Targets reached in 2003 59 Facts about the Tryg Vesta Group 6 Focus areas ......................................................... 59 Strategic platform 8 Targets reached................................................... 59
Auditors’ report 65 Brands ................................................................. 16 Bancassurance and pension sales ...................... 16 Accounting policies 66 Health insurance.................................................. 17 Unemployment insurance.................................... 17
Procurement ........................................................ 19 Income statement and balance sheet for Tryg Vesta Group A/S (parent company) 87 Customer service and IT ..................................... 19
Insurance risk ...................................................... 25 Market risk ........................................................... 26 Investment policy................................................. 27 Operational risk ................................................... 28
The Tryg Vesta Group 18 March 2004 page 3 of 98
After our first full year under the ownership of Tryg i
Danmark smba, the Tryg Vesta Group reports quite substantial improvements of the financial results. We achieved most of the targets we had set for 2003, and we have come a long way towards generating satisfactory overall results. We have also made a thorough strategic effort to define the framework for further enhancement in the years ahead.
Vesta Group in the summer of 2003. While reflecting the support of our owners, the capital contribution also made additional demands on the Group’s ability to generate a higher return on capital employed.
They confirmed their choice of the Tryg Vesta Group by maintaining their policies with the Group despite major premium increases that had resulted from a necessary review of the price/risk correlation. Part of the reason may be that the industry in general raised premiums, but also that our customers are very satisfied with our services –
More than half a million out of our more than 2 million customers were served by the Group’s claims handlers in 2003. Perceived quality and savings may go hand in hand as witnessed by the way we consolidated all the
Group’s emergency calls into one alarm centre and the introduction of Tryg Reparation, which involves that we refer car repairs to selected garages and offer the customers a replacement car while their own car is being repaired.
An inclusive workplace and understanding of other cultures and customs are natural features of a socially responsible organisation. Our integration project has paved the way for several employees with an ethnic background.
Understanding other cultures and ways of working is also the platform for the process improvements and synergies across national borders which will help us achieve our ambition of further improving our performance in the years ahead. The Tryg Vesta Group believes that the current round of general price adjustments is coming to an end, except in the area of personal accident insurance, where we anticipate that even more tasks will be transferred from public funding to private insurance over the next few years. We will introduce stricter terms and conditions for a few commercial customers, while at the same time offering them advice on how to manage and minimise risk.
As will appear from this annual report for 2003, the Tryg
The Tryg Vesta Group uses the Balanced Scorecard as a general management tool. This contributes very much to everybody in the Group making a targeted and focused effort to meeting our ambitions in relation to our stakeholders. We have arranged the description in this annual report of our performance in 2003 along the lines of the Balanced Scorecard’s four perspectives: Financial perspectives, Customers, Processes and Employees.
The Tryg Vesta Group 18 March 2004 page 4 of 98
• Profit before tax and extraordinary items amounted to DKK 789m, an improvement of DKK
• The combined ratio for the Group’s Norwegian general insurance operations improved from
* Pro forma figures * Pro forma figures * Pro forma figures * Pro forma figures Annual Report 2003
Denmark’s largest general insurer with a market share of just over 22 per cent, Vesta, Norway’s third largest insurer with a market share of around 20 per cent, the reinsurer Tryg-Baltica international, Dansk Kaution and
The Tryg Vesta Group has a strong strategic partnership with Nordea. The bank sells the Tryg Vesta
The Tryg Vesta Group’s 4,400 employees represent quality, advice and service – both to the individual personal customer and to the large industrial enterprise with several thousand employees.
The Tryg Vesta Group has some two million personal customers and 250,000 commercial customers. The
17.3bn. Its employees processed 650,000 claims and paid claims expenses of more than DKK 11bn in 2003.
Motor TPL Motor comprehensive Marine, transport etc. Fire etc. (personal) Fire etc. (commercial) Workers compensation Accident Other
The Tryg Vesta Group 18 March 2004 page 6 of 98
Sales Managers Truls Holm Olsen, Martin Nielsen & Martin Hay Schmidt
Customer Services Managers Truls Holm Olsen, Martin Nielsen & Martin Hay Schmidt
The Tryg Vesta Group 18 March 2004 page 7 of 98
Tryg Vesta Group - mission Our mission is to secure a stable, qualitative supply of products offering peace of mind to personal customers and businesses.
The Group’s ambition is to improve productivity and enhance quality by automating and centralising processes as much as possible. In organising processes, focus will be on simplicity, reuse of data and the potential of self-service facilities. Tryg Vesta Group - vision
We want to be perceived as the Nordic region’s most profitable provider of peace of mind on the markets and within the business areas chosen by us.
The Group’s ambition is to offer managers and employees free scope and responsibilities and to create the framework for commitment, drive and development of competencies. The Group will continuously develop its combined knowledge by focusing on learning and knowledge sharing. The Group emphasises being a
The market was characterised by premium increases both in 2002 and 2003, and most large companies raised premiums for personal as well as commercial customers.
In order to operate a profitable business, the insurance industry looked even more carefully at its ability to attract capital than it did in previous years.
Source: Danish, Norwegian, Finnish and Swedish insurance associations, Gross premiums 2002 (Norway 2003)
The current welfare debate in the Nordic countries and other European countries makes demands on the insurance industry. Responsibilities are being transferred from public funding to private insurance.
The Tryg Vesta Group welcomes this trend as it provides opportunities for a healthy and exciting development of the insurance companies. One example is unemployment insurance, which emerged as a business area to be reckoned with for Danish insurance companies in 2003, spurred by increasing unemployment rates and the perceived gap between the pay received in employment and unemployment benefit rates.
December 2003 that amounts received from a flex job should not be taken into account when determining occupational disability for a person who as a result of a work-related injury performs a flex job. If the National
Board of Industrial Injury introduces the practice of reopening and reassessing claims, insurers will incur additional costs without having been able to include this risk when setting their prices.
Businesses and insurance companies globally have refocused on risks in recent years against the backdrop of fear of terrorist attacks, management scandals, widespread bad weather in recent years and the demand for targeted employment of the capital available.
Earnings in the general insurance industry have only begun to pick up during the past year, and recent years’
International rating agencies rate companies’ expected ability to honour their commitments towards insurance customers and other creditors. Industrial customers, in particular, increasingly require insurers to be rated, and several of them include the rating in their policies for permitted collaboration partners.
After several years of plummeting equity prices and interest rates, equity markets were up in 2003 by 16.5 per cent in Europe (MSCI), 26.8 per cent in the USA
The war in Iraq impacted the financial markets. The anticipation that the war could quickly be brought to an end caused equity markets to surge in the early months of the conflict, while interest rates continued to fall due to deflationary fears. After positive key economic indicators had been issued in June, the rates started to move upwards and have stabilised.
The Tryg Vesta Group 18 March 2004 page 10 of 98
% in cr ea se fr om th e be gi ni ng o f 2
Norway, and its financial results are therefore impacted by the NOK/DKK exchange rate. As can be seen in the chart, the NOK/DKK exchange rate fell by 14 per cent during 2003. Accordingly, all other things being equal, earnings in Norway will show a falling trend when translated to Danish kroner due to the depreciating exchange rate. Most investments in shares in
The long-standing tradition of paying insurance brokers, who make a living from advising businesses on purchasing insurance, on a commission basis was abolished both in Denmark and Norway in 2003.
Previously, insurance brokers were paid a commission by the insurance companies, but in 2003 most of the large insurers in Denmark and Norway switched to socalled net pricing to commercial customers served by brokers. This system implies that commercial customers will in future pay the brokers directly for their advice and intermediary services, while the insurance company is paid for the actual insurance supply.
As part of the Group’s efforts, greatly enhanced security requirements and requirements for higher premiums were made to high-risk industries such as the wood industry in 2003.
The Tryg Vesta Group was one of the first insurers to introduce net pricing because the system promotes transparency and consistent terms for all commercial customers whether served directly or through a broker.
The new model emphases the broker’s independence, making it clear to commercial customers in future that brokers are advisers and intermediaries, while the Tryg
Finally, the Tryg Vesta Group’s capital was supplemented by a loan of DKK 600m in order to give the Group further financial flexibility and enhance its liquidity.
of A3 and BBB(pi), respectively. When making their decisions, the rating agencies emphasised the strengthened capital base and commercial and organisational improvements.
