Disclaimer Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding TrygVesta’s future results of operations, financial condition, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by terminology such as “targets”,
English version of the annual report 2007, the Danish version shall apply.
We are the second-largest general insurer in the Nordic region with activities in Denmark, Norway, Finland and Sweden. We are the largest general insurer in Denmark and Norway’s third largest general insurer. We have operated our rapidly growing activities in Finland and Sweden since 2002 and 2006, respectively.
We sell the great majority of our products through our own distribution channels. We also have a strong strategic partnership with Nordea, the largest bank in the Nordic region.
TrygVesta’s financial performance in 2007 16 Private & Commercial Denmark 19 Private & Commercial Norway 22 Corporate 25 Finnish general insurance 28 Swedish general insurance 30 Investment activities 32 Financial outlook for 2008 36 Capitalisation and profit distribution 40 Risk management 42
Statement by the Supervisory Board and the Executive Management 95 Independent auditors’ report 96 Income statement and balance sheet for the TrygVesta Group 97 Statement of changes in equity 100 Cash flow statement 102 Notes to the financial statements 103 Income statement and balance sheet for TrygVesta A/S (Parent company) 140 Statement of changes in equity (Parent company) 142 Notes to the financial statements (Parent company) 143 Financial highlights and key ratios by geography 148
Challenges and opportunities go hand in hand, and the changes happening around us in the market and in society in general present a number of business opportunities for us. Indeed, the year 2007 presented several challenges, including a growing focus on health care systems, an awareness of climate change that has truly asserted itself, and unemployment falling to an all-time low leading to an intensified battle to attract employees. We launched new initiatives in these areas in 2007 which, going forward, will benefit our Group and all our stakeholders.
The improved technical result was the reward of several years of efforts to build a strong foundation for our insurance operations; our prices are now set based on risk considerations, the structure of our reinsurance programme reflects our risk profile, and we focus strongly on innovation and growth. The stronger technical results of recent years make us less dependent on financial income, which was lower in 2007 relative to 2006. Furthermore, we pursue a conservative investment policy, refraining from investing in structured financial products, the alleged cause of the financial turmoil prevailing since the summer of 2007.
In addition to reporting good results, we have also built a solid foundation for maintaining the strong momentum of recent years. In 2007, we extended our Health Care area to include Norway, we began selling commercial insurances in Finland, and we plan to launch corporate insurances in Sweden in 2008.
A decision was made in 2007 to change the Group’s profit distribution policy to the effect that TrygVesta now pays cash dividends at the rate of 50% of the profit for the year after tax and also buys back treasury shares. The amount used for share buybacks is calculated on the basis of TrygVesta’s capital model. Accordingly, our Supervisory
Board intends to recommend to the shareholders at the annual general meeting to be held on 3 April 2008 that cash dividends for 2007 be paid at the rate of DKK 17 per share, equivalent to a total of DKK 1,156m. In addition, we intend to buy back shares for DKK 1,405 million, comprising an ordinary and an extraordinary amount attributable to circumstances described in more detail in the section on capitalisation and profit distribution. The total amount being distributed to shareholders in 2007 is DKK
Our good technical performance in 2007 has caused us to upgrade our medium-term expectations from a combined ratio of around 92 to the 89-91 range before run-off.
We have supplemented our annual report this year with a feature section focusing on some of our challenges and describing how at TrygVesta we have launched a range of new initiatives to meet these challenges. Our initiatives include boosting the creative potential of our employees and finding new ways of working with product development. You can read about these and other initiatives in the feature section at the end of the Management’s report.
Income statement Gross premiums earned 16,606 16,021 15,705 15,266 16,308 16,702 Gross claims incurred -11,175 -10,564 -11,159 -10,425 -11,020 -11,940 Total insurance operating expenses -2,769 -2,697 -2,662 -2,611 -3,462 -3,745
Profit/loss for the year before tax 3,109 3,709 2,913 2,052 1,947 1,045
Profit/loss for the year, continuing business 2,267 3,085 2,125 1,496 1,462 959
Profit/loss on discontinued and divested business after tax -1 126 -28 -75 -55 -217
Run-off gains/losses, net of reinsurance 743 555 283 -71 3 -516 Relative run-off gains/losses 3.6 3.0 1.8 -0.5 - -
Balance sheet Total provisions for insurance contracts 26,916 25,957 26,757 25,212 26,599 25,955 Total reinsurers’ share of provisions
Net asset value per share 148 147 121 100 90 79 Dividend per share 17 33 21 10 10 1 Share price 31.12 388.0 431.5 319.2 - - - Quoted price/net asset value 2.6 2.9 2.6 - - - Price Earnings 11.6 9.5 10.2 - - - Average number of shares (1,000) 1) 67,648 67,824 68,000 68,000 68,000 68,000 Number of shares, year end (1,000) 1) 67,638 67,790 68,000 68,000 68,000 68,000
By IFRS (International Financial Reporting Standards) means that the accounting policies are based on the international accounting standards and interpretations as adopted by the EU. By Danish GAAP means that the accounting policies are in accordance with the Danish Financial Business Act and the executive order issued by the Danish Financial Supervisory Authority on financial reports presented by insurance companies and profession-specific pension funds.
Comparative figures for 2004, 2005 and 2006 have been restated to the new method of unwinding. See note 1 ‘Changes in Accounting policies’.
TrygVesta reported profit before tax of DKK 3.7bn for the full year 2006 compared with the forecast of DKK
TrygVesta began offering stress consultancy to employees working in Denmark. StressStop is a stress prevention scheme incorporated in the general health insurance.
At the head office in Ballerup, TrygVesta opened an innovation centre – a creative space with room to create and stimulate the development of ideas.
TrygVesta held its second annual general meeting as a listed company. Christian Brinch was elected as a new member of the Supervisory Board.
1,745m, an improvement of DKK 394m compared with the first-half of 2006.
TrygVesta organised its first capital markets day at the Ballerup head office, attended by 36 investors and analysts. At the same time, Tryg Vesta upgraded its premium growth forecast from 3.0%
TrygVesta won a major arbitration case against a number of reinsurers. The favourable outcome had a positive impact of DKK 41m on the third-quarter financial statements.
TrygVesta launched a large-scale training programme for sales and customer service staff under the heading “Your role as a peace-of-mind provider ”. The programme will run from September
Garantiforsikring A/S. The new name makes the affiliation with TrygVesta clear and is connected with the Group’s new Nordic strategy.
726m compared with DKK 1,110m in the third quarter of 2006.
TrygVesta entered into a Nordic collaboration with two firms of architects to be in charge of upgrading the offices in Ballerup and Bergen. The collaboration is intended to create a lasting workplace layout and an even more value-based corporate culture.
TrygVesta introduced a new annual travel insurance in Denmark. Coverage under the Danish public travel and health insurance will be curtailed effective 1 January 2008, and TrygVesta’s new annual travel insurance will provide coverage for the areas subject to future restrictions.
The year 2007 was characterised by discussions about public health care systems, record-low unemployment, climate changes and topics such as financial crisis, risk management and stricter capital requirements were also high on the agenda during the year.
The populations in the Nordic countries are aging, and citizens making increasingly heavy demands on the quality of public services. Businesses are also taking an ever stronger interest in this area. Businesses are prepared to pay for health care insurance to ensure that their employees return sooner to work if they fall ill or are hit by an accident. Being an insurance business, it is obvious that we should explore the possibilities of developing products and services to supplement the public systems and help close the growing gap between the public’s expectations to health care systems and the current situation.
At 31 December 2007, some 700,000 Danes were covered by private health care insurance, around 65% more than at the beginning of 2006. Demand is rising, and we see great potential within this area in the years ahead.
Unemployment in the Nordic region reached record lows, and many businesses found it difficult to recruit the number of new employees they required. The challenge of recruiting qualified employees may lead to wage pressure, impacting corporate expenses negatively. The pay to skilled craftsmen makes up a large part of the companies’ total claim expenses. Recession in construction in Denmark may consequently have a positive effect in the medium term.
the earliest, with final implementation in the individual countries being completed by 2012. Solvency II will impact the capital structure of insurance companies and impose stricter requirements with respect to risk management and risk control. We have for several years taken part in the Solvency II hearings through the Danish Insurance Association, Forsikring & Pension, and in 2007 we were involved in drafting QIS3 (Quantitative Impact
II directive. With these efforts and the work with our internal models we aim to provide the best possible preparation for the introduction of the new solvency rules.
The Danish Financial Business Act was amended to the effect that, as from 1 January 2008, companies are required to make their own determination of their capital requirements, the socalled Individual Solvency Requirements. The rules are intended as a first step towards the implementation of Solvency II. While the Individual Solvency Requirement rules allow companies to apply their own methods, we expect Solvency II to impose stricter requirements. The Individual Solvency Requirement rules aim at ensuring that Danish companies have the necessary capital available and, in relation to the insurance industry, to minimise the risk of customers incurring losses. Companies must report their Individual Solvency Requirements to the Danish Financial Supervisory Authority at least twice a year. The first reporting will be in March 2008. For purposes of determining the Individual Solvency Requirement we use a number of calculations in the ALM model and
Standard & Poor’s capital model in combination with several other quantitative assessments. We furthermore add a buffer to ensure with reasonable probability that we remain solvent in the event of adverse fluctuations.
had seen aggressive lending during the property market boom over several years. The property market began to show signs of weakness with an increasing number of non-performing mortgages, thus triggering sub-prime crisis. Spreading like ripples in water since the summer of 2007, the financial crisis triggered the widespread expectations of an economic slowdown in several parts of the
In recent years, a new EU Solvency II regime has been prepared. In 2007, the EU Commission issued the first draft of the directive that will regulate the implementation of Solvency II in the individual member states. The new rules are expected to come into effect in 2010, at
“In relation to peace of mind, customers are refocusing from concerns for tangible objects to concerns for people: concerns about what could happen to themselves, their families or colleagues”
Nordic countries where we have a presence. We already rank one and three, respectively, in Denmark and Norway, and we intend to expand our positions in these countries by strengthening our sales power, improving our products and focusing strongly on selected geographical areas. We are still a relatively new player in Finland and Sweden, and we
We focus on solutions that are sustainable in the long term, both financially and for the people affected. Our point of departure is helping people, and our ambition is that their contact with us will help our customers build peace of mind before, during and after a possible claim.
We want to eliminate concerns, rather than just send a cheque, in order to add perceived value for customers while at the same time reducing our claims expenses.
Corporate Social Responsibility (CSR), and we see opportunities and business potential in being socially responsible and securing sustainable development of the Group.
Our ambition is to be the best to communicate with our customers, in writing as well as in speech. Therefore, we must express ourselves clearly and communicate to be understood. We intend to enhance customer experience through consistent communication that is plain, relevant and straightforward, and which supports the position we desire as a peace-of-mind provider.
Nordic e-business centre to highlight our commitment to this area. The e-business centre is intended to drive future developments within self-service solutions and other e-business initiatives.
“IT makes sense as a vehicle for change and when it is of use to customers. If we do not see things from our customers’ point of view, we will not make a successful sale. TrygVesta is in the process of setting up an online system for customers allowing them to communicate, buy insurance and handle claims online. This initiative will greatly enhance openness and flexibility for customers as well as for us.”
VISION We want to be perceived as the leading peace-of-mind provider in the Nordic region
In order to strengthen these skills, we intend to increase our focus on management development through a new development programme for our managers in 2008.”
We must strengthen our capabilities in step with changes in the development of distribution, products and services.
A project to modernise the offices in Ballerup and Bergen up to 2010 and the launch of a new intranet are other initiatives intended to facilitate knowledge sharing within the organisation.
