8 Targets and strategy 12 Strategic initiatives 2014 13 Financial outlook and targets 16 Tryg’s results 20 Private 22 Commercial 26 Sweden 28 Investment activities 34 Capital and risk management 36 Shareholder information 40 Corporate governance 46 Supervisory Board 48 Group Executive Management 50 Corporate Social Responsibility in Tryg
Our 3,700 employees provide peace of mind for 2.7 million customers.
Key figures Total equity 10,979 11,107 Return on equity after tax (%) 22.1 21.5 Number of shares 31 December (1,000) 60,695 59,374 Earnings per share of 25 DKK 36.5 39.4 Net asset value per share (DKK) 180.9 187.1 Dividend per share (DKK) 26.0 27.0 a)
Combined ratio on business areas Private 86.8 87.7 87.7 86.0 a) Proposed dividend
Tryg is a well-run business with a strong position in the Nordic countries and an ambition of creating peace of mind and value for customers, employees and shareholders. This has been a natural focus point in my first year as Chairman of the Supervisory Board. In the next strategy period, this ambition will be supplemented with a number of new initiatives designed to strengthen customer experience and create an even stronger culture with a view to delivering on our ambitious targets. Providing longterm peace of mind for customers is at the core of everything we do, and this must be clear to our customers in their daily dealings with Tryg.
27 per share, corresponding to the distribution of DKK 1,656m. This represents a nominal increase compared with the dividend distributed last year, which is in line with the policy. The dividend equates to 70%
Chairman of the Supervisory Board: Focus on strategic and financial targets tributing 60-90% of the profit. In 2013, Tryg acquired own shares totalling
DKK 800m, and with reference to the policy of not maintaining unnecessary capital surplus cover, we initiated a new DKK 1,000m share buy back programme on 2 January 2014.
In 2013, we also established a better understanding of the risks which the company must address. This is important, among other things when determining the adequacy of the capital base. The Supervisory Board is responsible for ensuring that the capital resources are fully adequate in relation to risks and regulations, while on the other hand making sure that they are not inappropriately high.
Tryg is a listed company, and it is important that decisions to invest in the Tryg share can be made on an informed basis. A high priority is therefore given to having an open and ongoing dialogue with shareholders. The management holds regular meetings with investors and participates in conferences; also, shareholders can meet the Supervisory
Together with the Group Executive Management, we have decided on the strategic themes for the next few years; our focus is on new initiatives and benefits for customers as the foundation for good and stable earnings.
Tryg is characterised by stability, and the company’s strong position must be maintained. As Chairman, I aim to ensure that Tryg continues to create long-term peace of mind and value for customers, employees and shareholders.
In the coming years, we will build on these results by further strengthening customer experience and create an even stronger culture. Basically, it is about ensuring that customer experience is so strong that our customers are confirmed in their choice of insurance company every time they contact Tryg.
Despite the storm claims, the combined ratio was 87.7 in 2013 against 88.2 in 2012. Our internal programmes contributed 2 percentage points to this improvement. The aim of the internal efficiency programme is a total reduction in claims costs and expenses of DKK 1bn in the period leading up to 2015. At the end of 2013, a reduction of DKK 557m had been realised.
In the coming years, we will continue the development of pricedifferentiated products as well as the ongoing improvements of our benefits programmes. However, the relationship between price and risk can also be improved through claims prevention measures. Claims costs can be reduced both by preventing damage and by mitigating the effects of any damage. Consequently, prevention will be integrated into our products to a larger extent.
Through all these steps, we want to become better and better – at insurance, at people, and at earnings. Our ambition is to create peace of mind and value for customers, employees and shareholders.
On 15 March, Tryg initiated an extraordinary share buy back which was completed on 19 December 2013. Under the programme, Tryg acquired own shares for an amount of DKK 800m.
Tryg launched the New Home Insurance in Norway. Premium is based on several criteria to more accurately reflect risk.
Tryg launched the New Workers’ Compensation Insurance for the Commercial and Corporate segments, a modernised product with price matching risk.
On 28 October, a severe storm crossed Denmark. Tryg received approximately 28,000 claims, a large part of which were processed in 2013.
The special benefits programme comprises three new and unique elements: Tryg Home Alarm,
Tryg/Next Level Sourcing and Efficio won the prize for the Best Procurement
Trond Bøe Svestad took up the position of Group EVP, Commercial. Trond came from a position as Deputy Head of the
Trond has more than 10 years of experience within the commercial area in If.
Moderna, Tryg’s branch in Sweden, launched new types of product cover. Customers can choose between three different types of cover: basis, medium and large, depending on level of cover.
Tryg announced that a new extraordinary share buy back programme totalling DKK 1,000m would run from 2 January 2014 until the end of 2014.
New Holiday Home Insurance In 2013, Tryg launched a new holiday home insurance product in which both product content and pricing are tailored to our focus on customers and price differentiation. The new product includes two new types of cover, while the existing types of cover have been adjusted to suit ‘modern holiday homes’.
– type of roof and size of holiday home. Thus, it was not possible to ensure genuine product differentiation. With the new product, pricing is determined on the basis of 15 parameters for each individual holiday home. The additional parameters are largely obtained from external data sources, which minimises the number of questions which customers have to answer. We have developed a product that provides considerable peace of mind and value for customers; it has been welcomed by the market, resulting in improved rates of sales. Approximately one in three new customers choose the new extended cover, which increases Tryg’s business volume.
The overall financial target is a return on equity of 20% after tax and a combined ratio of 90 or less. Also, the expense ratio must be under 15 from 2015. With a combined ratio of 87.7 and a return on equity of 21.5%, the financial targets were met in 2013.
Based on a significantly improved financial standing, five strategic initiatives were defined to ensure that the financial targets were achieved.
Having been reluctant to differentiate prices relative to customer risk for a number of years, Tryg decided to work intensively with price differentiation. This decision was made at a time when other companies in the markets also embarked on increasing price differentiation. As the largest player in the Danish market, and the third-largest in the
At the beginning of 2013, Tryg’s Swedish business was still dominated very distinctly by bank insurance on the one hand, and on the other by
In recent decades, Tryg has acquired companies which are now fully integrated parts of Tryg. Tryg’s portfolio includes products which were taken over in connection with these acquisitions and which are different from the products which Tryg is currently offering customers.
The Nordic insurance market is characterised by pan-Nordic companies aiming for a combined ratio of about 90, calculated according to Danish accounting principles. Low market growth is resulting in intensified competition. The larger companies focus on profitability, especially through efficiency improvements and price differentiation.
This is to ensure that financial targets are realised and that competitiveness is improved.
Danish market in particular, very often have special local knowledge and are characterised by high levels of customer loyalty and less ambitious financial targets, paired, on the other hand, with higher costs and fewer opportunities for entering into purchasing agreements than in the larger companies. Nordic insurance companies are generally both profitable and efficient.
As new players generally attract customers by offering lower prices, companies with a strong focus on profitability sometimes experience periods of declining sales. In 2013, a number of companies tried to establish themselves in the Danish market through online sales.
In 2013, the Norwegian market was characterised by unchanged economic growth of approximately 1.8%, which resulted in growth in the insurance market for both private and business customers. Sales of private cars were 3% higher in 2013 than in 2012. Pay increases averaged about 3.6%, and house prices also increased in the course of the year. This development meant that Tryg was particularly aware of claims inflation and the need to adjust prices to reflect the increased insurance risk. Towards the end of the year, there was concern that the dramatically increasing house prices would have a negative effect on the Norwegian economy.a)
Tryg wants to increase customer satisfaction and, in addition to the initiatives currently being implemented within price differentiation, selection, benefits programmes and efficient claims handling and prevention, in 2014 we will launch a new strategic initiative aimed at supporting greater customer focus. Moreover, the efficiency programme will contribute to enhancing customer satisfaction through a strengthened competitive position and thereby a reduced need for general price increases.
Further focus on and the creation of a success culture will also help to reverse the negative employee satisfaction trend seen in 2013.
In accordance with the financial targets, Tryg decided at the end of 2012 to amend its dividend policy, so that shareholders can expect a steadily increasing dividend. This policy is well in line with the ambition of continually improving the insurance business and an investment policy which is primarily designed to support insurance operations. See more in the section on Shareholder information on page 36.
In Tryg, we integrate CSR into our practice in a way that creates results – for the climate, for people and financially. We have achieved good results in relation to healthy, green and efficient transport, and we are improving well-being and customer service through our commitment to diversity. This benefits our customers, employees and shareholders, and has a positive effect on society. See more in the section on Corporate Social Responsibility in Tryg on page 50.
In order to strengthen customer experience while at the same time maintaining consistently high earnings, Tryg has defined a number of strategic initiatives for 2014.
Price differentiation and improved pricing relative to the customer’s risk was a strategic initiative for Tryg in 2013 and will continue to be so in 2014. A number of price-differentiated products were developed in 2013, and the aim is for Tryg to reach or exceed the level of the majority of our competitors by 2015 for most of our products.
In step with Tryg’s development of better products and customer concepts, it is important that the customer experience is strengthened accordingly in order to establish ever stronger relations with Tryg.
To do this, we must focus even more on customer experience in the entire Group and build an even stronger culture, both with regard to customer experience but also to ensure that our employees constantly improve and experience success by being able to deliver on increasingly ambitious personal targets. We will, among other things, achieve this by focusing more on motivating individual feedback, by celebrating and honouring success and by ensuring that the individual front-line employee has the widest possible authority to help the customer.
As part of the overall target of DKK 1bn, the sub-target is to achieve improvements totalling DKK 850m by the end of 2014, comprising
IT stability is important to offering our customers efficient service in claims handling, sales, service and policy renewal. Consequently, IT
Since 2003, Tryg ’s IT operations have been outsourced, and in 2013 it was decided to change suppliers. Tryg intends to follow up on this agreement and other agreements with external partners, which is a testament to Tryg’s focus on performance. In 2014, the objective is for
In order to ensure the realisation of Tryg’s financial targets, Tryg announced in 2012 an efficiency programme, with an aim to reduce costs and claims by a total of DKK 1bn in the period up to 2015.
Tryg has not set up any targets for premium income growth, but expects it to be slightly negative in 2014 due to the measures that have been implemented.
Tryg has taken out a sideways cover for situations where the net costs for weather claims exceed DKK 300m and up to DKK 900m.
As a consequence of a legislative amendment in Denmark, the payroll tax will gradually increase in the coming years from the current level of 10.9% to 11.4% in 2014, followed by a gradual increase up to 2020, when the payroll tax will have reached 15.2%.
The investment portfolio is generally divided into a match portfolio corresponding to the technical provisions and a free portfolio. The target is for the return on the match portfolio and changes in the technical provisions due to interest changes to be neutral when taken together. The return on bonds in the free portfolio will vary, but considering the current interest rate level, a low current return is expected. For equities and property, the expectations are a return of 7% and 6%, respectively. Investment activities include other types of investment income and expenses, especially the costs of managing the investments, gains and losses on foreign currency hedges and interest paid on loans.