The organisation spent substantial resources on paying attention to existing customers by way of service and profitability initiatives.
rating to Vesta Forsikring A/S, bringing Vesta’s rating into line with that of the parent company, Tryg
Danmark smba, decided to contribute share capital and subordinate loan capital totalling DKK 1.1bn. The increased liquidity was used to repay a bank loan of a similar amount. At the same time, the Group’s corporate structure was changed to enable it to better utilise its total capital base.
The Tryg Vesta Group 18 March 2004 page 13 of 98
The portfolios of health and general insurance policies sold through Nordea’s branches grew rapidly in 2003, not least thanks to the Group’s strong brands – Tryg and Vesta – in Denmark and Norway.
Danish surveys indicate that customers in large insurance companies become more loyal the longer they have been with the company. Around 18 per cent of customers who have been with their insurance company for less than a year leave the company again within a year, while 82 per cent stay with the company for at least one more year. This figure rises to 86 per cent for customers who have been with the company for six to ten years, and to 89 per cent for customers who have been with the company for 11 to 20 years.
This is the reason why the Tryg Vesta Group focuses strongly on existing customers.
In Norway, Norsk Kundebarometer measures customer satisfaction in various lines of industry. The survey showed that Vesta improved in terms of satisfaction but declined in terms of loyalty relative to 2002.
Dansk KundeIndex (Danish Customer Index) is prepared by the Aarhus School of Business and the Danish Centre for Management.
preferred insurance company indicate that Tryg generally has a good image among the population.
Source: The media agency OMD regularly surveys Danes for their preferred insurance company. Throughout 2003, Tryg was the preferred company
The Tryg Vesta Group 18 March 2004 page 15 of 98
Tryg and Vesta represent two very established and strong brands within general insurance for the Tryg
In the summer of 2003, Vesta ran a major campaign to profile the company, focusing on the company’s lifebuoy trademark. Vesta’s red-and-white tradition-rich lifebuoy is one of Norway’s best-known and most respected trademarks. Ever since 1952, the company has distributed lifebuoys, which in an appropriate manner reflect the philosophy of insurance. The lifebuoys have helped save more than 1,000 people from drowning. Today, there are some 23,000 Vesta lifebuoys all over Norway, and the lifebuoy has become a national symbol.
Nordea continued its positive sales performance. The partnership involves Nordea selling the Group’s general insurance products through its branches in Denmark,
Nordea’s sales of the Tryg Vesta Group’s general insurance products continued to surge. In 2003, bancassurance accounted for 5 per cent of the Group’s total sales of insurance policies to personal customers.
In the spring of 2003, Tryg relaunched its six-year-old, but still well-known TV commercial showing a chicken sitting in front of a car tyre. The commercial was hugely successful, scoring among the top seven per cent among more than 1,000 campaigns rated by the media agency OMD. The TV commercial came in first among campaigns from insurance companies, banks and mortgage credit institutions.
Tryg Polska won two prizes in Poland. Four products were nominated market leaders, and the company’s car owners’ assistance policy was rated as the best new product.
Nordea’s Norwegian branches began selling Vesta’s policies in 2003, initially as a pilot project in selected branches, but in the second half of the year, the
The Tryg Vesta Group 18 March 2004 page 16 of 98
Finnish branch in 2001 for the purpose of selling insurance through Nordea, which has a share of 40 per cent of the Finnish market. At the end of March 2003, the potential customer base was extended to include all of the bank’s approximately three million customers in
N um be r o f p ol ic ie s ('0
The Group intends to continue to focus on employee training and sales tools, thereby further enhancing its role as a provider of peace of mind to customers in the life insurance and pension areas.
Tryg Vesta Group is constantly developing competencies in this area. The Group launched development efforts in 2003 aiming to set up a common
In 2003, the Tryg Vesta Group in Denmark launched three options to the health policies already written. At the end of 2003, 15,200 people were covered by the
Tryg’s Finnish branch began selling health insurance in 2003. Health insurance has been part of the Finnish insurance market for 10-15 years. The expansion of the product range to cover largely any insurance requirement further strengthened the Finnish operation’s position as an alternative to other insurance providers.
On 1 January 2003, Norway introduced tax exemption for employer-paid health insurance for employees.
Because of the exemption, employees are no longer subject to tax on such health insurance, and employers are not liable to a charge on the insurance premium.
In the final months of 2003, private unemployment insurance really became an issue in Denmark. In
The Tryg Vesta Group 18 March 2004 page 17 of 98
voluntary insurance to members of STA. In case of involuntary unemployment, members of STA will be eligible for a supplement of up to 80 per cent of their salary so far in addition to their benefits. At the same time, Tryg offers the members of STA the possibility of choosing whether they want to supplement the unemployment insurance with for instance psychologist assistance.
Group capitalising on synergies across national borders, particularly in relation to IT and the creation of the Group’s common alarm centre, which was launched in earnest in early 2003. Improving the efficiency of work processes is a constant challenge, as illustrated by last year’s initiatives in relation to procurement and electronic customer servicing.
Procurement in an insurance company is more than making administrative purchases in the form of office supplies and new PCs. It is also very much a matter of purchasing in connection with claims, such as making agreements with craftsmen and garages to make repairs or with cleaning companies to clean up after fires or flooding.
In March 2003, Tryg launched a new agreement with a number of garages in Denmark. The agreement, called
The new agreement benefits all three parties: customers, garages and Tryg.
In 2003, the Tryg Vesta Group entered into a partnership with the IT company CSC to outsource the
The Tryg Vesta Group uses the US Siebel system, the market’s most advanced customer service system, as a common platform both in Denmark and in Norway. The system collects customer data and customer contact information, thereby making it easier for different
portable solution will be added in early 2004, providing access to the customer service system from laptops when visiting customers. Tryg has successfully used the solution for a couple of years.
December 2003, almost 60,000 customers had subscribed to the log in service, almost twice as many as the year before. Around 120 customers log in every day to view their policy overview, order a red or green international motor insurance card before going on holiday etc. Furthermore, some 50,000 price calculations are made on the web site each month, and around 900 users ask for a quotation.
In Finland, e-mail correspondence already accounts for a large part of the Group’s total communication with customers, and the intention is to increase the volume of e-services both in Finland and in the rest of the
In Norway, the Tryg Vesta Group participated from the start when the Norwegian banks launched eFaktura, electronic invoice processing, in early 2003. Customers who join eFaktura receive invoices in their on-line banking system instead of in their physical mailbox.
The customers of the Tryg Vesta Group’s marine and aviation make up a very diverse group, and it takes a broad range of competencies to handle this diversified and specialised portfolio. The Group therefore decided to set up a common marine and aviation department at the end of 2003, uniting competencies across the two biggest companies, Tryg and Vesta. Marine customers alone account for an annual premium volume of DKK
230m, ranging from small fishing boats to very large ferries both in Denmark and Norway. The marine and aviation department has a total of 22 employees.
In 2003, the Tryg Vesta Group continued developing the common alarm centre, Tryg Alarm, in Denmark. The centre is staffed by employees and doctors round the clock ready to assist the Group’s travel and health insurance customers in an emergency. In addition to being able to provide care services, the employees’
Network is a key word for Tryg Alarm. The alarm centre has a number of external partners around the world within such areas as transport, payment transfers and hospitals. Tryg Alarm’s regular staff includes a doctor, and seven medical consultants specialising in different fields are attached to the centre.
Not only customers who hold travel and health insurance policies may call Tryg Alarm to get help.
Tryg’s 24-hour claims service is a part of Tryg Alarm, which thus also handles calls from Danish insurance customers in connection with a claims situation.
Competency development The Tryg Vesta Group applied the Balanced Scorecard methodology in 2003 to strengthen efforts in relation to targets and initiatives. The aim is to enable all units to break down the Group’s overall targets in order for each employee to know his or her expected contribution and in order to maintain transparency and openness about the organisation’s target and initiative efforts.
The Tryg Vesta Group spent DKK 40m on employee training in 2003 and began collaborating on common competency and management development initiatives.
Employee satisfaction The Tryg Vesta Group developed a management course for its 210 Norwegian managers and key professionals in 2003. The objectives of the courses included helping managers to become even better at forming strategies into practice and generally to enhance managers’ competency, focusing on higher employee satisfaction, improved business understanding, development of cross-cutting collaboration, and a common culture with shared values.
