Strategy 12 Strategy 14 Strategic themes 18 KPI (Key Performance Indicators) 2009 20 Financial outlook for 2010 22
Results 26 The Group’s financial performance in 2009 28 Private & Commercial Denmark 33 Private & Commercial Norway 37 Private & Commercial Sweden 40 Private & Commercial Finland 42 Corporate 44 Investment activities 47
Capitalisation and risk management 50 Capitalisation and profit distribution 52 Risk management 56
Corporate governance 62 Supervisory Board 64 Group Executive Management 66 Statutory report on corporate governance 68 Remuneration 73 Shareholder information 76
TrygVesta mainly offers insurances through own sales and service channels and through business partners such as Nordea. We strive for high customer and employee satisfaction, and several surveys indicate that TrygVesta is considered to be best at claims handling.
Group chart at 31 December 2009. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated.
Corporate customers are customers paying annual premiums of more than DKK 900,000, having more than 50 employees or handled by insurance brokers. TrygVesta Garanti, the leading provider of guarantee insurance, is included in Corporate.
Enter Forsikring, which sells insurance to private individuals, is included in Private & Commercial Norway.
Insurance for private individuals as well as small and medium-sized businesses.
Brands * Staff functions are distributed proportionately among the business areas.
Our premium income was up by 9.6% in local currency in 2009 and 4.7% excluding Moderna, which we consider to be satisfactory in a recession period. We improved our profit for the year, which was composed of a greatly improved investment result and a lower technical result due to higher claims expenses compared with 2008. Based on our positive performance and the updated capital requirement, we propose that a total of DKK 1.8bn be paid out to our shareholders.
– Looking at the Supervisory Board’s involvement in 2009, what aspects did you emphasise, and did the financial crisis make you think differently about corporate governance?
MIKAEL OLUFSEN – As always, we focused on strategy, including securing the Group’s position and development.
– The day-to-day management has to identify trends within the framework defined by the Supervisory Board. Could you point out some special aspects?
STINE BOSSE – I still believe it is important to focus on strategy, the financial position and the company’s performance. But the agenda also includes other items, such as the Group’s climate impact and behaviour. We have already introduced reduced CO2 consumption as a bonus parameter for the management team, and in 2009 we reduced premiums for customers with electric and hybrid cars in order to encourage environmentally conscious behaviour.
The Living Organisation, will be expressed in a corporate culture that aims to create an optimum framework for compassion, drive and innovation. 2009 was also the first year of our
STINE BOSSE – In 2010, more than 50 TrygVesta managers will attend a value-based development programme that will help identify talent and competencies even more effectively than before and also build an organisation of culture bearers with a distinct common set of values and point of reference.
Profit/loss on gross business 1,884 2,760 2,662 2,554 1,979 Profit/loss on ceded business -7 -591 -343 -669 -582 Technical interest, net of reinsurance 170 343 501 499 157
Return on investments after technical interest 894 1,228 340 -988 1,086
Profit/loss for the year before tax 2,913 3,709 3,109 1,347 2,602
Claims ratio, net of ceded business 71.2 69.6 69.4 71.8 75.4
Diluted average number of shares (1,000)*** 63.448 Number of shares, year end (1,000) 68,000 67,790 67,638 64,378 63,228
Number of full-time employees, end of period Continuing business 3,694 3,808 3,814 4,091 4,336 - of which Moderna Försäkringar 310 * In the calculation of the gross expense ratio with adjustment pursuant to the order issued by the Danish FSA, costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent. Other key ratios are calculated in accordance with ‘’Recommendations & Financial Ratios 2005’’ issued by the Danish Society of Financial Analysts.
** Including discontinued and divested businesses. *** There has been no dilution of earnings or equity in the period 2005-2008.
Partnership with the Danish Handicap Federation TrygVesta signed a collaboration agreement with the Danish Handicap Sports Federation. The object of the agreement is to give injured persons the best possible help to pursue a full and active life after an accident.
Climate agreement signed Group CEO Stine Bosse signed The Copenhagen Communiqué on Climate Change, a statement calling for an ambitious, specific and binding climate agreement.
Changed distribution strategy In October, TrygVesta changed the distribution strategy in Denmark and Norway, aligning customers’ access to contact with their behaviour and requirements. The change improved customer accessibility due to increased staffing on telephone and web services.
IT, and it is clearly embedded throughout the Group. The strategy plan contains four themes: Customer requirements and expectations must be fulfilled in all sub-targets, activities and action plans contributing to the general strategic targets and the strategic themes.
In 2009, Moderna Försäkringar reported gross premium growth of 12.2% and a pre-tax profit of DKK 117m (ninemonth profit), equal to around 6% of the profit for the period. Growth and earnings exceeded expectations at the time of acquisition, when Moderna was expected to lift overall earnings per share by 5% in 2010.
At the same time, telephone accessibility increased significantly in customer service units working with Lean.
TrygVesta seeks to enhance claims handling on an ongoing basis, aiming to expand the peace-of-mind delivery to customers and providing high quality at a competitive cost. In 2009, a MATI survey by Enalyzer asked Danish insurance customers how satisfied they were with the claims handling of their insurance company. TrygVesta topped the survey relative to the four biggest companies in Denmark. This performance is assumed to be connected with the training of TrygVesta staff as peace-of-mind providers, which teaches the Group’s claims handlers skills such as interpreting individual customer requirements and work from the thesis “in order to treat all customers
MISSION Our mission is to secure a stable, high-quality supply of products and services offering peace of mind to private households and businesses
Our customers require a closer dialogue with us and more and more customers want to be able to communicate electronically with their insurance company. TrygVesta’s strategic theme on self-service is exactly about meeting customers on their preferred terms. We want to give customers an option of electronic communication and webbased self-service, allowing them to deal with their insurance issues around the clock in the same way most people now handle banking transactions, travels, or buy books, electronic appliances, etc. via the Internet.
In 2010, we intend to focus even more on electronic com-
Our strategic focus on human competencies illustrates that we understand and respect that people making up the organisation are the most important resource in a successful organisation.
We completed a major organisational change in early 2009, expanding the Group Executive Management from six to nine members, and basing the Group on a pan-Nordic structure. The new organisation provides the framework for shared Nordic development of products, concepts and peace-of-mind deliveries, and will greatly improve the conditions for collaboration between divisions, departments and colleagues. 2010 will be the first year in which the organisational change and our occupation of The
The first phase of TrygVesta’s Nordic talent development programme was launched in early 2009. The programme is intended to strengthen and develop talent for management and project management and provide an opportunity for ambitious, talented employees to build a career within the Group. The first phase of the programme takes 19 months and focuses on identifying and developing a number of employees with no management experience who have the potential, and not least the ambition, to build a career as a manager or project manager. Over the next few years, the programme will also include specialists and experienced managers.
Denmark and Norway (The Living House) were completed in the autumn of 2009 and were positively received. In addition to a physical change of the offices, the refurbishment, which was initiated in 2008, also represents a change of corporate culture and an organisational tool creating a workplace encouraging activity and creativity and generating energy and inspiration. In addition to café
Goals for 2010-11 > Profitable growth in Sweden and Finland and increased market share – 2012 goal of 6-8% > Premium initiatives to ensure profitability of less cost effective products > Moderna becoming a branch of TrygVesta
results in 2009 > The Living House opened in Ballerup and Bergen > Lower rates of employee turnover and sickness absence > Several CSR and climate initiatives
A selection of TrygVesta’s results in 2009 within the strategic themes; profitable growth, peace-of-mind delivery, self-service and human competencies – as well as the goals planned for 2010-11.
The ratio of the technical result exclusive of technical interest to earned premiums
Return on equity favourably impacted by higher investment income and a good technical performance
introduced in 2009. TrygVesta emerged best from this survey among the largest companies in Denmark.
In Norway, the survey showed that we were in line with the average
Technical result ** (DKKbn) 1.2-1.6 Investment result (DKKm) 200-300 Profit before tax (DKKbn) 1.4-1.8 Tax rate approx 26 Combined ratio before run-off ** 96.2 93-95 * In local currency and 2009 excluding Moderna Försäkringar. ** Run-off 2010 is assumed to be zero. Run-off net in 2007, 2008 and 2009 was DKK 743m, DKK 793m and DKK 713m respectively affecting the combined ratio by 4.5%, 4.6% and 3.9%, respectively.
Effective on 1 January 2009, TrygVesta changed the organisation to a Nordic, process-oriented organisation, which will result in changes to the reporting in 2010. These changes will involve pan-Nordic reporting of the Private,
Commercial and Corporate business areas. Geographical reporting distributed on Denmark, Norway, Sweden and
The total effect of premium increases and indexation will be around DKK 0.9bn in 2010.
The performance of claims in the second half of 2009 increased uncertainty with respect to the claims performance particularly in relation to higher claims paid for Danish contents, house and change of ownership insurances. This is reflected in the outlook for the combined ratio range. The interest rate used to calculate the combined ratio is 3.6%, which is assumed to continue unchanged in 2010. If inter-
The technical result is expected to be DKK 1.2-1.6bn before run-off for the full-year 2010 relative to DKK 1,554m in 2009. The outlook for the technical result for 2010 is affected by uncertainty with respect to claims inflation in contents, house and change of ownership insurances.
The outlook is expressed in local currency. TrygVesta generally bases expectations for claims incurred on assumptions for the various products in the individual business areas.
claims are based on historical experience for not less than ten years, with recent years’ trends being weighted stronger than those of prior years. In addition, the effect of profitability initiatives and the effect of any legislative measures are incorporated in the anticipated claims level.
The outlook further includes other expenses such as those relating to IT, operations and owner-occupied properties, which are generally based on agreements and development plans that are known to us. The result of business ceded is based on contracts made with reinsurers to cover claims events and events such as weather-related claims and large claims. The expected result of business ceded is calculated on the basis of such contracts and historical data.
The harsh winter in the Nordic region in 2010 increased claims expenses but is not expected to affect the outlook.
The matching portfolio comprises bonds, interest rate derivatives and money market placements that overall match the technical provisions. The technical provisions including premium provisions have an average duration of 2.4 years. The other portfolio is called the investment portfolio. It amounts to DKK 12.5bn and is used to invest the company’s capital.
The investment portfolio includes equities for DKK 1.7bn, real estate for DKK 3.9bn and bonds for DKK 6.9bn. The return on investments for 2010 is based on the following assumptions with respect to investment assets: an assumed return on equities of 7% including dividend, bond yields of 2.1% based on interest rates at the beginning of 2010, and real estate is expected to yield a return of 6.0% excluding any value adjustments. The investment result after transfer of technical interest for 2010 is expected to be DKK 200-300m against DKK 1.1bn in 2009. The assumptions for investment return are subject to considerable uncertainty.
