8 Events in 2018 9 Financial outlook 11 Targets and strategy 15 Tryg’s results 20 Private 22 Commercial 24 Corporate 26 Sweden 28 Investment activities 31 Capital and risk management 33 Investor information 35 Corporate governance 40 Supervisory Board 43 Executive Board 44 Corporate Responsibility in Tryg
Financial statements 48 Financial statements 118 Group chart 119 Glossary 120 Product overview
Kjøbenhavns Brand (the oldest component in Tryg’s history) was established by Royal Decree as a result of the Copenhagen fire in 1728
• Tryg presented new financial targets and customer targets for 2020 at Capital Markets Day
Tryg was listed on the OMX Nordic Stock Exchange Copenhagen on 14 October
• TryghedsGruppen paid out member bonus: 8 per cent of premium paid to Tryg for 2017
• Jukka Pertola was elected new Chairman of the Supervisory Board
We aim to distri b ute a nominal, stable increase in dividend and to pay out 60-90% of our profit.
Owns 60% of Tryg and annually contributes around DKK 600m to projects that create peace of mind via TrygFonden.
We offer a broad range of insurance products for private individuals as well as businesses.
Tryg received the final approval of the Alka acquisition from the Danish Competition and Consumer Authority in November 2018. The acquisition of Alka complements Tryg’s position and distribution presence in the Danish private market, Tryg’s core market segment.
Alka is very strong on customer satisfaction with a score of 80.2 in the annual customer satisfaction survey. A company with a score above 75 holds a very strong position amongst its customers according to EPSI*.
* EPSI Rating is a model used for measuring customer satisfaction. Today, 12 European countries are using this model.
More than 100 years of experience within the insurance industry 100+ yrs
Annual report 2018 | Tryg A/S | 4Contents – Management’s review
Annual report 2018 | Tryg A/S | 5Contents – Management’s review
Profit/loss on gross business 781 796 3,400 3,582 3,351 1,695 3,313 Profit/loss on ceded business -184 -170 -624 -779 -951 710 -341 Insurance technical interest, net of reinsurance -1 -4 -10 -14 -10 18 60
Profit/loss on continuing business 112 527 1,733 2,519 2,472 1,920 2,547 Profit/loss on discontinued and divested business after tax -2 0 -2 -2 -1 49 10
Claims ratio, net of ceded business 72.6 72.3 70.7 70.4 71.0 71.5 69.6
Combined ratio on business areas Private 80.1 82.0 81.6 82.1 83.8 85.4 82.5
Annual report 2018 | Tryg A/S | 6Contents – Management’s review
First year with new targets and new purpose At the capital markets day in November 2017, Tryg announced new financial targets and customer targets for the period up until 2020. The acquisition of Alka increased the technical result target from DKK 2,800m to DKK 3,300m.
In 2018, Tryg reported an improvement in the under lying claims level with progress in all areas. Earnings are still not satisfactory for Corporate, and efforts to improve profitability will continue in the coming years. Tryg saw a markedly improved level of customer loyalty – in terms of the degree of customer satisfaction (TNPS), which was 67, and an improved renewal rate for all areas. This also contributed to growth in premium income of 6.3%.
Tryg’s new purpose “As the world changes, we make it easier to be tryg” proved its worth and served as a general guide in 2018 – from daily customer contact to strategic decisions.
Digitalisation and innovation The insurance industry is confronted by rapid changes in recent years. To maintain a leading position in the future, Tryg focuses strongly on digitalisation and innovation. The development of digital solutions continues, and more than one third of claims are reported online, while online sales of insurance products have shown a substantial increase. The development of innovative auto motive products continued in 2018, and we have now launched products where the driver’s behaviour determines the insurance premium payable in all countries.
Claims management and prevention Tryg continues to utilise its very large purchasing power, which will benefit both shareholders and customers. Prevention is very important, and it is integrated into our products, for example by an alarm in our contents product and through offering a rat blocker as part of the house insurance product.
Changes to the Supervisory board At Tryg’s annual general meeting, Deputy Chairman Jukka Pertola was appointed Chairman, succeeding TryghedsGruppen’s Chairman Jørgen Huno Rasmussen.
Partner agreement with GoMore Tryg entered into a partner agreement with GoMore, the largest sharing-economy platform for car sharing and ride sharing in the Nordics. GoMore is the 25th platform for which Tryg has tailored an insurance solution. Tryg is now the largest supplier of insur- ance solutions for sharing-economy solutions in the Nordics.
Tryg appoints new CFO Tryg appointed a new CFO. Barbara Plucnar Jensen is a strong financial profile, who, in addition to her experience from ISS’s UK and Irish markets, has solid experience within investments and treasury. She will be responsible for our continued strong financial management through the digital transformation, which is well advanced in the Tryg Group.
New personal insurance Private Denmark launched a new personal insurance product which combines accident, health, dental and sickness insurance under one insurance policy. This means that customers will be covered from top to toe. The new insurance is potentially relevant for up to 800,000 public employees who are not covered by company-paid health insurance plans.
‘Tryg Tilbage’ and ‘Tryg Health’ Corporate Denmark launched a training programme app as part of the ‘Tryg Tilbage’ concept related to workers’ compensation. The concept includes quick diagnosis, quick treatment and subsequent rehabilitation. Also, a new health prevention concept was launched, involving health screening and also an app, ‘Tryg Health’, giving customers a quick overview of all the services that they can access through ‘Tryg Health’.
Strategic partnership with Danske Bank As part of Tryg’s 2020 strategy to strengthen the company’s distribution, Tryg entered into a new Nordic partnership with Danske Bank. In Spring 2019, Danske Bank customers will be offered competitive insurance solutions with unique benefits. This partnership will cover all the countries and markets in which Tryg operates – i.e. both private and commercial in Denmark and Norway, and private in Sweden.
In November 2018, Tryg announced that the acquisition of Alka was completed. Tryg has a target for synergies of DKK 300m related to the acquisition with a full run-rate impact in 2021.
The general macroeconomic situation in Scandinavia remains relatively positive, especially compared to the Euro zone. Government indebtedness is low, unemployment rates are below 5% in both Denmark and Norway, while GDP growth is expected to be close to 2%. Tryg expects gross premium income to grow by 0-2% in local currencies in 2019 (exclusive of M&As), which is unchanged from 2018.
Retention levels are also very high in the Nordic region compared to nearly everywhere else in the world. This is a key profitability driver as it helps insurers to keep their overall expenses at a low level. Retention rates hover around 90% in the Private and Commercial (SMEs) segments, which represent around 75% of Tryg’s total business. A direct distribution model also contributes substantially to the very efficient set-up. Close to 100% of new sales in Denmark and Norway (Private and Commercial segments) are generated through Tryg’s direct multi-channel distribution set-up.
Tryg reported an expense ratio of 14.4 (14.1 excluding Alka) at the end of 2018, while the target for 2020 is an expense ratio ~14%. In the 2017-2020 period, the expense ratio will be impacted by
after tax 9Contents – Management’s review Annual report 2018 | Tryg A/S |
The interest rate used to discount Tryg’s technical provisions is historically low. An interest rate increase will have a positive effect on Tryg’s results. An interest rate increase of 1 percentage point will increase the pre-tax result by around DKK 300m, and vice versa.
Alka has produced an approximate DKK 300m stand-alone technical result in the past few years. Synergies are expected to be realised in
Financial targets On 20 November 2017, Tryg presented a set of new targets for 2020. The targets were later updated following the acquisition of Alka. Tryg’s main target for 2020 is a technical result of DKK 3,300m. Other targets are a combined ratio target at or below 86, an expense ratio target of around 14 and a return on equity target at or above 21% after tax.
The expense ratio will be improved through an increase in distribution efficiency, but will also be impacted by investments in IT, data and analytics. Striking the right balance between efficiency and the need to re-invest in the business is extremely important. This underpins the new 2020 targets.
The technical result for FY 2018, excluding one- off costs related to Alka and Alka’s contribution to the technical result, was DKK 2,826m, the combined ratio 84.5 and the expense ratio 14.1.
First year with a new purpose 2018 was the first year with Tryg’s new purpose ‘As the world changes, we make it easier to be tryg’. The purpose has been very well received by the employees in Tryg and serves as a guiding principle that unites and motivates the organisation.
Our customers – our most important asset Our customers are our most important asset. Tryg strives to continuously strengthen customer relations through our advisory services, products, concepts, claims handling procedures and claims prevention measures.
Our employees – our most important resource Our employees are our most important resource and key to fulfilling our purpose of making it easier to be ‘tryg’. All Tryg employees must feel that they have an opportunity to be successful.
savings of an estimated value of DKK 150m. The drivers of the initiative are: • Further leverage of Tryg’s procurement power which reduced claims costs by more than DKK 100m in 2018. This has been achieved by negotiating better contracts with suppliers and ensuring a higher utilisation rate.
• Increased fraud detection expertise, which has been driving an approximately 25% higher level of fraud discovery. The improvement has been achieved through better automated identification of fraudulent behaviour in relation to online claims, and by improving the fraud identification competencies of the claim handlers.
• Improvement of the claims handling process. The claims handling process has been improved through several initiatives, e.g.: using data and speech analytics, more accurate claim assessment and better recourse management. In 2018, Tryg also initiated the implementation of a new claims handling system, which will further improve the claims handling process.
Customer targets Our customer targets remain highly relevant for realising our financial targets. Tryg has decided to focus on customer satisfaction for interacting customers. This is measured through the Transactional Net Promotor Score (TNPS). The TNPS target for 2020 is 70, and in 2018 we saw a continual increase throughout the year, and a TNPS of 67 was achieved.
Claims excellence is targeted at reducing claims costs by DKK 600m. The strategic initiative is on track, and in 2018 realised claims cost
Product and service innovation is targeted at DKK 1,000m in 2020+. In 2018, the portfolio of these innovative products and services grew to approximately DKK 275m. Through this initiative Tryg wishes to adapt to a future which may be characterised by different insurance needs in terms of products and coverages. The key focus is profitability, and Tryg prefers not to define a specific growth target for this strategic area. The focus within this initiative are: • Developing products related to personal insurance and technology which are not in the market today. Examples of this are Tryg’s new health insurance product which can be customised to individual needs, a new cyber insurance product for the Commercial and Corporate segments, aimed at preventing and helping companies under cyber attack, and ‘Tryg Drive’ in Denmark and ‘SideKick’ in Norway, which reward customers for responsible driving behaviour with lower premiums.