Believing that satisfied employees are key to creating results, the Tryg Vesta Group measures employee satisfaction each year.
Norway and Denmark to provide an overview of any potential concerted action that could be taken to heighten satisfaction in one or more areas. However, the results are primarily followed up in the local departments, whose managers and employees together are responsible for cultivating and maintaining results and prepare the ground for improvement.
Denmark with an overall score of 4.03 on a scale from 1
When measuring employee satisfaction, Vesta employs a method which does not involve the use of a total result as does the one employed in Denmark. Grouped into main categories, however, Vesta’s scores for 2003 are on a level with other Norwegian companies.
The Tryg Vesta Group 18 March 2004 page 22 of 98
During the year, 63 per cent of Tryg’s employees spent two days in another department to gain knowledge and understanding of the work processes of other departments. Another objective of the arrangement was to promote in-house job rotation.
The principal aim is to make training more uniform, but substantial savings are also generated because more employees are able to complete training from their own workplaces rather than attending courses in conventional classrooms.
The Tryg Vesta Group wishes to be an inclusive workplace with room for everyone. The Group believes in appreciating and benefiting from differences such as age, sex, ethnic background, nationality, religion and personality.
Twelve immigrants started on a new two-year integration training programme with Tryg in March 2003. Backed by EU grants and in collaboration with municipalities all over Denmark, Tryg set up a special training programme for immigrants designed to teach insurance as well as Danish culture and the Danish language to the participants.
Inclusiveness is also about making room for employees of either sex and in different age groups.
Human resources policies in both Denmark and Norway take into account that an employee’s working life has various stages with varying requirements. The Group needs employees at all stages of life. Committed to social responsibility, the Group aims to create a framework that provides development opportunities and support to all employees.
Tryg Vesta Group is focused on recruitment and on retaining employees. Over the next five years alone, around 400 employees will be leaving the Group due to retirement or early retirement.
The Tryg Vesta Group 18 March 2004 page 23 of 98
The Tryg Vesta Group set up transverse reinsurance and investment organisations as early as in 2002. The two organisations were adjusted in 2003 and implemented in additional parts of the Group.
The Tryg Vesta Group set up a common IT organisation in April 2003 with the purposes of reducing costs and achieving further synergies within in the Group.
Throughout 2003, the Group worked on changing its overall structure, and in January 2004, the Tryg Vesta
Group announced that its future base would be two dedicated local business areas for personal and commercial customers, one in Norway and one in
Denmark. Together and individually, they are responsible for generating targeted growth of the profitable part of the Group’s personal and commercial portfolios. Furthermore, the Group will be based on a single dedicated Nordic business area for the industrial market which across Tryg and Vesta will ensure targeted optimisation of the corporate portfolio by improving the correlation between price, risk and profitability, thereby creating a more balanced portfolio.
The Tryg Vesta Group’s overall financial risk can be divided into - insurance risk, involved in the current insurance operations - market risk, involved in investment activities and financing - operational risk, involved in operating a business.
Management), a framework for measuring the Group’s total exposure, which explicitly takes into account the interaction of assets and liabilities. This framework for describing the Group’s exposure will be used for evaluating alternative strategies, primarily related to future portfolio composition, reinsurance strategies and the overall investment strategy.
The Group’s ongoing measurement of risk-based capital for the individual business areas and the resulting profitability requirements will also take place within the ALM framework.
Vesta in Norway has, for example, scaled back its business of providing insurance to pilots against the eventuality that they lose their pilot’s certificate for health reasons. Vesta has also completely withdrawn from insuring municipalities. In Denmark, Tryg introduced stricter security requirements for some commercial customers in 2003, and raised premiums for fire insurance of companies in the wood industry.
The Tryg Vesta Group uses reinsurance as a key instrument to manage random risk. The Group’s reinsurance programme covers natural disasters up to a total of DKK 3.5bn with a retention per event of DKK
100m in Denmark, NOK 60m in Norway and DKK 75m in Poland. The maximum cover of DKK 3.5bn has been determined based on analyses of portfolio risk exposure
Norwegian Pool of Natural Perils. Therefore, it would not impact the Tryg Vesta Group’s results and combined ratio because the Norwegian insurance companies settle the final bill for natural disasters caused by windstorms, landslides, flooding and similar events with the natural disaster pool, to which all policyholders in Norway make a contribution over their fire policy. In principle, it is similar to the Danish storm surge pool, which covers losses resulting from sea surges that cause flood. All fire insurance policyholders pay a contribution to this pool every year.
A claim of between DKK 100m and DKK 300m would affect the Group’s combined ratio, net of reinsurance, in 2004 by between 0.5 and 0.7 percentage point, corresponding to negative financial results of between
Group in the past ten years was the storm that hit
Denmark in December 1999 and resulted in losses to the Group’s customers of just over DKK 2bn. A storm in
DKK 3bn would in 2004 impact the Group’s combined ratio, net of reinsurance, by between 1.3 percentage points and 1.7 percentage points, equal to an adverse impact on the financial results of between DKK 185m and DKK 240m.
Group are impacted by developments in the financial markets as assets and liabilities are marked-to-market on an ongoing basis. Market risk includes changes in interest rates, equity prices, exchange rates and real
The Tryg Vesta Group 18 March 2004 page 26 of 98
property prices and the credit risk on bonds, money market investments and similar instruments. The interest rate risk affecting the financial statements is limited as discounted provisions are only used for
Workers’ Compensation. The insurance liabilities have a duration of around two years.
The Danish Financial Supervisory Authority introduced the so-called traffic light scenarios for general insurance companies and reinsurance companies effective 31
Basically, the Group hedges risk relating to investments in shares and bonds denominated in foreign currency.
Most investments in shares in foreign subsidiaries were hedged in 2003.
The investment strategies defined in the Group are primarily carried out by way of external portfolio management agreements with Nordea concerning bonds, shares, cash funds and to some extent real property. Based on the investment policies, the Group handles the management of asset mixes, benchmark determination, duration limits, limits on the geographic distribution of assets, types and risk profile of bonds, shares and real property, respectively. The Group handles all investments in unlisted securities.
The Tryg Vesta Group 18 March 2004 page 27 of 98
December 2003. The portfolio, worth DKK 1.2bn comprising mainly office property, was sold to Nordea
In 2003, the Tryg Vesta Group set up a safety and security organisation, whose objects include to ensure that the required security policies and related business procedures are implemented and maintained. In
The Tryg Vesta Group 18 March 2004 page 28 of 98
Supervisory Board proposes a dividend of DKK 50m and that the remaining profit of DKK 692m be carried forward to next year.
Finland from where insurance products and related services are sold to the Finnish bank customers of
In 2002, Tryg acquires the general insurance undertaking of Estonian Nordika Kindlustus, which was established in 1990.
Vesta was established in 1880, and the name Vesta is derived from the Roman mythology. Vesta is the goddess of hearth fire and thereby also of the home and family.
Asekuracja, which was established in 1994. In 2002, the company changes name to Tryg Polska.
Baltica. The company is integrated into Tryg’s reinsurance company Tryg-Baltica international.
merger with Æolus and Bergens Brand in 1962 is part of the Vesta history.
The Tryg Vesta Group 18 March 2004 page 30 of 98
Tryg is Denmark’s largest general insurer, serving more than one million households and businesses. Tryg has 2,250 employees and sells insurance policies through its own distribution channels, insurance brokers in the industrial market and the upper part of the commercial market as well as through Nordea’s branches, just as
The Tryg Vesta Group 18 March 2004 page 31 of 98
Danish enterprises which conclude major contracts, especially within the building and construction sector and contract manufacturing business.
Profit/loss on ordinary activities before tax 789 -1.078 89 411 -244 Extraordinary items and minority interests 1 -1.256 7 0 -1.482
Ceded business in percentage relative to gross premiums 5,8 6,9 1,5 -5,8 Gross claims ratio, net of ceded business 79,5 84,8 79,8 83,0
Gross combined ratio, net of expenses to reinsurance 102,4 109,1 104,3 109,1
Return on equity Return on equity before tax 16,4 -52,9 2,2 8,7 Return on equity after tax 15,4 -47,4 1,2 7,0
The Tryg Vesta Group 18 March 2004 page 33 of 98
The profit for the year before extraordinary items and tax amounted to DKK 789m against a loss of DKK
987m and the results of investment activities improved by DKK 850m.