Based on the above expectations and assumptions for 2010, the return on equity is expected to be 18-20% after tax.
FINaNCIaL CaLENDar 2010 15 April 2010 Annual general meeting 2010 16 April 2010 TrygVesta shares trade ex-dividend 21 April 2010 Payment of dividend 21 May 2010 Interim report for Q1 2010 17 August 2010 Interim report for the first half of 2010 16 November 2010 Interim report for Q1-Q3 2010
This impact was smaller than expected, but tended towards weaker growth at the end of 2009. The overall growth in gross premiums for 2009 exceeded expectations of 4% growth excluding Moderna and 8% including Moderna. The increasing unemployment in Denmark and Norway in 2009 had an adverse impact on the development of premiums in workers’ compensation insurance. A similar negative trend was recorded in other lines of business with declining activity levels. The transport sector was among the areas affected by the slowdown, with fewer goods being carried and fewer vans being insured. The negative effects of the recession are not expected to terminate until there are clear indications of economic recovery, including lower unemployment rates.
Private & Commercial Denmark reported 4% growth in gross premiums, which was significantly higher than last year. The large number of premium increases affected premium growth in Private & Commercial Norway, which recorded growth of 4% in local currency in 2009 (minus 4.1% in DKK). Customer retention rates remained at a high level. The overall market share in Norway was maintained, reflecting growth in Corporate, but a fall in Private.
TrygVesta continued to expand its position within health care in 2009. The strong demand for health care insurance combined with good market timing of the launch of new product initiatives produced portfolio growth of more than 30% to DKK 275m in Denmark.
The Danish part of the Corporate business was impacted by fiercer competition. This, together with the deliberate phase-out of unprofitable customers, caused gross premiums to decline. In light of the economic slowdown, the performance is considered satisfactory, underlining the strength of the Group’s pan-Nordic market position.
586m in 2008. After reinsurer contributions, large claims amounted to DKK 399m net against DKK 490m in 2008.
Weather-related claims, defined as high-frequency events with claims expenses in excess of DKK 5m, amounted to
Strengthening provisionClaims expenses *Excluding storm and claims handling expenses the 5% growth anticipated when acquired. The total portfolio in Sweden and Finland amounted to DKK 2.0bn at 31
Gross premiums in Corporate increased by 2.2% in local currency (minus 1.6% in DKK), reflecting an underlying positive development in the Norwegian part of Corporate, and falling gross premiums in the Danish part of Corporate.
TrygVesta focused on in-house recruitment in 2009 and only made a few external appointments, thereby reducing employee numbers over the year. This generated significant cost savings as there were about 100 fewer employees than at the beginning af the year (excluding Moderna).
As was expected, Sweden and Finland had a relatively strong impact on costs. Excluding Moderna, Sweden and
Finland had a 1.7 percentage point impact on the overall expense ratio in 2009 against 1.5 percentage points in 2008. The acquisition of Moderna in the second quarter of 2009 generated a number of synergies which materialised over the year with a favourable impact on the
Group’s total costs. An example is cost savings with respect to IT in connection with the start-up of the Corporate business in Sweden, where Corporate was established on Moderna’s IT platform following the acquisition.
The combined ratio was up from 89.1 in 2008 to 92.3 in 2009. The discount rate that is used to discount provi-
The bond portfolio accounted for an almost constant proportion of 86.2% of total assets in 2009. In 2009,
The effective tax rate in 2008 was adversely affected by non-deductible equity losses. In 2009, the effective tax rate was affected by utilisation of prior-year tax loss carryforwards in Sweden and tax-free gains on equities.
DKK 2.2bn in 2009 compared with DKK 1.8bn in 2008. There was a cash outflow for investing activities of DKK 1.6bn and a cash outflow for financing activities of DKK 0.4bn.
No other material events have occurred in the period from the balance sheet date until today which in the opinion of
This was due, among other things, to a number of agreements with affinity groups being transferred to new tariff
Gross earned premiums 6,490 6,605 6,866 Gross claims incurred -4,041 -4,443 -5,136
Gross claims ratio 62.3 67.3 74.8 Business ceded as % of gross premiums 1.3 1.3 1.8
Private & Commercial Denmark sells insurances to private individuals as well as small and medium-sized enterprises in Denmark under the Tryg brand name. Sales are handled by call centres, own sales agents, affinity groups, car dealers, real estate agents and Nordea’s branches.
The technical result amounted to DKK 616m in 2009 compared with DKK 1,098m in 2008. The performance was impacted by lower technical interest, higher claims expenses for house, contents and change of ownership insurances and lower run-off gains. The higher claims expenses were mainly due to a larger number of piping claims, break-ins and fires. An adverse trend in the
The trend for customers to reduce annual mileage and buy smaller cars will also have an adverse impact on the average premium, but the risk will be reduced correspondingly.
The average premium on house insurances increased by 8% in 2009, which contributed towards restoring profitability in the area, although it was not sufficient. Profitability on house insurances has been under pressure in the past few years due to high claims inflation, an increase in the number of piping claims, more break-ins and more frequent cloudbursts during the summer period. These developments made it necessary to implement premium increases in addition to those already effected on house insurances at the beginning of the year. The contents insurance was increased by around 15% including indexation at 1 January 2010.
In addition to the premium increases on house and contents insurances, premiums were also increased on a number of other products. The health insurance premium was raised twice during 2009 by a total of 25% to reflect the increased use of the insurance and the related increase in claims expenses. Despite the economic downturn, health insurances were among the products with the highest growth rate in 2009, recording premium growth of more than 70%. TrygVesta expanded its position further in this market, and the portfolio comprised 165,000 customers and amounted to DKK 275m at 31
50m more in 2009 than in 2008. These claims were due to the fact that more frequent cloudbursts put pressure on local authorities to dimension the public sewage and drainage systems to adequately handle the larger quantities of water. In connection with such investigations and subsequent replacement of sewage pipes it is often detected that some customers’ piping and service pipes connected to the public sewage system are damaged, and a claim is therefore reported under the insurance for the damage to be repaired.
Large claims had an impact of DKK 81m on the performance in 2009, which was on a level with 2008.
The trend seen from 2006 to 2008 with a steep increase in average claims subsided as expected during 2009, supported by the economic downturn.
Being one of the major players in the market, Tryg Vesta’s focus on claims procurement is also very important. Negotiations with craftsmen thus reduced both wages and the cost of materials, and a new agreement with the damage control companies strengthened TrygVesta’s position in the market. The positive development in average claims
was, however, offset by an adverse trend in large house claims, which increased by DKK 121m.
DKK 92m relative to 2008, causing the expense ratio to fall from 17.5 to 15.5. The Group’s restraint with respect to external appointments since the second half of 2008 materialised in substantial savings in 2009. Both 2008 and 2009 were adversely impacted by the refurbishment project relating to the head office in Denmark, in the amount of DKK
The combined ratio increased from 86.1 in 2008 to 92.1 in 2009, with an increase in the underlying claims development due to the adverse trend in contents and house insurance. Lower interest rates had an adverse effect of 1.2 percentage points on the combined ratio, while lower run-off gains depressed the combined ratio by 1.1 percentage points. Weather-related claims lifted the combined ratio by 0.4 percentage point. Finally, the expense ratio improved by 2 percentage points. The premium increases already implemented will increase profitability during 2010 and 2011.
Private & Commercial Norway sells insurances to private individuals as well as small and medium-sized enterprises in Norway under the TrygVesta and Enter brand names.
On the basis of 4% gross premium increases in local currency the combined ratio was improved through the year.
gross premiums was achieved despite fiercer competition, in particular from new competitors in the private market.
This trend is further intensified by an increase in premiums for house insurances of 6.7% and for passenger cars of
The claims frequency for houses increased by 11.0 percentage points relative to 2008 and was impacted by more fire, water and piping claims as well as more thefts, which stabilised at a level almost double that of 18 months ago.
Gross premiums in Private & Commercial Norway increased by 4.0% in local currency (minus 4.1% in DKK) and stood at DKK 4,445m in 2009. Growth was slightly lower than in 2008, but still at a high level. The increase in gross premiums of NOK 203m was favourably impacted by the premium increases that had been implemented, while the number of insurances sold declined slightly. The growth in
The claims frequency for motor policies rose by 3.8 percentage points in 2009 relative to 2008, and the average motor claim was up by 2.7 percentage points. The higher claims frequency mainly related to many accidents due to icy road conditions in eastern Norway, and especially around Oslo, at the beginning of the year. There were 1,800 more motor claims in the first quarter of 2009 compared with first quarter of 2008. Expenses for larger fire claims (more than NOK
185m against NOK 264m in 2008, and impacting the claims ratio by 3.5 percentage points in 2009 against 5.2 percentage points in 2008. Compared with Denmark, the number of house fires is significantly higher in Norway, due to the large number of houses and cabins made from wood and heated by wood burning stoves or fireplaces.
Large claims, defined as claims in excess of DKK 10m, totalled DKK 35m in 2009, as against an unusually high level of DKK 131m in 2008. As a percentage of gross premiums, large claims thus accounted for 0.8 percentage point compared with 2.8 percentage points in 2008.
Run-off gains were a gross amount of DKK 24m in DKK
Costs rose by 1.4%, or NOK 15m, to stand at NOK 1,114m, and the overall expense ratio fell from 21.7 to 21.2. The improvement was attributable to restraint in new appointments, and the effect of the process and efficiency measures introduced which began to materialise during the year.
Private & Commercial Norway reported an overall combined ratio for 2009 of 94.9 against 95.9 in 2008. The year started out at a high level due to the winter effect, but there was improvement over the year. The combined ratio was higher than expected and impacted by the low interest rate level. The premium increases already implemented and additional planned premium measures are expected to improve profitability further in the years ahead.
Gross earned premiums 90 221 1,081 Gross claims incurred -80 -214 -875
Claims ratio, net of ceded business 88.9 96.8 82.3 Gross expense ratio 105.6 47.1 23.2
TrygVesta sells insurances to private individuals and businesses under the Moderna brand and the Vesta
idation of Moderna was thus a major contributor to the high premium growth in 2009. Gross premiums increased from DKK 221m to DKK 1,081m, with Moderna accounting for DKK 768m of the increase. Growth in premiums was 12.2% in Moderna in 2009, which was considerably higher than the 5% expected on the acquisition of Moderna. Vesta Skadeförsäkring reported growth in gross premiums of 57% in 2009 (41.6% in DKK).