Tryg is committed to the Digital empowerment of customers. Tryg’s target for 2020 is 50% straight-through processing (STP) of claims and a self-service level of 70% for all contacts with Tryg. The aim is to provide customers with seamless digital services that simplify their interaction with Tryg. In 2018, Tryg achieved a STP level of approximately 15% and a self-service level above 50%. The focus on digital services is expected to support both the financial targets with DKK 100m and the customer targets. The 2018 result within this strategic area amounts to approximately DKK 20m and has been achieved through: • Increased use of robots in the claims handling process. More than 17,000 claims were processed as STP, and in 2019 and 2020 the new claims handling system will further boost the number of STP in Denmark and Norway.
• In 2018, the number of digital self-service inter- actions surpassed the number of ‘analogue’ interactions with Tryg. This has been achieved by continuously introducing more digital selfservice solutions for customers. Specifically, in Norway Tryg’s digital focus led to the launch of the first online sales solution in the market for the Commercial segment.
Annual report 2018 | Tryg A/S | 13Contents – Management’s review
Distribution efficiency is targeted to have an impact of DKK 150m in 2020. In 2018, Tryg achieved efficiency gains through improved distribution corres ponding to an estimated value of approximately DKK 30m. The financial impact of this initiative is more back-end loaded as part of the improvement is driven by increased sales. The primary drivers for this strategic initiative are: • Changing the mix of distribution channels in the Private and Commercial segments (both in Denmark and Norway) to lower sales costs. In the Danish Private business, Tryg engages with independent sales agents selling exclusively for Tryg. In Norway, the Commercial business employs a similar franchise concept, and in the Danish Commercial business, a new type of sales agent was introduced in Q3 2018 that combines the traditional sales agent and customer centre sales.
of around 3% and the initiatives launched at the Capital Markets Day (hereafter CMD) in November 2017 had a positive impact on results, as shown by an improvement in the underlying claims ratio for the full year, both for the private segment and at group level. Premium growth in local currencies was 6.3%, or 2.3% exclusive of mergers and acquisitions as well as portfolio acquisitions.
Transactional Net Promoter Score (TNPS) 67 62 70 Number of products per customer 3.8 3.5 4 (+10%)
Tryg reported a technical result of DKK 2,766m (DKK 2,789m), or DKK 2,826m (DKK 2,789) adjusted for the Alka acquisition. The investment result was DKK -332m (DKK 527m) driven primarily by negative development in the equity markets. The 2018 pre-tax result was DKK 2,262m (DKK 3,239m) or DKK 2,398m (DKK 3,239m), adjusted for the Alka acquisition. Different returns in equity investments account for DKK 565m difference in the pre-tax result. Quarterly dividend of DKK 1.65 per share supporting Trygheds Gruppen’s member bonus. Solvency ratio of 165 following approval of the Alka transaction.
Annual report 2018 | Tryg A/S | 15Contents – Management’s review
become an important competitive advantage by boosting customer loyalty and customer targets. TryghedsGruppen has announced that the member bonus is a recurring payment although the level of bonus paid will be decided yearly. Stability is also important from this point of view. Tryg will be implementing price adjustments of around 3% in 2019 to continue improving the underlying level of profitability.
The Private segment reported growth of 5.1% excluding Alka (DKK 338m), driven by positive developments both in Private Denmark and Private Norway and small bolt-on acquisitions.
Private Denmark continues to perform well, supported by the member bonus from TryghedsGruppen, price adjustments and an increase in customer numbers. Private Norway is building further on the good momentum seen during the second half of 2018, showing top-line growth, also adjusting for portfolio acquisitions.
The Swedish business grew by 4.9%, driven mostly by the pet insurance segment (double-digit growth) and the extended warranty business.
Claims The claims ratio, net of ceded business, was 70.7% (70.4%), while the underlying claims ratio (excluding Alka and related one-offs), showed an underlying improvement of 0.4 percentage points driven by price adjustments and claims excellence initiatives. At the CMD in November 2017, Tryg launched a new strategy, which includes a DKK 600m ‘claims excellence’ programme, and in 2018 savings of DKK 150m were achieved. It is important to note that savings of approximately DKK 50m were impacting previous year’s results (run-off gain) and not current-year figures.
Claims inflation is monitored continuously, and price adjustments are pushed through accordingly. Motor insurance remains a very profitable segment, although an increase in claims frequency was seen, especially in the Norwegian part of the business, together with an increase in the average cost of claims due to the gradual introduction of more electronics. Additionally, in Norway approximately half of all new vehicles sold are electric/ hybrid, some of which are associated with different risk characteristics compared to normal vehicles. As a result, pricing must be carefully scrutinised.
Expenses The expense ratio was 14.4% (14.0%), with one- off costs of DKK 75m relating to the Alka transaction being booked in Q4 2018; without these the expense ratio would have been 14.1%. At the CMD, Tryg announced an expense ratio target around 14% in 2020. Tryg has already launched many initiatives aimed at reducing distribution costs, such as the use of new and cheaper distribution channels and the optimisation of existing channels. The benefits from these initiatives have, to some degree, been invested in digital solutions.
Annual report 2018 | Tryg A/S | 16Contents – Management’s review
Equities and other risky assets posted negative returns, driven by geo-political turbulence and intensifying talk of a trade war between the US and China. Equities returned approximately -11% for 2018 (driven by a -14.9% return in Q4 2018), while emerging market debt (a small asset class for Tryg) returned -6.7%. The free portfolio posted an overall result of DKK -33m (DKK 598m) for FY 2018, as positive developments in the first nine months where erased by negative developments in the last quarter of the year. The match portfolio result was DKK -2m (DKK 227m) as interest rates and credit spreads generally saw a flat development for the full-year 2018. Other financial income and expenses totalled DKK -297m (DKK -298m).
More details can be found here in a newsletter at tryg.com (Modelling the Alka integration)
Tax Tryg paid a total tax bill of DKK 529m (DKK 720m), or 23.3% of the profit before tax.
Capital position The solvency ratio (based on Tryg’s partial internal model) was 165 at year-end The solvency ratio was slightly lower than expected, driven by a longer (than initially estimated) period to obtain the Alka approval and therefore higher interest payments to the seller. Additionally negative investment returns (not related to equities) in Q4 have also weighed negatively on the solvency ratio. Tryg will pay a Q4 dividend of DKK 1.65 per share on 25 January 2019, which is in line with the dividend paid for the first three quarters of the year and also in line with the policy of paying a flat quarterly dividend.
Tryg pays a Q4 dividend per share of DKK 1.65 bringing the full-year dividend per share to DKK 6.60. 2018 was the seventh year in a row with an increased dividend.
Annual report 2018 | Tryg A/S | 17Contents – Management’s review
Claims The claims ratio, net of ceded business, was 72.6% (72.3%), impacted negatively by one- offs in the amount of DKK 49m relating to the Alka acquisition. Large claims were DKK 84m (DKK 79m), which is at a similar level compared to Q4 2017 but below a normal level, while weather claims were lower than normal at DKK 83m (DKK 126m). The run-off result was DKK 207m (DKK 219m). The underlying claims ratio improved 0.4 percentage points for the Group and 0.5 percentage points for Private.
The match portfolio produced a negative return driven by both its components, regulatory deviation and performance. The regulatory deviation produced a DKK -19m (DKK 11m) result as Danish swap rates widened vs the Euro swap rates, while the performance component produced a DKK -23m (DKK 2m) result as Nordic covered bonds spreads widened.
Taxes Tryg paid DKK 37m of taxes in Q4 or an overall tax rate of just below 25%. The tax effect of losses on the equities portfolio have been offset by adjustments to taxes for previous quarters, resulting in a total tax rate of 24.8 per cent for the quarter and 23.4 per cent for the full year – in line with the expectations of the beginning of the year.
The retention rate in Denmark increased from 90.2 to 91.2, while in Norway the retention rate increased from 85.8 to 86.7. The positive development in Denmark can be ascribed to a positive impact from the member bonus model and a strong focus on customer loyalty. In Private Norway, there was also a strong focus on customer loyalty, and the positive development was likely impacted by a reduction in the number of small, but very aggressive (and unprofitable) competitors in Norway.
Profit/loss on gross business 597 454 1,959 1,783 Profit/loss on ceded business -65 -57 -220 -211 Insurance technical interest, net of reinsurance -1 -3 -5 -7
Expenses The expense ratio for Private was 13.8 (13.7) and was almost unchanged and in line with the expectations for Tryg in general, reflecting investments in digital solutions financed by distribution efficiency.
Total employee numbers increased from 1,000 at the end of 2017 to 1,329 in 2018, mainly due to the acquisition of Alka and the upscaling of distribution to include more efficient channels.
Premiums Gross premiums increased by 21.2% (1.1%) in local currencies and were impacted by the Alka acquisition. Excluding the Alka acquisition, premium growth was 6.1%.
Expenses The expense ratio was 13.5 (13.7) and was impacted by the integration of Alka.
Expense ratio 21Contents – Management’s review Annual report 2018 | Tryg A/S |
New house insurance product In September 2018, Private Denmark launched a new house insurance product, which includes a rat blocker. The rat blocker is another important claims prevention initiative from Tryg. The rat blocker prevents rats from entering private houses from the sewers and damaging houses, pipes etc.
Results 2018 The technical result for 2018 was DKK 784m (DKK 667m), with a combined ratio of 80.3 (82.6). The combined ratio was affected by an aggregate level of weather claims and large claims, lower than the previous year, and a higher level of runoff. The development in premiums improved significantly due to the Alka and OBOS acquisitions.
To further improve this development, Commercial Denmark will continue to capitalise on the member bonus from TryghedsGruppen and has already started to hire more efficient sales agents to lower the cost of sales. The market position of Commercial Norway was strengthened through the acquisition of OBOS, which – in combination with initiatives supporting greater distribution power – fuelled a positive development in underlying premiums.
The retention rate for Commercial Denmark increased from 87.7 to 88.0, while in Norway the retention rate increased significantly from 86.9 to 87.7. The positive developments in Denmark and Norway can be ascribed to a strong customer focus, while in Denmark the customer bonus model also supported the development.
Claims The gross claims ratio was 58.6 (62.7), with a claims ratio, net of ceded business, of 62.8 (65.4). The lower claims level was due to a higher level of run-offs, but the aggregate level of large claims and weather claims was also at a lower level compared to prior year.
Profit/loss on gross business 316 174 949 774 Profit/loss on ceded business -47 -36 -165 -106 Insurance technical interest, net of reinsurance 1 0 0 -1
Annual report 2018 | Tryg A/S | 22Contents – Management’s review
Premiums Gross premiums increased by 6.8% (2.3%) in local currencies, primarily due to the above-mentioned acquisitions. Excluding the acquisitions premium, growth was 1.9%. The retention rate in Denmark increased to 88.0 (87.7), while the retention rate in Norway increased significantly to 87.8 (86.9) due to a strong focus on customer loyalty.
