Topdanmark A/S : Q1-Q3 2023 Topdanmark A/S (1 MB)

Interim report for Q1-Q3 2023

24 October 2023, Announcement No. 12/2023

Topdanmark A/S • Borupvang 4 • DK-2750 Ballerup • Tel [phone] CVR no. 78040017 • [e-mail] • www.topdanmark.com

Contents

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Announcement No. 12/2023 from Topdanmark A/S

Management's review

1. Highlights
2. Financial highlights
3. Results for Q1-Q3 2023

1. Results for Q3 2023

1. Insurance service result for Q1-Q3 2023
2. Insurance service result for Q3 2023

1. Investment result
2. Solvency calculation and capital requirements
3. Parent company etc.

13	Taxation
13	Efficiency programme

1. Acquisition of Oona Health A/S
2. Profit forecast model
3. Financial calendar

15 Disclaimer

Financial statements for

Q1-Q3 2023 - Group

18 Income statement

1. Statement of comprehensive income
2. Assets
3. Shareholders' equity and liabilities
4. Cash flow statement
5. Statement of changes in equity
6. Segment information
7. Notes to the financial statements

Financial statements for

Q1-Q32023 - Parent company

31 Income statement

1. Statement of comprehensive income
2. Balance sheet
3. Notes to the financial statements
4. Statement by Management

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Announcement No.12/2023 from Topdanmark A/S

Management's review

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Announcement No. 12/2023 from Topdanmark A/S

Highlights

Q1-Q3 2023

• Profit after tax of DKK 894m (Q1-Q3 2022: DKK 803m)
• EPS was DKK 10.1 (Q1-Q3 2022: DKK 9.1)
• Combined ratio: 83.5 (Q1-Q3 2022: 82.8)
• Combined ratio excluding run-off profits: 85.5
  (Q1-Q3 2022: 83.9)
• Insurance revenue increased by 2.0%
• Net investment result was DKK -12m(Q1-Q3 2022: DKK -436m).

Q3 2023

• Profit after tax of DKK 261m (Q3 2022: DKK 294m)
• EPS was DKK 2.9 (Q3 2022: DKK 3.3)
• Combined ratio: 84.7 (Q3 2022: 81.5)
• Combined ratio excluding run-off: 86.0 (Q3 2022: 81.6)
• Insurance revenue increased by 2.0%
• Net investment result was DKK -37m (Q3 2022: DKK -118m).

Profit forecast model for 2023

• Despite the headwinds experienced from weather-related claims and large-scale claims in Q3, the assumed combined ratio for 2023 has been improved by the run-off experienced in Q3. As a result, the range is narrowed from 83.5-85.5 to 83.7-84.7, excluding run-off in Q4.
• The profit forecast for 2023 has been improved from DKK 1,050-1,200m to DKK 1,100-1,210m after tax, excluding run-off in Q4. For modelling purposes, the announced acquisition of Oona Health A/S is still assumed to close as at
  31 December 2023. As a result, no effects related to the acquisition have been included.
• The expected growth in insurance revenue is unchanged at above 2%.

Acquisition of Oona Health A/S

• The approval process is progressing according to plan.
• We are still awaiting approval of the transaction from the Danish Competition and Consumer Authority, and we continue to expect the acquisition to be completed in Q4 2023.

Conference call

A conference call will be held today at 10:00 (CEST) in which Peter Hermann, CEO, and Lars Kufall Beck, CFO, will be available for questions based on the results. The call will be conducted in English.

To participate in the conference call, please call: DK dial-in number: [phone]

SE dial-in number: [phone]

UK dial-in number: [phone]

US dial-in number: [phone] (Conference ID 5323781)

10-15 minutes before the conference and ask the operator to connect you to the Topdanmark conference call - or listen to the live transmissionof the call.

