TOPDANMARK H1 2018 RESULT
Highlights H1 2018 Post-tax profit: DKK 613m (H1 2017: DKK 889m) EPS: DKK 7.1 (H1 2017: DKK 10.4) CR: 85.5 (H1 2017: 81.8) CR excl. run-off: 88.5 (H1 2017: 85.3) Premium growth: 2.2% increase in non-life and 20.2% increase in life insurance Profit in life insurance: DKK 106m (H1 2017: DKK 128m) Investment return: DKK 41m (H1 2017: DKK 221m) Profit forecast model for 2018 Topdanmark still expects a positive premium growth in non-life The assumed CR for 2018 remains unchanged at 88-89, excl. run-off profits in H2 2018 Still incl. additional expenses of 0.5-1pp due to the investment in increased digitalisation and automation The post-tax profit forecast model for 2018 remains at DKK 1,050-1,150m, excl. run-off in H2 2018 Q2 2018 Post-tax profit: DKK 345m (Q2 2017: DKK 474m) EPS: DKK 4.0 (Q2 2017: DKK 5.6) CR: 85.9 (Q2 2017: 77.8) CR excl. run-off: 89.0 (Q2 2017: 81.6) Premium growth: 2.6% increase in non-life and 22.0% increase in life insurance Profit in life insurance: DKK 62m (Q2 2017: DKK 56m) Investment return: DKK 60m (Q2 2017: DKK 69m) 2
Trend in pre-tax result H1 2017-H1 2018 Q2 2017-Q2 2018 1,149 616 153 176 22 18 779 172 11 6 5 435 3
Claims trend excl. run-off, weather and large-scale claims Claims trend Full year Q2 Q2 H1 H1 2017 2017 2018 2017 2018 Claims trend 65.8 61.8 69.6 65.1 68.8 Run-off 3.8 3.8 3.2 3.5 3.0 Weather-related claims (0.4) (0.2) 0.0 (0.1) 0.0 Large-scale claims (0.2) (0.1) (2.5) (0.1) (1.5) Claims before run-off, weather and large-scale claims 69.1 65.2 70.3 68.4 70.3 4
Premium growth H1 2018 3 2.2 2 1.4 1 1.1 0 Personal SME Termination (0.3) 1) Premium growth total (1) 1) Termination of the distribution agreement with Sydbank within life insurance (illness/accident) 5
Claims trend excl. run-off, weather and large-scale claims moving average Q1 2016-Q2 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 69.5 1.6pp 69.1 69 68.7 68 67 Q1 2016 Q2 2018 6
Trend in combined ratio 8.0 CR 100 Effect of decline in interest rate level in pp of CR 5.0pp 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 85.5 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 H1 2018 70 7
Reasons for the improved claims trend Change in business mix Improved underwriting Loss preventing initiatives Filtering out unprofitable customers Customer scoring system Digitalisation Robotics Machine Learning Outsourcing Improved purchasing power Improved churn rate 8
Efficiency Digitalisation Self-service Online purchase 17.6% of new sales are initiated digitally and processed digitally in full or partly 63.9% of claims are reported digitally via Topdanmark s website or glass portal and 18.4% are automated in full or partly Efficiency Process optimisation and automation 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 12% since 2016 9
Assumed CR for 2018 remains unchanged at 88-89 Excl. run-off in H2 2018 1) 88-89 0.5 88-89 0.4 0.2 0.3 0.8 Assumed CR for 2018 in the Q1 report for 2018 excl. run-off Weather Run-off Large-scale claims Discounting Fire claims Assumed CR for 2018 excl. run-off in H2 2018 Assumptions for CR in 2018 A normal year for weather with weather-related claims of DKK 95m in H2 2018 A level of interest rates corresponding to the interest rate curve on 29 June 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 10
Trend in combined ratio Run-off (white) 95.0 90.3 88.0 91.5 89.8 86.0 91.1 90.4 86.8 85.1 85.8 82.0 88.5 85.5 88-89 ~87 1) 2012 2013 2014 2015 2016 2017 H1 2018 2018 E 1) Incl. additional expenses representing 0.5-1pp due to investment in increased digitalisation and automation 11