Combined ratio exclusive of run-off 106.3 100.2 102.6 96.2 Run-off, net of reinsurance (%) 5.5 -6.4 -7.0 -6.2 Large claims, net of reinsurance (%) 9.5 3.3 11.0 3.2 Weather claims, net of reinsurance (%) 2.5 2.7 1.4 1.2
This year, Tryg has communicated very actively to brokers in the Norwegian market that Tryg will implement price hikes to improve profitability, and therefore a reduction in the portfolio is expected.
Annual report 2018 | Tryg A/S | 24Contents – Management’s review
Premiums Gross premiums were up 2.9% (3.0%) in local currencies, primarily due to guarantee business in Denmark, price hikes in Norway and high retention levels, especially in the Danish business.
Claims The gross claims ratio was 92.7 (74.6), and the claims ratio, net of ceded business, 101.5 (83.7). The much higher level was primarily due to the high level of large claims and run-off loss on some claims in the Swedish business, which led to a total negative run-off for the quarter.
The number of employees increased from 250 at the end of 2017 to 265 in 2018, primarily related to the guarantee business.
TryghedsGruppen’s member bonus In June, Tryg’s majority shareholder TryghedsGruppen, paid out a member bonus for the third year running. The bonus corresponds to 8% of the premium paid to Tryg in 2017, or the payout of DKK 720m in total to TryghedsGruppen’s members and Tryg’s Danish customers.
Profit/loss on gross business 40 33 210 181 Profit/loss on ceded business -1 -2 -4 -5 Insurance technical interest, net of reinsurance -1 -1 -5 -5
Combined ratio exclusive of run-off 95.3 97.2 94.3 94.7 Run-off, net of reinsurance (%) -6.1 -5.9 -8.3 -6.6 Large claims, net of reinsurance (%) 0.0 0.0 0.0 0.0 Weather claims, net of reinsurance (%) 0.0 2.5 0.5 0.9
Results 2018 Sweden Private posted a result of DKK 201m (DKK 171m), which represented a slight improvement compared to the prior-year result primarily ascribable to reduced expense levels. 2018 was not impacted by mergers and acquisitions, and based on growth of approximately 5% and improved profitability, was a good year for the Swedish Private business.
Claims The gross claims ratio totalled 69.6 (70.9) and was affected by a somewhat higher run-off level. In some product areas, we saw slightly higher claims levels, and price adjustments will therefore be implemented in 2019 together with an expected higher level of identifying fraud.
Expenses The expense ratio was much lower at 16.1 (16.9), which can be ascribed to a continued focus on effective distribution and the integration of the Skandia portfolio. Employee numbers were almost unchanged from 353 at the end of 2017 to 354 in 2018, reflecting a strong focus on efficiency.
In November 2018, Tryg and Danske Bank entered into a partnership. The partnership covers all the countries in which Tryg operates – both the Private and Commercial segments in Denmark and Norway, and Private, in Sweden.
Expenses The expense ratio was 17.2 (17.7), reflecting a continued focus on efficiency. In the past two years, the expense ratio has been reduced by almost 3 percentage points.
Claims The gross claims ratio was 71.7 (73.0), and net of ceded business 72.0 (73.6). The decrease was primarily due to a lower level of weather-related claims. As mentioned before, we saw some claims inflation for some products, which will be mitigated through minor price adjustments.
Free portfolio, gross return -198 138 -33 598 Match portfolio, regulatory deviation and performance -42 13 -2 227 Other financial income and expenses -90 -65 -297 -298
The total market value of Tryg’s investment portfolio was DKK 41bn (DKK 43bn) at year-end 2018. The investment portfolio consists of a match portfolio of DKK 29bn (DKK 32bn) and a free portfolio of DKK 11bn (DKK 11bn). The match portfolio is composed of fixed-income assets that match the Group’s insurance liabilities, so that fluctuations resulting from interest rate changes are offset to the greatest possible extent. The free portfolio is the Group’s capital, which is predominantly invested in fixed-income securities with a short duration, but also in equities and properties.
Free portfolio Financial markets ended the year on a turbulent path driven by a sharp fall in equity markets in the last three months of 2018. Continuous talk of a trade war between the USA and China, public criticism by the US President to the Chair of the Federal Reserve on the direction of interest rates, turbulence in France and Italy and a highly uncertain situation around Brexit and overall growth expectations revised downwards for 2019-2020, this has been the difficult background of the end of 2018.
Equity and property investments totalled DKK 4.1bn, while approximately DKK 2.2bn were invested in credit bonds. The remaining DKK 4.4bn were primarily invested in Nordic covered bonds and Government bonds, including inflation-linked bonds, where current yields remain negative, putting downward pressure on the return on the free portfolio and the overall investment income.
Annual report 2018 | Tryg A/S | 28Contents – Management’s review
Interest rate and credit exposure -16 -0.3 1 0.2 -93 -1.4 153 1.8 6,600 7,465
Match portfolio The result of the match portfolio is the difference between the return on the match portfolio and the amount transferred to the insurance business. The result can be split into a ’regulatory deviation’ and a ’performance result’. The most important driver of the ’regulatory deviation’ is the yield difference between Euro swap rates and Danish swap rates. In Norway and Sweden, Tryg hedges using local swaps corresponding to the EIOPA curve; hence only the Danish exposure is relevant.
Other financial income and expenses The other financial income and expenses component is primarily made up of interest expenses related to outstanding subordinated debt, the cost of the currency hedge to protect shareholders’ equity, the cost of running the investment operations and the new accounting standard related to leasing (IFRS 16). Other financial income and expenses totalled DKK -297m (DKK -298m) for FY 2018. In a newsletter published in the summer of 2016 (Modelling investment income), Tryg wrote
that the ‘other financial income and expenses’ line should have a quarterly negative impact of approximately DKK -50m. In its Q3 2018 report, Tryg added that considering the new lease accounting standard and the increased interest expenses on the subordinated loans, the overall ‘other financial income and expenses’ result is now expected to exceed DKK -60m on a quarterly basis.
Investment activities in Q4 2018 The last quarter of 2018 was characterised by very volatile developments especially in equity markets. Tryg’s equity portfolio returned DKK -284m (DKK 112m) or -14.9% for the quarter, dominated by a spike in the CBOE Volatility Index (VIX), a key measure of market expectations of near-term volatility in equity markets. The geo-political backdrop was challenging driven by the continuous talk of a trade war between the USA and China, public criticism by the US President to the Chair of the Federal Reserve about the direction of US interest rates as well as more geo-political troubles in France and Italy.
Brexit uncertainty was at its peak as well during the month of December, while a key parliamentary vote is expected to the beginning of January 2019. The fixed-income portfolio also returned a small loss of DKK -16m (DKK 1m), driven primarily by turbulence in the high-yield and emerging-markets segments (small asset classes for Tryg). Finally, the property portfolio made a positive contribution of DKK 102m (DKK 25m) in the quarter, helped by a property revaluation of DKK 75m in Q4.
Other financial income and expenses was DKK -90m (DKK -65m), a somewhat higher level than normalised expectations. Increased interest expenses on loans (Tier 1 & Tier 2 loans), higher leasing costs (IFRS 16 accounting standard on leasing) and a write-down of a couple of minor strategic investments explain most of the difference compared to Q4 2017.
The overall investment result in Q4 was DKK -330m (DKK 86m), where the vast majority of the large swing (vs Q4 2017) can be explained by very different developments in equity markets. Tryg’s equity port folio returned -14.9% in Q4 2018 (DKK -284m) against 4.3% in Q4 2017 (DKK 112m).
Solvency II The Solvency II regime emphasises the need for sound risk management and introduces additional requirements concerning risk governance, consistency across the Group and top management reporting and involvement. Tryg has been working towards implementing the principles of Solvency II for years and has, among other things, performed risk identification routines, prepared ORSA (Own Risk and Solvency Assessment) reports, acted in a setup comprising three lines of defence and appointed a special Risk Committee under the Supervisory Board. Tryg’s partial internal model was approved by the Danish FSA in November 2015. Read more about Tryg’s risk management in Note 1 on page 60.
Solvency Financial Condition Report (SFCR) European insurers had to publish SFCR reports for the first time in 2017, and Tryg was one of the first companies to publish its SFCR report in May 2017.
The key components of Tryg’s own funds are shareholders’ equity, qualifying debt instruments (both Tier 1 and Tier 2 debt) and future profit, while all intangibles are deducted in the calculation. Both the Tier 2 and the Tier 1 capacity has been virtually fully utilised; currently some
Annual report 2018 | Tryg A/S | 31Contents – Management’s review
DKK 140m of Tier 2 instruments are not included in the own funds as they exceed the 50% SCR limit.
Tryg announced the Alka acquisition in December 2017 and raised DKK 4bn of ‘new’ equity right after the transaction. In 2018, own funds have primarily been impacted by the net profit and dividend payments. The Alka acquisition was completed on 8 November 2018, hence in the last quarter of the year intangibles were up by approximately DKK 5.7bn. The future profit item has increased from DKK 970m to DKK 1,408m following the integration of the highly profitable Alka business and an initial conservative approach concurrently with improved profitability of the underlying business. Own funds totaled DKK 8,058m at the end of 2018 vs DKK 13,162m at the end of 2017.
At the Capital Markets Day on 20 November 2017, Tryg announced measures to reduce the SCR by up to 10%. The inclusion of Danish workers’ compensation in the partial internal model reduced the SCR by approximately DKK 100m in Q4 2017, while further work to include Sweden in the internal model and other minor adjustments will reduce the SCR further. All changes are subject to approval by the Danish FSA.
Ordinary and extraordinary dividend The Supervisory Board regularly assesses the capital structure of the company in light of future internal earnings forecasts and balance sheet needs. The projections include initiatives set out in the company’s strategy for the coming years, and are based also on the most significant risks identified by the company. The adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
Capital planning and contingency plan In conjunction with the capital planning, a contingency plan is made. It describes specific measures that may be introduced in the near term, should the company’s desired capital position be threatened. Tryg’s Supervisory Board has approved both the capital plan and the contingency plan. Read more about Tryg’s risk and capital management in note 1 on page 60.
Moody’s rating Tryg has an ‘A1’ (stable outlook) insurance financial strength rating (IFSR) from Moody’s. The rating agency highlights Tryg’s strong position in the Nordic P&C market, robust profitability, very good asset quality and relatively low financial leverage. Moody’s also assigned an ‘A3’ rating to Tryg’s subordinated debt and a ‘Baa3’ rating to Tryg’s Tier 1 transaction. The ratings were affirmed following the Alka acquisitions.
Investor Relations (IR) is responsible for Tryg’s communication with the capital markets. It is important that investors, analysts and other stakeholders are able to form a true and fair view of developments, including Tryg’s financial results. For this reason, Tryg’s IR team strives to be as open and transparent as possible to ensure that stakeholders’ information requirements are met at the highest possible level. IR is in charge of communication with equity investors, fixed-income investors and rating agencies.