In 2009, 109,000 insurances were sold in Vesta Skadeförsäkring – a sustained high level, although slightly below 2008. The main reason for this was the economic downturn. Excluding Moderna, the portfolio amounted to
January 2009, and the number of customers was 136,000 at 31 December 2009 against 107,000 at the beginning of the year. Moderna’s portfolio amounted to SEK 1,460m at 31 December 2009. The premium increases of 10-20%
The claims ratio was 80.9 in 2009 compared with 96.8 in 2008. Claims incurred included a strengthening of IBNR
Nominal costs increased from DKK 104m to DKK 251m, with the consolidation of Moderna being the principal reason. The distribution mix was changed in 2009, which was another reason for the improved expense ratio. The expense ratio fell from 47.1 to 23.2. The rapid growth entailed a need to strengthen human resources. The number of full-time employees was 429 at 31 December 2009, and 310 of them came from Moderna.
(nine-months profit), which was satisfactory considering the acquisition price for Moderna.
Finland and Nordea Vahinkovakuutus. Insurances are sold by Nordea’s branches, own sales agents, call centres, car dealers and via the Internet.
472m, and a total of 150,000 insurance were sold in 2009 against around 160,000 in 2008. Gross earned premiums from sales to small and medium-sized enterprises rose from DKK 41m in 2008 to DKK 73m in 2009.
In 2009, TrygVesta increased premiums by around 10%, which will have a positive impact on profitability going forward. As the largest competitors also increased their premiums, TrygVesta is believed to have retained its strong competitiveness.
The claims ratio, which was 85.2 in 2009 against 72.9 in 2008, was impacted by higher claims handling costs, among other factors.
Living House as well as in relation to writedowns of a commerial insurance system. Higher Group costs also impacted costs.
The growth in the Finnish business gives rise to an ongoing requirement for attracting qualified employees. The number of employees increased from 147 to 191 in 2009, to which should be added 53 independent insurance agents.
The streamlining of distribution channels and own resources combined with sound costs restrained will gradually reduce the expense ratio going foreward.
In the private business, the combined ratio was 107.1 against 101.5 in 2008. The targeted combined ratio of around 95 will be achieved through focus on profitable growth and changes in the sales channels.
NOK/DKK, average rate for the period 92.81 91.74 84.59 SEK/DKK, average rate for the period 80.73 78.02 70.02
Gross earned premiums 5,285 5,512 5,423 Gross claims incurred -3,904 -3,489 -3,583
Claims ratio, net of ceded business 77.2 72.7 73.1 Gross expense ratio 9.5 10.7 11.1
Run-off gains amounted to DKK 387m in 2009, which was on a level with the 2008 figure. Large claims amounted to DKK 419m, DKK 89m more than in 2008.
Gross earned premiums rose by 2.2% in local currency, but fell by 1.6% in terms of DKK to stand at DKK 5,423m due to the fall of NOK against DKK. Gross premiums fell in the Danish part of the business, while they increased in the Norwegian part. This performance was attributable to a good customer inflow in Norway, whereas the Danish market was characterised by price competition and declining volumes within workers’ compensation insurances due to rising unemployment.
On 1 January 2010, TrygVesta implemented general premium increases of 5-8% in the Norwegian part of the
TrygVesta is able to follow existing customers in their globalisation efforts. The partnership with AXA provides both companies with a respectable and sound collaboration platform and thus a good basis for further expansion of this part of the portfolio. In 2010, TrygVesta intends to focus on further expansion of this part of the Corporate portfolio, thereby supporting growth.
3,583m, and the claims ratio, net of ceded business was 73.1 in 2009 against 72.7 in 2008. The claims ratio was adversely impacted by the lower discount rate which, seen in isolation, added 2.2 percentage points to the claims ratio. Gross claims were furthermore adversely affected by several large claims, which amounted to DKK
Costs rose by 2.7% to DKK 604m, corresponding to an expense ratio of 11.1, as against 10.7 in 2008.
The combined ratio was 84.2 in 2009 against 83.4 in 2008. Run-off gains impacted the combined ratio favourably by 7.1 percentage points in 2009 - the same as in 2008. Large claims impacted the combined ratio adversely by 5.2 percentage points in 2009 against 4.6 percentage points in 2008
Transferred to technical interest -1,400 -1,428 -845 return on investment activities 340 -988 1,086 * DKK 125m sold on futures contracts has been deducted from the equity portfolio. ** Return on properties includes a calculated return on owner-occupied property (excluding cost concerning The Living House).
TrygVesta’s investment activities comprise any placement of the Group’s funds in investment assets, such as bonds, equity investments, land and buildings or cash.
TrygVesta completed a major restructuring of the mortgage bond portfolio in the second half of 2009, switching from callable bonds to non-callable bonds. TrygVesta made no new equity investments in 2009. The increase in the equity proportion from 3.4% at 31 December 2008 to 4.0% at 31 December 2009 was therefore solely attributable to higher equity prices. The real estate portfolio was unchanged, accounting for 9.8% at 31 December 2009.
The slightly lower proportion relative to 2008 was primarily due to the overall growth in investment assets.
The equity portfolio yielded a return of DKK 405m in 2009, equal to 31.5%. The portfolio had an overweight in Nordic equities in 2009. TrygVesta therefore profited from the fact that the Nordic markets outperformed the global equity markets in 2009.
The investment return on real estate was DKK 258m including revaluation. The portfolio comprises the head office properties at Ballerup and Bergen, amounting to around
The portfolio will reduce TrygVesta’s exposure to general interest rate changes significantly and, in particular, its exposure to non-parallel interest rate shifts. However, it is not possible to eliminate risk completely. There will still be unhedged risks due to uncertainty with respect to estimated insurance payables because it will not be possible to create a perfect match to the expected insurance payables and because of different calculation methods for assets and liabilities.
Going forward, the total investment return will be computed as the net yield on the match portfolio and the yield on the investment portfolio. The net yield on the match portfolio will be calculated as the gross yield on the match portfolio less the sum of technical interest and capital gains from discounting of provisions.
Capitalisation and risk management l Capitalisation and risk management l Annual report 2009
TrygVesta aims to have the necessary capital available, but no more than that. This basic approach thus determines the company’s dividend policy.
TrygVesta aims for its capital management to optimise the company’s financial strength and ensure financial flexibility. Capital management is based on > TrygVesta’s internal capital model > A standard model under development within the EU
All three models present an estimate of the capital need that matches TrygVesta’s risk profile.
Moody’s perform external credit ratings, and both agencies perform annual interactive credit assessments. TrygVesta targets financial strength corresponding to an ‘A-’ rating from Standard & Poor’s, which is equivalent to a security level of 99.5% on a one-year horizon according to Standard & Poor’s own global analyses. The model assessments in TrygVesta’s internal capital model and the future
‘BBB’ to ‘A-’ by Standard and Poor’s based on TrygVesta’s financial strength.
Danish authorities call for active capital management in that they require an individual solvency need to be assessed. These requirements are the precursor of the
The individual solvency need is assessed on a quarterly basis and reported to the Danish Financial Supervisory
The global financial markets saw a turbulent period from 2008 to 2009 when the market values of investment assets decreased significantly. This gave rise to a prevision of the parameters used under OIS 4, which was carried out during 2009 in connection with the Consultation Papers (CP), which allowed insurance companies to comment on a draft standard model. As a consequence of the revision, several risk weights and correlation factors will be increased, and geographic diversification will no longer be explicitly acknowledged. In consequence of this, the capital requirements are expected to increase by around 45% relative to QIS 4, and will for TrygVesta be just under 50% of net premiums. The weighted average of the Danish market is expected to be around 50% or more of net premiums. If the current draft is maintained, it is expected that several companies will need to strengthen their capital in order to comply with the new capital requirements.
TrygVesta currently determines its targeted capital with a view to supporting the company’s rating of ‘A-’ from
Standard & Poor’s plus a buffer of 5%. The capital requirement supporting a rating of ‘A-’ currently amounts to around 50% of net premiums (excluding buffer), while the actual capital at the end of 2009 was 66% before dividend. The capital requirement for TrygVesta relative to Standard & Poor’s capital model has been reduced by about 5% of net premiums in the past few years due to measures to reduce risk and a lower equity proportion.
TrygVesta has applied an internal capital model since 2002 as the basis for assessing the individual solvency need, supplemented by qualitative assessments of selected risk scenarios. The internal model describes the statistical uncertainty estimated on assets and liabilities, but also includes an element representing the additional risk that may apply in particularly stressed situations.
Regulators require companies to calculate a capital base comprising mainly equity less intangible assets and other statutory adjustments plus subordinated loan capital of up to 25% of the Solvency I requirement. Standard &
Poor’s applies the term Total Available Capital (TAC), under which intangible assets are also deducted from the capital base, and subordinated loan capital generally may not exceed 25% of the total capital. The future Solvency II
rules will change regulatory capital structure requirements, and the first indications of such requirements were issued by the EU Commission in 2009. TrygVesta follows developments closely, taking account thereof when determining dividends for the year.
Poor’s. The total debt ratio was around 16% at 31 December 2009, and the cost of debt in 2009 was DKK 90m.
The financial flexibility must take into account considerations about strategic acquisitions and ensure the possibility of additional contributions of capital as part of the capital resources. TrygVesta’s capital contingency plan describes measures that can be applied in the short term to improve the Group’s solvency, if required. As a result of the strategy chosen for the future and distribution for 2009, restructuring of investment assets and additional hedging of insurance obligations could substitute for
Total distribution per share (DKK) 21 33 38 6.50 28 * The share buy back programme was based on the profit for 2007, amounted to DKK 1,405m and was initiated on 4 April 2008. On 2
Risk management is an integral part of TrygVesta’s business operations. We continuously seek to minimise the risk of unnecessary losses in order to optimise returns relative to the capital available in the company from time to time.
TrygVesta has for a number of years worked to align the company to such requirements. This involves that the
Supervisory Board actively defines risk appetite and risk management limits and regularly assesses the overall risk in the company and the resulting capital requirement. This is handled in a risk management environment, in which the risk management committee, including representation from the Group Executive Management, is responsible for the overall risk and capital management. The areas of > underwriting and reinsurance > provision > investment risk > operational risk and security are managed by corresponding sub-committees. Risk management is supported by Trygvesta’s internal capital model, which has been developed on an ongoing basis over the underwriting risk The risk related to entering into insurance contracts. The risk that claims at the end of an insurance contract deviate significantly from our assumptions when pricing at inception of the contract.
Investment risk The risk that volatility of financial markets impacts our results. Interest rate risk constitutes a major part of investment risk. Interest rate risk is the risk of fluctuating market interest rates.