Trend in retention ratio Personal segment Index 101.8 100 100.2 100.6 101.1 100.8 99.9 100.3 101.1 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 12
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 13
Movements in the adjusted interest rate curve 14
Investment return for the Topdanmark Group excl. Life insurance Investment return Portfolio 30 June 2017 2018 (DKKbn) Return Q2 2017 Return Q2 2018 Return H1 2017 Return H1 2018 (DKKm ) % (DKKm ) % (DKKm ) % (DKKm ) % Danish equities 0.3 0.3 26 7.8 (5) (1.8) 52 17.3 (6) (2.1) Foreign equities 0.6 0.7 13 1.9 24 3.6 47 7.7 (0) (0.1) Unlisted equities and hedge funds 0.3 0.3 7 2.3 4 1.5 23 7.5 7 2.2 Government and mortgage bonds 14.7 16.2 (12) (0.1) 56 0.3 7 0.0 36 0.2 Credit bonds 0.1 0.0 2 1.7 0 0.9 7 4.5 (0) (0.3) Index linked bonds 0.4 0.3 2 0.6 5 1.9 8 2.1 6 2.0 CDOs 0.6 0.6 19 3.3 9 1.6 44 7.9 23 4.0 Properties 1.0 1.1 7 0.7 11 1.0 20 2.0 24 2.2 Money market etc. 3.7 2.4 (16) (0.4) (1) (0.0) (19) (0.6) (4) (0.1) Subordinated loan capital (1.8) (1.7) (11) (0.6) (12) (0.7) (22) (1.2) (23) (1.3) Interest-bearing debt 0.0 (0.2) 2 1.4 0 0.0 0 0.0 0 0.0 20.0 19.9 38 0.2 92 0.4 168 0.9 63 0.3 Asset management 22 17 58 44 Investment return 60 108 225 107 Return and revaluations of non-life insurance provisions 9 (48) (4) (66) Investment return after return and revaluations of non-life insurance provisions 69 60 221 41 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. 15
Result Life insurance Result of life insurance Full year Q2 Q2 H1 H1 (DKKm ) 2017 2017 2018 2017 2018 Investment return on shareholders' equity 109 22 33 61 57 Sales and administration (25) (9) (5) (19) (16) Insurance risk 17 6 (2) 11 (9) Risk return on shareholders' equity 147 37 36 74 73 Profit on life insurance 249 56 62 128 106 16
Life trend in gross premiums DKKm H1 2017 H1 2018 5,500 % change 4,665 4,500 3,881 3,500 3,238 2,500 2,450 20.2% 1,500 1,431 1,427 32.2% 500 (0.3%) -500 Regular Single Total 17
Prospects for life insurance 2018 Assumed growth in regular premiums is down from slightly positive to around 0% The termination of the distribution agreement with Sydbank and Nykredit has a negative impact on regular premiums in 2018 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 18
Solvency cover 2016 2017 H1 2018 Solvency capital requirement 3,643 3,116 3,328 Own funds 6,348 6,370 7,103 Solvency cover 174% 204% 213% 1) 1) Excl. potential dividend for 2018 19
Profit forecast model for 2018 Profit forecast 2018 Results (DKKm) 2017 Forecast 2018 31 March 2018 Forecast 2018 30 June 2018 Non-life insurance - Technical result 1,622 1,000 1,050 1,000 1,050 - Investment return after return and revaluations of non-life insurance provisions etc. 288 50 100 50 100 Profit on non-life insurance 1,909 1,050 1,150 1,050 1,150 Life insurance 249 240 270 240 270 Parent company etc. 77 40 50 40 50 Pre-tax profit 2,235 1,330 1,470 1,330 1,470 Taxation (502) (280) (320) (280) (320) Profit for the year 1,733 1,050 1,150 1,050 1,150 20