After the publication of quarterly and annual reports, Tryg’s management and IR team travel extensively to meet with shareholders and potential investors. Quarterly analyst presentations are held in Copenhagen and London. Tryg also attends various financial conferences. In 2018, we held around 300 investor meetings – mostly one-to-ones and some group meetings in Europe, the USA, Canada and Asia. The Tryg share is covered by 21 analysts, who continuously update their recommendations and earnings forecasts. Tryg hosts an annual analysts day, while more in-depth capital market days are hosted every three years.
The Tryg share started the year at a price of DKK 156.0 and ended 2018 at DKK 163.9. The total return (price and dividends) of the share was 12.4%. The positive share price development was driven primarily by high earnings stability and an improved underlying financial performance. The insurance sector’s key attraction is its dividend yield. Therefore, earnings and solvency are always carefully scrutinised by investors. In the world of Solvency II, movements in solvency levels can be more difficult to predict and often also difficult to understand. Tryg has a relatively simple business model and a transparent capital position, which is highly appreciated by analysts and investors.
TrygFonden TrygFonden is the leading and most well-known peace-of-mind supporter in Denmark, supporting hundreds of activities that contribute to creating peace of mind, such as coastal lifeguards, cuddle bears for children in hospitals and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and which contributed DKK 600m to projects that create peace of mind in all parts of Denmark in 2018.
TrygFonden TrygFonden is the leading and most well-known peace of mind supporter in Denmark, supporting hundreds of activities that contribute to this, such as coastal lifeguards, cuddle bears for children at hospitals and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributed DKK 600m to projects that create peace of mind throughout Denmark in 2018.
TryghedsGruppen In 2018, for the third year running, Tryg’s majority shareholder, TryghedsGruppen, paid out a member bonus to Tryg’s customers in Denmark corresponding to 8% of the annual premium paid for 2017.
TryghedsGruppen In 2018 and for the third year running, Tryg’s majority shareholder, TryghedsGruppen, paid out a member bonus to Tryg’s customers in Denmark corresponding to 8% of the annual premiums paid for 2017.
Annual report 2018 | Tryg A/S | 33Contents – Management’s review
This is particularly true for insurance investors as insurance is one of the sectors offering the highest dividend yield. From an investment perspective, a quarterly dividend is a clear reminder of the high profitability of our business and our focus on returning capital to shareholders. Tryg’s dividend policy is based on the following assumptions: • An aspiration to distribute a nominal, stable increasing dividend in nominal terms on a full-year basis.
• The capital level must at all times reflect our return-on-equity targets and statutory capital requirements.
The company announcements published in 2018 can be seen at tryg.com > announcements
Annual report 2018 | Tryg A/S | 34Contents – Management’s review
Dialogue between Tryg, shareholders and other stakeholders Tryg’s Investor Relations (IR) department maintains regular contact with analysts and investors. Together with the Executive Board, IR organises investor meetings, conference calls and participates in conferences in Denmark and abroad. IR also communicates with stakeholders on social media via Twitter@TrygIR.
The Supervisory Board is informed about the dialogue with investors and other stakeholders on a regular basis. Tryg has an IR policy, which states, among other things, that all company announcements are published in Danish and English. Tryg publishes quarterly interim reports in English. Furthermore, Tryg publishes an annual profile in Danish, English and Norwegian. The profile is addressed to Tryg’s private shareholders, customers, employees and other stakeholders and will be published on 5 February 2019.
Moreover, Tryg prepares quarterly investor presentations, which are used in our dialogue with investors and analysts. Tryg also publishes IR newsletters on relevant topics on a regular basis. All announcements, financial reports, presentations and newsletters are available at tryg.com. This material provides all stakeholders with a comprehensive picture of Tryg’s position and performance.
All shareholders are encouraged to attend the AGM. The AGM is held by personal attendance as the Supervisory Board values personal contact with the Group’s shareholders. Shareholders may propose items to be included on the agenda for the AGM, and may ask questions before and at the meeting. Shareholders may vote in person at the AGM, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and the form for voting by post are available at tryg.com prior to the AGM.
Depending on the development in results, each year the Supervisory Board proposes the distribution of quarterly dividends, and possibly an extraordinary annual dividend if further adjustment of the capital structure is required.
Duties, responsibilities and composition of the Supervisory Board The Supervisory Board is responsible for the central strategic management and financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and frameworks on the basis of regular and systematic reviews of the strategy and risks. The Executive Board reports to the Supervisory Board on strategies and action plans, market developments and Group performance, funding issues, capital resources and special risks.
Annual report 2018 | Tryg A/S | 35Contents – Management’s review
Eight members of the Supervisory Board were elected by the annual general meeting for a term of one year. Of the eight members elected at the annual general meeting, five, and thus the majority, are independent persons, thus complying with recommendation 3.2.1. in the Recommendations on Corporate Governance, while the other three members are dependent persons as they are appointed by Tryg’s majority shareholder, TryghedsGruppen. See pages 41-42 for information on when the individual members joined the Supervisory Board, were re-elected and when their current election period ends. To ensure continuity and integration of new talent on the Supervisory Board, members elected by the annual general meeting may hold office for a maximum of 12 years. The Supervisory Board has 12 members, seven men and five women (currently including two male and two female employee representatives).
The Supervisory Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise required to perform its duties in the best possible way. The Supervisory Board focuses primarily on the following qualifications and skills: Intellectual approach, independent mindedness, interpersonal competencies, integrity, inclination to engage, business understanding and judgement, problem-solving skills, networking skills, risk management understanding, ability to assess succession management, general top management experience, finance and/or audit experience, HR/management/talent/organisational experience, business development experience, financial sector experience, risk management and regulatory requirement experience, insurance – commercial and product, insurance – technical (underwriting, provisions, reinsurance), digital experience, experience with new business models and customer relations and interaction experience.
See CVs and descriptions of the skills in the section Supervisory Board on pages 40-42 and at tryg.com > Governance
The Supervisory Board considers the composition, development, risk and succession plans of the Executive Board in connection with the annual evaluation of the Executive Board, and regularly in connection with board meetings. Each year, the Supervisory Board discusses Tryg’s activities to guarantee diversity at management levels. Tryg ascribes great importance to diversity at all management levels. Tryg has prepared an action plan, which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women. In 2018, the share of women at management level was 33% against 37% in 2017. The target for 2018 of 38% or more women at management level was therefore not met. Compared to 2017, the number of women in management positions decreased by three. In 2018, Tryg increased the total number of management positions and the decrease in share of women in management positions is mainly due to organisational changes.
See the tasks of the board committees in 2018 at tryg.com > Governance > Management > Supervisory Board > Board committees
Annual report 2018 | Tryg A/S | 36Contents – Management’s review
Remuneration of management Tryg has adopted a remuneration policy for Tryg in general which contains specific schemes for the Supervisory Board, the Executive Board and other employees in Tryg, whose activities have a material impact on the risk profile of the company, so-called risk-takers. The remuneration policy for 2018 was adopted by the Supervisory Board in January 2018, and approved by the annual general meeting on 15 March 2018.
Audit Risk IT-Data Remuneration DKK Fee Committee Committee Committee Committee Total
Annual report 2018 | Tryg A/S | 37Contents – Management’s review
at market price for a predefined amount, which is dependent on the member’s performance for the fiscal year. Four years after the purchase, Tryg will grant one matching share per investment share free of charge.
Matching is conditional upon fulfilment of additional conditions such as continued employment and back testing (testing prior to matching, to ensure that the criteria on which the variable salary is based are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure alignment of the interests of the Executive Board and the company’s shareholders.
Read more about the Matching Shares Programme in the remuneration policy at tryg.com
Total remuneration of the Executive Board in 2018 Car Other Total fixed Share-based DKK Base salary Pension allowance benefits salary One-off fee remuneration c) Total fee
Annual report 2018 | Tryg A/S | 38Contents – Management’s review
As part of the internal control system, Tryg has established independent risk management, compliance and actuarial functions. The functions report to the Executive Board and the Supervisory Board’s Risk Committee. Tryg has a decentralised set-up whereby risk managers in the business areas carry out controlling tasks for the risk management and compliance functions.
Whistleblower line Tryg has a whistleblower line, which allows employees, customers and business partners to report any serious wrongdoings or suspected irregularities. Reporting takes place in confidence to the chairman of the Audit Committee and the Head of Compliance.
Independent and internal audit The Supervisory Board ensures monitoring by competent and independent auditors. The Group’s internal auditor attends all board meetings. The independent auditor attends the annual board meeting at which the annual report is presented.
The annual general meeting annually appoints an independent auditor recommended by the Supervisory Board. At least once a year, the auditors meet with the Audit Committee without the presence of the Executive Board. The chairman of the Audit Committee deals with any matters that need to be reported to the Supervisory Board.
Deviations and explanations Tryg complies with the Recommendations on Corporate Governance with the exception of the number of independent members of board committees, with which Tryg complies partially, and agreements on termination payments; see recommendations 3.4.2. and 4.1.5. of the Recommendations on Corporate Governance.
Jukka Pertola (1960) Chairman Jukka Pertola has special skills in the fields of management, insurance, IT and digitalisation, communication and finance. Jukka Pertola has more than ten years of board work experience from companies, foundations and organisations.
40Contents – Management’s review Annual report 2018 | Tryg A/S |
Elias Bakk Born in 1975. Employee representative. Joined the Supervisory Board in 2017. Swedish citizen. Employed since 2006. Career: Team Manager Elkjöp Claims NO. Education: Norrea Real Gymnasium. Education at ‘Forsikringsakademiet’ for new board members. Number of shares held: 670 Change in portfolio 2018: 0
Lone Hansen Born in 1966. Employee representative. Employee since 1990. Joined the Supervisory Board in 2012. Danish citizen. Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training. Board member: Tryg A/S and Tryg Forsikring A/S. Member of the Tied Agents’ District Board of Finansforbundet. Committee memberships: IT-Data Committee in Tryg A/S. Number of shares held: 898 Change in portfolio 2018: +148
Supervisory Audit Nomination Risk Remuneration IT-Data Name Board Committee Committee Committee Committee Committee
Annual report 2018 | Tryg A/S | 41Contents – Management’s review
Born in 1959. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of Lundbeckfonden (+ Lundbeckfond Invest A/S). Education: The A.P. Møller Group International Shipping Education, Graduate Diploma in Finance and various international management programmes. Board seats, Chairman: LFI Equity A/S. Board seats, Deputy Chairman: Ørsted A/S, H. Lundbeck A/S, ALK-Abelló A/S and Falck A/S. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee and Risk Committee in Tryg, Audit, Scientific & Nomination Committee in ALK-Abelló A/S, Scientific and Remuneration Committee in H. Lundbeck A/S, Remuneration Committee in Falck A/S and Nomination and Remuneration Committee in Ørsted A/S. Number of shares held: 7,025 Change in portfolio 2018: 0
Born in 1951. Joined the Supervisory Board in 2016. Danish citizen. Career: Lawyer and partner at HjulmandKaptajn. Education: LL.M.