The technical result of DKK 136m is a significant improvement relative to 2002. The improvement of DKK
987m was achieved in spite of the falling interest rates in both Denmark and Norway, resulting in a reduction in the technical interest of DKK 258m.
For both business areas, it was primarily the claims ratios, which were improved.
In 2003, return on shareholders’ equity was provided by 16.4 per cent, while the return in 2002 was negative by 52.9 per cent.
September 200, and as a natural consequence thereof, fall in premium earnings was approximately DKK 600m.
The Group’s claims ratio, net of reinsurance, was 77.9 and has fallen by 6.9 percentage points since 2002.
This was very satisfactory and was in particular due to the claims ratio for Danish general insurance operations having fallen by 7.9 percentage points and that for the
– of DKK 699m in 2003, which impacted the combined ratio by 4.8 percentage points.
Norway and Poland. From experience, we know that the development within these areas is characterised by
“social inflation”, i.e. the ongoing displacement of tasks from public funding to private insurance. Therefore, the
The investment return was affected by a positive return on bonds, shares and real property.
Tax on the profit for the year was DKK 48m. Shareholders' equity, 1 January 2003 4,268
The low tax expense was due to unrealised gains on shares, which are not subject to tax, a lower tax rate in
DKK 1,526m, the technical provisions by DKK 869m and the shareholders’ equity by DKK 1,092m.
On assets, the increase was seen in the form of an increased bond portfolio and amounts owing, whereas there was a fall in relation to land and buildings owing to divestment of real estate property.
The Tryg Vesta Group 18 March 2004 page 36 of 98
Profit/loss on investments 316 -55 -42 78 Profit/loss on ordinary activities before tax 358 -331 160 81
Profit/loss on investments -1 -1 0 Profit /loss on ordinary activities before tax -49 -67 -29 - *) The figures are pro forma figures as the Tryg Vesta Group was established on 28 June 2002.
The Tryg Vesta Group 18 March 2004 page 37 of 98
Profit/loss on investments 4 32 -2 26 Profit/loss on ordinary activities before tax -45 4 -9 -10
Profit/loss on investments -10 -5 -3 15 Profit/loss on ordinary activities before tax -247 -297 -20 21
**) Business in run-off comprises run-off across the legal structure, including Chevanstell Ltd.
Earned premiums, net of reinsurance 7,493 6,314 5,781 5,729 Technical interest, net of reinsurance 221 326 338 392 Claims incurred, net of reinsurance -5,657 -5,265 -4,776 -4,829 Insurance operating expenses, net of reinsurance -1,584 -1,399 -1,399 -1,528 Change in equalisation provisions -34 -40 7 3
The Tryg Vesta Group 18 March 2004 page 39 of 98
The technical result for 2003 was a profit of DKK 439m against a loss of DKK 64m reported in 2002. The positive development of the technical result was a consequence of the many profitability measures taken.
Throughout the period, the personal insurance business showed a continued improved development towards a satisfactory level in 2003.
The positive development of the technical result was expressed in a combined ratio, net of reinsurance, of 96.6, which was a significant improvement relative to the combined ratio, net of reinsurance, of 105.6 recorded in 2002.
Relative to the level in 2002 and the years before, targeted measures within the commercial insurance operations resulted in a marked change of level in
In connection with the premium increases, Tryg saw that the paramount part of its customers chose to continue being insured by Tryg. The reason for this was partly that the premium increases in particular were directed towards the commercial customers in relation to whom the insurance agents have a close relationship, and partly that the insurers in the Danish market in general increased premiums on commercial policies in 2003.
Compensation insurance policies was not satisfactory, which has necessitated a considerable strengthening of the reserves. The negative development resulted in a run-off loss of DKK 150m within this area. In order to reestablish profitability, the premiums of selected customer segments have been increased. On 1
Compensation insurance. The amendment leads to premium increases of an average of 55 per cent.
In relation to the personal insurance business in 2003, general premium increases were introduced on household contents insurance policies by an average of 14 per cent.
The initiatives within the commercial insurance business were primarily targeted at the relatively large commercial customers. Consequently, the contents and property insurance policies for this customer segment were on average increased by approximately 48 per cent.
In 2003, the claims ratio, net of reinsurance, was 75.5, which was an improvement relative to the claims ratio of 83.4 recorded in 2002. The marked improvement is in particular due to the premium increases mentioned on commercial policies as well as to loss limiting initiatives, which typically comprise an increase in the customers’
Ceded business in percentage rel. to gross premiums 7.8 9.2 2.0 -4.1 Gross claims ratio, net of ceded business 80.7 85.0 79.2 82.5
Number of full-time employees at the end of the period 1,460 1,374 1,272 1,141
DKK 358m against a loss of DKK 331 for 2002. The profit was composed of a technical result of DKK 42m and a profit on investments of DKK 316m.
* Pro forma figures As appears from the first line in the table above, the exchange rate of NOK fell relative to DKK during 2003.
The profitability of the commercial insurance business was in general not satisfactory, and consequently there is a demand for further initiatives in the years ahead.
Premiums Key ratios The gross earned premiums for 2003 were DKK
The growth was in particular attributable to recent years’ premium increases – primarily within the commercial insurance portfolio – having materialised.
The development was satisfactory within the personal insurance business and less satisfactory within the commercial business area despite the fact that Vesta’s commercial customers were spared large losses again this year.
Earned premiums, net of reinsurance 655 646 511 374 Technical interest, net of reinsurance 19 24 24 23 Claims incurred, net of reinsurance -495 -506 -369 -303 Insurance operating expenses, net of reinsurance -198 -271 -194 -129 Change in equalisation provisions 9 -5 16 -20
Premiums The technical result amounted to a loss of DKK 10m, which was an improvement relative to the negative results for the previous years.
The premium development was formed by two opposite trends: Earned premiums were reduced in line with the plans for this business area since the extent of business written was reduced, and simultaneously, the rates increased. Therefore, the correlation between premium and risk was improved considerably in spite of the falling absolute premium level.
On 31 December 2003, TBi sold its wholly owned subsidiary Chevanstell Ltd., in relation to which run-off procedures were initiated on 4 September 2003.
do not appear under TBi, on the other hand, they appear under business in run-off. Claims
The claims ratio, net of reinsurance, was 75.6, which was an improvement of 2.7 percentage points on the
figure for 2002. This was especially attributable to the fact that Europe, where most of TBi’s business is placed, was spared large natural disasters owing to mild weather. The intensified demands for profitability of the business written also contributed considerably to the improved claims ratio.
The expense ratio, net of reinsurance, was 30.2, which was an improvement of 11.8 percentage points on the figure for 2002. The expenses were considerably affected by a one-off income influencing the expense ratio positively by 5.4 percentage points. The reduction in the administrative expenses was attributable to the reinsurance system which was implemented in 2002, and which has increased efficiency in the administration.
Exchange rate DKK/EUR, average of the year 742.92 743.08 745.74 -
Profit on business in run-off, net of reinsurance 1 0 - Technical provisions, net of reinsurance 50 21 - -
Key ratios Claims ratio, net of reinsurance 78.2 104.3 91.1 Expense ratio, net of reinsurance 103.8 389.2 1,795.1 Combined ratio, net of reinsurance 182.0 493.5 1,886.2 -
The Finnish operations are still in a start-up phase and the most important goal is to achieve a sound and profitable business volume. Consequently, the financial results of the Finnish operations cannot be compared with the levels of the Tryg Vesta Group’s Norwegian and Danish general insurance operations, on the other hand, the Finnish operations should be viewed as an investment in compliance with the Group’s wish to be present in the Nordic countries, where profitable operations are anticipated in the years ahead.
The gross earned premiums were DKK 61m, which was a trebling relative to the DKK 21m recorded in 2002.
Insurance policies are sold through Nordea’s branches in Finland, which have a market share of approximately 40 per cent of the Finnish market for banking services.
During the year, the product portfolio was expanded with health insurance products among other things.
