Capital Markets Day 2008

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation

Topdanmark

Topdanmark Capital Market Day 2008 Competitive Non-life Situation by Poul Almlund Chief Executive Officer

Agenda • Market place • Competitive situation • Key figures • Micro rating • Definition and effect • Competitive situation • Personal market • Agricultural market • Commercial market • Industrial market • Topdanmark’s goals of success CMD 2008 - Competitive non-life situation

Market place - Factors influencing earnings and growth

6

Many major fire claims in agricultural and commercial lines Severe turmoil in the financial markets

Profit margin peaked in 2007

Increasing CR in the accounts of many companies New players in the industrial market

Significant investment losses due to financial crisis

Media focus on price increases now Increasing claims inflation

Increased competition in sales via car dealers

Continued success of health insurance Market place is changing

Automatic indexation under pressure

Success of new travel insurance and electronics insurance CMD 2008 - Competitive non-life situation

Market place - Media focus 2007 Earnings Earningsinininsurance insuranceunder undercontinued continuedpressure pressure

CMD 2008 - Competitive non-life situation

7

Market place - Media focus 2008 Several Severalcompanies companiesnow nowneed needto toincrease increaseprices prices

CMD 2008 - Competitive non-life situation

8

Key figures 9

- How Topdanmark is doing! Earnings - Non-life Sales Growth - Non-life Customer lapse Growth - Life

Expense ratio

Earnings – Investment CMD 2008 - Competitive non-life situation

Key figures

105.1

- Comparison of companies

105.2

10

1/3

97.2

Increasing IncreasingCR CRfor formost mostcompanies companies H1/Q3 2007

H1/Q3 2008

130

Q3

H1

120 114

110 105

105

107

101

100

96

97 94

93

90 85

85 85

83

82

80

70

Top

Tryg

Alm. Brand

CMD 2008 - Competitive non-life situation

GF

Alka

Lærerstanden

Købstæderne

Key figures - Comparison of companies

11

2/3

Earnings Earningsprofile profileH1 H12008 2008 Technical Technicalresult resultas asaa% %ofofpremiums premiums

%

Investment Investmentresult resultas asaa% %ofofpremiums premiums

30 20

16.7

15.4 8.7

10

2.1

0.6

0 (10) (20)

9.2

5.4

(5.7)

(1.1)

(9.4)

(2.7) (9.0)

(12.6) (20.2)

(30)

(23.2)

(40) (50) (60)

(43.0)

Top

Tryg

Alm. Codan Brand

CMD 2008 - Competitive non-life situation

GF

Alka

Lærer- Købstæstanden derne

Key figures

105.1

- Comparison of companies

105.2

12

3/3

97.2

Trend in premium growth - Non-life 2006

%

2007

H1/Q3 2008

15 12 9 6 3

5

6 5

4

2

2

0 (3) (6) (9) (10)

(12)

Q3

(15)

Top

Tryg

H1 Alm. Brand

CMD 2008 - Competitive non-life situation

GF

Alka

Lærerstanden

Købstæderne

Key figures - The impact of recession on non-life insurance Examples Personal market • Cars • Fraud • Travels

Professional market • Bankruptcies • Fraud • Fewer in employment

Repair sector • Skilled craftsmen • Garages - hourly rate • Materials

CMD 2008 - Competitive non-life situation

Growth - % p.a.

1/2

13 Earnings - CR

Key figures - The impact of recession on non-life insurance

2/2

14

Non-life insurance is relatively resistant to financial recession Trend in gross premiums earned as a percentage 1986 1987 1988 1989 1990 1991 1992 8.5 5.9 1.3 2.3 1.3 5.4 1.3

1993 (1.9)

1994 8.7

1995 6.9

Claims trend 1986 1987 85.9 76.2

1993 87.3

1994 75.8

1995 78.8

1988 80.1

1989 71.2

1990 76.2

1991 76.2

1992 79.9

1986: Reflecting an increase in motor claims and other claims. 30% premium increase in motor during the year 1989: Reflecting gains on provisions because it was the last year for tax-free transfer to security fund 1993: Reflecting storms and problems in workers’ comp

CMD 2008 - Competitive non-life situation

Micro rating

15

What Whatisismicro microrating? rating? Insurance was originally based on the solidarity principle - For example, 100% solidarity would result in the same price for all cars!

Rating: - Obstructing the solidarity principle by basing pricing on several criteria - Current trend of using an increasing number of criteria will continue - The number of rating criteria is now so large and the pricing so finely meshed that prices are only available electronically … this trend has created the concept of micro rating

CMD 2008 - Competitive non-life situation

Micro rating

16

How Howititworks! works!

1/6 1/6

180 160 140 120 100 80 60 40 20 0

Risk premium Basis for pricing

180 160 140 120 100 80 60 40 20 0 A

B

C

D

E

F

G

H

Company without price differentiation

CMD 2008 - Competitive non-life situation

A

B

C

D

E

F

G

H

Company with price differentiation

Micro rating

17

How Howititworks! works! 180 160 140 120 100 80 60 40 20 0

C

A

B

2/6 2/6 180 160 140 120 100 80 Customers move to 60 a cheaper company 40 20 0

D

E

F

G

H

Company without segmentation

CMD 2008 - Competitive non-life situation

B

A

E

C

D

F

G

Company with segmentation

H

Micro rating

18

How Howititworks! works!

