5 Events in 2016 6 Targets and strategy 9 Financial targets and outlook 10 Tryg’s results 15 Private
39 Financial statements 109 Group chart 110 Glossary 111 Product overview
Profit/loss on gross business 457 790 3,351 1,695 3,313 2,085 2,344 Profit/loss on ceded business -140 -272 -951 710 -341 349 86 Insurance technical interest, net of reinsurance -3 4 -10 18 60 62 62
Investment return after insurance technical interest 598 242 987 -22 360 588 585
Profit/loss on continuing business 560 748 2,472 1,920 2,547 2,373 2,180 Profit/loss on discontinued and divested business after tax 0 6 -1 49 10 -4 28
Claims ratio, net of ceded business 75.1 74.2 71.0 71.5 69.6 72.1 71.8
Combined ratio on business areas Private 83.6 87.0 83.8 85.4 82.5 86.0 87.7 a) From 1 January 2016, Tryg has implemented Executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA, which prescribes applying a new yield curve and a new way of calculating Return on equity after tax (%). Comparative figures have been restated accordingly. Please refer to details of the new yield curve in note 31 Accounting policies. b) Ordinary dividend per share in 2016 includes dividend paid out in July of DKK 2.60 and proposed ordinary dividend of DKK 3.60.
Corporate launched a new cyber insurance product to meet businesses’ new insurance need. As a source of inspiration for future insurance solutions, Tryg has rented out an area at our head office in Denmark to smaller start-up enterprises focusing on innovation. Tryg has in recent years focused strongly on developing existing products to better meet customer needs and to ensure more risk-based pricing. In 2016, the majority of our customers had the most up-to-date products as more than 500,000 policies were updated.
The good results, the many new initiatives and the high customer satisfaction scores have only been possible through the committed efforts of Tryg’s employees, and both the Supervisory Board and the Executive Board would like to thank them for their hard work.
Launch of cyber risk insurance Tryg launched a cyber risk insurance product in Commercial and Corporate in Denmark, Norway and Sweden. With this cyber insurance product, Tryg can help customers manage cyber-attacks, while also covering any economic losses sustained as a result of such attacks.
Launch of new child insurance Tryg launched a new child insurance product in Denmark with three different levels of coverage; from Tryg Child Super to Tryg Child Minimum. Read more about child insurance on tryg.dk.
New jointly produced Tryg family film For the first time, Tryg, TryghedsGruppen and TrygFonden released a film together based on a true story about saving a life. As a Tryg customer, you contribute to saving lives. Tryg’s Danish customers are members of TryghedsGruppen, which is behind TrygFonden and involved in hundreds of peace-of-mind activities in Denmark.
New motorcycle app Moderna launched the Moderna Smart MC app. The app records the driver’s driving style, and the motorcycle insurance price is then differentiated accordingly. Driving safely triggers a discount the following year.
New and improved ‘My page’ Tryg launched a new and improved ‘My page’. ‘My page’ enables customers to access insurance policies and edit coverage of insurance products. ‘My page’ is tailored to the customer’s needs and suggests recommended products.
Tryg ID on social media Tryg launched a campaign informing our Tryg Plus customers of Tryg’s offer of advice and help to prevent, discover and limit the misuse of personal information on the social media. Misuse of one’s identity can take the form of a fake Facebook profile or misuse of personal pictures, for example.
New CFO appointed Christian Baltzer was appointed Group CFO, taking up his new position on 15 April 2016.
Events in 2016 Acquisition completed Tryg obtained approval from the authorities, hence the acquisition of Skandia’s child insurance portfolio was finalised on 1 September 2016. The portfolio was integrated into Tryg’s Swedish business, Moderna.
New improved Tryg Pluss Norway launched an up dated Tryg Pluss benefits programme for private customers. The programme offers three main benefits: Tryg ID, Tryg Care and Tryg House Assistance. See tryg.no.
Tryg’s shareholders must see Tryg as a company with ambitious targets disbursing stable and increasing dividends. Tryg delivered a strong result in 2016 and is on track to achieving its ambitious financial targets for 2017.
Tryg is a pure non-life insurer creating peace of mind and value for our customers, employees and shareholders.
O U R A M B I T I O N To become the world's best insurance company.
Our employees are our most important resource and key to realising our vision of becoming the world’s best insurance company. As an important step towards achieving this, all our employees must feel that they have an opportunity to be successful. Clear and ambitious targets must be set for each individual employee, and regular feedback must be provided. Aiming for the highest level of employee satisfaction in the financial sector in the
Nordic region, Tryg was pleased to note a continued high level of employee satisfaction in 2016, with o mers’ peace of mind, we benefit all of Tryg’s stakeholders. Via TryghedsGruppen’s 60% ownership of
D I ST R I B U T I O N Own sales force and partners
P R O C E SS E S Combination of in-house
ri ci ng a cc or di ng t o ri sk p ro fil e
In Norway, the weakened economy affected the overall premiums development, and at the same time a number of very aggressive insurers ended up into financial difficulties. In general, the impact of aggregators continues to be limited in both Denmark and Norway. Market developments differed in Denmark and Norway in 2016. In Denmark, consumer sentiment was quite stable, which led to slightly increasing real estate prices and a lower unemployment rate of around 4.2% at the end of 2016. Total car sales were up 7.4% in 2016 com pared with 2015, and a shift from sales of small cars to medium-sized cars was observed. The
The unemployment rate was largely unchanged at around 4.8%. Car sales in Norway were up 2.6%
Next level pricing (price differentiation) has been an ongoing initiative and Tryg’s most important initiative in recent years. Tryg has developed more than 35 new price-differentiated products since defining this as a strategic initiative. In 2016, focus was on converting Private customers to the new and updated products. At the end of 2016, 88%
Tryg will continue to enhance its products to support the target of being ahead of peers for 25% of products and on a par with peers for the remaining products in 2017.
In 2016, Tryg has continued its many initiatives to improve the customer experience. Tryg sent out approximately 900,000 text messages to customers asking them to rate their experience, and more than 440,000 responded. Eighty-two per cent rated
Tryg between 9 and 10 on a scale of 1-10 where 10 is best. This is a strong feedback on the good service provided by our customer service and claims representatives. Tryg’s overall NPS score was 22, and thus Tryg has already met the target of an NPS
Tryg continues to capture feedback in order to further improve the customer experience. Key initiatives evolving from this are projects aimed at improving customer loyalty. The feedback has also shown an appetite for closer and better dialogue with Tryg, which has contributed to changes to the way in which Tryg approaches both consumers and businesses in order to improve customer loyalty and advocacy.
Annual report 2016 | Tryg A/S | | Contents – Management’s review 8
Tryg developed many digital solutions in 2016 shown in the chart Digitalisation of Tryg. Tryg was named Best Digital Finance Company of the Year among insurance companies by FinansWatch
With more than 80% of customers having signed up for digital communication in Denmark and
Target 2016Target 2015Target employees in the organisation, the purpose being to work systematically with feedback and to support the development of managers and employees. In Tryg, we want to acknowledge employees who deliver an extraordinary performance, and an employee recognition programme was therefore implemented in 2016 with the aim of celebrating employees who are supportive of Tryg’s targets.
Financial targets and outlook likely to be higher than the run-off level during the pre-2015 period. Tryg expects this to be the case until the end of 2017. Hereafter, we expect the run-off level to gradually converge towards the long-term level of 2.5-3%.
Tryg has launched an efficiency programme aimed at realising savings of DKK 750m, with
At the end of 2016, a tax on salaries for financial companies was approved in Norway. The tax will have an impact of approximately NOK 40m for 2017, which will hit claims costs and expenses.
There has been a gradual lowering of tax rates in Denmark, Norway and Sweden in recent years. In Denmark, the tax rate was 22 in 2016, and this will also be the level for 2017. The
Swedish rate was 22. When calculating the total tax payable, account should also be taken of the fact that gains and losses on shareholdings are not taxed in Norway. All in all, this causes the expected tax payable for an average year to be around 22-23% in 2017.
6.20 per share for 2016. Extraordinary dividend of DKK 1,000m for 2016. Solvency ratio of 194 after H2 dividend and extraordinary dividend.
At the beginning of 2016, Tryg announced a new country-based organisation. This has created a more agile organisation, as reflected in the many business initiatives launched in 2016 in Denmark,
(20.0%) and a combined ratio of 86.7 (86.8). The results show that Tryg is on the track to meet its financial targets for 2017 with a return on equity at or above 21% and a combined ratio at or below 87. The expense ratio was 14.8 (14.9) adjusted for one-offs, primarily related to write-downs on intangible assets in 2016 and one-off costs in 2015.
– will support an expense ratio target at or below 14 in 2017. The technical result was DKK 2,390m
The total effect of weather claims, large claims and run-off was much lower than in 2015.
(DKK -22m) impacted by sale of investment properties and domiciles and high returns on several asset classes
Proposed DKK 1bn extraordinary dividend to be paid after the AGM in 2017
• Number of customers with three or more products up from 56.7% to 57.2%
Tryg has a strong focus on the customer targets for 2017. Our customer targets are generally strongly linked to our financial targets and have been perceived as very appealing by the organisation.
For Commercial, the NPS score dropped slightly, primarily in the Danish part of Commercial.
Price differentiation has been a very important initiative for Tryg in recent years. In 2016, focus was on updating customers to the improved products which have been developed over the past few years. More than 500,000 policies were updated in 2016, meaning that the majority of Private customers now have the most recent products.
Having acquired the Skandia portfolio, in autumn 2016 Tryg also launched a new child insurance product for the Danish market. For Commercial and
Tryg expects cyber insurance to become increasingly important for both small and large companies.
In Commercial, a more specialised structure was implemented with the aim of providing customers with more professional customer services. The new structure segments customers into large accounts, the liberal professions, technique and agriculture.
In both Commercial and Corporate, Tryg’s cooperation with brokers is strong. For the fourth year running, Corporate Sweden was nominated as the best non-life insurance company. Corporate implemented a new concept, which means that customers can both be served by Tryg’s own sales organisation and by brokers as customers in some instances prefer this set-up.
