TCFD-rapport 2022 (på engelsk) (204 KB)

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Task Force for Climate-related Financial Disclosure 2022

53448 - 2022

Topdanmark A/S • Borupvang 4 • 2750

BallerupTelefon 44 68 33 11 • CVR-nr. 78040017

www.topdanmark.com • E-mail:[email protected]

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Introduction

Topdanmark is one of the largest non-life insurance companies in Denmark, and we offer a wide range of products and services to private, commercial, and agricultural customers. We also promote life insurance and health products via distribution agreements with Nordea Pension.

The foundation stone of Topdanmark was laid in 1899, and today we have approximately 2,200 employees working all over the country. The headquarters are located in Ballerup. Topdanmark is a limited company listed on Nasdaq Copenhagen A/S.

The purpose of Topdanmark is to help our customers before, during and after a claim. We are proactive and assist with prevention, so damage and injuries do not occur, and we want to promote well-being and good health. When the damage has occurred or the customer has fallen ill, we help limit the consequences in the best possible way, and we pay out compensation. This also means that we want to deliver more than just insurance products.

We want to be the market leader in terms of the delivery and development of claims solutions and additional services which create value for customers, partners and society. Satisfied customers are our livelihood, and we always endeavour to deliver good customer experiences that make it easy to be a Topdanmark customer.

The essence of our ambitions can be summed up in our promise to our customers: "We are here to help." We are proactive and available when you need our assistance.". We handle approx. 300, 100 claims annually.

Organisational changes in 2022

In 2022, Topdanmark signed an agreement with Nordea Life Holding AB on the divestment of Topdanmark Liv Holding A/S. The transaction was completed as at 1 December 2022. Topdanmark Livsforsikring was founded in 1972, and by the time of the divestment it was Denmark's fifth largest commercial pensions company with more than 225,000 customers and around 300 employees. We decided to divest this part of our business as we believe that Nordea is the perfect operator to run and develop Topdanmark Livsforsikring. At the same time, it opens up new possibilities in our non-life insurance company. With this transaction, we also strengthen the close strategic partnership between Nordea and Topdanmark, and we will continue to sell life insurance and pension schemes from Nordea to our customers. Within the field of investment, the divestment has caused a change in the portfolio which entered into force in mid-November 2022.

This report covers the financial year 2022.

Overall approach to climate changes

As an insurance company we feel the consequences of climate change in the form of more unpredictable and extreme weather e.g., cloudbursts, drought and more rain than usual. This is a cause of conceboth for us as a company for our customer and for the society. Environmental and climate-related issues are material to us and has been for many years - both in terms of risk and opportunities.

To an insurance company, climate changes pose a business risk, as it can lead to increased claims costs. We mitigate the risk e.g. through a comprehensive reinsurance programme, preventive actions either as a requirement to the customer or as an offer possibly in combination with a reduction of the premium, and risk-based pricing.

The new weather challenges also call for us to continuously develop new products and services that meet the customers' new needs for security and stability in everyday life also in relation to climate changes challenges. Therefore, we focus on products and services that can contribute to the green transformation and low cab economy.

At Topdanmark, we want to contribute to solutions that benefit both our customers and society. We support the Paris Agreement's target of a maximum temperature rise of no more than 2 degrees by 2050. In practice, this means that we integrate climate considerations into the way we do business. At the same time, we want to support the Danish Parliament's Climate Act and the goal of a 70% CO2 reduction in 2030.

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New commitment to Science Based Target initiative (SBTi) in 2022

Back in 2019, Topdanmark defined a target of being carbon neutral in 2030 in terms of scope 1 and scope 2 emissions in addition to selected scope 3 emissions (air travel and company driving in privately owned cars). In June 2022, we decided to aim even higher by joining SBTi and signing up to a target of net zero in 2050.

For financial companies, it is mandatory to include scope 1 and scope 2 emissions as well as scope 3 category 15, which means CO2e emissions from companies in which they have invested. As described above, we already have targets for scope 1 and scope 2 for 2030, whereas a target for investments is new to us. Furthermore, we want - as a voluntary commitment - to include targets for our supply chain because we have significant indirect CO2e emissions in this part of our business.

When joining SBTi, it is mandatory to define both short-term goals (not exceeding 10 years) and long-term goals no later than two years after joining the initiative. In 2022, we started establishing a complete overview of emissions from all three scopes based on the Greenhouse Gas (GHG) Protocol, and this will be our starting point when defining our targets that will be submitted to SBTi for external validation no later than June 2024.