Please direct any queries to:

Peter Hermann

Chief Executive Officer

Lars Kufall Beck

Chief Financial Officer

Robin Hjelgaard Løfgren

Head of Investor Relations

Direct tel.: [phone]

Mobile tel.: [phone]

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Announcement No.12/2023 from Topdanmark A/S

Financial highlights

	Q1-Q3	Q1-Q3		Q3	Q3		Full year
(DKKm)	2023	2022		2023	2022		2022
Insurance revenue	7,557	7,412		2,542	2,493	9,898
Claims incurred	-4,883	-4,798		-1,754	-1,554	-6,296
Expenses	-1,216	-1,129		-374	-357	-1,555
Reinsurance result	-178	-186		-14	-113	-272
Insurance service result	1,280	1,299		400	469	1,774
Net investment result	-12	-436		-37	-118	-244
Other items	-36	-79		-12	-23	-90
Profit on insurance	1,231	783		351	327	1,441
Parent company etc.	-20	-49		-4	-16	-59
Profit before tax, continuing operations	1,211	735		347	311		1,382
Tax, continuing operations	-316	-154		-86	-63	-305
Profit after tax, continuing operations	894	581		261	248		1,078
Profit after tax, discontinued operations	0	222		0	45	1,102
Profit	894	803		261	294		2,179
Run-off profits, net of reinsurance	148	81		33	0	152
Investment assets	18,099	12,852				19,269
Reinsurance asset	625	717				591
Assets held for sale	0	90,321				0
Provisions for insurance contracts	14,099	14,040				13,235
Liabilities related to assets held for sale	0	83,815				0
Shareholders' equity	4,583	4,936				6,349
Total balance	21,791	106,609				22,603
Financial ratios
Return on shareholders' equity after tax (annualised)	22.3	19.3		23.5	24.6	36.3
EPS continuing operations after tax (DKK)	10.1	6.6			2.8	12.2
EPS after tax (DKK)	10.1	9.1		2.9	3.3	24.7
Dividend per share issued, proposed (DKK)						31.0
Net asset value per share, diluted (DKK)	51.5	55.8				71.4
Listed share price end of period	306.8	355.4				365.4
Number of shares end of period ('000)	88,685	88,211				88,518
Average number of shares ('000)	88,656	88,141		88,685	88,209	88,206
Ratios non-life insurance
Gross claims ratio	64.8	64.8		69.1	62.4	63.7
Net reinsurance ratio	2.4	2.5		0.6	4.5	2.8
Claims ratio, net of reinsurance	67.1	67.3		69.7	67.0		66.5
Gross expense ratio	16.4	15.4		15.0	14.5	15.9
Combined ratio	83.5	82.8		84.7	81.5		82.4
Combined ratio excl. run-off profits	85.5	83.9		86.0	81.6		83.9

Basis for financial ratios has been changed to Group from a parent company calculation.

Comparatives have been adapted to new accounting policies.

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Announcement No. 12/2023 from Topdanmark A/S

Results for Q1-Q3 2023

Topdanmark's profit for Q1-Q3 2023 was DKK 894m (Q1-Q3 2022: DKK 803m).

The insurance service result was largely unchanged at DKK 1,280m. The result should be seen in the light of a high level of weather-related claims in

Q1 2022, mainly caused by the storms Malik and Nora, and an equally high level of weather-related claims in Q3 2023, mainly caused by cloudbursts, heavy rainfall, a hail event in northern Italy, and the storm Hans. Underlying, claims frequencies in 2023 were higher due to a normalisation after COVID-19, and higher motor frequencies in general as well as stochastic claims especially in Q2 2023. Offsetting this, we delivered continued progress on our efforts to become more efficient, including pricing initiatives.

The net investment result increased by DKK 424m to DKK -12m. This development should be seen in the light of the volatility in the financial markets during Q1-Q3 2022 caused in part by the war in Ukraine.

Q1-Q3 2023 was impacted by rising equity markets, and a higher running yield on short-term liquidity offset by a loss on the "matching" portfolio due to wage indexation of workers' compensation provisions. Wage expectations are set out by the Danish central bank and the Danish Economic Councils, and they are updated twice a year, after which our provisions are updated accordingly. It is important to note

that normally there is a time lag between changes in inflation and wage expectations, and overall, we believe that we have an appropriate hedge in place.