Portfolio (nominal prices) per full-time employee 139 131 133 129 124 116 100 Customer satisfaction in claims handling 105 107 105 104 102 100 100
The combined ratio fell by 0.3 percentage point to 86.1 in
Our technical result for 2007 was a clear improvement by 12.3% over 2006. The increase was attributable to the great efforts which our almost 3,900 employees put in every day. Their efforts make a difference to our customers, and they serve to benefit all our stakeholders.
to DKK 2,820m. The DKK 308m increase over 2006 was achieved despite the fact that 2007 saw the biggest number of large claims ever, exceeding a gross amount of
DKK 1bn. Outperforming the forecast announced in our third-quarter 2007 interim report by DKK 120m primarily due to run-off gains from previous years’ claims, our technical result was significantly better than expected.
The pre-tax profit of DKK 3,109m was in line with our expectations for the full year. Due to a reduced return on investments, the pre-tax profit was DKK 600m lower relative to 2006.
743m net) with a positive impact of 4.5 percentage points on the claims ratio. Gross run-off gains in 2006 were DKK 618m (DKK 555m net), which had an impact of 3.5 percentage points on the claims ratio. The run-off gains mainly related to motor, accident and liability insurance, while increased provisions were still required for workers’ compensation in 2007.
2007. Large claims and weather-related claims had an negative impact of 3.8 and 2.0 percentage points, respectively, on the combined ratio compared with 2.1 and 1.3 percentage points, respectively in 2006. Run-off gains improved the combined ratio by 4.5 percentage points while in 2006 run-off gains had an impact of 3.5 percentage points on the combined ratio. Finally, a higher discount rate had a favourable effect of 1.7 percentage points on the combined ratio.
The tax charge in 2007 was adversely affected by lower tax-free gains on shares, and favourably affected by the reduction of the Danish corporate tax rate from 28%
Provisions for insurance contracts were increased by a total of DKK 959m relative to 2006. The ratio of provisions for claims, net of reinsurance to earned premiums, net of reinsurance was unchanged at 124 from with 2006, which equals an increase in provisions for insurance contracts of 3.7%.
Gross earned premiums 6,490 6,390 6,276 Gross claims incurred -4,041 -4,215 -4,927
Gross claims ratio 62.3 66.0 78.5 Business ceded as % of gross premiums 1.3 3.1 -7.4
Private & Commercial Denmark sells insurances to private households and small and medium-sized enterprises in
Our business other things, we reduced premiums for new cars by up to 15% because the improved safety equipment of new cars provides for a better risk profile. We also reduced motor premiums for women under 29 years, while we increased premiums for young men considerably. Implementing the reductions in our motor portfolio, which accounts for around 30% of the total portfolio of Private & Commercial
Industry agreements and workers’ compensation policies lifted premium growth. Sales of industry agreements, which are sold in the business-to-business market, increased by 16,8% in 2007. Our portfolio of workers’
compensation policies increased by more than 20%, mainly due to an extraordinary premium increase of 12.5% which took effect on 1 July 2007 as a result of new Danish workers’ compensation legislation. Workers’
compensation insurance increased by around 7% net of this extraordinary increase.
Run-off gains from prior-year losses were a gross amount of DKK 551m and had a positive impact of 8.5 percentage points on the claims ratio. Run-off gains were mainly attributable to our motor and accident lines in 2007, while workers’ compensation continued to require higher provisions for claims. In 2006, gross run-off gains amounted to DKK 206m with a positive impact of 3.2 percentage points on the claims ratio.
In order to secure the right balance between price and earnings we closely follow developments in average claims and claims frequencies in our large business areas such as building and motor. The average building claim in 2007 was largely unchanged from 2006. The average motor claim, on the other hand, increased by around 4%, among other things because more advanced cars with more expensive spare parts now form a greater part of the Danish car fleet. The hailstorm claims in the summer of 2007 also had a negative impact on the average motor claim. In order to counter the increasing average claim on motor policies, we arrange for as many repairs as possible to be performed by garages we cooperate with. Our size in the market allows us to provide a stable inflow of assignments to such garages, giving us advantages with
The claims frequency on building policies was higher in 2007, mainly due to weather-related claims. Motor policies also recorded a higher claims frequency, primarily attributable to vandalism and a greater number of thefts of GPS and other equipment.
The combined ratio improved by 6.2 percentage points to 80.3 in 2007. Run-off gains had a favourable impact of 8.5 percentage points and the combined ratio was also favourably impacted by the expense ratio, which improved by 0.7 percentage point to 16.7 in 2007. The large number of water-damage claims had a negative impact of 3.7% on the combined ratio.
Storm and weather, gross 242 109 739 Large claims, gross 78 25 23
and a technical result that was DKK 2m higher than in 2006. However, the technical result for the full year was reduced by DKK 65m to DKK 692m in 2007, mainly due to more claims and falling average premiums at the beginning of the year.
The renewal rate was up from 84.4 at the beginning of 2007 to 85.8 at the end of the year. The improvement was driven, in particular, by a customer benefit programme we launched in the summer of 2006. Implemented over a year, the benefit programme now helps retain customers by offering additional benefits.
Gross claims ratio 66.0 63.6 60.9 Business ceded as % of gross premiums 1.8 1.7 1.3
Private & Commercial Norway sells insurances to private households and small and medium-sized enterprises in
Commercial Norway has around 1,100 employees excluding some 300 franchise office staff. The business area contributes around 30% of the Group’s total gross earned premiums.
Private & Commercial Norway reported results during 2007 that were among the best in the market. The busi-
(0.4% in DKK) in 2007. Premium growth in H1 2007 was adversely affected by declining average premiums while
and a high growth in sales through Nordea. The negative growth of 1.4% in the private business was still affected by the abolition in late 2005 of introductory discounts to new customers. We subsequently recorded higher renewal rates, an indication that customers prefer to have a better overview of what they pay for. As from 1 January 2008 insurers are required to inform customers of premium changes from year to year. We expect that the new rules will make the market more transparent, which we believe will benefit TrygVesta’s transparent pricing system.
The number of policies sold performed favourably in 2007 with a net inflow of 39,500 new private policies, including a large affinity group which left us in early 2007. The inflow of new policies was attributable to new customers, focus on selected geographical areas, and existing customers buying more policies. On average, each customer has 3.4 policies.
Total claims expenses were up by DKK 96m in 2007 to
DKK 20m in 2006. Thus, large claims had an adverse impact of 2.7 percentage points on the claims ratio in 2007 compared to 0.4 percentage point in 2006.
91m with a positive effect of 2.0 percentage points on the claims ratio compared to 2.2 percentage points in 2006. Run-off gains mainly related to motor and accident insurance, while increased provisions were still required for workers’ compensation. We discounted the provisions for claims during 2007, resulting in a positive impact from higher interest rates and improving the claims ratio by around 0.6 percentage point relative to 2006.
The combined ratio was lower than expected in 2007 at 88.6, but increased 2.9 percentage points on 2006 due
In order to achieve the ambition of increasing our market share in 2008 we intend to focus on Health Care, on developing our sales channels further and introduce several targeted sales efforts to new as well as existing customers. In this context, we intend to focus on specific geographical areas, including in particular the Oslo area.
to an increased number of claims. Weather-related and large claims had a negative impact of 3.2 percentage points on the combined ratio, while run-off gains had a positive impact of 2 percentage points. The corresponding impact from large claims and run-off gains was 0.4 and 2.1 percentage points, respectively, in 2006.
Storm and weather, gross 34 42 35 Large claims, gross 121 20 37
The Corporate business area serves customers with our own sales force and through brokers. We define corporate customers as customers paying annual premiums of more than DKK 500,000 or having more than 50 employees.
The number would be around 50 customers by international standards, which define corporate customers as customers paying annual premiums of more than DKK
The result was favourably impacted by gross run-off gains of DKK 102m with motor and liability insurance being the major contributors, while we continued to strengthen provisions for prior-year claims in workers’ compensation
The Corporate business was able to reduce expenses despite strong premium growth in 2007. Expenses were some DKK 35m lower, equivalent to a 1.5 percentage points reduction of the gross expense ratio to 9.5.
Setting up a Swedish corporate business is a focus area for 2008, and we expect to start sales to Swedish corporate customers in late 2008.
Storm and weather, gross 57 51 136 Large claims, gross 843 456 356 Large claims, net 439 294 224
late 2007. More than 100,000 policies were sold, equivalent to an average of around 2,000 policies sold every week. By comparison, we sold some 80,000 policies in 2006. The higher sales were very much attributable to our good ongoing collaboration with Nordea’s branches and a new concept which Nordea’s customer advisers began applying in 2007, and which helps advisers provide broader consultancy services, thereby strengthening motivation and insurance sales. We increased the number of employees from 93 to 127 in 2007 to maintain the high level of sales activity.
Claims ratio, net of ceded business 75.3 78.3 81.1 Gross expense ratio 49.8 41.7 50.2
Nordea’s branches, our own sales people, own sales centre, car dealers and via the Internet. The Finnish business has some 127 employees, and together with the Swedish branch, it contributes around 1% of total gross earned premium growth. The Finnish business was set up in 2002 and is still being developed. Our ambition is to hold 8% of the private market by 2010.
Nordea took longer than expected, limiting sales of commercial insurance in 2007. We expect sales to become stronger going forward in step with the implementation of Nordea’s commercial sales and thanks to Nordea’s large share of the commercial market.
The private business improved the technical result for 2007 by DKK 32m and recorded a loss of DKK 2m. The improvement was primarily attributable to positive premium growth. The commercial business recorded a loss on the technical account of DKK 47m due to significant costs of launching commercial sales. For the total business the technical result was thus a loss of DKK 49m.
The expense ratio for the private business fell by 12.7 percentage points to 29 in 2007. The overall business
The expense ratio was adversely impacted by the costs of the launch of the commercial business.
share of the private market by 2010. We intend to expand our sales channels while also focusing on sales through
Sales by the Swedish business grew at a rapid rate, enabling us to welcome customer number 50,000 in late 2007. We have sold close to 115,000 policies since starting up the business in 2006, equivalent to an average of around 1,700 policies each week. In Q4 2007 we saw premium growth of 2,500 new insurances each week.
Overall, we sold a total of almost 87,000 insurances in 2007 compared with some 26,500 insurances in H2
Claims ratio, net of ceded business 88.9 145.3 Gross expense ratio 105.6 1,003.8 -
Our Swedish branch provides insurances to private household customers under the brand name of Vesta Skadeförsäkring. Insurances are primarily sold through Nordea’s branches, our own call centre and via the Internet. The
Swedish business has 58 employees, and together with the Finnish branch, it contributes around 1% of the
In 2007, gross earned premiums for the Swedish business were DKK 90m, and the total portfolio passed
TrygVesta’s investment activities comprise any placement of the Group’s funds in investment assets, bonds, equity investments, land and buildings or cash. Funds are placed pursuant to guidelines defined by legislation, regulators and the Supervisory Board. The overall allocation of assets is made by us based on risk and cash management considerations, while specific securities are mainly selected by external asset managers within the defined framework.
Financial markets became increasingly unstable during 2007 as a result of the sub-prime crisis, becoming more and more impacted by developments in the US housing market and borrowers’ inability to service and repay their mortgages towards the end of 2007. Equities were reassessed in 2007 with increasing risk premiums relative to the risk-free interest. TrygVesta reduced the Group’s equity portfolio in June as well as in December 2007.
DKK 519m less than in 2006, mainly due to lower returns on the equity portfolio. The return on investment activities after transfer to technical interest was DKK 888m lower than in 2006 due to lower equity returns and higher transfer to technical interest. Higher bond yields of 3.7%
Transferred to technical interest -1,400 -1,031 -707 Return on investment activities 340 1,228 894 *) The item comprises gains and losses as a result of a changed discount rate, interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insurance items and costs of investment activities.