In the course of 2016, many new digital solutions were developed (see page 8) which both make it more convenient for customers to buy and change products and also report claims. The digital solutions also support cross-selling by suggesting that customers buy additional covers based on their expected insurance needs.
(DKK 17,977m), representing premium growth income of 0.1% (-0.8%) when measured in local currencies. The development in premium income improved for Private and Sweden, but was some what lower for Commercial and Corporate. It is positive that after a challenging period Tryg achieved a positive development in premium growth, despite the economic situation in Norway and falling average prices for motor insurance in Denmark.
(-2.9%) in local currencies, with a slightly bigger drop in the Norway. In order to in crease premium income, the back-office organisation in Norway was reduced, and some of the savings were invested in more distribution power. In Denmark, customer segmentation, a new agreement with
The Swedish business realised an increase in premium income of 3.4% (-3.1%) in local currencies.
In 2016, large claims totalled 2.2% (3.4%) and weather claims 2.0% (3.4%). In Q4 2016, the storm
The efficiency programme contributed DKK 65m in 2016, corresponding to an impact on the expense ratio of 0.4 percentage points. Initiatives launched comprised cost reductions and general optimisations following the implementation of the new country-based structure at the beginning of 2016, in addition to the effects from sourcing of staff functions and to a lesser extent business sourcing.
In Q4 2016, Tryg announced a write-down of intangible assets by approximately DKK 250m.
systems for payment, digitalisation and IT system integration. The write-down is generally due to the annual assessment of intangible assets, according to which the related system development costs will be higher, while for some of the systems, benefits are also expected to be lower.
DKK 11,995m. The return on the match portfolio was DKK 210m (DKK -16m) after transfer to insurance technical interest. The return on the free investment portfolio was DKK 939m (DKK 232m).
The return on the equity portfolio was positive at 8.4%, which was significantly higher than in 2015, which saw a return of 3.4%.
In Q4 2016, Tryg sold some of its bigger investment properties and domiciles in Denmark and
Norway. This resulted in a gain of DKK 600m, of which DKK 500m is recognised as investment income and DKK 100m in shareholders’ equity.
The key components of Tryg’s own funds are shareholders’ equity, intangibles, Tier 2 instruments
(subordinated debt and natural perils pool), ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryg’s own funds are constituted by shareholders’
(Ultimate Forward Curve) would have a very modest impact as the solvency ratio would fall 1 percentage point. This in unsurprising considering that Tryg underwrites only non-life risks, and the duration of the business is below four years.
Tryg’s forecasts. The projections include initiatives set out in the company’s strategy for the coming years, and also the most significant risks identified by the company. The adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
DKK 1,770 or 72% of the profit for the year. In 2016, a DKK 1bn (3.5 per share) buy back was completed, while Tryg will pay a DKK 1bn extraordinary dividend in 2017. Going forward, any extraordinary payments will be effected as dividends rather than buy backs.
Additionally, Tryg has decided to pay a quarterly dividend starting from Q1 2017. The dividend will be evenly distributed across the year.
insurance in the Nordic region, its strong profitability both from a return on capital and underwriting
(combined ratio) perspective, very good asset quality and relatively low financial leverage.
DKK 410m (DKK 754m) based on a technical result of DKK 564m (DKK 522m) and an investment result of DKK 98m (DKK 242).
59m in Q4. The net effect of weather claims, large claims and run-off was 0.3 percentage points due mainly to a high level of weather and large claims.
Danish part of Private. In Commercial, premiums declined by 0.8% (-5.0%) in local currencies, reflecting an improved development especially in Denmark, whereas Commercial in Norway was impacted by the economic situation. The growth figures for Q4 2015 were negatively impacted by the individual regulation of a number of large accounts. In Corporate, premium growth was positive at 0.9% (-2.1%)
in local currencies, reflecting a positive premium development in Q4 2016. The Swedish business saw an increase in premium income of 12.2% (-6.1%) in local currencies due to the Skandia child insurance portfolio. Excluding Skandia, premium income dropped by 4.2%, which was an improvement compared to the prior-year period.
Tryg was hit by the storm Urd with an impact of approximately DKK 60m, which was significantly less than the storm in Q4 2015 with an impact of approximately DKK 180m.
The underlying claims level adjusted for one-offs was 0.7 percentage points higher for the Group and 0.3 percentage points higher for Private, confirming the positive trend seen recently of an underlying claims ratio which is still deteriorating but less so compared to previous quarters. Tryg still expects an improvement in the underlying claims ratio in 2017.
The expense ratio was 18.0 (14.2) and 14.4 after one-offs. The efficiency programme contributed
DKK 18m in the quarter, corresponding to an impact on the expense ratio of 0.4 percentage points. In Q4, Commercial in Denmark restructured the organisation, leading to a reduced number of back-office employees in sales and the delegation of more powers to the sales organisation. The number of employees was further reduced in the quarter by 46, leaving 3,264 employees at the end of the year.
• Proposed H2 dividend of DKK 3.60 per share and DKK 6.20 per share for the full year
(DKK 242m) in Q4 2016. The return of the match portfolio was 8m (DKK 85m), and the return on the free investment portfolio was DKK 541m
Combined ratio exclusive of run-off 86.3 89.3 87.4 89.1 Run-off, net of reinsurance (%) -2.7 -2.3 -3.6 -3.7 Large claims, net of reinsurance (%) 0.0 0.4 0.0 0.3 Weather claims, net of reinsurance (%) 3.8 7.6 2.8 4.5
in local currencies mainly due to the competitive market situation and the weakened Norwegian economy.
Norway, as evidenced by the continued improvement in Tryg’s Net Promoter Score (NPS) to 29 in 2016 (26). This development was significant in
House insurance was still under pressure despite positive results from the claims team focusing on pipe claims. In fact, claims inflation increased due to higher construction costs because of wage increases for construction workers, and in Norway higher prices for materials due to the weakened
Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the Internet, Tryg’s own agents, franchisees
Norwegian currency. Tryg has a strong focus on developments in motor insurance, and throughout the year we saw slightly higher claims inflation due to higher frequency levels and higher average claims for cars with more advanced electronic systems. Against this background, Tryg has decided to introduce price adjustments of approximately 3% to mitigate this development and improve profitability.
The expense ratio was 14.2 (14.7). This development resulted from a consistent focus on improving expense levels, and many initiatives were implemented in 2016. In both Denmark and Norway, customer service and claims handling functions were integrated to improve customer loyalty, while at the same time reducing expense levels. In
Claims department as part of the integration of customer service and claims handling.
(DKK 285m), with a combined ratio of 83.6 (87.0), and was positively affected by a significantly lower level of weather claims than in 2015.
Gross premiums increased by 1.3% (1.1%) in local currencies. Continued premium growth at a rate of 2.7% was seen in Denmark, whereas premium income for Norway dropped by 0.5% due to a com petitive market situation and the weakened
Denmark dropped slightly from 89.9 to 89.7, whereas the retention rate in Norway was stable at 86.4.
The gross claims ratio was 67.9 (71.3), and the claims ratio, net of ceded business, was 69.7 (73.6). The lower level was primarily due to mild weather in Denmark and Norway despite the storm Urd, which had a much lower impact than the storm in Q4 2015. We saw a slight increase in motor claims in Denmark, which underpins the importance of implementing both price and claims prevention initiatives from 2017.
In 2016, Norway launched an updated Tryg Pluss benefits programme for private customers. The programme offers three main benefits: • Tryg ID – Helping customers if they believe or know that their identity has been misused
• Tryg House assistance – Advisory services and access to Tryg’s network of building experts
The Net Promoter Score (NPS) decreased to 6 in 2016 (12). In Denmark, the NPS score decreased from 18 to 6, and in Norway an improvement from -1 to 9 was seen. The development in the NPS
score also reflected retention rates. The retention rate for Commercial in Denmark fell from 87.9 to 87.1, and in Norway, the retention rate improved significantly from 87.1 to 87.5. The negative development for Commercial in Denmark can be ascribed to price initiatives aimed at improving profitability, whereas the improvement in Norway can be ascribed to a more focused organisation with improved customer contact.
The expense ratio was 17.0 (17.1). The expense level is generally too high for Commercial, and initiatives were therefore implemented to improve this in 2016. The most significant steps were taken by Commercial in Norway, where employee numbers were reduced by approximately 40 employees. In Denmark, the number of employees was reduced by approximately ten
Profit/loss on gross business 245 199 850 697 Profit/loss on ceded business -78 -53 -154 -44 Insurance technical interest, net of reinsurance -1 1 -1 5
Key ratios Premium growth in local currencies -0.8 -5.0 -1.3 -2.9
Sales are effected via Tryg’s own sales force, brokers, franchisees (Norway), customer centres as well as group agreements. The business area accounts for 22% of the
The gross claims ratio was 58.3 (62.3), with a claims ratio, net of ceded business, of 66.3 (67.8).
The low level was primarily due to benign weather in both Denmark and Norway, while large claims were at a higher level and run-off gains at a higher level.
Gross premiums declined by 0.8% (-5.0%) in local currencies based on a slight increase of 0.1% in Denmark and a drop in Norway of 3.3%
in local currencies as a result of the competitive market situation in general and the weakened
Norwegian economy. In Norway, the NPS score was improved from -1 to 9, whereas the NPS
In 2016, Tryg launched a cyber risk insurance product in Commercial and Corporate in Denmark, Norway and Sweden. With this cyber insurance product, Tryg can help customers manage cyber-attacks, while also covering any economic losses sustained as a result of such attacks.
Corporate the broker channel, and the weakened Norwegian economy. In Sweden, which accounts for only 20%
Swedish brokers ranked Moderna’s Corporate business as the best corporate company for the fourth year running. In both Denmark and Norway, there was a strong focus on improving broker relations.
The gross claims ratio totalled 60.8 (102.4), with a claims ratio, net of ceded business, of 77.8 (79.9).
Swedish market, priority will be given to initiatives targeting motor insurance.
The expense ratio was 11.0 (10.8) as a result of the reduced premium income. Although expense levels are quite low, Corporate also has a strong focus on reducing expenses as a way of improving the competitive position. In Denmark, the structure of the sales organisation was optimised, leading to a reduction in employee numbers by five employees.