Board seats, Chairman: B&E STÅL A/S, Brdr. Schlie’s Fiskeeksport A/S, Conscius A/S, Danish Label Coating A/S, Friis & Moltke A/S, Nordjyske Jernbaner A/S, Palle Mørch A/S, Pava Produkter A/S, Seafood Danmark A/S, Scan Fish Danmark A/S, Thor Fisk A/S, Lerøy Schlie A/S, PSC A/S, P. Taabell & Co., Hanstholm A/S, GF Inveco A/S, PM Holding ApS and a number of subsidiaries. Board seats, Deputy Chairman: TryghedsGruppen Smba, CPS A/S and Utzon Foundation. Board member: Tryg A/S and Tryg Forsikring A/S, FDE Fonden, Effer Krancenter A/S, Sawo A/S and TryghedsGruppen smba. Number of shares held: 3,622 Change in portfolio 2018: 0
Lene Skole 9/9 6/6 6/6 Tom Eileng 9/9 6/6 Tina Snejbjerg 8/9 6/6 Anders Hjulmand 9/9 Mari Thjømøe 9/9 6/6 6/6 Carl-Viggo Östlund 9/9 6/6 3/3
Annual report 2018 | Tryg A/S | 42Contents – Management’s review
Education: LL.M., MBA, Graduate Diploma in Finance. Board member: TJM Forsikring and Alka.
Number of shares held: 58,974 Change in portfolio in 2018: +9,007 43Contents – Management’s review Annual report 2018 | Tryg A/S |
Tryg has been a signatory member to the UN Global Compact since 2008. Our 2020 Corporate Responsibility strategy focuses on three areas – Peace of mind in society, Responsible workplace and Customer relations – and is closely linked to our business model (see page 11). In 2018, Tryg’s Corporate Responsibility policy was updated to further clarify its alignment with our purpose ‘As the world changes, we make it easier to be tryg’a)
Claims prevention is a central part of Tryg’s 2020 corporate strategy and our Corporate Responsibility efforts. Our ambition is to minimise and prevent the number of claims by integrating prevention initiatives into our insurance products.
Lifebuoys Since 1952, Tryg’s iconic lifebuoys have contributed to safety along the coastline, lakes and rivers in Norway. The lifebuoy is a vitally important piece of rescue equipment, and for decades, Tryg has provided lifebuoys to Norwegian society. Tryg’s 43,000 lifebuoys are located from Lindesnes in southern Norway to Svalbard, the Norwegian archipelago in the Arctic Ocean.
Safe in water In 2018, Tryg partnered with the Norwegian Society for Sea Rescue, Region West, to offer a course called ‘Safe in water’. The course is aimed at 12 to 14-year-old schoolchildren. The courses are run eight times a year, in autumn and winter, and give the children a chance to experience being in the cold water wearing wetsuits and life jackets, while being supervised by skilled instructors. The courses focus on understanding the risks associated with water, on practising first aid and learning the key principles of self-rescue and lifesaving. Learning to throw Tryg lifebuoys is also an important part of the course.
Workplace responsibility Our employees are our most valuable resources and key to providing competent and high-quality services to our customers. The well-being of our employees is vital to Tryg, as is protecting their right to a healthy and safe working environment.
Through our materiality assessment, it has become clear that there is a risk that Tryg can have adverse impacts on its employees through, for example, dissatisfaction, discrimination or the physical or psychosocial working environment. To mitigate this risk, we are continuously working to improve conditions for our employees.
Tryg has collective bargaining agreements in the Scandinavian countries where more than 99% of our employees are employed. The majority of our Scandinavian employees are covered by these agreements, and the remaining employees are on individual contracts. All Tryg employees are covered according to national standards and requirements.
In Tryg, we do not accept discrimination based on gender, age, ethnicity etc., and work actively to nourish an open-minded culture. Tryg additionally has a diverse workforce representing the society we are part of.
It is important to maintain a healthy work-life balance, and we aim to be a flexible workplace where it is possible to balance your career and family life.
Human rights and responsible supply chain management Tryg respects human rights as described in the Universal Declaration of Human Rights. Our commitment is enforced through our signatory membership of the UN Global Compact and is outlined in our Corporate Responsibility policy as well as Tryg’s Code of Conduct.
In 2018, our audits revealed no violations or red flags among our audited high-risk outsourcing suppliers.
Annual report 2018 | Tryg A/S | 45Contents – Management’s review
Climate and environmental responsibility Tryg has a direct impact on the climate and the environment through our operations, and indirectly through our business activities. We have focused our efforts on our internal operations and on initiatives aimed at improving our footprint, while also reducing costs. Although Tryg is not an energy-intensive company since our carbon emissions are mainly associated with heating and electricity use at our offices, car and air travel, we acknowledge that we are part of the solution to minimising carbon emissions. One of the areas in which Tryg has a potential adverse impact on the environment is waste production, which is why we are committed to reducing waste.
Climate and environmental initiatives Tryg has initiated a process to install more efficient and climate-friendly LED lighting at our offices, as well as installing more screens for Skype meetings to reduce air travel and offering electric cars for external meetings.
In 2018, we installed more electric chargers at our offices in Ballerup, Denmark and Bergen, Norway to encourage our employees to switch to electric cars. Tryg additionally participates in a mobility network with the Municipality of Ballerup to discuss solutions aimed at improving public transport.
Eco-lighthouse in Norway The Eco-lighthouse is a climate and environ- mental certification scheme in Norway. Eight of our Norwegian offices are Eco-lighthouse-certified. We annually produce an Eco-lighthouse report to describe progress and document the policies and procedures in place to manage our impact on the climate and the environment.
Business ethics and compliance Tryg is committed to running an ethical, transparent and responsible business. Our materiality assessment showed that anti-corruption, business ethics and data protection are material matters to Tryg. Tryg’s Code of Conduct defines the rules, which all employees and business partners are required to adhere to. Our Tax policy and Anti-corruption policy further outlines our commitment to acting as a responsible company.
To support the new audit process, Tryg launched a training programme for procurement employees and auditors in 2018, to build capacity for identifying actual or potential violations on site. The training sessions are held annually.
Annual report 2018 | Tryg A/S | 46Contents – Management’s review
Tryg has implemented a GDPR compliance plan and appointed a Data Protection Officer (DPO) to ensure that the necessary systems and processes are in place. Our internal data breach process enables all employees to report any data breaches and all Tryg employees have completed mandatory e-learning on GDPR.
Whistleblower hotline Tryg’s whistleblower hotline is available for all our stakeholders to report any violation of our Code of Conduct or any other concerns and is handled by the chairman of the Audit Committee, assisted by Tryg’s Legal and Compliance Department. In 2018, seven whistleblower cases were reported and investigated, and the necessary actions were taken.
Download Tryg’s responsible investment policy and Policy for execution of active ownership
Customer relations Ensuring competent and responsible customer relations is at the core of our business model and our ability to retain our customers year after year.
Tryg has published an independent Corporate Responsibility report with extended Environmental, Social and Governance (ESG) data.
Income statement 107 Statement of financial position 108 Statement of changes in equity 109 Notes 110
Other key ratios 117 Group chart 118 Glossary 119 Product overview 120 Disclaimer 121
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act and the requirements of NASDAQ Copenhagen for the presentation of the financial statements of listed companies. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
Statement by the Supervisory Board and the Executive Board 49Contents – Financial statements Annual report 2018 | Tryg A/S |
Jukka Pertola Torben Nielsen Elias Bakk Tom Eileng Lone Hansen Anders Hjulmand Chairman Deputy Chairman
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the IESBA Code of Ethics for Professional Accountants and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion We have audited the consolidated financial statements and the parent financial statements of Tryg A/S for the financial year 1 January to 31 December 2018, pages 54-113, which com prise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including the summary of significant accounting policies, for the Group as well as the Parent and the consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.
In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2018 and of its financial performance and cash flows for the financial year 1 January to 31 December 2018 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for financial companies.
The claims provisions amount to DKK 24,847m at 31 December 2018 (2017: DKK 23,925m).
Independent auditor’s report The most important assessments and assumptions of future events relate to: • Estimated future claims payments, which are based on the completeness and the accuracy of historical claims and payment patterns, among other factors.
50Contents – Financial statements Annual report 2018 | Tryg A/S |
We were appointed auditors of Tryg A/S on 28 January 2002 for the financial year 2002 as part of the formation of the Company. However, we have been the appointed auditors of the underlying subsidiaries since before 1995. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of more than 17 years up to and including the financial year 2018.
Moreover, it is our responsibility to consider whether the management’s review provides the information required under the Danish Financial Business Act.
Management’s responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and for the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial Business Act, and for such internal control as Management
In accordance with the requirements of IFRS 3 ’Business Combinations’, Management has prepared a purchase price allocation where they have valued the identified acquired assets and liabilities at fair value.
• We have tested the purchase price allocation prepared by Management and the identification of acquired assets and liabilities.
• We have assessed and challenged Management’s assumptions and estimates used in its fair value models for identifying and measuring customer relationship and brand value.
• We have assessed and challenged Management’s assumptions and estimates for future cash flow projections.
• We have tested the mathematical accuracy of the calculations in the models.
• We have considered the impact of reasonably possible changes in key assumptions and performed sensitivity calculations to quantify the impact of potential downside changes to Management’s models.
determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor ’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
Financial highlights a) Profit/loss on discontinued and divested business after tax includes mainly Marine Hull insurance and the Finnish branch of Tryg Forsikring, which was sold in 2012.
b) Up until the sale of the group occupied property in 2016, the gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ’Recommendations & Financial Ratios’ issued by the Danish Finance Society. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Finance Society’s definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. The sale of owneroccupied property in December 2016 does not affect the calculation.