Other items, which includes education and development costs, improved by DKK 43m to DKK -36m. In Q1-Q3 2022, other items included a DKK 25m provision for a potential extraordinary contribution to the Danish Guarantee Fund for Non-life Insurers related to the bankruptcy of Gefion Insurance A/S. We have not received any new information regarding the bankruptcy of Gefion, and thus we keep our initial provision of DKK 25m for now.

Results for Q3 2023

The profit for Q3 2023 was DKK 261m (Q3 2022: DKK 294m).

The insurance service result decreased by

DKK 69m to DKK 400m. The underlying claims ratio improved by 1.8pp in the quarter, partly as a result

of our efforts to become more efficient and pricing initiatives. The main driver of the lower insurance service result was a higher level of weather-related claims in Q3 2023 compared with more benign weather conditions in Q3 2022.

The net investment result increased by DKK 81m to DKK -37m, in line with expectations. The matching portfolio saw, as expected, a further negative impact on wage indexation of workers' compensation provisions due to rising wage inflation expectations. This was offset by a marked spread narrowing of Danish mortgage bonds.

Insurance service result for Q1-Q3 2023

Insurance revenue

Insurance revenue increased by 2.0% to DKK 7,557m. The private segment accounted for a 1.6% increase, and the SME segment accounted for a 2.2% increase. Growth was slightly lower than last year, but this was as expected, and primarily caused by lower indexation on workers' compensation, and the loss of

1. distribution agreement for credit card-based travel insurance. In addition, competition remains at a high level in Denmark.

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Announcement No.12/2023 from Topdanmark A/S

Claims ratio

Underlying claims ratio	Q1-Q3	Q1-Q3		Q3	Q3			Full year
	2023	2022		2023	2022			2022
Claims ratio, net of reinsurance	67.1	67.3		69.7	67.0	66.5
Run-off	2.0	1.1		1.3	0.0	1.5
Weather-related claims	-3.5	-3.4		-6.0	-2.6	-2.8
Large-scale claims	-1.5	-1.0		-1.7	-0.6	-1.0
Discounting	2.8	1.7		3.0	3.6		2.0
Other	-0.1	0.5		0.1	0.7	0.3
Underlying (undiscounted)
claims ratio, net of reinsurance	66.7	66.3		66.4	68.2		66.6

The gross claims ratio was unchanged at 64.8. The claims ratio, net of reinsurance, improved to 67.1 from 67.3 in Q1-Q3 2022.

The run-off profit, net of reinsurance, was DKK 148m (Q1-Q3 2022: DKK 81m), in line with the level observed in recent years.

Weather-related claims amounted to DKK 268m (Q1-Q3 2022: DKK 249m), representing a 0.2pp deterioration of the claims ratio. Thus, the level of weather-related claims was DKK 28m above the normalised modelled level of DKK 240m. This was a result of an eventful Q1 which saw both rain, frost, and a storm, as well as an eventful Q3 with cloudbursts, heavy rainfall, a hail event in northern Italy, and the storm Hans. In comparison, Q1-Q3 2022 was affected by a large storm in January which was partly covered by reinsurance, and another storm in February, while the second and third quarters saw more benign weather conditions.

Large-scale claims (claims exceeding DKK 5m by event after refund of reinsurance) amounted to DKK 115m, somewhat higher than the level in Q1-Q3 2022 (DKK 73m) and the normalised modelled level of DKK 75m. Q2 2023 was affected by a higher frequency of large fire-related claims as well as a single claim related to hail.

The claims ratio was positively impacted by the higher interest rates. The discounting effect was 1.1pp higher compared with Q1-Q3 2022.

The underlying claims ratio increased by 0.4pp to

66.7. Q1 2023 saw a higher claims frequency within motor, mainly as the northernmost parts of Denmark experienced high snow depths during March, and such claims are not included in our weather-related claims. Q2 2023 saw higher frequencies within private house insurance (fires), agriculture (fires and drought),

and motor, and the higher motor frequencies continued into Q3 2023, in line with expectations. In comparison, Q1-Q3 2022 was impacted by lower claims frequencies due to COVID-19 lockdowns at the start of the year, while frequencies normalised during the year. In addition, inflated energy and petrol prices caused lower mobility in society especially in Q2-Q3 2022. Largely offsetting these negative effects,

our efforts to become more efficient and pricing initiatives continue to yield strong results.