Reporting on climate change

Topdanmark has reported to CDP (Carbon Disclosure Project) on climate change risk and opportunities since 2010. For the financial year 2021, we also report according to the recommendation from Task Force for Climate-related Financial Disclosure (TCFD). This is to inform and communicate about our progress in building up a resilient business and contributing to the green transformation. We constantly strive to improve our data collection, method, and reporting.

Read our latest CDP report

Governance

Board of Directors

The Board of Directors (BoD) has the overall responsibility for business risks including risks linked to weather-related issues and climate change. The BoD approves Topdanmark's risk policies, risk profile and risk management, also in relation to climate-related risks and opportunities. The BoD approves the overall ambition level and sustainability programme - also regain climate and climate changes. In 2019, the BoD approved the target that Topdanmark shall become CO2 neutral in 2030 (scope 1, scope 2 and some scope 3). In 2022, the BoD approved Topdanmark' commitment to the Science based Target initiative. On an annual basis, data on CO2-emissions and progress on the target is reported to the BoD.

In relation to underwriting activities: Once a year the results of the scenario analyses, stress tests, and sensitivity analysis are reported to the BoD as part of the solvency-reporting.

In relation to investment activities: The investment policy is reviewed at least once a year for changes needed due to climate change. This includes also potential changes to the reporting on climate change issues.

The BoD also makes decisions on strategic sustainability actions for Topdanmark as an organization, e.g., decision that Topdanmark shall become CO2 neutral in 2030 and the commitment to SBTi in 2022.

Board of asset management

Quarterly reporting to the Board of asset management includes CO2 intensity and the yearly review includes an overall assessment of the alignment with the 1.75-degree climate scenarios. Read more in the section 'Risk management.

Group Executive Management

The Group Executive Management is responsible for the goals set for the individual business areas and staff functions as well as the risk framework - also in relation to climate-related risks and opportunities.

Risk Committee

The Risk Committee is responsible for climate change issues related to the core business. The CFO of Topdanmark's Executive Board acts as chairman of the Risk Committee. In addition to the CFO, the committee consists of representatives from asset management, statistical services, reinsurance, finance, group security and compliance. The Risk Committee reviews reports on weather-related risks prepared by Topdanmark's Statistical Services and prepares reports and recommend-dations to the BoD. This includes, for example, scenario analyses, stress tests and sensitivity analyses, which are included in the solvency reporting to the BoD.

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Sustainability forum

Consists of four executives from the Group Executive Management, and five general managers from staff functions, and chaired by the head of group management support, strategy and sustainability. The sustainability forum has the overall responsibility for the level of ambition and the action plan, including issues related to climate changes, sustainability reporting and evaluation of the results of the year. They hold four meetings a year.

Strategy

Physical risks and opportunities

Large weather-related damages caused cloudbursts may affect Topdanmark's business substantially due to an increased number of claims and consequently an increase in compensations paid. Storms and cloudburst are considered the most significant climate change risks in the future.

Climate and whether related claims

Preparing for a potential increase in weather-related claims and/or more severe damages is part of Topdanmark's business strategy and risk management in order to prevent negative financial impact. In general, weather-related claims are monitored to prepare for new situations. Risks associated with these types of damage are strictly calculated and prices are set according to the risk scenario.

We are continuously testing several dozens of acute physical natural catastrophe scenarios, including atmospheric events, mapping a range of perils and regions. The results provide the basis for group-wide risk, monitoring limits and subsequent business decisions.

Loss prevention is also a central part of our product portfolio and services. Also, continuously focusing on making claims handling processes more efficient and digital, e.g. by promptly obtaining an overall impression of the size of a claim will not only reduce the compensation paid, but also provides a better experience for the customer.

Finally, Topdanmark limits its insurance risk and financial impacts from cloudburst and storms through a comprehensive reinsurance programme. If the frequency of 'significant' cloudbursts should begin to increase again, Topdanmark has a specific cover for cloudbursts of DKK 100m that enters into force if the accumulated annual cloudburst damages exceed DKK 50m.

Read more about how we work with loss prevention in our Sustainability report 2022

Product and services - climate mitigation

Climate changes, an increased unpredictability regarding weather impacts, and more extreme weather will create a demand for even more insurance and services for mitigating weather- related claims. As examples, in 2019, a new 'crop insurance' was introduced to the farmers. The insurance provides compensation for loss of crop yield caused by extreme weather. The insurance covers up to 80% of the farmer's lost earnings.

