7 Events in 2017 8 Financial outlook 10 Targets and strategy 14 Tryg’s results 18 Private 20 Commercial 22 Corporate 24 Sweden 26 Investment activities 28 Capital and risk management 30 Investor information 32 Corporate governance 37 Supervisory Board 39 Executive Board 40 Corporate Social Responsibility in Tryg
Financial statements 44 Financial statements 113 Group chart 114 Glossary 1 15 Product overview
Strong market position Tryg is one of the largest non-life insurance companies in the Nordic region. We are the largest player in Denmark and the third-largest in Norway. In Sweden we are the fifth- largest company in the market.
Attractive dividend policy We aim to distri b ute steadily increas ing dividends in nominal terms and to pay out 60-90% of our profit.
TryghedsGruppen Owns 60% of Tryg and annually contributes around DKK 600m to projects that create peace of mind via TrygFonden.
3 million customers Our 3,300 em ployees provide peace of mind for 3 million customers and handle approximately 950,000 claims on a yearly basis.
Tryg was listed on the OMX Nordic Stock Exchange Copenhagen on the 14 October
New dividend policy stating a nominal, steadily increasing dividend with an annual distribution of 60-90% of the profit after tax
Kjøbenhavns Brand (the oldest com ponent in Tryg’s history) was established by Royal Decree as a result of the Copenhagen fire in 1728
Employees Market position Market share a) ‘Tryg’ means: feeling protected and cared for.
Commercial provides insurance products, including motor, property, liability, workers’ compensation, travel and health to small and medium-sized business in Denmark and Norway.
Sweden provides insurance products to private individuals within car, house, dog, child, boat and accident insurance etc.
Annual report 2017 | Tryg A/S | 4Contents – Management’s review
Investment return after insurance technical interest 86 598 527 987 -22 360 588
Return on equity after tax (%) 22.1 24.1 28.8 26.2 20.0 23.7 21.8
Net asset value per share (DKK) 41.78 34.37 34.16 38.46 37.41 Ordinary dividend per share (DKK) a) 1.60 6.40 6.20 6.00 5.80 5.40 Proposed extraordinary dividend per share (DKK) 3.31 3.54 Premium growth in local currencies 1.9 1.7 1.7 0.1 -0.8 -1.1 -2.7
2017 was an eventful year for Tryg. The targets for 2015-2017 were achieved, new targets for the period up until 2020 were announced, a new strategy and purpose were launched, and last but not least, Tryg acquired Alka.
The 2017 technical result was DKK 2,789m, with a combined ratio of 84.4, which together with a high investment return yielded a total profit of DKK 2,517m, corresponding to a return on equity of 28.8% after tax. With an expense ratio of 14, Tryg realised all its ambitious financial targets for 2017.
Our customer targets have played an increasingly important role in recent years, and we are therefore pleased that our target of doubling our Net Promoter Score (NPS) was realised. Our target for number of customers with three or more products (3+ customers) and our retention rate target were met in Denmark. In Norway, there was an increase in the number of 3+ customers, while the retention rate was affected by an increasing outflow of customers in the Norwegian market in general.
Focus on innovation and positive customer experience A solid foundation has been created for further developing and strengthening Tryg. Tryg’s new strategy is based on four themes. The development of new products and services is key to maintaining and developing our market position. This can be done through the use of new technology, for example new types of car insurance for which the premium is primarily determined by the customer’s driving style. But innovation can also take the form of new ways of selling insurance solutions, and a good example was the launch of simple insurance packages in 2017. Digitalisation remains important. We have introduced the first fully digital claims handling solutions, enabling simple claims to be processed in just three seconds without involving any employees.
Efficient distribution and improved claims steering As traditional insurance products come under pressure, it is important for Tryg to streamline its distribution, for example through more in-depth knowledge about customers, close cooperation and cheaper distribution channels. Finally, it is important to focus on even better claims steering through, for example, favourable procurement agreements and prevention, thereby ensuring that Tryg remains a financially sound company.
Thanks to our employees The realisation of our targets for 2017 has only been possible through the dedicated efforts of our employees, and both the Supervisory Board and the Executive Board would like to thank all our employees for their commitment.
Annual report 2017 | Tryg A/S | 6Contents – Management’s review
Annual report 2017 | Tryg A/S | 7Contents – Management’s review
Q1 January Insurance package launched Private Denmark launched a new customer concept, an insurance package. The package includes Contents, Accident and Travel insurance, and customers are rewarded with an aggregate discount of up to 20% and current Tryg Plus benefits.
Tryg acquired FDM Tryg acquired FDM´s insurance portfolio, which comprises well over 20,000 members. In October 2017, Tryg began selling insurance products to FDM’s customers, and by 1 January 2018, all current customers had been transferred to Tryg. Tryg sees a considerable potential for selling insurance products to FDM’s 200,000 members.
Jukka Pertola joined Tryg’s Supervisory Board Chairman of the Supervisory Board Jørgen Huno Rasmussen announced at Tryg’s AGM that he will be stepping down in 2018. Former CEO of Siemens Denmark Jukka Pertola joined the Supervisory Board as Deputy Chairman and is expected to take over as Chairman in 2018.
Q2 Q3 Q4 April Medical hotline in Denmark and Norway Tryg launched a medical hotline in Denmark and Norway, offering access for customers to medical advice/treatment 24/7. The hotline is contacted via a video conferencing app and is manned by specialists in general medicine. Experience shows that 70% of all calls can be resolved through video conferencing by offering treatment or counselling.
July New car insurance for young drivers in Denmark Private Denmark launched a new car insurance product for young drivers under the age of 30. Drivers may be entitled to a reduction in the price of their insurance of up to 30% depending on their driving style and conduct. Read more at tryg.dk
November Capital Markets Day (CMD) On 20 November, Tryg hosted its fifth CMD in London attended by 75 analysts, shareholders, investors and journalists. Group CEO Morten Hübbe, Group CFO Christian Baltzer and Group COO Lars Bonde presented Tryg’s new financial targets and customer targets for the 2018-2020 period.
The general macroeconomic background in Scandinavia remains relatively positive, especially compared to the Euro-zone area. Government indebtedness is low, unemployment rates are below 5% both in Denmark and Norway, while GDP growth is expected to be close to 2%. Western Norway is still recovering from a prolonged period of low oil prices, but the general outlook is becoming slightly more positive.
The Nordic non-life insurance market is characterised by a very high level of market penetration, and non-life premiums in per cent of GDP are some of the highest in the world, especially in Denmark and Norway. Profitability in the industry is generally high as most companies are listed and have a low expense level. Customers are generally loyal to their insurance company based on good customer service and claims handling processes, and retention rates close to 90% (especially in the retail seg - ment) are not uncommon. Motor insurance represents approximately 35% of the non-life insurance market, and insurance companies therefore closely monitor how technical developments affect this area. New technologies, improved safety systems
a) The targets are conditional upon the authorities’ approval of the Alka acquisition
Annual report 2017 | Tryg A/S | 8Contents – Management’s review
An interest rate increase of 1 percentage point will increase the pre-tax result by around DKK 300m, and vice versa.
The financial guidance does not include the acquisition of Alka. Figures will be updated once the acquisition has been approved by the authorities. Preliminary estimates show that the Alka acquisition will result in an annual depreciation of approximately DKK 100-150m (before tax) of customer relations within a 5 to 7 years period. This item will be booked under the other income/costs line in the P&L. More details will be released after closing.
As indicated at the time of the acquisition, and assuming normal business and capital markets development, an extraordinary dividend should not be expected for the FY 2018. Tryg remains very focused on creating shareholder value while the capital position is continuously assessed. Tryg has been using share buy backs between 2012 and 2015 to further adjust the capital structure while switching to extraordinary dividend in 2016.
Clear and ambitious targets must be set for each individual employee, and regular feedback must be provided. Aiming for the highest level of employee satisfaction in the financial sector in the Nordic region, Tryg was pleased to note an increased level of employee satisfaction in 2017, with Tryg surpassing the general level of employee satisfaction in the financial sector in the region. See figure on page 11.
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. In 2017, we had a strong focus on initiatives supporting the customer targets for 2017.
Customer journey & success culture The customer journey & success culture strategic focus area has been key to improving Tryg’s customer focus.
Leading in efficiency Tryg launched an efficiency programme for reducing claims and direct costs by DKK 750m by the end of 2017, with DKK 500m relating to claims and DKK 250m to expenses. The programme delivered DKK 750m and was very important for realising an expense ratio of 14 and supporting the improvement in the underlying claims ratio in 2017. In 2017, Norway made a significant contribution to reducing expenses based on a number of structural initiatives aimed at bringing down the administrative expenses.
Annual report 2017 | Tryg A/S | 11Contents – Management’s review
Financial targets Tryg has disclosed ambitious financial targets for 2018-2020. Tryg’s main target is a nominal technical result of DKK 3,300m. The combined ratio target is at or below 86, an expense ratio target is around 14 and a return on equity target at or above 21% after tax. The expense ratio will be improved through more effective distribution, 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 target.
Customer targets Our customer targets remain extremely important for realising our financial targets. Tryg has decided to focus on customer satisfaction for customers interacting with Tryg, which is measured through
Annual report 2017 | Tryg A/S | 12Contents – Management’s review
There is a strong correlation between customer loyalty and the number of products per customer, and therefore a target of increasing the number of products by 10% per customer has been defined.
Strategic initiatives Tryg has defined four strategic initiatives that support both our financial targets and our customer targets for 2020 and has defined KPIs for each of them.
Distribution effiency DKK 150m in technical result impact a self-service level of 70% for all contacts to Tryg. Realising these targets is expected to both support the financial targets with DKK 100m and also the customer targets through higher levels of convenience, transparency and empowerment for our customers.
Product & service innovation is targeted at DKK 1,000m in 2020+. Tryg does not want to define a specific growth target as profitability is our key focus, but at the same time we want to adapt to a future which is expected to be characterised by reduced volumes in motor insurance. The main focus will be on insuring people and technology. Tryg is planning to expand its profitable guarantee business, Tryg Garanti, as well as introducing other insurance areas which are not in the market today.
Corporate Social Responsibility Corporate Social Responsibility (CSR) is an integrated part of Tryg’s core business and closely linked to our purpose. We focus on activities related to human and labour rights, climate and the environment as well as anti- corruption, and we are actively working to integrate CSR into our insurance, claims handling and prevention activities. CSR plays a role in our decision-making, our mitigation of risks, the improvement and development of our products and services, the optimisation of our operations, the development of our employees, and the positive contributions we make to society at large through our activities.
