Topdanmark A/S : TCFD-rapport 2023 (på engelsk)

53448 - 2022

Task Force for Climate- related Financial Disclosure 2023

Topdanmark A/S • Borupvang 4 • 2750 BallerupTelefon 44 68 33 11 • CVR-nr. 78040017 www.topdanmark.com • E-mail:[e-mail]

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Content
Introduction	3
Governance	4
Strategy	5
Risk Management and scenario analysis	7
Metrics & Targets	9

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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. In 2024, we will also promote health products via our subsidiary, Dansk Sundhedssikring A/S. We focus on advisory excellence, digital convenience and making sustainable choices easier.

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. 300,500 claims annually.

Business changes in 2023

As of 1 December 2023, Topdanmark has acquired Oona Health A/S ("Oona Health") with its subsidiaries, Dansk Sundhedssikring A/S, PrimaCare A/S, and the Swedish company DSS Hälsa AB. Oona Health has +250 employees. Oona Health continues as an individual company

and brand with Topdanmark as active owner and partner.

Reporting on climate change

Topdanmark has reported to CDP (Carbon Disclosure Project) on climate change risk and opportunities since 2010. In the financial year 2021, we started reporting according to the recommendation from Task Force for Climate-related Financial Disclosure (TCFD) as well. This TCFD report covers the financial year 2023.

Read our latest CDP report

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 concern both 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, and climate mitigation.

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 1.5 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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Commitment to Science Based Target initiative (SBTi)

In 2019, Topdanmark defined our first 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 CO2 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 have included a voluntary commitment to the SBTi, as we in 2023 have prepared a target - to include targets for our supply chain because we have significant indirect CO2 emissions in this part of our business. Topdanmark will uploade targets for external validation no later than end of May 2024.

Governance

Board of Directors

The Board of Directors ("Board") has the overall responsibility for business risks including risks linked to weather-related issues and climate change.

Climate-related issues are part of our interdisciplinary risk management process and our sustainability programme, and therefore climate is both directly and indirectly included in all scheduled Board meetings.

The Board approves Topdanmark's risk policies, risk profile and risk management, also in relation to risks and opportunities in connection with climate and climate change. The Board reviews and approves the investment policy once a year as a minimum and this includes the framework for investments. Always included in the review is that the Board addresses the changed need in response to climate change and whether the reporting on climate risk is relevant and sufficient.

Once a year the Board conducts the ORSA (Own Risk and Solvency Assessment) where climate changes play a significant role. In addition, the Board quarterly receives a report from the Risk Management Function including information about i.a. major and new risks.

In relation to underwriting activities: Once a year the results of the scenario analyses, stress tests, and sensitivity analysis are reported to the Board 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 Board approves the overall ambition level and strategic targets on sustainability including strategic objectives and initiatives for the climate area. In 2022, the Board approved Topdanmark' commitment to the Science based Target initiative. In 2024, the final targets to SBTi will be approved by the Board as well. On an annual basis, data on CO2-emissions and progress on the targets is reported to the Board.

In June 2022, a board member with special competencies within sustainability was appointed to bring further focus on climate and the environment in Topdanmark and the work of the board.

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.

The CFO acts as chairperson of Topdanmark's Risk Committee and has the overall responsibility for the investment strategy and preapproves the policy for responsible investments before it is approved by the Board. In addition, the CFO acts as chairperson of the SBTi Steering Committee.

Risk and audit committees

Topdanmark's Risk Committee's, consisting of representatives from asset management, statistical services, reinsurance, finance, group security and compliance is responsible for all the risk areas including climate-related issues. The CFO of Topdanmark's Executive Board acts as chairman of the Risk Committee.

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The main task is to ensure that all material risks in Topdanmark across companies and divisions are identified, measured, monitored, managed and reported correctly. This includes, for example, scenario analyses, stress tests and sensitivity analyses, which are included in the solvency reporting to the Board. Furthermore, the Risk Committee assesses the internal risk management systems. The Risk Committee meets monthly and reports to the Board.

Topdanmark's Audit Committee consists of three members of the Board, including the chairman. The Audit Committee is consulted at the start of the ORSA process to provide input and comments on the development and focus areas proposed. The Audit Committee processes and approves the ORSA report before the report is processed and approved in the Board.

