TrygVesta comprises Tryg, Denmark’s largest general insurer, and Vesta, Norway’s third largest general insurer. The Group has carried out insurance operations in Finland since 2002 and in Sweden since 2006 and is the second-largest general insurance group in the Nordic region. TrygVesta has some 3,800 employees.
Mission Vision / TrygVesta Annual Report 2006 / Page 3 of 147
The first building stone in our history was laid in 1731 with the formation of Kjøbenhavns Brandforsikring, Denmark’s first insurance company. The year 2006 thus marked our 275th anniversary.
Looking back, it is clear that our journey has been characterised by our ability for constant innovation and thinking around the customer.
Reporting pre-tax profit of DKK 3.9bn including discontinued business and DKK 3.7bn excluding discontinued business, we outperformed the DKK 2.2bn we expected at the beginning of 2006 by a fair margin. The favourable performance was generated by improvemens in our insurance operations and our investment result. Premiums fell short of our expectations a year ago, but this was due to an adjustment of our prices in Norway and Denmark, introduced to focus on our existing customers and, naturally, also with a view to sales to new customers. The price adjustments we introduced were based on changed risk and market conditions.
Insight into peace of mind / TrygVesta Annual Report 2006 / Page 5 of 147
TrygVesta held its first annual general meeting as a listed company. Four new members were elected to the Supervisory Board.
TrygVesta started selling private insurance policies in Sweden, the largest insurance market in the Nordic region. Sales performed positively with some 26,500 policies sold in 2006.
TrygVesta launched an extended warranty insurance for Danish concept customers, covering defects in and sudden and unforeseen damage to electrical appliances and house contents.
TrygVesta made a number of changes to the Group Executive Management. Lars Bonde was appointed as a new member in charge of Corporate, Stig Ellkier-Pedersen became responsible for
TrygVesta got permission from the Norwegian finance ministry to convert Vesta Forsikring AS in
It is not at all unlikely that the deepest anxiety of a 15-year-old school pupil poses no worry whatsoever to a retired mayor of 71. And vice versa. A painter, whose day-to-day work takes place in an abstract world without set limits and rules may regard insecurity as a source of inspiration, while the majority of us regard insecurity as something uncomfortable – something that has a hampering effect on our lives. Why is this significant? Worries are as individual as people – and the same goes for the need for security and peace of mind. In order to achieve our vision of becoming the leading peace of mind provider of the Nordic region, we need to be a step ahead of everybody else when it comes to understanding people’s needs for security and peace of mind. We need a firm hold on reality and an insight into what people think and feel. What makes them feel safe? And unsafe? What are their worries at the moment and what about the future? – is there anything they fear or are looking forward to?
could insure myself against anything in the future, I would quite clearly opt for insuring myself against losing control.
It’s difficult to say what the world will look like when I’m older. Maybe we will all automatically start taking more care of what we’ve got instead of seeking new pastures – and maybe I’ll end up in a dead-end job as the boss of a sausage factory and refuse to sell my house … naturally I hope not.
I hope that I will remain flexible and open to the changes that life will throw at me. I hope that I will remember to stop and take stock once in a while, asking myself questions such as: Do I really want to live my life like this? Is this really the town I want to live in? Is it okay to do a job that’s just okay? We should all do this from time to time.
FROM, AMONG OTHER THINGS, DESIGNING AND SELLING VIRTUAL OFFICE FURNITURE IN
Profit/loss on continuing business before tax 3,709 2,913 2,052 1,947 1,046 -2,030
Profit/loss on discontinued and divested business before tax 160 -27 -81 -65 -256 -304 profit/loss for the year incl. discontinued and divested business before tax 3,869 2,886 1,971 1,882 790 -2,334
Run-off gains/losses, net of reinsurance 372 181 -161 3 -516 -458
Total provisions for insurance contracts 25,957 26,757 25,212 26,599 25,955 26,238
From 1 January 2005, the accounting policies of TrygVesta follow the IFRS standards.
The comparative figures for 2004 have been restated to IFRS, but in addition to IFRS restatements, the figures for 2004 are net of divested business, which is henceforth included in ‘’Profit/loss on discontinued and divested business’’.
Income statement data for 2002 are pro forma figures as if Nordea AB´s activities were owned at 1 January 2002.
& Commercial Denmark, accounts for 40% of the business. Furthermore, the product portfolio is highly diversified with motor and fire/contents insurance as the largest segments. This balance is a strong platform for a further strengthening of TrygVesta’s market position and achievement of the Group’s targets.
Corporate and Finland of 5.5% and 41.4%, respectively, and growth in Private & Commercial Denmark of 1.8%
(3% before premium discounts), while earned premiums in Private & Commercial Norway fell by 2.7% in DKK.
The underlying development in the number of policies and customers was positive in 2006. The growth in gross earned premiums was adversely affected by a number of bonus payments triggered by the good technical performance because bonus is set off against premiums. Total gross earned premiums thus increased by 2.0% over 2005 to stand at DKK 16,021m for 2006.
Adjusted for premium rebates, premiums grew at a rate combined ratio of 87.8
The combined ratio was 87.8 in 2006 against 89.0 in 2005. At the beginning of 2006, the combined ratio was estimated in the range of 89-93 with an expectation of 91. The expectations were adjusted several times during the year, and the actual combined ratio at the end of the year was lower than originally expected.
The run-off result had a favourable impact of 2.3 percentage points on the combined ratio and was the main reason for the deviation from our expectations.
At the same time, large losses in 2006 were substantially above the level of 2005 and the level of a normal year. Most of the large losses in 2006 were incurred at
Danish corporate customers’ operations abroad. The largest loss amounted to a gross expense of DKK 190m.
Run-off gains in 2006 had a positive impact of gross 2.6 percentage points on the claims ratio. The positive run-of performance was mainly driven by provisions for motor third-party liability. A sustained positive trend will have a favourable effect on the run-off results, all other things being equal. However, motor third-party liability is subject to much uncertainty and therefore followed closely.
Over a longer perspective, the claims frequency has developed favourably in motor and building. Although the claims frequencies for motor in Denmark and building in Norway increased in 2006, they remained low. The positive effect of the introduction of driver penalty points for certain traffic offences referred to by the media was not reflected in our claims statistics, but the statistics did record fewer personal injuries and more minor claims under motor comprehensive policies in 2006. Other factors that affect developments include improved safety equipment in cars, an increasing number of cars per household and lower average speeds due to more cars on the roads.
