0.1) (2) (0.1) Subordinated loan capital (1.8) (1.7) (11) (0.6) (12) (0.7) Interest-bearing debt (0.3) 0.0 (2) (1.3) 0 0.0 20.0 21.6 130 0.7 (29) (0.1) Asset management 35 27 Investment return 165 (2) Return and revaluations of non-life insurance provisions (13) (18) Investment return after return and revaluations of non-life insurance provisions 152 (19) 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 properties includes revaluation of owner-occupied property, which has been included in other comprehensive income. 19
Result Life insurance Result of life insurance Full year Q1 Q1 (DKKm ) 2017 2017 2018 Investment return on shareholders' equity 109 39 24 Sales and administration (25) (10) (10) Insurance risk 17 5 (7) Risk return on shareholders' equity 147 37 37 Profit on life insurance 249 72 44 20
Life trend in gross premiums DKKm Q1 2017 Q1 2018 3,000 % change 2,500 2,409 2,000 2,032 1,500 1,178 1,528 18.6% 1,000 853 881 29.7% 500 3.2% 0 Regular Single Total 21
Prospects for life insurance 2018 Assumed growth has improved from around 5% loss to slightly positive Despite the termination of the distribution agreement with Sydbank Assumptions: Full recognition as income of risk return No recognition as income from shadow account Assumed pre-tax result for 2018 continues to be DKK 240-270m 22
Solvency cover 2016 2017 Q1 2018 Solvency capital requirement 3,643 3,116 3,283 Own funds 6,348 6,370 6,709 Solvency cover 174% 204% 204% 1) 1) Excl. potential dividend for 2018 23
Solvency requirement Solvency requirement (SCR) and own funds for the Topdanmark Group (DKKm) Q1 2018 6,709 946 554 526 428 3,283 2,130 249 126 1,152 526 *Bonus risk means the possible insufficient risk absorbing impact of the bonus potentials by interest group for life provisions 24
Profit forecast model for 2018 Profit forecast 2018 Results (DKKm) 2017 Forecast 2018 31 Decem ber 2017 Forecast 2018 31 March 2018 Non-life insurance - Technical result 1,622 850 900 1,000 1,050 - Investment return after return and revaluations of non-life insurance provisions etc. 288 100 150 50 100 Profit on non-life insurance 1,909 950 1,050 1,050 1,150 Life insurance 249 240 270 240 270 Parent company etc. 77 40 50 40 50 Pre-tax profit 2,235 1,230 1,370 1,330 1,470 Taxation (502) (280) (320) (280) (320) Profit for the year 1,733 950 1,050 1,050 1,150 25
Capital situation 2018 DKKm April 2018 Shareholders' equity year-end 2018 6,497 Intangible assets (965) 5,532 Allocated dividend for 2017 (1,710) Assumed post-tax profit 2018 (mean value) 1,100 Change, intangible assets (100) 3,822 Change in shareholders' equity (issue and utilization of options) 200 1,200 Assumed shareholders' equity for solvency, end of 2018 5,022 Estimated required shareholders' equity cover for solvency 2018 3,400 Excess capital 2018 1,622 Subordinated loan capital: DKK 400m tier 1 loan capital, call in 2022 without expiry date DKK 500m tier 2 loan capital, call in 2020, expiry in 2025 DKK 850m tier 2 loan capital, call in 2021, expiry in 2026 Solvency requirement, 31 March 2018 3,283 Own funds, 31 March 2018 6,709 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 unexpected 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 www.topdanmark.com 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 2018. 27
Appendix 28
Financial calendar 2018 Half-year Report 20 July 2018 Q1-Q3 2018 Interim Report 22 Oct 2018 Announcement of 2018 Annual Results 24 Jan 2019 2018 Annual Report 21 Feb 2019 Q1 2019 Interim Report 25 Apr 2019 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 No protection against a take-over in the Articles of Association 30
Trend in technical result 2001-Q1 2018 DKKm 660 560 460 360 260 160 60 (40) Q1 2001 Q1 2005 Q1 2010 Snowloading Q4 2013 Q1 2016 1) claims 3rd and 4th largest storms in Denmark Q1 2018 1) Changed accounting practice as of 1 January 2016 cf. Accounting practice in Q1 2016 report Comparative figures have not been adjusted 31
Comparison CR incl. and excl. run-off (white) 2012 Q1 2018 (Danish business) 88.0 87.2 90.8 88.9 85.2 82.6 86.7 84.4 1) 2) 1) Scandinavian business from 2012 to H1 2017 2) From 2012-2017 Comparative figures have not been adjusted 32
