5 May 2009
Announcement No. 07/2009
The level of fire claims in Q1 2009 was exceptional and higher than assumed in
the profit forecast model set out in the 2008 Annual Report. Furthermore an
inaccuracy has been found in the 2009 profit forecast model where a result was
over-estimated by DKK 79m due to the revaluation of provisions being based on
an inaccurate interest rate curve. This inaccuracy will not arise again
Therefore Topdanmark is now publishing this announcement preceding the Q1
report to be published on 19 May 2009.
Q1 2009 result
Topdanmark's Q1 2009 post-tax result was a profit of DKK 35m (Q1 2008: DKK 234m
loss).
Both the technical result and the investment return for Q1 were lower than
assumed in the profit forecast model for the full year while the result of life
insurance met assumptions.
As the development in investment return since the end of Q1 is reasonable, the
profit
forecast model for the full year 2009 remains unchanged at DKK 875 - 975m.
The technical result declined from DKK 369m in Q1 2008 to DKK 233m this
quarter. It was assumed that the technical result would decline due to price
reductions and lower interest rates. However, the decline exceeded assumptions
primarily due to an exceptionally high number of fire claims in Q1 2009 with
many very large value claims, particularly in March, leading to claims incurred
on fires increasing from DKK 148m in Q1 2008 to DKK 259m this quarter. While in
2008 the fire claims were mainly in agricultural lines, they were primarily in
commercial lines this quarter.
As described in the 2008 Annual Report, in order to improve the claims trend
Topdanmark is due to increase the price of new business written in buildings
and property insurance in commercial lines and in house and contents insurance
in personal lines.
However, in motor insurance the claims trend was favourable primarily due to a
5% decline in the claims frequency (proportion of customers with claims) in Q1
2009.
Due to the decline in the technical result the combined ratio increased from
86.2% in Q1 2008 to 91.4% this quarter. Excluding gains on the claims
provisions it increased from 88.3% to 93.7%.
Premiums earned declined 2.9% to DKK 2,170m. As described in the 2008 Annual
Report, this was due to Topdanmark having lost premiums of around DKK 200m on
workers' compensation insurance by 1 January 2009 corresponding to a 2.2%
adverse effect on premiums earned in Q1. Furthermore, there was an adjustment
in arrears in workers' compensation for 2008 as workers' compensation insurance
premiums are paid on the basis of an estimated number of employees in each
business to be adjusted at the end of each year. The effect of the recession
that began in 2008 meant that there were fewer employees at the end of the year
than originally estimated which had a DKK 25m or 1 percentage point
non-recurring adverse impact on premiums earned in Q1 2009.
New sales through Topdanmark's own sales channels continue to improve in the
personal and commercial markets.
Premiums to be earned in 2009 are assumed to show negative growth of between 1%
and 2% (up to now between zero and minus 1%).
Investment activities
The return on investment activities in Topdanmark Group excluding Topdanmark
Livsforsikring Group was a loss of DKK 7m in Q1 2009 including revaluation of
provisions and income from associated companies but before the transfer to the
technical result (Q1 2008: DKK 370m loss).
The return in Q1 2009 was significantly lower than assumed at the beginning of
the year primarily due to the weak equity markets in the first two months of
the quarter and a decline in the calculated value models of CDOs.
The default ratio of the underlying assets of CDOs continues to be at a
relatively low but increasing level. At the same time there have been a large
number of down-gradings from rating agencies, particularly in the USA. As a
result of this negative trend a small number of equity tranches have not passed
one or more tests and therefore further payments have been deferred.
The overall return on CDO investments was a loss of DKK 45m in Q1 2009 in the
Group excluding life insurance. Including the shareholders' share of the return
on life insurance the investment return for the CDO investments was a loss of
DKK 59m.
Profit forecast model for 2009
Topdanmark is not publishing an actual profit forecast for 2009 but the
expected level of the result 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.