Expense ratio

The expense ratio was 16.4, up from 15.4 in Q1-Q3 2022. The increase in the expense ratio was largely as expected and caused by dissynergies related to the sale of Topdanmark Liv Holding A/S.

Combined ratio

The combined ratio was 83.5 (Q1-Q3 2022: 82.8). Excluding run-off, the combined ratio was 85.5 (Q1-Q3 2022: 83.9).

Insurance service result for Q3 2023

Insurance revenue increased by 2.0% to DKK 2,542m. The private segment accounted for a 3.1% increase, and the SME segment accounted for a 0.8% increase.

The gross claims ratio increased to 69.1 (Q3 2022: 62.4). The claims ratio, net of reinsurance, increased to 69.7 from 67.0 in Q3 2022. The low level of large-scale claims in Q3 2022 impacted the gross claims ratio positively and reimbursement from reinsurers negatively. In Q3 2023 the higher level of large-scale claims impacted the gross claims ratio negatively, but reimbursement from reinsurers positively.

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Announcement No. 12/2023 from Topdanmark A/S

The quarter was impacted by a significantly higher level of weather-related claims than forecasted due to cloudbursts, many days with heavy rainfall, the storm Hans, and hail-related motor claims originating from the hailstorms in northern Italy. By comparison, weather conditions during the summer of 2022 were more benign. As a result, weather-related claims amounted to DKK 153m, significantly above the Q3 2022 level (DKK 66m) and the normalised modelled level of DKK 95m.

Large-scale claims amounted to DKK 42m, somewhat higher than the level last year (DKK 14m) and the normalised modelled level of DKK 25m. Q3 2023 was affected by a few large fire-related claims in the commercial segment.

The discounting effect decreased by 0.6pp compared with the reported figure in Q3 2022, solely due

to the one-off impact of changed methodology in calculating the discounting effect implemented in Q3 2022. Underlying, increasing interest rates over the year continue to support the claims ratio.

The run-off profit, net of reinsurance, was DKK 33m (Q3 2022: DKK 0m), representing a 1.3pp positive effect on the claims ratio. Run-off in Q3 2022 should be seen in conjunction with the other quarters of the year because of the transition from IFRS 4 to

IFRS 17 notably affecting the treatment of workers' compensation.

The underlying claims ratio improved by 1.8pp to 66.4, partly as a result of our efforts to become more efficient as well as pricing initiatives. In addition, the wet weather in Q3 2023 caused fewer fires, especially in the agriculture segment. This more than offset the motor frequencies, which remained at the level experienced in Q2 2023. However, it is important to note that although the underlying claims ratio is, among other things, adjusted for large-scale claims and weather-related claims, the underlying claims ratio will by nature continue to be impacted by the inherent volatility of an insurance portfolio.

The expense ratio was 15.0 (Q3 2022: 14.5). The increase was largely as expected given the sale of Topdanmark Liv Holding A/S. Expenses are seasonally low in Q3, and expenses in Q3 2023 are somewhat lower than normal due to phasing effects between Q3 and Q4 2023. As a result, we maintain the full-year expectation of an expense ratio a little higher than 16.5.

The combined ratio was 84.7 (Q3 2022: 81.5). Excluding run-off, the combined ratio was 86.0 (Q3 2022: 81.6).

Segment reporting

Private

Private	Q1-Q3	Q1-Q3		Q3	Q3		Full year
(DKKm)	2023	2022		2023	2022		2022
Insurance revenue	3,629	3,571		1,223	1,185	4,756
Claims incurred	-2,323	-2,300		-796	-753	-3,086
Expenses	-585	-542		-186	-175	-754
Net reinsurance	-45	-34		-11	-13	-49
Insurance service result	676	695		230	244		868
Run-off profits, net of reinsurance	78	64		13	12		57
Gross claims ratio	64.0	64.4		65.1	63.5	64.9
Net reinsurance ratio	1.2	1.0		0.9	1.1		1.0
Claims ratio, net of reinsurance	65.2	65.4		66.0	64.6	65.9
Gross expense ratio	16.1	15.2		15.2	14.8		15.9
Combined ratio	81.4	80.5		81.2	79.4		81.8
Combined ratio excl. run-off profits	83.5	82.3		82.2	80.5		83.0

The private segment services individual households in Denmark.