3/6 3/6

Premium increase

180 160 140 120 100 80 60 40 20 0 A

B

B

E

E

F

Lower turnover

180 160 140 120 100 80 60 40 20 0 G

H

Company without segmentation

CMD 2008 - Competitive non-life situation

A

C

C

D

D

F

G

Company with segmentation

H

Micro rating

19

How Howititworks! works! 180 160 140 120 100 80 60 40 20 0

4/6 4/6

F

A

B

B

E

E

180 160 140 120 100 80 Customers move to 60 a cheaper company 40 20 G 0 H

Company without segmentation

CMD 2008 - Competitive non-life situation

A

C

C

D

D

F

G

Company with segmentation

H

Micro rating

20

How Howititworks! works!

5/6 5/6

Getting "big" problems – new increases and fewer customers

180 160 140 120 100 80 60 40 20 0 A

B

B

E

E

F

G

H

Company without segmentation

CMD 2008 - Competitive non-life situation

180 160 140 120 100 80 60 40 20 0

Ending up with both higher earnings and higher turnover

A C C D D

F G H

F G

Company with segmentation

Micro rating How Howititworks! works!

21 6/6 6/6

Summary: - Customers speculate against solidarity and move to where they get the cheapest insurance policy – the customers are the winners! - A company with significant price differentiation attracts low risk customers and is not attractive to high risk customers. In the short term it results in a decrease in turnover which is later offset by competitors having to increase their prices to get the same earnings. When the market increases prices, the company gets the opportunity to again increase its growth without affecting earnings per customer - A company with little price differentiation attracts high risk customers without charging an additional premium. In order to have the same earnings all customers must be charged a price increase which results in loss of customers CMD 2008 - Competitive non-life situation

Competitive situation

22

Personal Personalmarket market Market trends • Severe competition via car dealers • Further use of micro rating • New types of policies gaining ground – health, travel and electronics • Several companies giving notice of price increases

Largest competitors • Alka • Lærerstanden • GF

Key issues for success • • • •

Sales power Risk management Customer satisfaction Claims handling

CMD 2008 - Competitive non-life situation

Competitive situation expected to improve in 2009

Competitive situation

23

Agricultural Agriculturalmarket market Market trends • • • •

Softened competition Continued decline in number of farms DLG agreement taken over by Tryg from Topdanmark Business written by brokers developing

Largest competitors • • • •

Alm. Brand Tryg Nykredit Codan

Key issues for success • • • •

Sales power Risk management Risk advice Customer satisfaction

CMD 2008 - Competitive non-life situation

Competitive situation expected to improve in 2009

Competitive situation

24

SME SMEmarket market Market trends • • • •

Continued severe competition Premium cuts in workers’ comp Fewer businesses due to financial crisis Brokers going deeper into the market

Largest competitors • • • • •

Tryg Codan Alm. Brand If AIG

Key issues for success • • • •

Sales power Risk management Sector agreements Service concepts and customer satisfaction

CMD 2008 - Competitive non-life situation

Competitive situation expected to improve in 2009

Competitive situation

25

Industrial Industrialmarket market Market trends • Continued decline in prices • New players in upper market – Allianz, AIG, Zurich and ACE • Premium cuts in workers’ comp • Good years have been seen with relatively few large-scale claims • Increased internationalisation

Largest competitors • • • •

Tryg Codan If AIG

Key issues for success • • • •

Sales power Risk management Access to good reinsurance opportunities Opportunities for providing advisory service

CMD 2008 - Competitive non-life situation

Competitive situation expected to improve in 2009

Competitive situation - Summery

26

Focussing Focussingon onTopdanmark’s Topdanmark’sposition position • Several competitors need to increase prices

- Particularly in the personal market • Topdanmark has no plans of general price increases. On the contrary

- Prices in motor has been reduced in selected segments with a positive claims trend - Prices in workers’ comp will be reduced by an average of 5% on the basis of the index • Non-life insurance is relatively resistant to recession • For all markets the insurance company’s ”key issues for success” are - Sales power - Risk management ability

• Topdanmark will further improve both issues in 2009 • For its 2009 competitive situation Topdanmark expects - A slight improvement in the agricultural and industrial markets - An improvement in the personal and the SME markets

CMD 2008 - Competitive non-life situation

Financial ratios - Topdanmark’s goals of success • We need to boost growth

27 Continued goal of 5% growth … but adjusted for any reductions

• We need to cut down on expenses

Continued goal of an expense ratio lower than the general market level

• We need to invest in further measures to improve competition

Price reductions most needed in motor and workers’ comp insurance Goal:

We need to ensure good earnings

9 CR of 89 in the next 1 or 2 years excl. gains/losses on claims provisions 9 CR of 91 in the long run excl. gains/losses on claims provisions

Applies to both personal and professional markets CMD 2008 - Competitive non-life situation

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation

Topdanmark

Topdanmark Capital Market Day 2008 Personal Market by Poul Almlund Chief Executive Officer

Agenda • Personal market • Market share • Organisation of Topdanmark • Trends in personal market • Success criteria • Sales power • Channels and resources • Sales centres • Market pressure • Risk management • Profitability on product level • Growth - drivers • Pricing • Customer satisfaction • Rounding off CMD 2008 - Personal market