Our bond portfolio increased during 2007 to account for 81.2% of total assets against 78.5% at 1 January 2007.
The higher proportion of bonds was a result of new investments and a switch-over from equities to bonds.
Net investments amounted to about DKK 613m in 2007, of which DKK 1,461m was invested in bonds, while equities and real property were reduced by DKK 839m and
The return was impacted by an increase in the general level of interest rates of 0.3-0.5 percentage point and a widening yield spread between swap and government yields of around 0.1-0.3 percentage point during the year, causing an adverse impact on value adjustments, but higher current returns.
or AA. The unrated 15% of the portfolio comprises mainly short-term Norwegian money market certificates issued by banks. We have diversified exposure to banks, mainly
Nordic banks with little or no involvement in the financial products that triggered the sub-prime crisis. We currently monitor the performance of credits with the banks to which our bonds portfolio is exposed.
Interest rate sensitivity measures changes in the value of the bond portfolio and the provisions for claims, respectively, at a parallel yield increase, of 1 percentage point.
The duration increase occurred because TrygVesta’s Danish business has begun using a variable rate for discounting provisions for workers’ compensation insurance,
thereby increasing the opposing interest rate risk on liabilities to maintain the Group’s net interest rate risk at a fairly unchanged level.
The total return on the equity portfolio was DKK 180m, or 2.0%, for the financial year. The return level for 2007 was lower than in previous years with reported returns of more than 20%. Equity markets were impacted by the sub-prime crisis referred to earlier and indications of declining economic activity in the Western world.
Danish equities generated a negative return of 4.5%, while Norwegian equities generated a return of 13%
OSBX. The return on international equities was 1.0%, which was 0.5% below the benchmark return. Currency risks relating to international equities were hedged during the year. Unlisted shares accounted for DKK 237m at 31
The portfolio is well-diversified and consists of quality property, typically in prime locations in major cities in
Our outlook for 2008 is based on a normal performance for the year, but circumstances in the financial markets and, in particular, the equity markets at the beginning of 2008 have caused us to take the extraordinary step of expanding our comments on our outlook for the full-year 2008, see page 38. The table shows our outlook for 2008 based on developments up to 31 December 2007 and a proportion of equities of around 4%. TrygVesta has no exposure to structured debt securities (CDOs/subprime).
Earned premiums are expected to increase by some 5% in local currency terms, assuming no major changes in competitive conditions relative to 31 December 2007. We will continue our strategy of generating profitable growth.
At the begining of January 2008, assuming an equity proportion of around 4% of our investment portfolio, we expected profit before tax of DKK 2,500m compared with
DKK 3,109m in 2007. This expectation corresponded to a return on equity of just over 26% before tax and around 20% after tax.
of gross earned premiums, for example, with a combined ratio in 2007 of 86.1 and 90.6 before run-off.
We expect to reduce the expense ratio slightly in 2008 relative to the expense ratio of 16.7 achieved for 2007, despite expansion in Finland and Sweden that is expected to have an adverse impact on the expense ratio in 2008 and the next few years. The Finnish and Swedish activities affected the expense ratio with around 1.5 % in 2008, we expect an impact of 1 percentage point.
The outlook for the result for 2008 is based on assumptions with respect to gross earned premiums, gross claims incurred, gross expenses, result of business ceded and technical interest.
Group’s portfolio at 31 December 2007 and assumptions with respect to sales and loss of policies and price adjustments of existing policies. Assumptions for sales and loss of policies are based on historical levels, planned initiatives and the market situation. Assumptions for price adjustments are primarily based on agreements relating to adjustments of individual insurance policies. The outlook is expressed in local currency.
The outlook for the return on investment activities for 2008 is based on the following assumptions with respect to investment assets. The return outlook for 2008 is based on an assumed proportion of equities of 4%
The corporate tax rate is 25% in Denmark and 28% in
Norway. The effective tax rate is to some extent attributable to gains or losses on equities which are tax-exempt or non-deductible. Previously, we expected a tax rate of 24%
The volatile equity markets and the equity losses have caused us to change our outlook for 2008 to profit before tax of DKK 2,100m compared with DKK 3,109m in 2007. The profit outlook comprises a stronger technical result before run-off and a lower investment result, emphasising the importance of maintaining good and stable insurance operations as the foundation for our earnings in periods of adverse financial markets.
The very unstable equity market in January and until 18 February 2008 resulted in a loss of around DKK 400m less equity return than expected. This loss on equities will have an adverse impact on our effective tax rate, which is attributable to the amount of gains or losses on equities which are tax-exempt or non-deductible. We assume an effective tax rate for 2008 of 32% based on the assumptions described and the realised loss on equities.
Two rating agencies, Standard & Poor’s and Moody’s, follow TrygVesta’s performance and financial position closely for rating purposes. Our management reviews the
Standard & Poor’s new model measures available capital relative to a minimum requirement for each rating category. Going forward, we intend to apply the new calculation method, targeting the level of an A rating and a small buffer. Standard & Poor’s new model calculates the buffer at 4-5% of the capital requirement, equivalent to the previous practice of a CAR of 130. Given the current structure of our business and our investment profile, a rating of Areflects a ratio of capital to net premiums of 52-56.
2,000m subscribed with 10 Danish and international banks in 2005. At 31 December 2007, DKK 600m had been utilised under the facility. Total interest expenses incurred on loan capital were DKK 88m in 2007, which means that our interest expenses were covered 36 times by earnings. Our total debt ratio was 14.5 at 31 December 2007.
• Any excess capital after distribution of ordinary dividends and taking into consideration the minimum capital requirement, strategy and growth, will be returned to shareholders in the form of a share buyback programme.
• The dividend policy reflects our long-term earnings and cash flow potential, while maintaining an appropriate level of capitalisation.
The proposed share buyback programme after ordinary dividends for 2007 will thus be determined by the earnings level and, extraordinarily, by two one-off effects relating to a new capital model and discounting method.
A cornerstone for TrygVesta’s risk management is to match the duration of the bond portfolio with that of the discount on technical provisions in order to minimise net interest rate risk. Standard & Poor’s applies a model-based discount approach, causing fluctuations relative to TrygVesta ’s discounting model. During 2007, TrygVesta had contacts with Standard & Poor’s in this respect and has now adapted the capital model in accordance with the discounting method regulated and approved by the Danish
Profit after tax amounted to DKK 2,266m in 2007. Pursuant to the profit distribution policy, this entails a cash distribution of dividends of DKK 17 per share, for a total amount of DKK 1,156m.
Tryg Vesta will thus return a total amount of DKK 2,561m to shareholders. The overall distribution corresponds to a buffer at the minimum level for an A rating, that is, 5%.
TrygVesta’s annual general meeting on 3 April 2008 and is expected to run over four quarters.
Being an insurance business, our concept is to create peace of mind for our customers by helping them manage and handle risk. Risk management is at the core of our business, and it is therefore only natural that we also focus in-house on managing the risks our operations expose us to. Structured and competent risk management is fundamental to maintaining our customers’ confidence and living up to our vision of being perceived as the leading peace-of-mind provider in the Nordic region.
The risk that we incur a loss due to failure by our counterparties to meet their obligations
Insurance risk Insurance risk is the financial risk we assume when we sell insurance contracts. Insurance risk comprises: Underwriting risk
Strategic risk The risk of changes to the conditions under which we operate, including changed legislation or market conditions.
The investment risk committee primarily handles areas of risk related to the portfolio on the asset side, mainly market and credit risk. The underwriting and reinsurance committee handles risk management in connection with determination of tariffs and reinsurance, mainly of an insurance and credit nature. The provisioning risk committee handles issues related to the determination of provisions, and the operational risk committee handles issues within fields such as errors or breakdowns of internal systems and processes.
The new EU solvency rules, Solvency II, which are expected to come into force in 2012, will make it possible for companies such as TrygVesta with operations in several countries to benefit from the risk diversification that typically exists between different geographical areas when determining their solvency requirements. We have for several years taken part in the Solvency II hearings through the Danish Insurance Association, Forsikring &
After the period of the policy’s cover has expired, insurance risk relates to the provisions for claims made to cover future payments on claims already incurred. The size of the provisions for claims is determined both through individual assessments and actuarial calculations.
We manage the risk that provisions for claims are incorrectly determined by sophisticated models, controls and follow-up in order to create the most exact match possible between provisions and claims expenses and to reduce unforeseen liabilities.
Up to December 2007, provisions for claims relating to annuities in Danish workers’ compensation insurance were calculated using the fixed-rate method, corresponding to a real interest rate of 1%. As from December 2007, the provisions for claims are discounted using the current market rate. This change exposes TrygVesta and
(Quantitative Impact Study), part of the preparatory work for the final Solvency II directive. With these efforts and the work with our internal models we aim to provide the best possible preparation for the introduction of the new solvency rules.
In preparation for the introduction on Solvency II, companies are required as from 1 January 2008 to make their own determination of the necessary capital, the Individual Solvency Requirement, and report it to the Danish
Financial Supervisory Authority. For purposes of determining the Individual Solvency Requirement we use our internal model and Standard & Poor’s capital model in combination with several other quantitative assessments.
Read more about Solvency II and Individual Solvency in the section TrygVesta and the external community.
The calculation of the impact on our liabilities does not include provisions for claims for TrygVesta Garanti, the Finnish and Swedish business and the provision for the
The red line illustrates scenarios in which the impacts of interest rate changes on assets and liabilities are mutually offsetting. The figure shows that 90% of all scenarios fall within a band corresponding to interest rate risk of less than DKK 140m. The scenarios are scattered around a line sloping slightly less than that indicated. This is because the portfolio of fixed-interest assets exceeds our provisions, and that the provisions referred to above are excluded. The Norwegian pension provision is discounted using a fixed rate, and interest rate changes therefore have no direct impact on profits.
retention on a single claim of DKK/NOK 50m and with cover up to a maximum of DKK1.4 bn/NOK 1.6bn. For property risks exceeding the upper level, we buy individual reinsurance. Other lines covered by reinsurance include liability and motor, marine, fish farms and guarantee insurance.
Although we have systematically used reinsurance to eliminate unwanted insurance risk, one single area remains.
Market risk is the risk that volatility in the financial markets will impact our results of operations and thus our financial position. We define the asset mix based on the instructions approved by the Supervisory Board, including limits on types of assets and the geographic distribution and risk profile of bonds, equities and real property for each company in the Group. Our asset mix and investment activities focus mainly on interest rate risk, security and liquidity.
fall, the value of the Group’s bond portfolio would rise, while a lower interest rate would at the same time cause the provisions for claims to rise. Fluctuating interest rates thus impact the financial results in two opposite directions, and the risk of profit variations depends on the degree to which these two movements offset each other.
We have set up a data base for systematic registration of the major risks in the Group. Based on the data base, we chart risks and draft contingency plans to handle key areas each year such as the contingency plans in the individual parts of the business to handle an event of prolonged IT breakdown.
We are exposed to credit risk in connection with the collection of receivables. In the case of the insurance operations, counterparties may be customers, suppliers or reinsurers, while in connection with the investment activities, our primary counterparties are issuers of bonds and counterparties in other financial instruments.
The sub-prime crisis in 2007 emphasised the importance of managing risk, including credit risk. The crisis affected the financial markets, but TrygVesta has no investments in sub-prime loans, CDOs and similar products. Read more in the section on Investment activities.
Group’s operations. In practice, we organise this work through a structure of procedures and guidelines that cover different aspects of the Group’s operations.