Customer targets 2020 • TNPS :70 • Number of products per customer +10 %
in cars has increased the average cost of claim. Tryg noticed a stabilisation in the motor claims frequency in the last quarter of 2017. Motor insurance remains a very important segment, hence developments are scrutinised closely.
Capital markets developed positively in 2017. Equities and other ‘risky assets’ posted solid returns despite some geo-political turbulence. The pro longed period of very low interest rate levels remains supportive of equities as an asset class. Equities returned approximately 16%, emergingmarket debt (a small asset class for Tryg) returned approximately 9%, while investment-grade bonds returned 4%. Total investment income was more than three times higher than the expected normalised level.
At the Capital Markets Day in 2014, Tryg disclosed customer targets linked to the financial targets. The customer targets were to be reached by 2017.
Tryg’s results Tryg reported a profit before tax of DKK 3,239m (DKK 3,220m), driven primarily by a technical result of DKK 2,789m (DKK 2,390m) and an investment return of DKK 527m (DKK 987m). Proposed Q4 dividend of DKK 1.60 per share (FY 6.40 per share). Extraordinary dividend of DKK 3.31 per share to be approved by the AGM. Solvency ratio of 196 adjusted for the capital increase to fund the Alka acquisition.
• NPS unchanged at 22 • Retention rate rose slightly from
In 2017, a slightly higher level of claims inflation was observed in the motor insurance segment. Tryg believes that this is driven by an increase in the number of cars and the use of more expensive spare parts, primarily for medium/high-end models. At year-end 2017, the number of registered new cars was up just under 7% relative to year-end 2016, while an increased level of technology second half year. The target for the retention rate was 88.9, corresponding to an increase of 1 percentage point. In Denmark this target was fulfilled, while Norway was challenged due to a general higher churn level for the market as a whole.
Stability is also important from this point of view. Tryg will be implementing price adjustments of around 3% in 2018 to continue improving the underlying level of profitability.
Premiums Premium income totalled DKK 17,963m (DKK 17,707m), representing 1.7% growth in local currencies. The development was underpinned by satisfactory growth in Private and Sweden, while premiums fell, particularly in Commercial. An improved macroeconomic situation in Norway and the stabilisation of Danish motor prices will be supportive also going forward.
Annual report 2017 | Tryg A/S | 14Contents – Management’s review
The Swedish business grew by 12.5% (3.4%) in local currencies. Top line was clearly boosted by the inclusion of the Skandia child insurance portfolio. In general, the Swedish business developed favourably based on a relatively stable top line despite the loss of two important affinity agreements in 2016. The situation was mitigated by increased efforts on the part of Moderna’s own distribution channel.
Claims The claims ratio, net of ceded business, was 70.4% (70.5% adjusted for one-offs), while the underlying claims ratio, adjusted for weather claims and large claims, run-off and discount rate (to discount the claims reserves), showed an underlying improvement of 0.2 percentage points.
The efficiency programme made a positive contribution of DKK 250m to the overall claims level. A consistent focus on procurement, a strong focus on accelerating the recovery of injured policyholders in order to allow them to return to work as quickly as possible and increased surveillance to detect frauds are all contributory factors. Some of these initiatives pertain to claims relating to previous years, hence the savings support the overall run-off result.
Motor insurance remains a very profitable segment, however, an increase in claims frequency was observed during 2017 together with an increase in the average cost of claims as more electronics is gradually being introduced also in mid-end cars. Claims frequencies developed more favourably in the last quarter of the year showing a stabilisation. As Motor insurance remains a very important segment for Tryg, developments are scrutinised closely.
Annual report 2017 | Tryg A/S | 15Contents – Management’s review
Tax The overall tax item was DKK 720m (DKK 748m), or 22% of the profit before tax. In 2017, Tryg paid DKK 845m in income tax as well as various payroll taxes totalling DKK 400m, resulting in total tax payments of DKK 1,245m.
Tryg’s own funds comprise mainly shareholders’ equity, intangibles, Tier 2 instruments (subordinated debt and natural perils pool), ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryg’s own funds are constituted by shareholders’ equity. The Tier 2 capacity has been fully utilised after the SEK 1bn subordinated debt issue in May 2016. Currently, Tier 2 instruments in the amount of some DKK 250m are not included in the own funds as they exceed the 50% SCR cap. Tryg has disclosed an issue of Tier 1 debt of approximately DKK 500m to finance the acquisition of Alka. This will take place in H1 2018 according to market conditions.
Tryg’s solvency ratio was 281, or 196 when adjusted for the DKK 4bn raised for the Alka acquisition.
Results Q4 2017 The profit before tax was DKK 685m, driven primarily by a technical result of DKK 622m and an investment return of DKK 86m. The combined ratio for the quarter was 86.0, driven by a claims ratio of 72.3 and an expense ratio of 13.7%. The underlying claims ratio improved 0.4 for the Group and 0.6 for the Private segment, continuing the positive trend seen in 2017. Tryg pays a quarterly dividend of DKK 1.60 per share and reports a solvency ratio of 281, or 196 adjusted for the DKK 4bn capital increase to fund the Alka acquisition.
Premiums Premium growth was 1.9% in local currencies, driven primarily by satisfactory growth in the Danish private segment, an improved top-line development in Commercial helped by the OBOS portfolio in Norway and continued growth in the low-risk fronting business in Corporate Sweden. Tryg will implement price adjustments of approximately 3% also in 2018 to offset the general claims inflation and improve the profitability of selected parts of the portfolio.
The underlying claims ratio was 0.4 percentage points lower for the Group, and 0.6 percentage points lower for Private, reflecting the impact of price adjustments and claims initiatives to improve profitability. The claims-related part of the efficiency programme went according to plan, and Q4 saw the realisation of efficiency increases of DKK 80m.
Investments In Q4, the positive sentiment in the financial markets continued to help boost returns for the full year 2017. The total investment return was DKK 86m in Q4, split between a free portfolio return of DKK 138m (DKK 541m or DKK 41m adjusted for the sale of a property portfolio) and a match portfolio return of DKK 13m (DKK 8m). Other financial income and expenses totalled DKK -65m (DKK 49m). The Q4 2016 figure was impacted by a value adjustment of DKK 93m on Tryg’s own domiciles in Ballerup and Bergen. Equities returned more than 4% in Q4 and were the leading asset class in Tryg’s free portfolio, returning just above DKK 112m. Emerging-market debt and inflation-linked bonds (small asset classes for Tryg) also posted good returns. Properties posted a quarterly return of 1.6%.
The regulatory deviation in the match portfolio was DKK 11m (DKK 8m) as the yield difference between Danish and Euro swap rates narrowed, also in the last three months of the year. The performance result was DKK 2m (DKK 0m). Danish covered-bond spreads widened marginally, but a higher yield on the Norwegian bonds helped to drive a small positive performance.
Results 2017 The technical result for 2017 was DKK 1,565m (DKK 1,404m) with a combined ratio of 82.1 (83.8). The development was attributable to a combination of positive impacts from the efficiency programme and price adjustments. The development in premiums was positive and improved compared to 2016 due to a positive development in the Danish business.
Premiums The gross premium income increased by 1.1% (0.8%) in local currencies. Premiums increased by 3.0% in Denmark, which was very satisfactory and was driven by price adjustments, the introduction of a new package concept, the integration of customer service and claims handling and the impact of the member bonus from TryghedsGruppen.
Claims The gross claims ratio totalled 66.0 (67.8) with a claims ratio, net of ceded business, of 68.4 (69.6). The improvement was ascribable to the efficiency programme and price adjustments to mitigate increased claims inflation levels for motor insurance due mainly to a higher frequency level. The claims level for house insurance with increased claims inflation was reduced partly through a strong focus by our claims team focusing on pipe claims.
Expenses The expense ratio for Private was 13.7 (14.2), which was achieved through continued focus on
Combined ratio exclusive of run-off 84.2 86.3 85.6 87.4 Run-off, net of reinsurance (%) -2.2 -2.7 -3.5 -3.6 Large claims, net of reinsurance (%) 0.0 0.0 0.0 0.0 Weather claims, net of reinsurance (%) 2.4 3.8 1.9 2.8
Annual report 2017 | Tryg A/S | 18Contents – Management’s review
Total employee numbers increased from 929 at the end of 2016 to 1,000 in 2017, due mainly to the continued transfer of employees from the claims department as part of the integration of the customer service and claims handling functions and increased distribution power for the FDM portfolio. In Norway, the number of employees was reduced by more than 8%.
Results Q4 2017 The technical result totalled DKK 394m (DKK 366m), with a combined ratio of 82.0 (83.6), and was affected by a lower underlying claims ratio, a lower level of weather claims compared to 2016 and also a lower level of run-off gains.
Premiums Gross premiums increased by 1.1% (1.3%) in local currencies. Continued premium growth at a rate of 3.3% was seen in Denmark, whereas premium income for Norway was down 1.7% due to a competitive market situation.
The NPS score decreased slightly in Q4 by 2 percentage points to 33 in Denmark and from 21 to 15 in Norway. The retention rate in Denmark increased slightly from 89.7 to 90.2, whereas the retention rate in Norway declined from 86.4 to 85.8.
Claims The gross claims ratio was 65.7 (67.9), and the claims ratio, net of ceded business, was 68.3 (69.7). The lower level was primarily due to our efficiency programme and price adjustments. Weather was benign in Denmark, whereas Norway was impacted by storms and flooding, which combined to a drop in the weather claims. Run-off gains were at a somewhat lower level.
Expenses The expense ratio was 13.7 (13.9). Employee numbers increased by 27 in Q4 2017 to 1,000 due to increased distribution power for the FDM portfolio concurrently with a reduction in the number of employees in the Norwegian part of Private.
Results 2017 The technical result for 2017 was DKK 667m (DKK 695m), with a combined ratio of 82.6 (82.1). The combined ratio was affected by a higher level of weather claims and large claims but also a higher level of run-off. The development in premiums improved significantly due to the OBOS acquisition in 2017, but was still not satisfactory even though we saw an improved trend in Q4.