Norway. In Denmark, the tax rate will be reduced from 25% in 2013 to 24.5% in 2014, and then gradually reduced further to 22% in 2016. In Norway, the tax rate has been reduced from 28% in 2013 to 27% in 2014. When calculating the total tax payable by Tryg, it should also be taken into account that gains and losses on shareholdings in Norway are not taxed. All in all, the tax changes will cause the expected tax payable for an average year to be reduced from around
Tryg Plus I In June 2013, Tryg launched a new special benefits programme for private customers, Tryg Plus in Denmark and Tryg Pluss in Norway. The purpose of the programme is to ensure that we become even better at creating peace of mind and value for our customers. To become a Tryg Plus customer in Denmark, the customer must have contents insurance and at least one of our newest insurance products or a pension in Nordea Liv & Pension. In Norway, the customer must have house, contents or motor insurance and at least two other insurance products. Read more about Tryg Plus at tryg.dk and about Tryg Pluss at tryg.no.
Tryg ID offers customers advice and help to prevent, discover and limit misuse of the customer’s identity.
Tryg Backup offers customers easy, inexpensive and continuous automatic backup of photos, videos, documents and other valuable content on their computers.
Tryg Backup includes access to unlimited online backup on two computers.
The call is anonymous for Tryg. The customer will speak to therapists from Falck Healthcare. All therapists are health professionals such as nurses, health visitors, social workers, midwives or addiction counsellors.
Commercial and Sweden achieved very good results in 2013 with combined ratios of 87.9 and 91.2, respectively.
As mentioned above, many differentiated products with a better correlation between price and risk were developed in 2013. So far, these have primarily been offered to new customers. In general, the rate of sales for these products has been higher than for the old products.
In the coming years, there will be a gradual conversion of policies to these products, which will provide a portfolio with a better balance between price and risk.
The investment return totalled DKK 588m and was especially affected by rising share prices and a consistently low interest rate level. The primary purpose of the investment business is to support the insurance business, and the aim is to have a low risk profile. In this respect, the investment return in 2013 was extraordinarily high and must, given the low interest rate levels, be expected to be lower in the coming years.
Premium income was DKK 19,504m (DKK 20,314m), which represents a drop in premium income of 2.7% in local currencies. The premium income was affected by the sound profitability of partner agreements, which provides a higher level of profit sharing for these agreements and thus a reduction of premium income. This has impacted premium growth negatively by 0.9%, which means that growth excluding this impact would be negative by 1.8%.
The development in premium income was expected based on the abovementioned initiatives to improve profitability in Commercial and Sweden.
Corporate was particularly intense in the Norwegian part. The controlled expansion of the portfolio continued in the Swedish part of Corporate.
• Investment return, after transfer to insurance, of DKK 588m (DKK 585m).
The claims ratio, net of ceded business, which covers both claims and business ceded as a percentage of gross premiums, was 72.1
The claims measures implemented have first and foremost included improved agreements with car repair shops, but 2013 also saw initiatives that have improved the procurement of claims services within contents insurance, among other things in the form of the agreement with Scalepoint, which benefits both customers and Tryg. The customers are offered freedom of choice among claims products, and
Tryg has access to favourable purchasing agreements and updated prices for similar products, which is particularly important in the field of electronics claims. In addition, the claims initiatives are affected by the efficiency improvements implemented in the claims organisation.
The large claims level was 2.1% (2.3%). The large claims level is expected to fluctuate over the years. The largest individual claim of the year of DKK 0.7bn related to an insolvent contractor insured in
The run-off level was 5.0% (5.0%), which underlines Tryg’s solid provisions coverage. The run-off gain was highest in Corporate, because the share of long-term business in the form of workers’ compensation, in particular, is larger than for the other business areas.
Claims prevention activities in the form of Tryg Basement Check and
The expense ratio was 15.6 (16.4). This very large improvement was especially achieved through the ongoing efficiency programme and should be seen in the light of the expense ratio target of less than 15 in 2015.
The number of employees was reduced from 3,913 to 3,703 in 2013.
Tryg will use. As a result of this process, Tryg concluded a four-year agreement with TCS (Tata Consultancy Services Limited) on IT services in January 2014.
The match portfolio totalled DKK 30bn, and was made up of bonds which match the insurance provisions so that fluctuations resulting from interest rate changes are offset to the greatest possible extent.
The return on the match portfolio was DKK 40m (DKK 75m) after transferred return of technical provisions.
(DKK 1,130m). The return was impacted by price increases for equities, in particular. The equity portfolio, which is a globally diversified portfolio, generated a positive return of 23.0% (13.0%). Bond investments were impacted by the development in interest rates in Europe and produced a return of 3.3% and, for high-yield and emerging market bonds in particular, there was a high return in 2013. The composition of the free portfolio was basically unchanged in 2013.
Other financial income and expenses were negative by DKK 343m, particularly due to the write-down of owner-occupied property of
Tryg’s equity totalled DKK 11,107m (DKK 10,979m) at 31 December 2013. According to the Danish Financial Supervisory Authority’s guidelines, an individual solvency requirement of DKK 6,366m as at year-end 2013 was calculated, based on a capital base of
On 29 January, Tryg published a company announcement concerning sourcing agreements with TCS (Tata Conlsultancy Services Limited)
on IT operations and Accenture on parts of the IT development. The agreements are entered to ensure more modern and future-orientated IT oprations and as part of Tryg’s target to reduce the expense ratio to below 15 in 2015.
division will be included in the finacial reporting from H1 2014.
The technical result was DKK 546m (DKK 648m), and this was affected by costs for the storms of approximately DKK 400m.
The investment return was DKK 154m (DKK 5m), which was mainly due to a high return on equities.
In connection with the October and December storms, Tryg’s claims organisation rallied to help the many customers who were affected.
Profit/loss on gross business 349 225 1,125 1,352 Profit/loss on ceded business -27 57 81 -43 Insurance technical interest, net of reinsurance 4 4 27 26
Combined ratio exclusive of run-off 88.4 90.8 91.0 89.3 Run-off, net of reinsurance (%) -1.6 -3.1 -3.3 -3.3 Large claims, net of reinsurance (%) 0.6 0.4 0.1 0.1 Weather claims, net of reinsurance (%) 2.5 8.0 2.4 3.2
The technical result was DKK 1,335m (DKK 1,233m), with a combined ratio of 86 (87.7). The improvement was achieved mainly through efficiency improvements, which more than compensated for a considerably higher level of weather claims. Very few extraordinary price increases were implemented in 2013, only to counter inflation. The expense ratio was reduced considerably from 15.7 to 15.1 in 2013, which was achieved concurrently with a falling premium income.
Gross premiums fell by 2.2% against growth of 1.5% in local currencies in 2012. Development in Denmark was negative at 3.8%, and the premium income was largely unchanged in Norway. The development in Denmark is partly attributable to the sound profitability of partner agreements with profit sharing. Adjusted for the higher level of profit sharing, growth in Denmark was negative by 1.1%. In addition, growth is affected by the increase in Denmark in the sale of small cars, which involve a lower risk and thus a lower price level due to their size and safety features. The development was also affected by the price measures implemented in previous years, which have brought down the number of customers. The zero growth in Norway can be ascribed to a combination of several factors: a Norwegian economy with solid growth, a retention rate which remains high and a highly competitive market, which led to a fall in sales.
• The quarter was characterised by claims resulting from storms in October and December.
Tryg’s retention rate remained high, which is supported by customer surveys from EPSI for 2013 which show that customer satisfaction in Tryg, in both Denmark and Norway, increased. Private has focused on introducing new price-differentiated products, and introduced eight new products in 2013. The combination of such products and a targeted selection of customers led to a considerably higher rate of sales than for the old products.
The gross claims ratio amounted to 70.4 (72.8), and the claims ratio, net of ceded business, was 70.9 (72.0). The improvement is attributable to the efficiency programme implemented, which led to lower claims costs despite a higher level of weather claims in connection with the storms which hit Denmark in October and December.
Private focused strongly on providing advice to and helping customers in connection with the 32,000 claims.
Run-off gains/losses affected the combined ratio positively by 3.3 percentage points (3.3).
Combined ratio exclusive of run-off 85.8 95.7 89.4 92.9 Run-off, net of reinsurance (%) -3.2 -3.5 -5.7 -5.0 Large claims, net of reinsurance (%) 5.0 0.2 1.5 2.2 Weather claims, net of reinsurance (%) 4.0 17.2 1.9 5.2
Commercial encompasses the sale of insurance products to small and medium-sized businesses in Denmark and Norway. Sales are effected by Tryg’s own sales force, franchisees (Norway), customer centres as well as through group agreements. The business area accounts for 18% of the Group’s total premium income.
Cost reductions have been vital to improve the competitive situation and to contribute to strengthening results. Against this background, it is very satisfactory that the expense ratio was reduced by 1 percentage point to 19.3, and that this was achieved at the same time as the premium level was reduced.
The gross premiums fell by 1.5% (3.3%) in Q4, halting the development seen in 2013. The retention rate in Denmark was 86.1 (84.6), while it was 87.6 (87.4) in Norway. The gross claims ratio was 80.2
(59.8), the claims ratio, net of ceded business, was 73.9 (62.6), and the expense ratio was 18.3 (20.0).
A combined fall in premium income of 3.2% (2.0%) was realised, when measured in local currencies. The fall was based on negative growth in Denmark of -4.7% and in Norway of -0.3%. The negative development in Denmark was expected due to selective measures taken against unprofitable customers and segments to improve profitability. The negative development in Norway is also attributable to profitability measures, but the very competitive market also played a part. In the last half of the year, specialisation of customer sales and service was introduced. This has, among other things, involved increased automation, the development of sales channels and the optimisation of the booking of meetings, which is expected to contribute positively in future.
At 2.2 (1.5), the large claims level was slightly higher than the previous year. Run-off gains stood at 5.0 (5.7), and the high level is mainly attributable to run-off gains within workers’ compensation insurance.
‘Moderna’ brand in Sweden. Sales are effected both via Tryg’s own sales force and via insurance brokers. Moreover, customers with international insurance needs are served by Corporate through its cooperation with the AXA Group. Tryg Garanti is also included in Corporate results. The business area accounts for 26% of the Group’s total premium income.
The Corporate business area is focused on generating results which are satisfactory relative to the capital attributable to the area. Due to more personal business, in particular, the capital requirement has increased, for which reason Corporate should have a lower combined ratio than the other business areas.