The result was positively affected by a higher runoff level and a slightly lower level of weather claims, whereas large claims were at the same level as in 2015. The moderate development in premiums seen in recent years continued in 2016 with a drop of 1.2% (0.0%), measured in local currencies.
Profit/loss on gross business 50 200 1,064 -513 Profit/loss on ceded business -41 -195 -643 877 Insurance technical interest, net of reinsurance 0 0 0 5
Combined ratio exclusive of run-off 111.6 106.2 102.2 99.7 Run-off, net of reinsurance (%) -12.5 -6.8 -13.4 -9.0 Large claims, net of reinsurance (%) 17.6 11.3 8.1 8.2 Weather claims, net of reinsurance (%) 0.9 2.0 1.0 2.2
Sweden and ‘Tryg Garanti’. Sales are effected both via Tryg’s own sales force and via insurance brokers. Moreover, customers with international insurance needs are served by
AXA Group. The business area accounts for 22% of the Group’s total premium income.
(DKK 5m), with a combined ratio of 99.1 (99.4), and was negatively affected by a high level of large claims. Premium growth was positive by
The gross claims ratio was 84.3 (69.2), with a claims ratio, net of ceded business, of 88.5 (89.7).
(DKK 218m) for 2016, which represented a significant reduction compared to the prior-year result.
This was mainly due to a harmonisation of reserving models in 2015, resulting in a positive impact of approximately DKK 70m. The result for 2016 was also impacted by persistent challenges with extended warranty insurance for electronic products and profit-sharing agreements. The profit-sharing relates to prior-year results. The combined ratio was 90.7 (83.5), and premium income increased by 3.4% (-3.1%) due to the acquisition of Skandia’s child insurance portfolio. With the acquisition of
Skandia’s child insurance portfolio, which is highly profitable and characterised by high retention levels. The acquisition also supports Tryg’s aim of growth in the Nordics as child insurance has considerable growth potential in both Denmark and
Profit/loss on gross business 24 85 128 219 Profit/loss on ceded business 0 -1 -3 -1 Insurance technical interest, net of reinsurance -1 1 -5 0
Sweden comprises the sale of insurance products to private customers under the
‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC,
The gross claims ratio was 72.7 (51.8) and net of ceded business 72.7 (52.1). The low claims ratio in Q4 2015 was due to the harmonisation of the models used to calculate the claims reserves. The claims level for extended warranty insurance of electronic goods was still high, but as mentioned earlier, initiatives have been introduced to bring down this level.
The expense ratio was 20.2 (21.1), reflecting the fact that Skandia’s child insurance portfolio is now part of the business and with a low expense level.
The number of employees was 337(349), reflecting a decrease of 12 employees in Q4 2016 despite the acquisition of Skandia.
Free portfolio, gross return 541 201 939 232 Match portfolio, regulatory deviation and performance 8 85 210 -16 Other financial income and expenses 49 -44 -162 -238
DKK 939m (DKK 232m) return on the free portfolio, a DKK 210m (DKK -16m) return on the match portfolio and other financial income and expenses of DKK -162m (DKK -238m).
Danish swaps and partly also Euro swaps. When the yield difference between Danish and Euro swap rates decreases, the regulatory deviation should produce a positive result; however, when the yield difference increases, the result is likely to be negative. In 2016, the spread narrowed by 5 basis points, driving a regulatory deviation of DKK 47m.
The most important driver of ‘performance’ is the difference in yields between Danish, Norwegian and Swedish covered bonds and equivalent swap rates. If spreads narrow (versus swap rates), the overall performance is positive; otherwise the overall performance is negative. Tryg seeks to maintain stability in its covered-bonds portfolio, also in terms of maturity; hence, spread movement should be a good indicator of overall performance. In 2016, the
In 2016, financial markets were influenced by sev eral significant events such as the UK referendum on continued membership of the European Union and the US presidential election. The market digested the unexpected outcomes fairly quickly and the year ended on a positive note. The result of the free portfolio was very strong in 2016, helped also by the capital gain in Q4 on the sale of a property portfolio of DKK
500m. The result, excluding the extraordinary capital gain, was driven primarily by interest rate and credit exposure (DKK 196m) and equities (DKK 194m).
Value adjustments, changed discount rate 323 86 -188 103 Transferred to insurance technical interest -40 -64 -149 -259
2016, but the overall interest expenses on the subordinated debt remained largely unchanged thanks to the falling interest rates. Expenses from the hedging of the foreign currency exposure on Tryg’s equity totalled DKK -57m, and interest expenses on Tryg’s subordinated loans were DKK -88 m.
The US dollar appreciated by almost 7%. On the other hand, inflation-linked, emerging-market and investment-grade bonds tumbled at the beginning of Q4 due to nervousness prior to the US election and sharply increasing interest rates.
DKK -42m, respectively. The negative contribution of DKK -42m is primarily explained by negative returns from emerging-market, inflation-linked and investment-grade bonds of DKK -59m, whereas the interest rate increases in Q4 did not have much impact on the portfolio of covered bonds. The investment return is positively influenced by the sale of investment properties with a return on the free portfolio of DKK 541m (DKK 201m).
after transfer to the insurance part, which is in line with expectations.
(DKK -44m) were impacted by the sale of domiciles in Bergen and Ballerup in the amount of DKK 93m. All in all, the return on Tryg’s investment activities totalled DKK 598m in Q4 2016
Risk management is based on Tryg’s targets and strategies and the risk exposure limits decided by the Supervisory Board. The assessment and management of Tryg’s aggregated risk and the associated capital requirements therefore constitute a central element in the management of the company. Tryg’s Supervisory Board defines the framework for the company’s target risk appetite and thereby the capital which must be available to cover any losses. Risk management is primarily focused on insurance risk, investment risk and operational risk.
The insurance risk is managed by limiting the size of single large commitments and through the use of reinsurance, thus reducing the maximum cost of large claims. Furthermore, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operating within these boundaries, Tryg’s risk depends on the company’s choice of exposure within different segments and industries in the insurance market.
Quarterly fluctuations are driven mainly by large claims and weather events, and reinsurance is used extensively to smooth the impact on earnings.
The investment risk is managed by looking at total exposure and capital consumption by asset classes
Risk Committee. The ORC is responsible for all operational risks and is under an obligation to report high risks to the Risk Committee. Fraud is a priority focus area in Tryg, when it comes to both regular insurance fraud and internal fraud.
A dedicated unit in the Claims department covers the insurance fraud angle, and a special Corporate Security unit covers the internal fraud angle.
Intensive controls are carried out based on fraud scenarios, and dedicated persons in Corporate
for years and has, amongst other things, carried out risk identification routines, written ORSA
(Own Risk and Solvency Assessment) reports, acted in a setup comprising three lines of defence and appointed a special Risk Committee under the Supervisory Board which focuses on capital and risk management. Tryg’s partial internal
FSA in November 2015. Read more about Tryg’s risk management in Note 1 on page 50.
Tryg has modelled the insurance risk internally, while using the standard formula for all other risks. The capital model is based on the risk profile, and therefore takes into consideration the composition of Tryg’s insurance portfolio, geographical diversification, its claims reserves profile, reinsurance programme, investment mix and Tryg’s profitability in general.
Tryg’s SCR was DKK 5.1bn at the end of 2016, which is the same level as on 1 January 2016, when
Own funds were DKK 9,850m (after deducting the H2 dividend and the proposed extraordinary
Solvency II-compliant debt. This boosted the Own funds in its Tier 2 component. The Solvency ratio was 194 at year-end 2016.
The key components of Tryg’s Own funds are shareholders’ equity, intangibles, Tier 2 instruments (subordinated debt and natural perils pool),
ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryg’s Own funds are represented by shareholders’ equity.
Tryg’s solvency ratio displays low sensitivities to capital market movements. The highest sensitivity is towards spread risk, where a widening/
tightening of 100 basis points would impact the solvency ratio by approximately 12 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate movements.
would have a very modest impact as the solvency ratio would fall 1 percentage point. This is unsurprising considering that Tryg underwrites only non-life risks with low duration.
The Supervisory Board regularly assesses the need for capital adjustments. In 2017, Tryg has decided to announce a DKK 1bn (DKK 3.54 per share) extraordinary dividend after assessing the company’s capital plan, in which the SCR
The projections include initiatives set out in the company’s strategy for the coming years, and also on the most significant risks identified by the company. The adequacy is measured in relation to
In 2016, Tryg decided to terminate the rating agreement with Standard and Poor’s and acquire a rating from Moody’s. At the end of April, Tryg was assigned an ‘A2’ financial strength rating with a positive outlook. The rating was upgraded in
December 2016 to an ‘A1’ financial strength rating with a stable outlook. In its press release, Moody’s noted that the A1 IFSR reflects Tryg’s leadership position in Property & Casualty (P&C) insurance in the Nordic region, its strong profitability both from a return on capital and underwriting (combined ratio) perspective, very good asset quality and relatively low financial leverage.
The Tryg share is covered by 21 analysts, who continuously update their recommendations and earnings forecasts. See a list of analysts and their recommendations at tryg.com/investor.
DKK 137.4 and ended 2016 at DKK 127.7. The total return of the share including dividends was -2.6% . The Tryg share followed an unusually volatile pattern in 2016, to some extent due to a number of remarkable political events which sharply impacted financial stocks.
II (the new capital regime introduced on 1 January 2016), adding an increased level of scrutiny to
European insurers’ balance sheets. This remains particularly true for the traditional life insurers whose business model is under heavy pressure from the extremely low interest rate levels.
NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. In 2016,
Tryg’s share capital totalled 1,412,706,020 on 31 December 2016. It comprised one share class
TrygFonden works actively to create peace of mind in Denmark, supporting around 800 activities that contribute to this, such as coastal lifeguards and defibrillators. Behind
TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributed
• The capital level must at all times reflect the return on equity targets and the statutory capital requirements.
Based on Tryg’s dividend policy and the satisfactory 2016 results, the Supervisory Board will propose an H2 dividend of DKK 3.60 per share at the annual general meeting on 8 March 2017. The full-year dividend corresponds to a payout of 72%
The company announcements issued in 2016 can be seen at tryg.com > Investor > News.