The average building claim was higher in both Denmark and Norway in 2006, most notably in Norway, due to stronger demand for craftsmen. In response to this development, TrygVesta aims to increase the number of cooperation agreements with craftsmen in Denmark as well as in Norway.
For several years, the average motor claim in Denmark has been favourably affected by our cooperation with a number of repair garages. The positive trend with fewer personal injuries has a favourable impact on the run-off result, and we monitor this trend closely.
TrygVesta’s gross expense ratio of 16.8 in 2006 was an improvement of 0.1 percentage point relative to 2005.
Investments made in 2006 in new markets, that is, the start-up in Sweden and the start-up of commercial sales in Finland had a negative impact of 0.6 percentage points on the expense ratio.
equity return of 20.3%. Both Danish and Norwegian equities outperformed the benchmark with returns of lower effective tax rate
TrygVesta reported a profit on discontinued business of DKK 126m relating mainly to the winding up of Chevanstell Limited, which reported a profit of DKK 157m comprising a gain on the sale of the shares in Chevanstell Limited, a gain from settlement of a reinsurance contract with Chevanstell Limited and tax deductions.
TrygVesta generated a cash inflow from operating activities of DKK 3.2bn in 2006 compared with DKK
4.2bn in 2005. The lower cash inflow from operating activities was mainly attributable to larger tax payments. Investments amounted to DKK 1,9bn in 2006, and there was a cash outflow from financing activities of DKK 1,5bn mainly relating to dividends.
No other material events have occurred in the period from the balance sheet date until today which in the opinion of management affect the assessment of the company’s financial position.
It’s essential to feel insecure and unsafe. Art must ask questions – not produce answers. That’s why I don’t seek the warm embrace of feeling secure and safe when I paint. Quite the contrary. I’ve always looked for extremes, and I’ve been able to do that, because I feel very secure and safe in my home life. So for me both states of mind are important.
A couple of years ago, the artist Eduardo Kac created a project with a luminous rabbit, which he had genetically modified. It gave rise to a great many questions – about what we are allowed to do and not allowed to do and about artistic licence ... in other words, various ethical questions, of which we will have many more in the future. Eduardo Kac made many people feel insecure and unsafe, and I found that really fascinating. The reason is that we were all forced to think about what was right and what was wrong – about the attitudes and beliefs that each of us held. I actually believe that this is an exercise that would generally benefit all people.
Norway at the beginning of 2006. 2) The 2004 figures are repeated in 2005 as there was no employee satisfaction survey in 2005.
We use the balanced scorecard (BSC) to implement our strategy and retain our strategic focus areas.
In early 2006, we launched a comprehensive strategic analysis and review of our business towards 2010. This work has enabled us to develop a clear, shared perception of our future potential, and of the ways in which we can create sustained value for customers, shareholders and employees. Supported by the strategy plan for 2007-2010 we stand well prepared to meet future challenges and opportunities.
• increase our product offering within health care providing products and services that offer peace of mind
• focusing more on communicating with customers via the Internet learning
Gross earned premiums are expected to increase by some 3% in local currency, assuming no major changes in competitive conditions relative to 31 December 2006. The Group aims to retain the strategy of generating profitable growth.
TrygVesta expects to reduce the expense ratio slightly in 2007 relative to the expense ratio of 16.8 achieved for 2006. The expectations include continued expansion in Finland and Sweden. Excluding these activities, the expected expense ratio for 2007 would be about 1 percentage point lower.
Expectations regarding gross earned premiums are based on TrygVesta’s portfolio at 31 December 2006 and assumptions with respect to sales and loss of policies and price adjustments of policies in force. Assumptions for sales and loss of policies are based on historical levels, planned initiatives and the market situation. Assumptions for price adjustments are primarily based on agreements relating to adjustments of individual insurance policies.
TrygVesta generally bases expectations with respect to claims incurred on assumptions for the various products in the individual business areas and companies. Expectations regarding claims ratios are based on historical performance in the form of average claims ratios for the past five years, with recent years’ trends generally being weighted stronger than those of prior years. Trends in the pricing of our insurance premiums, claims frequencies and the discounting rate applied are the most important factors that may affect our overall performance. Assumptions for storm and large losses are based on historical experience for not less than ten years. In addition, we incorporate the effect of profitability initiatives and the effect of any legislative measures and changes in case law in the anticipated claims level.
The expectations for 2007 assume weather related claims of about DKK 225m and large claims of about DKK 410m.
The reinsurers’ share makes up the difference between the gross and net run-off result.
The forecast regarding gross expenses reflects the projected number of employees during 2007 and the related costs. The projected number of employees incorporates the effect of measures launched to improve efficiency. The forecast further includes other costs such as expenses relating to IT operations and our corporate headquarters, which are predominantly based on agreements that are known to us.
The result of business ceded is based on contracts made with reinsurers to cover claims events and events such as storms and large losses. The expected result of business ceded is calculated on the basis of such contracts and historical data.
The tax rate is 28% in both Denmark and Norway. The effective tax rate is primarily attributable to gains or losses on shares which are tax-exempt or non-deductible.
TrygVesta assumes an effective tax rate of 26% for 2007 based on the above assumptions for the return on shares.
Financial forecast for 2007 / TrygVesta Annual Report 2006 / Page 24 of 147
Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Such statements may constitute forward-looking statements. These forward-looking statements (other than statements of historical fact) regarding our future results of operations, financial condition, cash flows, business strategy, plans and future objectives can generally be identified by terminology such as
TrygVesta urges readers to refer to the section on risk management available on the Group’s website for a description of some of the factors that could affect the company’s future performance and the industry in which it operates.
Should one or more of these risks or uncertainties materialise or should any underlying assumptions prove to be incorrect, TrygVesta’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected.
At Novozymes, we have experienced many changes over the years. Different people react very differently to change – ranging from truly thriving on change to feeling very insecure by having to eat in a new canteen. I suppose one could say that people who do not like change are security addicts. But you can also be addicted to change – I believe that’s what I am to a certain extent. I am most at ease when I feel that I play a part in shaping my surroundings. It means a great deal being part of shaping the future, because if you take part in shaping it, you also have the chance to make an impact.
The challenge is to balance the requirements for creating change and fostering a safe and secure work environment. In our organisation, it is essential that we create new ideas, so we need to nurture an environment, in which our employees will be creative. One way in which we are trying to do this is by mixing our employees across nationalities and departments and by encouraging them to work in groups. However, it is obviously also important that the brief is not reduced to: “Think up something”. The project needs to have at least some structure and a definite direction.