The figure Norwegian property and motor liability shows how the fluctuations observed in different lines may vary considerably in practice, affecting the underwriting risk.
Underwriting risk is continuously assessed based on analyses in TrygVesta’a internal capital model which thus
provides target premium levels for the respective parts of the insurance business. Risk is furthermore managed on an ongoing basis by monitoring of profitability, business procedures, acceptance policies, authorities and reinsurance.
general insurance area. The act provides for the government to provide a guarantee of up to DKK 15bn for the total Danish market to cover such losses in excess of the level that can be protected in the reinsurance market. In
January 2010, the EU Commission finally approved the act which may thus become effective in the first half of 2010.
In case of a major insurance event comprised by the reinsurance programme, TrygVesta may have major receivables with reinsurers and thus be exposed to credit risk.
After the period of the policy’s cover expires, insurance risk relates to the provisions for claims made to cover future payments on claims already incurred. Customers report claims with a certain delay. Depending on the complexity of the claim, a shorter or longer period of time may pass until the amount of the claim has been finally calculated.
This may be a prolonged process particularly for personal injuries. Even when the claim has been settled there is a risk that it will be resumed at a later date, triggering further payments.
Most of the provisions for claims relate to personal injury claims. They are exposed to changes in inflation, the discount rate, disbursement patterns, economic trends, legislation and court decisions.
For property risks, major events in 2010 are protected by catastrophe reinsurance of DKK 5bn with a retention up to a maximum of DKK 100m. The primary risk of single events is storm, and the level of cover has been defined using simulation models to the effect that protection would statistically be inadequate less than once every 250 years. The catastrophe reinsurance programme also covers other catastrophe events, including terrorist events up to DKK 4.15bn.
1.5bn for personal accident and workers’ compensation policies with a retention of DKK 50m, covering the risk of multiple injuries from the same cause, including terror.
In addition, TrygVesta buys reinsurance for certain lines for which experience has shown that claims vary considerably.
Exposure to terrorist losses of a biological, chemical or radioactive character can be covered only partly by reinsurance today. However, Denmark established a national solution to this issue in June 2008 when the Danish Folketing passed the act on a terrorist insurance arrangement in the
After the division, fluctuations in the hedging portfolio will in principle perfectly match fluctuations in liabilities. In practice, it would not be expedient to target a perfect match simply because of the management expenses involved. We expect that, in practice, the net interest rate risk after division of the portfolio can be kept within a limit of DKK 100m.
The division of the portfolio is described in more detail in the section Investment activities
The equity and real estate portfolios are exposed to changes in equity markets and real estate markets, respectively. At 31 December 2009, the equity portfolio accounted for 4.0% of the total investment assets. The proportion is expected to be between 2%-6.5% in 2010.
The calculation of provisions for claims will always be subject to considerable uncertainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from reserving risk, and that may also be expected to happen in future. TrygVesta manages reserving risk by pursuing a reserving policy ensuring that the process for determining provisions for claims is updated and aligned at all times. This includes that it is based on an underlying model analysis, and that internal control calculations and evaluations are made.
Provisions for claims relating to annuities in Danish workers ’ compensation insurance are discounted using the current market rate and are also revalued by the wage inflation rate each year. This exposes TrygVesta to explicit inflation risk in case of changes in Danish wage inflation.
Currency risk is kept at a very low level. The Group’s premium income in foreign currency is mostly matched by claims and expenses in the same currencies, and thus, only the profit for the period is exposed to currency risk.
of the net book value of the Norwegian entity. Exchange rate adjustments of foreign entities and hedging thereof are taken directly to equity.
Credit risk is the risk of incurring a loss if counterparties fail to meet their obligations. In connection with the investment activities, the primary counterparties are bond issuers and counterparties in other financial instruments.
See the section Investment activities for an overview of the bond portfolio distributed on ratings
Before the division of the portfolio, fluctuations in liabilities would to some extent be offset by opposite fluctuations in assets (left figure).
(solely) be exposed to interest rate risk to the extent of active investments in interest-bearing assets. In such case, fluctuations would not be offset by fluctuations on liabilities. To achieve best possible match derivatives will be used.
The financial crisis and economic downturn prevailing since mid-2008 emphasised the importance of managing risk, including credit risk. TrygVesta has no investments in subprime loans, CDOs or similar products, and accordingly has not incurred financial losses in this respect in connection with the financial crisis.
Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal,
TrygVesta focuses on establishing an adequate controlling environment for the Group’s operations. In practice, this work is organised through a structure of procedures, controls and guidelines that cover the various aspects of the
TrygVesta has prepared contingency plans to handle the most important areas, such as the contingency plans in the individual parts of the business to handle an event of a prolonged
IT breakdown. The Group has also set up a crisis management structure should TrygVesta be hit by a major crisis.
Strategic risk relates to TrygVesta’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputation as well as changed market conditions. The management of strategic risk closely involves the Supervisory Board.
Investment risk is at a satisfactory level due to the current investment strategy. TrygVesta considers the operational risk to be less important than the other risk types.
INSuraNCE rISK underwriting risk DKKm Increase in claims expenses of 1% -132 Decrease in premium rates of 1% -183 Weather-related claim of DKK 5.5bn (reinsurance coverage DKK 5bn) -260
Provisioning risk Increase in social inflation of 1% -557 Error estimation of e.g. 10% on workers’ compensation and motor -1,158
MarKET rISK Investment risk Interest rate market – increase in interest rates of 1%: Impact on fixed interest securities -694 Higher discounting of provisions for claims 624 Impact on Norwegian pension obligation 142
Currency market Decrease of 15% of exposed currencies relative to DKK -378 Impact derivatives 327
Mikael Olufsen Chairman of the Supervisory Board Born 1943. Joined the Supervisory Board in 2002.
Mr Olufsen has experience in managing large international companies, including strategic development, and experience as a board member of Danish and international companies.
Bodil Nyboe andersen Deputy Chairman of the Supervisory Board Born 1940. Joined the Supervisory Board in 2006.
Board member: TV2, The Villum Kann Rasmussen Foundation and The Energy Technological
Jørn Wendel andersen Born 1951. Joined the Supervisory Board in 2002.
Committee memberships: Member of the remuneration committee of TrygVesta A/S, spokesman of the audit committee of East
Committee memberships: Chairman of the remuneration committee of Hafslund ASA and member of the election committee of Prosafe SE.
Being a Norwegian citizen, Mr Brinch has special insight into Norwegian market conditions.
Niels Bjørn Christiansen Born 1966. Joined the Supervisory Board in 2006.
Committee memberships: Member of the remuneration committee of TrygVesta A/S, member of the audit committee of Invista Foundation
Property Trust Ltd. and Invista European Real Estate Trust Sicaf, member of the audit committee and the investment committee of Sjælsø
rune Torgeir Joensen Elected by the employees Born 1956. Norwegian citizen.
Committee memberships: Member of the audit committee of TrygVesta A/S, member of the Advisory Board TrygVesta Norge.
Peter Wagner Mollerup Elected by the employees Born 1966. Joined the Supervisory Board in 2002.
Educational background: Diploma in business studies, management training programme of The
From his board work and former positions, including as CEO of FDB, Mr Skov has experience within management, strategy and finance.
Berit Torm Elected by the employees Born 1959. Joined the Supervisory Board in 2008.
Committee memberships: member of the risk committee of Nordea Bank and the remuneration committee of Amlin Plc.
Revised corporate governance recommendations are to be introduced in 2010. TrygVesta takes a positive view of this, and the Supervisory Board believes that TrygVesta complies with the recommendations in all essentials. The sections Corporate governance and Remuneration are based on Nasdaq OMX Copenhagen’s corporate governance recommendations, and the individual headings make reference to the specific recommendations. Any deviations from the recommendations are disclosed below.
TrygVesta issues press releases and company announcements on a regular basis and publishes interim reports and annual reports in order to enable stakeholders to form an adequate impression of the Group’s position and performance. The financial statements have been prepared in accordance with IFRS. TrygVesta updates its outlook for the Group’s performance each quarter. All financial announcements are released simultaneously in
Danish and English. Furthermore, the Group has a number of in-house guidelines to ensure that disclosures of price-sensitive information are made in accordance with the stock exchange rules of ethics. Investor Relations have regular contacts to equity analysts and major investors and organise investor presentations, teleconferences and webcasts together with the Executive Management. The Supervisory Board is regularly informed of the dialogue with investors and other stakeholders. All material is available at trygvesta.com, which also offers stakeholders to receive the latest news as RSS feeds or to download webcasts and teleconferences as podcasts. The
See TrygVesta’s press policy on trygvesta.com > Press > Press policy
The annual general meeting held on 22 April 2009 passed a resolution to cancel the 4,068,427 shares bought back in connection with the share buy back programme implemented from 4 April 2008 to 26 March 2009. Effective as at 28 August 2009, the company’s share capital was reduced by DKK 101,710,675 nominal value to DKK 1,598,289,325 nominal value, corresponding to 63,931,573 shares.
Supervisory Board’s remuneration > Adoption of a resolution as to the distribution of profit or covering of loss, as the case may be, according to the annual report as approved, including proposed payment of dividend for the past financial year > Any proposals from the Supervisory Board or from shareholders > Election of members to the Supervisory Board > Appointment of auditors > Any other business
All shareholders are urged to attend the annual general meeting, and shareholders may vote in person at the general meeting, by postal ballot or appoint the Supervisory Board or a third party as their proxy. The proxy form and postal ballot form will be available at trygvesta.com on or before 25 March 2010.
Supervisory Board’s work and its members’ competencies, it is assessed whether the Supervisory Board has the required competencies, or whether the competencies and expertise of its members need to be updated in some respects. A balanced distribution with respect to age, gender and nationality, among other factors, is sought in the composition of the Supervisory Board.
The Supervisory Board has 12 members, including eight members elected by the shareholders for a term of one year. Four of the eight members are non-affiliated. The
The framework for the audit committee’s work is defined in terms of reference, and the committee is solely a preparatory body supporting the Supervisory Board in its work. The committee has three members and is chaired by a non-affiliated member of the Supervisory Board. The Supervisory Board deems that Bodil Nyboe Andersen who does not represent the majority shareholder TryghedsGruppen, meets the independency and qualification requirements. Bodil Nyboe Andersen has chaired the audit committee of TrygVesta A/S since 2006.
Four meetings of the committee were held in 2009, and it reported to the Supervisory Board on a regular basis. The audit committee made an assessment of the preceding year’s work in August 2009, evaluating the need for changes to its terms of reference. The audit committee works with historical data, and it is not involved in forward -looking events such as outlook and budgets.