Topdanmark Tryg Codan Alm. Brand Gjensidige If GF A lk a Lærerst anden Købst æderne Comparison CR excl. run-off 2012 Q1 2018 (group level) 101.5 100.1 99.0 93.7 88.0 90.8 88.9 89.8 87.8 91.5 1) 2) 3) 4) 5) 2) 2) 2) 1) From 2012 to H1 2017. Scandinavian business 2) From 2012 to 2017 3) 2016 adjusted for extraordinary conditions 4) 2015 and 2016 adjusted for extraordinary conditions 5) From 2012 to H1 2017 Comparative figures have not been adjusted 33
Ratios by segments Personal SME Group Q1 2017 Q1 2018 Q1 2017 Q1 2018 Q1 2017 Q1 2018 Premium grow th 2.2 0.4 1.1 3.4 1.7 1.7 Gross loss ratio (%) 65.4 68.1 62.0 58.7 63.8 63.9 Net reinsurance ratio (%) 1.5 1.3 8.6 7.3 4.6 4.0 Claims trend (%) 66.9 69.4 70.6 66.0 68.5 67.9 Gross expense ratio (%) 17.1 17.0 17.7 17.7 17.3 17.3 Combined ratio (%) 84.0 86.4 88.3 83.8 85.8 85.2 CR adjusted for run-off (%) 89.8 88.4 88.2 87.4 89.0 88.0 34
Normal earnings (DDKm) Non-life CR = 91 DKK 8.9bn x 9pp 800 Run-off (CR effect 1.7pp) DKK 8.9bn x 1.7pp 150 Life 150 Parent company etc. 50 Risk premium assets: DKK 5bn x 2% 100 Equities: DKK 1.0bn x 7% 70 Pre-tax profit 1,320 Tax (290) Post-tax profit 1,030 35
How to make money on non-life insurance Assumptions: Shareholders equity 40% of premiums earned Combined ratio 91.0 (claims + costs)/premiums earned Return on shareholders equity 5% Return on operations: Income 100.0 Expenditure 91.0 9.0 ~ ROE = 23% ROE: 5% Pre-tax ROE 28% 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 Accumulated profit shows result of new business after x years 40 Profit (DKKm) 150 Accumulated profit (DKKm) 20 0 (20) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20+ 100 50 (40) 0 (60) (80) (50) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20+ (100) Age of policies number of years Total = DKK 100m (100) Age of policies number of years Profit 20+ = DKK 100m Milestones 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 16 14 12 10 8 6 4 2 0 Premium profile (%) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20+ Age of policies number of years Total = 100% 200 150 100 50 0 Combined ratio 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20+ Age of policies number of years Weighted CR Total = 90 38
Large-scale and weather-related claims Large-scale claims net of reinsurance (DKKm) Q1 Q2 Q3 Q4 Full year 2015 18 31 7 44 100 2016 19 10 36 64 129 2017 2 2 9 5 18 2018 10 Large-scale claims are defined as gross claims exceeding DKK 5m. Comprise property claims in SME. Weather-related claims (DKKm) Q1 Q2 Q3 Q4 Full year 2012 21 12 12 4 49 2013 0 19 1 1,000 1,020 2014 0 24 79 36 139 2015 40 0 7 163 210 2016 0 31 0 28 59 2017 0 5 15 13 33 2018 0 Comprise gross claims exceeding DKK 4.5m per event. Assumed weather-related claims (DKKm) Q1 Q2 Q3 Q4 Full year 2018 50 25 45 50 170 39
Breakdown of run-off profits/losses Run-off profits / losses, net of reinsurance Full year Q1 Q1 (DKKm) 2017 2017 2018 IIIness / accident 98 49 18 Workers' compensation (0) 5 20 Third party and comprehensive 162 24 31 Other 84 (5) (8) Total run-off profits, net of reinsurance 344 72 62 43 40
7 6 5 4 3 2 1 0 Run-off net of reinsurance as percentage of premiums % 5.3 3.4 3.8 4.3 3.8 2.4 2.3 2.7 1.7 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2018 Comparative figures have not been adjusted 41
Road accidents in Denmark 2017 Preliminary figures 42
Normal return in life insurance Assumptions: Necessary shareholders equity in Topdanmark Liv: DKK 1,500m Investment return on shareholders equity: 2.0% CR illness and accident 100.0% Earnings, asset management 0.15% 43
Normal return in life insurance (DKKm) Normal Return on life insurance: return Investment return on shareholders' equity (excl. Nykredit Liv) 30 Risk allowance of policies subject to contribution 140 Loss on policies subject to contribution (10) Asset management 85 245 245 ~16% ROE Other life-related results: Life-related non-life (disability, health, critical illness, unemployment insurance etc.) 15 Other synergies in e.g. distribution 50 65 65 310 ~21% ROE 44
Macroeconomics for Denmark % 2018E 2019E GDP growth 1.8 1.9 Private consumption 1.9 2.6 Public consumption 1.0 0.5 Inflation 0.6 1.3 Unemployment rate (DST definition) 4.0 3.8 Government debt % of GDP 35.7 34.5 Government balance % of GDP (0.2) (0.1) Current account % of GDP 7.5 7.5 Source: Danske Research (www.danskebank.com/danskeresearch) 45
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