Effect on equity of market changes at 31 December 2007 DKKm
Real property market Decrease of real property markets of 15% -385
Currency market Decrease of exposed currencies versus Danish kroner of 15% -728 Impact arising from derivatives 690 1) The impact is calculated on the basis of the option adjusted duration without correction for convexity. 2) See the section on Outlook regarding exposive to equity markets since mid January 2008.
“We emphasise open and honest communication with all stakeholders, and we reply to all enquiries in a accommodating manner”
TrygVesta has adopted a number of guidelines and policies in order to ensure that we provide correct and adequate information to all the Group’s stakeholders. In 2007,
tronic notice of the general meeting. The notice includes the time and place of the meeting and sets out the agenda, which as a minimum comprises the following items: • Report of the Supervisory Board on the activities of the company during the past financial year
• Adoption of a resolution as to the distribution of profit or covering of loss, as the case may be, according to the annual report
All shareholders are urged to attend the annual general meeting. Shareholders may vote in person at the general meeting or appoint the Supervisory Board or a third party as their proxy. TrygVesta makes a proxy form to the Supervisory Board available, which allows shareholders to decide on the individual items of the agenda. The proxy form will be available at www.trygvesta.com from 14 March 2008.
Supervisory Board is composed as follows: • four members are elected among the members of the Supervisory Board of Tryg i Danmark smba
Danish and Norwegian employee associations include two representatives of the Group’s Danish employees and two representativeS of the Norwegian employees.
The chairman and the deputy chairman are in charge of the Supervisory Board’s work.
Supervisory Board must retire at the first general meeting following their 70th birthday.
The audit committee works with historical data, and it is not involved in forward-looking events such as outlook and budgets. The audit committee shall to a reasonable extent discuss and review with management significant financial information in the Group’s financial statements.
The Supervisory Board does not have a nomination committee, but in 2007 the chairman and deputy chairman functioned as the nomination committee without receiving any fees.
The Supervisory Board is responsible for the overall management and financial control of TrygVesta. In this work, the Supervisory Board uses targets and framework management based on regular and systematic consideration of strategies and risks.
Board on strategies and action plans, market developments and the Group’s performance, funding issues, capital resources and special risks. The Supervisory Board cooperates with the
The three-member committee is chaired by an independent member of the Supervisory Board. In 2007, members of the audit committee were Bodil Nyboe Andersen
• internal and external audit, including a review and discussion of the results of the work of the internal and external auditors and the auditors’ observations and conclusions. The committee supervises management’s follow-up on the recommendations to management reported by the internal and external auditors
A more detailed review of the Group’s risk management principles is set out in the section on Risk management and at www.trygvesta.com.
Board, the audit committee and the Executive Management make a critical assessment of the auditors’ independence and competence.
TrygVesta also has an internal audit department which reviews the quality of the Group’s internal control systems and business procedures on a regular basis and is responsible for planning, performing and reporting the audit work to the Supervisory Board. The internal and
The Supervisory Board carries out an annual evaluation of the work and results of the Executive Management and of the cooperation between the Supervisory Board and the Executive Management. The Supervisory Board also reviews and approves the rules of procedure of the
Supervisory Board and the Executive Management each year to ensure they are consistent with TrygVesta’s requirements. In the rules of procedure, the Supervisory
The evaluation procedure includes individual interviews to be held in January between the chairman of the Supervisory Board and the individual members and a discussion of the overall results of these interviews at the first subsequent Board meeting.
Board’s work and the cooperation with the Executive Management. The chairman acts as spokesman for the Supervisory Board for external purposes.
In 2007 the shareholders at the annual general meeting authorised the Supervisory Board to buy own shares within 10% of the share capital up to the next annual general meeting. The Supervisory Board is also authorised to distribute extraordinary dividends pursuant to the rules of the Danish Public Companies Act.
The remuneration includes an element of performancerelated bonus and comprises a bonus plan providing for up to three months’ additional salary (four months’ for the Group CEO). The bonus is directly linked to achievement of pre-defined benchmarks. The assessment of the individual member’s target achievement includes the
The most recent grant was based on the market price plus 10%. The annual dividends are deducted from the exercise external auditors’ long-form reports are reviewed by the
100,000 in 2007, and the chairman of the audit committee received DKK 150,000.
Bosse, Morten Hübbe and Peter Falkenham, the Executive Management of TrygVesta Forsikring consists of
Group Executive Management and senior executives and 18,000 stock options to employees to reward outstanding performance. Options granted in 2007 entitle the holders to acquire shares at the average price of
Copenhagen on 27 February 2007 plus a supplement of 10%, and each option entitles the holder to acquire one share at the exercise price. Options cannot be exercised earlier than three years after the date of grant and not later than five years after the date of grant. TrygVesta expects to grant a stock option programme of a similar value in 2008.
It is important to TrygVesta that all employees see their own efforts relative to the Group’s overall targets, and for this purpose we have an employee bonus programme for all employees. Employee bonus benchmarks were combined ratio and growth in 2007, and our performance triggered shares at a discount to the market price with a discount element equal to DKK 10,000 to each employee.
price. Options cannot be exercised earlier than three years after the date of grant and not later than five years after the date of grant. Exercise must take place during the open trading windows in connection with the full-year and half-year profit announcements. On exercise, the value of the options calculated as the difference between the exercise price and the market price must not exceed 200% of the recipient’s fixed annual salary.
The Supervisory Board granted 25,700 stock options to the Executive Management in 2007, entitling the holders to acquire shares at the average price of TrygVesta shares
Mr Bergqvist has international and Nordic management experience in strategic development, complex transactions, development of new markets, marketing, sales and financial management.
Christian Brinch Born 1946, Norwegian citizen Joined the Supervisory Board in 2007
Jørn Wendel Andersen CFO, Arla Foods amba Born 1951 Joined the Supervisory Board in 2002
Telenor ASA, City mail AB, Amber Fund, Lantmännen, Pieno Zyaigzdios, Nova Linija and Unibake.
Egmont International Holding A/S, Ejendomsselskabet Gothersgade 55 ApS and Ejendomsselskabet Vognmagergade 11 ApS.
Danfoss and GN Store Nord A/S. This experience has provided him with competencies within management, strategy, IT, processes, distribution, innovation, production, finance and private and listed companies.
Company Limited SIPA (Scandinavian International Property Association) and Invista Foundation Property Trust Limited, Invista Foundation
Håkon J. Huseklepp Elected by the employees Born 1955, Norwegian citizen Joined the Supervisory Board in 2003
Educational background: Five-year public training with the Norwegian postal services, certified insurer.
Birthe Petersen Elected by the employees Born 1949 Joined the Supervisory Board in 1996
From his board work and former positions, including as CEO of FDB, Mr Skov’s experience emphasises management, strategy and finance.
Morten Hübbe Group CFO Born: 1972 Joined TrygVesta in 2002 Joined the Group Executive Management in 2003
(chairman), Enter Forsikring AS (chairman), TrygVesta IT A/S (deputy chairman), Tryg Ejendomme A/S, Høyteknologisentret AS.
Lars Bonde Member of the Group Executive Management in charge of Corporate Born 1965 Joined TrygVesta in 1998 Joined the Group Executive Management in 2006
Kjerstin Fyllingen Member of the Group Executive Management in charge of Private & Commercial Norway Born 1958 Joined TrygVesta in 2006 Joined the Group Executive Management in 2006
“We want our customers to feel well-informed and confident in their communication with us. We have launched a Nordic communication project with the aim of improving and systematising written customer communication throughout our Group”
We intend for the project to lead to the formulation of corporate language guidelines which will be reflected in all our future written communication. As part of the project, we intend to establish a language organisation and train a number of local language ambassadors who will be able to support local communication projects in the Group. The project will ensure that all customer documents have been systematically reviewed by 2010.
In addition to setting written communication on the agenda in 2007, we also made an effort to enhance the way we deal with customers on the telephone. All sales and customer service staff will attend in-house training during 2007 and 2008 under the heading “Your role as a peace-of-mind provider”. This training programme builds on the success of our risk consultants training programme in the Corporate business area. The training programme is intended to provide all employees with a capability to act as a peace-of-mind provider that feeds through to customers in day-to-day communications.
Customer perception of the advice and service provided is an important element of the training process, and a number of customers are therefore invited to evaluate their adviser after each call.
trygghetsraadgiveren.no, respectively. This is an interactive advisory service offering good advice to everyone on how to prevent damage and injuries at home and how to protect your family. You can print check lists from the Peace-of-Mind Adviser and ask to receive an SMS when the battery in your smoke alarm needs replacing. The website is also a good learning experience for children who may test themselves as fire chiefs or challenge others on their knowledge of fires in the home.
Our ratings in the 2007 EPSI customer satisfaction surveys improved for the entire Group.
Our customers in Finland remained some of the most loyal and satisfied customers in the market. Compared with the previous survey, we also improved our ratings significantly in a number of other areas, such as satisfaction which rated above the market average.
2007 was the first time we participated in the EPSI rating in Sweden. Our customer satisfaction rating in the Swedish market was very close to the market average. Our ‘value for money’ and loyalty ratings were higher than those recorded by other players in the market.
Only three companies have a presence in more than one market of the Nordic region: TrygVesta, Codan/Trygg-
TrygVesta Garantiforsikring to emphasise its affiliation with the rest of the Group. A website for the Finnish business will be launched in connection with the start-up of activities within guarantee business in Finland as from 2008.
We want to offer our customers a much wider range of self-service solutions and possibilities of communicating electronically with us in the future. To drive this development we set up a Nordic e-business centre in 2007. In addition to driving the Group’s self-service and electronic communication projects, our e-business centre is in the process of creating a new common design for all our corporate websites.
We measure trends in the number of visitors to our websites in all markets. A total of some 64,000 visitors accessed www.trygvesta.com in 2007 compared with some 51,000 in 2006. We will be relaunching www.trygvesta.com in early 2008. This site primarily targets the financial community, the press, Nordic job seekers and others requiring information about the
Satisfaction 1) Satisfaction and loyalty is reassured on a scale from 1-100.
“The need to work with employee well-being and competency development and to make these efforts an integral part of our business strategy has never been greater”
The need to work with employee well-being and competency development and to make these efforts an integral part of our business strategy has never been greater. We restructured the Group’s HR efforts in early 2007 with a view to strengthening the HR area, creating a framework for the classic HR disciplines that ensure management focus on employees and their skills. The new structure enhances focus on management, competency and organisational development, making HR work and the Group’s strategy and action plans more coherent.
The new structure links TrygVesta’s Management Academy closely with our management secretariat, which is responsible for ensuring that developing our management resources ties in with our business strategy. Employee training has been moved to Corporate Branding to ensure a direct connection between branding and employee development. HR administration, whose tasks include salary and negotiations, has been moved to Group Finance, which is already in charge of budgets and financial matters.
The entire Group worked with theme packages of topical interest, the 2007 focus being on dilemmas, well-being and stress. The theme package dealing with dilemmas in everyday life aimed to make visible the relationship between the Group’s values and actions using a dilemma game that was played locally in all departments. The theme package dealing with well-being during a busy working day comprised an e-learning module about stress and stress management as well as a game on well-being.
stress, enabling colleagues to help each other before stress develops further. A theme package in 2008 will deal with environmental issues.
TrygVesta’s ambition is to be a development workplace where everybody is open to learning and improving on a continuous basis. We conduct a status survey every two years to stay focused on the activities launched in the
• In the autumn of 2007 we also introduced a new training programme that is intended to contribute to promoting innovation competencies throughout the
Group. The Innovation Driver programme was completed by 16 employees in 2007. Our Innovation
Drivers are intended to support innovation processes throughout the Group. Read more about Innovation
We will use a systematised process to identify, develop and incentivise employees with management and project management potential. The programme targets young talented employees with management potential. The programme is intended to build a Nordic talent pool of highly qualified candidates with potential to perform key functions in the Group.