Personal market - Market share 2007

31

Motor, incl. commercial vehicles

Fire & contents Other; 3.2%

Other; 8.9%

Fair; 1.0%

Fair; 1.6%

Nykredit; 4.3%

Nykredit; 3.0%

Alka; 5.5%

Alka; 3.4% Tryg; 22.7%

if; 5.0%

GF ; 5.3%

GF; 5.0% Lærerstanden; 5.2% Alm. Brand; 11.2%

Tryg; 24.9%

if; 3.8%

Codan; 13.9%

Source: F&P: Direct Danish insurance

CMD 2008 - Personal market

Topdanmark; 20.1%

Lærerstanden; 6.9% Alm. Brand; 12.5%

Codan; 12.7%

Topdanmark; 19.9%

Personal market 32

- Organisation of Topdanmark Close interaction between two lines of business

Sales

Danske Bank Partners

Group

Personal

organisation

Sales

Sales

support

support

Controller

Business

function

development

IT

Shared functions

CMD 2008 - Personal market

Call

Controller

centres

function

Trends in personal market 33

- In general Success Successcriteria criteriaand andconsequences consequences Success criteria

Provides opportunity for

Could improve

Sales power

Real growth

Expense ratio

Real growth

Expense ratio and/or Loss ratio

Risk management Improved profitability Customer satisfaction

Real growth

Expense ratio

Claims handling

Fewer claims payments

Loss ratio

CMD 2008 - Personal market

Trends in personal market 34

- In general Success Successcriteria criteriaand andconsequences consequences Success criteria

Provides opportunity for

Could improve

Examples of measures: • Scalepoint, video assessment, discount agreements, glass damage repairs and ”fraud consultants” • More proactive claims handling, e.g. management of whiplash claims

Development of new claims system

Claims handling

Fewer claims payments

CMD 2008 - Personal market

Loss ratio

Trends in personal market 35

- In general Success Successcriteria criteriaand andconsequences consequences Success criteria

Provides opportunity for

Could improve

Sales power

Real growth

Expense ratio

Distribution channels and their interaction • Certified insurance sales representatives, sales centres, banks, call-centres, car dealers, estate agents and internet

Efficiency of market pressure Claims handling

Fewer claims payments

CMD 2008 - Personal market

Loss ratio

Sales power 36

- Distribution channels and their interaction Topdanmark has strong sales power in the personal market

Partners

• • • • •

Employees of 429 DB branches Employees of 200 ”home sales” centres 48 cert ins sales reps with Danica Pension Call centres www.danskeforsikring.dk

CMD 2008 - Personal market

Personal

• • • • •

174 cert ins sales reps 36 sales centres Call centres Car and motor cycle dealers www.topdanmark.dk

Sales power - Distribution channels and their interaction

37

Topdanmark’s sales centres is a key element in our marketing • Possible service channel for our customers. We offer our customers to choose freely between – – – –

Visit by a cert ins sales rep (house customers) Sales centre Telephone Internet etc.

• Local presence and particularly visibility – We are represented in the regional centres, typically where a Bilka/Føtex supermarket is situated

• Maintain an impression of closeness in customers’ minds – We are present in the local marketplace

Contributes to build up the value of Topdanmark’s brand

CMD 2008 - Personal market

Sales power 38

- Distribution channels and their interaction

Topdanmark’s sales and call centres are one virtual set-up using IP telephony

Important jobs: • Customers who come in • Inbound Aabenraa

Frederikshavn

• Outbound

Organisation: 1st level support - Sales and customer service

2nd level support - Customer service and special jobs Haderslev

Amager

CMD 2008 - Personal market

Taastrup

Sales power 39

- Efficiency of market pressure - cert ins sales reps

Impact on sales efficiency - illustration Premium per sale

x Hit rate x

Visits per week

x

Number of weeks

x

Number of reps.

=

Annual sales DKKm

DKK 5,000

30%

5

40

100

30

DKK 5,000

30%

5

40

200

60

DKK 5,000

30%

10

40

100

60

DKK 5,000

60%

10

40

100

120

DKK 7,500

60%

10

40

100

180

> 40%

> 12

CMD 2008 - Personal market

Trends in personal market 40

- In general Success Successcriteria criteriaand andconsequences consequences Success criteria

Provides opportunity for

Could improve

Sales power

Real growth

Expense ratio

Real growth

Expense ratio and/or

Improved profitability

Loss ratio

Customer satisfaction

Real growth

Expense ratio

Claims handling

Fewer claims payments

Loss ratio

Risk management

CMD 2008 - Personal market

Risk management Risk management Earnings

41 Earnings

3 key words: Goal for competitors Negative risk selection

CMD 2008 - Personal market

• Profitability on product level • Growth - Premium drivers • Pricing

Profitability on product level 42

- Historical development in loss ratio

House

Total Personal

Total market

Motor

140 120 100 80 60

CMD 2008 - Personal market

07 20

05 20

03 20

01 20

99 19

97 19

95 19

93 19

19

91

89 19

87 19

85 19

19

83

40

Profitability on product level 43

- A bit of number gymnastics ”Unequal” earnings in mass market Combined ratio – – – –

Normalised

Motor 80 Private products 100 Accident 80 Total 88

Ideal, e.g. 93 86 80 88

Consequence Reductions: about 14% Increased: about 16% Unchanged

Quick adjustment to ”ideal earnings” could, in the short term, have an adverse impact on growth/earnings Consequence: • Any new price cuts should be made in motor insurance • Competitors’ price increases in private products allow for changes • However, currently no plans to increase prices

CMD 2008 - Personal market

Profitability on product level - Most recent measures in motor insurance New price cuts in 4 areas in mileage rating from 2008-11

1

Over the age of 60: A further 9% reduction in liability insurance

2

Car group 8-10: 5%-17% reduction in liability insurance

3

Bonus levels 3-6: 4%-14% reduction in comprehensive and liability insurance

4

Quicker transfer to ”Veteran Driver” for customers paying old prices

CMD 2008 - Personal market

44

Profitability on product level - In recent years Topdanmark has implemented new prices in …