Premiums The development in gross premium income was negative by 0.7% (-1.3%) in local currencies, which was a significant improvement compared with 2016, but still unsatisfactory. The drop in premiums was highest in Denmark, while the Norwegian part of Commercial benefited from the acquisition of OBOS. The development in the Danish part is characterised by a sales level that is too low to neutralise the churn in the portfolio. To improve this development, Commercial in Denmark will strive to capitalise on the member bonus from TryghedsGruppen, improved processes and segmentation as well as copying the successful package concept from Private and improving sales via the broker channel. In Norway, the market is competitive and has also been impacted by the slowdown in the Norwegian economy. With the acquisition of OBOS, Commercial improved the business area’s market position, which in combination with structural initiatives supporting greater distribution power will be the key initiatives to improve the premium development.
The Net Promotor Score (NPS) improved significantly from 6 to 13 in 2017. In Denmark, the NPS score increased from 6 to 15, and in Norway a slight decline from 9 to 7 was seen. The retention rate for Commercial in Denmark increased from 87.1 to 87.7, and in Norway the retention rate dropped from 87.5 to 86.9. The positive development in Denmark can be ascribed to a positive impact from the member bonus model, whereas the negative development for Commercial in Norway is ascribable to a more competitive market.
Premiums Gross premiums increased by 2.3% (-0.8%) in local currencies based on an increase in Norway due to the OBOS acquisition, leading to premium growth of 8.6%, while a flat development was seen in the Danish part of Commercial. In Norway, the NPS score was down from 9 to 7, whereas the NPS score increased from 6 to 15 in Denmark. The retention rate in Denmark increased to 87.7 (87.1), while the retention rate in Norway dropped to 86.9 (87.5) due to increasing competition in the market.
Expenses The expense ratio was 15.9 (16.5), and the number of employees was reduced by 2 to 479 in Q4 2017.
Expenses The expense ratio for Commercial was 17.2 (17.0). The expense level is generally too high for Commercial, and initiatives were therefore implemented to improve this in 2017. The most significant step was an improved IT set-up which allows the front-office organisation in Denmark to effect sales and changes in agreements directly without involving back-office functions.
Total employee numbers were quite stable from 474 at the end of 2016 to 479 in 2017, which could be ascribed to a slight increase in the Danish part of Commercial.
Annual report 2017 | Tryg A/S | 21Contents – Management’s review
Profit/loss on gross business 148 50 854 1,064 Profit/loss on ceded business -88 -41 -467 -643 Insurance technical interest, net of reinsurance 0 0 -1 0
Combined ratio exclusive of run-off 100.2 111.6 96.2 102.2 Run-off, net of reinsurance (%) -6.4 -12.5 -6.2 -13.4 Large claims, net of reinsurance (%) 3.3 17.6 3.2 8.0 Weather claims, net of reinsurance (%) 2.7 0.9 1.2 1.0
The business area accounts for 21% of the Group’s total premium income.
Results 2017 The technical result was DKK 386m (DKK 421m), with a combined ratio of 90.0 (88.8). The result was positively affected by a lower level of large claims, but also a much lower level of run-off gains. The increase in premiums can be ascribed especially to fronting business in the Swedish part of Corporate. In general, the corporate market is challenged in all countries, and Tryg has therefore implemented initiatives to improve profitability.
In Denmark, profitability initiatives will also be implemented, but Tryg’s position in the Corporate market in Denmark is generally much better due to the member bonus payment from TryghedsGruppen. In Sweden, more significant steps were taken to improve profitability, especially for some of our large accounts. In the Swedish market, priority will be given to initiatives targeting motor insur-
Annual report 2017 | Tryg A/S | 22Contents – Management’s review
Expenses The expense ratio was 10.1 (10.6) and somewhat lower than last year. The number of employees was 250, down 2 in Q4 2017.
ance and liability as these are the main areas with excessive claims ratios.
The number of employees was reduced from 257 at the end of 2016 to 250 in 2017.
Results Q4 2017 The technical result amounted to DKK 60m (DKK 9m), with a combined ratio of 93.8 (99.1), and was positively affected by a much lower level of large claims. Premium growth was positive by 3.0% (0.9%) due to fronting agreements in Sweden.
Premiums Gross premiums increased by 3.0% (0.9%) in local currencies based on more or less unchanged portfolios in Denmark and a drop in the Norwegian business, but an increase in fronting business in Sweden. Although some of the large players have
Annual report 2017 | Tryg A/S | 23Contents – Management’s review
Profit/loss on gross business 33 24 181 128 Profit/loss on ceded business -2 0 -5 -3 Insurance technical interest, net of reinsurance -1 -1 -5 -5
Combined ratio exclusive of run-off 97.2 101.2 94.7 99.4 Run-off, net of reinsurance (%) -5.9 -8.3 -6.6 -8.7 Weather claims, net of reinsurance (%) 2.5 0.9 0.9 0.8
Claims The gross claims ratio totalled 70.9 (71.5) and was affected by a somewhat lower run-off level and a positive impact from the Skandia child insurance portfolio. The underlying claims development improved through price adjustments and also due to the acquisition of the child insurance portfolio from Skandia.
The number of employees was 353 (337) at the end of 2017, which reflects the focus on substituting distribution from lost partner agreements with own distribution.
The number of employees was 353, equating to an increase of 4 employees in Q4 2017 to strengthen distribution.
Annual report 2017 | Tryg A/S | 25Contents – Management’s review
Free portfolio, gross return 138 541 598 939 Match portfolio, regulatory deviation and performance 13 8 227 210 Other financial income and expenses -65 49 -298 -162
Value adjustments, changed discount rate -26 323 122 -188 Transferred to insurance technical interest -44 -40 -184 -149
Free portfolio result The free portfolio produced an overall result of DKK 598m (DKK 939m). The corresponding result in 2016 was boosted by a capital gain on the sale of a property portfolio of DKK 500m. Equities had another good year returning just below 16% for a total amount of DKK 353m. The CBOE Volatility Index (VIX), a key measure of market expectations of near-term volatility in equity markets, remains at one of the lowest levels seen in the past ten years.
Interest rate and credit exposure 1 0.2 -42 -0.6 153 1.8 196 2.8 7,465 7,268 a) Senior/Bank deposits less than 1 year and derivative financial instruments hedging interest rate risk and credit risk. b) In addition to the equity portfolio exposure is derivative contracts of DKK -135m.
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. The regulatory deviation made a positive contribution of DKK 98m (DKK 47m) as the yield difference between Danish and Euro swap rates decreased. As an example, looking at the 10-year interest rate level, the difference decreased by 11 basis points, boosting the total return. The most important driver of the performance result is the difference in yields between Danish, Norwegian and Swedish covered bonds and equivalent swap rates. If spreads narrow (versus swap rates), the overall performance is positive; otherwise the overall performance is negative. The performance result made a positive contribution of DKK 129m (DKK 163m) as Nordic covered-bond spreads narrowed against the swap curve.
Investment activities in Q4 2017 In Q4, the positive sentiment in the financial markets continued to help boost returns for the full year 2017. Since the prior bear market ended in March 2009, the current advance in equities is now the second-longest on record without at least a 20% drop in leading indexes.
Equities returned more than 4% in Q4 and were the leading asset class in Tryg’s free portfolio, returning DKK 112m. Emerging-market debt and inflation-linked bonds (small asset classes for Tryg)
Annual report 2017 | Tryg A/S | 27Contents – Management’s review
The match portfolio, representing approximately 75% of invested assets, consists of bonds and a swap overlay designed in such a way that sensibility towards change in the interest rate curve at any point matches the corresponding sensibility of the discounted claims reserves. This matching strategy means that the net effect on the balance sheet of any change in the interest rate curve for practical purposes is zero. The free portfolio (approximately 25%) is intended to produce the maximum return on risk. The investment risk for the free portfolio is managed through limits on exposures within each asset class (bonds, shares, properties etc.).
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, carried out risk identification routines, 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 55.
Annual report 2017 | Tryg A/S | 28Contents – Management’s review
DKKm 13,1629,850 share, after assessing the company’s capital plan, in which the solvency ratio is projected based on Tryg’s forecasts. 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.
At the annual general meeting to be held on 16 March 2018, Tryg’s Supervisory Board will propose a Q4 dividend of DKK 1.60 per share. In 2017, Tryg also paid Q1-Q3 dividends of DKK 4.80 per share in total. The full-year dividend is thus DKK 6.40 per share, equivalent to the total distribution of DKK 1,827m.
Capital plan and contingency plan In conjunction with the capital plan, 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 management and Solvency II in note 1 on page 55.
The Alka acquisition Tryg announced the acquisition of Alka on 4 December 2017. Alka will add approximately 4% market share and approximately DKK 2bn of non-life premiums. The acquisition is expected to be closed in Q2 2018 upon approval by the authorities. Tryg has disclosed a solvency ratio of approximately 170 when the Alka acquisition is finalised.
Tryg’s Supervisory Board has proposed an extraordinary dividend of DKK 1bn, corresponding to DKK 3.31 per share and a Q4 dividend of DKK 1.60 per share to be approved by the AGM.
Annual report 2017 | Tryg A/S | 29Contents – Management’s review
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 2017, we held almost 300 investor meetings – mostly one-toones but also some group meetings in Europe, the USA, Canada and Asia. The Tryg share is covered by 23 analysts, who continuously update their recommendations and earnings forecasts.
TryghedsGruppen In 2017, for the second 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 2016.
Shareholders at 31 December 2017 a) Shareholders holding more than 10,000 shares.
Quarterly dividends started in 2017 Tryg started paying quarterly dividends in 2017. Tryg’s share has a distinct income profile; the business generally grows in line with GDP, producing high margins, which are mostly returned to shareholders.
• The capital level may be adjusted via extra- ordinary dividends.
Annual general meeting Tryg’s annual general meeting will be held on 16 March 2018 at 15:00 CET at Tryg’s head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark. The notice will be advertised in the daily press in February 2018 and will be sent to shareholders upon request.
The company announcements published in 2017 can be seen at tryg.com/investor/news.
Extraordinary dividend b) 1,000 1,000 Extraordinary dividend per share (DKK) 3.31 3.54 a) Dividend per share includes dividend for Q1-Q3 of DKK 1.60 per quarter paid out in April, July and October 2017 and dividend of DKK 1.60 proposed by the Supervisory Board for adoption by the annual general meeting.
b) Proposed by the Supervisory Board for adoption by the annual general meeting.