The claims ratio, net of reinsurance, was 78.2 for 2003 against 104.3 for 2002, which was a considerable
The Tryg Vesta Group 18 March 2004 page 47 of 98
The expense ratio for 2003 was 103.8, which was a marked reduction relative to the expense ratio of 389.2 recorded in 2002. The level of expenses reflects the fact that the operations in Finland are in a start-up phase. In connection with this, the fixed costs will be large relative to the total level of expenses.
Earned premiums, net of reinsurance 336 320 290 212 Technical interest, net of reinsurance 14 10 10 9 Claims incurred, net of reinsurance -234 -205 -181 -157 Insurance operating expenses, net of reinsurance -166 -153 -126 -99 Change in equalisation provisions 1 0 0 -1
Profit/loss on business in run-off, net of reinsurance 3 0 -11 -3 Technical provisions, net of reinsurance 276 275 263 198
Key ratios Claims ratio, net of reinsurance 69.7 64.0 62.8 73.8 Expense ratio, net of reinsurance 49.5 47.7 43.5 46.7 Combined ratio, net of reinsurance 119.2 111.7 106.3 120.5
Further, the development in earned premiums was affected by the change towards a relatively larger share of personal customers in the portfolio. From a portfolio composition where the personal customers’ share of the earned premiums was approximately 60 per cent, this share is now approximately 70 per cent.
The loss on ordinary activities before tax of the Polish general insurance operations for 2003 was DKK 45m, which was a deterioration relative to the profit of DKK
4m recorded in 2002. The financial results were unsatisfactory and were composed of a negative technical result of DKK 49m and a profit on investments of DKK 4m. In 2003, premium increases were implemented in relation to comprehensive motor insurance policies, and at the same time, it was decided to discontinue the sale of certain types of insurance policies due to their negative performance.
The gross earned premiums were DKK 491m, which by and large correspond to the level recorded in 2002.
The expense ratio for 2003 was 49.5, which was a slight increase on the level of 47.7 recorded in 2002. In 2004, efforts will be made to reduce the ratio by way of using less cost-consuming sales channels. Further, the number of employees in Poland was increased relative to 2002. This shall be seen as part of the initiatives to set up a less cost-consuming sales force to replace agents.
In addition to this, the expense ratio was affected by a one-off adjustment concerning reinsurance commissions of DKK 16m.
Exchange rate DKK/EEK, average of the year 47.48 47.49 - -
Earned premiums, net of reinsurance 34 37 - Technical interest, net of reinsurance 1 1 - Claims incurred, net of reinsurance -23 -30 - Insurance operating expenses, net of reinsurance -13 -21 - Change in equalisation provisions 0 0 - -
Profit on business in run-off, net of reinsurance 2 0 - Technical provisions, net of reinsurance 21 20 - -
Number of full-time employees at the end of the period 76 82 - -
Earned premiums, net of reinsurance 376 814 751 426 Technical interest, net of reinsurance 46 68 68 74 Claims incurred, net of reinsurance -469 -857 -575 -325 Insurance operating expenses, net of reinsurance -189 -363 -240 -138 Change in equalisation provisions -1 46 -21 -31
Loss on business in run-off, net of reinsurance -182 -170 -32 -21 Technical provisions, net of reinsurance 828 1,197 1,543 1,159
Key ratios Claims ratio, net of reinsurance 125.2 105.2 76.3 76.3 Expense ratio, net of reinsurance 50.4 44.6 32.0 32.3 Combined ratio, net of reinsurance 175.6 149.8 108.3 108.6
The Tryg Vesta Group’s business in run-off comprises run-off across the legal structure. It includes primarily
Baltica Forsikring (Tryg Forsikring), run-off in relation to old mortgage guarantees and the like.
The technical provisions within the business in run-off area were essentially related to Chevanstell Ltd.
Financial results The claims ratio, net of reinsurance, was 93.6 relative to 98.2 in 2002, which is still at a high level. The total technical result was a loss of DKK 237m, which was an improvement of DKK 55m relative to
The Tryg Vesta Group 18 March 2004 page 53 of 98
Forsikring A/S, provisions of DKK 179m were made to cover this uncertainty among other things. Moreover, the provisions were made to cover the extraordinary expenses incurred in connection with restructuring in the Group.
The technical result of other business in run-off was a loss of DKK 122m relative to a loss of DKK 93m in
The loss was primarily attributable to the stop-loss agreement between Tryg Forsikring and Chevanstell
December 2002, as shares worth DKK 351m were acquired in 2003. During the same period of time, the proportion of bonds was increased from approximately 77 per cent to approximately 83 per cent. Real property worth DKK 1,278 was sold in 2003, reducing the portfolio of investment properties to DKK 2.0bn or 7.9 per cent of the total investment assets against 14.6 per cent at the end of 2002.
The Tryg Vesta Group 18 March 2004 page 55 of 98
companies, and small amounts in the other companies of the Tryg Vesta Group. The net investments were approximately DKK 3.3bn in 2003.
Tryg Vesta Group – investment assets, investments and return 31.12.2003 Investments Shares Bonds Real Total (nominal) (%) (net)
Government bonds and money market 10,082 47.9 7,689 42.9 * Excl. government certificates in the money market
The return on the total bond portfolio in the Tryg Vesta
Group, including cash funds and loans, was DKK 906m, corresponding to 4.9 per cent for the full year 2003, while the return on the bond portfolio, excluding cash funds, was 5.4 per cent in Tryg and 6.7 per cent in
Vesta. By way of comparison, a Danish government bond index with a term to maturity of 1-5 years yielded 4.2 per cent in 2003.
The Tryg Vesta Group 18 March 2004 page 56 of 98
The portfolio is well diversified and consists of highquality buildings, typically in prime locations in major cities in Denmark and Norway. The portfolio mainly comprises office property, but also a small proportion of other commercial property and residential property. The considerable reduction in the real property portfolio, which has taken place this year, has not affected the characteristics of the portfolio noticeably.
Most of the equities are in the Danish and Norwegian portfolios, while the Polish and Estonian portfolios and that of Tryg-Baltica international contain almost no shares.
During the year, the Tryg Vesta Group’s equity portfolio has changed so that the ratio between domestic equities (Denmark and Norway) and foreign equities now is 25/75, relative to 45/55 at the end of 2002.
Furthermore, most of the international share mandates were indexed in an American and a European portfolio, where they previously were active mandates and different in Denmark and Norway. The domestic mandates are still active, but with reduced possibility for deviating from benchmark.
The investment return on real property was DKK 215m, corresponding to a total return of 6.9 per cent.
Tryg was reduced by DKK 1.29bn, which corresponds to a halving of the Danish real property portfolio. At the end of 2003, the total proportion was 9.6 per cent relative to 23.5 per cent at the end of 2002. During the year, Vesta’s proportion of real property was reduced from 7.2 per cent to 6.3 per cent.
The financial year was very satisfactory for the international equity markets with good price rises and extraordinarily satisfactory for the Danish and
Norwegian markets. For the financial year, the return on investments in equities was DKK 328m, equivalent to a return of 16.9 per cent.
The Danish listed equities produced a yield of 21.4 per cent, whereas the Norwegian listed equities produced a yield of 24.6 per cent. The international listed equities produced a yield of 19.3 per cent. The total yield was negatively affected by the poor, relative performance of the non-indexed portfolios of listed equities and by the unsatisfactory return on unlisted and illiquid equities.
Denmark Targets reached in 2003 In connection with the interim financial statements, the
Group expected a combined ratio of 106 in 2003 for its
Group has discussed different models and talked with various potential partners, but since focus mainly was on profitability, the target as to a new partnership did not materialise.
At 30 June 2003, the Group downrated its expectations to the technical result due to the relatively low technical interest. The Group’s technical result for 2003 was DKK
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 59 of 98
In 2004, the Tryg Vesta Group will work with six strategic focus areas. The six areas shall contribute to the materialisation of the company’s total strategy supported by a Balanced Scorecard.
With this strategic focus area, the Tryg Vesta Group will ensure coherence between claims paid and earned premiums, and at the same time optimise the company’s expenses relative to earned premiums. The target is to reduce the company’s combined ratio to the target set for 2004 by identifying and fixing the correct price per risk, providing prudent and excellent claims handling enabling customers to understand the handling and settlement of their claims, implementing efficient work processes in the entire company to keep down administrative expenses, and by ensuring early awareness of and reaction to predictable developments.