Investment return after insurance technical interest -332 527 987 -22 360
Profit/loss on continuing business 1,733 2,519 2,472 1,920 2,547 Profit/loss on discontinued and divested business after tax a) -2 -2 -1 49 10
Statement of financial position Total provisions for insurance contracts 31,948 30,018 31,527 31,814 31,692 Total reinsurers' share of provisions for insurance contracts 1,415 1,366 2,034 3,176 1,938
Claims ratio, net of ceded business 70.7 70.4 71.0 71.5 69.6
Note Investment activities 14 Income from associates 22 3 Income from investment property 46 69 7 Interest income and dividends 580 624
Note General insurance Gross premiums written 18,999 18,358 Ceded insurance premiums -1,362 -1,255 Change in premium provisions 85 -145 Change in reinsurers' share of premium provisions -47 16 3 Premium income, net of reinsurance 17,675 16,974 4 Insurance technical interest, net of reinsurance -10 -14
Claims paid -13,294 -12,807 Reinsurance cover received 466 1,029 Change in claims provisions 658 942 Change in the reinsurers' share of claims provisions 125 -729 5 Claims, net of reinsurance -12,045 -11,565
Income statement 55Contents – Financial statements Annual report 2018 | Tryg A/S |
Statement of comprehensive income 56Contents – Financial statements Annual report 2018 | Tryg A/S |
Deposits with credit institutions 0 250 Derivative financial instruments 899 1,079
Interest and rent receivable 169 197 Other prepayments and accrued income 400 335
Total provisions for insurance contracts 31,948 30,018 20 Pensions and similar obligations 277 290 21 Deferred tax liability 912 656
Debt relating to direct insurance 614 498 Debt relating to reinsurance 169 454 23 Amounts owed to credit institutions 494 306 24 Debt relating to unsettled funds transactions and repos 3,408 1,711 15 Derivative financial instruments 740 746 Debt to group undertakings 313 0 17 Current tax liabilities 118 194
Total equity and liabilities 56,545 51,367 1 Risk and capital management 26 Contractual obligations, collateral and contingent liabilities 27 Acquisition of activities 28 Related parties 29 Financial highlights 30 Accounting policies 57Contents – Financial statements Annual report 2018 | Tryg A/S |
The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 1,617m (DKK 1,592m in 2017). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured.
b) Cost related to the issue of new shares are deducted in proceeds recognised in retained earnings with DKK 50.3m.
Reserve for Share exchange rate Other Retained Proposed DKKm capital adjustment reservesa) earnings dividend Total 2018 Profit/loss for the year 18 -283 1,996 1,731 Other comprehensive income -12 -4 -16
Dividend paid -2,980 -2,980 Purchase and sale of own shares -27 -27 Issue of conditional and matching shares 10 10
Total changes in equity in 2017 98 -32 -39 3,686 -534 3,179 58Contents – Financial statements Annual report 2018 | Tryg A/S |
Carrying amount at 1 January 2,412 306 2,718 Exchange rate adjustments -48 0 -48
Carrying amount at 1 January 2,567 178 2,745 Exchange rate adjustments -156 0 -156
Interest income 546 622 Interest expenses -138 -107 Dividend received 12 19
Cash flow statement 59Contents – Financial statements Annual report 2018 | Tryg A/S |
Tryg’s risk management is organised into three levels of control. The first level of control is handled in the business where the company’s policies are implemented, and day-to-day compliance is verified. The risk management function is the second level of control, supported by decentralised risk managers affiliated with the individual business areas. The risk management function ensures a consistent approach across the organisation, risk assessment at group level and reporting to the management and the Supervisory Board.
Tryg’s risk management environment 60Contents – Financial statements Annual report 2018 | Tryg A/S |
The capital base is continuously measured against the capital requirement calculated on the basis of Tryg’s partial internal model, where insurance risks are modelled using an internal model, while other risks are described using the standard formula.
Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a sufficient degree via ordinary diversification. Tryg’s reinsurance program covers both Tryg and Alka. In case of major events involving damage to buildings and contents, Tryg’s reinsurance programme provides protection for up to DKK 6.75bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 168m.
At the end of 2018, Tryg’s claims reserves net of reinsurance totalled DKK 23,585m with an average duration of approximately 4 years.
In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentration risk. These risks primarily relate to exposures in high-yield bonds, emerging market debt exposures as well as Tryg’s investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance policy. For a non-life insurance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant assets on Tryg’s balance sheet, which by nature is somewhat illiquid, are the property portfolio.
61Contents – Financial statements Annual report 2018 | Tryg A/S |
Reserving risk 1% change in inflation on person-related lines of business a) +/- 402 +/- 408 10% error in the assessment of long-tailed lines of business (workers' compensation, motor liability, liability, accident) +/- 1.696 +/- 1,706
Investment risk Interest rate market Effect of 1 % increase in interest curve: Impact of interest-bearing securities -1,079 -1,118 Higher discounting of claims provisions 991 1,014 Net effect of interest rate rise -88 -104 Impact of Norwegian pension obligation b) 163 153
Real estate market 15 % decline in real estate markets -372 -257
Currency market Equity: 15 % decline in exposed currency (exclusive of EUR) relative to DKK -1,316 -975 Impact of derivatives 1,242 946 Net impact of exchange rate decline -74 -29
Technical result per year: Impact of 15% change in NOK and SEK exchange rates relative to DKK +/- 134 +/- 151 a) Including the effect of the zero coupon inflation swap b) additional sensitivity information in note 20 'Pensions and similar obligations'
Compliance risk Compliance risk is the risk of loss as a result of lack of compliance with rules, regulations, market standards or internal guidelines. The handling of compliance risk is coordinated centrally via the Group’s Compliance & Legal department, which, among other things, sits on industry committees in connection with legislative monitoring, ensures implementation of regulation in Tryg through business procedures, provides ongoing training in compliance matters and performs compliance controls within the organisation. Compliance risks and the result of the performed compliance controls are reported to the Supervisory Board’s Risk Committee.
Estimated accumulated claims End of year 11,985 13,264 15,421 15,758 13,316 13,722 12,564 14,558 12,755 12,615 15,405 1 year later 13,248 13,877 15,516 16,137 13,394 13,984 12,884 14,498 12,609 14,283 2 year later 13,112 13,890 15,469 16,196 13,351 13,644 12,703 14,452 14,073 3 year later 13,126 13,693 15,391 16,149 13,166 13,478 12,616 15,823 4 year later 13,089 13,596 15,303 15,975 12,904 13,457 13,927 5 year later 13,018 13,504 15,229 16,007 12,817 14,763 6 year later 12,982 13,474 15,205 15,874 14,007 7 year later 12,727 13,355 15,115 17,347 8 year later 12,606 13,298 16,328 9 year later 12,514 14,477 10 year later 13,630 13,630 14,477 16,328 17,347 14,007 14,763 13,927 15,823 14,073 14,283 15,405 164,062
Estimated accumulated claims regarding Alka 1,233 1,265 1,353 1,655 1,294 1,435 1,412 1,450 1,546 1,590 1,780 16,013
Notes 63Contents – Financial statements Annual report 2018 | Tryg A/S |
Estimated accumulated claims End of year 151 275 647 1,448 220 1,132 270 2,072 201 286 617 1 year later 212 339 720 2,129 250 1,477 305 1,878 253 395 2 year later 180 318 713 2,249 286 1,259 299 1,910 251 3 year later 171 277 691 2,287 279 1,253 295 1,908 4 year later 171 281 700 2,235 267 1,270 318 5 year later 159 286 705 2,229 256 1,305 6 year later 164 275 707 2,234 275 7 year later 155 274 699 2,623 8 year later 155 273 760 9 year later 155 304 10 year later 161 161 304 760 2,623 275 1,305 318 1,908 251 395 617 8,916
Provisions before discounting, end of year 4 7 15 67 9 88 30 209 37 146 468 1,082
Estimated accumulated claims End of year 11,834 12,989 14,774 14,311 13,096 12,590 12,294 12,486 12,554 12,329 14,788 1 year later 13,037 13,538 14,796 14,008 13,144 12,507 12,579 12,620 12,356 13,888 2 year later 12,932 13,572 14,756 13,947 13,065 12,385 12,403 12,542 13,823 3 year later 12,955 13,416 14,700 13,862 12,887 12,225 12,320 13,914 4 year later 12,918 13,315 14,603 13,741 12,637 12,188 13,609 5 year later 12,858 13,218 14,524 13,778 12,561 13,459 6 year later 12,817 13,199 14,498 13,640 13,732 7 year later 12,572 13,081 14,416 14,724 8 year later 12,451 13,024 15,568 9 year later 12,360 14,173 10 year later 13,469 13,469 14,173 15,568 14,724 13,732 13,459 13,609 13,914 13,823 13,888 14,788 155,146
Provisions before discounting, end of year 669 879 1,028 1,062 1,239 1,563 1,760 1,552 2,142 3,451 7,026 22,371
Reserves from 2007 and prior years 2,342 Provisions for claims, net of reinsurance, end of the year 23,613 a) The diagonal for 2018 is affected by the Alka acquisition, please see below.
Notes 65Contents – Financial statements Annual report 2018 | Tryg A/S |
Amounts owed to credit institutions 494 0 0 494 Debt relating to unsettled funds transactions and repos 3,408 0 0 3,408
Amounts owed to credit institutions 306 0 0 306 Debt relating to unsettled funds transactions and repos 1,711 0 0 1,711
Notes Subordinate loan capital Bond loan Bond loan Bond loan NOK 800m NOK 1,400m SEK 1,000m
Amortised cost value of the loan recognised in statement of financial position 595 603 1,043 1,056 723 753 The fair value of the loan at the statement of financial position date 633 659 1,073 1,080 747 796 The fair value of the loan at the statement of financial position date is based on a price of 106 109 103 102 103 105 Total capital losses and costs at the statement of the financial position date 2 3 3 4 3 4 Interest expenses for the year 30 29 41 43 17 20
a) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments.
Equity investments in associates 242 242 Reinsurers' share of premium provisions 47 3 131 0 0 181 Reinsurers' share of claims provisions 53 118 1,036 27 0 1,234 Other assets 47,652 47,652
Provisions for bonuses and premium discounts 1,036 164 26 14 0 1,240 Other liabilities 13,263 13,263
Total liabilities 45,211 69Contents – Financial statements Annual report 2018 | Tryg A/S |
Run-off gains/losses, net of reinsurance 306 329 239 98 0 972
Provisions for bonuses and premium discounts 432 60 35 7 0 534 Other liabilities 8,733 8,733
70Contents – Financial statements Annual report 2018 | Tryg A/S |
Run-off, net of reinsurance (%) -6.8 -4.7 -5.4 -5.5 -6.0 Number of full-time employees 31 December 2,520 1,933 1,839 1,859 2,007
Run-off, net of reinsurance (%) -8.3 -6.7 -10.6 -7.3 -6.8 Number of full-time employees 31 December 1,105 1,042 1,040 1,113 1,167 a) Includes Danish general insurance and German and Finnish guarantee insurance. The gross premium income related to German and Finnish guarantee insurance amount to DKK 54m.