Annual report 2017 | Tryg A/S | 31Contents – Management’s review
Annual general meeting Tryg holds an annual general meeting (AGM) every year. As required by the Danish Companies Act and the Articles of Association, the AGM is convened via a company announcement and at tryg.com subject to at least three weeks’ notice. Shareholders may also opt to receive the notice by post or email. The notice contains information about time and venue as well as an agenda for the meeting.
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. The proposed extraordinary dividend is DKK 1bn in 2018 to be paid after the AGM.
Women are thus not underrepresented on Tryg’s Supervisory Board, thus complying with legislation as well as Tryg’s policy. The Supervisory Board has members from Denmark, Sweden and Norway.
See CV’s and descriptions of the skills in the section Supervisory Board on pages 37-38 and at tryg.com.
Board and the Executive Board with relevant policies, guidelines and instructions describing reporting requirements and requirements for communication with the Executive Board. Financial legislation also requires the Executive Board to disclose all relevant information to the Supervisory Board and report on compliance with limits defined by the Supervisory Board and in legislation.
Board committees Tryg has an Audit Committee, a Risk Committee, a Nomination Committee and a Remuneration Committee. In 2016, Tryg set up a temporary IT Committee to allow the Board to work more closely with Tryg’s IT strategy. The framework of the committees ’ work is defined in their terms of reference.
See the tasks of the board committees in 2017 at tryg.com > Governance > Management > Supervisory Board > Board committees.
Three out of four members of the Audit Committee and three out of five members of the Risk Committee, including the chairman of the committees, are independent persons. Of the five members of the Remuneration Committee, two members are independent persons, and two out of three members of the Nomination Committee are independent. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board.
Annual report 2017 | Tryg A/S | 33Contents – Management’s review
Total remuneration of the Executive Board in 2017 Car Other Total fixed Share-based Total DKK Base salary Pension allowance benefits salary remunerationb) fee
Morten Hübbe 10,000,000 2,500,000 255,000 26,000 12,781,000 2,600,000 15,381,000 Lars Bonde 5,003,536 1,250,884 255,000 26,000 6,535,420 1,250,000 7,785,420 Christian Baltzer 4,000,000 1,000,000 255,000 26,000 5,281,000 1,000,000 6,281,000 a) The maximum investment opportunity offered under the Matching Shares Programme at the beginning of 2018 (performance year 2017)
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 2017 was adopted by the Supervisory Board in January 2017 and approved by the annual general meeting on 8 March 2017.
The Chairman of the Supervisory Board reports on Tryg’s remuneration policy each year in connection with the review of the annual report at the annual general meeting. The Board’s proposal for the remuneration of the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting.
Remuneration of the Supervisory Board Members of Tryg’s Supervisory Board receive a fixed fee and are not comprised by any form of incentive or severance programme or pension scheme. Their remuneration is based on trends in peer companies, taking into account the required skills, efforts and the scope of the Supervisory Board’s work, including the number of meetings held. The remuneration received by the Chairman of the Board is three times that received by ordinary members, while the Deputy Chairman’s remuneration is twice that received by ordinary members of the Supervisory Board.
Remuneration of the Executive Board Members of the Executive Board are employed on a contractual basis, and all terms of their remuneration are established by the Supervisory Board within the framework of the approved remuneration policy.
Audit Risk One-off Remuneration DKK Fee Committee Committee IT fee committee Total
The variable pay element consists of a Matching Shares Programme. The Executive Board may, using taxed funds, buy shares (so-called investment shares) in Tryg A/S 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 (a testing prior to matching, to ensure that the criteria forming the basis of the calculation of the variable salary are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure alignment of interests between the Executive Board and the company’s shareholders.
Other risks associated with the financial reporting are described in the section Capital and risk management on pages 28-29 and in Note 1 Risk management on page 55.
Read more about Tryg’s risk management in the section Capital and risk management on pages 28-29 and in Note 1 on page 55.
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. The internal and independent auditors attend the Audit and Risk Committee meetings, and 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 recommendations concerning the retirement age for members of the Supervisory Board, with which Tryg complies partially, the number of independent members of the board committees, with which Tryg complies partially and agreements on termination payments, with which Tryg complies partially; see recommendations 3.1.4., 3.4.2. and 4.1.5. of the Recommendations on Corporate Governance.
The deviations are explained in Tryg’s statutory corporate governance report, which is available at tryg.com > Investor > Download.
Annual report 2017 | Tryg A/S | 36Contents – Management’s review
Jesper Hjulmand (1963) Board member From positions with SEAS-NVE, Jesper Hjulmand has experience in the fields of M&A, strategy, organisational and management development, communication and business development.
Ida Sofie Jensen (1958) Board member Has experience from business operations and the healthcare sector as well as management, strategy, politics and finance.
Jørgen Huno Rasmussen (1952) Chairman As former CEO of FLSmidth, Jørgen Huno Rasmussen has experience in international management of listed companies and special skills within strategy, business development, communication, risk management and finance.
Elias Bakk (1975) Employee representative Project Manager in Tryg. Employed since 2006.
Carl-Viggo Östlund (1955) Board member Has experience from the packaging industry, logistics, insurance, finance and banking, from leading positions in listed and private companies. Carl-Viggo Östlund has special knowledge of Swedish market conditions.
Chairman Born in 1952. Joined the Supervisory Board in 2012. Danish Citizen. Career: Professional board member. Adjunct professor at the Copenhagen Business School. Former CEO of the FLSmidth Group. Education: B.Com. (Organisation), MSc (Civ. Eng.), PhD (Constr. Man.). Board seats, Chairman: Tryg A/S, Tryg Forsikring A/S, TryghedsGruppen smba, Lundbeckfonden and LundbeckFond Invest A/S.
Board member: Sampension KP Livsforsikring A/S, Dansk Landbrugs Realkredit and a member of the Executive Management of Bombebøssen.
Career: Professional board member. Former CEO of Siemens. Education: MSc in Engineering. Board seats, Chairman: Danish Academy of Technical Sciences (ATV), Gomspace Group AB / GomSpace A/S, Leo Pharma A/S, Siemens Gamesa Renewable Energy A/S. Board seats, Deputy Chairman: Tryg A/S and Tryg Forsikring A/S. Board member: Baltic Development Forum, Industriens Pensionsforsikring A/S, Cowi Holding A/S. Committee memberships: Remuneration Committee and Nomination Committee in Tryg. Number of shares held: 1,200 Change in portfolio 2017: +1,200
Born in 1951. Joined the Supervisory Board in 2016. Danish citizen. 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, CPS A/S, Danish Label Coating A/S, Friis & Moltke A/S, Lastvogn & Trailer Center A/S, Nordjyske Jernbaner A/S, Palle Mørch A/S, Pava Produkter A/S, Seafood Danmark A/S, Scan Fish Danmark A/S, Utzon Center A/S, Kunsten – Museum of Modern Art, Thor Fisk A/S, Lerøy Schlie A/S, PSC A/S, GF Inveco A/S and a number of subsidiaries. Board seats, Deputy Chairman: Royal Danish Theatre. Board member: Tryg A/S and Tryg Forsikring A/S, TryghedsGruppen smba, Flemming Christensens Fond, FDE Fonden, Effer Krancenter A/S, Sawo A/S and the Utzon Foundation.
Born in 1958. Joined the Supervisory Board in 2013. Danish citizen. Career: Group Managing Director of Lif (Danish Association of the Pharmaceutical Industry), CEO of the subsidiary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry). Education: MSc in Political Science, European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University. Deputy Chairman: TryghedsGruppen smba and Hans Knudsen Instituttet (business trust). Board member: Tryg A/S, Tryg Forsikring A/S and Plougmann & Vingtoft A/S.
Committee memberships: Remuneration Committee in Tryg. Number of shares held: 2,368 Change in portfolio 2017: +1,193
Education: BSc (International Business Administration and Modern Languages), MSc (Finance and Accounting), management programme at Wharton. Board member: KMD A/S, KMD Holding A/S and KBC.
Lifebuoys Since 1952, Tryg’s iconic lifebuoys have provided safety along the coastline of Norway. The lifebuoy is a vitally important rescue tool and one of our most important CSR initiatives when it comes to ensuring peace of mind. In 2017, we increased our commitment by providing more than 3,000 lifebuoys compared to a little over 2,000 in 2016. To increase safety along the coastline, Tryg has also participated in several large events offering the public a chance to practise their life-saving skills with a lifebuoy and thereby prepare them for preventing drownings in future. Each year, the lifebuoy plays a crucial role in preventing people from drowning, and since 1952 it has prevented more than 1,000 deaths.
Watch Tryg’s new commercial with a grand father and grandson who were saved by a lifebuoy on youtube.com
The Nightravens The Nightravens are local groups of volunteers who walk the streets at night, providing safety, offering help, and preventing unwanted incidents, especially among young people. Tryg is the main partner of the Nightravens in Norway and hosts a national Nightravens Conference every other year. There are a total of about 350 Nightravens groups, which are highly respected, and Tryg is honoured to support their important efforts to create safety and peace of mind in local communities all over Norway.
Tryg as a responsible workplace with responsible management In order to fulfil our purpose and ensure peace of mind, we believe it is necessary to focus on Tryg as a responsible workplace with responsible managea ) The word ‘tryg’ is a unique Scandinavian word, which is best directly translated as peace of mind, but the essence of the word is about feeling protected and cared for.
Annual report 2017 | Tryg A/S | 40Contents – Management’s review
ment. As part of our materiality and risk assessments, it has become clear that our em ployees are a very valuable resource and also key to providing competent and high-quality services to our customers, which is also illustrated in our business model on page 10. Our employees therefore represent an important resource when it comes to further improving our service and customer care standards. However, there is also a risk that Tryg can negatively impact its employees through, for example, dissatisfaction, discrimination, and the physical as well as the psychosocial working environment. To mitigate this risk, we are actively working to improve the conditions for our employees. At the same time, we want to take a holistic approach to our operations, hence we do not only focus on our employees in the Nordic region, but also on activities involving other companies. However, we believe that responsible management is more than this, which is why we also focus on our impact on the climate and the environment.