Transitional risks and opportunities

Climate-related issues are also associated with the transition to a global low-carbon economy, including new regulatory, new technological and societal developments to support the transition, new processes, marked and investment, which represent a range of risks as well as opportunities for Topdanmark as business.

Regulation

One of the main transitional risks is associated with developments in climate-related policies and regulation both on a national and at EU level. New policies and regulation cause a compliance risk, i.e., risk of not complying with rules and regulations potentially followed by a fine or negative impact on our brand. For example, this applies to the Action Plan for Sustainable Finance worked out by the European Commission. Topdanmark actively scans all emerging national regulations, standards and legislative matters as well as EU directives in order to be ready to respond to such changes. This is done by Topdanmark's corporate General Council in corporation with representatives from different functions including representatives from Group Sustainability.

Read Topdanmark's reporting in accordance with the EU taxonomy in our Sustainability report 2022

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Technology and new materials

New technologies, including eco-friendly technologies and materials in support of change to low-cab solutions, form part of Topdanmark's risk assessment. From an insurance point of view, technology involve an undisclosed risk. Therefore, such new technologies must be assessed and analysed to settle the right premium, e.g.. electrical cars, electrical bicycles, and sustainable building materials as wood houses. In 2022, we expect an increase in the number of fires in electric cars in connection with our new electric car product (see below). Therefore, it is important to focus on precisely that type of damage. Hence, we can both contribute to preventing serious accidents including personal injuries and limit our expenses for compensation.

New eco-friendly technologies also pose a business opportunity for Topdanmark - read more under the section 'Market' below.

Sustainable claim handling

Topdanmark processes a great deal of claims annually, e.g., cars, buildings, furniture, objects, and IT equipment where we either pay out an amount to buy a new item or pay for repair. We want to integrate climate and environmental considerations into the claims handling process by e.g., promoting recycling and repair and focus on CO2-reduction in the repairing process. We collaborate with our suppliers on this topic. We have objectives on increasing the percentage of repair of car windows and bumpers and increase in the percentage of repair of smartphones, computers, and tablets.

Read more about sustainable claim handling in our Sustainability report 2022

Market and sustainability

On an ongoing basis, Topdanmark keeps track on market changes and developments within the customer's requirements for products in relation to climate changes, climate adaptation, and preventive actions. To maintain our market position, the product line and services are adjusted on a continuous basis.

To mention a few examples, in 2021 we have launched a property insurance for agricultural properties in which the customers can purchase the cover 'climate change adaptation'. This means that e.g. if the customer's boiler unit break down, the customer has the option of having it replaced by a more climate-friendly solution. The customer can have a higher indemnity if choosing the more climate-friendly solution.

In 2021, we have also launched an improved and cheaper insurance of electrical cars. The sale of electric cars is on the increase, and thus there is also larger demand for insurances - and that will only increase further when more electric cars are brought to the market. We consider it a business opportunity to support an increasing market. We will collect more data in the electric car area for the purpose of becoming a leading player of electric car insurance.

Product and services

We expect our customers to have an increased interest in reducing their environmental and climate footprint. We see an opportunity in developing products and services that can help customers reduce CO2 emissions. This could be, for example, through energy optimization. As example, in 2021 we have launched a new service called 'boiler room assistance'. It is intended for customers with straw burners and bio burners, and it is intended to achieve a better and cleaner combustion in the boiler - and thus a reduction in CO2-emissions. Against a small annual fee, the customer gets the boiler unit checked and cleaned. The customers achieve reduced CO2 emissions, improved economy, and fewer breakdowns. Topdanmark helps and achieves an improved operational risk and greater customer satisfaction.

Objective on new products

It is our objective for 2025 to have five new products or services that support the customers in CO2 reduction and other sustainable choices.

Criteria for new sustainable products

We have defined a number of minimum requirements for a product, cover or service to be considered a sustainable product. These requirements and criteria are based on the Danish Consumer Ombudsman's guidelines as to what it takes to market a product as a green product:

• The product, cover or service cannot only have a marginal impact on climate and the environment - it should make a significant positive difference to the climate and/or the environment.
• The positive impact on climate or the environment must be documented, and the documentation must be verified by independent agencies with recognised professional knowledge.