Naturally, this way of working may cause a crisis once in a while, but in my view, a crisis is not necessarily a bad thing. It is not a bad thing when your purpose is to be innovative, as it is in our company, or when you have to move forward as an organisation. I often think about that the Chinese sign for crisis is double – on the one hand, it signifies danger and on the other, an opportunity!
When I look ahead, it is quite clear that in our field as well as in many others, the development is incredibly strong in some countries, such as in India and China. In our part of the world, we may not have entirely recognised that our model is being challenged. In our search for security, we may have lulled ourselves into something that is not particularly positive seen in a greater perspective. As a consequence, I am a little sceptical and somewhat unsure as to what the future will bring.
STEEN RIISGAARD IS 55. STEEN HAS BEEN PRESIDENT & CEO OF
Developments in the welfare systems of the Nordic countries have contributed to an increasing number of people wanting private insurance schemes that cover health care, unemployment and other events that may have an impact on welfare. Being a provider of peace of mind, TrygVesta wishes to play a pro-active role in meeting people’s needs and requirements, and we believe the health area holds great potential for growth. Time is also a factor that people attach a great deal of importance to: high level of prosperity and the demand for simple solutions mean that they are prepared to pay extra if it saves them time they can then spend with their families or on leisure activities, work etc. A demand for openness and transparency places new requirements on insurance solutions, which
Poor’s A rating, which is equivalent to 52-56% of net premiums. In preparation for the Solvency II regime, the
We aim to enhance customer loyalty on an ongoing basis. We can achieve this only by constantly spotlighting customer satisfaction. As part of our active customer policy, we contact all private customers every year when we send out policy renewals and policy overviews. We also send all our concept customers at least one additional positive message each year.
Our customers in Finland remain some of the most loyal and satisfied customers in the market, and we rank first or second in all categories.
Only three companies have a presence in more than one market in the Nordic region. Our generel progress in all markets place us as the undisputed number one in the Nordic market.
The number of customer complaints and the ability to handle customer complaints are major parameters for quality in the provision of service products. We regularly measure our claims quality in the Nordic countries in order to improve the quality of our claims handling.
We have the lowest ratio of customer complaints among the four largest insurers in both in Norway and
Finland, scoring 32% and 14%, respectively, below the average for the industry. In Denmark, we have the second-lowest complaints ratio among our peer group.
We score 32% below the average for the total insurance market in Denmark.
are an important tool to enhancing customer loyalty. At 31 December 2006, the proportion of private concept customers was 65% in Denmark and about 64% in Norway. We develop our customer concepts on an ongoing basis and add new benefits such as special insur-
TrygVesta. Surveys indicate that concept customers are characterised by greater customer loyalty.
In addition, we launched a new policy on 1 November 2006, which we initially offer to our existing customers in Denmark. The policy covers all defects in and sudden and unforeseen damage to electrical appliances and house contents. We have seen great demand for the insurance with an average of some 900 policies sold each week since its launch.
(tryg.dk and vesta.no) had 3m visitors against 2.1m in 2005. Our Danish website had 1.9m visitors compared with 1.5m in 2005, while our Norwegian website had 1.1m visitors against 560,000 in 2005. Our Swedish website was launched in mid-June 2006. It had some 23,000 visitors in 2006 with visitor numbers increasing sharply each month.
TrygVesta Garanti brand, Dansk Kaution launched two additional websites in 2006, and now markets itself at vestagaranti.se and trygvestagaranti.com as well as danskkaution.dk, trygvestagaranti.dk and trygvestagaranti.no.
custoMers With a reason to coMplain in 2006 1) Average for each country = 100. Source: EPSI Rating.
Our customers / TrygVesta Annual Report 2006 / Page 31 of 147
custuMer survey denMark 2006 satisfaction and loyalty - private custoMers 1)
2) The benchmarks in the Nordic comparison are simple averages of official EPSI country results for companies with a presence in more than one Nordic market.
OF OSLO, NORWAY. FOR A NUMBER OF YEARS, PER HAS BEEN RESEARCHING,
BusinessLab we work across the Group, capturing ideas and turning them into viable business solutions. In early 2007, BusinessLab will relocate to a new innovation centre at Ballerup, an unconventional and multifunctional space with room to play with, think through and develop ideas.
BusinessLab ran its first in-house idea competition in the autumn of 2006. The competition was designed to encourage all employees to develop their creative thinking and to utilise the creative potential we have within our Group. The employees submitted a total of 236 contributions to BusinessLab.
As the welfare debate and our customers’ requirements and demand for welfare services increased again in 2006, we set up a Nordic business centre for
Danish act on taxation of pension schemes provided greater flexibility and made it more attractive for this target group to save for their retirement. Selfemployed persons may now pay up to 30% of their profits into a pension plan with an option to change
Based on good experience in Denmark, we will launch a new IT system in Norway in the coming years. The system automated production of agreements and policies, enabling our sales agents to finalise around 90% of all sales on the spot, improving the customer’s experience and enhancing the potential for added sales. According to experience from Denmark, the IT system has reduced unnecessary duplication of work, improved efficiency and increased sales. We estimate that the implementation of all three phases of the IT system in
In the summer of 2006, we introduced a new pan-Nordic brand platform in Denmark and Norway, signalling our behaviour and communications based on the concept of peace of mind and the needless concerns that may trouble our customers. In addition to a new graphic design we also introduced several new commercials in this context. The commercials got a very positive reception in both Denmark and Norway: external surveys indicated that 71% of viewers over 18 years took a positive view of the new commercials in
For example, we considered the customers of each department and described how we can use our values pro-actively in our contact with customers. The theme packages provided us with very satisfactory experience and helped enhance awareness of the importance of our corporate values. The 2007 theme packages will focus on subjects such as values and dilemmas, wellbeing and stress, and ethics.
As a new initiative we launched a management forum in the spring of 2006. The object is to inspire TrygVesta managers professionally and prepare them to meet the challenges which managers may have to face. At the same time, we intend the management forum to be an arena in which managers get together for reflection and dialogue across business areas and levels of the organisation. The first two themes, “Managing modern organisations” and “Corporate Branding”, were reviewed by external as well as in-house consultants.
Stress prevention will be a key theme in the coming year.
new pan-nordic learning portal and e-learning e-learning is among the important tools used in connection with competence building. Our Norwegian employees have already worked with the e-learning concept for a few years, and we are drawing on this experience in our efforts in the other Nordic countries.
We have drawn up a policy designed to promote diversity and equality within the Group, and we have completed several successful integration projects.