• to enhance awareness of the Group as an attractive workplace among students and other job seekers.
Initiatives designed to achieve these goals include restructuring our recruitment process, working with the content and layout of job advertisements and being a more pro-active participant at career fairs organised by universities and business schools.
We want to be a healthy workplace where employees thrive and enjoy working. We intend to launch a number of initiatives in 2008 to enhance employee health and well-being. These initiatives include making fruit available for employees in all departments, an agreement with a
As was the case in 2006, the 2007 employee bonus benchmarks were combined ratio and growth. For 2007 the bonus per employee will be DKK 10,000, which will primarily be paid in the form of shares in Denmark. Read more about TrygVesta’s bonus and incentive programme in the section on Corporate governance.
TrygVesta builds and maintains good relations with shareholders and other financial stakeholders by emphasising openness, transparency and a fundamental understanding of stakeholder information requirements. We strive to maintain a high level of information by: • being available and answering queries as promptly as possible
We publish information that may influence the pricing of our shares pursuant to the rules applicable to distribution of information in the EU and also update the Group’s website www.trygvesta.com. In addition, we distribute information directly to the London Stock Exchange, the press, equity analysts, investors and other stakeholders.
The Nordic Exchange Copenhagen, we refrain from commenting on matters relating to our financial performance or outlook during a period of three weeks prior to the release of financial reports.
TrygVesta shares opened 2007 at DKK 431.5. On 9 January 2007 we announced that the Group expected to report a preliminary pre-tax profit for 2006 of DKK 3.7bn against the previous forecast of DKK 3.2bn provided in the announcement of our financial results for the nine months ended 30 September 2006. Subsequently, the price increased to DKK 480 during the spring, ranging between DKK 440 and DKK 480 until mid-June. The announcement of a new profit distribution policy on the
basis. The target is to hold 250-300 investor meetings each year. Our aim is for 10-15 equity analysts to actively follow TrygVesta’s performance, and that three to five of these analysts should be based in London.
Danske Bank 21% SEB Enskilda 10% Morgan Stanley 10% Nordea Bank 8% Carnegie Bank 5% Merril Lynch International 4% Glitnir AB 4% Lehman Brothers International 3% Svenska Handelsbanken 3% Jyske Bank 2%
TrygVesta has a single class of shares, and all shares rank pari passu. Our principal shareholder, Tryg i Danmark smba (Kgs. Lyngby, Denmark), holds 60% of the issued shares and is the only shareholder with a holding of more than 5%. Tryg i Danmark smba is a company with limited liability investing in businesses that promote peace of mind, health and security in the Nordic region and a supporter of benevolent activities.
by Danish investors. TrygVesta holds treasury shares corresponding to 0.53% of the share capital.
“Insurance is based on the idea that everyone accepts their responsibility and contributes to the shared burdens. CSR is therefore a very natural topic of conversation. We’re very serious when we say we provide peace of mind”
How has the past year measured up to the expectations you had 12 months ago?
This also involves employee participation in work processes, our physical work environment and our scope for enjoying a good social atmosphere at work and a good work-life balance.
BusinessLab is the name of TrygVesta’s centre for innovation and product development. Although a lot of the innovative work takes place online, in physical terms BusinessLab is based in Ballerup, Denmark. And “the laboratory ” certainly doesn’t look like the other offices in the
With its own special colour scheme and interior design it probably looks more like a theatre stage or a studio than anything, but as the name suggests, we use it to explore business opportunities. I think BusinessLab stimulates good ideas. You’re confronted with the fact that you can think outside the box. In a way, the setting cleverly symbolises that off-the-wall thinking is allowed. The management wants to encourage lateral thinking and creativity in its employees. Innovation is a leadership style. We must also embrace diversity. I believe diversity is exactly what we need to integrate tradition and renewal. Both are vital for continued growth.
BusinessLab is also the physical setting for the new Innovation Driver training programme. A programme that teaches employees to use the creative side of their brains as much as the logical side. How seriously do you take the Innovation Driver principles? Is it an isolated experiment or is the idea that this should spread?
We definitely want this idea to spread. I’m convinced that this way of facilitating other dimensions is crucial for future success. We must use feelings and intellect in every development process. This area contains great scope for innovation.
Another point is that in a company with an innovative mindset, you have to accept that mistakes can be made.
We’re already a part of the welfare structure. We’re used to providing welfare services and will be doing so even more. We’re well aware that this responsibility is based on trust. Expectations about what the welfare system can provide are increasing, but taxes probably won’t. This development opens up new opportunities. Over the past few years, I’ve seen unique opportunities to develop new models that expand the solid public foundation of the
As well as social welfare, the environment and climate change are issues that seriously concern TrygVesta’s customers. What impact do you think the climate and environment will have for TrygVesta in the years ahead?
mentioned, innovation will be a larger and larger part of our mindset. We develop new ways of servicing customers, new products and new initiatives that reinforce profitable growth. Providing – that is clearly my focus for the year ahead. TrygVesta’s vision to provide peace of mind applies to our customers, shareholders, employees and society at large – all four perspectives are included. A
totally solid financial foundation is vital if we are to provide peace of mind.
In Ballerup, she’s welcomed to a meeting room that is nothing like the meeting rooms she normally sees at work. The ceiling has disco lighting. Soft warm colours add to the atmosphere created by the tea lights on the small round coffee tables. The walls are not straight, but curved in round, female forms. Like a surrealistic picture.
There are no windows. She is underground. The music is emotive. Romantic.
Welcome to TrygVesta’s BusinessLab. Welcome to the new Innovation Driver training programme. Welcome to a new way to think and work.
Choose Poetry romance love, and the lighting and music become poetic and romantic – not exactly the traditional mood in a business lab: “I’d expected some more structured methods and tools, but with hindsight, I can see that innovation requires something else. If you want new ideas, you have to be jogged out of your traditional setting, methods and processes. The programme has developed my mindset in terms of how ideas are developed, managed and realised, ” explains Monica Rydland Anundsen.
It’s all about simultaneously acknowledging what factors make the organisation a success and what factors prevent the organisation moving ahead. According to the head of the new programme, the answers to the two questions are often the same. What creates success can also create difficulties. We must therefore think along new lines. Malene Bendtsen is a coach for the Innovation
difficult if you are anchored in an “old” mindset. That’s why we put Monica and the other participants in a completely new setting. We challenge traditional knowledge.
We present something that doesn’t match the organisation ’s world view. We develop employees’ horizons by encouraging them to take a lateral perspective, explore peripheral opportunities. ”
The coaches on the Innovation Driver programme have backgrounds in economics, philosophy, theology, information sciences, datalogy, management and design. But first and foremost they are experienced in and understand learning processes. They use experiences from the world of performing arts: “In the world of business, we’re used to devising plans first and then realising them. But if you’ve sealed the envelope before you start, then you can’t push yourselves outside these limits. Dramaturges and performers are good at thinking and creating at the same time. Our own dramaturge on the programme involves the body’s way of thinking by building insurance products out of cardboard, for example. Is the new insurance product blue or red, triangular or square? Considerations like these lead to more than just spreadsheets and wordy documents. A
The programme for the first team of course participants lasted two and a half months. After the programme is completed, the “Drivers” allocate time for solving tasks that take the equivalent of two days every six weeks.
After challenging their creative hemisphere, the Drivers are ready to take the driving seat and steer the Group’s product development.
“We know that in five years’ time, some of our business will come from something we’re not doing today. And what might that be?” is the rhetorical question posed by
Individual citizens can rely on insurance to make sure they get the newest and best treatment on offer. This development has been under way for the past five to ten years: “It’s not something that happens overnight. It’s a gradual accumulation of many small changes over time and we need help to spot these trends. So we’ve hired people with backgrounds outside the insurance industry. People who are used to working with design and theatre, for instance. These new kinds of employees ask new kinds of questions. And we need help answering uncomfortable questions. We must therefore bring in people and new references that challenge us,” says Stig Ellkier-Pedersen.
For Stig Ellkier-Pedersen, the new investigative methods represent a new level of user-driven innovation. They are less direct. The target group is not confronted with questions about what they want, but instead the methods give a realistic picture of the psychological universe that young people inhabit.
“In the insurance business there is a belief that young people are bad customers. However, we have looked into the matter and have found out that this is not generally the case. On the contrary. In general, young people are a very interesting customer group with needs such as accident insurance and other personal insurances. Young customers want to be met in a new way where they are experts on their own lives, and where they are responsible for their own lives. We shouldn’t play the role of parent. In the future, we will adapt our communication and service patterns to match young people’s wishes and needs,” says the head of New Markets.
The customer is always right The customer is always right. An old saying, but it’s part of the formula for future user-driven and customer-oriented innovation. Constant product development on customers’ terms is vital if TrygVesta is to maintain and expand its position as the leading peace-of-mind provider in the Nordic Region.
At TrygVesta’s BusinessLab, a variety of employees are working on innovation. The alternative style of working at
BusinessLab often results in very specific products being developed. Participants in various workshops are often real customers. Instead of writing reports on what steps
TrygVesta can take long term, the customers are encouraged to get to grips with tangible solutions and models.
For example, one group of youngsters came up with the idea of texting your insurance company if your bike was stolen. And with that idea in mind, they immediately began developing a system that could be used in real life.
The new product development and user-driven innovation initiatives are not earmarked for specific products or target groups. Target groups might be young, middle-aged or senior citizens. Women and men. Customers with flooded basements or water on the knee: “Just implementing what is safe isn’t good enough. We must stimulate our urge to experiment. We mustn’t take chances – not the kind that could backfire – but we must have the courage to launch products that may not be best sellers,” says Stig Ellkier-Pedersen.
At the end of the day, it’s the customer who determines the success achieved by a product. After all, the customer is always right.
Executive of Corporate. He glances at his watch and notices that it’s 3 December: “Exactly eight years ago today, on 3 December 1999, a terrible storm hit Denmark. The storm of the century, as it was called, resulted in 94,000 claims and cost TrygVesta
DKK 2.5 billion. And although it was a storm of the century, in January 2005 a new storm whipped up another 53,000 claims and cost DKK 733 million. Weather damage has brought considerable costs both for our customers and for us. And we will do everything we can to ensure our customers are as well prepared as possible for the new weather conditions,” explains Lars Bonde.
During the wet summer of 2007, many basements were flooded, and it became clear at TrygVesta that weather damage is a challenge for the entire logistics system. The
For some years, environmental and climate changes have been a controversial political topic in Denmark and internationally, but the subject is being given increasing priority on political and scientific agendas. After the general election in November 2007, Denmark now has a new Climate Ministry, and in December 2009, Denmark will host the UN Climate Summit.
Novo Nordisk. The council is currently working on a charter of eco-guidelines that will be finalised and passed in
This policy defines a number of specific climate goals for the Group in 2008, including a 10% reduction in the
Helle Kjærgaard works with strategy and management at the TrygVesta Management Secretariat. She is also the company’s contact person for the new project with the
Danish Commerce and Companies Agency, Nordic Innovations Centre, Region Zealand and TrygVesta: “CSR, which stands for Corporate Social Responsibility the term covers the company’s social responsibility and involves how a company cares for the environment we live in, cares for its people and plays an active role in society.