Notes 71Contents – Financial statements Annual report 2018 | Tryg A/S |
Claims ratio, net of ceded business 80.6 74.0 79.7 65.2 79.8
Profit/loss on ceded business - 11 - 7 - 1 - 1 - 13 - 21 - 42 - 35 - 4 - 30 - 55 - 15 Insurance technical interest, net of reinsurance - 2 - 2 0 0 0 0 - 1 - 1 - 2 - 3 0 0
Gross claims ratio 59.3 64.9 106.1 88.2 49.5 72.0 54.1 60.7 70.7 67.8 51.9 92.9 Combined ratio 72.6 79.2 117.7 100.3 62.9 86.1 72.4 79.3 83.2 83.1 79.1 110.3
Average claims DKK b) 24,634 23,874 5,595 4,797 63,754 75,265 15,763 17,513 9,605 9,537 68,061 82,852 Total claims 53,060 55,434 58,510 57,785 11,779 11,116 76,710 74,872 283,335 260,926 2,492 3,208
Notes 73Contents – Financial statements Annual report 2018 | Tryg A/S |
Profit/loss on ceded business - 43 - 49 - 630 - 779 6 0 - 624 - 779 Insurance technical interest, net of reinsurance 3 2 - 11 - 15 1 1 - 10 - 14
Notes 74Contents – Financial statements Annual report 2018 | Tryg A/S |
Fees for non-audit services provide by Deloitte Statsautoriseret Revisionspartnerselskab to the Group amount to DKK 19m and consist of declaration tasks, including review of interim balances, objective tax advice in relation to the investment area and consulting services mainly related to strategies, claim system and data centre, as well as other general accounting, consulting services and tax advice.
75Contents – Financial statements Annual report 2018 | Tryg A/S |
6 Insurance operating costs, gross, classified by type Commissions -227 -249 Staff expenses -1,740 -1,509 Other staff expenses -179 -166 Office expenses, fees and headquarter expenses -612 -500 IT operating and maintenance costs, software expenses -260 -222 Depreciation, amortisation and impairment losses and write-downs -69 -98 Other income 383 228
Number of Matching shares exercisable 31 Dec. 2018 0 0 0 0
Number of Matching shares exercisable 31 Dec. 2017 0 0 0 0 77Contents – Financial statements Annual report 2018 | Tryg A/S |
Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK -17m (DKK 127m in 2017).
Transferred to assets held for sale 0 0 0 0 0 Transferred from assets under construction 0 0 16 -16 0
Amortisation and write-downs Amortisation and write-downs at 1 January -104 -171 -1,364 -92 -1,731
Amortisation and write-downs at 31 December -104 -171 -1,364 -92 -1,731 a) Hereof proprietary software DKK 524m (DKK 336m at 31 December 2017). b) Hereof trademarks and customer relationships related to Alka DKK 1.4bn and total goodwill.
79Contents – Financial statements Annual report 2018 | Tryg A/S |
Impairment test Goodwill The Value-in-use method is used when testing the Goodwill for impairment.
Primary assumptions for impairment test: When assessing the cash flow management has based its estimates of premiums earned on the insurance port folio adjusted to reflect the expected effect of business decisions and market development from past experiences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to current levels. Moderna is adjusted for weather and large-scale claims as well. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management's own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future.
Obos In 2017, Tryg acquired OBOS' insurance portfolio. The insurance activities were incorporated into the
The asset and liabilities have not changed significantly since the acquisition, and the recoverable amount calculated would exceed the carrying amount with the same margin, or very close to that margin.
The impairment test shows a calculated value in use of approximately DKK 0.4bn (0.3bn) relative to a recognised goodwill of DKK 49m (51m) and Equity of DKK 0.2bn (0.2bn) and does not indicate any impairment in 2018. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 7% will result in a write down of goodwill.
The impairment test shows a calculated value in use of approximately DKK 1.7bn (1.2bn) relative to a recognised goodwill of DKK 0.5bn (0.5bn) and Equity of DKK 0.7bn (0.8bn) and does not indicate any impairment in 2018. According to the sensitivity informations below a change in the required return rate will have the highest effect on the equity. A increase in the required return of approx. 6% will result in a write down of goodwill.
Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0-10 years) 34 18 CAGR -1.0 percentage point (0-10 years) -29 -17 Required return +1.0 percentage point -280 -147 Required return -1.0 percentage point 384 185 Combined ratio +1.0 percentage point -163 -107 Combined ratio -1.0 percentage point 164 107
Trademarks and customer relations As at 31 December 2018 management performed a test of the carrying amounts of customer relations as an integral part of the Obos portfolio goodwill test.
The impairment test compares the carrying amount with the estimated present value of future cash flows. The test did indicate an impairment of DKK 26m (DKK 38m) due to revaluation of the groups it-systems. The write-down is due to the IT development cost being higher than the future cash flows. The cost is recognised as write-downs under depreciations in the income statement.
Accumulated depreciation and value adjustments at 31 December -231 -20 0 -84 -335
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -190 0 0 0 -190
Accumulated depreciation and value adjustments at 31 December -206 0 0 0 -206 a) Lease assets (Right of use-assets(ROU)) equipment only consists of leases of vehicles with a lease term of three to four years. The monthly amounts are fixed and there are no option for purchase or extension. Short term leases are not recognised as Right of use-assets.
b) A valuation of the owner-occupied property has been carried out. The impairment test did not indicate any impairment.
Notes 82Contents – Financial statements Annual report 2018 | Tryg A/S |
Total rental income for 2018 is DKK 87m (DKK 88m in 2017).
Total expenses for 2018 are DKK 20m (DKK 20m in 2017). Of this amount, expenses for non-let property total DKK 0m (DKK 0m in 2017), total expenses for the income-generating investment property are DKK 20m (DKK 20m in 2017). External experts were involved in valuing the majority of the investment properties.
Business property 5.0 6.4 Office property 6.9 7.9 Residential property 3.2 6.0
Revaluations at net asset value Revaluations at 1 January 10 17 Dividend received, this year 0 -10 Value adjustments for the year 6 3
Carrying amount at 31 December 242 225 83Contents – Financial statements Annual report 2018 | Tryg A/S |
15 Financial assets (Continued) The Fair value hierarchy Quoted market prices (level 1) consists of financial instruments that are quoted in an active market.
Valuation based on significant non-observable input (level 3): The valuation of certain financial instruments is based substantially on non-observable input. Such instruments include unlisted shares, unit trust investments and some unlisted bonds. The fair value of Investment property is also based on non-observable input. Please refer to note 13 and accounting policies section Investment property.
15 Financial assets Financial assets at fair value with value adjustments in the income statement 41,694 43,434 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income 59 77 Receivables measured at amortised cost with value adjustment in the income statement 3,050 3,237
Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement 740 746 Financial liabilities at amortised cost with value adjustment in the income statement 11,186 6,887
85Contents – Financial statements Annual report 2018 | Tryg A/S |
DKKm 15 Financial assets (Continued) Fair value hierarchy for financial instruments and investment property measured at fair value in the statement of financial position
Derivative financial instruments, assets 0 899 0 899 Derivative financial instruments, debt 0 -740 0 -740
15 Financial assets (Continued) Receivables Total receivables in connection with direct insurance contracts 1,476 1,471 Receivables from insurance enterprises 144 300 Unsettled transactions 611 0 Reverse repos 0 602 Other receivables 192 355
Specification of write-downs on receivables from insurance contracts: Write-downs at 1 January 115 117 Exchange rate adjustments -1 -5 Write-downs and reversed write-downs for the year 25 3
Gains and losses at 31 December 3,100 -2,890 210 2017 Gains Losses Net
Gains and losses at 1 January 2,652 -2,626 26 Value adjustments for the year 251 -116 135
Value adjustments at 31 December -202 -152 87Contents – Financial statements Annual report 2018 | Tryg A/S |
18 Solvency II – Own funds Equity according to annual report 11,334 12,616 Proposed dividend -499 -1,483 Intangible assets -7,236 -1,105 Profit margin, solvency purpose 1,408 970
88Contents – Financial statements Annual report 2018 | Tryg A/S |
Claims provisions at 31 December 23,925 -1,121 22,804 89Contents – Financial statements Annual report 2018 | Tryg A/S |
Average return on plan assets 1.7 0.2 Weighted average duration of the defined benefit obligation (years) 13 13
Discount rate 2.0 1.7 Estimated return on pension funds 2.0 1.7 Salary adjustments 2.8 2.5 Pension adjustments 0.8 0.4
Employer contributions 19.1 19.1 Mortality table K2013 K2013 90Contents – Financial statements Annual report 2018 | Tryg A/S |
21 Deferred tax Tax asset Operating equipment 9 8 Debt and provisions 77 51
Tax liability Intangible rights 389 25 Land and buildings 105 130
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the statement of financial position in the amount of DKK 13m (DKK 25m at 31 December 2017).
20 Sensitivity information The sensitivity analysis is based on a change in one of the assumptions, assuming that all other assumptions remain constant. In reality, this is rarely the case, and changes to some assumptions may be subject to covariance. The sensitivity analysis has been carried out using the same method as the actuarial calculation of the pension provisions in the statement of financial position.
Impact on equity from the following changes: Interest rate increase of 0.3 percentage point 49 46 Interest rate decrease of 0.3 percentage point -52 -49 Pay increase rate, increase of 1 percentage point -76 -92 Pay increase rate, decrease of 1 percentage point 66 78 Turnover, increase of 2 percentage point 30 22 Turnover, decrease of 2 percentage point -36 -26
The plans are based on the employees' expected final pay, providing the members of the plan with a guaranteed level of pension benefits throughout their lives. The pension benefits are determined by the employees' term of employment and salary at the time of retiring. Employees having made contributions for a full period of contribution are guaranteed a pension corresponding to 66% of their final pay. As of 2014, pensions being disbursed are no longer regulated in step with the basic amount of old-age pension paid in Norway (G regulation), but are subject to a minimum regulation. The plan are closed for new business. Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children's pension.
Amounts recognised in income statement Interest on lease liabilities -38 Expenses relating to short team-leases 0
Implementation of IFRS 16 1 January 2018 a) Lease liabilities at 31 December 2017 b) 1,003 Adjustment at initial application of IFRS 16 71
23 Amounts owed to credit institutions Overdraft facilities 494 306 24 Debt relating to unsettled funds transactions and repos Unsettled fund transactions 611 1,611 Repo debt 2,797 100
92Contents – Financial statements Annual report 2018 | Tryg A/S |
Tryg Forsikring A/S, Tryg Livsforsikring A/S, Forsikrings-Aktieselskabet Alka and Forsikings-Aktieselskabet Alka Liv II have registered the following assets as having been held as security for the insurance provisions: Equity investments 413 14 Unit trust units 0 1,759
Deposits with credit institutions 0 250 Interest and rent receivable 144 197 Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements 8,388 2,529 25 Earnings per share Profit/loss from continuing business 1,733 2,519 Profit/loss on discontinued and divested business -2 -2
2018 Tryg has signed the following contracts with amounts above DKK 50m: Tryg is committed to invest in some Investmentfunds. The commitment amounts to
93Contents – Financial statements Annual report 2018 | Tryg A/S |
26 Contractual obligations, collateral and contingent liabilities (continued) Offsetting and collateral in relation to financial assets and obligations Collateral which is not offset in the statement of financial position
The purchase price is final. In connection with the acquisition, a sum was paid which exceeds the fair value of the identifiable acquired assets and total provisions for insurance contracts. This positive balance is mainly attributable to Brands, Customer relations and to expected synergies between the portfolios in the acquired activities and the Group’s existing activities, which are not separately identifiable.
