Run-off gains/losses, net of reinsurance 219 301 972 1,239 1,212 1,131 970
On 20 November, Tryg hosted its fifth CMD in London. Group CEO Morten Hübbe, Group CFO Christian Baltzer and Group COO Lars Bonde presented Tryg’s new financial targets and customer targets for the 2018-2020 period.
In the past few years, corporate tax rates have been lowered throughout Scandinavia. In Denmark, the rate will remain at 22% in 2018, while it is 25% in Norway and 22% in Sweden. Capital gains and losses on equities are not taxed in Norway, which reduces the expected tax payable for an average year to 22-23%.
Annual report 2017 | Tryg A/S | 9Contents – Management’s review
Value creation for our shareholders Tryg’s shareholders must see Tryg as a company with ambitious targets, paying stable and increasing dividends.
The customer targets, supporting the financial targets, were delivered in the Danish part of the business. In Norway, we saw a strong traction in customers with three or more products in H2 2017, whereas the retention rate was challenged by general market trends, but with Tryg developing more positively than the market in general. The customer targets have been of paramount importance for our strengthened customer focus and have supported a more customer-centric organisation in general.
• Number of customers with three or more products up from 57.2% to 60.7% • Second year with TryghedsGruppen’s member bonus for Danish customers
Other income and costs Other income and costs were DKK -77m (DKK -157m). The correspondent figure for 2016 was impacted by the Q4 2016 write-down of goodwill of DKK 100m related to the acquisition of Securator.
Claims The gross claims ratio was 66.3 (58.3), with a claims ratio, net of ceded business, of 70.0 (66.3). The much higher level was due to a higher level of weather claims and large claims. Weather claims was higher mainly due to flooding and storms in Norway, whereas the weather in Denmark was benign.
Tryg was among the first companies to develop a cyber insurance for small and medium- sized companies, and there has been considerable interest in Tryg’s eProtect product (cyber insurance). In Q1, Tryg sold approximately 700 insurance policies and by end of Q4, Tryg had sold approximately 5,250 in surance policies.
Annual report 2017 | Tryg A/S | 24Contents – Management’s review
Hereof: Match, regulatory deviation 11 8 98 47 2017 was another eventful year characterised by high levels of geo-political volatility, which has been largely discounted by equity investors. Elections in France and Germany, ongoing negotiations between the EU and the UK on Brexit and tension surrounding the situation in North Korea were the most significant political events of the year. These resulted in only short-term pressure on equity indexes, which had another impressive year with gains of approximately 17% (MSCI All Country), benefiting also from global economic expansion and the adoption of the US tax reform before Christmas. Interest rates remain at a very low level despite some initial tightening by the Federal Reserve and the Bank of England supporting equities as an asset class.
Investment risk The amount of assets invested is divided between the match portfolio and the free investment portfolio.
SFCR Tryg was one of the first European insurers to publish its Solvency Financial Condition Report (SFCR) on 16 May 2017. SFCR contained only limited additional information, including capital charges by geography, balance sheet according to Solvency II against IFRS (statutory financial statements ) and SCR components as per Q4 2016. The publication of SFCR attracted a lot of attention in the insurance industry, with a clear focus on capital quality, including the use of transitional measures and the impact of long-term guarantee measures. Tryg’s solvency position does not factor in any benefits from the measures above as the company is a pure non-life insurer with relatively short-term liabilities.
Tryg hosted its CMD on 20 November 2017 in London. At the CMD, new financial targets were published and updated following the Alka acquisition: A technical result of DKK 3.3bn is targeted for 2020, driven by a combined ratio of 86 or lower and an expense ratio of around 14 and a return on equity target of 21% after tax.
The Tryg share The Tryg share is listed on NASDAQ Copenhagen. From the last day of the reporting quarter (31 De cember, 31 March, 30 June and 30 September ), Tryg refrains from dialogue with analysts/ investors until the release of the interim/annual reports. Company announcements, press releases and transaction statements are published in both Danish and English, whereas interim reports and annual reports are published in English.
NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. In 2017, NASDAQ Copenhagen accounted for 65 of the turnover of the Tryg shares. This means that approximately 35 of all trading in 2017 was carried out on alternative exchanges. Average daily turnover on NASDAQ was DKK 65m, and average daily volume was 1,700.
Based on Tryg’s dividend policy and the satisfactory 2017 results, the Supervisory Board will propose a Q4 dividend of DKK 1.60 per share at the annual general meeting on 16 March 2018. The full-year dividend corresponds to a payout ratio of 73.
Extraordinary dividend for 2017 At the time of publication of the 2016 annual report, Tryg decided to move from extraordinary buy backs to extraordinary dividends when the capital position allows such extraordinary payments. At the CMD on 20 November 2017, Tryg announced an extraordinary dividend of DKK 1bn, corresponding to a dividend of DKK 3.31 per share to be approved by the AGM. The extraordinary dividend per share is lower compared to 2016 as Tryg has issued 27.4 million new shares to fund the acquisition of Alka.
Share and capital structure Tryg’s share capital comprises a single share class, and all shares rank pari passu. The majority shareholder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the company’s shares. The Supervisory Board ensures that Tryg’s capital structure is aligned with the needs of the Group and the interests of its shareholders and that it complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board.