Profit/loss on gross business 133 209 681 210 Profit/loss on ceded business -9 -68 -37 348 Insurance technical interest, net of reinsurance -3 5 6 15
Key ratios Premium growth in local currencies -1.4 -1.9 -2.0 -2.8
Combined ratio exclusive of run-off 103.4 98.6 97.3 98.1 Run-off, net of reinsurance (%) -12.7 -9.9 -9.6 -9.2 Large claims, net of reinsurance (%) 11.8 3.1 7.6 6.3 Weather claims, net of reinsurance (%) 0.8 6.3 0.6 2.3
A future model for corporate customer service was an important focus area for Corporate.
The gross claims ratio amounted to 83.3 (74.7), and the claims ratio, net of ceded business, was 76.4 (75.4). Gross claims were affected by a large claim of DKK 0.7bn in Tryg Garanti, related to an insolvent contractor, which after reinsurance affected the claims by DKK 30m.
Adjusted for run-off level, weather and large claims, the claims ratio, net of ceded business, was at the same level as in 2012. The development in the Swedish part of the Corporate segment, in particular, was not quite satisfactory, and measures were taken to improve profitability. The action taken included pruning of customers and measures across the portfolio. Run-off gains/losses impacted the combined ratio positively by 9.2 percentage points.
The expense ratio was 12.5 (12.3) in 2013, which is satisfactory in light of the reduced premium levels. The reduction was achieved through the ongoing efficiency programme as well as through a reduction in cost levels effected to adapt to the lower business volume.
The technical result was DKK 146m (DKK 121m), which was satisfactory in light of the high level of weather claims, in particular. The combined ratio was 88.7 (90.7). The lower level can be attributed to a positive development in claims. The gross premiums fell by 1.9%
Key initiatives have included pricing improvements and integrating the original bank insurance business and the acquired Moderna.
Premium income was reduced by 4.9% against growth of 0.7% in 2012. The negative development is due to Tryg’s focus on profitability and the considerable price increases in recent years within the Private segment, just as the number of partner agreements has been significantly reduced to ensure profitability.
• Gross premiums reduced by 4.9% (0.7%) as a result of profitability measures and termination of Nordea bank distribution.
Combined ratio exclusive of run-off 87.2 94.5 93.5 92.5 Run-off, net of reinsurance (%) 0.3 -6.3 1.8 -1.3 Weather claims, net of reinsurance (%) 1.3 2.3 1.2 1.4
The gross claims ratio amounted to 74.2 (76.6), and the claims ratio, net of ceded business, was 73.6 (76.8). This improvement is the result of price increases and a reduction of unprofitable customer groups. In addition, improved tariffs within both motor and house insurance and new customer benefits have had a positive effect.
The claims ratio is otherwise positively affected by major efficiency improvements in claims handling, and the fact that a very large proportion of claims are being registered and finalised on the same day, which, from experience, results in high customer satisfaction and a positive effect on the claims level.
An improved expense ratio of 17.6 (18.5) was achieved in 2013, which is very satisfactory and was achieved concurrently with negative premium growth. To ensure further growth, Moderna has implemented a number of structural initiatives, which has resulted in cost level improvements and will contribute further in the coming years. The initiatives have, among other things, included a centralisation of functions within distribution, claims handling and staff services. The customer service and telemarketing functions were gathered in Malmö, and a similar function was closed down in Luleå
Total investment return before other financial items 1,205 931 40 891 Other financial income and expenses, investment b) -70 -40
The insurance activities provide the basis for the Tryg Group being able to generate good and stable earnings, while the purpose of the investment business is to support the insurance business.
It is divided into a match portfolio and a free portfolio of DKK 30bn and DKK 13bn, respectively. The sole purpose of the match portfolio is to hedge fluctuations in the discounting of insurance provisions and to reduce the interest risk attaching to the claims provisions. The free investment portfolio generally corresponds to equity and is invested in bonds, property and equities.
2013 was also impacted by concerns relating to the American monetary and fiscal policy. It was characterised by speculations concerning the
Federal Reserve’s possible gradual tapering of bond purchases, and the politicians’ disagreements on the US budget and the so-called debt ceiling.
• Return on match portfolio after transfer to insurance of DKK 40m (DKK 75m).
Total investment return 255 307 Other financial income and expenses, non-investment b) -250 -153
To this should be added a mismatch of DKK 40m, as described below. All in all, this yielded a gross return after transfer to technical interest of DKK 931m.
The interest rate risk for the claims provisions is hedged by Danish,
The return on the match portfolio must thus cover price adjustments of the claims provisions and the insurance technical interest.
For example, in May, the 10-year Danish swap rate fell to a historically low level of 1.6%, subsequently increasing to a level of 2.6% at the beginning of September. At the end of 2013, the interest rate had fallen again to 2.4%. The European interest rates fluctuated less, and, all in all, the local hedging in Denmark, Norway and Sweden was satisfactory with a positive mismatch of DKK 40m. This corresponded to a deviation of approximately 0.2% of the value of the match portfolio.
The match portfolio totalled DKK 30bn at the end of the year.
The free portfolio amounted to approximately DKK 13bn at the end of 2013, up DKK 2.2bn (DKK 10.8bn).
The exposure to credit bonds has also contributed satisfactorily to the return on the free bond portfolio of DKK 247m. This has been achieved in spite of uncertainty regarding the US Federal Reserve’s gradual tapering of bond purchases in Q2, which caused investors to worry about investments in the developing countries, in particular, and also in high-yield bonds. All in all, the bonds in the free portfolio yielded a return of 3.3%.
This item comprises a number of elements, including the expense of hedging the currency risk of Tryg’s own equity in Sweden and Norway.
Another element is related to the expenses of DKK 89m due to Tryg’s subordinate loans. In addition, Tryg effected a write-down on its owneroccupied property of DKK 76m.
In Q4, Tryg’s investment portfolio yielded a gross return of DKK 423m, where the bond portfolio contributed a return of DKK 251m, and the equity portfolio DKK 163m. The return on the real estate portfolio was
DKK 9m. After transfers to insurance technical interest, the net return totalled DKK 321m The match portfolio yielded a positive mismatch of DKK 38m, while the free portfolio yielded a return of DKK 283m.
Are you receiving unexpected bills? Or are you suddenly no longer receiving post? Then you may be the victim of identity theft. Each year, more than 70,000 Danes are affected by identity theft.
The main concept of insurance is that of spreading risk. By pooling risks from a large number of customers, an insurance company’s risks are spread more evenly and are also more predictable, thereby redu cing the capital required to cover negative fluctuations. The assessment and management of the company’s aggregate risk and the associated capital requirements therefore constitute a central element in the management of an insurance company.
Tryg’s Supervisory Board defines the company’s risk appetite and thereby also the capital which must be available to cover any losses.
To support the company’s risk management, the Supervisory Board has appointed a Risk Committee consisting of representatives of the
The Supervisory Board regularly assesses the need for capital adjustments. Any adjustments are effected once a year in connection with the distribution of dividend. Extraordinary adjustments are made through share buy backs. The assessments are made in the company ’s capital plan, in which the the Individual Solvency requirement is projected based on Tryg’s budgets, seeking to realise a number of the identified risks through various scenarios.
In the light of the expected satisfactory results for 2013 and the solid capital position, a decision was made in December 2013 to implement
Capital and risk management Read more about Tryg’s risk management and risk types in Note 1 on page 67.
In conjunction with the capital plan, a contingency plan has been prepared which describes specific measures which may be introduced in the short term, should the company’s desired capital position be threatened.
The relative sizes of these two categories are subject to ongoing assessment with a view to maintaining an optimum structure which takes account of the target return on equity, the capital costs for the two categories and the desired financial flexibility.
DKK 800m. All in all, the distribution and the new sub ordinate loan did not change the size of the capital base, but the equity share was reduced, which in isolation makes a positive contribution to the future return on equity, for the benefit of Tryg’s shareholders. Moreover, the new subordinate loan is expected to qualify for inclusion as Tier 2 capital under the new capital solvency rules (Solvency II). Read more about Tryg’s subordinate loan under Note 2 on page 79.
January 2016. The implementation date has been postponed several times, and the Danish Financial Supervisory Authority has therefore decided to implement the most important elements via the revised
Solvency II rules. Tryg has for several years prepared ORSA reports, which assess the general risk profile and propose improvements. In 2013, such a risk assessment was also carried out and considered by the company’s day-to-day management and Supervisory Board, which are consequently entering 2014 with a fully updated view of Tryg’s risk profile. Read more about Tryg’s risk management under Note 1 on page 67.
Tryg has achieved an ‘A-’ rating from Standard & Poor’s and aims to maintain this rating.
a) Tryg’s expectations as regards the future Solvency II standard model are based on the Danish Financial Supervisory Authority’s revised Executive Order on Solvency and Operating Plans for Insurance Companies, which came into force on 1 January 2014.
‘Investor Relations’ (IR) is responsible for communication with the equity market. It is important for Tryg that investors, shareholders, analysts and other stakeholders are able to form a true and fair view of developments, including the financial results. For this reason, we emphasise openness and transparency to ensure that stakeholder information requirements are accommodated best possible.
Nasdaq OMX in Copenhagen is still the primary exchange where most of the trading in the Tryg share takes place. In 2013, Nasdaq OMX
accounted for 41.8% of the turnover of the Tryg share. In addition, 13% of trading in 2013 was carried out on alternative exchanges
(MTF trades), led by BATS Chi-X as the largest alternative exchange.
In 2013, a share buy back programme totalling DKK 800m, corresponding to 1.6 million shares, was completed. This had a positive impact on the turnover of the Tryg share. The total turnover (including OTC trades)
of the share increased from 34 million shares in 2012 to 43 million shares in 2013.
TryghedsGruppen invests in peace of mind and healthcare providers in the Nordic region, and supports non-profit-making activities.
Financial calendar 2014 3 April 2014 Annual general meeting 4 April 2014 Tryg shares trade ex-dividend 9 April 2014 Payment of dividend 10 April 2014 Interim report for Q1 2014 10 July 2014 Interim report for H1 2014 10 October 2014 Interim report for Q1-Q3 2014
Tryg’s dividend policy aims to achieve a higher degree of stability in the annual distribution. The dividend policy reflects our expectations of high earnings in the insurance business and a low risk profile within the investment activities, as well as the requirement to have a solid capital position based on Tryg’s internal capital model (Individual Solvency).
rules. Tryg’s dividend policy is based on the following assumptions: • A general objective of creating long-term value for the company’s shareholders.
Supervisory Board will propose a dividend of DKK 1,656m, corresponding to DKK 27 per share, at the 2014 annual general meeting.
That's why we were there to help anybody who needed it.’
Tryg has a number of policies which describe the relationship between different stakeholders. See IR policy at tryg.com > Investor > IR contacts > IR policy, and CSR policy at tryg.com > CSR > CSR
As required by the Danish Companies Act and the Articles of Association, the annual general meeting 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, which as a minimum includes the following items: • Report by the Board on the company’s activities during the past financial year.