Top 1-2 - 3 1 Topdanmark More joint development and exploiting larger synergies focusing on best principles in the Topdanmark Group Larger execution power for the benefit of the Group (Life and Non-life) Enabling large scale benefits fewer prioritization meetings, more execution meetings Ambition to operate with one IT customer platform (SOE) 2 Customer types The customer journey for private and corporate clients must reflect the full experience across divisions We must differentiate ourselves by proactive and individualized customer service based on experience and data Customer loyalty must be ensured by customer concepts/customer journeys and a joint approach to customer service for private and corporate clients and by bridging between them 3 Distribution channels Direct sales, partner sales and digital sales We must focus on all distribution channels in order to ensure growth, retention and additional sales 21
Yield 2010-2017 Yield 12 10 8 7.4 6 4 2 0 2010 2011 2012 2013 2014 2015 2016 2017 22
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 H1 2018. 23
Appendix 24
Financial calendar Q1-Q3 2018 Interim Report 22 Oct 2018 Announcement of 2018 Annual Results 24 Jan 2019 Deadline for submitting items for AGM agenda 19 Feb 2019 2018 Annual Report 21 Feb 2019 AGM 03 Apr 2019 Q1 2019 Interim Report 25 Apr 2019 2019 Half-year Report 18 July 2019 Q1-Q3 2019 Interim Report 24 Oct 2019 25
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 26
Trend in technical result 2001-Q2 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 Q2 2018 1) Changed accounting practice as of 1 January 2016 cf. Accounting practice in Q1 2016 report Comparative figures have not been adjusted 27
Comparison CR incl. and excl. run-off (white) 2012 H1 2018 (Danish business) 88.5 85.5 85.9 90.8 90.6 88.2 86.0 79.8 1) 1) Scandinavian business from 2012 to 2017 Comparative figures have not been adjusted 28
Topdanmark Tryg Codan Alm. Brand Gjensidige If GF A lk a Lærerst anden Købst æderne Comparison CR excl. run-off 2012 H1 2018 (group level) 102.7 100.1 101.3 95.9 88.5 91.0 90.8 90.6 89.8 87.5 1) 2) 3) 4) 1) From 2012 to 2017. Scandinavian business 2) 2016 adjusted for extraordinary conditions 3) 2015 and 2016 adjusted for extraordinary conditions 4) From 2012 to 2017 Comparative figures have not been adjusted 29
Ratios by segments Personal SME Group H1 2017 H1 2018 H1 2017 H1 2018 H1 2017 H1 2018 Premium growth 2.0 1.3 0.2 3.2 1.2 2.2 Gross loss ratio (%) 64.0 66.7 56.9 68.1 60.8 67.3 Net reinsurance ratio (%) 1.3 1.4 8.1 1.7 4.3 1.5 Claims trend (%) 65.3 68.0 65.0 69.7 65.1 68.8 Gross expense ratio (%) 16.5 16.6 16.9 16.9 16.7 16.8 Combined ratio (%) 81.8 84.6 81.9 86.7 81.8 85.5 CR adjusted for run-off (%) 86.7 88.0 83.7 89.1 85.3 88.5 30
Normal earnings (DKKm) Non-life CR = 91 DKK 9.1bn x 9.5pp 870 Run-off (CR effect 1.7pp) DKK 9.1bn x 1.7pp 150 Life 160 Parent company etc. 50 Risk premium assets: DKK 5bn x 2% 100 Equities: DKK 1.0bn x 7% 70 Pre-tax profit 1,400 Tax (300) Post-tax profit 1,100 31
Premium classification Premiums classified by products 2008 Premiums classified by products H1 2018 6.2% 7.5% 13.8% 27.1% 7.2% 35.3% 16.1% 16.2% 9.2% 27.5% 10.9% 23.0% Personal Motor Agricultural SME Workers' compensation Illness/accident and unemployment Personal Motor Agricultural SME Workers' compensation Illness/accident and unemployment 32
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 33
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 34
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% 35
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 57 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 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 36
Breakdown of run-off profits/losses Run-off profits / losses, net of reinsurance Full year Q2 Q2 H1 H1 (DKKm) 2017 2017 2018 2017 2018 IIIness / accident 98 10 19 59 38 Workers' compensation (0) 22 10 27 30 Third party and comprehensive 162 45 54 69 85 Other 84 7 (10) 2 (18) Total run-off profits, net of reinsurance 344 85 73 157 135 43 37