The Goodwill acquired is not tax deductible. Alka is included going forward from 8 November 2018, with a premium of approx. DKK 385m and a technical result of approx. DKK 60m. If the activities were included with a full year, the premium income would amount to approx. DKK 2.300m and the technical result would be approx. DKK 300m.
2017 OBOS In February 2017 Tryg and OBOS BLL signed an agreement whereby Tryg acquired OBOS' insurance activities and shares in OBOS Forsikring AS and integrated them into its Norwegian business. The acquisition affects the Financial statement from 1 June 2017: If the activities were included with a full year, the premium income would amount to approx. DKK 140m and the technical result would be slightly negative. Management believes that through various actions, the earnings-level after the acquisition of the activities will be significantly increased, to a level more in line with other Tryg activities in Norway.
Troll In February 2018 Tryg and Troll Forsikring made a declaration of intent whereby Tryg would acquire
Liabilities Total provisions for insurance contracts 2,387 83 2,470 143 Debt and accruals and deferred income 852 54 906 74
Share-based Cash Number of Base Variable Variable 2017 persons salary salarya) salary Pension Total
Risk-takers independent control functions 3 4 0 0 1 5 a) Total expenses in 2017 for matching shares programs allocated in 2017 and previous year.
Specification of remuneration Share-based Cash Number of Base Variable Variable 2018 persons salary salarya) salary Pension Total
Risk-takers independent control functions 4 6 0 1 1 7 a) Total expenses in 2018 for matching shares and conditional shares allocated in 2018 and previous year.
For matching shares and conditional shares allocated to Executive Board in 2019 for fiscal year 2018, see Section ’Corporate governance’ in Management review.
Notes DKKm 28 Related parties (continued) Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares and conditional shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this.
Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
97Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes 30 Accounting policies The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 December 2018 and in accordance with the Danish Statutory Order on Adoption of IFRS.
Except as noted above, the accounting policies have been applied consistently with last year.
Future orders, standards and interpretations that the group has not implemented and which have still not entered into force but could affect the group significantly: • IFRS 9 ‘Financial Instruments’ a)
Notes Group but are not finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg.
Defined benefit pension schemes The Group operates a defined-benefit plan in Norway. A defined-benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, depending on age, years of service and salary.
Valuation of property Property is divided into owner-occupied property and investment property. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a market- determined rental income as well as operating expenses in proportion to the property’s required rate of return. Cf. note 12, 13 and 15.
Business Combinations In Business Combinations, significant assessments are made when considering the fair value of the assets required and liabilities assumed and when identifying intangible assets, such as Trademarks, Customer relations and goodwill as part of the transactions.
All amounts in the notes are shown in millions of DKK, unless otherwise stated.
Consolidation Consolidated financial statements The consolidated financial statements comprise the financial statements of Tryg A/S (the parent company) and the enterprises (subsidiaries) controlled by the parent company. The parent company is regarded as controlling an enterprise when it • exercises a controlling influence over the relevant activities in the enterprise in question, • is exposed to or has the right to a variable return on its investment, and • can exercise its controlling influence to affect the variable return.
99Contents – Financial statements Annual report 2018 | Tryg A/S |
If, at the date of acquisition, there is uncertainty as to the identification or measurement of acquired assets, liabilities or contingent liabilities or the determination of the acquisition price, initial recognition is based on a preliminary determination of values. The preliminarily determined values may be adjusted or additional assets or liabilities may be recognised up to 12 months after the acquisition, provided that new information has come to light regarding matters existing at the date of acquisition which would have affected the determination of the values at the date of acquisition, had such information been known.
The operational business segments in Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individuals in
Notes contract. The calculation is generally based on the pro rata method, although this is adjusted for an unevenly divided risk between lines of business with strong seasonal variations or for policies lasting many years.
The shares are recognised at market value and are accrued over the four and tree year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisition under staff expenses with a balancing entry directly in equity. If the holder retires during the maturation period but remains entitled to shares, the remaining expense is recognised in the current accounting year.
The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discon101Contents – Financial statements Annual report 2018 | Tryg A/S |
Land and buildings Land and buildings are divided into owner-occupied property and investment property. The Group’s owneroccupied properties consist of an office building in Høje Taastrup and a small number of summer house. The remaining properties are classified as investment property.
Increases in the revalued carrying amounts of owner-occupied property are recognised in the revaluation reserve in equity. Decreases that offset previous revaluations of the same asset are charged against the revaluation reserves directly in equity; all other decreases are charged to the income statement.
The fair value is calculated on the basis of marketspecific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions. Cf. note 15 and 13.
Profit after tax from equity investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised intragroup profits and losses.
Derivative financial instruments and hedge accounting The Group’s activities expose it to financial risks, including changes in share prices, foreign exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance statement of financial position items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks related to the portfolio 103Contents – Financial statements Annual report 2018 | Tryg A/S |
Receivables that arise because of insurance contracts are classified in this category and are reviewed for impairment as a part of the impairment test of accounts receivable.
Equity Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax.
Provisions for insurance contracts Premiums written are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premiums received on in-force contracts that relates to unexpired 104Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes risks at the statement of financial position date is reported as premium provisions. Premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any risk variations. This applies to gross as well as ceded business.
Claims provisions are determined for each line of business based on actuarial methods. Where such business lines encompass more than one business area, shorttailed claims provisions are distributed based on number of claims reported while long-tailed claims provisions are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method. Chain-Ladder techniques are used for lines of business with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance.
Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribution plan.
For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the group so far and which must be disbursed according to the plan. The capital value is calculated using the Projected Unit Credit Method, which is based on input Cf. note 20.
Note Statement of comprehensive income Profit/loss for the year 1,731 2,517 Other comprehensive income
Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions 0 4 Actuarial gains/losses on defined-benefit pension plans -5 -7 Tax on actuarial gains/losses on defined-benefit pension plans 1 2
108Contents – Financial statements Annual report 2018 | Tryg A/S |
Dividend paid -2,980 -2,980 Dividend own shares 0 0 Purchase and sale of own shares -27 -27 Issue of share options and matching shares 10 10
Total changes in equity in 2018 0 331 -629 -984 -1,282 2017 Profit/loss for the year -1,026 716 2,827 2,517 Other comprehensive income -33 -33
Nullification of own shares -39 39 0 Dividend paid -3,361 -3,361 Dividend, own shares 82 82 Purchase and sale of own shares -20 -20 Issue of new shares a) 137 3,841 3,978 Issue of employee shares 10 10 Issue of share options and matching shares 6 6
Total changes in equity in 2017 98 -1,059 4,674 -534 3,179
a) Cost related to the issue of new shares are deducted in proceeds recognised in retained earnings with DKK 50,3m.
1 Income from Group undertakings Tryg Invest A/S 1 2 Tryg Forsikring A/S 1,782 2,575 2 Other expenses Administration expenses -65 -71
Remuneration for the Executive Board is paid partly by Tryg A/S and partly by Tryg Forsikring A/S
and is charged to Tryg A/S via the cost allocation. Refer to Note 6 for the Tryg Group for a specification of the audit fee.
Tax on profit/loss for the year 22 22 Tax adjustment, previous years 0 -1 4 Intangible assets Assets under construction Cost Cost at 1 January 0 0 Additions for the year 1 0
Notes 110Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes 111Contents – Financial statements Annual report 2018 | Tryg A/S |
Specification of remuneration Share-based Cash Number of Base variable variable 2018 persons salary salary a) salary Pension Total a) Total expenses in 2018 for matching shares progams allocated in 2018 and previous year.
DKKm 10 Related parties (continued) Share-based Cash Number of Base variable variable 2017 persons salary salary a) salary Pension Total a) Total expenses in 2017 for matching shares programs allocated in 2017 and previous year.
112Contents – Financial statements Annual report 2018 | Tryg A/S |
Transactions with Group undertakings and associates Tryg A/S exercises full control over Tryg Forsikring A/S and Tryg Invest A/S.
In 2018 Tryg Forsikring A/S paid Tryg A/S DKK 1,437m and Tryg A/S paid TryghedsGruppen smba DKK 1,788m in dividends. Further Tryg A/S also made a capital contribution of DKK 2,000m to Tryg Forsikring.
Intra-group trading involved - Providing and receiving services 13 14 - Intra-group accounts 76 3,530
Key ratios Gross claims ratio 64.2 63.5 62.2 72.4 65.7 62.7 63.8 71.8 67.9
Claims ratio, net of reinsurance 66.6 65.7 64.7 74.6 68.3 65.8 65.8 73.7 69.7
Key ratios Gross claims ratio 92.7 96.8 58.8 70.7 74.6 69.3 59.2 67.2 84.3
Q4 2018 Quarterly outline Download a further detailed version of the presentation at tryg.com/uk > investor > Downloads > tables 114Contents – Financial statements Annual report 2018 | Tryg A/S |
Download a further detailed version of the presentation at tryg.com/uk > investor > Downloads > tables
Run-off, net of reinsurance (%) -6.1 -5.5 -6.8 -4.7 Number of full-time employees 31 December 2,520 1,933
Run-off, net of reinsurance (%) 13.5 7.4 0.4 -4.8 Number of full-time employees 31 December 402 398
Other income and costs -117 -23 -172 -77 Profit/loss before tax 149 685 2,262 3,239 Run-off gains/losses, net of reinsurance 207 219 1,221 972
116Contents – Financial statements Annual report 2018 | Tryg A/S |
Net asset value per share (DKK) 37.56 41.78 34.37 34.16 38.46 Market price/net asset value 4.4 3.7 3.7 4.0 3.6 Ordinary dividend per share (DKK) 6.60 6.40 6.20 6.00 5.80 Extraordinary dividend per share (DKK) 3.31 3.54 Price/Earnings 28.6 17.0 14.4 20.4 15.8
117Contents – Financial statements Annual report 2018 | Tryg A/S |
Annual report 2018 | Tryg A/S | 118Contents – Management’s review
Glossary The financial highlights and key ratios of Tryg have been prepared in accordance with the executive order issued by the Danish Financial Supervisory Authority on the financial reports for insurance companies and multi-employer occupational pension funds, and also comply with ‘Recommendations & Ratios’ issued by the Danish Finance Society.
Fire and contents – Private Fire and contents insurance for private customers represents 23% of total premium income and includes, for example, house and contents insurance.
Annual report 2018 | Tryg A/S | 120Contents – Management’s review