• Presentation of the annual report for adoption, including remuneration for the Board and discharge from liability of the Board and Executive Management.
The annual general meeting is transmitted, allowing stakeholders to watch it at tryg.com both during and after the meeting.
Shareholders may propose items to be included on the agenda for the annual general meeting and may ask questions before and at the annual general meeting. Shareholders may vote in person at the annual general meeting, by post or appoint the Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the annual general meeting.
The Executive Management reports to the Board on strategies and action plans, market developments and group performance, funding issues, capital resources and special risks. The Board holds one annual strategy seminar to decide on and/or adjust the Group’s strategy with a view to sustaining the value creation in the company. The Executive
Management works with the Board to ensure that the Group’s strategy
Depending on the development in results, the Board each year proposes a dividend and possibly an extraordinary share buy back, if further adjustment of the capital structure is required. In 2010, the annual general meeting authorised the Board to allow Tryg to acquire own shares amounting to up to 10% of the share capital until 14 April 2015. On 15 March 2013, Tryg initiated a share buy back programme which ran until 19 December 2013. Under the programme, Tryg acquired own shares for an amount of DKK 800m. On 2 January 2014,
Tryg initiated a new share buy back programme totalling DKK 1bn, which runs until the end of 2014.
Each year, the Board discusses Tryg’s activities to guarantee diversity at management levels. Tryg attaches importance to diversity at all management levels. Tryg has prepared an action plan which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women. Tryg aims to increase the total number of women in management positions by 2% by the end of 2014. In 2013, the proportion of women at management level was 34.6%, up from 34.0% in 2012. See action plan at tryg.com > CSR.
The Board is headed by a Chairmanship consisting of a Chairman and a Deputy Chairman. The Deputy Chairman will act in the Chairman’s absence and serves as a discussion partner for the Chairman.
Board’s rules of procedure. The tasks of the Chairman include chairing and evaluating the work of the Board and being in charge of the cooperation with the Executive Management. The Chairman also acts as spokesman for the Board.
The Chairman and Deputy Chairman hold preparatory meetings with the Executive Management before all board meetings. According to the Board’s rules of procedure, no board member may perform work for Tryg without a prior decision to that effect by the Board. Furthermore, such work must be of a non-recurring nature.
Gruppen’s Board. The Nomination Committee selects new candidates for the four other board posts and presents its recommendation to the Board. Seven members of the Board are women, including three employee representatives, and the requirement for equality is thus met.
Prior to the election of new members, the Board prepares a description of the candidates’ background, directorships, professional qualifications and experience. A balanced composition of the Board in terms of, e.g., age, gender and nationality is sought, and the need for integrating new talent and different skills is considered. New board members are given an introduction to Tryg. See pages 46-47 and tryg.com > Governance > Management > Supervisory Board.
This is also described in the notice convening the general meeting.
Under the Danish Companies Act, employees are entitled to elect a number of representatives to the Board, equal to half the number of other members at the time employee elections are held. Tryg has agreed with Tryg’s staff organisations that two board members are elected among employees in Denmark, one among employees in Norway and one among employees in Sweden. The next ordinary election will be held in 2016. Under Danish law, employee representatives have the same rights, obligations and responsibilities as other board members.
Tryg’s Board has set up an Audit Committee, a Risk Committee, a Nomination Committee and a Remuneration Committee. The board committees’ terms of reference can be seen at tryg.com > Governance > Management > Supervisory Board > Board committees, including descriptions of members, meeting frequency, responsibilities and activities during the year. The special skills of all members are also described at tryg.com.
The framework of the Audit Committee’s work is defined in its terms of reference. The committee has four members with knowledge and experience of financial matters as well as accounting and auditing in publicly listed companies. The Audit Committee held five meetings in 2013 and reported regularly to the Board. In August 2013, the Audit
See the Audit Committee’s tasks in 2013 at tryg.com > Governance > Management > Supervisory Board > Board committees.
The Risk Committee has five members and held five meetings in 2013. See the Risk Committee’s tasks at tryg.com > Governance > Management > Supervisory Board > Board committees.
Tryg has a Nomination Committee which ensures the correct composition and size of the Executive Management and the Board. The Nomination Committee consists of the Chairmanship and held two meetings in 2013. See the Nomination Committee’s tasks at tryg.com >
Management and significant risk-takers. The Remuneration Committee has four members, and the Chairman of the Board is Chairman of the committee. Moreover, the committee must consist of one member of
Remuneration Committee held four meetings in 2013. The Remuneration Committee’s work is carried out with reference to Tryg’s remuneration policy. See the Remuneration Committee’s tasks at tryg.com >
Board as a whole as well as its individual members, and its cooperation with the Executive Management. The Chairman oversees the evaluation of the Board, and the outcome is subsequently discussed at a Board meeting. In 2014, an external consultant will be involved in the process.
The Board carries out an annual evaluation of the work and performance of the Executive Management and of the cooperation between the
Members of Tryg’s Board receive a fixed fee and are not comprised by any form of incentive or severance programme. Their remuneration is based on trends in peer companies, taking into account board members’ required skills, efforts and the scope of the board’s work, including the number of meetings. The remuneration received by the
Management to do their best to achieve the company’s defined targets.
Being an insurance business, Tryg is subject to the risk management requirements of the Danish Financial Business Act. In policies, the
Guidelines are issued by the Board to the Executive Management. A
Group Risk and Head of Investments monitors the risk management environment.
Risks associated with relevant new and expected financial reporting rules and accounting policies are monitored and considered by the Audit
Committee, the finance management and the internal auditors. Material legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis. Other risks associated with financial reporting are described on page 34 and in Note 1 on page 67.
Some members of the Executive Management still have unexercised share options, which were allocated under a previous programme.
Group CEO is entitled to 12 months’ notice and to 18 months’ severance pay plus pension contributions during this period.
The pension is determined by the period of employment and constitutes a percentage of the pay received at the time of retiring.
The Group’s internal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, which are supervised by the internal auditors. Tryg has a decentralised set-up; risk managers in the business areas carry out controlling tasks for the risk management environment and Tryg’s compliance function. The Executive Management has established a formal process for the Group comprising monthly reporting, including budget and deviation reports etc.
Tryg’s Ethical Hotline is managed by an external operator and allows employees, customers or business partners to report any serious wrongdoing or suspected irregularities. Reporting is confidential.
The Group’s internal auditor attends all board meetings. The independent auditor attends the annual board meeting at which the annual report is presented.
Each year, the annual general meeting appoints an independent auditor recommended by the Board. In 2013, a call for tenders for the provision of independent auditing services was launched. The recommendation was that Deloitte be reappointed. In connection with the Board’s review of the annual report, it discusses accounting policies and other issues.
Education: Economist and engineer. Chairman: Sverige Bryggerier AB, East Capital Explorer AB, Pieno Zvaigzdes AB, Norrköpings Segel Sällskap, Östkinds Häradsallmänning. Board member: Tryg A/S, Tryg Forsikring A/S. Committee memberships: Remuneration Committee in Tryg A/S. Number of shares held: 100 Change in portfolio in 2013: 0
Paul Bergqvist has international management and board experience within M&A, strategic development, marketing, branding and financial management. Being a Swedish citizen, Paul Bergqvist has special insights into Swedish market conditions.
Deputy Chairman Born 1947. Joined: 2011. Nationality: Danish. Professional board member. Adjunct Professor, CBS. Former Governor of Danmarks Nationalbank.
Chairman Born 1952. Joined: 2012. Nationality: Danish. Professional member of the Supervisory Board. Adjunct Professor, CBS. Former Group CEO of the FLSmidth Group.
Number of shares held: 366 Change in portfolio in 2013: 0
As former CEO of FLSmidth, Jørgen Huno Rasmussen has experience in international management of listed companies and special competencies within strategy, business development, communication, risk management and finance.
Anya Eskildsen Born 1968. Joined: 2013. Nationality: Danish. President of Niels Brock Copenhagen Business College.
Education: MSc in Political Science, the certified IoD Board Program. Board member: Tryg A/S, Tryg Forsikring A/S and TryghedsGruppen smba. Committee memberships: Remuneration Com- mittee in Tryg A/S. Member of the Danish Growth Council, Nykredits Regionsråd, Confederation of Danish Labour Unions’ forum for the promotion of education, Copenhagen Rotary and NOCA. Number of shares held: 0
Anya Eskildsen has experience within financial management, strategic management, communication and marketing, innovation and ideas gener - ation and international system exports.
Education: Educated in the area of agricultural mechanics. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Remuneration Committee in Tryg A/S. Number of shares held: 0
Ida Sofie Jensen Born 1958. Joined: 2013. Nationality: Danish. Director General of Lif (Danish Association of the Pharmaceutical Industry). Director General of the subsidiary DLI (Dansk Lægemiddel Information A/S).
Lene Skole has experience from international companies through her work in Coloplast and Maersk, UK. Lene Skole has competencies within strategy, finance, financing and communication.
Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 200 Change in portfolio in 2013: 0 a) Dependent member of the Supervisory Board b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance.
Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton.
Number of shares held: 2,707 Change in portfolio in 2013: +690
Board member:Tryg Garantiforsikring A/S, Svensk Försäkring, Försäkringsbranschens Arbetsgivarorganisation and Försäkringsbranschens Pensionskassa.
Education: State-authorised public accountant, Executive Master of Business and Administration, University of Bristol and Ecole Nationale des Ponts et Chaussées.
Number of shares held: 4,910 Change in portfolio in 2013: +1,400
Born 1963. Employed in 1992. Joined the Group Executive Management in 2013.
Number of shares held: 1,086 Change in portfolio in 2013: 0
Board member: The Danish Employers’ Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet and the Danish Insurance Association.
Number of shares held: 4,605 Change in portfolio in 2013: +918
Number of shares held: 193 Change in portfolio in 2013: +193
For this reason, we focus on climate-related damage, diversity, sustainable sourcing and responsible investments.
The CSR measures involve transforming the UN Global Compact principles into processes and practices that make protection of the climate and the environment, human rights, labour rights and anti-corruption tangible and relevant. We would like to show our customers, employees, suppliers, investors and society at large that
Prevention of climate-related damage is high on our agenda. In our day-to-day contact with our customers and suppliers, we use our knowledge and experience of the consequences of cloudbursts, storms and landslides to help them prevent, minimise and handle the damage these cause. For this purpose, are engaged in cooperation and partnerships with public authorities and researchers on the development of contingency plans, prevention and tools to adapt areas, buildings and processes to climate changes.
Our preventive measures comprise good customer advice on the handling of fires, floods and storm damage. Read about damage prevention after storms and cloudbursts (in Danish) at tryg.dk > Prevent damage See our advice and checklists for the prevention of fire (in Danish) at tryghedsraadgiveren.dk > fire.