In 2005, we concluded a project in our Private sales department training customer advisers with an ethnic background other than Danish, and in 2006 we completed an IT trainee programme for engineers with an ethnic background who had been unemployed for more than a year. During the past three years, the number of employees with a foreign ethnic background has doubled. Our current organisation stands well prepared for the new labour market in which the ability to integrate and diversity thinking give a strong competitive advantage.
As part of our efforts to create a healthy workplace we revised the Group’s smoking policy, introducing a complete ban on smoking indoors from 1 May 2006. We offered all smokers among our employees a stop-smoking course. Around 100 Norwegian and 270
Our employess / TrygVesta Annual Report 2006 / Page 39 of 147
Our employess / TrygVesta Annual Report 2006 / Page 40 of 147
In my view, climate change will become our greatest challenge in the future – and in our organisation, we have been discussing ways of dealing with the issue for quite some time. Naturally, one major task will be to develop products and services meeting the new needs for security and peace of mind that will arise as a consequence of climate change. It is essential that we as an organisation constantly follow the development of the world, in which we live – naturally, that also applies to the climate.
Within the private sphere, I am in no doubt that climate and health will attract major attention in the future.
Nordea’s products. The Group’s products are also sold through our own sales agents, three regional customer centres, 35 local service centres, car dealers and Nordea’s 140 branches. Private & Commercial Norway has around 1,100 employees excluding franchise office staff.
Is a Nordic business area which provides general insurance products to large corporate customers under the TrygVesta brand. The Corporate business area services corporate customers with our own sales force and through brokers. Corporate customers are defined as customers paying annual premiums of more than DKK 500,000 or having more than 50 employees. The Corporate business area has some 10,000 customers. The number would be around 50 customers by international standards, which define corporate customers as customers paying annual premiums of more than DKK 10m.
Dansk Kaution guarantees its customers’ performance under contracts signed. Its primary customers are contractors and contract manufacturers. Dansk Kaution is marketed as TrygVesta
Is included in Private & Commercial Norway and is a subsidiary of Vesta in Norway. Enter Forsikring sells motor and other products under the Enter brand and as brand policies. The primary distributors are car dealers and car importers. Enter has some 110 employees.
In Sweden, we sell general insurance products to private household customers under the brand name Vesta Skadeförsäkring, which we launched in the summer of 2006, primarily through Nordea’s some 260 branches, through our own call centre and via the Internet. At 31 December 2006, 39 employees were based in Malmoe, Sweden but the number of employees is expected to rise steeply over the coming year as the establishment of the Swedish business continues.
Our business areas / TrygVesta Annual Report 2006 / Page 45 of 147
Gross earned premiums were 1.8% higher, and the number of policies and customers developed favourably throughout 2006. Due to the positive technical performance, growth in premiums was impacted by bonus payments on a number of agreements with affinity groups, which are set-off against gross premiums, totalling DKK 150m in 2006 compared with DKK 77m in 2005. Before bonus payments, the rate of premium growth was 3% in 2006.
In the autumn of 2006 Privat & Commercial Denmark private & coMMercial denMark reduced premiums for certain motor insurance segments. Overall, the reduction impacted premium growth negatively by about 1 percentage point.
In 2006, the short policy cancellation notice resulted in a higher rate of customer turnover, as reflected in a slightly lower retention rate. The rate of customer turnover increased, in particular, among young customers who typically have only one product, while concept customers continued to record a high renewal rate. The renewal rate for the commercial segment also remained at a high level.
In October 2006, Private & Commercial Denmark introduced an extended warranty insurance covering malfunction of and sudden and unforeseen damage to electrical appliances and house contents. The policy was initially offered to concept customers and met with a very positive reception. With more than 8,000 policies sold by 31 December 2006, the new policy is expected to have a favourable impact on customer retention.
Gross claims incurred -4,306 -4,987 -4,376 profit/loss on gross business 975 176 509 profit/loss on ceded business -201 467 -101
Business ceded as a percentage of gross premiums 3.1 -7.4 1.7
The gross claims ratio fell from 79.5 in 2005 to 67.4 in 2006. While 2005 was strongly impacted by the storm in January, 2006 was affected only by a cloudburst in
August and a few minor cloudbursts in November, totalling DKK 109m. The cloudbursts impacted the claims ratio in 2006 by 1.7 percentage points. The corresponding impact from storms and weather-related claims was 11.8 percentage points in 2005. The level of large losses, defined as losses exceeding DKK 10m, was at the same level as in 2005.
Tryg Reparation for cars, which was introduced in 2003, and Tryg Bygning from 2004 continued to have a positive effect on claims expenses. The proportion of cars repaired by garages under the Tryg repair arrangement increased from 40% to around 50% in 2006.
The average building claim increased in 2006 due to the strong demand for craftsmen, but demand subsided during the year, slowing the rate of increase. The Tryg
Bygning arrangement still offers considerable potential dkkm 2006 2005 2004 normal year
Private & Commercial Denmark / TrygVesta Annual Report 2006 / Page 47 of 147
One factor contributing to the strong increase was that Nordea’s customer advisers attended training in 2006 to strengthen their insurance competencies with a subsequent requirement to increase sales.
The combined ratio continued at a low level in 2006 at 86.2 compared with 83.1 in 2005. While 2005 was characterised by unusually low claims expenses, 2006 saw a more normal claims experience.
Tryg Bygning in Denmark involving cooperation agreements with selected craftsmen. Looking ahead, this initiative is expected to have a favourable impact on the average claim.
Private & Commercial Norway launched a new concept in Norway on 1 November 2006 called
DKK 389m over 2005. The improvement was driven by both the Danish and the Norwegian part of the business, but also by a favourable development in costs.
Together with the customer, the team then finds a solution that covers the customer’s requirements.
In connection with the risk consultancy project, Corporate launched a three-module risk consultancy training programme on a pan-Nordic basis in 2006. Many of the
Danish and Norwegian employees completed the first module in 2006, and some 250 employees are expected to complete the full programme by the end of 2008.
The strongest growth in 2006 was generated by the Danish part of the Corporate business, but the advance in the Norwegian part was also substantial. In particular, the workers’ compensation business saw a positive development in premiums. While this was, in
Corporate / TrygVesta Annual Report 2006 / Page 50 of 147
As profitability in workers’ compensation insurance has improved relative to previous years, the Group wishes to expand the market share in this area.
The combined ratio improved from 92.4 in 2005 to 86.9 in 2006. The improvement was driven, in particular, by the Norwegian part of the Corporate business, which ended the year with a combined ratio of 84.1, while it was 91.7 for the Danish part of the Corporate business.