> To review and assess, at least once a year, management ’s guidelines for identifying, monitoring and managing the most important risks, including internal control and risk management systems.
> To review and discuss the results of the work of the internal and external auditors and to supervise management ’s follow-up on the recommendations reported by the internal and external auditors.
> To ensure that the Group is being monitored by independent auditors.
activities in 2009 > Reviewed the Group’s technical provisions. > Reviewed the methodology for and assesment of the Group’s Individual Solvency Need. > Reviewed the efficiency of the Group’s contingency plans. > Assessed the Group’s internal control procedures to prevent fraud. > Supervised annual and interim financial statements. > Supervised the audit work performed by the external auditors.
> To ensure compliance with the Group’s guidelines for incentive pay.
> To prepare recommendations to the Supervisory Board about elements that should be included in the remuneration of the Supervisory Board and the Executive Management.
> To keep the Supervisory Board informed of the market level and forms of remuneration paid to members of the supervisory boards and executive managements of the company’s peers.
> Prepared a recommendation to the Supervisory Board concerning salaries for 2009.
4 affiliated 4 non-affiliated 4 members elected members members by the employees*
elected among elected among elected according the members candidates to agreement of the Super- without any between the Danish visory Board affiliation with and Norwegian of Trygheds- Trygheds- employee associations Gruppen smba. Gruppen smba. distributed on three of the Group’s Danish employees and one Norwegian employee.
* Following the annual general meeting of 2010, the members elected by the employees will comprise two Danish, one Norwegian and one Swedish employee.
Read more about the employee representatives on TrygVesta’s Supervisory Board at trygvesta.com > Our business > Corporate governance > Governance principals > Composistion of the Board
The Chairman and the Deputy Chairman of the Supervisory Board perform the duties otherwise handled by a
Prior to the election of new Board members, the Supervisory Board prepares a description of the candidates’ background, professional qualifications and experience, and the notice convening the general meeting makes reference to this description. When taking up office, new Supervisory
profiles and holdings of TrygVesta shares in the section Supervisory Board
Board on strategies and action plans, market developments and the Group’s performance, funding issues, capital resources and special risks. The Supervisory Board cooperates with the Executive Management to ensure follow-up on and development of the Group’s strategies.
The Supervisory Board holds at least six annual meetings and an annual strategy seminar to discuss and define strategies and goals for the years ahead. The Supervisory Board discusses the Supervisory Board’s tasks on a regular basis, and at the last meeting in the year, it determines a meeting plan for the coming year.
Executive Management. In addition, the Supervisory Board reviews and approves the rules of procedure of the Supervisory Board and the Executive Management each year to ensure they are aligned with TrygVesta’s requirements. The
Supervisory Board has defined an evaluation procedure for assessing the composition of the Supervisory Board and the work and results of the Supervisory Board and its individual members. In addition, the Chairman has individual assessment interviews with each member of the Supervisory Board at the beginning of the year, which are discussed at the first Board meeting of the year.
Deputy Chairman. The duties of the Chairman and the Deputy Chairman of the Supervisory Board are defined in the rules of procedure of the Supervisory Board and include preparing meetings of the Supervisory Board and evaluating the work of the Supervisory Board and the cooperation with the Executive Management. The Chairman and the
Deputy Chairman furthermore plan the future composition of the Supervisory Board. The Chairman acts as spokesman for the Supervisory Board for external purposes.
Being an insurance business, TrygVesta is subject to the requirements of the Danish Financial Business Act on risk management. In capital and risk management instructions, the Supervisory Board defines the framework for risk management in TrygVesta with respect to insurance risk/reinsurance, investment risk and operational risk, including IT security. This framework is then implemented in risk policies that define detailed guidelines for the Group’s risk management.
The Supervisory Board ensures that the Group is monitored by competent and independent auditors. Each year, the annual general meeting appoints external auditors recommended by the Supervisory Board. The audit agreement with the external auditors, including the auditors’ fees, is concluded between the Supervisory Board and the auditors. The Supervisory Board adopts the framework for the auditors’ performance of non-audit services each year.
Supervisory Board. The internal and external auditors’ longform reports are reviewed by the Supervisory Board.
The Executive Management has established a formal Group reporting process which comprises monthly reporting, including budget reporting and deviation reporting. TrygVesta publishes quarterly interim reports.
The Group’s internal control systems are based, among other things, on clear organisational structures and guidelines, general IT controls and segregation of duties, which are supervised by the internal auditors.
The remuneration policy and the guidelines for incentive pay are posted at trygvesta.com > Our business >
In addition, members of the Supervisory Board who sit on the audit committee and the remuneration committee receive remuneration for these duties. The committee chairmen receive one and a half times the fee of the other members.
The shareholders approve the remuneration of the Supervisory Board for the current financial year. The remuneration paid to the Supervisory Board was unchanged from rEMuNEraTION OF THE SuPErVISOry BOarD IN 2009
Chairman 750,000 Deputy Chairman 500,000 Members, each 250,000 Total remuneration of the Supervisory Board 3,750,000 rEMuNEraTION OF THE auDIT COMMITTEE IN 2009
Chairman 75,000 Two other members, each 50,000 Total remuneration of the remuneration committee 225,000 remuneration of the Executive Management
TrygVesta’s Executive Management comprises three members. The remuneration of the Executive Management reflects a wish to secure a balanced earnings performance for the Group in the short term as well as the longer term.
The remuneration of the Executive Management members includes an incentive plan, comprising a bonus plan of up to three months’ additional salary including pension (four months for the Group CEO). The bonus plan is directly linked to the achievement of pre-defined benchmarks. The assessment of the individual members’ target achievement includes the Group’s overall performance as well as that of the individual members within their areas of responsibility.
Executive Management’s remuneration consists of stock options in order to build loyalty and motivation. The value of variable remuneration may not exceed 50% of the fixed annual salary inclusive of pension in any finacial year.
Management and senior employees are offered a performance -related bonus of up to three months’ salary.
The bonus is linked to the achievement of pre-defined benchmarks and paid out in cash.
DKK Basic salary Bonus Pension Car Total rEMuNEraTION OF THE ExECuTIVE MaNaGEMENT IN 2008
Furthermore, TrygVesta has a stock option programme for the Executive Management, the Group Executive Management, senior executives and employees to reward outstanding performance. The options, which entitle the holders to buy one share per option, cannot be exercised earlier than three years and later than five years after the grant. The strike price is the market price on grant plus 10%. The exercise price is the strike price less dividend payouts in the period. Stock options can only be exercised during the open trading windows in connection with profit announcements. Own shares are bought to cover the stock option programme.
In 2009, the stock options entitled the holders to acquire shares at the average price of TrygVesta shares
(all trades) on OMX The Nordic Exchange Copenhagen on 3 March 2009 plus a 10% supplement, equal to a strike price of DKK 344.86. TrygVesta expects to grant a stock option programme of a similar value and on similar terms in 2010.
Stine Bosse 18,066 1,700,000 Morten Hübbe 11,690 1,100,000 Peter Falkenham 8,502 800,000 Other Group Executive Management and senior executives 124,076 11,700,000 Granted to reward outstanding performance 21,200 2,000,000 Total granted in 2009 183,534 17,400,000
The Group’s Investor Relations strive to maintain a high level of information by > being available and proactive, and answering queries from investors and other stakeholders as promptly as possible > having in-depth insight into and knowledge of the
Group as well as relevant external trends > preparing plain and relevant written communication and presentation material > having a website that is of relevance to professional and private investors alike
Information that may influence the pricing of TrygVesta shares is published in accordance with the rules applicable to distribution of news in the EU. The Group’s website, trygvesta.com, is updated simultaneously with the announcement of new information. In addition, information is distributed directly to the London Stock Exchange, the press, equity analysts, investors and other stakeholders.
In accordance with the recommendations issued by Nasdaq OMX Copenhagen, TrygVesta refrains from commenting on matters relating to financial performance or forecasts during a period of three weeks prior to the release of financial reports.
DKK 342.75, thus generating a total return for 2009 of 7% including dividends of DKK 6.50. The return was below the return of the market in general in 2009, with the OMX C20 index increasing by 28% and slightly below the DJ Euro Insurance Index, which increased by 11%.
27m in 2009 compared with DKK 44m in 2008. The total volume of TrygVesta shares traded on Nasdaq OMX
In the period from 1 January 2009 to 24 March 2009,
August 2009, reducing the number of outstanding shares from 68.0m to 63.9m including own shares.
Gruppen invests in Nordic businesses that promote peace of mind and health, and supports benevolent activities.
At 31 December 2009, TrygVesta held own shares corresponding to 1.1% of the share capital.
Group’s performance is followed by 18 equity analysts, eight of whom are based in London. The equity analysts’
recommendations with respect to TrygVesta shares are available at trygvesta.com. The website, which is available in a Danish and an English version, is being updated and developed on an ongoing basis, making it an important source for providing information about the Group’s performance to interested investors.
01.09.2009 No. 27 TrygVesta – Capital markets day 2009 10.11.2009 No. 28 Third quarter 2009 report 10.11.2009 No. 29 Financial calendar 2010
After implementing the share buy back programme on 4 April 2008, TrygVesta issued a company announcement on the weekly share buy backs each Monday in 2009 until 23 March 2009.
As a new feature in 2009, TrygVesta’s Investor Relations issued IR newsletters. The newsletters deal with topical issues in order to create a better understanding of factors of importance to TrygVesta’s performance.
Income statement – TrygVesta Group 84 Total comprehensive income 85 Balance sheet – TrygVesta Group 86 Statement of change in equity 88 Statement of cashflows - TrygVesta Group 90
Income statement – TrygVesta A/S (parent company) 134 Balance sheet – TrygVesta A/S (parent company) 135 Statement of changes in equity (parent company) 136 Notes (parent company) 137 Financial highlights and key ratios by geography 142
82 of 148 l Statement by the Supervisory Board and the Executive Management l Annual report 2009
Furthermore, in our opinion the Management’s report gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group’s and the parent company ’s financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company.
To the shareholders of TrygVesta a/S We have audited the consolidated and parent company financial statements of TrygVesta A/S for the financial year starting on January 1 and ending on December 31, 2009, which comprise income statement, the statement of comprehensive income, balance sheet, statement of changes in equity and notes to the financial statements, including accounting policies, and the management’s report, for the Group as well as the parent company, and the cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parent company financial statements have been prepared in accordance with the Danish Financial Business Act. In addition, the consolidated and parent company financial statements have been prepared in accordance with additional Danish disclosure requirements for listed companies. The management’s report has been prepared in accordance with the Danish Financial Business Act.