Contents

Motor

rily a m Pri House

Boat

Accident

e

s a e Motor cycle r nc

di n a uts c e pric

eo s u d

f

tingElectronics a r ro insurance m ic

Caravan

Travels Trailers

CMD 2008 - Personal market

45

Change of ownership

Growth

46

- Premium drivers Saturation degree House Car Contents

Tophjælp (rescue)

Illness/accident Annual travel insurance policy Unemployment insurance Electronics insurance

Blue waters CMD 2008 - Personal market

Red waters

Time

Growth

47

- Premium drivers - Example Tophjælp (rescue) Number of Tophjælp

300000 250000

Customers with car insurance 200000

• With Tophjælp

150000

> 60%

• Premium for Tophjælp/Car > 6%

100000

Annual growth for Group

50000 0 2005

2006

2007

CMD 2008 - Personal market

E2008

= 0%

Growth

48

- Premium drivers - Example Annual travel insurance policy Number of policies

200000 150000

Customers with contents insurance

> 60.000

• With travel insurance 100000

> 40%

• Premium for travel/contents > 15% Annual growth for Group > 0.4%

50000 0 2005

2006

2007

CMD 2008 - Personal market

E2008

Growth - Premium drivers - Example Electronics insurance: What is covered? What equipment is covered? • All electric equipment of the household • E.g. flat screens, washing machines, coffee makers, mobiles, desktops • Appliances in the customer’s holiday cottage

What equipment is not covered? • Electric equipment for outdoor use

klik

CMD 2008 - Personal market

49

Growth - Premium drivers - Example Electronics insurance: What claims?

Covers up to 5 years • Sudden damage • Malfunction • Pixel error Combined with a unique ”Service guarantee” • Guaranteed visit by a white goods mechanic within five working days • Guaranteed repair of the electric equipment within three weeks Important • If we do not observe the guarantee, the customer pays no excess

CMD 2008 - Personal market

50

Growth - Premium drivers - Example Electronics insurance: Sales arguments Don’t OK … you sell the same product as all theisother insurance companies? Why it so expensive? But why should I buy your electronics insurance policy?

You get an you ongoingwill policy which The cover match the We don’t think get it’s expensive that covers all your equipment for a cover provided byinsurance our competitors the price of such is 1.40 small amount kroner per day. And a unique service guarantee Itcreating is cheaper than buying a surplus real450 value for you Price: DKK – Excess DKK 500 policy in the shop each time you We electronics promise quick repair buy klik

CMD 2008 - Personal market

51

Pricing Pricing

52

Examples Examplesof ofmeasures measuresininTopdanmark Topdanmark Earnings • More sophisticated rating - Motor, including mileage rating - Contents, including address rating • Opportunities and constraints - House in terms of cloudbursts - Other factors

CMD 2008 - Personal market

Pricing - Motor

1/8

Examples Examplesof ofrating ratingcriteria criteriaof ofTopdanmark’s Topdanmark’smotor motorprices prices Number of groups

Difference - most expensive/cheapest

Area Rating criteria Car group Age of car

4 10 4

> 20% > 100% > 20%

Bonus level Age of customer Number of km

13 5 6

> 500% > 50% > 50%

7

> 50%

Excess

Generates more than 400,000 prices

CMD 2008 - Personal market

53

Pricing - Motor

54

2/8

How HowTopdanmark’s Topdanmark’smileage mileagerating ratingworks worksininthe themarket market

Number of km Under 8,000 km 8,000-14,000 km 14,000-20,000 km 20,000-26,000 km 26,000-32,000 km Over 32,000 km Average

CMD 2008 - Personal market

Average price DKK Avg.=100 3286 3947 4529 5035 5562 6287 4213

78 94 108 120 132 149 100

Hit rate new business 47% 43% 36% 35% 28% 27% 39%

Pricing - Motor

55

3/8

How HowTopdanmark’s Topdanmark’scar carrates rateswork workininthe themarket market

Age of customer Aged 17-22 Aged 23-29 Aged 30-50 Aged over 50 Average

Risk premium DKK Avg.=100 6178 3522 3077 2235 2653

233 133 116 84 100

Risk premium DKK Men Women 7264 3508 3000 2271 2643

Not used in pricing

CMD 2008 - Personal market

3329 3509 3293 2221 2678

Pricing - Motor

56

4/8

From FromChevrolet’s Chevrolet’swebsite! website!

Chevrolet: 3 years insurance at a fixed price as part of car purchase! If you buy a new Chevrolet, we offer you an Alka/Chevrolet car insurance policy as part of your car purchase, i.e. you will pay insurance for the next 3 years at an extremely attractive price as part of an overall package Facts on insurance package

Price examples

• 3 years premium paid as a part of the overall package

Model

• Premium depends only on what type of Chevrolet you buy

Matiz 0.8-1.0 2700

• Excess of DKK 4,380 for first claim (aged over 30)

Aveo 1.4

3500

• Excess of DKK 8,760 for first claim (aged under 30)