Tryg focuses on managing the company in accordance with the principles of good corporate governance and generally complies with the Danish recommendations prepared by the Committee on
Board is informed about the dialogue with investors and other stakeholders on a regular basis. Tryg has adopted an IR policy, which states, among other things, that all company announcements are published in Danish and English. Tryg publishes quarterly interim reports in English. Furthermore,
Tryg’s position and performance. The consolidated financial reports are presented in accordance with IFRS. At tryg.com, stakeholders are invited to subscribe to press releases, company announcements as well as insider trading announcements.
A number of internal guidelines ensure that the disclosure of price-sensitive information complies with legislation and the stock exchange’s codes of conduct. Tryg has adopted a number of policies describing the relationship between different s takeholders. See the IR policy at tryg.com > Investor > IR contacts > IR policy, and the
Tryg will introduce a quarterly dividend. At the annual general meeting in 2016, the shareholders authorised the Supervisory Board to allow Tryg to acquire own shares amounting to up to 10%
of the share capital during the period up until 31 December 2017. On 6 April 2016, Tryg initiated a share buy back programme, which ran until 16 December 2016. Tryg acquired own shares for an amount of DKK 1bn. Starting 2017, Tryg has decided to move from extraordinary buy backs to extraordinary dividends when the capital position allows extraordinary payments. The proposed extraordinary dividend is DKK 1bn in 2017.
The Supervisory Board is responsible for the central strategic management and financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and frameworks on the basis of regular and systematic reviews of the strategy and risks. The
monitored. The Supervisory Board ensures that the necessary skills and financial resources are available for Tryg to achieve its strategic targets.
The Supervisory Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise required to perform its duties in the best possible way. The Supervisory Board focuses primarily on the following qualifications and skills: management experience, financial insight, organisation, IT, product development, communication, market insight, international experience, knowledge of insurance, reinsurance, capital requirements, general accounting insight and accounting principles (GAAP), including regulations and principles designed for the insurance industry and M&A experience. See CV’s and descriptions of the skills in the section Supervisory Board on pages 33-34 and at tryg.com > Governance >
Three out of four members of the Audit Committee and three out of five members of the
Risk Committee, including the chairman of the committees, are independent persons. Of the four members of the Remuneration Committee, one member is an independent person, while one out of two members of the Nomination Committee is independent. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board.
The committees exclusively prepare matters for decision by the entire Supervisory Board.
Supervisory Board and the Executive Board, including general guidelines for incentive pay. The remuneration policy for 2016 was adopted by the
Tryg’s remuneration policy each year in connection with the review of the annual report at the annual general meeting. The Board’s proposal for the remuneration of the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting.
Car Other Total fixed Share-based Total DKK Base salary Pension allowance benefits salary remuneration a) fee scheme. Their remuneration is based on trends in peer companies, taking into account the required skills, efforts and the scope of the Supervisory
2017 targets, which were specified as combined ratio, expense ratio, premium growth, Net Promotor Score (NPS) and employee satisfaction, and 40% weighted on development targets, including targets such as moving closer to the customers
policies, the Supervisory Board defines Tryg’s risk management framework as regards insurance risk, investment risk and operational risk, as well as IT
Board. Risks associated with new financial reporting rules and accounting policies are monitored and considered by the Audit Committee, the finance management and the internal auditors.
The Supervisory Board and the Executive Board approve and monitor the Group’s overall policies and guidelines, procedures and controls in important risk areas. They receive reports about developments in these areas and about the ways in which the frameworks are applied. The Supervisory Board checks that the company’s risk management and internal controls are effective. The Board receives reports on non-compliance with the frameworks and guidelines established by the Supervisory
Board. The Risk Committee monitors the risk management on an ongoing basis and reports quarterly to the Supervisory Board.
As part of the internal control system, Tryg has established independent risk management, compliance and actuarial functions. The functions report to the Executive Board and the Supervisory Board’s
Risk management is an integral part of Tryg’s business operations. The Group seeks at all times to minimise the risk of unnecessary losses in order to optimise returns on the company’s capital.
Read more about Tryg’s risk management in the section Capital and risk management on pages 25-26 and in Note 1 on page 50.
The Supervisory Board ensures monitoring by competent and independent auditors. The Group’s internal auditor attends all Board meetings. The independent auditor attends the annual Board meeting at which the annual report is presented.
Corporate Governance with the exception of the recommendation concerning the number of independent members of the board committees, with which Tryg complies partially; see recommendation 3.4.2 of the Recommendations on Corporate
Deputy Chairman Born in 1947. Joined: 2011. Danish citizen. Professional board member, Adjunct Professor, CBS. Former Governor of Danmarks Nationalbank (Danish Central Bank).
Education: Savings bank training, Graduate Diplomas in Organisation, Work Sociology, Credit and Financing. Chairman: Sydbank A/S, Investeringsforeningen Sparinvest DK, EIK banki p/f and Museum South East Denmark. Deputy Chairman: Tryg A/S and Tryg Forsikring A/S. Board member: Sampension KP Livsforsikring A/S, Dansk Landbrugs Realkredit and a member of the Executive Management of Bombebøssen. Committee memberships: Tryg’s Audit Committee (Chairman), Risk Committee (Chairman) and Remuneration Committee. Number of shares held: 20,000 Change in portfolio 2016: +1,000
Born in 1951. Joined: 2016. Danish citizen. Lawyer and partner at HjulmandKaptajn.
Education: LL.M. Chairman: B&E STÅL A/S, Brdr. Schlie’s Fiskeeksport A/S, Conscius A/S, CPS A/S, Danish Label Coating A/S, Friis & Moltke A/S, Lastvogn & Trailer Center A/S, Nordjyske Jernbaner A/S, Palle Mørch A/S, Pava Produkter A/S, Seafood International Holding A/S, Scan Fish Danmark A/S, Utzon Center A/S, Kunsten – Museum of Modern Art, PSC A/S and a number of subsidiaries. Deputy Chairman: The Royal Danish Theatre. Board member: Tryg A/S and Tryg Forsikring A/S, TryghedsGruppen smba, Flemming Christensens Fond, FDE Fonden, Effer Krancenter A/S, Sawo A/S and Utzon Fond. Number of shares held: 1,168 Change in portfolio 2016: +1,168
Employee representative Born in 1966. Joined: 2012. Danish citizen. Employed since 1990.
Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training. Chairman: The Association for Tied Agents and Key Account Managers in Tryg. Board member: Tryg A/S and Tryg Forsikring A/S. Member of the Tied Agents’ District Board of the Financial Services Union Denmark. Number of shares held: 695 Change in portfolio 2016: 0
Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. An employee election was held in 2016.
Committee memberships: Remuneration Committee in Tryg. Number of shares held: 1,175 Change in portfolio 2016: 0
Ida Sofie Jensen has experience from business operations and the healthcare sector as well as management, strategy, politics and finance.
Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Trygs Audit Committee and the Central Board of Forsikringsforbundet. Number of shares held: 695 Change in portfolio 2016: 0
Lene Skole has experience from international companies, among other things through her previous work in Coloplast and The Maersk Company Ltd., UK. Lene Skole has skills within strategy, financing and communication.
Born in 1963. Joined: 2010. Danish citizen. CEO of SEASNVE A.m.b.A.
Committee memberships: Audit Committee and Risk Committee in Tryg, Executive Committee of Danish Energy Association (Chairman), member of the Board of Representatives in Tryghedsgruppen and in Nykredit. Number of shares held: 8,750 Change in portfolio 2016: 0
Born in 1962. Joined: 2012. Norwegian citizen. Professional board member and independent advisor.
Born in 1955. Joined: 2015. Swedish citizen. Professional Board member and independent advisor. Former CEO of Nordnet and the insurance company SalusAnsvar.
Education: Bachelor of Science, education in International Business and Finance & Accounting.
Education: Business Economist Chairman: Chairman of Finansforbundet, Tryg and Senior Commercial Advisor Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond. Committee memberships: Remuneration Committee in Tryg A/S Number of shares held: 265 Change in portfolio 2016: 0
Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton. Board member: Tjenestemændenes Forsikring, KMD A/S and KMD Holding A/S.
Number of shares held: 3,235 Change in portfolio in 2016: +1,400
Tryg’s Corporate Social Responsibility (CSR) initiatives focus on peace of mind, people, business ethics as well as the environment and climate.
CSR is actively ensuring that Tryg is working in a respon sible way with both internal and external processes, while always focusing on creating products and solutions that generate value for Tryg, our customers and society. Find our CSR policy at tryg.com > CSR > CSR strategy > CSR policy
Tryg’s overall vision is to create peace of mind for our customers and for society as a whole. In order to improve the way we work and achieve satisfied customers, it is important always to focus on our dialogue with customers. A major point of contact is our claims handling process, where we have processes in place to ensure the equal treatment of all customers. If customers are not satisfied with our services, we also have processes in place to ensure that they can fill in a complaint. Even though claims handling is key to our business, we still believe it creates peace of mind if we can prevent claims from arising in the first place, which is why we focus on claims prevention. We focus on safety, health and climate, and in 2016 we increased our focus on preventing break-ins and fires, while also seeking to improve safety at the seaside, for cyclist and among young people in public spaces. Find Tryg’s complaint process at tryg.dk > Om Tryg > Kontakt os > Klagemuligheder
Read more about prevention at tryg.dk > Skader > Forebyg skade
The Night Ravens are volunteers who walk the streets at night to prevent violence and crime in
Read more at tryg.com > CSR > Thematic areas > Peace of mind > Society
DNA marking can – to some extent – help prevent break-ins in residential areas.
In 2016, we joined forces with the Norwegian police in handing out DNA kits to private house owners in
In order to engage society in prevention, we believe it is necessary to offer education for different groups in society. In 2016, we invited 60 students from the local community in Ballerup to participate in an
Despite the organisational changes which took place in 2016, employee satisfaction increased from index 73 in 2015 to index 74 in 2016, 6 index points higher than the Nordic financial market benchmark.