The gross expense ratio fell from 11.4 in 2005 to 11.0 in 2006. However, the underlying nominal costs remained at the level from 2005. The very positive trend in expenses was very much attributable to focused efforts throughout the organisation.
Gross claims incurred -155 -113 -73 profit/loss on gross business -40 -43 -47 profit/loss on ceded business 0 -1 0
Business ceded as a percentage of gross premiums 0.2 0.2 0.2
Nordea and our own sales channels and by strengthened cooperation with the car dealers.
Group also established its own distribution channels and set up agreements with car dealers in 2006.
In 2007, Nordea Vahinkovakuutus intends to expand its position in the private market in Finland. In February 2007, sales of insurance services to new and small businesses will be launched, primarily through Nordea.
Finnish general insurance / TrygVesta Annual Report 2006 / Page 53 of 147
Technical interest, net of reinsurance 0 technical result -41 sWedish general insurance
Vesta Skadeförsäkring, TrygVesta’s Swedish business, began selling private insurance in June 2006.
Insurances in Sweden are sold in a close partnership with Nordea, which handles much of the sales through its branch network, call centres and website.
The initial target group is Nordea’s ‘gold customers’, that is, customers with more than five products and a total commitment of a certain size. Some 30% of Nordea ’s customers in Sweden are gold customers, and we see significant potential for selling policies to Nordea’s customers.
Most of Nordea’s Swedish customer advisers completed an e-learning sales training programme in 2006, preparing them to sell our insurances.
Danish and Norwegian equities generating returns of 25.7% and 34.9%, respectively.
Return on investment activities 1,207 888 378 319 *) The item comprises gains and losses as a result of a changed discount rate, interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insurance items and costs of investment activities.
Norway during 2006, which had an adverse impact on value adjustments and a positive impact on the current return. 97.2% of the bond portfolio consisted of Danish mortgage bonds, placements in the Norwegian money market and bonds issued by Western European and
Investment activities / TrygVesta Annual Report 2006 / Page 55 of 147
MSCI Europe and MSCI USA, respectively. Currency risks relating to international equities were hedged during the year. Unlisted shares accounted for DKK 209m at
TrygVesta’s portfolio of listed shares is highly diversified. The largest position, Royal Bank of Scotland, accounted for only 2.2% of total listed shares and 0.3%
of total investment assets. Danish and Norwegian listed shares accounted for 20.7% of the total listed portfolio, and the international share mandates are placed in portfolios that are highly diversified with regard to geography and industry and with a low tracking error, meaning that the portfolio return is expected to be very close to the benchmark return. TrygVesta maintains a broadly diversified international equity portfolio in accordance with the investment policy.
Investment activities / TrygVesta Annual Report 2006 / Page 56 of 147
The occupancy rate was 94.9 at 31 December 2006 compared with 94.4 a year earlier.
Seen from my chair, I find it interesting to consider the development that the insurance market has undergone during the last few years. Following the tough years around the Millennium, many companies have realised the importance of focusing on profitable core products rather than on their financial investments.
Instead, we ought to focus on the new opportunities that globalisation continuously provides, and that many of the European economies are generally doing better and better. Provided both the management and staff of companies take these challenges seriously and are ready for change, I can only see positive scenarios for the future.
We strive to maintain a high level of information and understanding of our business among analysts and investors by
• being available for queries and providing a high level of relevant information
OMX Copenhagen Stock Exchange. Similar information is distributed to the London Stock Exchange, the press, equity analysts, investors and other stakeholders.
OMXC20 index comprising the 20 most traded shares on the OMX Copenhagen Stock Exchange.
Our investors / TrygVesta Annual Report 2006 / Page 60 of 147
The dividend for the year will be paid automatically four weekdays after our annual general meeting. The ex-dividend date will be 29 March 2007.
Our investors / TrygVesta Annual Report 2006 / Page 61 of 147
Notice of the annual general meeting will also be posted on our website and inserted in the press. Any queries relating to the annual general meeting may be addressed to
Our investors / TrygVesta Annual Report 2006 / Page 62 of 147
ance and the Supervisory Board deems that, with a few exceptions, TrygVesta complies with the recommendations published by the Copenhagen Stock Exchange
The Supervisory Board regularly considers the adequacy of the capital structure relative to the interests of the company and shareholders, ensuring that our capitalisation is optimised on an ongoing basis while duly safeguarding shareholders’ interests and leaving the
TrygVesta’s annual general meeting is held every year in Greater Copenhagen before the end of April. The
Supervisory Board convenes general meetings giving not less than eight days’ notice. The notice includes the time and place of the meeting and sets out the agenda, which comprises: • Report of the Supervisory Board on the activities of the company during the past financial year
• Adoption of a resolution as to the distribution of profit or covering of loss, as the case may be, according to the annual report as approved
TrygVesta believes good stakeholder relations are key to our future performance and potential, and we strive to develop and maintain good relations to all stakeholders. TrygVesta therefore gives high priority to being available and accessible and endeavours to reply to all enquiries in an accommodating manner.
In order to ensure that information is provided to stakeholders in a correct and adequate manner,
Corporate governance / TrygVesta Annual Report 2006 / Page 63 of 147
The Supervisory Board has 12 members, including eight members elected by the shareholders for a term of one year. Four of the eight members are non-affiliated with
• four representatives are elected among the employees, who according to agreement with the Danish employee associations include two representatives of the Danish employees and two representatives of the
Supervisory Board must retire at the first annual general meeting following the year of their 70th birthday.
The Executive Management reports regularly to the Supervisory Board on strategies and action plans, market developments and the Group’s performance, funding issues, capital resources and special risks. The Supervisory Board cooperates with the Executive Management on a regular basis to ensure development of and follow up on the strategy.
The Supervisory Board holds at least six annual meetings as scheduled in a pre-defined meeting and working plan. In addition, the Supervisory Board holds an annual strategy seminar to assess progress and define goals and strategies for the years ahead.
Management and of the cooperation between the Supervisory Board and the Executive Management. The Supervisory Board also carries out a self-assessment of the work and results of the
Supervisory Board and each of the Board members with a view to developing the Board’s work.
The chairman and the deputy chairman are in charge of the Supervisory Board’s work. Their duties include preparing Board meetings and performing evaluations.
Corporate governance / TrygVesta Annual Report 2006 / Page 64 of 147
The Supervisory Board set up an audit committee in 2006. The three-member audit committee is chaired by a member of the Supervisory Board who is not a member of the Supervisory Board of Tryg i Danmark smba. The audit committee will hold at least four annual meetings.