When the project started in 2011, Tryg carried out a survey of its employees ’ transport habits. In 2013, a follow-up survey was conducted in
Our local Ballerup network was selected as one of nine winning projects in a campaign run by the Danish Broadcasting Corporation and the newspaper Information called ‘What do we do now? Our transition to a sustainable society’.
The share of women in management was 34.6% in 2013, compared to 34% in 2012. Tryg aims to increase the total number of women in management positions by 2 % by the end of 2014.
Tryg’s focus on women in management is often mentioned as an example of good practice, and in 2013 it was presented at seven events in Denmark and the EU. See our plan of action for women in management 2013 at tryg.com > CSR > CSR strategy > Plans of action.
com > CSR > Thematic areas > Inclusion. Read more about labour rights at tryg.com > CSR > Thematic areas > Well-being > Labour rights.
To earn our customers’ trust, it is pivotal that we treat personal information correctly in our day-to-day customer contact and claims handling. To teach our employees about the significance and importance of obtaining consent for the use and disclosure of information on insurance affairs and claims ratios, we held 24 workshops on data protection in both business areas and support functions in 2013.
Tryg also contributes to promoting the rights of the child through a financial training course offered in cooperation with Youth Town and
An important prerequisite for creating peace of mind is that our employees have high moral standards and conduct themselves in an ethically correct manner and in accordance with the law. In 2013,
Tryg’s general rules and guidelines in these areas were codified in the
In 2013, another 136 new suppliers in the Motor area were asked to report their CSR performance. These obligations include CO2 emissions from heating, electricity and waste, the number of discrimination cases and equality initiatives, human rights screening of sub-suppliers and anti-corruption initiatives.
Tryg’s equity investments are handled by a number of investment companies. They are all members of the UN Principle for Responsible Investments (PRI) and control the risk of a negative climate impact, human rights violations and corruption in connection with investments.
In 2013, Tryg was entered on the STOXX Sustainability Index: Global
Tryg A/S (parent company) Income statement – Tryg A/S (parent company) 126 Statement of financial position – Tryg (parent company) 127 Statement of changes in equity (parent company) 128 Notes (parent company) 129
In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position at 31 December 2013 and of the results of the Group’s and the parent company’s operations and the cash flows of the Group for the financial year
Tryg A/S for the financial year 1 January to 31 December 2013, page 59-131, which comprise the income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and notes, including the accounting policies, for the Group as well as for the parent company, 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 the parent financial statements are prepared in accordance with the Danish Financial Business Act. In addition, the consolidated and parent financial statements are prepared in accordance with Danish disclosure requirements for listed financial services companies.
Our responsibility is to express an opinion on the consolidated and parent financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and parent financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and parent financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements of the consolidated and parent financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated and parent financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the consolidated and parent financial statements. We believe that the audit evidence is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification.
In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2013, and of the results of its operations and cash flows for the financial year 1 January to 31 December 2013 in accordance with International
Profit/loss on gross business 2,062 647 894 2,344 2,085 Profit/loss on ceded business -518 -311 507 86 349 Insurance technical interest, net of reinsurance 145 124 171 62 62
Claims ratio, net of ceded business 74.7 81.6 76.6 71.8 72.1
Relative run-off gains/losses 3.6 3.9 4.0 4.1 3.9 Return on equity after tax (%) 22.5 6.6 13.1 22.1 21.5
The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in recpect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property.
a) Profit/loss on discontinued and divested business after tax includes Marine Hull insurance, which was divested in 2010 and the Finnish branch of Tryg
Note General insurance Gross premiums written 20,128 19,820 Ceded insurance premiums -1,147 -1,220 Change in premium provisions 354 36 Change in reinsurers’ share of premium provisions 35 24 4 Premium income, net of reinsurance 19,370 18,660 5 Insurance technical interest, net of reinsurance 62 62
Claims paid -15,480 -14,059 Reinsurance cover received 964 1,034 Change in claims provisions 805 -352 Change in the reinsurers’ share of claims provisions 131 406 6 Claims, net of reinsurance -13,580 -12,971
Profit/loss on continuing business 2,180 2,373 11 Profit/loss on discontinued and divested business 28 -4
Profit/loss for the year 2,208 2,369 27 Earnings per share of DKK 25 – continuing business 36.0 39.4 Earnings per share of DKK 25 36.5 39.4 Diluted earnings per share of DKK 25 36.4 39.3 Earnings per share of DKK 25 – discontinued and divested business 0.5 0.0 Diluted earnings per share of DKK 25 – discontinued and divested business 0.5 0.0
Note Equity and liabilities 20 Equity 10,979 11,107 2 Subordinate loan capital 1,597 1,818
Total provisions for insurance contracts 34,355 32,939 22 Pensions and similar obligations 1,102 791 23 Deferred tax liability 1,143 1,057
Debt relating to direct insurance 415 447 Debt relating to reinsurance 256 330 25 Amounts owed to credit institutions 14 6 26 Debt relating to unsettled funds transactions and repos 1,470 2,821 16 Derivative financial instruments 775 514 18 Current tax liabilities 652 409 19 Liabilities associated with assets held for sale 742 0 Other debt 1,030 652
Reserve for foreign Revalua- exchange Equalisa- Share tion rate tion Other Retained Proposed DKKm capital reserves adjustment reserves reservesa) earnings dividend Total
Profit/loss for the year -156 869 1,656 2,369 Revaluation of owner-occupied property 9 9 Exchange rate adjustment of foreign entities for the year -326 -326 Hedging of foreign currency risk in foreign entities for the year 305 305 Actuarial gains and losses on pension obligation 179 179 Tax on changes in equity -3 -76 -54 -133
Total changes in equity in 2013 0 6 -97 0 -156 313 62 128 a) Other reserves contains Norwegian Natural Perils Pool.
The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 3,020 (DKK 3,363m in 2012). 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.
Investments Purchase and refurbishment of real property -53 -18 Sale of real property 278 2 Purchase/sale of equity investments and unit trust units (net) -563 -128 Purchase/sale of bonds (net) -1,897 657 Deposits with credit institutions 163 -420 Purchase/sale of operating equipment (net) -54 -6 Hedging of currency risk -184 305
Financing Exercise of share options/purchase of own shares (net) 110 -700 Subordinate loan capital 0 316 Dividend paid -400 -1,594 Change in amounts owed to credit institutions 3 -8
Risk management in Tryg Risk management is a key element for an insurance business and an integral part of Tryg’s business model. Tryg’s Supervisory Board has the overall responsibility for risk management and determines Tryg’s risk appetite, which is laid down in policies and incorporated in the company ’s business procedures.
Danish law imposes important and labour-intensive obligations on the Supervisory Board in terms of capital and risk management, for which reason Tryg has chosen to set up a special sub-committee ‘the Supervisory Board’s Risk Committee’ with representatives from the Supervisory Board and the company’s executive management. This committee meets once every quarter and considers subjects relating to capital and risk management in detail.
The risk management environment is administered by the Risk Management Committee and its sub-committees.
Risk management in Tryg is organised on the basis of three lines of defence: The first line of defence is the business managers, who manage and control all significant risks associated with their own activities.
This takes place at an operational level and involves establishing business procedures, contingency plans and control descriptions and ensuring that risks are hedged as appropriate. This work is supported by decentralised risk managers affiliated with the individual areas.
The risk management function is a part of the second line of defence and ensures a consistent risk management approach across business areas. This function carries out measurements and assessments at Group level, and recommendations for capital management and general risk hedging (reinsurance, inflation swaps, currency hedging etc.) are made. The risk management function is charged with maintaining the general overview of the company’s most important risks and reporting on an ongoing basis on the development to the Supervisory Board and the management. In addition, the risk management function is responsible for calculating the company’s solvency requirement and proving that the basis for this calculation takes sufficient account of the identified risks.
The third line of defence is the internal audit, the most important task of which is to carry out independent assessments of the control environment etc. for the Supervisory Board.
In Tryg, the ORSA report has long been part of the risk management activities, and it is supported by continuous processes. The risk assessment is thus performed continuously during the year, which means that the report provides an annual status of the work put into identifying, measuring, managing and monitoring risks, just as it describes the company’s general risk profile and proposes improvements. The Supervisory Board is also deeply involved in the ongoing ORSA processes through its board work.
Capital management Tryg’s individual solvency requirement is calculated using a partial internal model with a safety level of 99.5%, which means that Tryg is able to honour claims in 199 out of 200 years in compliance with the Executive Order on Solvency and Operating Plans for Insurance Companies. This model has been used for a number of years to calculate the individual solvency requirement, and it is envisaged that it will be used as a partial internal model under the coming Solvency II regime from 2016.
• Model documentation (description of the model, data, validation and model change policy) • Standard model assessment
• Capital plan • Contingent capital plan • Dividend & capital structure • Reserve reports
• Strategy brief and business model • Risk appetite • Capital allocation • Risk reports
Strategic risk The risk of changes to the conditions under which Tryg operates, including changed legislation, competition, partnerships or market conditions. Handled by the Risk Management Committee
Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities -851 -849 Higher discounting of claims provisions 864 755 Net effect of interest rate rise 13 -94 Impact of Norwegian pension obligation a) 291 282
Real estate market 15 % decline in real estate markets -530 -499
Currency market Equity: 15 % decline in exposed currency (exclusive of EUR) relative to DKK -851 -1,031 Impact of derivatives 868 985
For accident, workers’ compensation and Norwegian group life policies, Tryg has purchased catastrophe reinsurance with cover of up to DKK 1.5bn for claims originating from the same event, including terrorism. Accident and workers’ compensation, Norwegian group life, liability, auto, goods and fish farming have been joined under one cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims.
Denmark has established a national guarantee scheme to cover NBCR (Nuclear Biological Chemical Radioactive) terrorist attacks. Insurance companies in the Danish market pay claims of a total of up to DKK 500m for these types of events, and joint reinsurance then covers up to DKK 5bn. Claims above DKK 5bn will be covered by a government guarantee of DKK 15bn. Tryg’s share of the total retention will be approximately DKK 100m, which will be the maximum claim as a consequence of NBCR events.
Property damage caused by natural disasters in Norway are covered under the Norwegian Natural Perils Pool (NNP). Insurance companies in the Norwegian market pay claims of up to NOK 1bn for these types of events, and joint reinsurance then covers up to NOK 12.5bn. Tryg pays a market share of this retention (approx. 12.2% in 2014), which is again covered by Tryg’s catastrophe programme. Tryg also utilises the option of member companies to act as reinsurers for NNP corresponding to its own share of the pool. The risk assumed is subsequently hedged through Tryg’s catastrophe programme, thereby reducing costs.
In the event of a major insurance event covered by the reinsurance programme, receivables from reinsurers may increase, entailing a credit risk. This risk is managed through requirements to assess the reinsurers ’ credit ratings and to spread reinsurance across several reinsurers.