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 3.0 2.4 2.3 1.7 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018 Comparative figures have not been adjusted 38
Cooperation 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. 39
Road accidents in Denmark 40
Normal return in life insurance Assumptions: Shareholders equity in Topdanmark Liv: DKK 2,000m Investment return on shareholders equity: 2.0% CR illness and accident 100.0% Earnings, asset management 0.15% 41
Normal return in life insurance (DKKm) Normal Return on life insurance: return Investment return on shareholders' equity (excl. Nykredit Liv) 40 Risk allowance of policies subject to contribution 140 Loss on policies subject to contribution (10) Asset management 85 255 255 ~13% 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 65 320 ~16% ROE 42
Distribution channels Non-life 2017 Life 2017 7% 5% 12% 18% 36% 36% 3% 31% Insurance sales reps. Telephone sales etc. Brokers Car dealers and Home Danske Bank Danica Pension 4% 48% Insurance sales reps. Brokers Others (banks etc.) Head office and life sales staff 43
Market shares Non-life insurance H1 2017 Life insurance 2017 5.5% 1.3% 20.1% 17.9% 6.6% 8.6% 29.8% 3.4% 4.1% 16.8% 8.8% 4.9% 5.6% 7.1% 9.6% 10.5% 17.6% 21.8% Tryg Topdanmark Codan Alm. Brand Gjensidige If Lærerstanden Alka Forsikring GF-Forsikring Others PFA Pension Danica Pension Nordea Liv & Pension Topdanmark Liv SEB Pension AP Pension Skandia Alm. Brand 44
Financial highlights for 2013-2017 (consensus for 2018-2019) Consensus obtained after publication of the Interim Report for H1 2018 Highlights: Consensus 2013 2014 2015 2016 2017 2018 2019 Gross premiums earned, non-life 8,889 9,116 8,967 8,858 8,985 9,180 9,349 Non-life insurance: Technical result 765 1,289 1,184 1,320 1,622 1,381 1,391 Investment return after return and revaluation of non-life insurance provisions 595 514 141 392 288 78 166 Profit on non-life insurance 1,361 1,803 1,325 1,712 1,909 1,461 1,578 Life insurance 442 200 174 189 249 237 240 Parent company etc. 73 7 31 41 77 37 44 Pre-tax profit 1,875 2,010 1,530 1,942 2,235 1,736 1,833 Tax (407) (452) (360) (407) (502) (378) (402) Profit for the year 1,468 1,558 1,170 1,536 1,733 1,353 1,431 Ratios (%): Claims trend 75.4 70.3 70.9 68.7 65.8 68.9 69.4 Expense ratio 16.2 15.7 15.9 16.4 16.1 16.2 16.0 Combined ratio 91.5 86.0 86.8 85.1 82.0 85.0 85.3 Combined ratio excl. run-off 95.0 89.8 91.1 90.4 85.8 88.4 88.4 Pay-out ratio 98.7 100.0 100.0 45
Capital situation 2018 DKKm July 2018 Shareholders' equity beginning of 2018 6,497 Intangible assets (965) 5,532 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, 30 June 2018 3,328 Own funds, 30 June 2018 7,103 46
Solvency requirement Solvency requirement (SCR) and own funds for the Topdanmark Group (DKKm) 30 June 2018 7,103 472 561 954 505 3,328 535 2,142 185 99 1,054 *Bonus risk means the insufficient risk absorbing impact of the bonus potentials by interest group for life provisions 47
Macroeconomics for Denmark % 2018E 2019E GDP growth 1.8 1.8 Private consumption 2.3 2.4 Public consumption 1.1 0.5 Inflation 0.9 1.5 Unemployment rate (DST definition) 4.0 3.8 Government debt % of GDP 35.7 34.4 Government balance % of GDP (0.2) (0.2) Current account % of GDP 6.5 7.2 Source: Danske Research (www.danskebank.com/danskeresearch) 48
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