Insurance revenue increased by 1.6% to DKK 3,629m in Q1-Q3 2023.

The insurance service result was DKK 676m, a decrease of DKK 19m compared with Q1-Q3 2022.

The gross claims ratio improved by 0.4pp to 64.0, and the claims ratio, net of reinsurance, improved by

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Announcement No.12/2023 from Topdanmark A/S

0.2pp to 65.2. Weather-related claims amounted to DKK 140m (Q1-Q3 2022: DKK 115m), representing

1. 0.7pp deterioration of the claims ratio. Run-off was a profit of DKK 78m, DKK 14m above Q1-Q3
   2022 corresponding to a 0.4pp improvement of the claims ratio. The claims frequency in motor remained at the elevated level observed in Q2 2023, which is expected to be the new normal level after COVID-19.

The expense ratio increased to 16.1 from 15.2 in

Q1-Q3 2022, mainly due to dissynergies related to the sale of Topdanmark Liv Holding A/S.

The combined ratio was 81.4 (Q1-Q3 2022: 80.5). Excluding run-off, the combined ratio was 83.5 (Q1-Q3 2022: 82.3).

SME

SME	Q1-Q3	Q1-Q3		Q3	Q3		Full year
(DKKm)	2023	2022		2023	2022		2022
Insurance revenue	3,935	3,851		1,321	1,311	5,153
Claims incurred	-2,577	-2,513		-963	-806	-3,229
Expenses	-655	-603		-196	-186	-822
Net reinsurance	-133	-152		-3	-100	-224
Insurance service result	569	583		159	219		878
Run-off profits, net of reinsurance	69	17		21	-12		95
Gross claims ratio	65.5	65.3		72.9	61.5	62.7
Net reinsurance ratio	3.4	4.0		0.2	7.6		4.3
Claims ratio, net of reinsurance	68.9	69.2		73.1	69.1	67.0
Gross expense ratio	16.7	15.6		14.9	14.2		16.0
Combined ratio	85.5	84.9		88.0	83.3		83.0
Combined ratio excl. run-off profits	87.3	85.3		89.5	82.4		84.8

The SME segment services Danish-based SMEs and agricultural businesses.

Insurance revenue increased by 2.2% to

DKK 3,935m in Q1-Q3 2023. Growth was lower than last year, primarily due to lower indexation on workers' compensation and the loss of a distribution agreement for credit card-based travel insurance. In addition, competition remains at a high level.

The insurance service result decreased by DKK 14m to DKK 569m. The gross claims ratio rose by 0.2pp, while the claims ratio net of reinsurance improved by 0.3pp to 68.9.

Run-off was a profit of DKK 69m, representing a 1.3pp improvement of the claims ratio.

Weather-related claims amounted to DKK 128m in Q1-Q3 2023 (Q1-Q3 2022: DKK 134m), causing a 0.2pp lower claims ratio than the same period last year. Heavy rainfall and claims on crop insurances affected the claims trend especially in Q3 2023, while the start of 2022 was affected by two storms.

Large-scale claims were 1.4pp above Q1-Q3 2022. Fire-related claims on both agricultural and SME properties as well as crop insurance claims affected the claims ratio negatively.

In addition, the claims frequency in motor increased, including a few large claims.

The expense ratio increased to 16.7 from 15.6 in Q1-Q3 2022, mainly due to dissynergies related to the sale of Topdanmark Liv Holding A/S.

The combined ratio increased slightly to 85.5 (Q1-Q3 2022: 84.9). Excluding run-off, the combined ratio rose to 87.3 (Q1-Q3 2022: 85.3).

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Announcement No. 12/2023 from Topdanmark A/S