In 2016, we had an ambitious target of 38% women at management level. Through organisation changes and our focus on equal representation in recruitment, we achieved 36.4% women at management levels, 5.4% higher than the 2015 Danish financial market benchmark. In 2017, we will maintain our focus on this issue, and to qualify and motivate more women to apply for management jobs, we have signed an agreement with the Danish Diversity Council. This means that we will be entering into a partnership with a number of Danish companies with the aim of sharing knowledge on how to develop the next generation of female leaders. At the same time, we are motivating women in Tryg to apply for next-level management jobs by sending five women to the
Our target for 2017 is to attain 38% women at management levels. In addition, we already have an equal gender distribution on our Supervisory Board with three of the eight members appointed by the annual general meeting being women.
Municipality of Ballerup to help prepare refugees for entering the Danish labour market. In early 2016,
Tryg welcomed three refugees to a six-month parttime internship focusing on language training and job culture. The internship was a combination of language school and job training. By the end of 2016, three more refugees were a part of a preparatory 13-week internship. After a successful start, we are looking forward to continuing our efforts in 2017 by welcoming more refugees to participate in the internship.
In Tryg, we work in a responsible way by respecting both human and labour rights, while also focusing on anti-corruption. At the same time, we acknowledge our responsibility for the climate and the environment. Therefore, it is important that our employees and external partners adhere to our standards at all times. Tryg has formulated a CSR Code of Conduct based on the UN Global Compact, which we expect suppliers to comply with. We also have another
Read more about business ethics at tryg.com > CSR > Thematic areas > Business Ethics
The workshop was well-received, and most of the students felt that their newly acquired knowledge would be useful for them in their everyday lives.
HouseFire’ app which Tryg launched in 2016. It is a virtual reality app, and the first of its kind in Norway.
Norwegian fire department to teach people how to handle and prevent fires. Download the app for iPhone or Download it for for Android
In Tryg, we believe that satisfied employees are key to improving our business and services. We are actively working to minimise the risks of dissatisfaction, discrimination and stress among our
We expect our employees and our suppliers to work in a responsible way. It is therefore important to make it clear to our suppliers that they must respect our guidelines and Code of Conduct as part of their obligations towards Tryg. In 2016, we introduced a new monitoring system, asking six offshoring partners to hand in a report focusing on their CSR
obligations towards Tryg. These reports will provide a starting point for our monitoring efforts, which involve continuous dialogue with our partners and regular visits to follow up on their commitments.
Tryg’s is a non-life insurance company, and our main activities are naturally related to all aspects of insurance such as claims handling and prevention. This also means that investments only account for a small part of our business, which is one of the reasons why we have decided to have external portfolio managers handle our investments.
80% of Tryg’s investments are Nordic AAA covered or government bonds. This means only minor investments in lower-grade risk assets, which are well-diversified and listed global government or corporate bonds or equities. We are internally very observant when it comes to our investments, due to the underlying risk of Tryg violating international standards such as the UN Global Compact or ESG
Read more about environment and climate at tryg.com > CSR > Climate and environment
The Hordaklim project is one initiative in which we contribute with new perspectives on climaterelated issues. The project is a research partnership which involves Tryg helping and advising a number of local authorities in Hordaland, Norway, on how to identify areas that are most affected by climate change. Our property claims statistics are valuable in this process and can help the authorities prevent damage to existing buildings while at the same time planning for a safer future. The aim of the project is to produce new data that can be useful for the rest of Western Norway.
Since Tryg is highly affected by more extreme weather events, it is important for us to take part in the global community’s endeavours to minimise greenhouse gas emissions. Our target is to reduce our emissions by 1% a year. Even though we want to minimise our negative impact on the climate, the overall effect of our efforts is likely to be limited since Tryg’s carbon emissions are mainly associated with heating and electricity use at our offices and with car, train, and air travel. Tryg is therefore not an energy-intensive company. Nevertheless, we are still endeavouring to minimise the environmental impact of our daily operations by trying to minimise food waste in canteens and by renting new energy-efficient office premises, for example. Reducing our energy consumption also means cost reductions, which is further motivating us to attain our target each year. In 2016, Tryg’s total estimated carbon emissions were 4267.5 tonnes compared to an actual emission of 4481.5 tonnes in 2015. Our estimated reduction was therefore 4.78%. Thus, we achieved our goal of a 1% reduction, which is mainly associated with a decrease in travel activities. In 2017, our target is a 1% reduction compared to 2016. Read more at tryg.com > CSR > Thematic areas > Climate and environment > CO2 reduction
Cash flow statement 49 1 Risk and capital management 50 2 Operating segments 60 2 Geographical segments 62 2 Technical result, net of reinsurance, by line of business 64 3 Premium income, net of reinsurance 66 4 Insurance technical interest, net of reinsurance 66 5 Claims, net of reinsurance 66 6 Insurance operating costs, net of reinsurance 66 6 Share option programme 68 6 Matching shares 69 7 Interest income and dividends etc. 70 8 Value adjustments 70 10 Profit/loss on discontinued and divested business 70 11 Intangible assets 71 12 Property, plant and equipment 74 13 Investment property 75 14 Equity investments in associates 75 15 Financial assets 77 16 Reinsurers’ share 79 17 Current tax 79 19 Premium provisions 80 19 Claims provisions 81 20 Pensions and similar liabilities 82 21 Deferred tax 84 22 Other provisions 84 23 Amounts owed to credit institutions 84 24 Debt relating to unsettled funds transactions and repos 84 25 Earnings per share 84 26 Sale of properties 85 27 Contractual obligations, collateral and contingent liabilities 85 28 Acquisition of subsidiaries 88 29 Related parties 88 30 Financial highlights 89 31 Accounting policies 90
Tryg’s Group consolidated financial statements are prepared in accordance with IFRS.
Jørgen Huno Rasmussen Torben Nielsen Tom Eileng Lone Hansen Anders Hjulmand Jesper Hjulmand Chairman Deputy Chairman
Ida Sofie Jensen Bill-Owe Johansson Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund
The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2016 of Tryg A/S and the Tryg Group.
EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act and the requirements of the NASDAQ Copenhagen for the prensentation of financial statement of listed companies. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position at 31 December 2016 and of the results of the
We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the International Ethics Standards
These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Danish requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.
Standards as adopted by the EU and Danish disclosure requirements for listed financial companies.
Further, in our opinion, the parent financial statements give a true and fair view of the Parent’s financial position at 31 December 2016, and of the results of its operations for the financial year
The estimates of the claims provisions depend on accurate and complete insurance data of current and historical claims, including the development in claims and payment patterns, as these data are used to establish the expectations for future claims for the purpose of the statistical models.
• Based on the actuarial estimates of the claims provisions and analyses and in cooperation with our own internationally qualified actuaries, we have assessed the development in the claims provisions, including run-off gains/losses and the development in the size of the margin included in Management’s estimate of the claims provisions.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management ’s review and, in doing so, consider whether the management’s review is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
Moreover, it is our responsibility to consider whether the management’s review provides the information required under the Danish Financial
Based on the work we have performed, we conclude that the management’s review is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the management ’s review.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to consider whether the solvency ratio is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on this, we conclude that the solvency ratio is materially misstated, we are required to report on this. We have nothing to report in this respect.
EU and Danish disclosure requirements for listed financial companies as well as the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial
Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.
Auditing and additional requirements applicable in Denmark will always detect a material misstatement when it exits. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
Governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
a) Profit/loss on discontinued and divested business after tax includes mainly Marine Hull insurance and the Finnish branch of Tryg Forsikring, which was sold in 2012.
b) Solvency I ratios in 2012-2015 are the ratio between base capital and weighted assets and are audited. Solvency II ratio in 2016 is the ratio betwen own funds and the solvency capital requirement and is exempt from the requirement for auditing and thus not audited.
Investment return after insurance technical interest 987 -22 360 588 585
Statement of financial position Total provisions for insurance contracts 31,527 31,814 31,692 32,939 34,355 Total reinsurers’ share of provisions for insurance contracts 2,034 3,176 1,938 2,620 2,317
Claims ratio, net of ceded business 71.0 71.5 69.6 72.1 71.8
Total investment return 1,136 237 4 Return on insurance provisions -149 -259
Profit/loss on continuing business 2,472 1,920 10 Profit/loss on discontinued and divested business -1 49
Claims paid -13,947 -13,095 Reinsurance cover received 1,260 471 Change in claims provisions 2,328 -467 Change in the reinsurers’ share of claims provisions -1,164 1,301 5 Claims, net of reinsurance -11,523 -11,790
Acquisition costs and administration expenses -2,737 -2,720 Reinsurance commissions and profit participation from reinsurers 150 102 6 Insurance operating costs, net of reinsurance -2,587 -2,618
Reinsurers’ share of premium provisions 214 173 19 Reinsurers’ share of claims provisions 1,820 3,003 16 Total reinsurers’ share of provisions for insurance contracts 2,034 3,176
Interest and rent receivable 224 281 Other prepayments and accrued income 465 316
Total provisions for insurance contracts 31,527 31,814 20 Pensions and similar obligations 345 264 21 Deferred tax liability 702 645
Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00 in 2015) and extraordinary dividend of DKK 3.54. Proposed dividend per share is calculated as the 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 (282,541,204 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.
c) New executive order from the Danish FSA on yield curves based on EIOPA. Please refer to note 31 Accounting policies.
Nullification of own shares -35 35 0 Dividend paid -1,766 -1,766 Dividend own shares 52 52 Purchase and sale of own shares -1,000 -1,000 Exercise of share options 1 1 Issue of share options and matching shares 3 3
Total changes in equity in 2015 -44 6 -24 21 -82 -634 -718 -1,475
Change in cash and cash equivalents, net 6 -37 Exchange rate adjustment of cash and cash equivalents, 1 January -2 3
Carrying amount at 1 January 1,698 64 1,762 Exchange rate adjustments 69 -1 68
Carrying amount at 1 January 1,768 116 1,884 Exchange rate adjustments -82 1 -81
Tryg’s risk profile is continuously measured, quantified and reported to the management and the Supervisory Board. Given the extensive requirements for the Supervisory Board’s involvement in capital and risk management, Tryg’s Supervisory Board has decided to set up a special Supervisory Board Risk Committee to address these topics separately during the year. The Committee meets minimum four times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status.
Tactically - Risk reports - Internal controls - Capital model - Stress tests
The capital base is continuously measured against the capital requirement calculated on the basis of Tryg’s partial internal model, where insurance risks are modelled using an internal model, while other risks are described using the Solvency II standard model.