Sustainability forum

The Sustainability Forum consist of COO of Claims, Procurement & Customer Excellence, CCO Private customers, CCO Commercial and agricultural customers, Head of Investment, Head of Communication and Head of Marketing, chaired by the Head of group management support and sustainability. The Forum normally meets four times a year. The Sustainability Forum is an advisory body for the Group Executive Management and defines our ESG programme, including issues related to climate changes, commitments, programmes and policies, monitors progress and takes corrective action where needed.

Steering Committee

In early 2023, two steering committees were established to ensure implementation of our voluntary commitment to the Science Based Target initiative and the implementation of the Corporate Sustainability Reporting Directive (CSRD), the EU Taxonomy and the Corporate Sustainability Due Diligence Directive (CR3D). Both steering committees are headed by our CFO.

Strategy

Physical risks and opportunities

Large weather-relateddamage-caused cloudbursts may affect Topdanmark's business substantially due to an increased number of claims and consequently an increase in compensations paid. Storms and cloudbursts 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. Furthermore, we continuously focus 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 2023

Products and services - climate mitigation

Climate changes, an increased unpredictability regarding weather impacts, and more extreme weather will create not only insurance in general but also a demand for insurance and services that mitigate weather-related claims. As an 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.

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Transitional risks and opportunities

Climate-related issues are also associated with the transition to a global low-carbon economy, including new regulations, 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.

Regulatory

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 cooperation with representatives from different functions including, representatives from Group Sustainability.

Read Topdanmark's reporting in accordance with the EU taxonomy in our Sustainability report 2023

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, new technology involves an undisclosed risk. Therefore, such new technologies are always assessed and analysed to settle the right premium, e.g. electrical cars, electrical bicycles, and sustainable building materials as wood houses.

Sustainable claims 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 several objectives on promoting circular economy, e.g. objective on increasing the percentage of repair of car windows and bumpers.

Read more about sustainable claim handling in our Sustainability report 2023

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 an example, 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.

Products 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.

Furthermore, in 2021, we launched the option of purchasing additional cover providing reimbursement if the customer chooses repairs that are more climate and environmentally friendly solutions than ordinary damage repairs. The additional cover was also made available to our agricultural customers. The aim was to create an incentive for choosing a more climate and environmentally friendly solution after something is damaged. Perhaps the customer chooses an energy-efficient windowpane instead of an ordinary pane if a window is broken. This will imply

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less energy consumption for heating, and thus lower CO2 emissions. Another example could be using of recycled or recyclable building materials.

The customer must document the climate and environmental benefit, which should be verified by a third party if necessary. We cover up to 20% of the expenses of a more climate and environmentally friendly solution, and we also cover the fee related to third-party assessment.

Looking forward, we will apply the EU taxonomy for climate adaption and the related technical criteria launched in 2023 to support the green transition in our customer relations.

Climate changes and investments

For Topdanmark, the climate changes represent both business- and ESG risks and opportunities. There is the risk that we indirectly contribute to further CO2 emissions through our investments, and at the same time, there is the risk of inadequate return on the same type of investments. By contrast, there is the opportunity to invest in the green transformation and obtain good return through companies that support new and sustainable solutions.

To mitigate general risk of contributing indirectly to CO2 emissions caused by investment in the fossil sector, Topdanmark monitors the carbon footprint of the investment - read more in the section 'Risk Management and scenario analyses.

Own operation

The green transformation is important in our approach to running a business, and we want to make sustainability a natural part of our corporate culture. As such, we drive the green transformation using both top-down and bottom-up approaches. We want to motivate our employees to live a greener everyday life - in the office and perhaps at home as well. We have established an internal community for a green workplace. This community consists of nine representatives, one from each organisational area within Topdanmark. Named WorkGreener, the community is responsible for developing new internal initiatives and solutions that support the green transformation targets we have set - targets such as GHG reduction, energy reduction, paper reduction and the reduction of single-use plastic items.

Read more about WorkGreener in our Sustainability report 2023

Risk Management and scenario analysis

Attention is directed to the developments in extreme weather, including consequences and necessary reactions/measures. Focus is on ensuring that the company should be able to handle a situation that is even worse in the future. This includes that the sufficiency of reinsurance levels is constantly evaluated, that the customers' insurance terms and conditions are adjusted if necessary, and that experiences are incorporated in tariffs and underwriting on an ongoing basis.