Nubira 2.0

4300

• Driver will be ”veteran driver” if 3 years with no claims

Epica 2.5

5500

CMD 2008 - Personal market

DKK

Pricing - Motor

57

5/8

Topdanmark’s Topdanmark’sprices prices--examples examples Aged 20

Aged > 60

Aged 20

Aged > 60

Less than 8,000 km

Less than 8,000 km

More than 32,000 km

More than 32,000 km

Matiz 1.0

DKK 11,604

DKK 2,812

DKK 16,952

DKK 4,069

Nubira 2.0

DKK 18,332

DKK 4,421

DKK 26,807

DKK 6,427

Excess

DKK 10,330

DKK 3,099

DKK 10,330

DKK 3,099

CMD 2008 - Personal market

Pricing - Motor

6/8

58

New Chevrolet by age 2006 Number

2007 2008

Age of customer

CMD 2008 - Personal market

Pricing - Motor

7/8

Topdanmark’s market share for Chevrolet Market share Top

Age of customer Year – 2006 – 2007 – 2008

CMD 2008 - Personal market

59

Pricing - Motor

60

8/8

Market survey from Capacent Epinion – Sep. 2008 • Do you believe there is a relationship between the number of km driven and the risk of damage? • Would you each year tell your insurance company the number of km driven if the price was adjusted accordingly?

Yes

No

Undecided

57%

37%

6%

74%

15%

11%

Agree • Everybody should pay the same car insurance price irrespective of age, claims, type of car, experience, address and number of km driven? • It is fair that young drivers pay more for their car insurance because statistically they cause much more damage? • More experienced drivers should pay slightly higher car insurance allowing young drivers to pay less? - 943 web interviews with car owners

CMD 2008 - Personal market

UndeDisagree cided

9%

90%

1%

81%

17%

2%

6%

92%

2%

Pricing - Contents - burglary

1/2

61

Background Backgroundand andopportunities opportunities

• Topdanmark works extensively on risk analysis of contents insurance as the risk of theft has changed significantly in recent years and continues to change • Information from Statistics Denmark combined with Topdanmark’s own information has made it possible to change from postal codes to address rating Examples of effect

CMD 2008 - Personal market

Pricing - Contents - burglary

2/2

62

Example Exampleof ofaddress addressrating rating--from fromOdense Odense Odense divided into small geographical areas - The figure shows the loss ratio for theft

…. but Odense was previously considered as one area! Lowest risk

CMD 2008 - Personal market

Highest risk

Pricing - Opportunities and constraints Deciding Decidingthe therisk riskpremium premium––the thedifficult difficultpart! part! The more data is available, the more precise it will be - The amount of data (internal and external), the quality of data and the calculation capacity are crucial factors for hitting the risk premium as precisely as possible!

The size of the company is crucial for the pricing! - Large amounts of data for analysing - Significant analysing capacity

CMD 2008 - Personal market

63

Pricing - Opportunities for house - cloudbursts

Cloudbursts: ”Rain intensity exceeding 15 mm in 30 minutes”

1/3

64

Example of water flow

Max height Min height Difference in height

100X100 m cell CMD 2008 - Personal market

If the value is 1, only the cell itself sends water into the cell, i.e. no water flow. On the other hand 30 is the maximum water flow.

Pricing - Opportunities for house - cloudbursts

Result Resultof ofdifference differenceininheight heightand andwater waterflow flow--Amager Amager deriksberg

øbenhavn København

”Amager most severely hit by the rain – 4 August 2008

CMD 2008 - Personal market

Share nation-wide 20 % 20 % 20 % 20 % 20 % 100 %

Risk index 61 80 100 131 220

Average risk premium today about DKK 70

Tårnby

It has been pouring down during the night and morning and therefore many basements are filled with water …”

65

2/3

Dragør

Pricing - Opportunities for house - cloudbursts

66

3/3

Result Resultof ofdifference differenceininheight heightand andwater waterflow flow--North NorthZealand Zealand Fredensborg-Humlebæk

Hillerød

Karlebo

Karlebo

… so far no plans to use this information

Hørsholm

Slangerup Allerød Birkerød

Farum

CMD 2008 - Personal market

Søllerød

Pricing - constraints

67

Rating Ratingcriteria criteria Ethical constraints on the use of data - We must be able to explain our pricing - e.g. DKK 50,000 for a young man with a BMW living in …

As a large insurance company we must be able to offer all our private customers cover of ordinary risks within a reasonable price spread! … but allowing for the opportunity to require high security precautions

CMD 2008 - Personal market

Risk management - Rounding off

68

9 Micro rating is not a new phenomenon! • but only reflects a more finely meshed pricing structure

9 The customers will be the winners as they will see even greater price differences!! 9 Other things being equal, the large companies will benefit from the new trends! 9 We believe in our own pricing! • where continued price adjustments are based on risk assessments

… and we can, we wish to and must always improve! CMD 2008 - Personal market

Trends in personal market

69

- In general Success Successcriteria criteriaand andconsequences consequences Success criteria

Provides opportunity for

Could improve

Sales power

Real growth

Expense ratio

Real growth

Expense ratio and/or

Improved profitability

Loss ratio

Customer satisfaction

Real growth

Expense ratio

Claims handling

Fewer claims payments

Loss ratio

Risk management

CMD 2008 - Personal market

Well-helped - Customer satisfaction

70

• Behaviour is the best form of communication • Ensuring that we provide good service • Good service = giving customers a little more than they expect

Therefore not much money is spent on advertising and TV spots

CMD 2008 - Personal market

Well-helped - How it goes today! TopNet TopNetmonitoring monitoringportal portal––Group Group

71

Well-helped 72

- Most recent measures in monitoring and reporting Now also concentrating on … • Customers experiencing poor service • Results of teams, Group • Best performer Additional sales