The introduction of Solvency II had a major influence on Tryg’s solvency ratio in various areas . The Solvency capital requirement decreased by approximately DKK 1,200m due to the inclusion of the loss absorbency capacity of deferred tax. The capital base increased by approximately DKK 500m due to the inclusion of expected future profits (DKK 700m) and the transition to a new Solvency II discounting curve (DKK -200m). The net impact from these new elements increased the solvency ratio of the Group.
Underwriting risk Underwriting risk is the risk that insurance premiums will not be sufficient to cover the compensations and other costs associated with the insurance business. Underwriting risk is managed primarily through the company’s insurance policy defined by the Supervisory Board, and administered through business procedures, underwriting guidelines etc. Underwriting risk is assessed in Tryg’s capital model, determining the capital impact from insurance products. Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a sufficient degree via ordinary diversification. In case of major events involving damage to buildings and contents, Tryg’s reinsurance programme provides protection for up to DKK 5.75bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 150m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m for, after total annual retention of DKK 300m. Tryg has also taken out reinsurance for the risk of large claims occurring in sectors with very large sums insured. Tryg’s largest individual building and contents risks are covered by up to DKK 2bn. Retention for large claims is DKK 100m, gradually dropping to DKK 25m. Single risks exceeding DKK 2bn are covered individually.
Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy. In overall terms, Tryg’s investment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the discounted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s equity portfolio constitutes the company’s largest investment risk. At the end of 2016, the equity portfolio accounted for 5.4% of the total investment assets. Tryg’s property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2016, investment properties accounted for 6.3%. Tryg does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance business in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to fluctuations in the other Scandinavian currencies due to its ongoing insurance activities.
Premiums earned and claims paid in other currencies create a natural currency hedge, for which reason other risk mitigation measures are not required in this area. However, the part of equity held in other currencies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using currency swaps. In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentration risk. These risks primarily relate to exposures in high-yield bonds, emerging market debt exposures as well as Tryg’s investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance policy. For a non-life insurance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant assets on Tryg’s balance sheet, which by nature is somewhat illiquid, are the property portfolio.
Operational risk Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal, Tryg focuses on an adequate control environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines covering the various aspects of the Group’s operations. The Supervisory Board defines the overall framework for managing operational risk in Tryg’s Operational risk policy. These risks are controlled via the Operational Risk Committee. A special crisis management structure is set up to deal with the eventuality that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and finally business contingency in the individual areas. Tryg has prepared contingency plans to address the most important areas. In addition, comprehensive IT contingency plans have been established, primarily focusing on the business-critical systems.
Strategic risk The strategic risk is the risk of loss as a result of Tryg’s chosen strategic position. The strategic position covers both business transactions, IT strategy, choice of business partners and changed market conditions. Tryg’s strategic position is determined by Tryg’s Supervisory Board in close collaboration with the Executive Board. Before determining the strategic position, the strategic decisions are subject to a risk assessment, explaining the risk of the chosen strategy to Tryg’s Supervisory Board and Executive Board.
Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities -1,131 -940 Higher discounting of claims provisions 1,061 947 Net effect of interest rate rise -70 7 Impact of Norwegian pension obligation b) 173 153
Equity market 15% decline in equity market -365 -341 Impact of derivatives -15 -7
Real estate market 15% decline in real estate markets -229 -480
Reserves from 2005 and prior years 2,378 Other reserves a) 358 Gross provisions for claims, end of year 25,452 a) Other provisions comprise the claims provisions for guarantee insurance.
Estimated accumulated claims End of year 278 502 162 286 672 1,464 239 555 260 2,088 176 1 year later 278 468 226 355 749 2,169 270 968 313 1,893 2 year later 264 482 192 333 742 2,290 309 949 289 3 year later 295 487 182 289 719 2,331 316 946 4 year later 296 507 182 292 728 2,295 310 5 year later 291 478 169 297 751 2,292 6 year later 289 506 175 293 756 7 year later 291 497 168 293 8 year later 289 497 168 9 year later 289 497 10 year later 288 288 497 168 293 756 2,292 310 946 289 1,893 176 7,908
Provisions before discounting, end of year 489 776 1,025 1,213 1,437 1,741 1,779 2,039 2,619 2,862 6,396 22,378
Bond portfolio including interest derivatives Duration 1 year or less 14,758 14,856
Nordic countries 47 52 United Kingdom 95 90 Rest of Europe 283 501 United States 1,533 1,165 Asia etc. 426 516
The share portfolio includes exposure from share derivatives of DKK 97m (DKK 47m in 2015) Unlisted equity investments are based on an estimated market price.
Profit/loss on gross business 3,351 1,695 1,656 -58 1,714 Profit/loss on ceded business -951 710 -1,661 15 -1,676 Insurance technical interest, net of reinsurance -10 18 -28 0 -28
Profit/loss on gross business 1,695 3,313 -1,618 -79 -1,539 Profit/loss on ceded business 710 -341 1,051 11 1,040 Insurance technical interest, net of reinsurance 18 60 -42 -2 -40
Reinsurers’ share of provisions for insurance contracts 2,034 3,176 -1,142 31 -1,173
Liquidity risk Maturity of the Group’s financial obligations including interest 2016 0-1 years 1-5 years > 5 years Total
Amounts owed to credit institutions 178 0 0 178 Debt relating to unsettled funds transactions and repos 1,732 0 0 1,732
The fair value of the loan at the statement of financial position date 685 671 1,124 1,086 796 The fair value of the loan at the statement of financial position dates is based on a price of 105 108 98 100 102 Total capital losses and costs at the statement of the financial position date 3 4 4 6 4 Interest expenses for the year 32 34 46 3 10 -
Repayment profile Interest-only Interest-only Interest-only Interest structure 3.75 % above NIBOR 3M (until 2023) 2.75 % above NIBOR 3M (until 2025) 2.75% above STIBOR 3M (until 2026) 4.75 % above NIBOR 3M (from 2023) 3.75 % above NIBOR 3M (from 2025) 3.75% above STIBOR 3M (from 2026)
Equity investments in associates 218 218 Reinsurers’ share of premium provisions 16 24 174 0 0 214 Reinsurers’ share of claims provisions 67 247 1,476 30 0 1,820 Other assets 46,725 46,725
Provisions for bonuses and premium discounts 461 61 53 13 0 588 Other liabilities 8,897 8,897
a) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under ‘Other’.
Notes a) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under ‘Other’.
Run-off, net of reinsurance (%) -5.4 -5.5 -6.0 -5.9 -5.8 Number of full-time employees 31 December 1,839 1,859 2,007 2,046 2,187
Claims ratio, net of ceded business 69.0 73.0 67.9 69.2 71.4
Run-off, net of reinsurance (%) -10.6 -7.3 -6.8 -4.9 -5.6 Number of full-time employees 31 December 1,040 1,113 1,167 1,199 1,282 a) Includes Danish general insurance and Finnish guarantee insurance.
c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights.
Accident and Worker’s Motor comprehensive Marine, aviation and DKKm health c) Health care compensation Motor TPL insurance cargo insurance
Gross claims ratio 57.6 63.0 92.8 80.7 22.3 9.5 63.5 59.3 68.1 68.5 41.2 64.7 Combined ratio 71.4 76.7 105.4 91.1 34.6 22.2 83.3 78.2 83.8 83.7 102.9 92.6
d) Other insurance, gross claims and gross operating expenses are negatively affected by DKK 88m and DKK 162m in 2016, mainly by impairment of software. (DKK 40m and DKK 80m, mainly due to accruals for efficieny programme , in 2015).
65Annual report 2016 | Tryg A/S | | Menu – Financial statements 2 Technical result, net of reinsurance, by line of business
Reinsurance cover received 286 2,060 Run-off previous years, reinsurers’ share -190 -288 6 Insurance operating costs, net of reinsurance Commissions regarding direct insurance contracts -296 -368 Other acquisition costs -1,733 -1,674
Insurance operating costs, gross -2,737 -2,720 Commission from reinsurers 150 102
Total lease expenses amount to DKK 26m (DKK 27m in 2015)
Remuneration for the Supervisory Board and Executive Board is disclosed in note 29 ‘Related parties’.
Tryg did not allocate share options in 2016. At 31 December 2016, the share option plan comprised 0 share options (15,770 share options at 31 December 2015).
In 2016, the fair value of share options recognised in the income statement amounted to DKK 0m (DKK 0m in 2015).
68Annual report 2016 | Tryg A/S | | Menu – Financial statements
DKKm 6 Share option programmes Spec. of outstanding options: Total numbers a) Fair value
Per option Total value Total Other at time of at time of Per option value at Executive senior Other allocation allocation at 31 Dec. 31 Dec. 2016 Board employees employees Total DKK DKKm DKK DKKm
Outstanding options from 2011 allocation 31 Dec. 2016 0 0 0 0 0 0 0
Number of options exercisable 31 Dec. 2016 0 0 0 0
Average per Total value Average per matching share at time of matching share Total fair value Executive Other senior at grant date allocation at 31 Dec. at 31 Dec. Board employees Total DKK DKKm DKK DKKm
Matching shares allocated in 2016 at 31.12.16 17,233 15,562 32,795 128 4 127 4
Number of Matching shares exercisable 31 Dec. 2016 0 0 0
Matching shares allocated in 2015 at 31.12.15 14,415 33,740 48,155 160 8 137 7
Annual report 2016 | Tryg A/S | | Menu – Financial statements 7 Interest and dividends Interest income and dividends Dividends 25 47 Interest income, cash at bank and in hand 1 2 Interest income, bonds 642 742 Interest income, other 3 3
Interest expenses Interest expenses subordinate loan capital and credit institutions -88 -89 Interest expenses, other -25 -6 8 Value adjustments Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments 78 13 Unit trust units 190 57 Share derivatives -19 14
Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK 1m (DKK 58m in 2015)
a) Please refer to note 26 Sale of properties 9 Tax Tax on accounting profit/loss -708 -543 Difference between Danish and foreign tax rates -40 -26 Tax adjustment, previous years 8 0 Adjustment of non-taxable income and costs -24 -15 Change in valuation of tax assets 17 129 Change in tax rate 0 65 Other taxes -1 0
Effective tax rate % % Tax on accounting profit/loss 22.0 23.5 Difference between Danish and foreign tax rates 1.0 1.0 Adjustment of non-taxable income and costs 1.0 1.0 Change in valuation of tax assets -1.0 -5.5 Change in tax rate 0.0 -3.0 10 Profit/loss on discontinued and divested business Gross premium income 0 3 Gross claims 1 54 Total insurance operating costs -2 7
Amortisation and write-downs at 31 December -4 -129 -950 -92 -1,175 a) Hereof proprietary software DKK 203m (DKK 317m at 31 December 2015)
Impairment test Goodwill In 2016, Tryg acquired Skandia’s child and adult accident insurance portfolio. The insurance activities were incorporated into the Tryg Group’s business structure from 1 september 2016.