Members of the audit committee receive an annual fee of DKK 100,000 and the chairman of the committee receives DKK 150,000. For 2006, fees were paid for the period beginning on 1 April.
The Supervisory Board set up a provisional nomination committee in the first quarter of 2006. The nomination committee was responsible for selecting suitable candidates for the Supervisory Board. The provisional nomination committee comprised Mikael Olufsen (chairman ), John Frederiksen and Per Skov.
A stock option programme provides incentives to focus on share performance. Members of the Group Executive
Kjerstin Fyllingen has a defined benefit plan in accordance with the Norwegian pension rules, as described in the notes to the financial statements.
The Supervisory Board makes an annual grant of stock options to members of the Group Executive Management and certain senior management employees as a forward-looking incentive. In 2006, TrygVesta granted a total of 186,020 stock options, including 44,540 stock options to members of the Executive Management and 141,480 stock options to 53 senior management employees. Options granted in 2006 entitled the holders to acquire shares at the average share price
In 2007, the Supervisory Board has determined a stock option programme with the same time horizon as above and an exercise price 10% above the market price on the date they are granted.
The Supervisory Board also grants stock options to employees to reward outstanding performance. All compensation of the group executive Management 2006 dkk /*nok fixed salary bonus discretionary shares at pension car total coma discount pensation
It is important to TrygVesta that all employees see their own efforts relative to the company’s overall targets, and for this purpose we have an employee bonus programme. Employee bonus benchmarks were combined ratio and growth in 2006, and our performance triggered DKK 10,000 worth of shares at a discount to the market price to each employee in Denmark. Employees in Norway, Finland and Sweden may choose between shares or payment in cash.
IT resources and own insurance matters is managed through policies defined by the Executive Management and approved by the Supervisory Board. Risk is measured and managed centrally at Group level for all the
Ensuring a competent and independent audit is an essential part of the Supervisory Board’s work. The annual general meeting each year appoints auditors recommended by the Supervisory Board. The Supervisory Board, the audit committee and the Executive
Management make a critical assessment of the auditors ’ independence and competence.
We are subject to the rules of the Danish Financial Supervisory Authority governing financial businesses. These rules provide that internal auditors review the quality of our internal control systems and business procedures on a regular basis and are responsible for planning, performing and reporting this audit work to the Supervisory Board.
The internal and external auditors’ long-form reports are reviewed by the Supervisory Board.
A- from Standard & Poor’s, comply with relevant regulatory requirements and optimise the capital structure relative to the company’s shareholders. Given the current structure of the business and the investment profile, a rating of A- reflects a ratio of capital to net premiums of 52-56%.
At 31 December 2006, the capital after dividend distribution was above the target level relative to premiums. This was attributable to a temporary deviation in the investment profile created by market value increases of shares and real property due to the favourable capital markets in 2006. In addition, the capital is adjusted for discounting of provisions for claims using a standard calculation method. The target of having capital of 52-56% relative to premiums is expected to be continued in 2007.
Tryg Forsikring A/S has raised a 20-year bond loan in the amount of EUR 150m, which is listed on the London
Stock Exchange. The loan, which carries a coupon of 4.5%, is included in the capital base for rating purposes and to a limited extent in the regulatory capital base.
Subordinate loan capital accounts for 10% of the capital for credit purposes, with the present limit being 15%.
Fortunately, elderly people these days tend to be in better health. People do not get worn-out, as they did in the past. When you are in better health, you get a better transition to the last stage of your life. Indeed, many elderly people take an active part in a great variety of association activities within their local areas. Playing more of an active part in one’s local community may indicate that the elderly feel more safe and secure.
PETER KALKO IS 71. HE IS RETIRED AND LIVES IN MÅRUM, DENMARK.
The risk relating to pricing insurance products and the related insurance liabilities if a claim is made
The risk that volatility of financial markets impacts our results credit risk
The risk that the conditions under which we operate change operational risk
The risk of errors or failures in internal procedures, systems and processes, and risks that are not covered by the financial risks and strategic risks risk ManageMent
Risk management is a fundamental part of TrygVesta’s business philosophy. When a customer takes out a policy with us or investors buy our shares, they do so because they are confident that TrygVesta has risk management procedures in place that ensure
TrygVesta is able to meet its obligations with respect to paying claims for insurance events and to creating value for shareholders. Structured and competent risk management is fundamental to such confidence.
TrygVesta is able to meet its obligations if they report a claim. TrygVesta’s target is to maintain adequate capital to absorb the risks arising as part of the operations.
Assessment of the required capital level is also a focal point for the EU in its work to draft new Solvency
II rules. In 2006 we were involved, for example, in drafting two responses relating to the development of a risk-based calculation model. In connection with the ALM model TrygVesta is already preparing for the implementation of Solvency II.
Insurance risk is the risk relating to the insurance operations. It is the most important risk that our insurance operations are exposed to.
An important part of TrygVesta’s risk management is the use of reinsurance, which is assessed and structured on a Group-wide basis. The structured approach to reinsurance is supported by the ALM model, which we use for assessing the impact of different reinsurance alternatives.
In order to have protection against natural disaster risks, we maintain cover in 2007 of up to DKK 4.5bn with retentions of DKK 100m in Denmark and NOK
TrygVesta’s catastrophe reinsurance programme also covers other catastrophe events, including terrorist -related events, for up to DKK 2.0bn, with terrorist events being covered for buildings, building contents and consequential loss for risks with a total insured value of up to DKK 500m.
1.5bn for our personal accident and workers’ compensation policies with a retention of DKK 50m, covering the risk of multiple injuries from the same cause, including terror.
Risk management / TrygVesta Annual Report 2006 / Page 73 of 147
NOK 50m and with cover up to a maximum of DKK/NOK
900m. For property risks exceeding the upper level, we buy facultative reinsurance. Other lines covered by reinsurance include liability and motor, marine, fish farms and guarantee insurance.
Market risk is the risk that volatility in the financial markets will impact TrygVesta’s results of operations and financial position.
Based on TrygVesta’s investment policies, we define the appropriate asset mix, including limits on types of assets and the geographic distribution and risk profile of bonds, shares and real property for each company in the Group. The asset mix and investment activities focus strongly on interest rate risk, security and liquidity.
Most of the provisions for claims are discounted using an interest rate curve based on market rates except for provisions for annuities in Danish workers’ compensation insurance, which are discounted using a fixed real rate of interest of 1% and therefore not directly affected by market fluctuations.
31.5bn at 31 December 2006, while the provisions for claims discounted using a market rate amounted to
Where a change in interest rates triggered a change in the discount rate applied to the provisions for annuities in Danish workers’ compensation insurance, a rate change from 1% to 2% would lift profit by DKK 145m.
In addition to the provisions for claims, the provision for pension obligations in Norway is affected by changes in interest rates. A 1% increase in the discounting rate would cause the pension obligation to drop by DKK 163m. However, such changes do not affect results, as they are recognised in equity.
The left-hand figure illustrates the impact on the fixed-rate securities and discounted provisions for claims (the calculation of the impact on TrygVesta’s liabilities excludes provisions for annuities in workers’ compensation, the provision for pension obligations and Finland) in different interest rate scenarios determined by combinations of 0.5% and 1.0% changes in four key rates (1 year, 3 years, 5 years and 10 years). The line shows scenarios in which the impacts of interest rate changes on assets and liabilities are mutually offsetting. The greatest negative net impact (DKK 157m) is in a scenario with shifts of +1.0, -0.5, +1.0 and +1.0%, respectively, while the greatest positive impact (DKK 128m) is in the scenario where the key rates shift -1.0, +1.0, -1.0 and -0.5%, respectively.
The equity and real property portfolios are exposed to changes equity markets and real property markets, respectively. Such risk is managed through investment limits for various asset classes. The equity portfolio primarily focuses on the large, liquid equity markets in Europe, the USA and Japan. TrygVesta has defined a strategy with relatively little exposure in the local markets in Denmark and Norway (around 20% at 31
Credit risk arises every time TrygVesta has a receivable from a counterparty. In the case of the insurance operations, counterparties may be customers, suppliers or reinsurers, while in connection with the investment activities, our primary counterparties are issuers of bonds.
TrygVesta launched a number of initiatives in 2006 in order to strengthen operational risk management, including the systematic registration of risks in a data base maintained by the corporate security department and reported to the Supervisory Board once a year.
In addition, the market is monitored continuously to ensure that we have an up-to-date basis for assessing external conditions, be it competitors’ market initiatives, new legislation or other external factors that may impact TrygVesta.
The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2006 of TrygVesta A/S and the TrygVesta Group.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting
Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
In our opinion, the business procedures and internal control procedures, including the risk management implemented by the management, aimed at the Group’s and the parent company’s reporting processes and major business risks, work satisfactorily.
in respect of the consolidated financial statements, in accordance with the Danish Financial Business Act in respect of the parent company’s financial statements and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises.
International Financial Reporting Standards as adopted by the EU in respect of the consolidated financial statements and in accordance with the Danish Financial Business Act in respect of the parent company’s financial statements and in accordance with additional
Danish disclosure requirements for annual reports of listed financial enterprises. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an annual report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual report.
Independent auditors’ report / TrygVesta Annual Report 2006 / Page 83 of 147
In our opinion, the annual report gives a true and fair view of the Group’s assets, liabilities and financial position at 31 December 2006, and of the results of the Group’s operations and the Group’s cash flows for the financial year starting on 1 January and ending on 31 December 2006 in accordance with International
Financial Reporting Standards as adopted by the EU and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises.
Furthermore in our opinion, the annual report gives a true and fair view of the parent company’s assets, liabilities and financial position at 31 December 2006, and of the results of the parent company’s operations for the financial year starting on 1 January and ending on 31 December 2006 in accordance with the Danish
Independent auditors’ report / TrygVesta Annual Report 2006 / Page 84 of 147
The consolidated financial statements are prepared in accordance with the International Financial Reporting
The accounting policies applied for the parent company are in accordance with the executive order issued by the Danish Financial Supervisory Authority on financial reports presented of by insurance companies and profession-specific pension funds dated 13 December 2005 (the Danish FSA’s executive order), which is largely identical to IFRS. The deviations from the recognition and measurement requirements of IFRS are: • Investments in subsidiaries and associates are valued according to the equity method, whereas under the
IFRS valuation is made cost or fair value. Furthermore the requirements regarding presentation and disclosure are less comprehensive than under IFRS.
Subsidiaries and associates with a negative net asset value are measured at zero value. Any receivables from these enterprises are written down by the parent company ’s share of such negative net asset value where the receivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the remaining amount is recognised under provisions if the parent company has a legal or constructive obligation to cover the liabilities of the relevant enterprise.
Net revaluation of investments in subsidiaries and associates is taken to reserve for net revaluation under equity if the carrying amount exceeds cost.
The standard is mandatory from 1 January 2007, but TrygVesta A/S opted for early adoption of the standard as at 1 January 2005. The standard allows for recognising actuarial gains and losses directly in equity. Moreover, the standard prescribes more strict requirements on the disclosure of employee benefits.
• IAS 21 regulates the effect of changes in foreign exchange rates. The amendment took effect on 1 January 2006. The implementation of the amendments to this standard only affects the presentation of market value adjustments, which now includes a specification of exchange rate adjustments. No changes are made to recognition and measurement.
Current-year effect of actuarial gains and losses on pension obligation after tax 84 -86
Change in deferred tax relating to contingency funds -4 -2 profit for the year ended 31 december - danish fSa executive order 3.291 2.009
Equity at 31 december - danish fSa executive order 9.974 8.242
Accounting policies / TrygVesta Annual Report 2006 / Page 86 of 147
Financial Statements – Capital Disclosures”. In August 2005, an amendment to IAS 1 was issued for implementation in the consolidated financial statements for 2007. The amendment contains an adjustment to the type of information disclosed about the capital base. The implementation is not expected to affect disclosures in the annual report.
A/S recognises all share-based payment plans according to IFRS 2 and does not expect IFRIC 8 to have any influence on its financial reporting (IFRIC 8 remains to be approved by the EU).
Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the group and the value of the asset can be reliably measured.
Liabilities are recognised in the balance sheet when the group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the group, and the value of the liabilities can be measured reliably.
The consolidated financial statements comprise the financial statements of TrygVesta A/S (the parent company) and enterprises (subsidiaries) controlled by the parent company. Control is achieved where the parent company directly or indirectly holds more than 50%
The financial statements of subsidiaries that present financial statements under other legislative rules are restated to the accounting policies applied by the group.
Investments in joint ventures are recognised using the pro rata consolidation method. Using pro rata consolidation, the Group’s share of joint venture assets and liabilities is recognised in the balance sheet. The share of income and expenses and assets and liabilities are presented on a line by line basis in the consolidated financial statements.
On consolidation, the assets and liabilities of the group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period.
The TrygVesta group’s incentive programmes comprise a share option programme and employee shares.