The individual companies of the Tryg Vesta Group must be brought closer together, and the interaction between the units of the Group must be encouraged. The Group will gather its resources to harvest synergies and create even better results in future to the benefit of shareholders, customers and employees. The Group will specify the areas within which a coherent organisation, common processes, values and policies are to be established, and it will use resources on implementing new and up-to-date technology and on establishing a coherent IT strategy for the entire Group.
The Tryg Vesta Group 18 March 2004 page 60 of 98
The Tryg Vesta Group sees great possibility of growth in the existing profitable part of the personal and commercial portfolios in the Nordic region. The Group will target and develop the profitable part of the portfolio, and turn single-product customers into multiproduct customers. The Group will attract new customers based on a managed process – always taking profitability into mind – and the Group will focus on offering concepts creating peace of mind, rather than on selling single products.
Group is a Nordic insurance business based on Nordic values, and the employees must perceive their workplace as one united Group. Areas where it is crucial to share a common approach, and areas where the national differences and characteristics of the Group will continue to be its competitive strength, must be specified. Targets and policies will be established centrally – but business will be carried out locally.
Group expressed its expectations for a combined ratio of 102 in 2004 and 100 in 2005. In connection with the presentation of the financial results for the six months ended 30 June 2003, these expectations were preserved. But in connection with the financial results for the nine months ended 30 September 2003, the results achieved so far by the Group as well as the increased focus on earnings within the actual insurance operations motivated an upgrading of the expectations.
The background of focusing on earnings was the falling interest rates. A fall in the interest rates causes an increase in the requirements to the combined ratio in order to maintain the return on the shareholders’ equity.
Therefore, the combined ratio for 2004 was fixed close to 100 for 2004 – aiming at a level of about 95 for 2005.
This allows for external circumstances, which are beyond the control of the Tryg Vesta Group. Such external circumstances may affect earnings – and consequently also the level of the combined ratio. A
that should the Tryg Vesta Group incur a claim of between DKK 100m and DKK 300m, it would affect the combined ratio, net of reinsurance, by between 0.5 percentage point and 0.7 percentage point, and would impact the financial results by between DKK 65m and
On the whole, all expectations relate to 2004 and quarterly deviations are expected during the year – for instance seasonal variations resulting from the weather.
As mentioned, the Tryg Vesta Group has a target for a combined ratio of 100 for 2004. As a result of the risks involved in the operations, this means an expected combined ratio for 2004 within the level 98-102.
The reason for the relatively large spread in the expectations to the technical result is that a deviation of one percentage point in relation to the combined ratio will affect the financial results by approximately DKK
Tryg Vesta Group will relate the actual results to the expectations and targets, and examine whether deviations, if any, merely result from operational movements or from actual deviations from the targets.
As appears from the applied accounting policies on page 66-67, the annual report contains pro forma comparative figures for the financial years 2000, 2001 and 2002 for the Group. The Tryg Vesta Group was established on 28 June 2002 via payment in kind of the
Financial Supervisory Authority’s executive order on the presentation of consolidated financial statements by financial enterprises and financial Groups and in accordance with Danish Auditing Standards. Based on materiality and risk we have evaluated the business procedures, the accounting policies used and the significant estimates made and verified the basis for amounts and disclosures in the annual report. We believe that our audit provides a reasonable basis for our opinion.
We agree with the Executive Management on its comments on pro forma comparative figures and support the view that the pro forma comparative figures add increased informative value to the technical operations.
In our opinion, the annual report gives a true and fair view of the Group and parent company’s assets, liabilities and financial positions at 31 December 2003 and of the results of the Group and the parent company’s operations and of the Group’s cash flows for the financial year 2003 in accordance with Danish
Reference is made to the Executive Management’s description of the basis for stating the pro forma figures.
costs and software, which are amortised on a straightline basis over four years.
With reference to the transitional provisions of section 83(3) of the executive order on general insurance companies relating to recognition and measurement of goodwill, development costs and software in future periods, comparative figures have not been restated.
The consolidated financial statements and financial statements of Tryg Vesta Group A/S have been prepared in accordance with the Danish Consolidated
Supervisory Authority’s executive orders on the presentation of consolidated financial statements by insurance companies and financial statements by general insurance companies.
The above changes in the accounting policies do not affect the results for the year and shareholders’ equity.
A few items in the income statement and balance sheet have been reclassified relative to last year. The reclassifications do not affect the results and shareholders’ equity.
Statements Act. As the object of the parent company is to own subsidiary undertakings whose activities are primarily focused on insurance business, the parent company financial statements have been presented in accordance with the Danish Consolidated Insurance
The Tryg Vesta Group intends to implement international accounting standards for the consolidated financial statements as at 1 January 2005.
Tryg Vesta Group A/S as at 28 January 2002 and the company’s subsequent acquisition of the general insurance activities of Nordea AB as at 28 June 2002.
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 66 of 98
Pro forma comparative figures are stated on the basis of a consolidation of the companies forming part of the
Group as at 31 December 2003. See the Group overview on page 92.
The following should be taken into account when evaluating the pro forma comparative figures: Tryg Forsikring A/S and Vesta Forsikring AS are stated net of their life and pension insurance activities, which were operated by wholly-owned subsidiaries.
Insurance portfolios acquired from other companies, such as Zurich’s Danish and Norwegian general insurance portfolio, are included from the date of acquisition of the relevant portfolio.
equity of subsidiaries attributable to minority interests is stated separately in the statement of the consolidated profit and consolidated shareholders’ equity.
Goodwill arising on acquisitions represents the difference at the time of acquisition between the acquisition price and the proportionate share of the shareholders’ equity of the acquired undertaking made up in accordance with the accounting policies applied by Tryg Vesta Group A/S. The full amount of goodwill was previously amortised through the income statement in the year of acquisition. As from and including the 2003 financial year, goodwill is capitalised. See ‘Basis of preparation’ above.
The Tryg Vesta Group 18 March 2004 page 67 of 98
Claims incurred represent claims paid during the year adjusted for changes in provisions for claims less reinsurers’ share. Amounts to cover expenses incurred to combat and contain losses and to survey and assess claims are included in the item. In addition, the item includes run-off results regarding previous years. The part of the increase in technical provisions that can be ascribed to discounting is transferred to technical interest.
Bonus and premium rebates represent anticipated and reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been laid down prior to the financial year or when the business was written. Intragroup transactions
Earned premiums and claims incurred in relation to general insurance comprise general insurance as well as simple types of cover on death related to general insurance policies written by the general insurance companies.
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 68 of 98
and administrative expenses. Extraordinary items include amounts which by their nature are unusual for the company and which are clearly different from the ordinary operations. Reinsurance accepted
Premiums, claims and commissions relating to reinsurance accepted are generally included in the income statement on an estimated and assessed basis and accrued relative to expiry of the contracts.
Investment activities Tryg Vesta Group A/S is jointly taxed with the parent company Tryg i Danmark smba and the majority of the company’s subsidiary undertakings, including the subsidiary Tryg Forsikring A/S. Tax relating to the jointly taxed income is recognised in the jointly taxed Danish companies in proportion to their profit. Changes in deferred taxes or deferred tax assets are recognised in the companies having the liability or the claim.
Development costs and capitalised software are measured at cost less amortisation. The assets are amortised on a straight-line basis over four years from the date they are taken into use.
Realised and unrealised gains and losses on derivative financial instruments are also recognised in the income statement.
Investment management charges represent expenses relating to the management of investments. Brokerage and commission have been included in the purchase and sales price of the investment assets.
Land and buildings are measured at market value in accordance with the guidelines issued by the Danish
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 69 of 98
to be determined based on a systematic annual assessment of each individual property taking into account expected future operating return and a return requirement for each property.
Listed shares, unit trust units, bonds etc. are measured at the most recent prices quoted at the end of the year.
Unquoted shares, fixed-interest loans etc. are measured at a conservatively estimated market value at the end of the year based on the companies’ most recent financial statements available.
Prepaid acquisition costs mainly comprise the part of commission expenses to other insurance companies etc. relating to unearned premiums provisions.
Group to manage its assets and liabilities more efficiently, thereby reducing risk or causing only a small increase in risk.