This is a customer demand and a demand from the company's owners which have a common interest in monitoring for the purpose of estimating returns and risks. In the Group's risk committee, knowledge on the development in risks is gathered, without regard to the underlying causes. This is a natural result of this work, and the insight it has given, that a number of risk mitigating measures have already been made to limit the financial risks connected to the expected development, including the consequences of more and more severe weather phenomena and an expected steep phasing out of fossil fuels.

The process for managing climate-related risks is as follows:

• When Topdanmark's Statistical Services has completed and implemented a new analysis for weather-related risks, the consequences are reported to the Risk Committee
• If any SCR consequences, these are accounted for in the implementation of all new analyses including climate-related claims such as storm and cloudburst. This information is reported to the Board of Directors via the quarterly solvency report.
• Scenario analyses, stress tests and sensitivity analyses are carried out every year on all risk industries in the internal model, including weather-related issues as storm and cloudburst. The results are reported to and processed in the Risk Committee and incorporated into the, in terms of time, relevant quarterly solvency reporting to the Board.

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• Topdanmark's CAT-programme is evaluated and renewed every year based on our exposure, market models and results from the internal model based on the latest storm analysis. The recommendation is passed on and approved by the Board.

Scenario analysis - underwriting

We use Topdanmark's partial internal model used in the Solvency II calculations to measure the impact of climate changes for the insurance risk. The model provides the information and input required for the Board of Directors, Executive Board and managers both as far as risk management and opportunities are concerned - on current as well as future scenarios.

Topdanmark's sequential analyses and governance model integrate these conditions. The model is partly based on data dating back to 1981 when calculating and assessing all C&P risks including influence from climate related events. This includes trends in events influenced by climate changes. Topdanmark's statistics department prepares a yearly analysis of the historical trends in relation to climate related risks, and this analysis serves as the basis for future risk scenarios. If we see a trend in the number of extreme weather events and claim sizes, e.g. an increase in violent cloudbursts, it is incorporated into the internal model.

The internal model is subject to scenario analysis and stress tests. The scenarios are based on different RCP scenarios and different time periods up to 100 years in the future. In addition, Topdanmark receives information from reinsurance companies and other external specialists on expectations related to climate changes, e.g. from DMI (Danish Meteorological Institute) to identify and assess cloudburst claims. Topdanmark mitigates risks by updating covers and by informing customers on loss prevention for events like storm and cloudburst. On top of this, Topdanmark adjusts the reinsurance programme to protect the annual result from consequences due to the increased risk of more expensive events caused by climate changes.

The overall conclusion from the scenario analyses and stress tests is that the most important change coming from climate changes is that we expect the cloud bursts to become even more volatile resulting in more extreme cloud burst events and thereby increasing the tail risk of the claim sizes of cloud burst events. The increase of the tail risk is very much dependent on the RCP scenario. However, the impact of climate changes on the windstorm risk are modest and does not depend on the RCP scenario as significantly as the cloud burst risk.

Topdanmark as asset owner

To mitigate the indirect CO2 emissions caused by investments, Topdanmark monitors the carbon footprint associated with investments in our free portfolio. For our investments in all equity- and corporate bonds ETF's, equating to 77% of the free portfolio, Topdanmark has conducted an analysis of CO2 emissions for individual companies. The analysis shows that 10.7 tonnes CO2 per DKK million in revenue were emitted from the companies we invested in, which is 35.2% below a market-neutral benchmark (MSCI World). This indicates that the companies we have invested in are mitting less CO2 emissions than the general equity market. Also see the overview of CO2 emissions from investments and the exposure to the oil and gas sector in the below table.

For 2023, we acknowledge the challenge in calculation emissions from investments in mortgage bonds due to lack of validation for the manual approach used in the previous year. In 2024, PCAF and the Net Zero Asset Owner Alliance will develop a methodology for calculating emissions associated with mortgage bonds. Anticipating the completion of this work, we plan to implement the validated methodology in Topdanmarks sustainability report for the year 2024.