Management’s responsibility for the consolidated and parent company financial statements and the management ’s report Management is responsible for preparing and presenting consolidated and parent company financial statements that give a true and fair view in accordance with the International Financial Reporting Standards as adopted by the EU in respect of the consolidated financial statements, in accordance with the Danish Financial Business Act in respect of the parent company financial statements and in accordance with additional Danish disclosure requirements for listed companies, and a management’s report including a fair review in accordance with the Danish Financial Business Act. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated and parent company financial statements and a management’s report that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Basis of opinion Our responsibility is to express an opinion on the consolidated and parent company financial statements and the management’s report based on our audit. We conducted our audit in accordance with Danish and international auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the consolidated and parent company financial statements and the management’s report are free from materiel misstatement.
Furthermore, in our opinion, the management’s report includes a fair review in accordance with the Danish Financial Business Act.
Lars Kronow Kasper Bruhn Udam State Authorised State Authorised Public Accountant Public Accountant
84 of 148 l Income statement – TrygVesta Group l Annual report 2009
Claims paid -12,880 -13,479 Reinsurance recoveries 605 264 Change in provisions for claims 1,114 273 Change in the reinsurers’ share of provisions for claims -486 42 4 Claims incurred, net of reinsurance -11,647 -12,900
Acquisition costs and administrative expenses -3,003 -3,098 Commission and profit commission from the reinsurers 72 86 5 Total insurance operating expenses, net of reinsurance -2,931 -3,012
Total return on investment activities 440 1,931 3 Interest on insurance provisions -1,428 -845
Profit/loss for the year 846 2,008 27 Earnings per share - continuing business of DKK 25 12.8 31.2 Earnings per share of DKK 25 12.8 31.7 Diluted earnings per share of DKK 25 - 31.7
Balance sheet – TrygVesta Group l Balance sheet – TrygVesta Group l Annual report 2009
Operating equipment 46 83 Owner-occupied property 1,315 1,358 Assets under construction 0 172 12 Total property, plant and equipment 1,361 1,613 14 Investments in associates 14 17
Deposits with ceding undertakings, receivable 13 15 15 Total investment assets 32,745 37,268
Notes Liabilities 20 Subordinated loan capital 1,102 1,586 21 Provisions for unearned premiums 5,100 6,208 21 Provisions for claims 19,715 22,430 Provisions for bonuses and premium rebates 378 364
Total provisions for insurance contracts 25,193 29,002 22 Pensions and similar obligations 523 496 23 Deferred tax liability 949 1,330
88 of 148 l Statement of change in equity l Annual report 2009
DKK m reserve revalua- for Equali- Share tion exchange sation Other retained Proposed capital reserves rate adj. reserve reserves earnings dividends Total
Exchange rate adjustment of foreign entities -585 -55 -640 Hedge of foreign currency risk in foreign entities 615 615 Actuarial gains and losses on pension obligation -196 -196 Tax on equity entries -154 53 -101
Profit for the year 201 816 991 2,008 Revaluation of owner-occupied properties 9 9 Exchange rate adjustment of foreign entities 487 18 505 Hedge of foreign currency risk in foreign entities -474 -474 Actuarial gains and losses on pension obligation 28 28 Tax on equity entries -2 119 -7 110
Interest income 1,573 1,573 Interest expenses -135 -173 Dividend received 40 14
Investments Acquisition of real property -1,098 -203 Sale of real property 26 1 Acquisition of equity investments and unit trust units (net) 2,080 14 Purchase/Sale of bonds (net) -1,180 1,411 Deposits in Credit institutions -87 -1,850 Purchase/sale of operating equipment (net) 110 -166 29 Acquisition of subsidiares 0 -939 29 Acquisition of subsidiares, cash and cash equivalents 0 605 Foreign currency hedging 615 -474
Change in cash an cash equivalents, net 32 206 Price adjustment of cash and cash equivalents, beginning of period -48 24
> Unlike IAS 19, the Danish FSA’s executive order does not allow for actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions to be taken to equity. Actuarial gains and losses will therefore be recognised in the parent company ’s income statement.
> The Danish FSA’s executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the equity of the parent company have been adjusted accordingly on the transition to IFRS.
Implementation of accounting standards in 2009 In 2009, the Group implemented the following standards and interpretations: > IAS 23 ‘Borrowing Costs’ > IAS 27 ‘Consolidated and Separate Financial Statements’ > IAS 28 ‘Investments in Associates’ > IFRS 3 ‘Business Combinations’, revised 2008. Not implemented earlier > Amendments to IFRS 7 ‘Improving disclosures about Financial Instruments ’ > Amendments to IFRS 2 ‘Share-based Payments: Vesting Conditions and Cancellation’ > Amendments to IFRS 1 and IAS 27 ‘Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate’ > Amendments to IAS 32 and IAS 1 ‘Puttable Financial Instruments and
Obligations Arising on Liquidation’ > Amendments to IAS 38 ‘Intangible Assets’ > Amendments to IAS 40 ‘Investment Property’ > Amendments to IAS 39 ‘Financial Instruments: Recognition and
Concession Arrangements’, IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 14 ‘The Limit on a Defined Benefit Asset’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 16 ‘Hedges of Net Investment in a Foreign Operation’, IFRIC 17 ‘Transfers of Assets from Customers ’.
> IAS 1 ‘Presentation of Financial Statements’ > IFRS 2 ‘Share-based Payments’ > IAS 17 ‘Leases’ > IAS 36 ‘Impairment of Assets’ > Amendments to IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ > Amendments to IAS 7 ‘Statement of Cash Flows’.
l Notes – TrygVesta Group l Annual report 200992 of 148
The projection for claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as to factors such as court decisions, changes in law, social inflation and other economic trends, including inflation. The TrygVesta Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated provisions for claims.
Income is recognised in the income statement as earned, whereas costs are recognised by the amounts attributable to this financial year. Value adjustments of financial assets and liabilities are recorded in the income statement unless otherwise described below.
On consolidation, the assets and liabilities of the Group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. All other currency translation gains and losses are recognised in the income statement.
The operational business segments in the TrygVesta Group are Private & Commercial Denmark, Private & Commercial Norway, Private & Commercial Sweden, Private & Commercial Finland and Corporate.
Premiums are recognised as earned premiums according to the exposure of risk over the period of coverage, computed separately for each insurance contract using the pro rata method, and adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contract.
l Notes – TrygVesta Group l Annual report 200994 of 148
Assets held under operating leases are not recognised in the balance sheet, but the lease payments are recognised in the income statement over the term of the lease, corresponding to the economic life of the asset, while assets held under finance leases are recognised at fair value and depreciated according to the same accounting policy as the Group applies for similar owned assets. For assets held under finance leases, a lease liability is recognised at amortised cost.
On initial recognition of the share options, the number of options expected to vest for employees and members of the Executive Management is estimated. Subsequently, adjustment is made for changes in the estimated number of vested options to the effect that the total amount recognised is based on the actual number of vested options.
Other income and expenses Other income and expenses include income and expenses which cannot be ascribed to TrygVesta’s insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension.
Intangible assets Goodwill Goodwill was acquired in connection with acquisition of business. Goodwill is calculated as the difference between the cost of the undertaking and the fair value of acquired identifiable assets, liabilities and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the investment and is recognised under intangible assets.
Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected useful lives of 5-12 years.
Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful life (four years).
Costs that are directly associated with the production of identifiable and unique software products, for which there is sufficient certainty that future earnings will exceed costs for more than one year, are recognised as intangible assets. Direct costs include the software development team’s employee costs and an appropriate portion of relevant overheads. All other costs associated with developing or maintaining software are recognised as an expense as incurred.
Depreciation of plant and equipment is calculated using the straightline method over their estimated useful lives, as follows: > IT, 4 years > Vehicles, 5 years > Furniture, fittings and equipment, 5-10 years
l Notes – TrygVesta Group l Annual report 200996 of 148
Investments in subsidiaries The parent company’s investments in subsidiaries are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intragroup profits and losses is recognised in the income statement. In the balance sheet, investments are measured at the pro rata share of the enterprises’ equity.
Investments in associates Associates are enterprises over which the Group has significant influence but not control, generally accompanying an ownership interest of between 20% and 50% of the voting rights. Investments in associates are measured according to the equity method of accounting so that the carrying amount of the investment represents the Group’s proportionate share of the enterprises’ net assets.
Associates with a negative net asset value are measured at zero value. If the Group has a legal or constructive obligation to cover the associate ’s negative balance, such obligation is recognised under liabilities.
Financial assets measured at fair value with recognition of value changes in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment through income.
reinsurers’ share of provisions for insurance contracts Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets.
Contingency fund reserves Contingency fund reserves are recognised as part of retained earnings under equity. The funds may only be used when so permitted by the Danish FSA and when it is to the benefit of the policyholders.
Treasury shares The purchase and sale sums of treasury shares and dividends thereon are taken directly to retained earnings under equity. Treasury shares include shares acquired for employee shares and the share option programmes.
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs.
Income tax and deferred tax The Group provides current tax expense according to the tax law of each jurisdiction in which it operates. Current tax liabilities and current tax receivables are recognised in the balance sheet as estimated tax on the taxable income for the year, adjusted for change in tax on prior years’ taxable income and for tax paid under the on-account tax scheme.
Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
l Noter l TrygVesta Årsrapport 2009100 af 152 l Notes – TrygVesta Group l Annual report 2009100 of 148
Cash flow statement The cash flow statement of the Group is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the Group’s cash and cash equivalents at the beginning and the end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement.
2 Earned premiums, net of reinsurance Direct insurance 17,465 18,324 Indirect insurance 47 58
l Noter l TrygVesta Årsrapport 2009102 af 152 l Notes – TrygVesta Group l Annual report 2009102 of 148
Staff expenses -1,658 -1,786 Other staff expenses -232 -278 Office expenses and fees, headquarter expenses -557 -454 Operating and maintenance costs IT, software expenses -208 -228 Depreciation, amortisation and impairment writedowns -111 -140 Other income 192 236
Total lease expenses amount to DKK 35m (in 2008 DKK 66m).
Insurance operating expenses and claims include the following staff expenditure: Salaries and wages -1,972 -2,064
In 2009, the fair value of share options recognised in the consolidated income statement amounted to DKK 15.1m (in 2008 DKK 13.5m). As at 31 December 2009, a total amount of DKK 39m was recognised for share option programmes issued in 2006, 2007, 2008 and 2009.Fair values at the time of allocation are based on the Black & Scholes option pricing formula.
DKKm 5 Share option programmes Specification of outstanding options: TOTaL NuMBErS FaIr VaLuE
Allocation 2009 Allocated in 2009, beginning of year 38,258 124,076 21,200 183,534 94 17 82 15
l Noter l TrygVesta Årsrapport 2009104 af 152 l Notes – TrygVesta Group l Annual report 2009104 of 148
Allocation 2006 Allocated in 2006, beginning of year 35,370 148,030 0 183,400 64 12 83 15
Allocation 2007 Allocated in 2007, beginning of year 25,700 104,802 16,000 146,502 99 14 45 7
Allocation 2008 Allocated in 2008, beginning of year 52,088 167,203 28,700 247,991 69 17 79 20
l Noter l TrygVesta Årsrapport 2009106 af 152 l Notes – TrygVesta Group l Annual report 2009106 of 148
Profit/loss on business ceded -122 -53 -1 -15 -381 -10 -582 Technical interest, net of reinsurance 71 32 12 8 34 0 157
Profit on continuing business 1,979 Profit/loss on discontinued and divested business 29
Provisions for bonuses and premium rebates 228 0 0 0 136 0 364
6 Operating segments P&E P&E P&E P&E 2008 Denmark Norway Finland Sweden Corporate Other Group
Total return on investment activities after technical interest -988 Other income and expenses -49
Provisions for bonuses and premium rebates 250 0 0 0 128 0 378
6 Technical result, net of reinsurance, by line of business accident Worker’s Motor Motor Marine aviation and health Health care compensation TPL comprehensive and cargo
Average claims DKK ** 34,662 39,044 10,359 7,409 68,748 78,086 16,290 18,421 10,623 10,428 79,923 114,691 Total claims 33,218 31,112 20,972 33,700 17,109 13,800 83,569 91,489 212,185 241,946 5,561 4,480
Fire & contents Fire and contents Change Credit & guarantee Tourist assistance (Private) (Commercial) of ownership Liability insurance insurance
Profit/loss on ceded business - 102 - 70 - 321 - 255 0 0 - 50 31 - 31 - 39 - 1 - 1 Technical interest, net of reinsurance 78 36 61 16 10 4 25 5 4 2 7 4
Average claims DKK ** 15,660 17,897 Total claims 919 1,306 * The claims frequency is calculated as the number of claims incurred in proportion to the average number of insurance contracts. **Average claims are total claims before run-off relative to the number of claims incurred.
Profit/loss on ceded business 3 - 43 - 667 - 580 - 2 - 2 Technical interest, net of reinsurance - 1 7 472 153 27 4
Interest expenses Interest expenses subordinated loan capital and credit institutions -83 -90 Interest expenses other -17 -26 8 Value adjustment Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments -521 62 Unit trust units -549 485 Share derivatives 98 -38
Value adjustments concerning assets and liabilities that cannot be attributed to IAS 39: Investment property 70 19 Owner-occupied property 8 1
9 Tax Tax on profit for the year -337 -651 Diffrence between Danish and foreign tax rate 1 -43 Prior-year tax adjustment 72 -4 Adjustment non-taxable income and expenses -203 58 Change in valuation of tax assets -26 55 Change in valuation of tax loss carried forward 0 -37 Other taxes -8 -1
Effective tax rate % % Tax on profit for the year 25 25 Diffrence between Danish and foreign tax rate 0 2 Prior-year tax adjustment -5 0 Adjustment non-taxable income and expenses 15 -2 Change in valuation of tax assets 2 -2 Change in valuation of tax loss carried forward 0 1
10 Profit/loss on discontinued and divested business Earned premiums, net of reinsurance 0 0 Technical interest, net of reinsurance 3 1 Claims incurred, net of reinsurance -1 38 Insurance operating expenses, net of reinsurance -2 0
Profit/loss on discontinued and divested business is included in ‘Other insurance’ in the accounts broken down by line of business. Claims incurred in 2009 include DKK 18m received in connection with the sale of business in run-off.
Addition on acquisition of subsidiary* 310 139 17 466 Additions during the year 0 0 143 143 Disposals during the year 0 0 -19 -19 amortisation and writedowns Balance 1 January 0 0 -195 -195
l Noter l TrygVesta Årsrapport 2009112 af 152 l Notes – TrygVesta Group l Annual report 2009112 of 148
Assumptions for impairment test: The value-in-use method is used assumed annual growth return requirement 2009 > 5 years before tax
Moderna Försäkringar Sak AB 2.5% 15.4% MF Bilsport & MC Specialförsäkring AB 2.5% 15.4%
Addition on acquisition of subsidiary* 11 1 0 12 Additions during the year 45 0 199 244 Disposals during the year -22 0 0 -22 accumulated value adjustments Balance 1 January 0 -9 -54 -63
Depreciation for the year -18 -8 0 -26 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29
DKKm 12 Impairment test Property, plant and equipment The value of the owner-occupied properties was assessed in connection with The Living House and the improvements made to those properties. The impairment charges on assets under construction are recognised in the income statement in total insurance oprating expenses. The impairment test performed for operating equipment and assets under construction did not indicate any impairment.
In establishing the market value of the owner-occupied properties, the following return percentages were used for each property category.
Fair value 1 January 2,263 2,246 Exchange rate adjustment -96 76 Additions during the year 80 32 Disposals during the year -66 -2 Value adjustment for the year 65 17 Reversed on sale 0 -5
0.5m). Total expenses for investment property generating rental income amount to DKK 38.1m (DKK 39.5m in 2008).
14 Investments in associates Cost Balance 1 January 0 0 revaluations at net asset value Balance 1 January 19 14 Exchange rate adjustment -3 3 Revaluations during the year 0 0 Reversed depreciation -2 0
Shares in associates according to the lastest financial statements: 2009 Shareholders’ Profit/loss Ownership Name and registered office assets Liabilities equity revenue for the year share in %
AS Eidsvåg Fabrikker AS, Norway 39 3 36 14 2 28 2008 Shareholders’ Profit/loss Ownership Name and registered office assets Liabilities equity revenue for the year share in %
Cash in hands and deposits in credit institutions 3,450 0 0 3,450
Financial instruments measured at fair value in the balance sheet on the basis of non-observable input Carrying amount 1 January 2009 121 Exchange rate adjustment 10 Gains/losses in the income statement 90 Purchases 117 Sales 0 Transfers to/from the group ‘non-observable input’ 0
Gains/losses in the income statement for assets held at the balance sheet date recognised in value adjustments 96
Bond mesured on the basis of observable inputs mainly consist of Norwegian bonds issued by banks and to some extent Danish semi liquid bonds, where no quoted prices within the last 5 days exist. Unobservable input, total result DKK 96m, mainly comprises inflation derivatives of DKK 75m, hedging inflation risk on technical provisions which recorded a 2009 accounting loss of DKK 62m. The risk of the unobservable input group is moderate since the inflation derivatives aim at hedging the inflation risk of the technical provisions 100 percent, while the unquoted shares and bonds, which are influenced by market conditions such as the development in interest rates and expected earnings, is limited amount,
Investment assets at fair value according to balance sheet recognised through profit and loss 37,236
DKKm 15 Financial assets at fair value with value adjustment in the income statement 2008 Bonds Shares Property Total
Cash in hand and at bank 211 0 0 211 4.4 0
Exposure to exchange rate risk 2009 Properties Bonds Shares Insurance Hedge Exposure
Please refer to the section on ‘Currency risk’ in ‘Risk management’ in the ‘Management’s report’.
Gains and losses on hedges charged to equity at 31 December 850 -819 31
Specification of writedowns on receivables from insurance contracts Balance at 1 January 106 120 Exchange rate adjustment -8 6 Writedowns and reversed writedowns for the year 22 -2
Reversed impairment losses are estimated at around DKK 45m annually, but may vary due to major cases/disputes. Please refer to the section on ‘Credit risk’ in ‘Risk management’ in the ‘Management’s report’.
l Noter l TrygVesta Årsrapport 2009120 af 152 l Notes – TrygVesta Group l Annual report 2009120 of 148 15 receivables Receivables in connection with insurance contracts include overdue recievables totalling: Falling due: Within 90 days 259 271
Including writedowns of due amounts 120 124 16 reinsurers’ share Reinsurers’ share 1,051 1,337 Writedowns after impairment test -15 -17
Impairment test As at 31 December 2009, 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 17 (in 2008 DKK 15m) Writedowns during the year include reversed writedowns totalling DKK 3m (in 2008 DKK 7m). Please refer to the section on ’Reinsurance’ in ’Risk management’ in the ’Management´s report’.
Net current tax, end of year 137 303 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29
No. of Nominal value No. of Nominal value Numbers of shares shares (DKK’000) shares (DKK’000)
Bought during the year -3,346,610 -83,665 -1,286,817 -32,170 Sold during the year 85,815 2,145 136,784 3,420
Shareholders’ equity according to annual report 8,244 9,666 Subordinate loan capital 685 732 Proposed dividend -423 -991 Solvency requirements to subsidiary undertakings -4,601 -4,579
l Notes – TrygVesta Group l Annual report 2009122 of 148
* In December 2005, TrygVesta Forsikring A/S raised a subordinated bond loan with no option for the creditor to call the loan before maturity or otherwise terminate the loan agreement with TrygVesta Forsikring A/S. The loan is automatically accelerated upon the liquidation or bankruptcy of TrygVesta Forsikring A/S.
The share of subordinated capital included in the calculation of the capital base total DKK 732m The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost.
Reserves from 1999 and prior years 1,947 Other reserves 657 Gross provisions for claims, end of year 22,430
l Noter l TrygVesta Årsrapport 2009124 af 152 l Notes – TrygVesta Group l Annual report 2009124 of 148
The inclusion of the Moderna Försakringar acquired in 2009 has an impact on the figures.
When the liabilities of these portfolios appear in the triangulation the ultimate liability for the preceding accident years is increased with effect from the financial year in question, whereas already existing liabilities concerning previous financial years remain unchanged.
Effect of change to yield curve In October 2008 the Danish FSA changed the discount curve for discounting of provisions. Previously composed of a risk-free eurodenominated interst rate and a contry-specific spread to the German government bond yield as a result of the change, the discount rate is determined based on a risk-free interest and the mortage bond yield, which creates a better match between assets and liabilities.
Provisions for claims -78 -18 Profit/loss, shareholders´equity and capital base are impacted by DKK 68m after tax.
Total, beginning of period 19,271 794 18,477 Market value adjustment of provisions, beginning of period 1,325 113 1,212 Addition on acquisition of subsidiary* 648 69 579
Paid in the financial year in respect of the current year -5,745 -44 -5,701 Paid in the financial year in respect of prior years -5,904 -515 -5,389
Provisions for claims, end of year 1) 19,271 794 18,477 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 1) The table consists of figures for TrygVesta Forsikring A/S, TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S,
Provisions for unearned premiums, gross 5,531 158 152 156 5,997 Provisions for unearned premiums, ceded -153 -12 -15 -10 -190
Expected cash flow Carrying amount 2008 0-1 year 1-2 years 2-3 years > 3 years Total
Provisions for unearned premiums, gross 4,763 66 39 78 4,946 Provisions for unearned premiums, ceded -172 0 0 0 -172
The note should be seen in connection with the maturity of the Group’s interest-bearing financial assets and liabilities, see note 15. Please refer to the section on ‘Risk management’ for an elaboration of risk management and risk exposure.
l Noter l TrygVesta Årsrapport 2009126 af 152 l Notes – TrygVesta Group l Annual report 2009126 of 148 22 Pensions and similar obligations Jubiless, schemes for older employees etc. 28 48 recognised obligation, end of year 28 48
Defined benefit pension plans Present value of pension obligations funded through operations 120 144 Present value of pension obligations funded through establishment of funds 1,003 1,160
Gross pension obligation 1,123 1,304 Fair value of plan assets 628 856
Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year 1,292 1,123 Exchange rate adjustment -246 206 Present value of amounts accumulated during the year 56 55 Capital costs of previously accumulated pensions 49 47 Actuarial gains/losses 23 -70 Paid during the period -51 -57 recognised pension obligation, end of year 1,123 1,304
Total pensions and similar obligations, end of year 495 448 Total recognised obligation, end of year 523 496
Specification of pension costs for the year: Present value of amounts accumulated during the year 58 45 Interest expense on accrued pensions obligation 62 47 Expected return on plan assets -56 -40 Accrued employers´nat.insurance contribution 9 8
22 Pensions and similar obligations Assumptions used % % Discount rate 4.0 4.6 Estimated return on pension funds 6.0 5.8 Salary adjustment 4.0 4.0 Pension adjustment 3.8 4.0
Moderna Försäkringar and Swedish branch of TrygVesta Forsikring A/S complies with the industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa - FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
The premium paid to FPK in 2009 amounted to DKK 9m, which is about 1.5 % of the annual premium in FPK (2008). FPK writes in its halfyear report for 2009 that it had a collective consolidation ratio of 113 at 30 June 2009 (DKK119m at 30 June 2008). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations.
Tax liability Intangible rights 100 134 Land and buildings 157 176 Bonds and loans secured by mortgages 0 46 Contingency funds 890 1,196
The loss can be carried forward indefinitely in Denmark and Luxembourg.
In 2005, a consortium of banks granted TrygVesta A/S a loan facility for DKK 2,000m, of which
26 Other debt Unsettled transactions 66 27 Interest derivatives 0 3 Exchange and inflation rate derivatives 31 0 Other debt 774 924
Debt falling due within one year 871 954 Debt falling due after more than five years 0 0 27 Earnings per share Profit/loss for the period from continuing business 846 1,979 Profit/loss on discontinued and divested business 0 29
Average number of shares (1,000 shares) 66,184 63,334 Diluted average number of shares (1,000) 0 114
Operating leases 231 99 49 67 446 Other contractual obligations 429 143 16 0 588
The amounts include the following: TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S have signed an operating agreement with
CSC for an amount of DKK 1bn for a period of 5 years, which cannot be cancelled within 12 month. The contract expires in 2012.
TrygVesta Forsikring A/S has signed a portfolio management contract for DKK 100m. The contract expires in 2013. TrygVesta Forsikring A/S has signed a telephony service contract with Telenor for DKK 93m. The contract expires in 2012.
TrygVesta Forsikring A/S has signed a car leasing contrakt with NF Fleet for DKK 30m. The contract expires in 2013.
TrygVesta Forsikring A/S has signed a it leasing contrakt with IBM for DKK 18m. The contract expires in 2011.
Ejendomsselskabet af 8. Maj 2008 A/S has signed agreements for refurbishment of the property at Klausdalsbrovej 601, Ballerup. The remaining contract sum amounts to DKK 105.6m. The work is expected to be finalised in 2010/11.
Vesta Eiendom A/S has signed agreements for refurbishment of the property at Folke Bernadottesvei 50, Bergen. The remaining contract sum amounts to DKK 45.6m. The work is expected to be finalised in 2010/11.
Assets to cover the technical provisions have been registered in the total amount of 29,690 32,498
Intangible assets 16 155 Property, plant and equipment 12 12 Investment assets 955 955 Reinsurers´share of provisions for insurance contracts 140 140 Receivalbles, other assets and prepayments 1,082 1,082 Provisions for insurance contracts -1,345 -1,345
Debt, accruals and deferred income -259 -259 Shareholders¨equity 526 629 Goodwill on acquisitions 310 Cost 939 Adjustment of cash and cash equivalents -605 Cash acquisition cost 334
Elements of cash acquisition cost Cash 350 Direct acquisition costs -16 Cash acquisition cost 334
In a pro forma calculation of the consolidated profit for 2009 as if Moderna Försäkringar SAK AB, Modern Re S.A., Netviq AB and MF Bilsport & MC had been acquired as at 1 January 2009, gross earned premiums are estimated at a total of DKK 18,467m and the profit for the year at DKK 2,016m relative to the actual figures for 2009.
l Noter l TrygVesta Årsrapport 2009132 af 152 l Notes – TrygVesta Group l Annual report 2009132 of 148 29 acquisition of subsidiary 2008 On 8 May 2008, TrygVesta Forsikring A/S acquired all the voting shares (nominally DKK 1m) of Ejendomsselskabet af 8. maj 2008 A/S
A pro forma statement of TrygVesta Group’s profit/loss for 2008 as if Ejendomsselskabet af 8. maj 2008 had been acquried as per 1 january 2008 is not significant different compared to the Group’s realised profit/loss for 2008.
Management estimates that the fair value at 1 January 2008 would have been the same as the fair value at the date of acquisition.
Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a member of the supervisory board on market terms.
30 related parties Specification of remuneration Supervisory Board -4 -4 Executive Management -19 -19
If a member of the Executive Management is given notice of termination by TrygVesta and such termination is not due to breach on the part of the member of the Executive Management, such member is entitled to cash severance pay equal to 12 to 18 months’ fixed salary inclusive of pension contribution and taxed benefits. Severance pay is paid at expiry of the period of notice. Members of the Executive Management can raise no further claims in this respect, including claims for compensation pursuant to sections 2a and/or 2b Salaried Employees Act, as such claims are included in the severance pay.
Proposed distribution for the year: Dividend 423 991 Transferred to Net revaluation as per equity method -2,007 1,470 Transferred to Retained profits 2,287 -432 l Income statement – TrygVesta A/S (parent company) l Annual report 2009
Shareholders’ equity 8,265 9,687 8 Debt to credit institutions 602 600 Debt to subsidiaries 0 8 Other debt 15 0
DKKm revaluation Share equity retained Proposed capital method earnings dividends Total
Profit for the year -2,007 2,268 442 703 Exchange rate adjustment of foreign entities -640 -640 Hedge of foreign currency risk in foreign entities 615 615 Tax on equity entries -154 -154
Remuneration for Supervisory Board and Group Executive Management appears in note 11 ‘Related parties’.
4 Tax reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax 18 17
TrygVesta Forsikring A/S, Ballerup 100 100 6 Current tax assets Current tax, beginning of year 21 18 Current tax for the year 18 17 Tax paid durring the year -21 -18 7 Deferred tax assets Capitalised tax loss TrygVesta A/S 0 1
8 Debt to credit institutions Bank loans 598 600 Overdraft facility 4 0
9 Capital adequacy, etc. Shareholders’ equity according to annual report 8,265 9,687 Subordinate loan capital 685 732 Proposed dividend -423 -991 Solvency requirements to subsidiary undertakings -4,601 -4,579
Most of the Danish companies in Tryg Forsikring group are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes.
Premium income Parent company (TryghedsGruppen smba) 0.3 0.3 - Other related parties 115.3 115.8
Specification of remuneration Supervisory Board -4 -4 Executive Management -19 -19
Other than that, there are no incentive plans for the Supervisory Board and Executive Management.
Intra-group trading involved - Providing and receiving services 1 0 - Sale of unlisted shares 0 0 - Subordinated loan capital 0 485
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 af differences in the profit and equity.
Key ratios Gross claims ratio 77.1 66.8 69.3 64.9 71.4 Business ceded as % of gross premiums -3.9 3.9 0.0 4.2 2.9 Claims ratio, net of ceded business 73.2 70.7 69.3 69.1 74.3
Finnish general insurance Gross premiums earned 140 198 251 354 480
Swedish general insurance** Gross premiums earned - 4 90 225 1,166
Key ratios Gross claims ratio - 144.9 88.9 95.1 78.1 Business ceded as % of gross premiums - 0.4 0.0 0.9 1.7 Claims ratio, net of ceded business - 145.3 88.9 96.0 79.8
Number of full-time employess, end of period 24 0 0 0 0
Key ratios Gross claims ratio 71.1 65.9 67.3 67.9 72.2 Business ceded as % of gross premiums 0.1 3.7 2.1 3.9 3.2 Claims ratio, net of ceded business 71.2 69.6 69.4 71.8 75.4
Number of full-time employess, end of period 3,718 3,808 3,814 4,091 4,336 * Amounts relating to TrygVesta A/S, Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj and eliminations are included in ‘Other’. ** Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 April 2009.
Annual report 2009 l Financial highlights and key ratios by geography l
Finnish general insurance Comprises TrygVesta Forsikring A/S, Finnish branch and the Finnish branch of TrygVesta Garantiforsikring A/S.
Individual Solvency New Danish solvency requirements for insurance companies. With effect from 1 January 2008, companies are required to make their own determination of their capital requirements applied with own methods. The Individual Solvency shall be reported to the Danish FSA four times a year.
relative run-off gains/losses Run-off result relative to provisions insurance contract, beginning of year.
return on equity Calculated as the profit for the year as a percentage of the average shareholders’ equity.
Solvency II New solvency requirements for insurance companies issued by the EU Commisison. The new rules are expected to com into effect in 2012 at the earliest.
Mio. DKK 2008 2007 l Noter l TrygVesta Årsrapport 2009146 af 152146 of 148 l Disclaimer l Annual report 2009
TrygVesta’s actual financial condition or results of operations could materially differ from that described herein as anticiparted, believed, estimated or expected.