At 31 December 2016, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit, which consists of Moderna, Securator and the Skandia portfolio, respectively.
Primary assumptions for impairment test: When assessing the cash flow management has based its estimates of premiums earned on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development from past experiences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to current levels. Moderna is adjusted for weather and large-scale claims as well. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management’s own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future.
The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Moderna. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market’s expectations for the Group.
- 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 93% 93%
Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0-10 years) 16 25 CAGR -1.0 percentage point (0-10 years) -15 -24 Required return +1.0 percentage point -157 -161 Required return -1.0 percentage point 199 189 Combined ratio +1.0 percentage point -146 -144 Combined ratio -1.0 percentage point 147 144
The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Securator. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market’s expectations for the Group.
The impairment test shows a calculated value in use of approximately DKK 84m (DKK 184m) relative to a recognised goodwill of DKK 84m (DKK 184m) and equity of DKK 138m (DKK 174m) which have led to an impairment in 2016 of DKK 100m which is recognised in other costs. The impairment is due to a lower sale of electronics, than expected and the loss of two major partners, which has led to a decline in the assumptions used.
Annual report 2016 | Tryg A/S | | Menu – Financial statements - Earned premium assumed CAGR 0 – 10 years 10% 13% - Earned premium assumed CAGR > 10 years 3% 3% - Required return before tax 12% 11% - Expected level of Combined ratio 89-91% 83-91%
An increase in the required return or combined ratio will result in a write-down of the goodwill associated with Securator. We do not expect an increase in these assumptions.
The assets and liabilities have not changed significantly since the latests calculation and the recoverable amount calculated would exceed the carrying amount with the same margin or very close to that margin.
Trademarks and customer relations As at 31 December 2016 management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the Moderna and Skandia portfolio goodwill test.
Software and assets under construction As at 31 December 2016 management performed a test of the carrying amounts of software and assets under construction. The impairment test compares the carrying amount with the estimated present value of future cash flows. The test did indicate an impairment of DKK 200m due to revaluation of the groups it-systems. The write-down relates predominantliy to IT systems for payment, digitalisation and IT integration. The writedown is due to related systems development cost will be higher, while for some of the systems benefits are also expected to be lower. The cost is recognised as write-downs under depreciations in the income statement. Assets under construction are not depreciated but tested once a year for impairment or when there is any indication of a decrease in value. Software with a limited useful lifetime is amortised over 4 years using the straight-line method. Amortised software is assessed for impairment at the balance sheet date or when there are indications that the future cash flow cannot justify the carrying amount. In the event that the recoverable amount is lower than the carrying amount, the difference is recognised in the income statement.
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -144 -558 -83 -785
Accumulated depreciation and value adjustments at 31 December -173 -571 -81 -825
The owner-occupied properties were sold in December 2016. Please refer to note 26 Sale of properties.
Value adjustments of DKK 420m and a fair value as at 31 December 2016 of DKK 1,017m relates to sale of property in 2016. External experts were involved in valuing the majority of the other investment properties.
In determining the fair value of the properties, not only publicly available market data are included, corresponding to the ‘non-observable input’ in the fair value hierarchy. No reclassifications have been made between this category and other categories in the fair value hierarchy during the year.
The following return percentages were used for each property category: Return percentages, weighted average 2016 2015
Business property 6.9 7.0 Office property 6.9 6.5 Residential property 6.0 6.0 13 Investment property (continued) Sensitivity Tryg’s property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above. The sensitivity in 2016 is exclusive of the property sold.
Revaluations at net asset value Revaluations at 1 January 28 24 Exchange rate adjustments 0 -2 Dividend received, this year -10 -32 Reversed on sale -14 -4 Value adjustments for the year 13 42
Individual estimates are made of the degree of influence under the contracts made.
Bonds measured on the basis of observable inputs consist of Norwegian bonds issued by banks and to some extent Danish semi-liquid bonds, where no quoted prices based on actual trades are available. In 2016 a few large unit trust units were not traded recently before 31.12.16 and thus transferred to category Observable input. Inflation derivatives are measured at fair value on the basis of non-observable input and are included under claims provisions at a fair value of DKK -398m (DKK -417m in 2015).
Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement 681 598 Derivative financial instruments at fair value with value adjustments in other comprehensive income 21 14 Financial liabilities at amortised cost with value adjustment in the income statement 6,978 8,127
Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January -66 23 Value adjustment for the year 26 -89 Exchange rate adjustment for the year recognised in profit/loss 25 0
Total derivative financial instruments 44,374 -100 38,138 -186 Due after less than 1 year 18,508 -91 17,038 -56
Net current tax -317 -239 18 Equity Number of shares Shares outstanding Own shares Number of shares of DKK 5 (1,000) 2016 2015 2016 2015
Number of shares at 1 January 282,316 289,120 7,243 9,358 Bought during the year -7,793 -7,074 7,793 7,074 Cancellation in connection with buyback programme 0 0 -7,018 -8,919 Used in connection with exercise of incentive programme 72 270 -72 -270
Number of shares as a percentage of issued shares at 31 December 97.19 97.50 2.81 2.50 Nominal value at 31 december (DKKm) 1,373 1,412 40 36
15 Financial assets (continued) Receivables Total receivables in connection with direct insurance contracts 1,108 1,261 Receivables from insurance enterprises 183 199 Unsettled transactions 0 120 Reverse repos 0 370 Other receivables 1,646 381
Other receivables do not contain overdue receivables 16 Reinsurer’s share Impairment test As at 31 December 2016, management performed a test of the carrying amount of total reinsurers’
share of provisions for insurance contracts and receivables. The impairment test resulted in impairment charges totalling DKK 2m (DKK 3m in 2015). The use of reinsurance creates a natural counterparty risk. The Risk will be handled by applying a wide range of reinsurers with at least an ‘A’ rating.
Premium provisions at 31 December 5,425 5,517 a) Comprises premium provisions for guarantee insurance.
The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. The calculation of 2015 Solvency I ratio has not been ajusted for the FSA executive order on yield curves from 1 January 2016.
Paid in the financial year in respect of the current year -6,676 37 -6,639 Paid in the financial year in respect of prior years -6,011 414 -5,597
The premium for the following financial years is estimated at 49 53 Number of active persons 517 595 Number of pensioners 637 586 Average expected remaining service time (years) 8.00 7.81
Assumptions used Discount rate 1.4 1.9 Estimated return on pension funds 1.4 1.9 Salary adjustments 2.3 2.5
Employer contributions 14.0 14.1 Mortality table K2013 K2013 20 Pensions and similar obligations Jubilees 37 50
Defined-benefit pension plans: Present value of pension obligations funded through operations 70 62 Present value of pension obligations funded through establishment of funds 1,198 1,130
Specification of change in recognised pension obligations: Recognised pension obligation at 1 January 1,192 1,290 Adjustment regarding plan changes not recognised in the income statement and expected estimate deviation a) 37 -10 Exchange rate adjustments 64 -74 Present value of pensions earned during the year 18 35 Capital cost of previously earned pensions 22 29 Acturial gains/losses -8 -23 Paid during the period -57 -55
Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January 978 1,010 Exchange rate adjustments 51 -58 Investments in the year 34 91 Estimated return on pension funds 7 25 Acturial gains/losses -66 -49 Paid during the period -44 -41
This years premium paid to FPK amounted to DKK 19m, which is about 3,9 % of the annual premium in FPK (2015). FPK writes in its interim report for 2016 that it had a collective consolidation ratio of 128 at 30 June 2016 (consolidation ratio of 114 at 30 June 2015).
The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations.
20 Pensions and similar obligations (continued) 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.
Impact on equity from the following changes: Interest rate increase of 0.3 percentage point 52 46 Interest rate decrease of 0.3 percentage point -55 -49 Pay increase rate, increase of 1 percentage point -103 -99 Pay increase rate, decrease of 1 percentage point 88 83 Turnover, increase of 2 percentage point 31 25 Turnover, decrease of 2 percentage point -33 -29
The plans are based on the employees’ expected final pay, providing the members of the plan with a guaranteed level of pension benefits throughout their lives. The pension benefits are determined by the employees’ term of employment and salary at the time of retiring. Employees having made contributions for a full period of contribution are guaranteed a pension corresponding to 66% of their final pay. As of 2014, pensions being disbursed are no longer regulated in step with the basic amount of old-age pension paid in Norway (G regulation), but are subject to a minimum regulation. The plan are closed for new business.Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children’s pension.
Annual report 2016 | Tryg A/S | | Menu – Financial statements 22 Other provisions Other provisions at 1 January 132 83 Change in provisions -7 49
Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 50m and reassesment of the beginning of year balance amounts to DKK -57m. The balance as at 31 December 2016 amounts to DKK 123m (DKK 130m at 31 December 2015).
23 Amounts owed to credit institutions Overdraft facilities 178 64 24 Debt relating to unsettled funds transactions and repos Unsettled fund transactions 258 290 Repo debt 1,474 3,784
25 Earnings per share Profit/loss from continuing business 2,472 1,920 Profit/loss on discontinued and divested business -1 49
The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Loss determined according to Swedish rules can be carried forward indefinitely.
Investment property, sold 597 420 1,017 Owner-occupied property, sold a) 1,144 100 93 -
Obligations due by period 2016 <1 year 1-3 years 3-5 years > 5 years Total
Tryg has signed the following contracts with amounts above DKK 50m: In December 2016 Tryg signed sales contracts about its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. Please also refer to note 26 Sale of properties.