Respondents

Respondents

Overall satisfaction

Employee

Team

Best in team

CMD 2008 - Personal market

Best in Group

Employee

Team

Best in team

Best in Group

Well-helped 73

- Dansk kundeindeks (Danish customer Index)

85 2001 2002 2003 2004 2005 2006 2007 2008

80 75 70 65 60 Top d an

Try ma rk

CMD 2008 - Personal market

g

Cod

an

Alm . Br an d

Alk

a

Value creation in Topdanmark 74

- Summary Increase in earnings base Lower expense ratio Increase in rate of customer conversion Increase in additional sales

Smaller customer lapse

Virtuous circle

Fewer claims payments

More price competitive

Improved customer satisfaction CMD 2008 - Personal market

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation

Topdanmark

Topdanmark Capital Market Day 2008 Update on Investment Policy by Lars Thykier, Managing Director of Topdanmark Asset Management

Agenda • Topdanmark’s model • Why financial risk? • How do our shareholders feel? • Performance on investment return • Future investment policy • Mark to model on structured products / illiquid loans /credit bonds

CMD 2008 - Update on investment policy

77

Investment policy

78

Investment policy Current situation: • Enormous losses on real estate, mortgages, credits • Failures among the biggest and most important financial institutions • Government intervention of unprecedented scale • Deep recession expected • Deleveraging has led to major dislocations in all markets • Forced sales from banks, pension funds, hedge funds • Value of equity halved • Credit spreads at their highest ever • Huge liquidity premiums • T-bonds, bunds extremely pricey • Worst crisis in memory

79

Investment policy • The primary business has performed extremely well in 2008. Nonetheless Topdanmark expects a full year deficit due to negative financial markets • How does this outcome align with Topdanmark’s investment policy?

80

Investment policy

81

– Topdanmark’s investment policy • Topdanmark wishes to make money by accepting financial risk but to

generate the extra return at a risk level considered conservative by investors

Investment policy

82

• Topdanmark’s investment policy • Topdanmark wishes to make money by accepting financial risk but to generate the extra return at a risk level considered conservative by investors • The financial exposure must not be so high that a downturn in the financial markets could force the Company to change its overall decisions

Investment policy • Topdanmark’s model • The risk of financial assets is aligned with primary operations. Stable, high operational earnings allow financial risk. In the case of more difficult operational conditions the financial risk is reduced

83

Investment policy Why financial risk? • Theoretical argument for risk minimisation through hedging of interest and inflation risk arising from the primary business • In Topdanmark’s view it will not be possible to exploit the full potential of the non-life insurance business following such a policy

84

Investment policy Why financial risk? • Topdanmark’s view - financial risk in general – A certain amount of financial risk increases the share value – Shareholders do not want to park their capital on a bank account

85

Investment policy Why financial risk? • Topdanmark’s view - liquidity – The cash flow of future payments is known and very long-tailed. Customers are not able to demand premature payment of claims - no risk of run – Safe, long-term financing is of great value, particularly in times like these – The value of the financing is utilised by investing in less liquid assets – Generating volatility on book values but significant excess return

86

Investment policy Why financial risk? • Topdanmark’s view - equity risk and tax – Gains on equities owned for more than three years are not taxed – Generating volatility but definitely profitable in terms of riskadjusted return – In general financial assets are important instruments in tax management

87

Investment policy Why financial risk? • Topdanmark’s view - infrastructure – Topdanmark already has systems and employees to handle asset management in the life business. Therefore the marginal costs of the non-life business utilising the opportunities of the financial markets are pretty low

88

Investment policy

How do our shareholders feel?

89

Investment policy

90

Analysts use more or less the same discount rate when assessing the value of Top and TrygVesta

Enskilda Kaupthing LD Markets Jyske Bank *) MF Global Danske Bank

Top 9.5% 10% 9.0% 11.8% 9.3% 9.5%

TrygVesta 9.5% 9.5% 8.5% 11.8% 9.3% 9.5%

Average

9.85%

9.68%

*) Jyske uses a sligthly different principle but the same rate for Top and TrygVesta

30-11-2008

30-10-2008

30-09-2008

30-08-2008

30-07-2008

30-06-2008

30-05-2008

30-04-2008

30-03-2008

29-02-2008

30-01-2008

30-12-2007

30-11-2007

30-10-2007

TrygVesta

30-09-2007

30-08-2007

30-07-2007

30-06-2007

Topdanmark

30-05-2007

30-04-2007

30-03-2007

28-02-2007

30-01-2007

30-12-2006

30-11-2006

30-10-2006

30-09-2006

30-08-2006

30-07-2006

30-06-2006

30-05-2006

30-04-2006

30-03-2006

28-02-2006

30-01-2006

30-12-2005

Investment policy 91

Top’s share price has increased more than TrygVesta’s during the last three years Index-linked share price movement (Basis: Dec. 31st 2005 = 100) Alm. Brand

220

200

180

160

140

120

100

80

60

40

20

0

28-11-2008

14-11-2008

31-10-2008

17-10-2008

03-10-2008

19-09-2008

05-09-2008

22-08-2008

08-08-2008

25-07-2008

11-07-2008

27-06-2008

13-06-2008

30-05-2008

16-05-2008

TrygVesta

02-05-2008

18-04-2008

04-04-2008

Topdanmark

21-03-2008

07-03-2008

22-02-2008

08-02-2008

25-01-2008

11-01-2008

28-12-2007

14-12-2007

30-11-2007

16-11-2007

02-11-2007

19-10-2007

05-10-2007

21-09-2007

07-09-2007

24-08-2007

10-08-2007

27-07-2007

13-07-2007

29-06-2007

Investment policy 92

• How about Top’s huge losses in the wake of the crisis? • Top’s share price has moved in line with TrygVesta’s in the period after the crisis broke out last summer Index-linked share price movement (Basis: June 30th 2007 = 100) Alm. Brand