Dividends expected to be declared for the year are shown in the profit allocation. Deposits with ceding undertaking, receivable
Deposits comprise amounts owed to the company in respect of reinsurance business accepted, and retained by the ceding undertaking pursuant to the reinsurance contract.
Unearned premium provisions represent the proportion of premiums and reinsurance premiums collected which relates to subsequent financial years. Amounts owing
Provisions for claims represent amounts to cover claims incurred before the balance sheet date, whether Amounts owing are measured at nominal value less a provision for any losses.
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 70 of 98
Provisions for other risks and charges reported or not. Provisions for claims are calculated on the basis of information available concerning the extent of the losses plus an amount based on past experience to cover claims incurred but not reported. The provisions include direct costs of combating, containing, inspecting and assessing claims. Long-tail provisions calculated using statistical methods are discounted.
Vesta, which is a defined benefit plan, has been marked to estimated market employing Norwegian assumptions in relation to the long-term real economy, pension and mortality. Provisions for annuities relate to compulsory Workers’
Compensation insurance in Denmark, which is settled by payment of annuities. The provisions are calculated using actuarial principles at the present value by discounting expected future payments.
Provisions for tax comprise deferred net tax amounts calculated as 30 per cent of the present value of net positive timing differences between accounting and taxable values less tax losses to the extent that they are expected to be offset against future positive taxable income.
Equalisation provisions represent amounts included to equalise future claims, net of reinsurance, in areas where experience has shown that claims vary.
Deferred tax is not provided on untaxed contingency reserves. It is not expected that future movements in technical provisions will result in a crystallisation of tax on the contingency reserve. The untaxed contingency reserves are disclosed in the notes to the financial statements under shareholders’ equity.
Equalisation provisions in credit and guarantee insurance are calculated in accordance with rules laid down by the Danish Financial Supervisory Authority.
For Workers’ Compensation insurance in Denmark, equalisation provisions are calculated as the difference between the technical provisions made up at basic interest rates of 2.00 per cent and 2.75 per cent, respectively. In addition, equalisation provisions comprise the compulsory Norwegian Pool of Natural
Deposits comprise amounts due in respect of reinsurance business accepted and retained pursuant to the reinsurance contracts.
Other technical provisions represent provisions for risk not yet run off. The provisions represent the amounts deemed necessary, in addition to unearned premiums provisions and future premium rates, to cover future, anticipated expenses and settlement of claims not yet incurred within the period of coverage of the policies.
The cash flow statement is presented in accordance with the indirect method based on premiums.
from operations, and changes in liquidity resulting from purchases or sales of investments as well as funding activities. The item ‘Cash and cash equivalents’
Income from investment assets Income from non-consolidated undertakings 0 17 0 Income from land and buildings 193 230 112 6 Interest and dividends, etc. 883 978 541 7 Realised gains on investment assets 165 286 60
Total income from investment assets 1,241 1,511 713 7 Unrealised gains on investment assets 476 0 0
Return on investment activities before transfer to insurance activities 1,448 842 611 2 Technical interest transferred to insurance activities -773 -1,017 -518
Tryg Vesta Group's share of the profit/loss for the year 742 -2,091 -1,679 *) Subsidiaries included from 28 June 2002
Deposits in credit institutions 415 291 291 13 Total other financial investment assets 22,794 20,188 #REFERENCE!
From insurance brokers 478 764 764 Total amounts owing in relation to direct insurance business 1,281 1,862 1,862 Amounts owing from insurance companies 1,474 1,358 1,358 Amounts owing from subsidiary undertakings 51 0 #REFERENCE!
Other assets Furniture, equipment, computer hardware, motor vehicles, etc. 392 468 468 Cash in hand and at bank 558 735 735 15 Tax assets 425 495 #REFERENCE!
Prepayments and accrued income Accrued interest and rent earned 262 282 282 Prepaid acquisition costs 41 86 86 Other prepayments and accrued income 72 355 355
Total assets to cover the Danish companies' insurance provisions 16,791 -
The reinsurers' share -393 -667 -667 Provisions for unearned premiums, net of reinsurance 4,846 5,044 5,044
The reinsurers' share -3,324 -3,965 -3,965 Provisions for claims, net of reinsurance 14,888 13,871 13,871
Provisions for annuities by Workers' Compensation 18 Provisions for annuities, net of reinsurance 1,159 1,139 1,139
Provisions for bonuses and premium rebates, net of reinsurance 76 64 64 20 Other insurance provisions, net of reinsurance 82 50 51
Debt Debt related to direct insurance 391 425 425 Debt related to reinsurance 520 580 580 Debt to credit institutions 656 1,249 1,249
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 76 of 98
Investments Acquisition/sale of real property (net) 22 Acquisition/sale of equity investments and unit trust units (net) -394 Purchase/sale of bonds (net) -3,464 Purchase/sale of secured loans and other loan (net) 210 Purchase/sale of operating equipment (net) -56 Acquisition of subsidiaries -6 Total investments -3,688
Changes in cash and cash equivalents, net Price adjustment of cash and cash equivalents, beginning-of-year -123 Additions relating to acquisition of subsidiaries -54 Changes in cash and cash equivalents, gross -177 Cash and cash equivalents, beginning-of-year 735 Cash and cash equivalents, year-end 558
Other EU countries 226 279 155 2 Technical interest, net of reinsurance Transferred from investment activities 773 1,017 518 3 Claims incurred, net of reinsurance
Run-off gains/losses previous years, net of reinsurance Run-off previous year, gross -1,215 -620 -270 Run-off previous year, reinsurers' share 516 -8 -105 *) Subsidiaries included from 28 June 2002
Pro forma 4 Insurance operating expenses, net of reinsurance Commission regarding direct business -655 -527 -219 Other acquisition costs -1,425 -1,511 -818 Total acquisition costs -2,080 -2,038 -1,037 Total administrative expenses -1,885 -2,091 -1,044 Insurance operating expenses, gross -3,965 -4,129 -2,081 Commission, etc. from reinsurers 339 552 321
Other expenses to social security -120 -163 -97 Payroll tax, etc. -97 -118 -55
Average number of full-time employees during the year -4,438 4,437 4,437
Administrative expenses include fee to the auditors appointed by the Annual General Meeting
Beyond this, other ordinary expenses are defrayed to the Group's Internal Audit Department.
Other ordinary expenses -22 -52 -52 Holding expenses form part of other ordinary expenses and Vesta Forsikring AS and is charged to Tryg Vesta Group A/S via the cost allocation.
Incentive schemes based on shares have not been made with the Executive Management. But the Executive Management has earned bonuses of DKK 2,5m for 2003.
Remuneration for the Executive Management is paid by Tryg Forsikring A/S
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 79 of 98
Profit/loss on ceded business -13 75 -30 -5 -36 -40 -8 -50 -182 -418
Profit/loss on ceded business -71 -95 -579 -195 -97 -158 -36 -33 39 -275
Gross earned premiums 17,389 17,062 Gross claims incurred -12,775 -13,247 Change in other technical provisions 15 17 Bonuses and premium rebates -56 -60 Gross operating expenses -3,965 -4,129 Profit/loss on ceded business -1,013 -1,194 Change in equalisation provisions -101 -199 Technical interest, net of reinsurance 641 899
The Tryg Vesta Group 18 March 2004 page 81 of 98
Dividends on capital participation 52 46 9 Interest on securities, etc. 917 949 542 Capital gains by drawing and servicing of securities, etc. -86 -17 -10 7 Realised and unrealised gains/losses on investment assets Land and buildings 21 57 51 Other capital participation 252 -889 -447 Bonds listed on the stock exchange excl. index-linked bonds 361 670 455 Mortgage loans 7 0 Other loans and advances 0 -2
Allocated to the following items Net realised gains/losses on investment assets 165 286 60 Net unrealised gains/losses on investment assets 476 -450 -3 8 Extraordinary expenses Goodwill in connection with acquisition of subsidiares 0 -956 -1,182 Restructuring and run-off expenses 0 -300 -300 9 Taxation Taxation regarding previous years 52 10 12
Forein exchange adjustment, beginning-of-year -100 14 14 Additions by the acquisition of subsidiares 0 3,032 3,032 Additions during the year 289 45 45 Disposals during the year -1,409 0 0
Additions by the acquisition of subsidiaries 0 -84 -84 Write-downs during the year -48 -1 -1 Reversal of write-downs 5 8 8 Write-downs, real property disposed of 66 0 #REFERENCE!