In 2017, Tryg also introduced a rotation programme for internal talents with the aim of developing their profile by letting them work in different functions and departments in Tryg. We believe this initiative is necessary since we can see that, during their careers, women often stay with the same department for a long time. Such loyalty leads to indepth knowledge of a certain area, but by increasing talents’ knowledge about other departments, we believe they will become more attractive in connection with recruitments for top management positions. In this way, we want to increase our pool of potential managers, while mitigating the risk of a shortage of qualified managers in the future. The rotation programme is for both men and women, but in 2018 at least 70% of the 25 participants should be women. Tryg’s target for women at management level is still 38% in 2018. In 2017, we achieved 37% women at management level compared to 36.4% in 2016.
Employees and business ethics It is important that our employees comply with our Code of Conduct at all times since it covers a number of areas that are key to Tryg’s values, including good practices for marketing, handling of personal data, anti-discrimination, diversity and anti-corruption, including gifts. Even though
Annual report 2017 | Tryg A/S | 41Contents – Management’s review
Supply chain management One area that stood out in our materiality and risk assessments was our outsourcing activities and the risk of Tryg violating human and labour rights. In Tryg, we respect the internationally recognised human rights, which is why the area is also an integrated part of our Code of Conduct that suppliers must follow. We actively monitor our suppliers with reference to our supplier Code of Conduct. Based on our experience from 2016, we refined and developed our monitoring approach in 2017. To determine how our monitoring efforts should be organised in the future, we did a trial with one of our largest outsourcing partners. Prior to our on-site visit, our partner filled out a report, which was then used as a starting point for our dialogue. We believe that using the report as a dialogue tool increased the quality of our monitoring, thereby minimising the risk of violations of our Code of Conduct. As a result of this trial, we have decided to use the same approach in 2018, including further systematisation of our monitoring process of outsourcing partners.
Climate initiatives Tryg’s business is to a large degree affected by extreme weather events, which also represents a risk to Tryg, since these events can increase the number and frequency of climate-related claims. At the same time, such weather-related claims can also have serious consequences for the people affected and for society as a whole. This is why we believe the climate and the environment should be of concern for everyone. We therefore work actively to minimise our own carbon emissions while also finding solutions which can help people prevent claims from happening in the first place, thereby increasing peace of mind.
Since extreme weather represents a risk to Tryg, we believe it is important to take part in the global community’s endeavours to minimise greenhouse gas emissions. Although we want to take responsibility, Tryg is not an energy-intensive company, since our carbon emissions are mainly associated with heating and electricity use at our leased offices and with car, rail and air travel. However, we are actively working to minimise our environmental impact and our carbon emissions. In 2017, we continued our work to optimise ventilation as well as heating and cooling pumps serving our leased facilities in Ballerup, while also being certified as an Eco-Lighthouse (Miljøfyrtårn) in Norway. As a result of our initiatives, we reduced our carbon emissions by an estimated 0.96% in 2017 compared to our actual emissions in 2016. Thus, we have not achieved our 1% target reduction compared to 2017. This is mainly associated with a slight increase in the use of electricity, which might be related to an increase of activities at our offices. Since both our buildings in Ballerup and Bergen were sold and leased back in 2017, in future it will not be possible for us to influence the environmental footprint of our buildings to the same extent, which might have a bearing on our climate-friendly initiatives. However, in 2018, we will continue to introduce more climatefriendly activities, while retaining our Eco-Lighthouse certificate in Norway and focusing on energy efficiency in connection with the renovation of parts of our leased building in Ballerup. Due to our continuous work with climate-friendly initiatives, our 2018 target is to maintain the 2017 level of carbon emissions even though the activities at our offices are increasing
The Tryg experience In Tryg, we focus on equal treatment of our customers and on their satisfaction with Tryg. To ensure that all our customers are offered the same highly competent consultancy regarding their insurance needs, we implemented a new approach to our daily customer dialogue in 2017. The new approach describes five valuable steps in our customer dialogue. We still recognise that different customers have different needs, and there fore we are also working to ensure that individual dialogues are based on the exact needs of the individual customer. In addition to working with our direct customer dialogue, we also improved our websites in 2017 in order to make it easier for customers to find information and to ensure faster and more efficient claims handling online. We believe that a combination of personal dialogue and digital solutions is the best way to ensure satisfied customers, and we continuously work to improve our solutions to suit customer needs. In 2017, our Net Promoter Score (NPS) was 22, meaning that we met our target of an NPS of 22 in 2017.
Complaints are taken seriously Even though we work hard to ensure responsible customer relations and focus on customer satisfaction, sometimes customers do not agree with the settlement of their claims. In these situations, customers should contact the department responsible for handling their claim, and if a solution cannot be found, it is possible to contact our complaints department. Every complaint is taken very seriously, and all complaints are analysed in order to establish whether any procedures or business processes need changing.
The carbon emissions chart covers both Norway and Denmark; air and train travel also include Sweden while motor only applies for Denmark.
Note Statement by the Supervisory Board and the Executive Board 45 Independent auditor’s reports 46 Financial highlights 49 Income statement 50 Statement of comprehensive income 51 Statement of financial position 52 Statement of changes in equity 53 Cash flow statement 54 1 Risk and capital management 55 2 Operating segments 65 2 Geographical segments 67 2 Technical result, net of reinsurance, by line of business 69 3 Premium income, net of reinsurance 71 4 Insurance technical interest, net of reinsurance 71 5 Claims, net of reinsurance 71 6 Insurance operating costs, net of reinsurance 71 6 Matching shares and conditional shares 73 7 Interest income and dividends etc. 74 8 Value adjustments 74
Note 10 Intangible assets 75 11 Property, plant and equipment 78 12 Investment property 79 13 Equity investments in associates 79 14 Financial assets 81 15 Reinsurers’ share 84 16 Current tax 84 18 Premium provisions 85 18 Claims provisions 85 19 Pensions and similar liabilities 86 20 Deferred tax 88 21 Other provisions 88 22 Amounts owed to credit institutions 88 23 Debt relating to unsettled funds transactions and repos 88 24 Earnings per share 89 25 Sale of properties 89 26 Contractual obligations, collateral and contingent liabilities 89 27 Acquisition of subsidiaries 92 28 Related parties 93 29 Financial highlights 94 30 Accounting policies 95
Income statement 103 Statement of financial position 104 Statement of changes in equity 105 Notes 106
Jørgen Huno Rasmussen Torben Nielsen Jukka Pertola Elias Bakk Tom Eileng Lone Hansen Anders Hjulmand Chairman Deputy Chairman Deputy Chairman
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 the NASDAQ Copenhagen for the presentation of financial statement of listed companies. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
Furthermore, in our opinion the Management’s review gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group’s and the parent company’s financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company.
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 2017, pages 44-108, which comprise 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 2017 and of its financial performance and cash flows for the financial year 1 January to 31 December 2017 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 23,925m at 31 December 2017 (2016: DKK 25,452m).
Management has specified the risks etc. related to the estimates of the claims provisions in note 1 ‘Risk and capital management’ on pages 56-57 and in ‘Accounting policies’, note 30 on pages 95-96. The principles of estimating the claims provisions have been specified in ‘Accounting policies’, note 30 on page 101, and further specified in note 1 on pages 58-61 and in note 18.
• In cooperation with our own internationally qualified actuaries, we have tested controls related to the actuarial estimates of the claims provisions of selected lines of business.
• We have tested the accuracy and the completeness of the data that are included in the actuarial estimates of the claims provisions.
Annual report 2017 | Tryg A/S | 46Contents – Financial statements
Moreover, it is our responsibility to consider whether the management review provides the information required under the Danish Financial Business Act.
Based on the work we have performed, we conclude that the management review is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the management review.
Solvency ratio Management is responsible for the solvency ratio evident from the statement of financial highlights and key figures on page 49 of the annual report.
As part of an audit in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
Annual report 2017 | Tryg A/S | 48Contents – Financial statements
c) Solvency I ratios in 2013-2015 are the ratio between base capital and weighted assets and are audited. Solvency II ratio in 2016 and 2017 are the ratios be- tween own funds and the solvency capital requirement and is exempt from the requirement for auditing and thus not audited.
Profit/loss on gross business 3,582 3,351 1,695 3,313 2,085 Profit/loss on ceded business -779 -951 710 -341 349 Insurance technical interest, net of reinsurance -14 -10 18 60 62
Investment return after insurance technical interest 527 987 -22 360 588
Note Investment activities 14 Income from associates 3 42 Income from investment property 69 105 7 Interest income and dividends 624 671
Total investment return 711 1,136 4 Return on insurance provisions -184 -149
Profit/loss for the year 2,517 2,471 24 Earnings per share 9.12 8.84
Acquisition costs and administration expenses -2,516 -2,737 Reinsurance commissions and profit participation from reinsurers 160 150 6 Insurance operating costs, net of reinsurance -2,356 -2,587
Annual report 2017 | Tryg A/S | 50Contents – Financial statements
Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions 4 15 Sale of owner-occupied property a) 0 215 Sale of owner-occupied property, revaluation from previous years a) 0 -115 Tax on sale of owner-occupied property 0 -53 Tax on revaluation of owner-occupied property from previous years 0 29 Actuarial gains/losses on defined-benefit pension plans -7 -95 Tax on actuarial gains/losses on defined-benefit pension plans 2 24
Comprehensive income 2,484 2,503 a) Please refer to note 25 Sale of properties
Deposits with credit institutions 250 0 Derivative financial instruments 1,079 1,000
Total other financial investment assets 43,511 40,252 14 Total investment assets 45,060 42,793
Reinsurers’ share of premium provisions 245 214 18 Reinsurers’ share of claims provisions 1,121 1,820 15 Total reinsurers’ share of provisions for insurance contracts 1,366 2,034
Interest and rent receivable 197 224 Other prepayments and accrued income 335 465
Note Equity and liabilities 17 Equity 12,616 9,437 1 Subordinate loan capital 2,412 2,567
Total provisions for insurance contracts 30,018 31,527 19 Pensions and similar obligations 290 345 20 Deferred tax liability 656 702
Debt relating to direct insurance 498 555 Debt relating to reinsurance 454 426 22 Amounts owed to credit institutions 306 178 23 Debt relating to unsettled funds transactions and repos 1,711 1,732 14 Derivative financial instruments 746 702 16 Current tax liabilities 194 317 Other debt 1,312 1,203
Total equity and liabilities 51,367 49,861 1 Risk and capital management 25 Sale of properties 26 Contractual obligations, collateral and contingent liabilities 27 Acquisition of activities 28 Related parties 29 Financial highlights 30 Accounting policies
Annual report 2017 | Tryg A/S | 52Contents – Financial statements
The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 1,592m (DKK 1,774m in 2016). 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.
c) A new executive order from the Danish FSA from 1 January 2016 has abolished the requirements of equalisation reserves in credit and guarantee insurance.