Corporate Social Responsibility fits in well with TrygVesta’s history and values. A history that’s about determination, initiative and solidarity. And about a responsible company that focuses on human potential – and its employees. TrygVesta believes that large, well-consolidated companies with intellectual and financial capacity are obliged to conduct business with consideration. And show social responsibility. Out of the ruins of the great fire of Copenhagen in 1728 grew the desire to take care of each other. To show consideration. A group of citizens decided to establish
Within its three CSR areas, TrygVesta has set up various steering groups. One environment group is investigating what action TrygVesta can take in relation to purchasing, air-conditioning systems, employee cars, environmentallyfriendly products, green products and insurance products.
Another group is focusing on employees, in terms of diversity, for example. The goal is to define some guidelines for the company’s employment policy: “Like many other companies, we’re facing the challenge of attracting employees, especially in IT, where we’d like to make work easier for employees with reduced working capacity, for example. Employees with impaired hearing and vision should also be welcome at TrygVesta,” says
The invitation to take part in a long-term Nordic project on
CSR-driven innovation came from the Danish Commerce and Companies Agency. The project is being financed by
A panel of business executives is also being set up to make recommendations, compare practical experience with theory in the area, and map new trends: “The next two years will be a long learning process. The entire project depends a great deal on the companies that will actually form the basis for the research. We will probably invest in a combination of various kinds of companies and people. There will be entrepreneurs, individuals with good ideas, more traditional thinkers and others,” says
Helle Kjærgaard, adding: “TrygVesta would like to have someone to play with. We know from the Danish Commerce and Companies Agency that small and mediumsized businesses are very effective in this area. Possibly because they keep the path from idea to practice reasonably short.
Naturally, we would also like to find out why they’re so good at CSR-driven innovation in particular. And we want to learn the techniques and tools they use.”
TrygVesta bases its business on core elements anchored in the company’s history and in conscious choices. It’s been that way for several hundred years. A long time before it became “trendy”: “Today, nearly 300 years after the great fire of Copenhagen, we’re all citizens of the global village. TrygVesta belongs to a global eco-system where everything is linked and intertwined. In this globalised world, CSR will be a competitive parameter because consumers, employees and society in general will choose companies that take their responsibility seriously,” says Helle Kjærgaard.
The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2007 of TrygVesta A/S and the TrygVesta Group.
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 2007 and of the results of the Group’s and the parent company’s operations and the cash flow of the Group for the financial year ended 31 December 2007.
To the shareholder of TrygVesta A/S We have audited the annual report of TrygVesta A/S for the financial year starting on January 1 and ending on December 31, 2007, which comprises the management’s report, the statement by management, accounting policies, income statement, balance sheet, capital and notes for the Group as well as the parent company and the cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parents financial statements have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
Management’s responsibility for the annual report Management is responsible for preparing and presenting an annual report that gives a true and fair view in accordance with the International Financial Reporting Standards as adopted by the EU in respect of the consolidated financial statements and in accordance with the Danish Financial Business Act in respect of the parent company’s financial statements and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an annual report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the preparation and fair presentation of the annual report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual report.
Furthermore in our opinion, the annual report gives a true and fair view of the parent company’s assets, liabilities and financial position at December 31, 2007, and of the results of the parent company’s operations for the financial year starting on January 1 and ending on December 31, 2007 in accordance with the Danish Financial Business Act and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises.
Lone Møller Olsen Leif Zilmer State Authorised State Authorised Public Accountant Public Accountant
Notes General insurance Gross premiums written 16,959 16,296 Ceded insurance premiums -893 -945 Change in provisions for unearned premiums -130 -61 Change in reinsurers’ share of provisions for unearned premiums -46 3 2 Earned premiums, net of reinsurance 15,890 15,293 3 Technical interest, net of reinsurance 501 343
Claims paid -11,336 -10,064 Reinsurance recoveries 495 550 Change in provisions for claims 161 -500 Change in the reinsurers’ share of provisions for claims 6 -301 4 Claims incurred, net of reinsurance -10,674 -10,315
Investment activities 15 Income from associates 1 6 Income from investment properties 116 101 7 Interest income and dividends, etc. 1,382 1,105
Profit/loss on continuing business 2,267 3,085 10 Profit/loss on discontinued and divested business -1 126
98 of 152 l Balance sheet l TrygVesta Annual Report 2007
Total property, plant and equipment 386 424 15 Investments in associates 19 18
Deposits in credit institutions 302 0 16 Total other financial investment assets 35,546 35,714
Total receivables in relation to direct insurance contracts 901 840 Receivables from insurance enterprises 509 647 Receivables from subsidiaries 0 27 Other receivables 1,145 262
Equity entries in 2006 Profit for the year 967 2,244 3,211 Change in equalisation provision -5 5 0 Revaluation of owner-occupied properties 3 3 Exchange rate adjustment of foreign entities -143 -143 Hedge of foreign currency risk in foreign entities 107 107 Actuarial gains and losses on pension obligation 116 116 Tax on equity entries -1 -30 -32 -63
Dividend paid -1,428 -1,428 Dividend own shares 5 5 Purchase of own shares -88 -88 Issue of employee shares 13 13 Issue of share options 3 3
Hedge of foreign currency risk in foreign entities -40 -58 -98 Actuarial gains and losses on pension obligation 94 94 Tax on equity entries 3 10 -11 2
TrygVesta Forsikring, the Norwegian branch of TrygVesta Forsikring A/S, has in its branch financial statements included provisions for contingency funds in the amount of NOK 2,564m (2006: NOK 2,251m) under provisions for insurance contracts. In TrygVesta Forsikring A/S, these provisions, due to their nature as additional provisions, are included in shareholders’ equity, net of deferred tax. TrygVesta Forsikring A/S’ option to pay dividend to TrygVesta A/S is influenced by this amount. The dividend payment is also affected by a contingency fund provision of DKK 670m, which is included in shareholders’ equity in TrygVesta Forsikring A/S. TrygVesta Garantiforsikring A/S has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity.
Revaluation of owner-occupied properties for the year -3 3 Tax on owner-occupied properties for the year 3 -1 Exchange rate adjustment of foreign entities for the year 84 -143 Hedging of currency exposure in foreign entities for the year -98 107 Tax on hedging of currency exposure in foreign entities for the year 24 -30 Actuarial gains/losses on defined benefit pension plans 94 116 Tax on actuarial gains/losses on defined benefit pension plans -25 -32
Investments Acquisition of real property -16 -240 Sale of real property 17 10 Acquisition of equity investments and unit trust units (net) 1,062 163 Purchase/Sale of bonds (net) -856 -1,925 Deposits in Credit institutions -303 0 Purchase of operation equipment -187 -188 Sale of operation equipment 5 82 Sale of subsidiares 0 142 Sale of associated 0 14 Foreign currence hedging -98 107
Funding Purchase of own shares -50 -83 Share options 8 16 Dividend paid -2,244 -1,428 Change in debt to credit institutions -65 -121
Change in cash an cash equivalents, net -47 -204 Price adjustment of cash and cash equivalents, beginning of period 7 -2 Additions relating to purchase of associate 0 1
The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU on 31 December 2007 and in accordance with the Danish Statutory Order on Adoption of IFRS.
• Unlike IAS 19, the Danish FSA’s executive order does not allow for actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions to be taken to equity. Actuarial gains and losses will therefore be recognised in the parent company ’s income statement.
Profit for the year ended 31 December - IFRS 2,266 3,211 Current-year effect of actuarial gains and losses on pension obligation after tax 69 84 Change in deferred tax relating to contingency funds -2 -4
The new method relies solely on market interest rates and provisions at the beginning of the relevant period, thus providing a more stable and predictable outcome. For 2006, the change involved a reduction of the combined ratio of 1.4% (a total of 0.9% for 2005). In connection with the discounting, a larger share of claims incurred is thus transferred to technical interest. The change has no effect on the profit for the year, the balance sheet or on shareholders’ equity.
All comparative figures are restated and the effect is shown in the table next page.
• IFRIC 10 concerning ‘Interim Financial Reporting and Impairment’. The interpretation prohibits the reversal of impairment losses in interim financial statements on goodwill and financial assets carried at cost. The implementation has not had any financial effect.
Apart from the changes described above, the accounting policies are unchanged from the annual report 2006.
Executive orders, standards and interpretations not yet in force The International Accounting Standards Board (IASB) has issued a number of revised international accounting standards and the International Financial Reporting Interpretations Committee (IFRIC) has issued a number of interpretations that have not yet come into force.
• IAS 1 concerning ’Presentation of Financial Statements – Capital Disclosures ’, which is effective for financial years commencing on or after 1 January 2009. The amendment contains an adjustment to the type of information disclosed about the capital base. The implementation is not expected to give rise to any material changes to information in TrygVesta ’s annual report (IAS 1 remains to be adopted by the EU).
Changes in accounting estimates • The TrygVesta Group’s defined benefit plan in Norway is impacted by DKK 99m due to a change in discount rate assumptions from 4.7% to 5.2%.
Accounting estimates and judgments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgment in the process of applying the company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are: FY 2006 FY 2005 FY 2004 Former unwind. New Former unwind. New Former unwind. New acc. ajust- acc. acc. ajust- acc. acc. ajust- acc. DKKm policies ments policies policies ments policies policies ments policies
Run-off gains/losses, net of reinsurance 372 183 555 181 102 283 -161 90 -71
Claims ratio, net of ceded business 71.0 -1.4 69.6 72.1 -0.9 71.2 74.0 -1.1 72.9
• Liabilities under insurance contracts • Valuation of defined benefit plans
Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the group’s most critical accounting estimates, as these provisions involve a number of uncertainty factors.
The TrygVesta Group establishes claims reserves covering both case reserves and estimated claims that have been incurred by its policyholders but not yet reported to the company (known as “IBNR” reserves) and future developments on claims which are known to the TrygVesta Group but have not been finally settled (IBNER-provisions). The group also includes in its claims reserves direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the TrygVesta Group.
The projection for claims reserves is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as to factors such as court decisions, changes in law, social inflation and other economic trends, including inflation. The TrygVesta Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated provisions for claims.
Provisions for claims are discounted. As a result, initial changes in discount rates or changes in duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor liability, professional liability, workers’ compensation and personal accident classes, in particular.
The consolidated financial statements are prepared on the basis of the financial statements of the parent company and its subsidiaries by
Unrealised gains on transactions between the group and its subsidiaries and associates are eliminated to the extent of the group’s interest in the companies. Unrealised losses are eliminated in the same way as unrealised gains unless impairment has occurred.
Currency translation A functional currency is determined for each of the reporting entities in the group. The functional currency is the currency in the primary economic environment in which the reporting entity operates. Transactions in currencies other than the functional currency are transactions in foreign currencies.
Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. All other currency translation gains and losses are recognised in the income statement.
The operational business segments in the TrygVesta Group are the Personal & Commercial (Denmark) segment, the Personal & Commercial (Norway) segment, the Corporate segment and the General Insurance (Finland and Sweden) segment.
Ratios Earnings per share (EPS) are calculated according to IAS 33. Other key ratios are calculated in accordance with “Recommendations and Ratios 2005” issued by the Danish Society of Financial Analysts.
The portion of premiums received on contracts that relates to unexpired risks at the balance sheet date is reported under provisions for unearned premiums.
Share-based payment The TrygVesta Group’s incentive programmes comprise a share option programme and employee shares.
The options are issued at an exercise price that corresponds to the market price of the company’s shares at the time of allocation plus 10 %. No other vesting conditions apply. Special provisions are in place concerning sickness and death and in case of change to the company ’s capital position, etc.
The share options are exercisable exclusively during a two-week period following the publication of full-year or half-year reports and in accordance with TrygVesta Group’s in-house rules on trading in the company ’s shares. The options are settled in shares. A part of the company ’s holding of treasury shares is reserved for settlement of the options allocated.