Outsourcing agreement with TCS for DKK 64m for a 4 year period, which expires in 2017.
Interest and rent receivable 224 281 Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements 3,172 2,706
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 2016.
Claims payments - Parent company (TryghedsGruppen smba) 0.0 0.1 - Other related parties 1.8 0.5
In august 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia’s activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsäkringar. The transaction was approved by the Danish FSA and implemented 1 September 2016. The acquisition affects the Financial statement from 1 September 2016: Net assets acquired 2016
The Group has not incurred any significant acquisition costs in connection with the acquisition. The purchase price is final. In connection with the acquisition, a sum was paid which exceeds the fair value of the identifiable acquired assets and total provisions for insurance contracts. This positive balance is mainly attributable to customer relations and to expected synergies between the portfolios in the acquired activities and the Group’s existing activities, which are not separately identifiable.
If the activities were included with a full year, the premium income would amount to approx. DKK 200m and the technical result would be approx. DKK 30-60m. Management believes that these pro forma figures reflect the Group’s earnings level after the acquisition of the activities and that the amounts may form the basis for comparisons in subsequent financial years.
The determination of the pro forma amounts for premium income and technical result for the period is based on the following significant assumptions: • Premiums and claims have been calculated on the basis of the fair values determined in the acquisition balance sheets for premium and claims provisions, rather than the original carrying amounts.
DKKm 29 Related parties (continued) Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 3-4 years and share options, which are recognised over 3 years. Reference is made to section ‘Corporate governance’ of the management’s review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this.
Intra-group transactions: Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms.
Annual report 2016 | Tryg A/S | | Menu – Financial statements 31 Accounting policies
For Tryg, this means applying a yield curve at a lower level. The comparative figures for 2015 are restated accordingly. Figures for previous years have not been restated as this is impracticable due to the non existence of the new yield curve published by EIOPA be-
The comparative figures have been restated for 2015 with the following amounts: It is Tryg’s assessment that the amendments to the Executive Order from 2016 can be accommodated within IFRS. Except as noted above, the accounting policies have been applied consistently with last year.
Implementation of changes to accounting standards and interpretation in 2016 The International Accounting Standards Board (IASB) has issued a number of changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2016 that will have a significant impact on the group.
However, IFRS 16 will change the composition of the statement of financial position, but without adding new risks. Regarding IFRS 16 Tryg expects to get more assets and liabilities in the balance sheet but it is not expected to have a significant impact on either profit or loss or equity. Tryg will primarily be effected by lease agreements related to cars and premises. The total impact on the balance sheet is being analysed in relation to the length of the lease agreements and amounts payable.
Total Investment return after insurance technical interest -17 Tax 5 Profit and loss for the period -12
The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that have been incurred, but not yet reported to the Group (known as IBNR reserves ) and future developments in claims which are known to the Group but have not been 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.
Valuation of property Property is divided into owner-occupied property and investment property. Owner-occupied property is assessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a deduction for depreciation and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a market- determined rental income as well as operating expenses in proportion to the property’s required rate of return. Cf. note 12 and 13.
Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the Group, and the value of such assets can be measured reliably. Liabilities are recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the Group, and the value of such liabilities can be measured reliably.
Basis of consolidation The consolidated financial statements are prepared on the basis of the financial statements of Tryg A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group’s accounting policies.
Business combinations Newly acquired or newly established enterprises are recognised in the consolidated financial statements from the date of acquisition and the date of formation, respectively. The date of acquisition is the date on which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of comprehensive income up to the date of disposal or the settlement date. The date of disposal is the date on which control of the divested enterprise actually passes to a third party.
Any positive balances (goodwill) between the acquisition price of the acquired enterprise, the value of minority interests in the acquired enterprise and the fair value of previously acquired equity investments, on the one hand, and the fair value of the acquired assets, liabilities and contingent liabilities, on the other hand, are recognised as an asset under intangible assets, and are tested for impairment at least once a year. If the carrying amount of the asset exceeds its recoverable amount, it is impaired to the lower recoverable amount.
Insurance operating expenses Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year.
Employee shares According to established rules, the Group’s employees can be granted a bonus in the form of employee shares. When the bonus is granted, employees can choose between receiving shares or cash. The expected value of the shares will be expensed over the vesting period. The scheme will be treated as a complex financial instrument, consisting of the right to
Matching shares Members of Executive Board and other senior employees have been allocated shares in accordance with the “Matching shares” scheme. Under Matching shares, the individual Executive Board member or other senior employee is allocated one share in Tryg A/S for each share he or she acquires in Tryg A/S at the market rate for certain liquid cash at a contractually agreed sum in connection with the Matching share programme.
Costs for group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses.
Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when such assets are ready to be brought into use. Depreciation of operating equipment is calculated using the straight-line method over its estimated economic lifetime as follows: • IT, 4 – 8 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years
Leasehold improvements are depreciated over the expected economic lifetime, however maximally the term of the lease.
Annual report 2016 | Tryg A/S | | Menu – Financial statements owner-occupied properties consist of the head office buildings in Ballerup and Bergen and a small number of holiday homes. The remaining properties are classified as investment property.
Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occupied property at the statement of financial position date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity.
Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic lifetime. This also applies to the salvage value. Write-down is performed if depreciation has been demonstrated. A continuous assessment of owner-occupied property is performed.
Goodwill is tested annually for impairment, or more often if there are indications of impairment, and impairment testing is performed for each cash- generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments.
Calculation of value is generally performed on the basis of rates supplied by Danske Bank with relevant information providers and is checked by the Group’s valuation technicians. Discounting on the basis of market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow.
Changes due to unwinding are recognised in insurance technical interest. Changes due to changes in the yield curve or foreign exchange rates are recognised as price adjustments.
When an entity is wound up, the balance is transferred to the income statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive income in respect of the part that concerns the hedge.
Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration).
Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. Most importantly, this can be expected to be the case for assumptions relating to interest rates and inflation.
In case of changes to the benefits stemming from the employees’ employment with the group so far, a change is seen in the actuarially calculated capital value which is considered as pension costs for previous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs. The plan is closed for new business.
Note Investment activities 1 Income from Group undertakings 2,525 2,032 Interest expenses 0 1 Administration expenses in connection with investment activities -6 -7
Total receivables 1 0 5 Current tax assets 15 18 Cash at bank and in hand 0 1
Total equity and liabilities 10,143 10,154 6 Deferred tax assets 7 Own funds 8 Contractual obligations, contingent liabilities and collateral 9 Related parties 10 Reconciliation of profit/loss and equity 11 Accounting policies
Total changes in equity in 2016 -35 -8 -1,183 1,004 -222
Total changes in equity in 2015 -44 -1,708 995 -718 -1,475
Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00) and proposed extraordinary dividend of DKK 3.54.
Proposed dividend per share of DKK 3.60 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 (282,541,204 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.
The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 1,774m (DKK 2,516m in 2015). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured.
Average number of full-time employees for the year 15 15 3 Tax Reconciliation of tax costs Tax on profit/loss for the year 15 19 Tax adjustments, previous years 0 -1
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax losses.
7 Own funds 2016 Please refer to note 18 in the Tryg Group on Solvency II own funds.
Gruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Board and their members’ related family. Related parties are the same as for the Tryg Group; please see note 29 in the Tryg Group.
Key ratios Gross claims ratio 67.9 63.2 65.9 74.2 71.3 65.1 63.3 76.5 65.3
Combined ratio exclusive of run-off 86.3 84.5 84.9 94.1 89.3 86.5 83.7 96.8 84.5
Claims ratio, net of reinsurance 66.3 68.9 64.8 60.3 67.8 70.3 60.9 67.2 58.9
Combined ratio exclusive of run-off 92.2 92.8 84.7 90.2 91.3 98.6 84.5 98.9 86.5
Key ratios Gross claims ratio 84.3 42.9 60.6 55.2 69.2 99.9 170.5 67.6 67.2
Claims ratio, net of reinsurance 88.5 76.9 72.2 73.2 89.7 69.8 79.3 81.0 79.8
Combined ratio exclusive of run-off 111.6 98.3 98.0 100.9 106.2 98.1 94.5 100.1 106.4
Claims ratio, net of reinsurance 72.7 73.4 66.0 75.1 52.1 73.7 61.1 71.3 76.1
Claims ratio, net of reinsurance 75.1 69.2 67.6 72.0 74.2 69.8 67.0 75.1 68.8
Combined ratio exclusive of run-off 99.8 90.1 89.0 95.7 93.9 94.9 87.1 98.5 91.0 a) Amounts relating to eliminations and one-off items are included under 'Other'. Please refer to note 2 Geographical segments.
Run-off, net of reinsurance (%) -10.0 -2.7 -10.6 -7.3 Number of full-time employees 31 Dec. 1,040 1,113
Other income and costs -112 -19 -157 -91 Profit/loss before tax 800 745 3,220 2,310 Run-off gains/losses, net of reinsurance 301 241 1,239 1,212
Number of full-time employees, continuing business at 31 Dec. 3,264 3,359 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights.
Share performance Earnings per share (DKK) 8.84 6.91 8.74 7.88 7.30 Diluted earnings per share (DKK) 8.84 6.91 8.73 7.86 7.27 Earnings per share of continuing business (DKK) 8.84 6.74 8.70 7.89 7.21
Claims ratio, net of ceded business Gross claims ratio + net reinsurance ratio
Gross expense ratio Calculated as the ratio of gross insurance operating costs, including adjustment and gross premium income. The adjustment involves the deduction of depreciation and operating costs on the owneroccupied property and the addition of a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent.
Claims + insurance operating costs + profit or loss from reinsurance x 100
Tryg sells its products primarily via its own sales channels such as call centres, the Internet, tied agents, franchisees (Norway), interest organisations, car dealers, real estate agents, insurance brokers and Nordea branches. Moreover, Tryg engages in international cooperation with the AXA
A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including but not limited to general economic developments, changes in the competitive environ ment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. Should one or more of these risks or uncertainties materialise, or should any underlying assumptions prove to be incorrect, Tryg’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected.