RoE ≥21 2020 targets 3Contents – Management’s review Annual report 2019 | Tryg A/S |
driven by a combined ratio of 86.1 (88.2) • Underlying claims ratio (Private and Group)
Tryg spilts its share 1:5, meaning each share with a nominal value of DKK 25 was replaced by 5 shares with a nominal value of DKK 5
• Tryg presented new financial targets and customer targets for 2020 at Capital Market Day • Tryg acquired Alka Forsikring
New dividend policy stating a nominal, stable increasing dividend with an annual distribution of 60-90% of the profit after tax
Tryg presented new financial targets and customer targets for 2017 at Capital Markets Day
For the first time, TryghedsGruppen decided to pay out a bonus to its members: 8%
Our 4,151 employees provide peace of mind for 4 million customers and handle approximately 1 million claims on a yearly basis.
TryghedsGruppen owns 60% of Tryg and contributes to projects that create peace of mind via TrygFonden. In 2020, TrygFonden will contribute with DKK 650m.
Corporate provides insurance products including property, liability, workers' compensation, transport, group life etc. to corporate customers under the brand Tryg in Denmark and Norway, and Moderna in Sweden. Tryg is part of the global AXA Corporate solutions network.
Sweden provides insurance products to private individuals within car, house, pet, child, boat and accident insurance etc.
Profit/loss on gross business 829 781 3,803 3,400 3,582 3,351 1,695 Profit/loss on ceded business -66 -184 -566 -624 -779 -951 710 Insurance technical interest, net of reinsurance 0 -1 1 -10 -14 -10 18
Investment return after insurance technical interest 198 -330 579 -332 527 987 -22
Run-off gains/losses, net of reinsurance 256 207 1,194 1,221 972 1,239 1,212
Return on equity after tax (%) 23.0 3.9 24.6 14.9 28.8 26.2 20.0
Net asset value per share (DKK) 40.05 37.56 41.78 34.37 34.16 Ordinary dividend per share (DKK) 1.70 1.65 6.80 6.60 6.40 6.20 6.00 Extraordinary dividend per share (DKK) 1.65 3.31 3.54 Premium growth in local currencies 10.4 13.0 17.1 6.3 1.7 0.1 -0.8
Claims ratio, net of ceded business 71.5 72.6 70.9 70.7 70.4 71.0 71.5
Combined ratio on business areas Private 83.8 80.1 83.7 81.6 82.1 83.8 85.4
First full year with Alka Alka continued its positive development, producing strong earnings and healthy top-line growth in 2019. Alka is a leader in digital sales, which increased by a further 14% in 2019, while customer use of Tryg’s online claims handling solutions increased from 31% to 44%. Tryg announced a DKK 300m synergies target in 2021 following the acquisition of Alka. Synergies in 2019 were DKK 90m, which is higher than the targeted level of DKK 75m after the first year of integration.
In Norway good results were achieved through a deliberate focus on distribution through partnerships. Additionally, an increased level of online sales supports the focus on lowering distribution costs.
New products and services Tryg has an ambition of creating DKK 1bn in gross premiums in 2020+ from profitable new products and services. In 2019, Tryg reported gross premiums of DKK 650m from new products, while the number of prevention products sold increased. In 2019, the profitable credit and surety business Tryg Garanti expanded to the Netherlands and Austria, while increasing its presence in Germany.
Stable and increasing dividend to shareholders Tryg has a strong focus on securing that shareholders receive a nominal and stable increase in dividends. A total dividend of DKK 6.80 per share will be paid out for 2019 (DKK 6.60 in 2018), additionally an extraordinary dividend per share of DKK 1.65 (DKK 500m) will also be paid, totalling a dividend of DKK 8.45 per share or a dividend yield of approximately 4.5%.
Thanks to all employees We are very pleased to see a high level of job satisfaction in Tryg of 78 compared to 74 for Nordic financial companies. This high level of job satisfaction has been achieved in a year marked by a lot of changes, new initiatives and satisfactory financial results. The Supervisory Board and the Executive Board would like to thank all employees, including the new Alka employees, for their great efforts.
New sales channel in Commercial Denmark In Q1, Commercial Denmark signed the first contracts with independent agents selling Tryg products exclusively. The sales agents include both customer and telephone meetings.
Partner agreement between Alka and DiBa Alka entered into a new agreement with DiBa, an online car loan company, which means that Alka now provides car insurance products to DiBa customers. The partnership is well in line with Tryg’s 2020 strategy and the increased focus on improving distribution agreements.
Tryg’s reserves position remains strong. At the CMD in November 2017, it was disclosed that run-off gains are expected to be between 3% and 5% in 2020. Tryg’s systematic claims reserving approach still includes a margin of approximately 3% on best estimate.
The Nordic non-life insurance markets remain relatively stable in terms of top-line growth and product offerings. The Nordic countries are characterised by a high level of non-life insurance penetration – ratios of non-life insurance premiums as % of GDP are some of the highest in the world. This is attributable to the fact that households are generally wealthy and tend to cover their insurance needs relatively well.
after tax 9Contents – Management’s review Annual report 2019 | Tryg A/S |
In October, Tryg launched an online insurance check-up feature. With this tool, customers are able to compare their insurance cover and subsequently receive a recommendation based on the products taken out by similar customers in Tryg.
In 2020, weather claims net of reinsurance and large claims are expected to total DKK 600m and DKK 550m, respectively.
In the past few years, corporate tax rates have been lowered throughout Scandinavia. In Denmark, the rate will remain at 22% in 2020, while it is 25% in Norway and 21% in Sweden. Capital gains and losses on equities are not taxed in Norway, which reduces the expected tax payable for an average year to 22-23%.
cedures and claims prevention measures. Satisfied customers support improved retention levels, which in 2019 reached an all-time high in the Danish Private and Commercial businesses, while results in Norway were also positive.
Employees are a key resource Tryg’s employees are the key to achieving the over - arching purpose of making it easier to be ‘tryg’ and to attaining the financial targets. All employees must feel that they play an integral role in supporting this overall purpose. Therefore, clear and ambitious targets must be set for each individual employee – and regular feedback must be provided.
At the Capital Markets Day (CMD) held in November 2017 in London, Tryg announced new financial and non-financial targets for 2020. The financial targets were updated following the acquisition of Alka. Along with a new strategy, a new purpose was defined. ‘As the world changes, we make it easier to be tryg’ is the overarching principle guiding the realisation of our targets for 2020.
Tryg’s main financial target is a technical result of DKK 3.3bn in 2020. The technical result target is underpinned by a combined ratio at or below 86, an expense ratio of ~14 and a return on equity at or above 21. Tryg’s customer targets are a Transactional Net Promoter Score (TNPS) level of 70 and a 10% increase in the number of products per customer.
The targets are supported by four strategic themes: claims excellence, digital empowerment of customers, product & service innovation and distribution efficiency as well as Alka synergies, all of which are described in detail on pages 12-14. These initiatives are at the core of Tryg’s 2020 strategy and should support both the financial and non-financial initiatives.
Improving customer relations Customer satisfaction is of paramount importance for Tryg, and the organisation continually strives to strengthen customer relations through advisory services, products, concepts, claims handling pro-
P ric in g ac co rd in g to ri sk p ro fil e P
Purpose a) Tryg’ means: feeling protected and cared for. 11Contents – Management’s review Annual report 2019 | Tryg A/S |
Financial targets Tryg’s main target for 2020 is a technical result of DKK 3.3bn. In 2019, Tryg reported a FY technical result of DKK 3,237m. The combined ratio was 85.1, and the expense ratio 14.2. The return on equity was 24.6.
Customer targets Tryg maintains an intense focus on understanding customer needs, and detailed customer targets have been established, which are also important to realising the financial targets. This is reflected in an increased focus on customer satisfaction measured through the TNPS score. The TNPS target for 2020 is 70, and in 2019 a level of 68 was achieved.
The customer bonus, paid by Tryghedsgruppen to the Danish customers, also supports customer loyalty, and in 2019 we saw a continued positive development in the awareness of the customer bonus. Awareness of the customer bonus among Tryg customers increased to 77% 2019 against 73% in 2018, and among noncustomers we saw an increase from 22% in 2018 to 28% in 2019, corresponding to an increase of 27%.
The level of STP of claims is up thanks to the use of robots in the claims handling process. As a result 36% of claims were prossesed as STP in 2019. Additionally, Tryg’s new claims handling system is now processing claims on selected products, showing improved efficiency. In the coming years, the new claims system is expected to boost STP levels in both Denmark and Norway.
Product & service innovation is important for Tryg to remain relevant to customers. The target is to increase premiums by DKK 1,000m from new products and services by 2020+. Tryg’s primary focus is profitability, and this initiative also supports Trygs overall profitability. In 2019, the portfolio of products and services increased to DKK 650m.
Finally, Tryg’s claims handling process has been improved through initiatives such as data and voice analysis. A new claims handling system, Guidewire, is being implemented in Tryg in both Denmark and Norway to improve the claims handling process further as well as customer satisfaction.
Digital empowerment of customers is another important initiative in Tryg. Digital services, simplification and efficient customer interaction are becoming increasingly important for customers, and Tryg is highly committed to meeting these demands. Customers in general prefer speedy processes, and therefore digital solutions also support Tryg's focus on customer satisfaction. The target for 2020 is 50% straight-through processing (STP) of claims and a self-service level of 70% for all contacts with Tryg. The focus on digital services in Tryg is expected to contribute by DKK 100m to the financial targets as well as improving customer satisfaction. In 2019, this initiative realised DKK 60m. In general, there are an increasing number of customer contacts as many customers acknowledge the new digital solutions, but still prefer personal contact. Tryg believes that the total increase in customer contact is positive and supports both sales and customer loyalty.
Financial targets 2020 • Technical result: DKK 3.3bn • Combined ratio: ≤ 86 • Expense ratio: ~14 • RoE: ≥21
Alka acquisition DKK 300m in synergies with full run-rate impact in 2021
Customer targets 2020 • TNPS: 70 • Number of products per customer: +10%
Annual report 2019 | Tryg A/S | 13Contents – Management’s review
One of the main drivers involves innovation of new products such as the Health insurance package (covers accidents, health, dental and sickness). Other important contributions in 2019 were by product such as cyber insurance, pet insurance and child insurance.
Bundling of products is another important initiative for Tryg to reach its 2020+ targets. Bundling of products such as health and child insurance generated DKK 150m in 2019. Prevention is key for the well-being of customers and a key driver of financial results. Products such as Tryg Drive, a digital device that records driving behaviour, Tryg Alarm and a rat blocker to prevent rats from entering drains are all part of Tryg's prevention strategy.
One of the main drivers of this initiative is the mix of distribution channels in the Private and Commercial segments. Optimisation of the channel mix makes distribution to customers more efficient, improves the customer experience and lowers cost of sales. Another important element involves the introduction of independent sales agents in Private Denmark and Commercial Denmark, inspired by the franchise channel in Norway, selling exclusively on behalf of Tryg. This initiative generated positive results, resulting in a total impact of DKK 60m in 2019.
Finally, an important component for improving distribution efficiency involves partner agreements. In Norway, the partner agreement with NITO has generated very good leads, and increased sales and retention levels. The agreement with Danske Bank also got off to a good start in 2019, generating very good leads and sales both for Private and Commercial customers in Denmark and Norway. Finally, Tryg’s Norwegian branch, Enter Forsikring, recently launched ‘Enter Proff’ selling car insurance to commercial customers.
Tryg's focus on digital empowerment of customers also supports distribution efficiency through the development of online solutions.
Alka synergies In connection with the acquisition of Alka, Tryg communicated a guidance of DKK 300m of synergies which are expected to be achieved in 2021. Tryg has announced synergies targets of DKK 75m in 2019, DKK 150m in 2020 and DKK 300m in 2021. Synergies of DKK 90m were realised in 2019 (DKK 75m target), demonstrating that Tryg is slightly ahead of the plan for delivering synergies. Approximately half of the achieved synergies relate to costs, while the inclusion of the Alka business in the large Tryg's procurement network has also helped.
Corporate Responsibility Corporate Responsibility (CR) is an integrated part of Tryg’s core business and is closely linked to our purpose ‘as the world changes, we make it easier to be tryg a)’. We focus on activities related to human and labour rights, climate and environment as well as anti-corruption, and we are actively working to integrate CR into our insurance, claims handling and prevention activities. CR plays a role in our decisionmaking, our risk mitigation, the improvement and development of our products and services, the optimisation of our operations and business partners, the development of our employees, and the contributions we a) Tryg’ means: feeling protected and cared for.
NordicTryg make to society at large through our activities and strategic partnerships. Read more about Tryg's CR activities in the sextion Corporate Responsibility on pages 23-24.
highly improved technical result, driven by a higher run-off result and a decrease in large claims. The underlying profitability is moving in the right direction for Corporate but still not satisfactory for the current underwriting year with normalised assumptions for especially large claims and run-off, while further profitability initiatives are planned for 2020. The technical result for Private Sweden is well above the corresponding year, driven primarily by a high level of run-off reflecting a strong reserving position in the motor third-party liability segment. The underlying profitability for the current underwriting year, especially with a normalised run-off level, is not satisfactory and initiatives, especially for the motor business, will be implemented.
The combined ratio was 85.1 (84.5 excluding Alka), driven by a claims ratio of 70.9 and an expense ratio of 14.2. The sum of large and weather claims (in per cent) was in line with 2018 (but lower than normal), while run-offs (in per cent) were lower.
The Private segment reported an increased technical result, driven by an improved underlying claims ratio and the inclusion of Alka, which offset a lower run-off result. The Commercial segment reported a lower technical result, driven primarily by lower run-offs and higher large claims, while the under lying profitability was broadly unchanged. The Corporate segment reported a
Transactional Net Promoter Score (TNPS) 68 67 70 Number of products per customer 3.8 3.8 4 (+10%)
Premium growth of 17.1% or 6.1% excluding Alka. Technical result of DKK 3,237m (DKK 2,766m) impacted positively by the growth in the private segment driven, among other things, by the highest ever customer satisfaction with a TNPS of 68 and an all-time high retention. The overall result was positively impacted by the inclusion of Alka and related synergies, a continuous improvement in the underlying claims ratio and a low level of large and weather claims. Investment income of DKK 579m (DKK -332m) driven by higher equity market returns. Profit before tax of DKK 3,628m (DKK 2,262m). Quarterly dividend of DKK 1.70 per share, supporting TryghedsGruppen’s member bonus. Extraordinary dividend of DKK 1.65 per share. Solvency ratio of 162.
The pre-tax result was DKK 3,628m (DKK 2,398m excluding Alka), while the return on equity after tax was 24.6%.
In 2019, Danish customers received the fourth member bonus payout from TryghedsGruppen (Tryg’s 60% majority shareholder). The 8% bonus is appreciated by customers and seen as an important competitive advantage through boosting customer loyalty and supporting customer targets.
Annual report 2019 | Tryg A/S | 15Contents – Management’s review
Premiums Premiums totalled DKK 21,741m (18,740m), representing a growth in local currencies of 17.1%, or 6.1% excluding Alka.
Expenses The expense ratio was 14.2 (14.1 adjusting for Alka). At the CMD in 2017, Tryg announced an expense ratio target of around 14 in 2020. A number of initiatives to lower distribution costs are being implemented, and some of the savings from these initiatives are being invested in new digital solutions. The expense ratio was impacted by healthy growth in the Private segment, where commissions to the various distribution channels are often paid upfront.
Investments activities The investment return totalled DKK 579m (DKK -332m) and was boosted by positive equity market developments in 2019 compared to 2018. Almost two thirds of the difference in the investment result between 2019 and 2018 is attributable to the performance of equities, which was 20.5% in 2019 and -10.8% in 2018. Additionally, falling rates and narrowing credit spreads have boosted the performance of Tryg’s fixed-income portfolio. Market volatility remains high due to high geopolitical risk levels although tensions around a trade war between the US and China appear to be receding.
The match portfolio reported an overall loss due primarily to negative developments in Q3, while other financial income and expenses ended at DKK -236m, which is in line with expectations.
Other income and costs Other income and costs were DKK -188m (DKK -172m). The increase compared to 2018 was attributable primarily to the amortisation of customer relations stemming from the Alka acquisition, partly offset by a VAT compensation of DKK 45m booked in the last quarter of the year.
Capital position The solvency ratio (based on Tryg’s partial internal model) was 162 at year-end. Tryg will pay a Q4 dividend of DKK 1.70 per share on 27 January 2020, which is in line with the dividend paid for the first three quarters of the year and also in line with the policy of paying a stable quarterly dividend. Additionally, Tryg will pay out an extra ordinary dividend of DKK 1.65 per share, amounting to a total payout of DKK 500m, also on 27 January 2020.
Tryg’s solvency ratio displays low sensitivities to capital market movements. The highest level of sensitivity is towards spread risk, where a widening/ tightening of 100 basis points would impact the solvency ratio by approximately 14 percentage points. Sensitivities towards equity market falls and interest rate movements are low.
The Supervisory Board regularly assesses Tryg’s capital position. Continuous assessments of the company’s capital position are carried out, projecting SCR on the basis of Tryg’s forecasts. The projections include initiatives set out in the company’s strategy for the coming years, and also the most significant risks identified by the company. Adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
Events after the balance sheet date On January 15, Tryg announced three new Directors in its business segments. The intensified focus on improving risk selection and profitability has led to management changes in Corporate Denmark and Corporate Norway while the managing director of the business unit, Sweden, was also changed. All the changes were effective as per 15 January 2020.
Tryg pays a Q4 dividend per share of DKK 1.70 bringing the fullyear dividend per share to DKK 6.80. Additionally an extraordinary dividend per share (for the FY 2019) of 1.65 will be paid.
Annual report 2019 | Tryg A/S | 17Contents – Management’s review
Premiums Premium growth was 5.6% excluding Alka, driven by good organic growth, higher retention levels and satisfactory sales of new products. Premium growth came mostly from the Private segment in Denmark and Norway, but the Commercial business also saw positive development. Corporate growth was driven mainly by Tryg Garanti and by price increases, mostly in the Norwegian part of
Expenses The reported expense ratio was 14.6 (14.4 excluding Alka). Various initiatives aimed at lowering distribution costs are being implemented, and some of the savings from these initiatives are being invested in new digital solutions. Tryg maintains its expense ratio target of around 14.0 for FY 2020.
DKK 226m (DKK -198m) on the free portfolio, a return of DKK 19m (DKK -42m) on the match portfolio and other financial income and expenses of DKK -47m (DKK -90m). The primary driver of the strong investment return in Q4 is the performance of equities, which were up 7.2% (-14.9%), this swing explaining more than 80% of the increased investment result.
Other income and costs Other income and expenses totalled DKK -20m (DKK -117m). In Q4 2018, DKK 76m of one-off costs were booked in connection with the Alka transaction. Other income and expenses consist mainly of the amortisation of customer relations stemming from the Alka acquisition. In Q4 2019, a positive VAT compensation of DKK 45m was booked.
Premiums Gross premium income was up 28.0% (8.9%) in local currencies, which was ascribable primarily to the Alka acquisition. Organic premium growth excluding Alka was 7.8%. Growth was attributable mainly to improved retention levels in the Danish and Norwegian Private segments, strong partner agreements and the cross-selling of new products to existing customers in Denmark, helping to increase customer loyalty further. The partner agreements driving growth in Norway were primarily OBOS (the largest housing developer in Norway) and NITO. Growth was achieved through relevant and innovative solutions and products tailored especially to the members of the various partner organisations.
The retention rate in Denmark increased from 91.2 to 91.6, while in Norway the retention rate increased from 86.7 to 87.1. The positive development in Denmark can be ascribed to a positive impact from the member bonus model and a consistently strong focus on customer loyalty, as reflected in the TNPS score of 80. Private Norway also had a strong focus on customer loyalty with a TNPS score of 75.
Claims The gross claims ratio totalled 68.1 (65.5), and the claims ratio, net of ceded business, 70.0 (67.8). The underlying claims level improved by 0.6 percentage points, which was attributable to the claims excellence programme and price adjustments aimed at mitigating increased claims inflation. Weather-related claims were on a par with 2018 levels and related primarily to Norway.
Key ratios Premium growth in local currencies 16.2 21.2 28.0 8.9
Combined ratio exclusive of run-off 84.9 83.0 85.7 85.8 Run-off, net of reinsurance (%) -1.1 -2.9 -2.0 -4.2 Large claims, net of reinsurance (%) 0.0 0.0 0.1 0.0 Weather claims, net of reinsurance (%) 2.4 1.3 2.0 2.4
Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the internet, Tryg’s own agents Alka (Denmark), franchisees (Norway), interest organisations, car dealers, estate agents and Danske Bank branches.
The business area accounts for 55% of the Group’s total premium income.
Annual report 2019 | Tryg A/S | 19Contents – Management’s review
For the second year in a row, Tryg has been named as ‘Best private health insurance’ by the Norwegian Consumer Council.
Claims The gross claims ratio was 67.9 (64.2), and the claims ratio, net of ceded business, was 70.4 (66.6). The underlying claims ratio improved by 0.5 percentage points. It was impacted by the ongoing claims excellence programme, Alka synergies and price adjustments aimed primarily at mitigating claims inflation. Weather claims were higher than last year and were primarily related to Norway.
Expense ratio 20Contents – Management’s review Annual report 2019 | Tryg A/S |
Results 2019 The technical result for 2019 was DKK 566m (DKK 784m), with a combined ratio of 86.8 (80.3). The combined ratio was affected by an increased level of large claims and a lower level of run-off. The development in premiums improved significantly due to the Alka acquisition and strong sales in Norway.
The retention rate for Commercial Denmark increased from 88.0 to 88.6, while in Norway the retention rate increased from 87.7 to 89.0. The positive developments in Denmark and Norway can be ascribed to a strong customer focus, while the customer bonus model also supported the development in Denmark.
Expenses The expense ratio for Commercial was 17.5 (17.5). Commercial Denmark has recruited a new type of sales agents with the aim of lowering cost of sales, which has already led to a lower expense level in Denmark. The total number of employees was down from 516 at the end of 2018 to 495 in 2019.
Profit/loss on gross business 145 316 658 949 Profit/loss on ceded business -41 -47 -94 -165 Insurance technical interest, net of reinsurance 1 1 1 0
Key ratios Premium growth in local currencies 4.8 6.8 8.3 3.7
Commercial encompasses the sale of insurance products to small and mediumsized businesses in Denmark and Norway. Sales are effected via Tryg’s own sales force, brokers, Alka (Denmark), franchisees (Norway), customer centres as well as group agreements.
Annual report 2019 | Tryg A/S | 21Contents – Management’s review
Claims The gross claims ratio was 69.1 (52.2), with a claims ratio, net of ceded business, of 72.8 (56.7). The higher claims ratio was driven by a lower level of run-off gains and a higher level of large claims.
Expenses The expense ratio was 17.4 (17.5), which was in line with the prior-year period. Going forward Commercial will continue to focus on reducing costs.
Results Q4 2019 The technical result was DKK 105m (DKK 270m), with a combined ratio of 90.3 (74.2). The result was negatively impacted by a lower run-off result and a higher large claims level. Premium growth was a positive 4.8% (6.8%), primarily due to the Alka acquisition, but also due to price adjustments in Norway.
Profit/loss on gross business 17 -30 748 398 Profit/loss on ceded business 56 -87 -255 -225 Insurance technical interest, net of reinsurance 0 0 2 0
Combined ratio exclusive of run-off 100.7 106.3 97.8 102.6 Run-off, net of reinsurance (%) -8.2 5.5 -10.2 -7.0 Large claims, net of reinsurance (%) 9.6 9.5 7.7 11.0 Weather claims, net of reinsurance (%) 0.9 2.5 1.8 1.4
Results 2019 The technical result was DKK 496m (DKK 173m), with a combined ratio of 87.6 (95.6). The result was positively affected by a significantly lower level of large claims and a higher run-off level. Premiums were up 2.0% (4.0%) and were impacted by price hikes, especially in Norway, and a high retention level driven by the customer bonus model in Denmark. The underlying profitability is increasing, but it is still not satisfactory, in particular when looking at current-year profitability based on normalised asumptions for large claims and run-offs. The corporate market is generally challenging in all countries, even following significant price hikes, especially in Norway. Tryg will continue to implement profitability actions in all countries in 2020, which might reduce premium income. Tryg Garanti continued its expansion to Germany, the Netherlands and Austria in line with previous communication. The result for Tryg Garanti was DKK 225m (DKK 204m).
Premiums Gross premium income was up 2.0% (4.0%) in local currencies. An increase of 7.2% was seen in Denmark due to a positive development for the credit and surety business (Tryg Garanti) and a high retention level. Corporate Norway premiums decreased by 4.7%, primarily due to price hikes of approximately 14% (excluding fronting and captive agreements). In Sweden, which accounts for only 20% of the total Corporate business, premium growth was 0.8% and was also impacted by profitability initiatives resulting in a loss of customers.
Premiums Gross premiums were up 1.1% (2.9%) in local currencies, primarily due to price hikes in Norway, the credit and surety business in Denmark and high retention levels, especially in the Danish business.
Expenses The expense ratio for Corporate was 10.4 (9.9), and it was quite stable throughout the year. The low expense ratio is driven by high average premiums in the Corporate segment, relatively low claims handling costs and the fact that brokers are paid by customers. Employee numbers increased from 265 at the end of 2018 to 290 in 2019, primarily due to the expansion of the credit and surety business.
Profit/loss on gross business 93 40 241 210 Profit/loss on ceded business -3 -1 -10 -4 Insurance technical interest, net of reinsurance 0 -1 0 -5
Combined ratio exclusive of run-off 104.8 95.3 101.0 94.3 Run-off, net of reinsurance (%) -29.5 -6.1 -16.2 -8.3 Weather claims, net of reinsurance (%) 0.1 0.0 0.7 0.5
The business area accounts for 7% of the Group’s total premium income.
Results 2019 Sweden reported a technical result of DKK 231m (DKK 201m) and a combined ratio of 84.8 (86.0). The improvement was driven by higher run-off gains reflecting a strong reserving position in the motor third-party liability segment. The underlying profitability for the current underwriting year with a normalised run-off level is not satisfactory. and initiatives, especially for the motor segment, will be implemented. Premium growth increased in 2019, primarily as a result of growth in the motor segment and double-digit growth for pet insurance.
Claims The gross claims ratio was 66.6 (69.6), and the claims ratio, net of ceded business was 67.3 (69.9). The lower claims level was primarily due to a higher run-off level derived from a solid reserves position in the long-tail motor segment. Motor insurance, which accounts for approximately one third of the private lines in Moderna, reported a higher level of small claims in 2019, and initiatives are therefore being implemented to reduce the number of motor claims.
Annual report 2019 | Tryg A/S | 25Contents – Management’s review
Expenses The expense ratio was 21.5 (17.2). The number of employees decreased by 54 compared to Q4 2018 underlining the efficiency initiatives in Moderna.
For the third consecutive year, Alka’s car insurance has been voted ‘best in test’ by the Danish Consumer Council, Tænk. The Consumer Council tested car insurance products from 16 different insurance companies.
The investment return totalled DKK 579m (DKK -332m) for the full year 2019, driven by a return of DKK 857m (DKK -33m) on the free portfolio, a return of DKK -42m (DKK -2m) on the match portfolio, and other financial income and expenses of DKK -236m (DKK -297m).
Free portfolio Financial markets ended the year on a positive note, driven primarily by strong equity markets in the last three months of 2019. Trades fear abated, macroeconomic data were generally positive, and central banks cut interest rates.
Equity and property investments totalled DKK 4.3bn, while approximately DKK 2.1bn were invested in corporate bonds. The remaining DKK 5.0bn were primarily invested in Nordic covered bonds and Government bonds, including inflation-linked bonds, where current yields remain negative, putting downward pressure on the return on the free portfolio and the overall investment income.
Annual report 2019 | Tryg A/S | 27Contents – Management’s review
Interest rate and credit exposure -19 -0.3 -16 -0.3 294 4.4 -93 -1.4 7,058 6,600 a) Senior/Bank deposits less than 1 year and derivative financial instruments hedging interest rate risk and credit risk. b) In addition to the equity portfolio exposure are derivatives contracts of DKK 168m.
Other financial income and expenses The other financial income and expenses component is primarily made up of interest expenses related to outstanding subordinated debt, the cost of the currency hedges to protect shareholders’ equity and the cost of running the investment operations. Other financial income and expenses totalled DKK -236m (DKK -297m). Tryg has previously announced that this line should report a result of approximately DKK -60m per quarter so the over- all result for 2019 is in line with expectations.
The fixed-income portfolio returned a negative result of DKK -19m (DKK -16m) or -0.3%, with most fixedincome asset classes posting negative returns due to increasing interest rates in Q4 with the noticeable exception of emerging-market bonds and high-yield bonds driven by narrowing credit spreads. Finally, the property portfolio booked a return of DKK 93m (DKK 102m) or 4.4% in the quarter, driven primarily by a revaluation of DKK 68m. The overall result of the free portfolio was DKK 226m (DKK -198m)
Annual report 2019 | Tryg A/S | 28Contents – Management’s review
DKK -47m 29Contents – Management’s review Annual report 2019 | Tryg A/S |
In addition to the requirements in Solvency II Tryg has chosen to appoint a special Risk Committee consisting of members from the Supervisory Board.
Tryg has chosen to implement a – approved by the Danish FSA – partial internal model which models insurance risk while all other modules are based on the standard formula.
Insurance risk The insurance risk is controlled by limiting the size of single exposures and through the use of reinsurance, thereby capping the cost of large and weatherrelated claims. Additionally, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operating within these boundaries, Tryg’s risk depends on the company’s choice of exposure within different segments and industries in the insurance market. Tryg operates in relatively stable markets, while slightly more than 80% of premiums are in the Private and Commercial (SMEs) segments. Quarterly fluctuations are driven mainly by large and weather-related events, and reinsurance is used extensively to stabilise the overall earnings level.
The solvency capital requirement is calculated in such a way that Tryg should be able to honour its obligations in 199 out of 200 years.
Tryg’s solvency ratio displays low sensitivity towards capital market movements. Fixed-income securities represent some 90% of Tryg’s invested assets, for which reason the highest solvency sensitivity is towards spread risk, where a widening /tightening of 100 basis points will impact the solvency ratio by 14 percentage points. Lower sensitivity is displayed towards equity market falls and interest rate fluctuations. Additional changes in the UFR (Ultimate Forward Rate) will have a negligible impact due to the relatively short duration of Tryg’s liabilities (below four years on average).
Moody’s rating Tryg has an ‘A1’ (stable outlook) insurance finan- cial strength rating (IFSR) from Moody’s. The rating agency highlights Tryg’s strong position in the Nordic P&C market, robust profitability, very good asset quality and relatively low financial leverage. Moody’s also assigned an ‘A3’ rating to Tryg’s subordinated debt and a ‘Baa3’ rating to Tryg’s Tier 1 debt. The ratings were re-affirmed in summer 2019.
Investor Relations (IR) is responsible for Tryg’s communication with the capital markets. It is important that investors, analysts and other stakeholders can form a true and fair view of developments, including Tryg’s financial results. For this reason, Tryg’s IR team strives to be as open and transparent as possible to ensure that stakeholders’ information requirements are met at the highest possible level. IR is in charge of the communication with equity investors, fixed-income investors and rating agencies.
After the publication of quarterly and annual reports, Tryg’s management and IR team travel extensively to meet with shareholders and potential investors. Quarterly analyst presentations are held in Copenhagen and London. Tryg also attends various financial conferences. In 2019, we held around 300 investor meetings – mostly one-to-ones and some group meetings in Europe, the USA, Canada and Asia. The Tryg share is covered by 21 analysts, who continuously update their recommendations and earnings forecasts. Tryg hosts an annual Analyst Day, while more in-depth capital market days are hosted every three years.
See a list of analysts and their recommendations at tryg.com >Investor > Share > Analysts
Subscribe to all financial information at tryg.com Follow @TrygIR on Twitter
The Tryg share started the year at a price of DKK 164.8 and ended 2019 at DKK 197.5. The total return (price and dividends) of the share was 24%. The positive share price development was driven primarily by highly stable earnings and an improved underlying financial performance. The insurance sector’s key attraction is its dividend yield. Therefore, earnings and solvency are always carefully scrutinised by investors. In the world of Solvency II, changes in solvency levels can be more difficult to predict and often also difficult to understand. Tryg has a relatively simple business model and a transparent capital position, which is highly appreciated by analysts and investors.
Share capital and ownership Tryg’s share capital totalled DKK 1,510,739,955 on 31 December 2019. It comprises one share class (302,147,991 shares with a nominal value of DKK 5), and all shares rank pari passu. The majority shareholder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder holding more than 5% of the share capital. TryghedsGruppen invests in peace-of-mind and healthcare providers in the Nordic region and supports non-profit-making activities.
23 Jan. 2020 Tryg shares are traded ex-dividend 27 Jan. 2020 Payment of Q4 dividend and extraordinary dividend 30 Mar. 2020 Annual general meeting 21 Apr. 2020 Interim report Q1 22 Apr. 2020 Tryg shares are traded ex-dividend 24 Apr. 2020 Payment of Q1 dividend 09 July 2020 Interim report Q2 and H1 10 July 2020 Tryg shares are traded ex-dividend 14 July 2020 Payment of Q2 dividend 09 Oct. 2020 Interim report Q1-Q3 12 Oct. 2020 Tryg shares are traded ex-dividend 14 Oct. 2020 Payment of Q3 dividend
• A general objective of creating long-term value for the company’s shareholders.
The notice will be advertised in the daily press in February 2020 and will be sent to shareholders upon request.
Annual report 2019 | Tryg A/S | 33Contents – Management’s review
Download Tryg’s statutory corporate governance report at tryg.com > Investor > Download
Dialogue between Tryg, shareholders and other stakeholders Tryg’s Investor Relations (IR) department maintains regular contact with analysts and investors. Together with the Executive Board, IR organises investor meet - ings, conference calls and participates in conferences in Denmark and abroad. IR also communicates with stakeholders on social media via Twitter@TrygIR.
See the IR policy at tryg.com > Governance > Policies > IR policy
All shareholders are encouraged to attend the AGM. The AGM is held by personal attendance as the Supervisory Board values personal contact with the Group’s shareholders. Shareholders may propose items to be included on the agenda for the AGM, and may ask questions before and at the meeting. Shareholders may vote in person at the AGM, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the AGM.
Share and capital structure Tryg’s share capital comprises a single share class, and all shares rank pari passu. The majority share- holder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the company’s shares. The Supervisory
Duties, responsibilities and composition of the Supervisory Board The Supervisory Board is responsible for the central strategic management and financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and frameworks on the basis of regular and systematic reviews of the strategy and risks. The Executive Board reports to the Super visory Board on strategies and action plans, market developments and Group performance, funding issues, capital resources and special risks.
The Supervisory Board holds one annual strategy seminar to decide on and/or adjust the Group’s
Annual report 2019 | Tryg A/S | 34Contents – Management’s review
The Supervisory Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise required to perform its duties in the best possible way. In addition to the annual self-evaluation, an assessment is facilitated with external assistance as a minimum every third year to ensure objectivity in the evaluation process. The Supervisory Board focuses primarily on the following qualifications and skills: business judgement, problem solving, networking, risk management, succession management, general management, CFO/audit, people and organisation, business development, financial services, risk and regulatory, insurance – commercial and product, insurance – technical/financial modelling, digitalisation, value chain optimisation and customer journey. In 2019 the evaluation was based on the Chairman’s interviews with the board members supplemented by a questionnaire focusing on board competencies. The overall conclusions from the evaluation was that the Supervisory Board is working effectively and in accordance with sound governance principles.
The Supervisory Board decided to arrange a Board education day on relevant matters.
Duties and composition of the Executive Board Each year, the Supervisory Board reviews and adopts the rules of procedure of the Supervisory Board and the Executive Board comprising relevant policies, guidelines and instructions describing reporting requirements and requirements for communication with the Executive Board. Financial legislation also requires the Executive Board to disclose all relevant information to the Supervisory Board and report on compliance with limits defined by the Supervisory Board and in legislation.
All members of the Audit Committee and three out of four members of the Risk Committee, including the chairman of the committees, are independent persons. Two out of the three members of the Remuneration Committee elected by the General Assembly are independent persons, and the fourth member is employee representative. Two out of three members of the Nomination Committee are independent, including the chairman of the committee. Two out of three General Assembly elected member of the IT-Data Committee are independent persons, including the chairman of the committee, and the fourth member is an employee representative. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board.
The special skills of all members are also described at tryg.com
Remuneration of management Tryg has adopted a remuneration policy for Tryg in general which contains specific schemes for the Supervisory Board, the Executive Board and other employees in Tryg, whose activities have a material impact on the risk profile of the company, so-called risk takers. The remuneration policy for 2019 was adopted by the Supervisory Board in January 2019 and approved by the annual general meeting on 15 March 2019.
Remuneration of the Supervisory Board Members of Tryg’s Supervisory Board receive a fixed fee and are not comprised by any form of incentive or severance programme or pension scheme. Their remuneration is based on trends in peer companies, taking into account the required skills, efforts and the scope of the Supervisory Board’s work, including the number of meetings held. The remuneration received by the Chairman of the Supervisory Board is three times that received by ordinary members, while the Deputy Chairman’s remuneration is twice that received by ordinary members of the Supervisory Board.
Annual report 2019 | Tryg A/S | 36Contents – Management’s review
Tryg wants to strike an appropriate balance between management remuneration, predictable risk and value creation for the company’s shareholders in the short and long term.
The Executive Board’s remuneration consists of a base salary, a pension contribution of 25% of the base salary and other benefits. The base salary must be competitive and appropriate for the market and provide sufficient motivation for all members of the Executive Board to do their best to achieve the company’s defined targets. The Supervisory Board can decide that the base salary should be supplemented with a variable pay element of up to 50% of the fixed salary including pension.
In 2019, the variable pay element consisted of a Matching Shares Programme. Using taxed funds, the Executive Board may in 2020 buy shares (so-called investment shares) in Tryg A/S at market price for a predefined amount, which is dependent on the member’s performance for the financial year. Four years after the purchase, Tryg will grant one matching share per investment share free of charge.
Matching is conditional upon the fulfilment of additional conditions such as continued employment and back testing (testing prior to matching, to ensure that the criteria on which the variable salary is based are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure alignment of the interests of the Executive Board and the company’s shareholders.
Each year the Supervisory Board evaluates the performance of the Executive Board against the targets defined by the Supervisory Board for the financial year. The overall fulfilment of the weighted targets determines the number of investment shares offered to each member of the Executive Board.
Read more about the Matching Shares Programme in the remuneration policy at tryg.com and in the remuneration rapport for 2019, which will be available at the annual general meeting.
Morten Hübbe 11,330,000 2,832,500 255,000 26,000 14,443,500 0 4,886,718 19,330,218 Lars Bonde 5,385,056 1,346,264 255,000 26,000 7,012,320 0 2,372,502 9,384,822 Johan Kirstein Brammer 5,175,000 1,293,750 255,000 26,000 6,749,750 0 2,283,665 9,033,415 Barbara Plucnar Jensen b) 4,166,667 1,041,667 212,500 21,667 5,442,500 1,000,000 1,647,717 8,090,217 a) The value of Matching Shares (investment shares) at the time of allotment of the right to participate in the Matching Shares programme for the Executive Board for the 2019 performance year.
Annual report 2019 | Tryg A/S | 37Contents – Management’s review
Financial reporting, risk management and auditing As an insurance business, Tryg is subject to the risk management requirements of the Danish Financial Business Act and Solvency II. The Supervisory Board defines Tryg’s risk management framework as regards insurance risk, investment risk, compliance risk and operational risk, as well as IT security, in policies and guidelines for the Executive Board. Risks associated with new financial reporting rules and accounting policies are monitored and considered by the Audit Committee, the finance management and the internal auditors. Material legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis.
Other risks associated with the financial reporting are described in the section Capital and risk management on pages 30-31 and in Note 1 Risk management on page 58
Tryg engages in ongoing risk identification, map- ping insurance risks and other risks which may endanger the realisation of Tryg’s strategy, or which may potentially have a substantial impact on Tryg’s financial position. The process involves identifying and continually monitoring the risks identified. As in previous years, Tryg's Supervisory Board undertook an Own Risk and Solvency Assessment (ORSA) in 2019. The purpose of the ORSA is to ensure and demonstrate a link between strategy, risk management, risk appetite, solvency and capital planning over the planning period.
Read more about Tryg’s risk management in the section Capital and risk management on pages 30-31 and in Note 1 on page 58
Deviations and explanations Tryg complies with the Recommendations on Corporate Governance with the exception of the number of independent members of board committees, with which Tryg complies partially; see recommendations 3.4.2. of the Recommendations on Corporate Governance.
The deviations are explained in Tryg’s statutory corporate governance report, which is available at tryg.com > Download
Torben Nielsen (1947) Deputy Chairman Has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Nationalbank.
Tina Snejbjerg (1962) Employee representative Officer of Tryg’s Personnel Department. Employed since 1987.
Lene Skole (1959) Board member Has experience from international companies, among other things through previous positions with Coloplast and Maersk Company Limited, UK. Lene Skole has particular skills in the fields of strategy, financing and risk management.
Elias Bakk (1975) Employee representative Team Manager in Tryg. Employed since 2006.
Carl-Viggo Östlund (1955) Board member Has experience from insurance, logistics, finance and banking, from leading positions in listed and non-listed companies. Carl-Viggo Östlund has special knowledge of Swedish market conditions.
Jukka Pertola (1960) Chairman Has special skills in the fields of management, insurance, IT and digitalisation, communication and finance. Jukka Pertola has more than ten years of board work experience from companies, foundations and organisations.
Mari Thjømøe (1962) Board member Has special skills in the fields of management, finance, investment management and investor relations, as well as experience from insurance and Norwegian large caps. Mari Thjømøe has special insights into the Norwegian market.
Chairman Born in 1960. Joined the Supervisory Board in 2017. Finnish citizen. Career: Professional board member. Former CEO of Siemens Denmark. Education: MSc in Electrical Engineering.
Career: Professional board member, Adjunct Professor at the Copenhagen Business School. Former Governor of Danmarks Nationalbank (Danish Central Bank). Education: Savings bank training, Graduate Diplomas in Organisation, Work Sociology, Credit and Financing. Board seats, Chairman: Investeringsforeningen Sparinvest, Vordingborg Borg Fund, Ny Holmegaard Værk Fund, Museum of South East Denmark and KTIF (Kapitalforeningen Tryg Invest Funds). Board seats, Deputy Chairman: Tryg A/S and Tryg Forsikring A/S.
Experience: General experience from executive level in banking. Micro and macro knowledge from membership of the board of governors in the Danish central bank. Knowledge of chairmanship from non-excecutive boards. Competencies: General top management experience from the financial sector as well as experience with risk management and regulatory requirements, business know-how and judgement. Number of shares held: 28,000 Change in portfolio 2019: +1,000
Jukka Pertola 8/8 3/3 6/6 3/3 Torben Nielsen 8/8 6/6 6/6 3/3 Elias Bakk 8/8 Lone Hansen 8/8 3/3 Ida Sofie Jensen 8/8 3/3 6/6 3/3 Lene Skole 8/8 6/6 6/6
Board seats, Chairman: LFI Equity A/S. Board seats, Deputy Chairman: Ørsted A/S, H. Lundbeck A/S, ALK-Abelló A/S and Falck A/S. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee and Risk Committee in Tryg, Audit Committee, Nomination and Scientific Committee in ALK-Abelló A/S, Scientific and Remuneration Committee in H. Lundbeck A/S, Remuneration and Nomination Committee in Falck A/S and Nomination and Remuneration Committee in Ørsted A/S. Competencies: Solid business know-how and judgement, risk management, business development, finance, strategy, M&A and understanding of business models. Experience: Top management experience from various positions in the AP Moller-Maersk Group, CFO in Coloplast and currently CEO of Lundbeckfonden. Number of shares held: 7,025 Change in portfolio 2019: 0
Annual report 2019 | Tryg A/S | 40Contents – Management’s review
Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond. Committee memberships: Remuneration Committee in Tryg.
Born in 1962. Employee representative. Joined the Supervisory Board in 2010. Danish citizen. Employed since 1987. Career: Officer of Tryg’s Personnel Department. Education: Insurance training.
Board member: Tryg A/S, Tryg Forsikring A/S and the Central Board of Forsikringsforbundet. Committee memberships: Risk Committee in Tryg.
Experience: From 1987 to 2001 Tina Snejbjerg has worked with sale of insurance to both private and commercial customers as well as providing insurance advice to customers. Since 2001, Tina Snejbjerg has been the deputy chairmen of the local department of Forsikringsforbundet and since 2009 Chairman working with operations, strategy, negotiating agreements and engaged in recruiting and retaining members. Competencies: From the many years of experience, Tina Snejbjerg has acquired solid business know-how and judgement, problemsolving abilities working with management and HR-related issues in the financial sector, specifically the insurance industry. Number of shares held: 1,037 Change in portfolio 2019: +139
Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. a) Dependent member of the Supervisory Board. b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. c) Joined the supervisory board March 2019
Born in 1955. Joined the Supervisory Board in 2015. Swedish citizen. Career: CEO of Allert Östlund AB, professional board member and investor. Former CEO of the Swedish banks SBAB and Nordnet and the insurance company SalusAnsvar. Education: BSc in International Business and Finance & Accounting. Board seats, Chairman: FCG Fonder AB, Gladsheim Fastigheter AB, Hypoteket Bolån AB, IQ Chef AB, Juvinum Food & Beverage AB, Ponture AB, Wisory Group AB, Ywonn Media Group AB. Board member: Tryg A/S, Tryg Forsikring A/S, DBT Capital AB.
Committee memberships: IT-Data Committee (Chairman) and Remuneration Committee in Tryg. Experience: More than 30 years as CEO and Managing Director in local as well as in international environment in listed companies as well as banks. Experience from the following industries: manufacturing, logistics, insurance, finance and banking. Competencies: Solid background from the Insurance industry, non-life as well as life. Business know-how and judgement, banking and finance know-how, understanding of digitalisation and risk management. Number of shares held: 2,630 Change in portfolio 2019: +820
Education: BSc (International Business Administration and Modern Languages), MSc (Finance and Accounting), management programme at Wharton. Board seats, Deputy Chairman: Kapitalforeningen Tryg Invest Funds and Simcorp A/S. Board member: KBC BV.
Number of shares held: 196,289 Change in portfolio in 2019: +34,190
Born in 1976. Joined Tryg in 2015. Joined the Executive Board in 2018.
Education: LL.M., MBA, Graduate Diploma in Finance. Board member: Insurance & Pension Denmark (IPD).
Number of shares held: 24,396 Change in portfolio in 2019: +12,907
Born in 1971. Joined Tryg in 2019. Joined the Executive Board in 2019.
Tryg’s 2020 Corporate Responsibility strategy is focused on four elements: Actively creating peace of mind, climate and environment, responsible workplace and business ethics. The Corporate Responsibility efforts are linked to Tryg’s business model and core business (see page 10). As Tryg provides a safety net across the Nordic countries for the customers as insurance provider in case of a claim, Tryg also offers prevention initiatives to reduce and limit claims. Tryg thereby creates peace of mind before, during and after a claim.
Lifebuoys Since 1952, Tryg’s iconic lifebuoys have provided safety along the coastlines, lakes and rivers in Norway. The lifebuoy is a vitally important rescue tool, and for decades Tryg has provided lifebuoys to the Norwegian society. Tryg has more than 47,000 lifebuoys, which are located from Lindesnes at the very south of Norway to Svalbard, the Norwegian archipelago in the Arctic Ocean.
Climate and environment Tryg has a direct impact on the climate and the environment through its operations, and an indirect impact through its business activities. Tryg has focused its efforts on its internal operations and initiatives to improve its footprint, while also reducing costs. Although Tryg is not an energyintensive company since its carbon emissions are mainly associated with heating and electricity use at the offices, car and air travel, Tryg acknowledges that it is part of the solution when it comes to minimising carbon emissions. Tryg encourages its building owner to make resource and efficiency improvements to the buildings and invest in renovating buildings to keep them energy-efficient.
Tryg’s materiality assessment showed that the climate and the environment continue to be material issues for Tryg and its stakeholders. Extreme weather events such as flooding, cloudbursts and storms present a risk to Tryg and are a cause for concern for customers and society since envir onmental and climate-related events can increase the frequency of climate-related claims. Therefore, Tryg advises its customers on how to protect their homes. Tryg’s Corporate Responsibility policy further outlines Tryg's commitment minimising the company's climate and environmental footprint.
Climate and environmental initiatives Tryg has initiated a process which involves continuously installing more efficient and climate- friendly LED lighting at its offices, as well as installing more screens for Skype meetings to reduce air travel and offering electric cars for external meetings. In Norway, four of the office areas were moved to save energy and resource consumption per employee in 2019. In Denmark, two offices were merged as well. In Norway, Tryg removed the oil boilers, and the heating and cooling systems were connected to a heating pump system to further reduce the environmental impact, while a new ventilation system will be installed by 2020 with a higher degree of heating recovery.
Eco-Lighthouse in Norway Eco-Lighthouse is a climate and environmental certification scheme in Norway. Eight of the Norwegian sites are Eco-Lighthouse-certified. Tryg annually reports on progress as well as documenting the policies and procedures in place to manage the impact on the climate and the environment.
Tryg’s carbon emissions In 2019, Tryg’s carbon emissions decreased by 1% compared to 2018. The decrease is mainly due to a new carbon emission calculation method.
Steps of action on increasing diversity Tryg has an action plan for diversity including women in management which guides our actions towards realising our 2020 target. In 2019, Tryg focused on reducing unconscious bias in its recruiting processes. Tryg raised awareness of why unconscious biases may be formed, and of the possible benefits of having a more diverse pool of employees.
Data security and GDPR Data security and GDPR are important issues for Tryg in relation to personal data. In 2019, the online learning platform ‘Safe Colleague’ was introduced to educate employees and test their skills. Through gamification, the employees learn about the basics of data security. Tryg requires all new employees to do a mandatory e-learning programme on GDPR and IT security as part of their onboarding programme. In the course of the year, all new employees have completed the online training.
Whistleblower cases Tryg’s whistleblower hotline is available for all stakeholders to report any violation of our Code of Conduct or other issues and is reviewed by the chairman of the Audit Committee, assisted by Tryg’s Legal and Compliance Director. In 2019, three cases were reported and investigated compared to seven cases in 2018. No cases led to further action being taken.
The materiality assessment indicated that there is a risk of violating human and labour rights in Tryg’s supply chain through our outsourcing activities.
In 2019, we updated our existing supply chain management process to include a Corporate Responsibility pre-assessment as a way of strengthening the focus on high-risk suppliers. The implementation of the new process has been merged with the existing compliance processes to include Corporate Responsibility risks in order to assess risks and how to work with high-risk suppliers.
Download Code of Conduct Download Corporate Responsibility policy 46Contents – Management’s review Annual report 2019 | Tryg A/S |
Note Statement by the Supervisory Board and the Executive Board 48 Independent auditor’s reports 59 Financial highlights 52 Income statement 53 Statement of comprehensive income 54 Statement of financial position 55 Statement of changes in equity 56 Cash flow statement 57 1 Risk and capital management 58 2 Operating segments 67 2 Geographical segments 69 2 Technical result, net of reinsurance, by line of business 71 3 Premium income, net of reinsurance 73 4 Insurance technical interest, net of reinsurance 73 5 Claims, net of reinsurance 73 6 Insurance operating costs, net of reinsurance 73 6 Matching shares and conditional shares 75 7 Interest and dividends 76 8 Value adjustments 76
Income statement 104 Statement of financial position 105 Statement of changes in equity 106 Notes 107
In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position at 31 December 2019 and of the results of the Group’s and the parent company’s operations and the cash flows of the Group for the financial year 1 January - 31 December 2019.
Furthermore, in our opinion the management’s review gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group’s and the parent company’s financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company.
Jukka Pertola Torben Nielsen Elias Bakk Tom Eileng Lone Hansen Karen Bladt Chairman Deputy Chairman
Claus Wistoft Ida Sofie Jensen Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund
Also, in our opinion, the parent financial statements give a true and fair view of the financial position of the Parent at 31 December 2019 and of its financial performance for the financial year 1 January to 31 December 2019 in accordance with the Danish Financial Business Act.
Opinion We have audited the consolidated financial statements and the parent financial statements of Tryg A/S for the financial year 1 January to 31 December 2019, pages 52-110, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including the summary of significant accounting policies, for the Group as well as the Parent and the consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.
In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2019 and of its financial performance and cash flows for the financial year 1 January to 31 December 2019 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for financial companies.
Management’s estimate of the claims provisions to address the uncertainty related to the actuarial estimates.
49Contents – Financial statements Annual report 2019 | Tryg A/S |
Management’s responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Finan- cial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and for the preparation of par- ent financial statements that give a true and fair view in accordance with the Danish Financial Business Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Parent or to cease op- erations, or has no realistic alternative but to do so.
50Contents – Financial statements Annual report 2019 | Tryg A/S |
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independ- ence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
Copenhagen, 22 January 2020 Deloitte Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56
Financial highlights Note: Tryg´s acquisition of Alka affects the Financial Statement from closing the 8 November 2018.
b) Until the sale of the group occupied property in 2016, the gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ’Recommendations & Financial Ratios’ issued by the Danish Finance Society. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Finance Societys’ definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. The sale of owner- occupied property in December 2016 does not affect the calculation.
Investment return after insurance technical interest 579 -332 527 987 -22
Note Investment activities 14 Income from associates -10 22 Income from investment property 58 46 7 Interest income and dividends 534 580
Total investment return 744 -123 4 Return on insurance provisions -166 -209
Profit/loss for the year 2,843 1,731 24 Earnings per share 9.42 5.73
Acquisition costs and administration expenses -3,081 -2,704 Reinsurance commissions and profit participation from reinsurers 227 194 6 Insurance operating costs, net of reinsurance -2,854 -2,510
Income statement 53Contents – Financial statements Annual report 2019 | Tryg A/S |
Operating equipment 155 145 Owner-occupied property 730 790 12 Total property, plant and equipment 885 935 14 Equity investments in associates 0 242
Note Equity and liabilities 18 Equity 12,085 11,334 1 Subordinate loan capital 2,875 2,868
Debt relating to direct insurance 577 614 Debt relating to reinsurance 252 169 Amounts owed to credit institutions 711 494 Debt relating to unsettled funds transactions and repos 2,601 2,797 15 Derivative financial instruments 800 740 23 Debt to group undertakings 300 313 17 Current tax liabilities 125 118
Statement of changes in equity Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares).
The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 1,677m (DKK 1,617m in 2018). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured.
Total changes in equity in 2018 0 -12 25 -311 -984 0 -1,282 56Contents – Financial statements Annual report 2019 | Tryg A/S |
Change in cash and cash equivalents, net 241 -69 Additions relating to purchase of subsidiaries 0 186 Exchange rate adjustment of cash and cash equivalents, 1 January -1 1
Liabilities arising from financing activities Amounts owed Subordinated to credit 2019 loans institutions Total
Investments Purchase and refurbishment of property 0 -2 Sale of property 357 117 Purchase/sale of equity investments and unit trust units (net) 49 1,540 Purchase/sale of bonds (net) -1,978 3,268 Deposits with credit institutions 0 250 Purchase/sale of operating equipment (net) -69 -61 Acquisition of intangble assets 0 -5,671 Sale of associated 246 0 Hedging of currency risk 18 49
The risk management is organised systematically in the company’s committee structure via the Executive Board’s own Risk Committee and the Supervisory Board’s own Risk Committee. The Supervisory Board’s Risk Committee is a specialist committee with intensive focus separately on risk and capital management during the year.
Capital management Tryg’s capital management is based on the key business objectives: • A solid capital base, supporting both the statutory requirements and a single ‘A’ rating from Moody’s.
• Support of a dividend per share, with a payout ratio in the interval 60-90%.
• Return on the average equity of at least 21% after tax
What risk profile does Tryg want? - Business model - Strategy - Policies
• Compliance • Actuarial function • Risk management 2nd line of defence
Right to be heard, cf. dra� for Executive order on Management
Underwriting risk Underwriting risk is the risk that insurance premiums will not be sufficient to cover the compensations and other costs associated with the insurance business. Underwriting risk is managed primarily through the company’s insurance policy defined by the Supervisory Board, and administered through business procedures, underwriting guidelines etc. Underwriting risk is assessed in Tryg’s capital model, determining the capital impact from insurance products.
Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a sufficient degree via ordinary diversification. In case of major events involving damage to buildings and contents, Tryg’s reinsurance programme provides protection for up to DKK 7.25bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 168m.
Tryg has combined the minimum cover of other sectors into a joint cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. For the individual sectors, individual cover has subsequently been taken out as needed. The use of reinsurance creates a natural counterparty risk. This risk is handled by applying a wide range of reinsurers with at least an ‘A’ rating and DKK 750m in capital.
59Contents – Financial statements Annual report 2019 | Tryg A/S |
Effect of 1% change in: Combined ratio (1 percentage point) +/- 217 +/- 187
Interest rate market Effect of 1 % increase in interest curve: Impact of interest-bearing securities -1,150 -1,079 Higher discounting of claims provisions 1,028 991 Net effect of interest rate rise -122 -88 Impact of Norwegian pension obligation c) 189 163
Other risks Strategic risk The strategic risk is the risk of loss as a result of Tryg’s chosen strategic position. The strategic position covers both business transactions, IT strategy, choice of business partners and changed market conditions. Tryg’s strategic position is determined by Tryg’s Supervisory Board in close collaboration with the Executive Board.
Emerging risk Emerging risk cover new risks or known risks, with changing characteristics. The management of this type of risk is handled in the individual business areas, which monitor the market and adapt the products as the conditions change. In the event of a change in insurance terms, it is ensured that Tryg’s reinsurance cover is consistent with the new conditions. Emerging risk is also a part of the systematically implemented risk identification process in Tryg.
60Contents – Financial statements Annual report 2019 | Tryg A/S |
Estimated accumulated claims End of year 13,325 15,476 15,810 13,365 13,764 12,609 14,610 12,801 12,658 15,454 16,170 1 year later 13,933 15,570 16,190 13,438 14,026 12,929 14,550 12,656 14,323 15,439 2 year later 13,947 15,523 16,247 13,396 13,686 12,747 14,503 14,119 14,230 3 year later 13,748 15,443 16,200 13,211 13,518 12,659 15,873 14,090 4 year later 13,650 15,355 16,026 12,947 13,498 13,970 15,810 5 year later 13,557 15,280 16,060 12,859 14,802 13,813 6 year later 13,527 15,257 15,926 14,049 14,591 7 year later 13,409 15,166 17,398 13,977 8 year later 13,352 16,379 17,467 9 year later 14,531 16,202 10 year later 14,320 14,320 16,202 17,467 13,977 14,591 13,813 15,810 14,090 14,230 15,439 16,170 166,109
Provisions before discounting, end of year 626 801 1,110 1,051 1,184 1,394 1,387 1,659 2,230 3,628 7,793 22,863
The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2019 to prevent the impact of exchange rate fluctuations.
Estimated accumulated claims End of year 275 648 1,452 223 1,133 273 2,077 202 287 632 371 1 year later 339 720 2,135 253 1,479 308 1,883 255 394 677 2 year later 318 714 2,255 289 1,261 302 1,915 247 388 3 year later 277 692 2,294 282 1,255 298 1,890 246 4 year later 281 701 2,241 270 1,271 319 1,920 5 year later 286 706 2,235 259 1,303 316 6 year later 275 709 2,241 272 1,352 7 year later 274 701 2,625 271 8 year later 273 759 2,619 9 year later 303 758 10 year later 302 302 758 2,619 271 1,352 316 1,920 246 388 677 371 9,221
Provisions before discounting, end of year 2 1 56 3 134 24 167 14 104 407 243 1,156
Notes 63Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes 64Contents – Financial statements Annual report 2019 | Tryg A/S |
Investment risk The notes below are based on Tryg's investment portfolio without the external customers share. Bond portfolio including interest derivatives Duration 1 year or less 13,067 11,286
Amounts owed to credit institutions 711 0 0 711 Debt relating to unsettled funds transactions and repos 2,601 0 0 2,601
Interest on loans for a perpetual term has been recognised for the first fifteen years.
The share of capital included in the calculation of the capital base totals DKK 2,744m (DKK 2,740m in 2018).
Amortised cost value of the loan recognised in statement of financial position 605 595 1,059 1,043 713 723 The fair value of the loan at the statement of financial position date 642 633 1,108 1,073 730 747 The fair value of the loan at the statement of financial position date is based on a price of 106 106 104 103 102 103 Total capital losses and costs at the statement of the financial position date 2 2 3 3 3 3 Interest expenses for the year 32 30 45 41 19 17 Effective interest rate 5.3% 4.8% 4.3% 3.7% 2.6% 2.3%
a) Amounts relating to eliminations and one-off items. Please refer to note 2 'Geographical segments' for details.
Profit/loss on ceded business -231 -94 -255 -10 23 -566 Insurance technical interest, net of reinsurance -3 1 2 0 0 1
Run-off gains/losses, net of reinsurance 238 310 407 246 -6 1,194
Reinsurers' share of premium provisions 42 4 170 0 0 216 Reinsurers' share of claims provisions 15 149 1,114 7 0 1,285 Other assets 50,193 50,193
Provisions for bonuses and premium discounts 1,195 114 27 34 0 1,370 Other liabilities 14,750 14,750
Run-off gains/losses, net of reinsurance 394 434 271 122 0 1,221
68Contents – Financial statements Annual report 2019 | Tryg A/S |
Claims ratio, net of ceded business 78.8 73.8 73.2 69.0 73.0
Run-off, net of reinsurance (%) -4.4 -8.3 -6.7 -10.6 -7.3 Number of full-time employees 31 December 1,083 1,105 1,042 1,040 1,113 a) Includes Danish general insurance and German, Dutch, Austrian and Finnish guarantee insurance. The gross premium income related those branches amounts to DKK 78m (DKKm 54 in 2018).
Notes 69Contents – Financial statements Annual report 2019 | Tryg A/S |
SEK/DKK, average rate for the period 70.62 72.67 77.24 78.93 79.69
Claims ratio, net of ceded business 75.9 80.6 74.0 79.7 65.2
c) The adjustment in gross expense ratio is only included in 'Tryg '. Please refer to a footnote in Financial highlights.
Profit/loss on ceded business - 216 - 152 - 129 - 167 0 0 8 28 - 131 - 167 - 1 - 3 Insurance technical interest, net of reinsurance - 4 - 6 3 - 1 0 - 1 0 - 1 0 0 1 0
Average claims DKK b) 8,743 8,955 55,018 65,645 22,639 21,202 70,030 71,911 1,872,000 2,866,734 6,390 5,723 Total claims 427,228 342,695 33,861 29,761 2,689 4,022 12,545 12,189 49 64 121,236 105,877 a) The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance contracts in the year. b) Average claims are total claims before run-off in the year relative to the number of claims in the year.
Notes 71Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes 72Contents – Financial statements Annual report 2019 | Tryg A/S |
3 Premium income, net of reinsurance Direct insurance 22,353 19,037 Indirect insurance 52 50
Reinsurance cover received 408 606 Run-off previous years, reinsurers' share 20 -15 6 Insurance operating costs, net of reinsurance Commissions regarding direct insurance contracts -265 -227 Other acquisition costs -2,193 -1,877
The fee is divided into: Statutory audit -3 -3 Other audit assignments -1 -1 Tax advice -1 -1 Other services -3 -19
Expenses have been incurred for the Group´s Internal Audit Department. -10 -9
6 Insurance operating costs, gross, classified by type Commissions -265 -227 Staff expenses -2,043 -1,740 Other staff expenses -187 -179 Office expenses, fees and headquarter expenses -649 -612 IT operating and maintenance costs, software expenses -255 -260 Depreciation, amortisation and impairment losses and write-downs -71 -69 Other income 388 383
Please refer to note 12 and 23 regarding lease recognised costs according to IFRS 16.
Insurance operating costs and claims include the following staff expenses: Salaries and wages -2,747 -2,227
Conditional shares In 2017-2019, Tryg allocated conditional shares in accordance with the Group’s remuneration policy. The beneficiaries will receive shares in Tryg A/S if certain conditions are fulfilled over a 2 to 3 year vesting period. In 2019, the fair value of conditional shares is prorated relative to the vesting period and recognised in the income statement amounted to DKK 16m (DKK 3m in 2018). The maximum obligation for Tryg is 188,551 shares in Tryg A/S.
Matching shares allocated in 2019 at 31.12.19 53,308 0 0 53,308 166 9 198 11
Matching shares allocated in 2018 at 31.12.18 30,444 29,835 37,321 97,600 144 14 164 16
7 Interest and dividends Interest income and dividends Dividends 24 12 Interest income, cash at bank and in hand 1 0 Interest income, bonds 509 568
Interest expenses Interest expenses subordinate loan capital, credit institutions and cash at bank -117 -88 Interest expenses, other -61 -52 8 Value adjustments Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments 463 -64 Unit trust units 114 -224
Exchange rate adjustments concerning financial assets or liabilities which can not be stated at fair value total DKK -97m (DKK -17m in 2018)
10 Tax Tax on accounting profit/loss -798 -498 Difference between Danish and foreign tax rates -40 -19 Tax adjustment, previous years -45 4 Adjustment of non-taxable income and costs 100 -31 Change in valuation of tax assets 0 12 Change in tax rate 0 3
Impairment losses and write-downs for the year 0 -18 -7 0 -24
DKKm 11 Intangible assets (continued) Trademarks Assets and customer under con- Goodwill relations Software a) struction a) Total
Impairment losses and write-downs for the year 0 0 -16 -10 -26
Comprises the sale of insurance products to private and commercial customers under the ‘Alka’ brand.
At 31 December 2019, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit.
The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Private DK. The cash flows in the latest prognosis period have been extrapolated for financial years after the prognosis periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market's expectations for the Group.
The impairment test shows a calculated value in use of approximately DKK 26.4bn (DKK 8.5bn) relative to a recognised goodwill of DKK 4.2bn (DKK 4.2bn) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.5% will result in a write down of goodwill.
Comprises the sale of insurance products to private and commercial customers under the ‘Obos’ brand.
Trademarks and customer relations As at 31 December 2019 management performed a test of the carrying amounts of customer relations as an integral part of the Moderna, Obos and Alka portfolio goodwill test.
An agricultural portfolio acquired in 2014 was impaired and written down DKK 18m.
Amortised software is assessed for impairment at the balance sheet date or when there are indications that the future cash flow cannot justify the carrying amount.
Value adjustments for the year at revalued amount in income statement 0 0 -10 0 -10 Reversed depreciation and value adjustments 10 0 10 0 20
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -206 0 0 0 -206
Accumulated depreciation and value adjustments at 31 December -231 -20 0 -84 -335 a) Lease assets (Right of use-assets(ROU)) equipment only consists of leases of vehicles with a lease term of three to four years. The monthly amounts are fixed and there are no option for purchase or extension. Short term leases are not recognised as Right of use-assets.
Notes 80Contents – Financial statements Annual report 2019 | Tryg A/S |
Business property 5.4 5.0 Office property 5.4 6.9 Residential property 2.3 3.2
Increase in applied rate of return of 0.25% -37 -46 Decrease in applied rate of return of 0.25% 39 49 Decrease in net rental income of 3% -34 -40 Decrease in occupancy rate of 3% -8 -8 14 Equity investments in associates Cost Cost at 1 January 226 215 Additions for the year 10 13 Disposals for the year a) -202 -2
Revaluations at net asset value Revaluations at 1 January 16 10 Reversed on sale -40 0 Value adjustments for the year -10 6
Valuation based on observable input (level 2) consists of financial instruments that are valued substantially on the basis of observable input other than quoted price or consolidated reference price for the instrument itself. If a financial instrument is quoted in a market that is not active, Tryg bases its measurement on the most recent transaction price.
Adjustment is made for subsequent changes to market conditions, for instance, by including transactions in similar financial instruments that are assumed to be motivated by normal business considerations. For a number of financial assets and liabilities, no market exists. In such cases, Tryg uses recent transactions in similar instruments and discounted cash flows or other generally accepted estimation and valuation techniques based on market conditions at the balance sheet date to calculate an estimated value. This category covers instruments such as derivatives valued on the basis of observable yield curves and exchange rates and illiquid mortgage bonds valued by reference to the value of similar liquid bonds.
Valuation based on significant non-observable input (level 3) consist of certain financial instruments based substantially on non-observable input.
Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement 728 740 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income 72 0 Financial liabilities at amortised cost with value adjustment in the income statement 12,618 11,186
Investment assets according to balance sheet 38,814 4,222 1,151 1,128 75 45,390
Specification of write-downs on receivables from insurance contracts: Write-downs at 1 January 139 115 Exchange rate adjustments 1 -1 Write-downs and reversed write-downs for the year -3 25
Receivables are written down in full when submitted for debt collection. The write-down is reversed if payment is subsequently received from debt collection and amounts to DKK 39m (DKK 52m in 2018).
Gains and losses at 1 January 2,903 -2,742 161 Value adjustments for the year 197 -148 49
Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January -202 -152 Value adjustment for the year 32 -50
Current tax is recognised in the statement of financial position as follows: Under assets, current tax 52 0 Under liabilities, current tax -125 -118
Number of shares as a percentage of issued shares at 31 December 99.85 99.87 0.15 0.13 Nominal value at 31 december (DKKm) 1,509 1,509 2 2
Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to a total face value 151m
DKK of the share capital in the period up until 31 December 2020. Own shares are acquired for use in the Group's incentive programme.
86Contents – Financial statements Annual report 2019 | Tryg A/S |
Claims provisions at 1 January 24,847 -1,234 23,613 Value adjustments of provisions, beginning of year 65 -7 58
Change in claims in the financial year in respect of the current year 16,050 -397 15,653 Change in claims in the financial year in respect of prior years -1,117 -65 -1,182
Addition, purchase of Alka and Troll portfolio 1,626 -37 1,589 Value adjustments of provisions, beginning of year -209 10 -199
Claims provisions at 31 December 24,847 -1,234 23,613 87Contents – Financial statements Annual report 2019 | Tryg A/S |
Discount rate 1.6 2.0 Estimated return on pension funds 1.6 2.0 Salary adjustments 2.3 2.8 Pension adjustments 0.7 0.8
Description of the Norwegian plan In the Norwegian part of the Group, about half of the employees have a defined-benefit pension plan. The plans are based on the employees' expected final pay, providing the members of the plan with a guaranteed level of pension benefits throughout their lives. The pension benefits are determined by the employees ' term of employment and salary at the time of retiring. Employees having made contributions for a full period of contribution are guaranteed a pension corresponding to 66% of their final pay. As of 2014, pensions being disbursed are no longer regulated in step with the basic amount of old-age pension paid in Norway (G regulation), but are subject to a minimum regulation. The plan are closed for new business. Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children's pension.
24 Earnings per share Profit/loss from continuing business 2,845 1,733 Profit/loss on discontinued and divested business -2 -2
2019 Tryg has signed the following contracts with amounts above DKK 50m: Tryg is comitted to invest in some investment funds. The commitment amounts to DKK 1,015m.
Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 0m and use of existing restructuring provisions amounts to DKK 26m. The balance as at 31 December 2019 excluding own insurances amounts to DKK 80m (DKK 102m at 31 December 2018).
Other debt Maturity of undiscounted lease liabilities Due 1 year or less 155 131
Lease liabilities included in the statement of financial position Hereof future cashflow options 64 4
90Contents – Financial statements Annual report 2019 | Tryg A/S |
Tryg Livsforsikring A/S and Forsikings-Aktieselskabet Alka Liv II have registered the following assets as having been held as security for the insurance provisions: Equity investments 0 413
91Contents – Financial statements Annual report 2019 | Tryg A/S |
According to the Bonds as colla- Gross amount statement of teral for repos/ Collateral before offsetting Offsetting financial position reverse repos in cash Net amount
Inflation derivatives, recognised in claims provisions 724 0 724 0 -656 68
Inflation derivatives, recognised in claims provisions 525 0 525 0 -525 0
Premium income - Parent company (TryghedsGruppen smba) 0.5 0.5 - Other related parties 3.1 4.5
Claims payments - Key management 0.2 0.0 - Other related parties 0.5 0.4
Specification of remuneration Share-based Cash Number of Base Variable Variable 2019 persons salary salarya) salary Pension Total
Risk-takers independent control functions 5 8 0 0 1 9 a) Total expenses recognised in 2019 for matching shares and conditional shares allocated in 2019 and previous year. For matching shares and conditional shares allocated to Executive Board in 2019 please refer to ’Corporate governance’ in Management review.
b) Barbara Plucnar Jensen took up the position as CFO on 1 March 2019.
Liabilities Total provisions for insurance contracts 0 2,470 Debt and accruals and deferred income 0 906
FDM Tryg acquired FDM's insurance portfolio at 1 January 2018. In October 2017, Tryg began selling insurance products to FDM’s customers, and by 1 January 2018, all current customers had been transferred to Tryg. The result will be recognised under Private Denmark.
Forsikring AS. The agreement meant that Tryg would acquire the production and distribution of the insurances sold to Troll's policyholders. The agreements was signed in February 2018 and the acquisition was approved by the Danish and Norwegian FSA in March 2018.
Notes DKKm 27 Related parties (continued) Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
2019 In 2019 Tryg Forsikring A/S paid Tryg A/S DKK 2,039m and Tryg A/S paid TryghedsGruppen smba
2018 In 2018 Tryg Forsikring A/S paid Tryg A/S DKK 1,437m and Tryg A/S paid TryghedsGruppen smba
DKK 1,788m in dividends. Furthermore Tryg A/S made a capital contribution of DKK 2,000m to Tryg Forsikring A/S.
In 2018, TryghedsGruppen smba has invested DKK 313m in ’Kapitalforeningen Tryg Invest’. The amount is recognised under Other financial investment assets and Debt to Group undertakings.
Share-based Cash Number of Base Variable Variable 2018 persons salary salarya) salary Pension Total
Supervisory Board 1 0 Executive Management 1 0 Risk-takers 5 0
The members of the Supervisory Board in Tryg A/S are paid with a fixed remuneration and are not covered by the incentive schemes. The members of the Executive Board is paid a fixed remuneration, car allowance and pension. The variable salary is awarded in the form of share-based remuneration. Please refer to 'Corporate governance'.
94Contents – Financial statements Annual report 2019 | Tryg A/S |
Change in accounting policies Tryg has not implemented any new significant accounting policies or IFRS standards in 2019.
Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards have been implemented for the first time for the accounting year that began on 1 January 2019 that will have a significant impact on the Group. See below regarding IFRS 9 ‘Financial instruments’.
Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving more judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets and liabilities • Valuation of property • Business Combinations • Measurement of Goodwill, Trademarks and Customer relations • Control of subsidiaries
Claims provisions are management’s best estimate based on actuarial and statistical projections of claims and administration of claims including a margin incorporating the uncertainty related to the range of actuarial scenarios and other short and long-term risks not reflected in standard actuarial models. The projections are based on Tryg’s knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other factors that might influence future developments in the liabilities.
95Contents – Financial statements Annual report 2019 | Tryg A/S |
The net obligation with respect to the defined benefit plan is based on actuarial calculations involving several assumptions. The assumptions include discount interest rate, expected future salary and pension adjustments, turnover, mortality and disability.
Measurement of Goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations were acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least annually. Impairment testing involves estimates of future cash flows and is affected by several factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. Cf. note 11.
• exercises a controlling influence over the relevant activities in the enterprise in question,
• is exposed to or has the right to a variable return on its investment, and
Basis of consolidation The consolidated financial statements are prepared based on the financial statements of Tryg A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group’s accounting policies.
Items of subsidiaries are fully recognised in the consolidated financial statements.
In the event of negative balances (badwill), the calculated fair values, the calculated acquisition price of the enterprise, the value of minority interests in the acquired enterprise and the fair value of previously acquired equity investments are revalued. If the balance is still negative, the amount is recognised as income in the income statement.
Geographical information is presented based on the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden.
Key ratios Earnings per share (EPS) are calculated according to IAS 33. This and other key ratios are calculated in accordance with Recommendations and Ratios issued by the The Danish Finance Society and the Executive Order on Financial Reports for Insurance Companies and MultiEmployer Occupational Pension Funds issued by the Danish Financial Supervisory Authority.
Notes Claims Claims consists of claims paid during the year adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item includes run-off gains/losses in respect of previous years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to insurance technical interest.
Employee shares According to established rules, the Group’s employees can be granted a bonus in the form of employee shares. When the bonus is granted, employees can choose between receiving shares or cash. The expected value of the shares will be expensed over the vesting period. The scheme will be treated as a complex financial instrument, consisting of the right to cash settlement and the right to request delivery of shares. The difference between the value of shares and the cash payment is recognised in equity and is not remeasured. The remainder is treated as a liability and is remeasured until the time of exercise, such that the total recognition is based on the actual number of shares or the actual cash amount.
Matching shares Members of Executive Board and other senior employees have been allocated shares in accordance with the ’Matching shares’ scheme. Under Matching shares, the individual Executive Board member or other senior employee is allocated one share in Tryg A/S for each share he or she acquires in Tryg A/S at the market rate for certain liquid cash at a contractually agreed sum in connection with the Matching share programme.
The shares are recognised at market value and are accrued over the three and four year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisition under staff expenses with a balancing entry directly in equity. If the holder retires during the maturation period but remains entitled to shares, the remaining expense is recognised in the current accounting year.
The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested business in the income statement includes the profit/loss after tax of the run-off for the marine hull business and the divested activities in the Finnish branch. Discontinued business also comprises the Tryg Forsikring A/S run-off business.
98Contents – Financial statements Annual report 2019 | Tryg A/S |
Costs for Group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses.
Tryg recognises a right-of-use asset (ROU asset) and a corresponding lease liability with respect to all lease agreements in which it is the lessee, excluding shortterm leases (defined as leases with a lease term of 12 months or less) and leases of low value assets.
• any initial direct cost incurred • estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset • lease incentives received
Land and buildings Land and buildings are divided into owner-occupied property and investment property. The Group’s owner-occupied properties consist of an office building in Høje Taastrup and a small number of holiday homes. The remaining properties are classified as Investment property.
Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owneroccupied property at the statement of financial position date. The fair value is calculated based on marketspecific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity.
Costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, when it is probable that future economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. Ordinary repair and maintenance costs are expensed in the income statement when incurred.
Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in 99Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow model and recent prices in the market.
The fair value is calculated on the basis of marketspecific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions. Cf. note 15.
Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic lifetime. This also applies to the salvage value. Write-down is performed if impairment has been demonstrated.
Goodwill is tested annually for impairment, or more often if there are indications of impairment, and impairment testing is performed for each cashgenerating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments.
The results of foreign subsidiaries are based on translation of the items in the income statement using average exchange rates for the period unless they deviate significantly from the transaction day exchange rates. Income and costs in domestic enterprises denominated in foreign currencies are translated using the exchange rates applicable on the transaction date.
The fair values of quoted securities are based on stock exchange prices at the statement of financial position date. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using valuation techniques. These include the use of similar recent arm’s length transactions, reference to other similar instruments or discounted cash flow analysis.
100Contents – Financial statements Annual report 2019 | Tryg A/S |
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. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts.
Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contains accounts receivable in connection with property.
Other assets Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date.
Proceeds from the sale of own shares in connection with the exercise of share options or matching shares are taken directly to equity.
Subordinate loan capital Subordinate loan capital is recognised initially at fair value, net of transaction costs incurred. Subordinate loan capital is subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the borrowing period using the effective interest method.
101Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the policyholders. They include direct and indirect claims handling costs that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The provisions include claims handling costs.
Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability, workers’ com-pensation and personal accident and health insurance classes, in particular.
For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the Group so far and which must be disbursed according to the plan. The capital value is calculated using the Projected Unit Credit Method, which are based on input Cf. note 20.
In case of changes to the benefits stemming from the employees’ employment with the Group so far, a change is seen in the actuarially calculated capital value which is considered as pension costs for previous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs. The plan is closed for new business.
Deferred tax is measured according to the statement of financial position liability method on all timing differences between the tax and accounting value of assets and liabilities. Deferred income tax is measured 102Contents – Financial statements Annual report 2019 | Tryg A/S |
Cash flow statement The consolidated cash flow statement 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 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.
Other comprehensive income which can subsequently be reclassified as profit or loss Exchange rate adjustments of foreign entities for the year 32 -50 Hedging of currency risk in foreign entities for the year -19 49 Tax on hedging of currency risk in foreign entities for the year 4 -11
104Contents – Financial statements Annual report 2019 | Tryg A/S |
2019 Profit/loss for the year 865 -575 2,553 0 2,843 Other comprehensive income -39 -39
Total changes in equity in 2018 0 331 -629 -984 0 -1,282
1 Income from Group undertakings Tryg Invest A/S 9 1 Tryg Forsikring A/S 2,895 1,782 2 Other expenses Administration expenses -74 -65
Average number of full-time employees for the year 9 13 3 Tax Reconciliation of tax costs Tax on profit/loss for the year 17 14 Tax adjustments, previous years 1 0
Amortisation and write-downs Amortisation and write-downs at 1 January 0 0 Amortisation for the year 0 0
Notes 107Contents – Financial statements Annual report 2019 | Tryg A/S |
8 Own funds Tryg A/S calculates solvency ratio and own funds on Group level according to Solvency II rules. Please refer to note 18 in the Tryg Group on Solvency II own funds.
10 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, Trygheds-
Specification of remuneration Base salary Share-based Cash Number of incl. car variable variable 2019 persons allowance salary a) salary Pension Total a) Total expenses recognised in 2019 for matching shares and conditional shares allocated in 2019 and previous year. For matching shares and conditional shares allocated to Executive Board in 2019 see Section ’Corporate governance’ in Management review.
Supervisory Board 2 0 Executive Board 0 0 Risk-takers 0 0
Supervisory Board 1 0 Executive Management 1 0 Risk-takers 0 0
Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares and conditional shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for the Tryg Group for information concerning this.
The Executive Board is paid a fixed remuneration, car allowance and pension. The variable salary is awarded in the form of share-based remuneration and cash. see 'Corporate governance'.
10 Related parties (continued) Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
Intra-group trading involved - Providing and receiving services 18 13 - Intra-group accounts 163 76
The intra-group trading is primarily against Tryg Forsikring A/S. Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms.
Key ratios Gross claims ratio 67.9 69.2 64.8 70.7 64.2 63.5 62.2 72.4 65.7
Claims ratio, net of reinsurance 70.4 71.0 66.5 72.3 66.6 65.7 64.7 74.6 68.3
Key ratios Gross claims ratio 69.1 70.6 60.8 67.6 52.2 61.0 59.7 61.9 66.3
Claims ratio, net of reinsurance 80.4 71.3 76.2 81.2 101.5 84.5 79.2 77.1 83.7
Key ratios Gross claims ratio 53.1 70.5 66.5 76.4 71.7 69.6 61.6 76.5 73.0
Claims ratio, net of reinsurance 71.5 70.5 67.9 74.0 72.6 69.9 67.3 73.1 72.3
Run-off, net of reinsurance (%) -3.5 -6.1 -5.4 -6.8 Number of full-time employees 31 December 2,650 2,520
Run-off, net of reinsurance (%) -18.2 13.5 -9.7 0.4 Number of full-time employees 31 December 419 402
Other income and costs -20 -117 -188 -172 Profit/loss before tax 940 149 3,628 2,262 Run-off gains/losses, net of reinsurance 256 207 1,194 1,221
113Contents – Financial statements Annual report 2019 | Tryg A/S |
Share performance Earnings per share (DKK) 9.42 5.73 9.12 8.84 6.91 Diluted earnings per share (DKK) 9.42 5.73 9.12 8.84 6.91 Earnings per share of continuing business (DKK) 9.42 5.74 9.12 8.84 6.74
Number of full-time employees, continued business, at 31 December 4,151 4,027 3,373 3,264 3,359
Annual report 2019 | Tryg A/S | 115Contents – Management’s review
Run-off gains/losses The difference between the claims provisions at the beginning of the financial year (adjusted for foreign currency translation adjustments and discounting effects ) and the sum of the claims paid during the financial year and the part of the claims provisions at the end of the financial year pertaining to injuries and damage occurring in earlier financial years.
Glossary The financial highlights and key ratios of Tryg have been prepared in accordance with the executive order issued by the Danish Financial Supervisory Authority on the financial reports for insurance companies and multi-employer occupational pension funds, and also comply with ‘Recommendations & Ratios’ issued by the CFA Society Denmark.
Annual report 2019 | Tryg A/S | 116Contents – Management’s review
Personal accident insurance Personal accident insurance accounts for 11% of total premium income and covers accidental bodily injury and death resulting from accidents.
Annual report 2019 | Tryg A/S | 117Contents – Management’s review