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CO2 emissions and exposure - overview 2023

Topic	Unit	2023	2022
CO2 intensity 1)	Tonnes CO2/ DKKm in revenue	10.7	13.9
CO2 emissions from investment	Tonnes CO2	7,008	6,999 3)
assets 1)
CO2 footprint 1)	Tonnes CO2/DKKm invested	8.0	6.5 3)
Exposure to the oil and gas	% of shares	1.2	1.7
sector
Exposure to renewable energy	% of shares	N/A 2)	2.2

1. The coverage in 2023 was 73% compared to 70% in 2022. For reporting year 2022 the reported coverage was inaccurately calculated - and thus corrected in this report - as it was derived from the ESG Risk coverage and not that CO2 emission coverage.
2. Our reported exposure to renewable energy for the current reporting period is not available, as the information sourced from last year is no longer accessible.
3. In the 2022 reporting, the numbers included the exposure to mortgage bond, while we have excluded mortgage bond in this report. Therefore, the numbers for 2022 in this report have been changed compared to the 2022 report.

In 2023, corporate bonds have gained a larger share of the free portfolio compared to 2022 as the equity exposure has been reduced during the year. Corporate bonds contribute to a higher carbon footprint per invested million which is why an increase is seen for tonnes CO2 per million DKK invested. In a positive stride towards aligning our investment strategy towards an environmental practice, Topdanmark can report a reduction in our exposure to the oil and gas sector. The decrease in exposure to this carbon-intensive sector also aligns with Topdanmark's overall goal of fostering a more sustainable investment portfolio.

Looking forward on responsible investment and climate change

Topdanmark supports the Paris Agreement adopted under COP21 and the target of limiting temperature rises to a maximum of 1.5 degrees. Taking a proactive stance towards limiting temperature rises and achieving the targets of the agreement, involves monitoring of our carbon footprint, alongside establishing ambitious and science-basednet-zero targets for our investment portfolio. We have therefore joined the Science Based Target initiative (SBTi). In 2023, we have begun the process of defining short-term and long-term targets that will be submitted to the SBTi no later than end of May 2024 for external validation against the Paris Agreement. After submitting these targets, we will begin monitoring them and analyse the CO2 emissions against a scenario that limits temperature rises to 1.5 degrees.

Metrics & Targets

Business operations

Topdanmark supports the Paris Agreement and the general global efforts to reduce temperature rises, and in 2019, we set a target to become CO2 neutral in 2030. This includes the operations of our locations (scope 1 and scope 2), company driving in privately owned cars, air travel, water and waste (scope 3). We want to reduce as much as possible rather than just buying climate compensation. We believe this is a better solution for us as a company and for the environment. Our CO2 reduction targets and results for 2023 are:

Reduction target	Unit	Result 2023	Reduction %
45% CO2e reduction in 2025	Tonnes CO2e	3,050 compared to 3,475	12.2% 1)
(scopes 1 and 2)		in 2019 (baseline).
70% CO2e reduction in 2030	Tonnes CO2e	5,539 compared to 6,616	16.3% 1)
(scope 1, scope 2 and some		in 2019 (baseline).
scope 3 categories)

1. Note that the baseline data (i.e. data for 2019) was proportionally adjusted for the first time in the 2022 report by excluding the CO2e emissions from our 'discontinued operations' (equal to 7.3% of the total amount of CO2e emissions) in order to track progress.

As stated in the table above, we believe that we can reduce up to 70% CO2e emissions by 2030. To reach our target of zero CO2e emissions, we will have to buy relevant climate compensation for the remaining CO2e emissions.

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The result in 2023 was a minor reduction of CO2e-emission on 6.4% for company cars - compared to 2022. We expect the reduction to increase in the coming years with more electrical cars in the car fleet. When it comes to company travel in private cars, we have seen a minor increase on 1.9%. In 2024, we will investigate the reasons behind the increase.

On a general level, in 2024 we will analyse and evaluate our current scope 1 and scope 2 CO2e reduction targets in relation to requirements from SBTi, and targets will be submitted no later than end of May 2024. This includes that we establish a precise roadmap for reaching the target.

Read more about our initiatives on CO2-reduction in Sustainability report 2023

Read more about Topdanmark scope 1, 2 and 3 emissions, the breakdown of the CO2 emissions and energy consumption in our ESG Fact Book 2023

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