In setting a reasonable level of capital adequacy, Topdanmark takes into account the factors that would have a material adverse impact on shareholders' equity. At the same time, it allows for the effect of protection in the form of reinsurance and financial instruments.
Furthermore, other factors including current observations on the risk on insurance portfolios, asset portfolios and the financial markets are taken into account. Finally, our opinion of what is a reasonable level of capital adequacy is compared with the regulatory requirements.
The goal of solvency capital is the highest value of what Topdanmark considers a reasonable level of capital adequacy and the regulatory requirement plus an appropriate buffer.
Given the current assessment of the market conditions, we estimate that the shareholders' equity, reduced by the value of intangible assets, must represent at least DKK 3,400m in accordance with the holding company’s accounting policies, i.e. without any allowance for deferred tax on security funds.
If for some reason the solvency required increases above normal level Topdanmark may increase the minimum shareholders equity to ensure a prudent capital position. This is the case at year end 2020 where the minimum shareholders equity for solvency purposes is raised to DKK 3.900m.
As at 11 December 2020, Topdanmark Forsikring A/S has redeemed subordinated notes of DKK 500m issued in 2015. The subordinated notes were replaced by a new subordinated loan of DKK 500m with provisions in accordance with the requirements of Solvency II as at 30 December. The issue was a private placement subscribed by If Forsikring.
Topdanmark has an outstanding subordinated tier 1 loan (restricted tier 1 capital notes) of DKK 400m. This loan is perpetual, but includes an option enabling Topdanmark to redeem the loan as at 23 November 2022.
Topdanmark Forsikring has outstanding subordinated tier 2 notes in two tranches:
• DKK 500m, call in 2025, expiry in 2030.
• DKK 850m, call in 2021, expiry in 2026.