Other income and expenses Other income and expenses includes income and expenses which cannot be ascribed to TrygVesta Group’s insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension.
The comparative figures, including financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested activities in the income statement include the post-tax profit of TrygVesta Group’s business in run-off as well as divested enterprises. Business in run-off comprises the results of the business in run-off in TrygVesta Forsikring A/S. Divested subsidiaries comprise the activities in Chevanstell Ltd. UK, Poland, Estonia and Tryg Baltica International A/S.
Increases in the revalued carrying amount of owner-occupied properties are credited to the properties’ revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against the properties’ revaluation reserves directly in equity; all other decreases are charged to the income statement.
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 the asset is ready to be brought into use.
Depreciation on property, plant and equipment is calculated using the straight-line method over their estimated useful lives, as follows: • Owner-occupied properties, 50 years • Vehicles, 3-5 years • Furniture, fittings and equipment, 3-5 years
Investment property Properties held for renting yields that are not occupied by the group are classified as investment properties.
Investments in associates Associates are enterprises over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are measured according to the equity method of accounting so that the carrying amount of the investment represents the group’s proportionate share of the enterprises’ net assets.
Income after taxes from investments in associates is included as a separate line in the income statement.
Associates with a negative net asset value are measured at zero value. If the group has a legal or constructive obligation to cover the associate ’s negative balance, such obligation is recognised under liabilities.
Financial assets measured at fair value with recognition of value changes in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment through profit and loss.
Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired, or if they have been transferred, and the group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis – the date on which the group commits to purchase or sell the asset. Financial assets are recognised at fair value at the transaction date.
Derivatives are recognised from the trade date and measured at fair value in the balance sheet. Positive fair values of derivatives are recognised as bonds and shares or other receivables if they cannot unambiguously be attributed to the former. Negative fair values of derivatives are recognised under other payables. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments.
Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The group designates certain derivatives as hedges of investments in foreign operations. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net investment are recognised directly in equity. The net asset value of the foreign entities is estimated in an ongoing process and is hedged 90-100% by entering into short-term forward exchange contracts. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign operation.
The benefits to which the group is entitled under its reinsurance contracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts.
Changes due to unwinding are recognised in technical interest. Changes due to changes in the yield curve or foreign currency exchange rates are recognised as value adjustments.
Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax.
Subordinated loan capital Subordinated loan capital is recognised initially at fair value, net of transaction costs incurred. Subordinated loan capital is subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
The proprietary collective model is based exclusively on actual payments and is therefore only used for provisions for small claims, below DKK 200,000 for motor, or DKK 100,000 for other. The model is so dynamic that, to the greatest extent possible, it captures changes in the run-off pattern. It consists of two modules, with the first module estimating on a daily basis with due consideration to days off and special high-frequency days such as New Year’s Eve or days with slippery roads. The model also takes the season into consideration, both in terms of claims performance and in claims handling intensity. In the second module, estimates are on a more aggregate level, and the calculations are based on a generalised hierarchic De Vylder model.
In some instances, the historic data used in the actuarial models is not necessarily predictive of the future development of claims. Specifically, this is the case with legislative changes where in each specific case an estimate used for premium increases related to the relevant risk increase is derived. For legislative changes this estimate is used also in determining the level of claims – and hence reserves. Subsequently, this estimate is updated when new loss history materialises.
Other employee benefits Employees of the group are entitled to a fixed payment when they reach retirement and when they have been employed with the group for 25 and for 40 years. The group recognises this liability as soon as the employment begins.
Deferred income tax is provided on temporary differences concerning investments, except where TrygVesta Group controls when the temporary difference will be realised, and it is probable that the temporary difference will not be realised in the foreseeable future.
Cash flow statement The cash flow statement of the group is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the group’s cash and cash equivalents at the beginning and the end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement.
Cash flows from financing activities comprise changes in the size or composition of TrygVesta’s share capital and related costs as well as the raising of loans, instalments on interest-bearing debt, and payment of dividends.
2 Earned premiums, net of reinsurance Direct insurance 16,764 16,102 Indirect insurance 78 88
Gross Ceded Gross Ceded 3 Technical interest, net of reinsurance Interest on insurance provisions 1,400 1,031 Transferred from provisions for claims concerning discounting -896 -697 Return on discontinued business -3 9 4 Claims incurred, net of insurance Claims incurred -11,919 -11,182 Run-off previous years, gross 744 618
Reinsurance recoveries 502 312 Run-off previous years, reinsurers’ share -1 -63
Under claims incurred, the value adjustment of inflation swaps to hedge the inflation risk concerning annuities on workers’ compensation insurance totals DKK 22m (in 2006 DKK 0m).
5 Insurance operating expenses, net of reinsurance Commission regarding direct business -406 -339 Other acquisition costs -1,415 -1,380
Insurance operating expenses and claims include the following staff expenditure: Salaries and wages -1,832 -1,890
Other social security costs -5 -24 Payroll tax, etc. -249 -217
Remuneration for Supervisory Board and Group Executive Management appears in the note 29 ‘Related parties’.
Average number of full-time employees during the year (continuing business) 3,813 3,740
Outstanding options from allocation 2006 1 Dec 2006 44,540 141,480 0 186,020 - 12 - 28
Allocated in 2006 concerning 2005 186,020 0 -2,620 0 183,400 February 2009 - February 2011 Allocated in 2007 concerning 2006 149,955 0 -3,453 0 146,502 February 2010 - February 2012
In 2007, the fair value of share options for the Group amounted to DKK 8m. The fair value in 2007 for the programme allocated in 2006 are DKK 7m and for the programme allocated in 2007 the fair value are DKK 4m.
Fair values at the time of allocation are based on the Black & Scholes option pricing formula.
The expected volatility is based on the average volatility of TrygVesta shares in 2007.
For outstanding options at 31 December 2007, the average term to maturity is 2.2 years and 3.2 years.
The amount was provided in 2006 and did not affect the profit for 2007.
Reinsurers’ share of provision for claims 62 -35 139 238 1,227 1,173 0 0 0 0 0 0 1,428 1,376
Depreciation/amortisation is included in gross operating expenses. The group has decided not to present depreciation/amortisation separately, because they are managed at grouplevel and are therefore not allocated to the individual segments.
Private and Private and Finnish Swedish Commercial Commercial general general Denmark Norway Corporate insurance insurance Other Total
Other assets and liabilities are managed at group level and are therefore not allocated to the individual segments. These amounts are thus included under ‘Other’.
Accident and Workmen’s Motor Motor Marine aviation, health compensation Healthcare TPL comprehensive and cargo
Profit/loss on ceded business 12 - 13 13 - 1 0 0 - 13 - 23 0 - 2 156 - 63 Technical interest, net of reinsurance 53 38 58 39 4 1 76 48 71 46 1 9
Interest expenses -88 -94 Interest income 1,214 922 8 Market value adjustment Equity investments 99 764 Unit trust units -80 26
9 Reconciliation of tax expenses Tax on profit for the year -777 -1,037 Difference between Danish and foreign tax rate -39 0 Prior-year tax adjustment 13 28 Change in tax rate in Denmark 20 0 Tax on non-taxable income and expenses -2 226 Change in valuation of tax assets -42 -22 Other taxes -15 0 Tax on ledger account 0 181
Effective tax rate % % Tax on profit for the year 25 28 Difference between Danish and foreign tax rate 1 0 Prior-year tax adjustment 0 -1 Change in tax rate in Denmark -1 0 Tax on non-taxable income and expenses 0 -6 Change in valuation of tax assets 1 1 Other taxes 1 0 Tax on ledger account 0 -5 cf ‘TrygVestas Financial performance 2007’ in ’Management’s report’ for further information regarding the tax expense.
10 Profit/loss on discontinued and divested business Earned premiums, net of reinsurance 0 4 Technical interest, net of reinsurance 3 -1 Claims incurred, net of reinsurance -1 119 Insurance operating expenses, net of reinsurance -3 -25
Technical result -1 97 Return on investment activities after technical interest 0 63
The technical result of discontinued and divested business is specified by lines of business as follows: Accident and Marine, aviation Other health and cargo insurance 1) Total
11 Intangible assets Cost Balance 1 January 373 238 Exchange rate adjustment 4 -4 Transferred to operating equipment -1 0 Additions during the year 175 139 Disposals during the year -23 0
Amortisation and writedowns Balance 1 January -153 -103 Exchange rate adjustment -3 3 Amortisation for the year -56 -53 Reversed amortisation 19 0
Notes 12 Operating equipment Cost Balance 1 January 243 303 Exchange rate adjustment 1 -1 Transferred from intangible assets 1 0 Additions during the year 43 49 Disposals during the year -59 -108
Depreciation and impairment writedowns Balance 1 January -145 -194 Exchange rate adjustment -1 1 Depreciation for the year -31 -43 Reversed depreciation 28 91
13 Owner-occupied property Cost Balance 1 January 317 322 Exchange rate adjustment 10 -9 Additions during the year 0 4 Disposals during the year -9 0
Accumulated value adjustments Balance 1 January 12 8 Value adjustment for the year at revalued amount in profit and loss -17 0 Value adjustment for the year at revalued amount in equity -3 4
In establishing the market value of the properties, the following return percentages were used for each property category: Lowest Average Highest percentage percentage percentage
Total expenses for 2007 were DKK 43m (DKK 44m in 2006). Of this amount, unlet property represented DKK 1m (DKK 2m in 2006), so the total expenses for investment property generating rental income were DKK 42m (DKK 42m in 2006).
Revaluations at net asset value Balance 1 January 18 16 Revaluations during the year 1 2
Shares in associates according to the lastest financial statements: 2007 Shareholders’ Profit/Loss Ownership Name and registered office Assets Liabilities Equity Revenue of the year share in %
16 Financial investment assets Financial assets at fair value with value adjustment in the income statement, cf. IAS 39 35,844 36,052 Receivables at amortized costs 2,555 1,776
Financial assets at fair value with value adjustment in the income statement Trading porfolio: Bonds 30,294 28,663 Contains of: Cash allocated to portfolio management -246 -228 Unsettled securities trading 1,063 1,158 Deposits, derivatives etc. -302 749
The Bond and share portfolio includes unit trusts in which the underlying assets are bonds and shares. In addition, the amounts include liquid assets allocated to the portfolio manager, money market deposits and debt and receivables from unsettled investment transactions.
The note should be seen in conjunction with the expected cash flow from the Group’s provisions for unearned premiums and provisions for claims, see note 21. Please refer to the part ‘Interest risk’ in ‘Risk management’ in the ‘Management report’.
Listed shares Scandinavia 975 1,161 United Kingdom 718 874 Rest of Europe 1,160 1,477 United States 828 1,245 Asien etc. 527 418
Exposure to exchange Insurance, rate risk 2007 Properties Bonds Shares etc. Hedge Exposure
Exposure to exchange Insurance, rate risk 2006 Properties Bonds Shares etc. Hedge Exposure
Please refer to Market risk in the section headed Risk management in the Management’s report.
Gains and losses on hedges charged to equity at 31 December 144 -254 -110
Receivables Receivables from insurance enterprises 1,410 1,487 Receivables from subsidiaries 0 27 Exchange and inflation rate derivatives 190 73 Unsettled transactions 794 0 Other receivables 161 189
Specification of writedowns on receivables Balance at 1 January 129 148 Writedowns and reversed writedowns for the year -23 -19
Reversed impairment losses are estimated at around DKK 20-30m annually, but may vary due to major cases/disputes. Please refer to the part ‘Credit risk’ in ‘Risk management’ in the ‘Management report’.