110

100

90

80

70

60

50

40

30

20

10

Investment policy

93

•In the years from 2001 to 2006 Top has enjoyed substantial additional income from investments compared to TrygVesta. Relative losses in 2007 - 2008.3 Investment return in non-life, Topdanmark and Tryg 2000 - 2008.3 Total Annually excl. 2000

2000

2001

2002

2003

2004

2005

2006

2007

2008.3

Tryg

9.8%

4.6%

2.3%

6.2%

4.7%

5.2%

6.3%

4.9%

0.8%

40.7%

5.4%

Top

17.9%

5.1%

3.3%

9.8%

7.5%

6.2%

7.7%

3.7%

(5.5)%

43.6%

5.7%

8.1%

0.5%

1.0%

3.6%

2.8%

1.0%

1.4%

(1.2)%

(6.3)%

2.9%

0.3%

Excess Top

2000-2002 Tryg Forsikring, then TrygVesta 2005-2007 incl. provisioning adjustment

Investment policy

94

•Tops additional income is spent on share buy-backs. In the years 2001 – 2008.3 •the additional investment income has funded share buy-backs of around 1.7m •shares equivalent to 11% of today’s share capital

2001

2002

2003

2004

2005

2006

2007

2008.3

Post-tax excess return (tax 22%) Share price

36 212

76 207

290 248

276 375

111 456

170 778

(143) 940

(768) 765

Number of shares ('000)

171

366

1171

736

244

219

(153)

(1004) 1750

If the current market value was distributed on 17.3m shares in lieu of the actual share capital of 15.6m shares, the share price would drop from 675 to 600

Investment policy • On an average Topdanmark’s investment policy has proved advantageous but the losses suffered in 2008 are far too big to be in line with investment policy • How about the future?

95

Investment policy

96

• The rational behind Topdanmark’s investment policy is still valid and the investment policy should basically not be changed • Topdanmark regards the losses of 2007 – 2008 as a consequence of absolutely extraordinary circumstances but - the losses occurred

• Therefore • The possibility of very big losses resulting from major price declines in combination with high correlations across asset classes should be limited

Investment policy

97

Topdanmark will - Continue to invest in illiquid assets - Keep an equity portfolio of significant size - Screen the market for assets that are expected to give an attractive risk adjusted return - Keep assets that seem to be priced below fundamental value

Investment policy • But • Topdanmark will reduce the possible investment risk cumulation compared to the risk levels of 2007 and early 2008

98

Investment policy Temporary restrictions

• No net buying of equities if exposure exceeds DKK 800m • No net buying of structured credits and bank loans

99

Investment policy • Risk indicator limit • Risk indicator: Simple sum of risk weightings • Risk weightings reflect maximum expected loss on each investment • Risky assets cannot be acquired if risk indicator higher than 75% of normalised yearly result • Substantial reduction in acceptable risk exposure

100

Investment policy

101

Risk exposures are reduced: Exposure Dec. 2007 Spread mortgage bonds, cov. bonds versus govs, swaps Exquities Subprime CDOs AA og AAA CDOs < AA Credits

8,000 1,500 40 900 600 1,600

Exposure Sep. 2008 8,000 800 20 800 300 1,300

Investment policy

102

Risk depends on exposure but also on the current risk premium: Spreads mortgage bonds, cov. bonds versus govs, swaps: Higher level than any other crisis Equities fwd p/e est. in

2007

2008

US Europe Denmark

14.2 13.0 13.0

10.3 8.0 10.8

Investment policy Senior secured loans

103

Periode ju n13 au g13 ok t-1 3

8

ju n12 au g12 ok t-1 2 de c12 fe b13 ap r-1 3

ju n11 au g11 ok t-1 1 de c11 fe b12 ap r-1 2

ju n10 au g10 ok t-1 0 de c10 fe b11 ap r-1 1

ju n09 au g09 ok t-0 9 de c09 fe b10 ap r-1 0

ok t-0 8 de c08 fe b09 ap r-0 9

Default rate

Investment policy 104

Mark to model assumptions - senior secured loan defaults

12

10 Topdanmarks Assumptions

Moody's severe case

6

4

2 Moody's base case

0

Investment policy Mark to model assumptions – senior secured loans Recoveries: - first lien 60% - second lien, mezz 20% - recovery lag: 12 months Prepayments: 5% first two years, 20% afterwards Reinvestment price: 90 Discount rate: 10% Individual adjustments to specific loans

105

Investment policy Conclusions I • In general Topdanmark’s investment policy has worked well and generated excess return in most years • The 2007 – 20008 crisis has shown that the investment policy may lead to vulnerability in extreme environments • The investment policy will be continued but at a lower risk level

106

Investment policy Conclusions II • Lower limit on equity exposure • Restrictions on structured credit and bank loan investments • New limit on total risk • Reduced volatility due to mark to model accounting on structured credits and bank loans

107

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation

Topdanmark

Topdanmark Capital Market Day 2008 Life and Pensions Risk Allowance and Shadow Account by Christian Sagild Group Managing Director

Agenda • Topdanmark’s profit model • Normalised return • Split of portfolio • Bonus potentials • Prospects for shadow account

CMD 2008 - Life and pensions, risk allowance and shadow account

110

Life and Pensions environment

• •

Traditional with-profit business (80-90% of premiums and >90% of liabilities) Unit Linked business (10-20% of premiums)

Focus on the specialities in the with-profit business

111

Profit creation model makes added value Profit (before tax) consist of: Life-unconditioned results • Investment income from shareholders’ funds • Risk and administrative result in Top Link Life-conditioned results • Risk allowance • A percentage of customers savings • Cost result from new business • Risk allowance from previous years on the ”shadow account” Non-life • Result from health insurance and critical illness

112

Profit creation model makes added value Profit (before tax) consist of: Life-unconditioned results • Investment income from shareholders’ funds • Risk and administrative result in Top Link Life-conditioned results • Risk allowance • A percentage of customers savings • Cost result from new business • Risk allowance from previous years on the ”shadow account” Non-life • Result from health insurance and critical illness

113

Shadow account

• Risk allowance can be carried forward (shadow account) • Shareholders’ proportion of charge of loss on "insurance technical profit before bonus contribution” can be carried forward (shadow account) • Shadow account can be charged to P&L if sufficient "insurance technical profit before bonus contribution". • Principle for charging to P&L: – ”As fast as possible”

114

Normalised return in life insurance 1/2 Assumptions: • Shareholders’ funds as at 31st December 2007 = DKK 939m • Reasonable capital cover: 150% x solvency minimum of which Shareholders’ funds covers approximately 80% (right now a little less) • Investment return on shareholders’ funds: 4.5% • Risk and administrative result in link: 0.1% of savings • Cost result of new business (acquisition expenses) = 10m • Insurance technical result before bonus contribution being in profit • Customers’ savings: Liv I : DKK 12.8bn. Liv V : DKK 8bn. Link: DKK 1.6bn.

115

Normalised return in life insurance 2/2

Return on life insurance: Investment return on minimum capital requirement 4.5% Risk allowance : 0.50% / 0.65% of customers’ savings Cost result of new business Risk and administrative result in Link

116

DKKm 42 116 (10) 2 150

Other life-related result: Life-related non-life (health insurance and critical illness insurance etc.) Asset management Other synergies within, among others, distribution

30 22 35 87 237

Blood sharing between existing and new customers 117

• Challenge in the market • Large proportion of business guaranteed by 4.5% - actual interest level much lower • • Conservative investment strategy: • Derivatives (interest rate options) • few shares

• Uncertainty for ”new” customers (since 1994)

118

Split of portfolio

Guarantees

• 4.5% (business written prior to 1st July 1994) • 2.5%(business written prior to 1st July 1999) • 1.5%(business written after 1st July 1999)

Interest rate option

• Protects against decreasing interest rates • Diluted by significant growth Conflict of interest

Shares

• Shareholders wish: ”Small proportion of investments” • Customers wish: ”Large proportion of investments”

New customers with lower guarantees expect larger proportion in shares

119

The split improves the investment strategy

Investment strategy 4.5

4.5

1.5

4.5 • • • •

1.5 4.5

4.5

1.5

2.5

4.5

4.5

4.5

2.5

1.5 4.5

2.5

Significant bond portfolio Properties Few shares (10%) Interest rate options

2.5

1.5

Investment strategy

1.5 1.5

• Bonds • Properties • Shares (30%)

120

Bonus potentials

Liabilities

Assets

Collective bonus potential

Shares

Real estate Provisions

Bonds Shareholders’ funds

121

Bonus potentials

Collective Kollektivt

”Buffer”

Bonuspotentiale bonus potential

(Individual bonus potential)

Provisions Guaranteed part Shareholders’ Funds

Depends on actual level of interest versus guaranteed interest rate

122

Bonus potentials

Liabilities

Assets

Collective Bonus potential

Shares

”Buffer” (I B P) Real estate

Customers’ savings

Provisions Guaranteed part Bonds Shareholders’ Funds

123

Bonus potentials

What happens when market value of assets decreases below the level of collective bonus potential?

Liabilities

Assets

Collective Bonus potential ”Buffer” (I B P)

Customers’ savings

Shares

Provisions Guaranteed part

Shareholders’ Funds

Real estate

Bonds

Shadow account Shadow account – DKKm

124 Liv I

Liv V

Total

Allocated 2007

52

52

Estimated interest 2008

(1)

(1)

Estimated allocation 2008

61

52

113

Estimated shadow account end 2008

61

103

164

5

7

12

66

(110)

(44)

132

0

132

Estimated interest 2009 Allocated to- /charged from shadow account 2009 Estimated shadow account end 2009 Estimated interest 2010

10

10

Allocated to- /charged from account 2010

73

73

Estimated shadow account end 2010 Estimated interest 2011 Allocated to- /charged from shadow account 2011 Estimated shadow account end 2011

215

0

215

15

15

(230)

(230)

0

0

0

Conclusions

• The split in Life I and Life V provides excellent protection • For shareholders • For old customers in Life V with the swaption-based investment strategy • For new customers not facing the risk of financing ”old guarantees” • Good prospects for bringing the entire shadow account ”home” no later than 2011

125

Agenda 10:00 Introduction by Steffen Heegaard 10:05 Competitive non-life situation by Poul Almlund 10:20 Personal market by Poul Almlund 11:10 Update on investment policy by Lars Thykier 11:55 Life and pensions, risk allowance and shadow account by Christian Sagild 12:25 Closing 12:30 Buffet lunch CMD 2008 - Competitive non-life situation