Reserve for Share Revaluation- exchange rate Equalisation- Other Retained Proposed DKKm capital reserves adjustment reserve reservesa) earnings dividend Total 2017 Profit/loss for the year -39 -271 2,827 2,517
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 b) 137 3,841 3,978 Issue of employee shares 10 10 Issue of conditional shares and matching shares 6 6
Total changes in equity in 2017 98 0 -32 0 -39 3,686 -534 3,179
Liabilities arising from financing activities Amounts owed Subordinated to credit 2017 loans institutions Total
Carrying amount at 1 January 1,698 64 1,762 Exchange rate adjustments 68 -1 67
Investments Purchase and refurbishment of property -10 -122 Sale of property 2,307 6 Purchase/sale of equity investments and unit trust units (net) -978 147 Purchase/sale of bonds (net) -3,578 413 Deposits with credit institutions -250 0 Purchase/sale of operating equipment (net) -38 -1 Acquisition of intangible assets -102 -135 Hedging of currency risk 135 -50
The Committee meets minimum four times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status.
• Support of a steadily increasing nominal dividend per share, with a payout ratio in the interval 60-90%.
• Return on the average equity of at least 21% after tax.
Annual report 2017 | Tryg A/S | 55Contents – Financial statements
At the end of 2017, Tryg’s claims reserves totalled DKK 22,804m with an average duration of approximately 4 years.
Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy. In overall terms, Tryg’s investment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the dis- counted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s equity portfolio constitutes the company’s largest investment risk. At the end of 2017, the equity portfolio accounted for 5.0% of the total investment assets. Tryg’s property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2017, investment properties accounted for 3.9% (including property funds).
Currency market Equity: 15 % decline in exposed currency (exclusive of EUR) relative to DKK -975 -763 Impact of derivatives 946 728 Net impact of exchange rate decline -29 -35 Technical result per year: Impact of 15% change in NOK and SEK exchange rates relative to DKK +/- 151 +/- 158 a) Including the effect of the zero coupon inflation swap. b) Additional sensitivity information in note 19 ‘Pensions and similar obligations’.
Notes environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines covering the various aspects of the Group’s operations.
The Supervisory Board defines the overall framework for managing operational risk in Tryg’s Operational risk policy. These risks are controlled via the Operational Risk Committee. A special crisis management structure is set up to deal with the eventuality that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and finally business contingency in the individual areas. Tryg has prepared contingency plans to address the most important areas. In addition, comprehensive IT contingency plans have been established, primarily focusing on the business-critical systems.
Estimated accumulated claims End of year 11,527 12,045 13,356 15,546 15,885 13,434 13,842 12,681 14,673 12,869 12,733 1 year later 12,092 13,334 13,984 15,643 16,268 13,521 14,103 13,003 14,615 12,725 2 year later 12,631 13,205 13,998 15,596 16,325 13,475 13,763 12,820 14,568 3 year later 12,605 13,220 13,799 15,518 16,277 13,289 13,593 12,732 4 year later 12,608 13,182 13,701 15,430 16,102 13,024 13,573 5 year later 12,516 13,106 13,607 15,354 16,134 12,936 6 year later 12,400 13,070 13,576 15,330 15,999 7 year later 12,394 12,815 13,458 15,239 8 year later 12,319 12,692 13,400 9 year later 12,271 12,600 10 year later 12,088 12,088 12,600 13,400 15,239 15,999 12,936 13,573 12,732 14,568 12,725 12,733 148,593
Provisions before discounting, end of year 540 838 1,022 1,251 1,417 1,500 1,843 2,144 2,447 3,067 6,512 22,581
Reserves from 2006 and prior years 2,544 Gross provisions for claims, end of year 23,925
Annual report 2017 | Tryg A/S | 59Contents – Financial statements
Estimated accumulated claims End of year 11,031 11,893 13,078 14,892 14,436 13,212 12,754 12,408 12,596 12,667 12,419 1 year later 11,629 13,120 13,640 14,913 14,134 13,268 12,627 12,694 12,731 12,471 2 year later 12,154 13,021 13,675 14,874 14,068 13,187 12,503 12,517 12,651 3 year later 12,123 13,046 13,517 14,819 13,984 13,006 12,339 12,435 4 year later 12,107 13,008 13,416 14,721 13,861 12,755 12,304 5 year later 12,043 12,944 13,317 14,642 13,899 12,677 6 year later 11,899 12,903 13,298 14,615 13,758 7 year later 11,902 12,657 13,181 14,531 8 year later 11,830 12,535 13,124 9 year later 11,783 12,443 10 year later 11,600 11,600 12,443 13,124 14,531 13,758 12,677 12,304 12,435 12,651 12,471 12,419 140,413
Provisions before discounting, end of year 528 832 1,014 1,235 1,334 1,489 1,741 2,104 2,089 2,975 6,275 21,616
The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2017 to prevent the impact of exchange rate fluctuations.
Annual report 2017 | Tryg A/S | 60Contents – Financial statements
Investment risk Bond portfolio including interest derivatives Duration 1 year or less 17,509 14,758
The share portfolio includes exposure from share derivatives of DKK -135m (DKK 97m in 2016). Unlisted equity investments are based on an estimated market price.
Annual report 2017 | Tryg A/S | 62Contents – Financial statements
Notes Impact of exchange rate fluctuations in SEK and NOK on the statement of financial position
Reinsurers’ share of provisions for insurance contracts 1,366 2,034 -668 -54 -614
Annual report 2017 | Tryg A/S | 63Contents – Financial statements
The share of capital included in the calculation of the capital base totals DKK 2,164m (DKK 2,371m in 2016)
The fair value of the loan at the statement of financial position date 659 685 1,080 1,124 796 796 The fair value of the loan at the statement of financial position date is based on a price of 109 105 102 98 105 102 Total capital losses and costs at the statement of the financial position date 3 3 4 4 4 4 Interest expenses for the year 29 32 43 46 20 10
Issue date March 2013 November 2015 May 2016 Maturity year Perpetual 2045 2046 Loan may be called by lender as from 2023 2025 2021
Repayment profile Interest-only Interest-only Interest-only Interest structure 3.75 % above NIBOR 3M (until 2023) 2.75 % above NIBOR 3M (until 2025) 2.75 % above STIBOR 3M (until 2026) 4.75 % above NIBOR 3M (from 2023) 3.75 % above NIBOR 3M (from 2025) 3.75 % above STIBOR 3M (from 2026
Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under ‘Other’.
Annual report 2017 | Tryg A/S | 66Contents – Financial statements
Claims ratio, net of ceded business 67.9 69.7 71.3 69.0 72.5
Run-off, net of reinsurance (%) -6.7 -10.6 -7.3 -6.8 -4.9 Number of full-time employees 31 December 1,042 1,040 1,113 1,167 1,199 a) Includes Danish general insurance and Finnish guarantee insurance.
Annual report 2017 | Tryg A/S | 67Contents – Financial statements
Run-off, net of reinsurance (%) -4.8 -2.8 -11.0 -3.3 -0.8 Number of full-time employees 31 December 398 385 387 425 458
Run-off, net of reinsurance (%) -5.4 -7.0 -6.7 -6.1 -5.0 Number of full-time employees, continuing business at 31 December 3,373 3,264 3,359 3,599 3,703 b) Amounts relating to eliminations and one-off items. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment af software.
b) Average claims are total claims before run-off in the year relative to the number of claims in the year.
c) Other insurance, gross claims and gross operating expenses are negatively affected by DKK 88m and DKK 162m, mainly by impairment of software, in 2016.
Profit/loss on ceded business - 49 - 23 - 779 - 950 0 - 1 - 779 - 951 Insurance technical interest, net of reinsurance 2 2 - 15 - 11 1 1 - 14 - 10
Gross claims ratio 17.5 172.7 65.9 65.1 74.2 87.0 66.1 65.6 Combined ratio 100.0 540.0 84.4 86.2 84.4 98.1 84.4 86.7
Annual report 2017 | Tryg A/S | 70Contents – Financial statements
3 Premium income, net of reinsurance Direct insurance 18,168 17,949 Indirect insurance 45 43
The fee is divided into: Statutory audit -3 -3 Other audit assignments -1 -1 Tax advice -1 -1 Other services -1 -2
Fees for non-audit services provided by Deloitte Statsautoriserede Revisionspartnerselskab to the Group amount to DKK 2m and consists of various declaration tasks, including review of interim balances, tax advice in relation to the investment area, as well as other general accounting and tax advice.
Annual report 2017 | Tryg A/S | 71Contents – Financial statements
Allocated share options and matching shares -6 -3 Pension plans a) -280 -286 Other social security costs -5 -4 Payroll tax -410 -354 a) In 2017 defined benefit plans were included with DKK 49m (DKK 33m in 2016).
Remuneration for the Supervisory Board and Executive Board is disclosed in note 28 ‘Related parties’.
Average number of full-time employees during the year (continuing business) 3,315 3,306
Annual report 2017 | Tryg A/S | 72Contents – Financial statements
Notes In 2011-2017, Tryg entered into an agreement on matching shares for the Executive Board, Risk-takers and Other employes as a consequence of the Group’s remuneration policy. Executive Board, Risk-takers and Other employees are allocated one share in Tryg A/S for each share they acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum over the 3- or 4-year maturation period.
In 2017, the reported fair value of matching shares for the Group amounted to DKK 5m (DKK 3m in 2016). At 31 December 2017, a total amount of DKK 21m was recognised for matching shares.