Notes 17 Reinsurer’s share Reinsurer’s share 1,609 1,592 Writedowns after impairment test -22 -31
Net current tax, end of year 243 186 19 Shareholders’ equity
Bought during the year -221,200 -5,530 -247,440 -6,186 Sold during the year 69,677 1,742 37,441 936
Nominal Nominal No. of value % of share No. of value % of share Treasury shares shares (DKK’000) capital shares (DKK’000) capital
19 Capital adequacy Shareholders’ equity according to annual report 10,010 9,951 Subordinate loan capital 637 365 Proposed dividend -1,156 -2,244 Solvency requirements to subsidiary undertakings -3,681 -4,557 Own shares -143 0
20 Subordinated loan capital In december 2005, TrygVesta Forsikring A/S raised a subordinate bond loan for EUR 150m at the price of 99,017. The loan carries a fixed rate og interst at 4,5 % p.a. untill 2015, where it can be repaid. After that time, it will carry interest at 2.1% above EURIBOR untill it expires in 2025. The loan is measured at amortised cost, and when the loan was raised capital losses and costs were deducted with DKK 18m at the balance sheet date. The fair value of the loan at the balance sheet date is DKK 1,041m (in 2006 DKK 1,071m) based on a price of 93,12 (in 2006 a price of 95.79). The price is sourced from Bloomberg, which applies a group of market players as its data sources.
Reserves from 1999 and prior years 2,571 Other reserves 343 Gross provisions for claims, end of year 21,104
The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S. Other group units are included in the item “Other”, which comprises the provisions for claims for TrygVesta Garantiforsikring A/S, travel and health insurance and the Finnish and Swedish business units.
The inclusion of the Zurich portfolio acquired in 2002 and, to a minor extent, the Allianz portfolio acquired in 2001, has an impact on the figures. When the liabilities of these portfolios appear in the triangulation the ultimate liability for the preceding accident years is increased with effect from the financial year in question, whereas already existing liabilities concerning previous financial years remain unchanged. The combined impact of the two acquisitions amounts to DKK 210m gross and DKK 200m net of reinsurance.
After the introduction of variable interest rate discounting of danish Workers Compensation annuities, inflatoin explicitly influence claim ultimates from 2007 onwards. In previous calender years the inflation element is partially offset by the use of discounting with a real rate of interest. Hence undiscounted claim ultimates are adversely affected in 2007 by totally DKK 1,271m.
Paid in the financial year in respect of the current year -5,030 -107 -4,923 Paid in the financial year in respect of prior years -4,895 -421 -4,474
Change in claims in the financial year in respect of the current year 10,834 283 10,551 Change in claims in the financial year in respect of prior years -453 -41 -412
Provisions for claims, end of year 1) 20,068 1,312 18,756 1 ) The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S. 2) Comprises provisions for claims for TrygVesta Garantiforsikring A/S, travel and health, and our Finnish and Swedish business units. 3) Discounting also includes exchange rate adjustments. Comparative figures for 2006 have been restated to method of new unwinding. See note 1 ‘Changes in Accounting policies’.
DKKm 21 Carrying amount Expected cash flow 2007 Total 0-1 year 1-2 years 2-3 years > 3 years
Carrying amount Expected cash flow 2006 Total 0-1 year 1-2 years 2-3 years > 3 years
The note should be seen in conjunction with the maturity of the group’s interest-bearing financial assets and liabilities, see note 16. Please refer to the part ‘Risk management’ for an elaboration of risk management and risk exposure.
Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year 825 727 Exchange rate adjustment 27 -22
Discount rate 5.2 4.7 Estimated return on pension funds 6.2 5.8 Salary adjustment 4.5 4.5 Pension adjustment 4.3 4.3
Employers’ nat. ins. contribution 14.1 14.1 Take up of the AFP Early Retirement Plan 20.0 20.0 Mortality table Adjusted K1963 Adjusted K1963
Actuarial gains/losses associated with the pension obligation 104 90 -136 Actuarial gains/losses associated with pension assets -10 26 18
The pension liability related to participation by the Norwegian member of the Group Executive Management in the Norwegian defined benefit pension plan is DKK 1.7m, 31.12. 2007.
“The Group’s Swedish branch complies with the industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens
Tax liability Land and buildings 157 111 Contingency funds 1,021 945 Debt and provosions 35 0 Shares etc. 0 99 Intellectual property rights 64 39
Unaccrued deferred tax assets of liability of shares ect. 102 -102 Unaccrued deferred tax assets of liabiliaty of balancesheets items 6 0
The loss in TrygVesta A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely.
No deferred tax is associated with investments in subsidiaries (2006 DKK 0m).
Notes 24 Other provisions Other provisions, beginning of year 50 41 Change in provisions 7 9
In 2005, a consortium of banks granted TrygVesta A/S a loan facility for DKK 2,000m, of which DKK 600m had been utilised at 31 December 2007. In 2007, the loan carried interest at CIBOR plus a margin, totalling approximately 4,4% p.a. The unutilised part of the loan facility is measured at amortised cost, and an amount of
The fair value of the loan is considered to be the utilised part of the facility of DKK 600m.
Debt falling due after more than five years 0 0 27 Earnings per share Basic earnings per share is calculated by dividing the profit for the year and the profit/loss from discontinued and divested business by the total average number of shares. The company has not issued warrants, convertible debt instruments or the like.
DKKm 28 Contractual obligations, contingent liabilities and collateral Payment due by period More than < 1 year 1-3 years 3-5 years 5 years Total
Operating leases 108 213 187 1,260 1,768 Other contractual obligations 348 314 0 0 662
The amounts include the following. TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S
have signed an operating agreement with CSC for an amount of DKK 558m for a period of 5 years.
The Danish companies in TrygVesta group are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for the entire amount. From 2005, the companies are only liable for their own part of the tax amount.
Companies of the TrygVesta group are part of some disputes. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position beyond those receivables and obligations recognised in the balance sheet.
Claims paid - Parent company (Tryg i Danmark smba) 0.2 0.1 - Other related parties 43.6 0.5
Specification of remuneration, etc. Supervisory Board -4 -4 Group Executive Management -25 -26
Parent company Tryg i Danmark smba Tryg i Danmark smba controls 60% of the shares in TrygVesta A/S.
140 of 152 l Income statement for TrygVesta A/S (parent company) l TrygVesta Annual Report 2007
Notes Assets 6 Investments in subsidiaries 10,732 10,643 7 Investments in associates 0 0
Liabilities Shareholders’ equity 10,031 9,974 10 Debt to credit institutions 599 596 Debt to subsidiaries 131 74 Other debt 0 5
142 of 152 l Statement of changes in equity (parent) l TrygVesta Annual Report 2007
Equity entries in 2006 Profit for the year 1,782 -735 2,244 3,291 Revaluation of owner-occupied properties 3 3 Exchange rate adjustment of foreign entities -143 -143 Hedge of foreign currency risk in foreign entities 107 107 Tax on equity entries -31 -31
Equity entries in 2007 Profit for the year 79 1,098 1,156 2,333 Revaluation of owner-occupied properties -3 -3 Exchange rate adjustment of foreign entities 84 84 Hedge of foreign currency risk in foreign entities -98 -98 Tax on equity entries 27 27
Profit on continuing business 2,396 3,219 Profit/loss on discontinued business after tax -1 126 3 Other expenses Administrative expenses -48 -36
4 Reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax -21 -21 Changes to previous year 0 3 Tax on non-taxable income and expenses 0 1
144 of 152 l Notes (parent company) l TrygVesta Annual Report 2007 5 Profit/loss on discontinued and divested business Earned premiums, net of reinsurance 0 4 Technical interest, net of reinsurance 3 -1 Claims incurred, net of reinsurance -1 119 Insurance operating expenses, net of reinsurance -3 -25
The technical result of discontinued and divested business is specified by lines of business as follows: Accident Marine, aviation Other and health and cargo insurance insurance 1) Total 2007 2006 2007 2006 2007 2006 2007 2006
7 Investments in associates Cost Balance 1 January 0 14 Additions during the year 0 -14
TrygVesta held a ownership of 28% of the company Nordisk Flyforsikring A/S.
8 Current tax Current tax, beginning of year 3 21 Current tax for the year 20 20 Tax paid durring the year -3 -38 9 Deferred tax Non-capitalised tax loss TrygVesta A/S 72 72
10 Debt to credit institutions Bank loans 597 596 Overdraft facility 2 0
In 2005, a consortium of banks granted TrygVesta A/S a loan facility for DKK 2,000m, of which DKK 600m had been utilised at 31 December 2007. In 2007, the loan carried interest at CIBOR plus a margin, totalling approximately 4.4 % p.a. The unutilised part of the loan facility is measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost are depreciated linear until the loan facility expires in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 600m.
146 of 152 l Notes (parent company) l TrygVesta Annual Report 2007 11 Capital adequacy Shareholders’ equity according to annual report 10,031 9,974 Subordinate loan capital 637 365 Proposed dividend -1,156 -2,244 Solvency requirements to subsidiary undertakings -3,681 -4,557 Own shares -143 0
Solvency pct. 81 58 12 Contractual obligations, contingent liabilities and collateral The Danish companies in TrygVesta group are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for payment of imposed corporation tax. From 2005, the companies are liable for the company’s own share of the imposed corporation tax.
Guarantee agreements with related parties - Account 1,950 1,645 - Exercised, end of year 885 1,265
Specification of remuneration, etc. Supervisory Board -4 -4 Executive Management -16 -11
148 of 152 l Financial highlight and key ratios by geography l TrygVesta Annual Report 2007
Danish general insurance Gross premiums earned 9,346 9,084 8,764 8,525 8,570 8,242
Key ratios Gross claims ratio 69.3 66.8 77.1 73.0 71.6 70.4 Business ceded as % of gross premiums 0.0 3.9 -3.9 3.5 3.5 6.1
Norwegian general insurance Gross premiums earned 6,919 6,738 6,810 6,653 6,614 7,161
Key ratios Gross claims ratio 64.0 64.3 63.0 62.1 62.7 72.9 Business ceded as % of gross premiums 4.9 3.6 5.2 6.2 6.9 7.8
Claims ratio, net of ceded business 68.9 67.9 68.2 68.3 69.6 80.7
Swedish general insurance Gross premiums earned 90 4 - - - -
Claims ratio, net of ceded business 88.9 145.3 - - - -
Number of full-time employess, end of period 61 40 0 0 - -
Key ratios Gross claims ratio 67.3 65.9 71.1 68.3 67.6 71.5 Business ceded as % of gross premiums 2.1 3.7 0.1 4.6 5.0 6.8
Number of full-time employess, end of period 3,814 3,808 3,718 3,762 3,762 4,420
and Tryg Ejendomme A/S are included under ‘’Other’’ together with the parent company TrygVesta A/S.
Claims incurred + insurance Operating expenses + result of reinsurance x 100
Provisions for claims to earned premiums Calculated as the ratio of provisions for claims relative to earned premiums.
Relative run-off gains/losses Run-off result relative to provisions insurance contract, beginning of year.
Return on equity Calculated as the profit for the year as a percentage of the average shareholders’ equity.
Danish GAAP Danish GAAP means that the annual report has been prepared in accordance with the Danish Financial Services Act and the executive order issued by the Danish Financial Supervisory Authority on the presentation of financial reports by insurance companies and profession-specific pension funds.
Norwegian general insurance Comprises TrygVesta Forsikring A/S, Norwegian branche and the Norwegian subsidiaries.
TrygVesta urges readers to refer to the section on risk management for a description of some of the factors that could affect the Group’s future performance or the insurance industry.
TrygVesta is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law.
This is a translation of the Danish annual report 2007. In case of any discrepancy between the Danish and the