Provisioning risk At the end of the term of insurance, the insurance risk relates to the claims provisions made to cover future payments in respect of damage which has already occurred. When damage occurs, there may be a certain delay before the customer submits a claim. Depending on the complexity of the claim, a longer or shorter period of time may pass before the size of the claim is finally agreed. This may be a prolonged process, particularly for personal injuries. Even once the claim has been settled, there is a risk that it will be reopened at a later date, triggering further payments.
The calculation of claims provisions will always be subject to uncertainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from provisioning risk, and this is also expected to be the case in future. The Supervisory Board defines the overall framework for managing provision risk in Tryg’s insurance policy.
It is expected that a new bill on occupational pensions will be passed in Norway in 2014. It is not yet clear what the exact consequences of this legislation will be, but it will probably lead to a reduction of Tryg’s Norwegian pension provision. Changes in the pension provision are not recognised in the income statement, but are charged directly to equity.
The Supervisory Board defines the overall framework for managing operational risk in Tryg’s IT security policy and operational risk policy. These risks are managed via the Operational Risk Committee, which is a sub-committee of the Group’s Risk Committee.
Tryg has set up a crisis management structure 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 handle the most important areas, such as contingency plans for handling prolonged IT breakdowns in the individual areas of the business. The contingency plans were tested in the autumn of 2013 in a major exercise with a satisfactory result.
Strategic risk Strategic risk relates to Tryg’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputation, as well as changed market conditions. The Supervisory Board is closely involved in the management of strategic risk.
Estimated acc. claims, end of year 10,406 10,753 11,486 11,276 12,210 12,832 14,261 16,579 16,904 14,392 14,225 1 year later 10,513 10,768 11,381 11,533 12,814 14,208 14,933 16,681 17,317 14,371 2 years later 10,191 10,629 11,221 11,055 13,396 14,084 14,957 16,627 17,300 3 years later 10,185 10,517 10,834 11,288 13,377 14,094 14,734 16,502 4 years later 10,218 10,253 10,981 11,221 13,372 14,049 14,611 5 years later 10,192 10,336 10,920 11,211 13,275 13,951 6 years later 10,120 10,116 10,823 11,189 13,143 7 years later 9,990 10,003 10,835 11,151 8 years later 9,904 9,966 10,807 9 years later 9,924 9,926 10 years later 9,829 9,829 9,926 10,807 11,151 13,143 13,951 14,611 16,502 17,300 14,371 14,225 145,815
Estimated acc. claims, end of year 9,510 9,930 10,551 10,989 11,702 12,660 13,964 15,882 15,426 14,136 13,657 1 year later 9,652 9,931 10,552 11,247 12,340 13,968 14,562 15,903 15,111 14,082 2 years later 9,334 9,753 10,386 10,782 12,908 13,880 14,608 15,856 14,972 3 years later 9,272 9,642 10,006 10,982 12,884 13,901 14,432 15,755 4 years later 9,383 9,392 10,126 10,916 12,858 13,857 14,307 5 years later 9,362 9,466 10,070 10,910 12,791 13,773 6 years later 9,279 9,245 9,988 10,890 12,629 7 years later 9,152 9,144 10,001 10,850 8 years later 9,006 9,109 9,981 9 years later 8,982 9,066 10 years later 8,884 8,884 9,066 9,981 10,850 12,629 13,773 14,307 15,755 14,972 14,082 13,657 137,955
Tryg’s property portfolio mainly comprises owner-occupied and investment properties, the value of which is adjusted based on the conditions on the property market through property valuations. At the end of 2013, investment properties accounted for 4.7%, while owner-occupied properties accounted for 2.8% of the total investment assets. Property investments are expected to be at a similar level in 2014.
Nordic countries 458 393 United Kingdom 102 141 Rest of Europe 483 793 United States 632 892 Asia etc. 429 591
Bonds Shares incl. Exposure to exchange rate risk Property incl. derivatives derivatives Insurance Hedge Exposure
Profit/loss on ceded business 86 349 263 11 252 Insurance technical interest, net of reinsurance 62 62 0 -1 1
Impact of exchange rate fluctuations in SEK and NOK Currency Change excl. on technical result 2011 2012 Change effect currency effect
Impact of exchange rate fluctuations in SEK and NOK Currency Change excl. on statement of financial position 2012 2013 Change effect currency effect
Credit risk 2012 2012 2013 2013 Bond portfolio by ratings DKKm % DKKm %
Tryg’s capital base consists of equity and subordinate loan capital. The relationship between these is evaluated on an ongoing basis in order to maintain an optimum structure which takes into account the return on equity, the capital cost and flexibility. The authorities impose a requirement that companies must determine the capital base, which consists of equity minus intangible assets, discount effect and other statutory corrections plus subordinate loan capital. The additional capital can be included by up to 50% of the minimum requirement under Solvency I, although additional capital with a definite maturity may not exceed 25% of the minimum requirement.
Based on its strong capital position, expectations for future earnings and the objective of achieving a return on equity of 20% after tax, Tryg initiated an extraordinary share buy back of DKK 1,000m on 2 January 2014. This will continue throughout 2014.
Subordinate loan capital 873 1,551 Solvency requirements of subsidiaries – 50% -2,405 -2,307
The fair value of the loan at the statement of financial position date 490 - 1,119 1,127 - 741 The fair value of the loan at the statement of financial position date is based on a price of 101 - 100 101 - 105 Total capital losses and costs at the statement of the financial position date 0 - 7 5 - 5 Interest expenses for the year 30 6 50 50 - 33
2.1% above EURIBOR 3M 4.75 % above NIBOR 3M (from 2015) (from 2023)
Profit/loss on continuing business 2,373 Profit/loss on discontinued and divested business -4
Equity investments in associates 21 21 Reinsurers’ share of premium provisions 1 0 236 0 0 237 Reinsurers’ share of claims provisions 249 319 1,448 64 0 2,080 Assets held for sale 742 742 Other assets 51,183 51,183
Number of full-time employees 31 December 2,296 2,349 2,315 2,187 2,046
Gross claims ratio 79.5 73.7 64.0 64.1 63.1 39.1 70.9 75.2 65.2 65.2 40.9 48.5 Combined ratio 93.3 86.4 72.3 73.0 76.8 55.4 88.9 94.3 81.3 80.7 57.5 86.3
Average claims DKK b) 39,432 36,905 5,837 4,918 97,258 89,638 25,090 24,059 11,244 10,644 84,256 68,910 Total claims 36,243 36,480 47,547 45,694 9,582 9,209 72,300 73,973 240,070 238,955 2,659 2,621
Profit/loss on ceded business 97 - 21 46 - 126 0 0 10 50 - 28 629 - 1 - 1 Insurance technical interest, net of reinsurance 20 18 14 10 0 0 0 3 3 2 3 2
Gross claims ratio 75.8 72.6 73.4 73.4 91.0 65.8 78.2 86.7 65.5 272.4 72.6 74.4 Combined ratio 91.7 89.9 87.4 94.1 98.9 75.9 92.3 95.4 94.5 93.9 86.6 88.6
Gross premium income 100 102 19,730 18,980 584 524 20,314 19,504 Gross claims - 127 - 24 - 14,139 - 13,887 - 536 - 524 - 14,675 - 14,411 Gross operating expenses - 159 - 74 - 3,259 - 2,977 - 36 - 31 - 3,295 - 3,008 Profit/loss on ceded business 30 - 12 87 351 - 1 - 2 86 349 Insurance technical interest, net of reinsurance 0 0 54 56 8 6 62 62
c) Other insurance, gross claims and gross operating expenses include restructuring costs of DKK 28m and DKK 69m, respectively, in 2012
Notes 4 Premium income, net of reinsurance Direct insurance 20,395 19,740 Indirect insurance 60 83
Reinsurance cover received 363 1,332 Run-off previous years, reinsurers’ share 732 108 7 Insurance operating costs, net of reinsurance Commission regarding direct insurance contracts -477 -379 Other acquisition costs -2,013 -1,848
Insurance operating costs, gross -3,295 -3,008 Commission from reinsurers 103 105
Insurance operating costs, gross, classified by type Commissions -477 -379 Staff expenses -1,977 -1,802 Other staff expenses -206 -224 Office expenses, fees and headquarter expenses -473 -411 IT operating and maintenance costs, software expenses -218 -237 Depreciation, amortisation and impairment losses and write-downs -129 -110 Other income 185 155
Insurance operating costs and claims include the following staff expenses: Salaries and wages -2,379 -2,122
Restructuring costs In order to improve cost-efficiency and profitability, in 2012 Tryg planned to reduce the number of employees by approx. 400, of which a reduction of 294 employees was realised by the end of 2013. As at 31 December 2013, the restructuring provisions amounted to DKK 23m (DKK 97m in 2012).
Notes 7 Share option programmes Spec. of outstanding options: TOTAL NUMBERS MARKET VALUE
Per option Total value Per option Total value Executive Other at time of at time of at 31 at 31 Manage- senior Other allocation allocation December December 2013 ment employees employees Total (DKK) (DKKm) (DKK) (DKKm)
Outstanding options from 2007-2011 allocation 31 Dec. 2012 92,818 391,877 66,580 551,275 42 60
Notes 7 Share option programmes Specification of outstanding options: Year of allocation Years of exercise 1 Jan. 2013 Additions Exercised Cancelled Expired 31 Dec. 2013
Average share Average price at time Average exercise Year of Years of of allocation Expected Expected Risk-free time to expiry, price, allocation exercise (DKK) volatility maturity interest rate 31 Dec. 2013 31 Dec. 2013
Tryg did not allocate share options in 2013. At 31 December 2013, the share option plan comprised 229.883 share options (551,275 share options at 31 December 2012). Each share option entitles the holder to acquire one existing share with a nominal value of DKK 25 in Tryg A/S. The share option plan entitles the holders to buy 0.4% of the share capital in Tryg A/S if all share options are exercised.
Average per matching Average per share at Total value matching Total Executive time of at time of share at value Manage- Risk- allocation allocation 31 Dec. at 31 Dec. ment takers Total (DKK) (DKKm) (DKK) (DKKm)
Matching shares allocated at 31. Dec. 5,948 2,841 8,789 301 3 525 5
Matching shares allocated at 31. Dec. 5,948 3,846 9,794 301 3 427 4
Matching shares allocated at 31. Dec. 4,979 5,996 10,975 302 4 427 5
In 2011, 2012 and 2013, Tryg entered into an agreement on matching shares for the Executive Management and selected risk-takers as a consequence of the Group’s remuneration policy. The Executive Management and selected risk-takers are allocated one share in Tryg A/S for each share that the Executive Management member or risk-taker acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum. The shares are reported at market value and are accrued over the 4-year maturation period. In 2013, the reported fair value of matching shares for the Group amounted to DKK 2m (DKK 2m in 2012). At 31 December 2013, a total amount of DKK 4m was recognised for matching shares.
Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property 82 -21 Owner-occupied property -350 -76
Notes 10 Tax Tax on accounting profit/loss -754 -749 Difference between Danish and foreign tax rates -57 -58 Tax adjustment, previous years 2 -2 Adjustment of non-taxable income and costs 49 152 Change in valuation of tax assets -89 -20 Change in tax rate 12 58 Other taxes 0 -1
Effective tax rate % % Tax on accounting profit/loss 25 25 Difference between Danish and foreign tax rates 2 2 Change in tax rate 0 -2 Adjustment of non-taxable income and costs -2 -5 Change in valuation of tax assets 3 1 11 Profit/loss on discontinued and divested business Gross premium income 611 202 Gross claims -484 -149 Total insurance operating costs -244 -55
Technical result -117 -1 Total investment return after insurance technical interest 32 0 Other income and costs 113 1
Profit/loss on discontinued and divested business includes Marine Hull insurance, which was divested in 2010 and the Finnish branch of Tryg Forsikring which was sold in 2012, with authority approval in May 2013.
Trademarks Assets and customer under DKKm Goodwill relations Software a) construction a) Total 12 Intangible assets
Transferred to assets held for sale 0 0 0 0 0
Impairment losses and write-downs for the year 0 0 -13 0 -13
Transferred to assets held for sale 0 0 -4 0 -4 Transferred from asset under construction 0 0 14 -14 0
In 2009, Tryg acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB and MF Bilsport & MC Specialförsäkringar. The insurance activities were incorporated into the Tryg Group’s business structure in 2009 and are reported under Sweden. In 2010, the companies, excluding Modern Re S.A., were merged into Tryg Forsikring A/S as Moderna Forsäkringar, a branch of Tryg Forsikring A/S. Modern Re S.A. was discontinued in 2011.
The cash flows appearing from the latest budgets approved by management for the next 5 financial years are used when calculating the value in use of the total Swedish activities acquired. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market’s expectations for the Group.
The impairment test shows a calculated value in use of approximately DKK 1.4bn relative to a recognised equity of DKK 0.8bn and does not indicate any impairment.
The impairment test compares the carrying amount with the estimated present value of future cash flows. The test indicated impairment of a small number of projects, resulting in impairment losses. The total impairment of intangible assets amounts to DKK 13m (DKK 138m in 2012).
Operating Owner-occupied Assets under DKKm equipment property construction Total 13 Property, plant and equipment
Accumulated value adjustments Accumulated value adjustments at 1 January 0 -281 -90 -371
Accumulated depreciation Accumulated depreciation at 1 January -90 -62 0 -152
Transferred to assets held for sale -8 0 0 -8 Transferred from assets under construction 0 10 -10 0 Additions for the year 55 8 11 74 Disposals for the year -9 -19 0 -28
Impairment test Property, plant and equipment A valuation of the owner-occupied property has been carried out, including the improvements made, and a revaluation of DKK 9m relating to the domicile in Bergen was subsequently included in other comprehensive income (DKK 42m in 2012) and impairment of DKK76m relating to the domicile in Ballerup in the income statement (DKK 350m in 2012). The impairment test performed for operating equipment did not indicate any impairment.
14 Investment property Fair value at 1 January 2,199 2,081 Exchange rate adjustments 24 -52 Additions for the year 35 16 Disposals for the year -259 -2 Value adjustments for the year 47 -21 Reversed on sale 35 0
Total rental income for 2013 is DKK 139m (DKK 152m in 2012).
Business property 7.0 7.0 Office property 6.4 6.5 Residential property 5.9 6.0
15 Equity investments in associates Cost Cost at 1 January 0 0
16 Financial assets Financial assets at fair value with value adjustments in the income statement 45,014 42,782 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income 0 73 Receivables measured at amortised cost with value adjustment in the income statement 2,634 3,118
Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: Carrying amount at 1 January 217 209 Exchange rate adjustments 5 -10 Gains/losses in the income statement -13 -48
Reconciliation between investment assets as per ‘Investment Activities’ in the management’s review and the statement of financial position
Investment assets according to the statement of financial position 36,971 150 2,022 39,143 Unit trust units 3,741 Deposits with credit institutions 1,301 Derivative financial instruments 692 Associated shares 18
Total investment assets according to the statement of financial position 44,895
Investment assets as per the section ‘Investment activities’ in the Management’s report 40,802 2,444 2,081 45,327 Consisting of: Cash and cash equivalents allocated to portfolio management -61 0 0 -61 Debt and receivables relating to unsettled funds and property transactions 905 0 0 905
Investment assets according to the statement of financial position 38,862 199 2,081 41,142 Unit trust units 3,261 Deposits with credit institutions 949 Derivative financial instruments 1,256 Associated shares 21
Sensitivity information Impact on equity from the following changes: Interest rate increase of 0.7-1.0 percentage point 112 -18 Interest rate fall of 0.7-1.0 percentage point -182 -41 Equity price fall of 12 % -279 -349 Fall in property prices of 8 % -283 -266 Exchange rate risk (VaR 99) -19 -25 Loss on counterparties of 8 % -320 -396
The impact on the income statement is similar to the impact on equity. The statement complies with the disclosure requirements set out in the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish FSA.
Derivative financial instruments Derivatives with value adjustments in the income statement at fair value: Market value Market value in statement in statement of financial of financial Nominal position Nominal position
Derivatives according to statement of financial position 35,147 481 35,692 178 Inflation derivatives, recognised in claims provisions 2,590 3 3,311 -166
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 43m in 2013 (DKK 48m in 2012).
Impairment test As at 31 December 2013, management performed a test of the carrying amount of total reinsurers’ share of provisions for insurance contracts. The impairment test resulted in impairment charges totalling DKK 27m (DKK 37m in 2012). Write-downs for the year include reversed write-downs totalling DKK 0m (DKK 16m i 2012). There is no overdue reinsurers’ share other than the share already provided for.
The activity which comprised assets and liabilities held for sale and constituted the Group’s activities in Finland was definitively disposed of on 1 May 2013. The sale can be specified as follows: Intangible assets 0 112 Property, plant and equipment 0 1 Investment assets, cash and cash equivalents 0 3 Reinsurers’ share of claims provisions 0 696
Number of Nominal value Number of Nominal value Number of shares, exclusive of own shares shares (DKK ’000) shares (DKK ’000)
Cancellation in connection with buyback programme 0 0 0.00 0 0 0.00 Used in connection with exercise of incentive programme -121,542 -3,039 -0.20 -299,787 -7,495 -0.49
Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 14 April 2015. Own shares are acquired for use in the Group’s incentive programme and as part of the share buyback programme.
Premium provision at 1 January 6,770 6,658 Value adjustments of provisions, beginning of year 185 -335 Paid in the financial year 20,139 18,740 Change in premiums in the financial year -20,434 -18,881 Exchange rate adjustments -2 -6
Paid in the financial year in respect of the current year -6,571 -43 -6,528 Paid in the financial year in respect of prior years -6,604 -628 -5,976
Change in claims in the financial year in respect of the current year 13,902 562 13,340 Change in claims in the financial year in respect of prior years -854 103 -957
Change in claims in the financial year in respect of the current year 14,978 268 14,710 Change in claims in the financial year in respect of prior years -300 740 -1,040
Claims provisions at 31 December 26,842 1,893 24,949 a) Comprises premium and claims provisions for Tryg Garantiforsikring A/S.
Specification of change in recognised pension obligations: Recognised pension obligation at 1 January 1,990 2,151 Exchange rate adjustments 120 -278 Present value of pensions earned during the year 81 63 Capital cost of previously earned pensions 52 39 Acturial gains/losses -22 -157 Paid during the period -70 -62
Impact on equity from the following changes: Interest rate increase of 0.3 percentage point 84 80 Interest rate decrease of 0.3 percentage point -90 -70 Pay increase rate, increase of 1 percentage point -105 -65 Pay increase rate, decrease of 1 percentage point 86 69 Pension adjustment, increase of 0.5 percentage point -151 -140 pension adjustment, decrease of 0.5 percentage point 128 121 Turnover, increase of 2.0 percentage point -77 -66 Turnover decrease of 2.0 percentage point 99 84
Pensions being disbursed are regulated in step with the basic amount of old-age pension paid in Norway (G regulation). Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children’s pension.
In connection with new legislation on occupational pensions in Norway, adopted and applicable from 1 January 2014, changes are expected to be made to the defined-benefit pension plan. These changes will affect the future recognition and measurement of the obligation.
Notes 23 Deferred tax Tax asset Operating equipment 22 14 Debt and provisions 290 105 Capitalised tax loss 13 6
Development in deferred tax Deferred tax at 1 January 1,191 1,143 Exchange rate adjustments 56 -119 Change in deferred tax relating to change in tax rate -12 -50 Change in deferred tax previous years 7 16 Change in capitalised tax loss 65 5 Change in deferred tax taken to the income statement -247 -7 Change in valuation of tax asset 89 20 Change in deferred tax taken to equity -6 49
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 -133m. (2012 DKK 50m).
25 Amounts owed to credit institutions Overdraft facilities 14 6 26 Debt relating to unsettled funds transactions and repos Unsettled fund transactions 1,050 148 Repo debt 420 2,673
Unsettled fund transactions include debt for bonds purchased in 2012 and 2013; however, with settlement in 2013 and 2014, respectively.
27 Earnings per share Profit/loss from continuing business 2,180 2,373 Profit/loss on discontinued and divested business 28 -4
Tryg has signed the following contracts with amounts above DKK 50m: Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S, have signed a letter of intent concerning an outsourcing agreement with TCS. Telephony services contract with Telenor for DKK 98m, which expires after 2015. Lease contracts on premises for DKK 293m. The contracts expire after 5 years.
Collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. As of 1. july 2012, the companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties and dividends in respect of the jointly taxed companies.
Notes 28 Offsetting and collateral in relation to financial assets and obligations
Inflation derivatives, recognised in claims provisions 3 0 3 0 -9 -6
Contingent liabilities Companies in the Tryg Group are party to a number of disputes. Tryg decided to initiate a transition of its IT-operation for implementation in 2014. In 2013 a letter of intent concerning an agreement on the outsourcing of oprations was signed with TCS. Costs may be incurred in connection with the transition in 2014.
Management believes that the outcome of disputes and IT-transition will not affect the Group’s financial position significantly beyond the obligations recognised in the statement of financial position at 31 December 2013.
29 Related parties The group has no related parties with a decisive influence other than the parent company,
Supervisory Board 2 0 Executive Management 0 0 Risk-takers 1 5
The maximum amount paid in severance pay to an individual is DKK 5m.