Matching shares allocated in 2017 at 31.12.17 27,060 39,747 18,896 85,703 127 11 155 13
Number of Matching shares exercisable 31 Dec. 2017 0 0 0 0
Matching shares allocated in 2011-2015 at 31.12.16 37,890 67,425 0 105,315 94 10 127 13
Annual report 2017 | Tryg A/S | 73Contents – Financial statements
7 Interest and dividends Interest income and dividends Dividends 19 25 Interest income, cash at bank and in hand 0 1 Interest income, bonds 601 642 Interest income, other 4 3
Interest expenses Interest expenses subordinate loan capital and credit institutions -89 -88 Interest expenses, other -18 -25 8 Value adjustments Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments -35 78 Unit trust units 460 190 Share derivatives -8 -19
Amortisation and write-downs Amortisation and write-downs at 1 January -4 -129 -950 -92 -1,175
Amortisation and write-downs at 31 December -104 -147 -1,252 -92 -1,595 a) Hereof proprietary software DKK 336m (DKK 203m at 31 December 2016)
Annual report 2017 | Tryg A/S | 75Contents – Financial statements
Primary assumptions for impairment test: When assessing the cash flow, management has based its estimates of premiums earned on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development from past experiences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to current levels. Moderna is adjusted for weather and large-scale claims as well. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management’s own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future.
OBOS In 2017, Tryg acquired OBOS’ insurance portfolio. The insurance activities were incorporated into the Tryg Group’s business structure from 1 June 2017.
The impairment test shows a calculated value in use of approximately DKK 0.3bn relative to a recognised goodwill of DKK 51m and Equity of DKK 0.2bn and does not indicate any impairment in 2017.
DKKm 2017 - Earned premium assumed CAGR 0 - 10 years 10% - Earned premium assumed CAGR > 10 years 2% - Required return before tax 15% - Expected level of Combined ratio 91%
Required return +1.0 percentage point -153 Required return -1.0 percentage point 193 Combined ratio +1.0 percentage point -142 Combined ratio -1.0 percentage point 143
Moderna In 2016, Tryg acquired Skandia’s child and adult accident insurance portfolio. The insurance activities were incorporated into the Tryg Group’s business structure from 1 September 2016.
At 31 December 2017, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit. Moderna portfolio consists from 1 January 2017 of Moderna, Securator and Skandia, which was prior to this date three separate cash-generating units. The reasons behind the merger of Securator and Skandia into Moderna, is that they are managed together as part of the Swedish business and reported under the segment ‘Sweden’.
Sensitivity information Impact on equity from the following changes: Required return +1.0 percentage point -147 -172 Required return -1.0 percentage point 185 219 Combined ratio +1.0 percentage point -107 -157 Combined ratio -1.0 percentage point 107 157
Trademarks and customer relations As at 31 December 2017 management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the Moderna portfolio goodwill test and OBOS portfolio goodwill test.
The impairment test of the acquired agricultural portfolio is based on renewal and retention rates, which are on the expected level. The test did not indicate any impairment.
Annual report 2017 | Tryg A/S | 77Contents – Financial statements
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -190 0 0 -190
Depreciation for the year -15 -17 0 -32 Value adjustments for the year at revalued amount in income statement 0 53 0 53 Value adjustments for the year at revalued amount in other comprehensive income 0 100 0 100
Accumulated depreciation and value adjustments at 31 December -190 0 0 -190
The owner-occupied properties were sold in December 2016. Please refer to note 25 Sale of properties.
Annual report 2017 | Tryg A/S | 78Contents – Financial statements
12 Investment property Fair value at 1 January 2,323 1,838 Exchange rate adjustments -27 16 Additions for the year 10 47 Disposals for the year -1,015 -6 Value adjustments for the year 33 431 Reversed on sale 0 -3
Annual report 2017 | Tryg A/S | 80Contents – Financial statements
Valuation based on observable input (level 2) consists of financial instruments that are valued substantially on the basis of observable input other than a quoted price for the instrument itself. If a financial instrument is quoted in a market that is not active, Tryg bases its measurement on the most recent transaction price. Adjustment is made for subsequent changes to market conditions, for instance, by including transactions in similar financial instruments that are assumed to be motivated by normal business considerations. For a number of financial assets and liabilities, no market exists. In such cases, Tryg uses recent transactions in similar instruments and discounted cash flows or other generally accepted estimation and valuation techniques based on market conditions at the balance sheet date to calculate an estimated value. This category covers instruments such as derivatives valued on the basis of observable yield curves and exchange rates and illiquid mortgage bonds valued by reference to the value of similar liquid bonds.
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 12 and accounting policies section Investment property.
If, at the balance sheet date, a financial instrument’s classification differs from its classification at the beginning of the year, the classification of the instrument changes. Changes are considered to have taken place at the balance sheet date. Developments in the financial markets can result in reclassifications between the categories. Some bonds have become illiquid and have therefore been moved from the Quoted prices to the Observable input category, while other bonds have become liquid and have been moved from the Observable input to the Quoted prices category.
14 Financial assets Financial assets at fair value with value adjustments in the income statement 43,434 40,252 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income 77 0 Receivables measured at amortised cost with value adjustment in the income statement 3,237 3,412
Annual report 2017 | Tryg A/S | 81Contents – Financial statements
Gains/losses in the income statement for assets held at the statement of financial position date recognised in value adjustments -39 381
DKKm 14 Financial assets (Continued) Fair value hierarchy for financial instruments and investment property measured at fair value in the statement of financial position Non- Quoted Observable observable market price input input Total
Financial instruments transferred from quoted market prices to observable input 950 837 Financial instruments transferred from observable input to quoted market prices 1,379 388
Notes DKKm 14 Financial assets (Continued) Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes Gains and losses on hedges charged to other comprehensive income: 2017 Gains Losses Net
Gains and losses at 1 January 2,652 -2,626 26 Reversed hedges in profit/loss 0 0 0 Value adjustments for the year 251 -116 135
Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January -15 -66 Value adjustment for the year -137 26 Exchange rate adjustment for the year recognised in profit/loss 0 25
Derivatives according to statement of financial position 37,023 333 41,231 298 Inflation derivatives, recognised in claims provisions 3,311 -386 3,143 -398
Due after less than 1 year 13,455 134 18,508 -91 Due within 1 to 5 years 10,498 -26 10,754 -16 Due after more than 5 years 16,381 -161 15,112 7
16 Current tax Net current tax at 1 January -317 -239 Exchange rate adjustments 6 -9 Current tax for the year -666 -636 Current tax on equity entries -30 0 Adjustment of current tax in respect of previous years -32 38 Tax paid for the year 845 529
Current tax is recognised in the statement of financial position as follows: Under assets, current tax 0 0 Under liabilities, current tax -194 -317
Specification of write-downs on receivables from insurance contracts: Write-downs at 1 January 117 116 Exchange rate adjustments -5 3 Write-downs and reversed write-downs for the year 3 -2
Receivables are written down in full when submitted for debt collection. The write-down is reversed if payment is subsequently received from debt collection and amounts to DKK 42m (DKK 50m in 2016).
Annual report 2017 | Tryg A/S | 84Contents – Financial statements
Notes DKKm 17 Equity Number of shares Shares outstanding Own shares Number of shares of DKK 5 (1,000) 2017 2016 2017 2016
Number of shares as a percentage of issued shares at 31 December 99.93 97.19 0.07 2.81 Nominal value at 31 december (DKKm) 1,510 1,373 1 40
Claims provisions at 1 January 25,452 -1,820 23,632 Addition, purchase of Obos portfolio 70 -21 49 Value adjustments of provisions, beginning of year -726 44 -682
Change in claims in the financial year in respect of the current year 12,550 -286 12,264 Change in claims in the financial year in respect of prior years -913 -31 -944
Annual report 2017 | Tryg A/S | 85Contents – Financial statements
Paid in the financial year in respect of the current year -6,839 44 -6,795 Paid in the financial year in respect of prior years -7,105 1,143 -5,962
Annual report 2017 | Tryg A/S | 86Contents – Financial statements
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.
Description of the Swedish plan Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa - FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30. This years premium paid to FPK amounted to DKK 14m, which is about 2,5 % of the annual premium in FPK (2016). FPK writes in its interim report for 2017 that it had a collective consolidation ratio of 140 at 30 June 2017 (consolidation ratio of 137 at 31 December 2016). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations.
Average return on plan assets 0.2 0.7 Weighted average duration of the defined benefit obligation (years) 13 13
21 Other provisions Other provisions at 1 January 125 132 Exchange rate adjustment -4 0 Change in provisions -10 -7
Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 30m and reassessment of the beginning of year balance amounts to DKK 24m. The balance as at 31 December 2017 amounts to DKK 104m (DKK 123m at 31 December 2016).
22 Amounts owed to credit institutions Overdraft facilities 306 178 23 Debt relating to unsettled funds transactions and repos Unsettled fund transactions 1,611 258 Repo debt 100 1,474
20 Deferred tax Tax asset Operating equipment 8 8 Debt and provisions 51 30 Capitalised tax loss 0 1
Tax liability Intangible rights 25 33 Land and buildings 130 70
Development in deferred tax Deferred tax at 1 January 702 645 Exchange rate adjustments -48 24 Change in deferred tax relating to change in tax rate -1 0 Change in deferred tax previous years 13 31 Change in deferred tax recognised in income statement -10 60 Change in valuation of tax asset 0 -17 Change in deferred tax taken to equity 0 -41
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 25m (DKK -30m at 31 December 2016).
Annual report 2017 | Tryg A/S | 88Contents – Financial statements
Obligations due by period 2017 <1 year 1-3 years 3-5 years > 5 years Total
Ballerup and Bergen and 3 investment properties. Please also refer to note 25 Sale of properties.
24 Earnings per share Profit/loss from continuing business 2,519 2,472 Profit/loss on discontinued and divested business -2 -1
Carrying Other Income Carrying amount compre- statement amount 1 Jan. hensive value 31 Dec. 2016 income adjustments 2016
Investment property, sold 597 420 1,017 Owner-occupied property, sold * 1,144 100 93 0
Other estimated costs concerning the sales -13 a) Carrying amount is recognised in Other receivables
26 Contractual obligations, collateral and contingent liabilities (continued) The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
Deposits with credit institutions 250 0 Interest and rent receivable 197 224 Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements 2,529 3,172
Annual report 2017 | Tryg A/S | 90Contents – Financial statements
Inflation derivatives, recognised in claims provisions 19 0 19 0 -15 4
Inflation derivatives, recognised in claims provisions 16 0 16 0 -13 3
Therefore the claim is not recognised as a liability in the financial statement, but recognised as contingent liability.
The purchase prices are final. In connection with the acquisitions, a sum was paid which exceeds the fair value of the identifiable acquired assets and total provisions for insurance contracts. This positive balance is mainly attributable to customer relations and to expected synergies between the portfolios in the acquired activities and the Group’s existing activities, which are not separately identifiable.