The readers of Topdanmark's annual and interim reports may make forecast
assumptions different from those chosen by Topdanmark. They also have the
opportunity to calculate their own profit expectations for Topdanmark, for
example by using Topdanmark's result simulation model on www.topdanmark.com →
Shares → Result and share price simulation model.
Accordingly, the investment return forecast model has been based solely on a
long-term standard assumption of the return rather than a specific estimate of
the expected investment return for the year.
Given the assumptions of Topdanmark's profit forecast model, in the 2008 Annual
Report, the post-tax profit forecast for 2009 was quoted as DKK 875 - 975m.
As mentioned above, fire claims incurred were higher than assumed in Q1 2009,
around 1 percentage point for the full year. This trend has since slowed down
and a normalised level of fire claims was experienced in April. However, for
the rest of 2009 it is assumed there will a recession effect of just over 1
percentage point on the combined ratio. If this effect is realised, there will
be further premium increases in fire and property insurance.
As a result of the tax reform workers' compensation insurance will incur
additional expenses of just over DKK 25m in 2009 corresponding to a 0.3
percentage point effect on the combined ratio. These expenses arise from many
claims paid to customers being calculated on the basis of a
standardised tax rate, which following the tax reform will be reduced which
will increase the level of claims paid to customers.
Overall, it is assumed that the net effect for the full year 2009 will be a
slightly higher claims trend than originally assumed in the 2008 Annual Report
corresponding to a change in the combined ratio from 90% to between 91% and
92%. This assumed combined ratio includes a contingency element of 1 percentage
point but excludes any gains on the claims provisions.
In the investment business, the improvement in equity markets in April in
particular has contributed to an increase in the underlying assumptions of the
profit forecast model of up around DKK 150m, net of the adjustment of DKK 79m
for amounts incorrectly included in the previous forecast released in March.
Overall, the post-tax profit forecast model for 2009 remains unchanged at DKK
875 - 975m based on assumptions including unchanged foreign exchange rates, an
annual 7.0% equity return given the level of equity prices on 1 May 2009 as
well as a return on interest-bearing investments of 3.3% (risk-free interest
rate plus an allowance for risk of 0.75 percentage points).
See profit forecast model in the attached file
Capital
Regarding solvency, at the end of 2008 the capital adequacy of Topdanmark
Forsikring was DKK 661m putting this company within the "green light", while
the amount above the solvency minimum was DKK 454m in the parent company
Topdanmark. At the end of 2008 shareholders' equity was about DKK 255m lower
than the level required by Topdanmark's own capital model.
At today's date, shareholders' equity is much closer to the level required by
Topdanmark's capital model and Topdanmark continues to expect that its
shareholders' equity will exceed the required level by the time the half-year
report is published on 25 August 2009.
Topdanmark has signed a Letter of Intent in respect of TVM's Danish insurance
activities
Topdanmark has signed a Letter of Intent to write TVM's Danish insurance
business. TVM is a Dutch insurance group specialising in insurance policies for
the road transport industry.
TVM's Danish portfolio is about DKK 40m.
Up until now, Topdanmark has not been active in the Danish market for road
transport insurance and thus the strategic rationale for writing TVM's Danish
business is to provide a platform for Topdanmark's profitable growth in this
market.
It is expected that this move will have only a marginal impact on Topdanmark's
profit forecast model for 2009.
A conference call will be held today at 14:00 (CET) when Poul Almlund, CEO,
Christian Sagild, Group Managing Director and Lars Thykier, Managing Director
will be available for questions. The call will be conducted in English.
In order to participate in the conference call, please phone:
UK dial in number: +44 (0)20 7162 0025
US dial in number: +1 334 323 6201
5 - 10 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:
Poul Almlund, Chief Executive Officer, Direct tel.: +45 4474 3453
Christian Sagild, Group Managing Director, Direct tel.: +45 4474 4450
Lars Thykier, Managing Director of Asset Management, Direct tel.: +45 4474 3714
Steffen Heegaard, Head of IR and Group Communications, Direct tel.: +45 4474
4017