2012 Number of persons Basic salary Variable salary Pension Total a)
The Executive Management and risk-takers are included in incentive programmes. Please refer to note 7 for information concerning this.
Risk-takers are defined as employees whose activities have a significant influence on the company’s risk profile. The Supervisory Board decides which employees should be considered to be risk-takers.
Parent company Tryghedsgruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
Change in accounting policies A reclassification has been made in respect of derivative financial instruments of DKK 709m in 2012 from the main items ‘Total other financial investment assets’ and ‘Total debt’ due to the grossing-up of derivative instruments at contract level.
The comparative figures have been restated to reflect the above changes. Except as noted above, the accounting policies have been applied consistently with last year.
Implementation of changes to accounting standards and interpretation in 2013 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.
• Amendments to IAS 1 ‘Annual Improvements 2009-2011 Cycle (Comparative information)’
• IAS 19 (as revised in 2011) ‘Employee Benefits’ • Amendments to IAS 32 ‘Annual Improvements 2009-2011 Cycle
• Reissue of IFRS 9 to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirements’ b)
• Amendments to IFRS 10, 11 and 12 ‘transitional guidance’ a)
• Amendments to IAS 19 ‘Clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service’ a)
• Amendments to IAS 32 ‘Offsetting of assets and liabilities’ a)
The changes will be implemented going forward from 2013. The changes will not significantly affect the Group.
The change does not affect the net profit for the period as it concerns a redistribution between the technical result and the investment return net of insurance technical interest. It is estimated that the change has improved the technical result by as much as DKK 12m, with the investment return being reduced by the same amount.
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. The Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated claims provisions.
On consolidation, intra-group income and costs, shareholdings, intragroup accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated.
Newly acquired or divested subsidiaries are consolidated with the results for the period subsequent to taking over or before surrendering control, respectively. Profit and loss in divested subsidiaries and profit and loss from discontinued activities are included under discontinued and divested business in the income statement.
On consolidation, the assets and liabilities of the Group’s foreign operations are translated using the exchange rates applicable at the statement of financial position date. Income and expense items are translated using the average exchange rates for the period. Exchange rate differences arising on translation are classified as other comprehensive income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the activities are divested. All other foreign currency translation gains and losses are recognised in the income statement. The presentation currency in the annual report is DKK.
The operational business segments in the Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individuals in Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized businesses, in Denmark and Norway. Corporate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insurance products to private individuals in Sweden.
The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the reinsurers ’ share of premium provisions.
Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred.
Tryg hedges the risk of changes in future pay and price figures for provisions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the effect of changes to inflation expectations under claims.
Insurance operating expenses Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs and is accrued over the term of the policy. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year.
Share-based payment The Tryg Group’s incentive programmes comprise share option programmes and matching shares.
The share options are exercisable exclusively during a 13-day period, which starts the day after the publication of full-year, half-year and quarterly reports and in accordance with Tryg’s in-house rules on trading in the Group’s shares. The options are settled in shares. A part of the
Group’s holding of own shares is reserved for settlement of the options allocated.
Matching shares Members of Executive Management and risk takers have been allocated shares in accordance with the ‘Matching shares’ scheme. Under Matching shares, the individual management member or risk takers is allocated one share in Tryg A/S for each share the Executive management member or risk taker 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.
The holder acquires the shares in the open window following publication of the annual report for the previous year. The shares (matching shares) are provided free of charge, four years after the time of purchase. The holder may not sell the shares until six months after the matching time.
The shares are recognised at market value and are accrued over the four-year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisition under staff expenses with a balancing entry directly in equity. If an Executive Management member or risk-taker retires during the maturation period but remains entitled to shares, the remaining expense is recognised in the current accounting year.
Interest and dividends represent interest earned and dividends received during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of investment property, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as price adjustments.
Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when such assets are ready to be brought into use.
Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and im-
pairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occupied property at the statement of financial position date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity.
Depreciation on owner-occupied property is calculated based on the straight-line method and using an estimated economic lifetime of up to 50 years. Land is not depreciated.
Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties.
Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market.
The results of foreign subsidiaries are based on translation of the items in the income statement using average exchange rates for the period. Income and costs in domestic enterprises denominated in foreign currencies are translated using the exchange rates applicable on the transaction date.
Calculation of value is generally performed on the basis of rates sup- plied by Nordea with relevant information providers and is checked by the Group’s valuation technicians. Discounting on the basis of market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow.
Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign entities. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net investment are recognised directly in equity. The net asset value of the foreign entities estimated at the beginning of the financial year is hedged 90100 % by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity.
Receivables that are not derivative financial instruments are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when there is a clear indication of asset impairment. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows.
Assets held for sale and associated liabilities Assets held for sale comprise non-current assets and disposal groups held for sale. A disposal group is a group of assets which an entity intends to dispose of in a single transaction. Liabilities associated with assets held for sale are liabilities which are directly associated with these assets, which will be transferred as part of the transaction. Assets are classified as ‘held for sale’ when their carrying amount will be recovered primarily via a formally planned sale within a period of 12 months rather than through continued use.
Assets and associated liabilities are specified separately in the statement of financial position, and the main items are specified in the notes. Comparative figures in the statement of financial position are not restated.
Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the policy- holders. They include direct and indirect claims handling costs that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The provisions include claims handling costs.
Claims provisions are determined for each line of business based on actuarial methods. Where such business lines encompass more than one business area, short-tailed claims provisions are distributed based on number of claims reported while long-tailed claims provisions are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for lines of business with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder’s credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for example the number of insured.
Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined- contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribution plan.
For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the group so far and which must be disbursed according to the plan. The capital value is calculated using the Projected Unit Credit Method.
Proposed distribution for the year: Dividend 1,594 1,656 Transferred to reserve for net revaluation according to the equity method 1,865 817 Transferred to retained profit -1,251 -106
Total equity and liabilities 10,999 11,755 6 Deferred tax assets 7 Capital adequacy 8 Contractual obligations, contingent liabilities and collateral 9 Related parties 10 Reconciliation of profit/loss and equity 11 Accounting policies
Profit/loss for the year 817 -106 1,656 2,367 Revaluation of owner-occupied property for the year 9 9 Exchange rate adjustments of foreign entities for the year -326 -326 Hedging of currency risk in foreign entities for the year 305 305 Actuarial gains and losses on pension obligation 179 179 Tax on changes in equity -133 -133
1 Income from Group undertakings Tryg Forsikring A/S 2,265 2,410 2 Other expenses Administration expenses -67 -52
Average number of full-time employees for the year 11 11 3 Tax Reconciliation of tax costs Tax on accounting loss before profit/loss in subsidiaries and tax -19 -14 Tax adjustments, previous years 1 0
5 Current tax assets Tax payable at 1 January 17 24 Current tax for the year 24 14 Adjustment of current tax in respect of previous years -7 0 Tax paid for the year -10 -24
7 Capital adequacy Equity according to annual report 10,996 11,122 Proposed dividend -1,594 -1,656 Solvency requirements of subsidiaries – 50% -2,406 -2,307
Solvency ratio 90 90 8 Contractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are taxed jointly with TryghedsGruppen smba. As of 1 July 2012, the companies and the other jointly taxed companies are thus jointly and severally liable for any obligations to withhold tax deducted at source on interest, royalties and dividends in respect of the jointly taxed companies.
Companies in the Tryg Group are party to a number of disputes. Management believes that the outcome of these legal proceedings 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 2013.
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. The following is a reconciliation of profit/loss and equity.
Claims ratio, net of ceded business 66.3 71.1 61.2 59.1 62.6 69.8 71.0 59.4 73.9
Combined ratio exclusive of run-off 95.9 95.7 90.4 86.3 85.8 93.9 93.0 88.6 95.7
Key ratios Gross claims ratio 90.0 78.9 64.0 78.2 77.8 68.9 82.7 111.8 70.4
Claims ratio, net of ceded business 85.4 76.7 65.8 80.7 78.5 76.5 73.1 80.5 75.9
Combined ratio exclusive of run-off 112.9 96.7 92.1 97.3 103.4 97.8 95.5 100.9 98.6
Claims ratio, net of ceded business 88.6 88.1 77.5 76.3 66.4 75.3 76.7 73.1 68.9
Combined ratio exclusive of run-off 101.2 98.5 91.1 91.5 92.1 94.8 91.9 89.8 94.3 a) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’.
A more detailed version of the table can be found at tryg.com > investor > Downloads.
Other income and costs -15 -61 -60 -91 Profit/loss before tax 638 639 3,017 2,993 Run-off gains/losses, net of reinsurance 237 247 1,015 970
Number of full-time employees, continuing business at 31 December 3,913 3,703 Number of full-time employees, discontinued and divested business at 31 Dec. 189 0 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights.
Expense ratio, net with adjustment 16.9 17.1 17.0 16.9 16.1 Combined ratio, net with adjustment 90.7 98.5 92.7 87.6 86.9 Expense ratio, net without adjustment 16.8 17.0 16.9 16.6 15.9
Average reinsurers’ share of provisions for insurance contracts 1,178 1,454 1,828 2,192 2,469
Diluted average number of shares (1,000) 63,448 62,444 60,401 60,714 60,259 Share price at 31 December (DKK) 342.8 257.5 319.0 426.5 524.5 Net asset value per share (DKK) 152.3 139.5 149.2 180.9 187.1 Market price/net asset value 2.3 1.8 2.1 2.4 2.8
The expense ratio, net without adjustment, is calculated as the ratio of actual insurance operating costs, net of reinsurance to premium income, net of reinsurance. Other key ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts.
The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ definitions of expence ratio and combined ratio, involves the addition of a calculated cost (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property.
Group chart at 1 January 2014. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated.
The financial highlights and key ratios of Tryg have been prepared in accordance with the Executive Order issued by the Danish Financial Supervisory Authority on the Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds and also comply with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts.
Diluted average number of shares Average number of shares adjusted for number of share options which may potentially dilute.
Discounting Expresses recognition in the financial statements of expected future payments at a value below the nominal amount, as the recognised amount carries interest until payment. The size of the discount depends on the market-based discount rate applied and the expected time to payment.
Gross premium income Run-off gains/losses The difference between the claims provisions at the beginning of the financial year (adjusted for foreign currency translation adjustments and discounting effects) and the sum of the claims paid during the financial year and that part of the claims provisions at the end of the financial year pertaining to injuries and damage occurring in earlier financial years.
Fire and contents – Private Fire and contents insurance for private customers represents 24% of total premium income and includes, for example, house and contents insurance.
General third-party liability insurance General third-party liability insurance represents 5% of total premium income and covers various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products, and third-party liability for professionals.
Tryg sells its products primarily via its own sales channels such as call centres, the Internet, tied agents, franchisees (Norway), interest organisations, car dealers, real estate agents, insurance brokers and
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.