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 Norwegean 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 inline with other Tryg activities in Norway.
FDM Tryg acquired FDM's insurance portfolio at 1st January 2018. In October 2017, Tryg began selling insurance products to FDM’s customers, and by 1 January 2018, all current customers had been transferred to Tryg. Please refer to management's review for further information.
Alka In December 2017 Tryg agreed to acquire Alka Forsikring A/S. The transaction is expected to close during
Assets Intangible assets 51 58 Financial assets 121 1,471 Total reinsurance of provisions 49 0 Receivables, other assets and accrued income 113 0
Liabilities Total provisions for insurance contracts 143 1,389 Debt and accruals and deferred income 74 0
Annual report 2017 | Tryg A/S | 92Contents – Financial statements
For matching shares allocated to Executive Board in 2018 for fiscal year 2017, see Section ‘Corporate governance’ in Management review.
Supervisory Board 1 0 Executive Board 0 0 Risk-takers 1 0
Notes DKKm 28 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in 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 2017 and in accordance with the Danish Statutory Order on Adoption of IFRS.
Accounting regulation Implementation of changes to accounting standards and interpretation in 2017 The International Accounting Standards Board (IASB) has issued a number of changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations.
Future orders, standards and interpretations that the group has not implemented and which have still not entered into force but could effect the group significantly: • IFRS 16 ‘Leases’ a)
c) enters into force for the accounting year commencing 1 January 2021.
The calculation of the claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as regards factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation.
Notes The Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated claims provisions.
Fair value of financial assets and liabilities Measurements of financial assets and liabilities for which prices are quoted in an active market or which are based on generally accepted models with observable market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model calculation. The valuation models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration for credit and liquidity premiums.
Annual report 2017 | Tryg A/S | 96Contents – Financial statements
As a general rule, subsequent changes in estimates of conditional acquisition prices are recognised directly in the income statement.
Annual report 2017 | Tryg A/S | 97Contents – Financial statements
Notes Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding.
Matching shares Members of Executive Board and other senior employees have been allocated shares in accordance with the ‘Matching shares’ scheme. Under Matching shares, the individual Executive Board member or other senior employee is allocated one share in Tryg A/S for each share he or she acquires in Tryg A/S at the market rate for certain liquid cash at a contractually agreed sum in connection with the Matching share programme.
Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected economic lifetime of 5-15 years.
Equity investments in Group undertakings The parent company’s equity investments in subsidiaries are recognised and measured using the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the statement of financial position, equity investments are measured at the pro rata share of the enterprises’ equity.
Realised and unrealised profits and losses that may arise as a result of changes in the fair value for the category financial assets at fair value are recognised in the income statement in the period in which they arise.
Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Positive fair values of derivatives are recognised as derivative financial instruments under assets. Negative fair values of derivatives are recognised under derivative financial instruments under liabilities. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments.
Annual report 2017 | Tryg A/S | 100Contents – Financial statements
In some instances, the historic data used in the actuarial models is not necessarily predictive of the expected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected increase in claims. In connection with legislative changes, the same estimate is used for determining the change in the level of claims. Subsequently, this estimate is maintained until new loss history materialises which can be used for re-estimation.
Annual report 2017 | Tryg A/S | 101Contents – Financial statements
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 are based on input Cf. note 20.
In case of changes to assumptions concerning the discounting factor, inflation, mortality and disability or in case of differences between expected and realised returns on pension assets, actuarial gains or losses ensue. These gains and losses are recognised under other comprehensive income.
Deferred income tax is provided on temporary differences concerning investments, except where Tryg controls when the temporary difference will be realised, and it is probable that the temporary difference will not be realised in the foreseeable future.
Annual report 2017 | Tryg A/S | 102Contents – Financial statements
Note Statement of comprehensive income Profit/loss for the year 2,517 2,471
Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions 4 0 Sale of owner-occupied property a) 0 215 Sale of owner-occupied property, revaluation from previous years a) 0 -115 Tax on sale of owner-occupied property 0 -53 Tax on revaluation of owner-occupied property from previous years 0 29 Actuarial gains/losses on defined-benefit pension plans -7 -95 Tax on actuarial gains/losses on defined-benefit pension plans 2 24
Other comprehensive income which can subsequently be reclassified as profit or loss Exchange rate adjustments of foreign entities for the year -137 51 Hedging of currency risk in foreign entities for the year 135 -50 Tax on hedging of currency risk in foreign entities for the year -30 11
Proposed distribution for the year: Dividend 2,827 2,770 Transferred to reserve for net revaluation according to the equity method -1,026 -25 Transferred to retained earnings 716 -274
Annual report 2017 | Tryg A/S | 103Contents – Financial statements
Total equity and liabilities 12,625 10,143 6 Deferred tax assets 7 Own funds 8 Contractual obligations, contingent liabilities and collateral 9 Related parties 10 Reconciliation of profit/loss and equity 11 Accounting policies
Annual report 2017 | Tryg A/S | 104Contents – Financial statements
2017 Profit/loss for the year -1,026 716 2,827 2,517 Other comprehensive income -33 -33
Total changes in equity in 2017 98 -1,059 4,674 -534 3,179 2016 Profit/loss for the year -25 -274 2,770 2,471 Other comprehensive income 17 17
Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.
a) Cost related to the issue of new shares are deducted in proceeds recognised in retained earnings with DKK 50.3m.
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 -1 0 4 Equity investments in Group undertakings Cost Cost at 1 January 6,987 6,987 Additions for the year 8 0
Tryg Invest A/S, Ballerup (alternative investment fund management) 100 2 10 Tryg Forsikring A/S, Ballerup (non-life insurance) 100 2,575 9,066 2016 Tryg Forsikring A/S, Ballerup (non-life insurance) 100 2,525 10,127 5 Current tax assets Tax receivable at 1 January 15 18 Current tax for the year 17 15 Adjustment of current tax in respect of previous years -1 0 Tax paid for the year -14 -18
Annual report 2017 | Tryg A/S | 106Contents – Financial statements
7 Own funds From 2016, Tryg A/S calculates solvency ratio and own funds on Group level according to Solvency II rules. Please refer to note 17 in the Tryg Group on Solvency II own funds.
Companies in the Tryg Group are party to a number of disputes in Denmark, Norway and Sweden. Management believes that the outcome of these disputes will not affect the Group’s financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2017.
DKKm 9 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Board and their members’ related family.
Specification of remuneration Share-based Cash Number of Base variable variable 2017 persons salary salary a) salary Pension Total a) Total expenses in 2017 for matching shares progams allocated in 2017 and previous year.
Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 3-4 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.
Each member of the Executive Board is entitled to 12 months’ notice and severance pay equal to 12 months’ salary plus pension contribution (Group CEO is entitled to severance pay equal to 18 months’ salary). If a change of control clause is actioned CEO and COO are instead entitled to Severance pay equal to 36 months’ salary and CFO to 24 months’ salary and a notice period of 6 months.
9 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Tryg transferred DKK 40m to TryghedsGruppen regarding commitment fee related to capital increase in december 2017.
10 Reconciliation of profit/loss and equity The executive order on application of International Financial Reporting Standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differences between the format of the annual report under International Financial Reporting Standards and the rules issued by the Danish FSA.
Key ratios Gross claims ratio 66.3 61.1 62.9 60.6 58.3 65.5 64.1 56.6 62.3
Claims ratio, net of reinsurance 70.0 64.3 64.3 63.3 66.3 68.9 64.8 60.3 67.8
Annual report 2017 | Tryg A/S | 109Contents – Financial statements
Key ratios Gross claims ratio 73.0 70.7 70.5 69.6 72.7 72.9 65.7 75.1 51.8
Combined ratio exclusive of run-off 97.2 92.9 90.6 99.3 101.2 92.1 100.3 105.9 94.3
Key ratios Gross claims ratio 68.5 64.4 63.4 67.9 72.0 59.7 64.5 66.3 68.0
Combined ratio exclusive of run-off 90.9 88.0 86.7 93.7 99.8 90.1 89.0 95.7 93.9 a) Amounts relating to eliminations and one-off items are included under ‘Other’. Please refer to note 2 Geographical segments.
Number of full-time employees, continuing business at 31 December 3,373 3,264 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. c) Adjustment of gross expense ratio included only in ‘Tryg ’. The adjustment is explained in a footnote to Financial highlights.
Annual report 2017 | Tryg A/S | 111Contents – Financial statements
Share performance Earnings per share (DKK) 9.12 8.84 6.91 8.74 7.88 Diluted earnings per share (DKK) 9.12 8.84 6.91 8.73 7.86 Earnings per share of continuing business (DKK) 9.12 8.84 6.74 8.70 7.89
Diluted average number of shares (1,000) 276,080 279,399 285,101 292,788 301,295
Number of full-time employess, continued business, at 31 December 3,373 3,264 3,359 3,599 3,703
Annual report 2017 | Tryg A/S | 113Contents – Management’s review
Own funds Equity plus share of subordinate loan capital and profit margin (solvency purpose), less intangible assets, tax asset and proposed dividend.
Annual report 2017 | Tryg A/S | 114Contents – Management’s review
Motor insurance Motor insurance accounts for 27% of total premium income and comprises mandatory third-party liability insurance providing cover for injuries to a third party or damage to a third party’s property, and a voluntary comprehensive insurance policy that provides cover for damage to the customer’s own vehicle from collision, fire or theft.
House insurance covers damage to properties caused by, for example, fire, storm or water, legal assistance and the customer’s liability as owner of the property. The contents insurance covers loss of or damage to private household contents and covers in and outside of the home. Moreover, the insurance includes liability and legal assistance, to which can be added a number of supplementary covers, for example cover of sudden damage and damage to electronic equipment.
Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding Tryg’s future operating results, financial position, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by the use of words such as ‘targets’, ‘believes’, ‘expects’, ‘aims’, ‘intends’, ‘plans’, ‘seeks’, ‘will’, ‘may’, ‘anticipates’, ‘would’, ‘could’, ‘continues’ or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. Should one or more of these risks or uncertainties materialise, or should any underlying assumptions prove to be incorrect, Tryg’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. Tryg is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law.
Read more in the chapter Capital and risk management on page 28-29, and in Note 1 on page 55, for a description of some of the factors which may affect the Group’s performance or the insurance industry.