Of which property used by the companies for their operation 358 409 409
Public land assessment 1,140 2,276 2,276 Non-assessed property 6 94 94
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 82 of 98
Shareholding of more than 5% of the company share capital The company Ownership according to the latest annual reports shareholders' equity share
Eidsvåg Fabrikker, Bergen 29 28 Bilskadeinstituttet, Oslo 4 23 Nygårdstangen, Bergen 20 15 Finansnærings huset, Oslo 32 15 Account Data A/S, Frederiksberg 1 14 Forsikringsakademiet A/S, Hørsholm Kommune 31 12 A/S Forsikringens Hus, København 43 12 Moskenes Fiskindustri, Moskenes 3 10 Lofoten Trålerrederi, Stamsund 46 10 Norsk Tillitsmann, Oslo 20 10 Riksheim Henningsvær, Henningsvær -1 10 Minox Technology, Notodden 11 8 Industrifinans Boligeiendom, Oslo 33 7 Andøy Trafikklag, Andenes 2 6 Privathospitalet Hamlet af 1994 A/S, Frederiksberg 11 6 Norsk Stålpress, Bergen 5 6 Høyteknologisenteret, Bergen 70 6 13 Other financial investment assets Book value Capital participation 2,323 1,825 #REFERENCE! Unit trust units 18 14 #REFERENCE!
Deposits in credit institutions 100 291 291 14 Other amounts owing The sale of Tryg Ejendom I A/S to Nordea Pension Danmark, livsforsikringsselskab A/S, forms part of amounts owing by DKK 1,2 bn 15 Tax assets Land and buildings 63 69 69 Bonds and loans secured by mortgage -59 -2 -2 Operating equipment and provisions, etc. 227 240 240
The Tryg Vesta Group 18 March 2004 page 84 of 98
Premium by way of non-cash contributions 0 4,647 #REFERENCE! transferred to retained profits 0 -1,679 -1,679 Balance 31 December 2,968 2,968 #REFERENCE!
Settlement period 11,5 year 12,0 year 12 år Discounting interest rate 2.75% 2,75% 2,75%
Storm and large perils 185 166 166 Equalisation provisions for Norwegian general insurance 869 907 907
During the year, DKK 173m has been spent of which DKK 121m was spent on Chevanstell Ltd, the wholly owned subsidiary of Tryg Forsikring
Tryg Forsikring A/S has concluded a collaboration agreement with CSC according to which CSC will handle the IT operations of Tryg Forsikring A/S, amounting to DKK 513m. The agreement is for a period of five years.
Tryg Forsikring A/S committed itself towards Nordea Pension Danmark, livsforsikringsselskab A/S, to repurchase one property in connection with spinn-off of the subsidiary, Tryg Ejendomme I. Lease guarantees have been issued and consequently, the liabilities provided for amounted to DKK 33m.
Tryg Ejendomme II DKE A/S is jointly and severally liable together with the partly split up company Ejendom I A/S for all obligations existing at the time of the publication of the spin-off, however maximum with the reversed value of DKK 382m.
Most of the companies of the Tryg Vesta Group are jointly taxed and jointly and severally liable for payment of imposed corporation tax.
Companies of the Group are part of some disputes the outcome of which is not estimated to affect the financial position of the Group.
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 85 of 98
The Tryg Vesta Group 18 March 2004 page 86 of 98
Income from investment activities 1 Income from subsidiary undertakings 795 -425 2 Interest and dividends, etc. 43 4
Profit/loss for the year 742 -1,679 *) Subsidiaries included from 28 June 2002
Other Assets Cash in hand and at bank 50 14 7 Deferred tax assets 6 0
1 Income from subsidiary undertakings Tryg Forsikring A/S 795 -524 Vesta Forsikring AS - 101 Nordicum Kindlustuse Eesti AS - -2 2 Interest and dividends, etc. Interest on securities, etc. 43 4 3 Other ordinary expenses Administrative expenses -22 -52
Remuneration for the Executive Management 5 Remuneration for the Supervisory Board 2 -
Administrative expenses include fee to the auditors appointed by the General Meeting: Grant Thornton -0.2 0.0
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 89 of 98
Write-down by non-cash contribution 0 -1,182 Profit/loss for the year of subsidiaries 795 -424 Write-downs of subsidiaries divested -19 0
Ownership Profit Shareholders' Name and registered office interest % for the year equity as at 31.12.2003
The company has advanced a subordinate loan of DKK 600m to Tryg Forsikring A/S.
Share capital when founded 0 1 Capital contribution by non-cash contribution 0 1,000 Capital increase 400 300
Transferred from share premium account 0 1,679 Transferred cf. distribution of profit 692 -1,679
In Vesta Forsikring AS and Dansk Kautionsforsikring-Aktieselskab, untaxed provisions for contingency fonds form part of the shareholders' equity with NOK 2.026m and DKK 139m, respectively.
Notes 9 Capital adequacy Shareholders' equity according to the annual report 5,360 4,268 Capitalise tax assets -6 0 Solvency requirements to affiliated undertakings -2,610 -2,561
Solvency pursuant to s. 21, subs. 1 of the Commercial Banks and Savings Banks, etc. Consolidated Act 86% 61%
The companies of the Tryg Vesta Group have concluded reinsurance treaties and agreements about interest payment on current accounts based on market terms.
Born in 1944 Member of the Supervisory Board of Nordea Pension
Board of DSV, De Sammensluttede Vognmænd af 13.7.1976 A/S, Member of the Supervisory Board of
Member of the Supervisory Board of AF A/S, Member of the Supervisory Board of Arla Foods Finance A/S,
Sønner Finans A/S, Chairman of the Supervisory Board of Jacob Holm Industries A/S, Chairman of the
Supervisory Board of Sjælsø Gruppen A/S, Member of the Supervisory Board of RENOFLEX-GRUPPEN A/S,
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 94 of 98
Danmark smba, Member of the Executive Management of Tryg Forsikring A/S, Member of the Supervisory
Supervisory Board of Vesta Forsikring AS, Member of the Supervisory Board of m Tryg Polska Towarzystwo
Dansk Kautionsforsikrings-Aktieselskab, Chairman of the Supervisory Board of Tryg Polska Towarzystwo
1987-1988: Manager, Asea Cylinda A/S, 1987-88 1985-1987: Head of Export Marketing, LK as 1985: Management Assistant, LK as 1982-1984: Project Manager, Crone og Koch
France 1994-95: Leadership in Organisations, Insead, France 1971: Machine engineer, Danmarks Ingeniørakademi
1977-1986: Senior Vice President and Head of main office, Egnssparekassen Lolland-Falster, Sparekassen
School of Management 1979: B. Com., Norwegian School of Economics and
Board of Polygon AS, Member of the Supervisory Board of Finansnæringens Hus AS, Member of the
Previous positions 2000-2004; Division Manager, Products, Vesta 1994-2002: Division Manager, Group Services, Vesta 1988-1994: Division Manager, Claims Dept., Vesta 1987-1988: Functional Director, Næringsliv, Vesta 1985-1987: Product Manager, Fire – Commercial,
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 97 of 98
Average shareholders’ equity The financial highlights and key ratios of the Tryg Vesta
“Accounting policies”, the items of the income statement and balance sheet are further commented.
Key ratios accounted for according to other method refers to the fact that the key ratios in the annual report of the Tryg Vesta Group are calculated in accordance with the rules stipulated by the Danish Financial
Supervisory Authority, according to which the combined ratio, net of reinsurance, is stated as the sum of the claims ratio, net of reinsurance, and the expense ratio, net of reinsurance. However, the key ratios may also be accounted for according to another method, which is used by some other players in the Danish insurance market. Accoding to this method, the combined ratio is calculated as the sum of the gross claims ratio, gross expense ratio and the result of ceded business in percentage relative to gross premiums. This method makes it easier to indentify the actual costs of reinsurance.
means that the amount is calculated after deduction of reinsurers’ share.
Claims ratio, net of reinsurance expresses the relation between claims incurred, net of reinsurance, and earned premiums, net of reinsurance. Danish general insurance consists of the legal companies Tryg Forsikring A/S,
Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 98 of 98