The Supervisory Board considers the composition, development, risk and succession plans of the Executive Board in connection with the annual evaluation of the Executive Board, and regularly in connection with board meetings. Each year, the Supervisory Board discusses Tryg’s activities to guarantee diversity at management levels. Tryg attaches importance to diversity at all management levels. Tryg has prepared an action plan, which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women. In 2017, the proportion of women at management level was 37% against 36.4% in 2016. The target for 2017 of 38% or more women at management level was therefore not met. Tryg maintains the target to increase the total proportion of women at management level to 38% or more in 2018.
Annual report 2017 | Tryg A/S | 37Contents – Management’s review
Deputy Chairman Born in 1960.Joined the Supervisory Board in 2017. Finnish citizen.
Elias Bakk Born in 1975. Employee representative. Joined the Supervisory Board in 2017. Danish citizen. Employed since 2006. Career: Project Manager at Tryg. Education: Norrea Real Gymnasium. Education at ‘Forsikringsakademiet’ for new board members. Number of shares held: 670 Change in portfolio 2017: +100
Annual report 2017 | Tryg A/S | 39Contents – Management’s review
Employee satisfaction We focus on the well-being of our employees and their right to a healthy and safe workplace. To monitor the development in employee satisfaction, we take our annual employee satisfaction survey very seriously and use it actively to improve working conditions and minimise the risk of dissatisfaction, discrimination and stress among our employees. As part of this work, we have a clearly defined process for supporting and guiding departments with a low level of employee satisfaction. Such focused efforts are key to increasing employee satisfaction, and our analyses show that our efforts are having a positive effect. In 2017, 34 departments received extra support and guidance compared to 49 departments in 2016. Overall employee satisfaction increased from 74 in 2016 to 76 in 2017.
We encourage our employees and external partners to report any activities that do not comply with our Code of Conduct or applicable legislation. This can be done to Tryg’s whistle-blower line, which can be used in confidentiality. All incidents are evaluated by the Chairman of the Audit Committee with assist- ance from Tryg’s Legal & Compliance Department, which decides if further action is necessary. In 2017, the whistle-blower line was used seven times.
Competent and responsible customer relations Our materiality assessment clearly showed that the most important topic for Tryg is our customers, since they represent an opportunity to improve our business. At the same time, our customers also represent a major risk as they may decide to leave Tryg for another insurance company if we do not meet their requirements. To ensure that we meet customer needs and offer highly competent customer service, we continuously work to explore possible improvements in the way we handle our customer dialogue. Since customers are key to our business, it is natural for our customer relations to also be an integrated part of our CSR strategy.
• Assessment and test of controls related to the processes of claims handling and the recognition and measurement of provisions for known claims.
Statement of changes in equity Dividend per share in 2017 includes ordinary dividend paid out in April, July and October of DKK 1.60, proposed ordinary dividend of DKK 1.60, totalling DKK 6.40 (DKK 6.20 in 2016 ) and proposed extraordinary dividend of DKK 3.31. (DKK 3.54 in 2016). Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.
Reserving risk 1% change in inflation on person-related lines of business a) +/- 408 +/- 436 10% error in the assessment of long-tailed lines of business (workers’ compensation, motor liability, liability, accident) +/- 1,706 +/- 1,800
Impact of exchange rate fluctuations in SEK and NOK on technical result
Gross premium income 17,707 17,977 -270 -293 23 Gross claims -11,619 -13,562 1,943 190 1,753
Average per Total value Average per Total fair matching share at time of matching share value at Executive Risk- at grant date allocation at 31 Dec. 31 Dec. 2017 Board takers Other Total DKK DKKm DKK DKKm
- Earned premium assumed CAGR 0 - 10 years 2% 2% - Earned premium assumed CAGR > 10 years 1% 1% - Required return before tax 13% 13% - Expected level of Combined ratio 92% 93%
Sensitivity information Impact on equity from the following changes: Interest rate increase of 0.7-1.0 percentage point -169 -199 Interest rate fall of 0.7-1.0 percentage point 169 -150 Equity price fall of 12 % -231 -275 Fall in property prices of 8 % (exclusive of property sold). -137 -104 Exchange rate risk (VaR 99) -12 -14 Loss on counter parties of 8 % -343 -466
19 Sensitivity information The sensitivity analysis is based on a change in one of the assumptions, assuming that all other assumptions remain constant. In reality, this is rarely the case, and changes to some assumptions may be subject to covariance. The sensitivity analysis has been carried out using the same method as the actuarial calculation of the pension provisions in the statement of financial position.
The premium for the following financial years is estimated at 36 49 Number of active persons 450 517 Number of pensioners 605 637 Average expected remaining service time (years) 8.00 8.00
Companies in the Tryg Group are party to a number of disputes. Management believes that the outcome of these disputes will not affect the Group’s financial position significantly beyond the obligations recognized in the statement of financial position at 31 December 2017.
The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that has incurred, but are not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the Group but are not finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg.
Income is recognised in the income statement as earned, whereas costs are recognised by the amounts attributable to this financial year. Value adjustments of financial assets and liabilities are recognised in the income statement unless otherwise described below.
Annual report 2017 | Tryg A/S | 99Contents – Financial statements
Notes and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date.
Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxable profit will be realised against which the temporary differences can be offset.
8 Contractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
Relative run-off result Run-off gains/losses net of reinsurance divided by premium income.