Share based incentive programmes were introduced in the spring of 2006 for management and employees of the TrygVesta group.
Equity-settled share options are measured at the fair value at the grant date and recognised under staff costs over the period from the grant date until vesting.
The fair value of the options granted is estimated using the Black-Scholes option model. The calculation takes into account the terms and conditions of the share options granted.
When employees are given the opportunity to subscribe shares at a price below the market price, the discount is recognised as an expense in staff costs. The balancing item is recognised directly in equity. The discount is calculated at the grant date as the difference between fair value and the subscription price of the subscribed shares.
business segments operating in a particular economic environment. In the TrygVesta group, these areas are
Assets and liabilities denominated in foreign currency are translated at the exchange rates at the balance sheet date.
Accounting policies / TrygVesta Annual Report 2006 / Page 89 of 147
The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions.
Claims incurred represent claims paid during the year and adjusted for changes in provisions for unpaid claims less the reinsurers’ share. In addition, the item includes run-off results regarding previous years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to technical interest.
Accounting policies / TrygVesta Annual Report 2006 / Page 90 of 147
insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension.
Recognition of the balance sheet items in respect of the discontinued activities remains unchanged in the respective items whereas assets and liabilities from divested activities are consolidated in one line as
Increases in the revalued carrying amount of owneroccupied properties are credited to the properties’
revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against the properties’ revaluation reserves directly in equity, all other decreases are charged to the income statement.
Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition
of the relevant assets until the time when the assets are ready to be brought into use.
Gains and losses on disposals and retirements are determined by comparing proceeds with carrying amount. Gains and losses are recognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings.
Investment property is carried at fair value. Fair value is based on market prices, adjusted for any difference in the nature, location or condition of the specific asset. If this information is not available, the group uses alternative valuation methods such as discounted cash flow projections and recent prices on less active markets.
The carrying amount of intangible assets, operating equipment, owner-occupied property and investment property are tested at least once a year for impairment in the cash-generating unit to which the asset belongs, and the asset is written down to the recoverable amount through the income statement if the carrying amount is higher. The recoverable amount is generally calculated as the present value of the future cash flows expected to be derived from the activity to which the asset belongs.
The parent company’s investments in subsidiaries are recognised and measured under the equity method.
Associates are enterprises over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are measured according to the equity method of accounting so that the carrying amount of the investment represents the group’s proportionate share of the enterprises’
Associates with a negative equity value are measured at zero value. If the group has a legal or constructive obligation to cover the associate’s negative balance, such obligation is recognised under liabilities.
Investments include financial assets at fair value through the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this at every reporting date.
Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired, or if they have been transferred, and the group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis – the date on which the group commits to purchase or sell the asset.
The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The group uses derivative financial instruments to hedge its risks associated with foreign currency fluctuations relating to investments in foreign operations.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at their fair value.
The effective portion of changes in the fair value of derivatives that are designated and qualify as net investment hedges are recognised directly in equity.
Changes in the fair value relating to the ineffective portion are recognised in the income statement. Exchange differences arising from changes in exchange rates regarding hedging of foreign subsidiaries are classified as equity and transferred to the group’s translation reserve. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign operation.
The group assesses continuously its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the group reduces the carrying amount of the reinsurance asset to its recoverable amount. Impairment write-downs are recognised in the income statement.
Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than receivables that the group intends to sell in the short term. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the impairment review of receivables.
Prepayments and accrued income comprise cost paid relating to the following financial year.
Contingency fund reserves are recognised as part of retained earnings under equity. The funds may only be
Claims and claims handling costs are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims handling costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the group.
Discounting affects the motor liability, professional liability, workers’ compensation and personal accident classes, in particular.
Provisions for claims are determined for each product line based on actuarial methods. In cases where product lines encompass more than one business unit, the claims reserves are distributed, as a main rule,
based on reported number of claims in Denmark and individual claims in Norway. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss
Loss Ratio methods, and may also be used in situations that call for the use of exposure targets, for example the number of insured, other than premium volume.
Special areas: • The provision for annuities in workmen’s compensation insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis
For workers’ compensation, future claims are discounted at a real rate of interest and it can be assumed that the correlation between interest rate and inflation at least in the near term does not give rise to significant fluctuation in the real rate of interest. For workers’
compensation, the adjustment percentage published in 2005 with a premium of 2 percentage points is used as the expected future inflation rate.
For other lines of business, the inflation assumptions, because present only implicitly in the actuarial models, will cause a certain lag in predicting the level of future losses when a shift in inflation occurs. On the other hand, the effect of discounting will show immediately as a consequence of inflation changes to the extent that this change affects the interest rate.
used. Any deficiency is charged to the income statement by raising the relevant provision.
The group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-administered funds. In Norway, the group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent on age, years of service and compensation. In Denmark, the group operates a defined contribution plan. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions.
The group recognises this liability as soon as the employment begins.
In special instances the employee can enter a contract with the group to receive compensation for loss in pension benefits caused by the reduced working hours. The group recognises this liability based on statistical models.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where TrygVesta controls the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future.
Provisions are recognised when, as a consequence of an event that has occurred before or on the balance sheet date, the group has a legal or constructive obligation, and it is likely that an outflow of resources will be required to settle the obligation.
Provisions are measured as the management’s best estimate of the amount with which the liability is expected to be settled.
Bond loans, debt to credit institutions, etc. are recognised at the raising of the loan as the proceeds received less transaction costs. In the subsequent periods, financial liabilities are measured at amortised cost, applying the “effective interest rate method”, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement under financial expenses over the term of the loan.
The cash flow statement of the group is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the group’s cash and cash equivalents at the beginning and the end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement.
Cash flows from operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed.
Cash flows from investing activities comprise payments in connection with acquisition and divestment of enterprises and activities as well as purchase and sale of intangible assets, property, plant and equipment as well as fixed asset investments.
The pro forma comparative figures are stated on the basis of a consolidation of the companies forming part of the group as at 31 December 2003.
Accounting policies / TrygVesta Annual Report 2006 / Page 98 of 147
Change in reinsurers’ share of provisions for unearned premiums 3 -74 1 Earned premiums, net of reinsurance 15,293 14,900 2 technical interest, net of reinsurance 583 323
Other expenses -149 -154 profit/loss before tax 3,709 2,913 profit/loss on continuing business 3,085 2,125 9 Profit/loss on discontinued and divested business 126 -28 profit/loss for the year 3,211 2,097
Profit/loss on discontinued and divested business before tax 160 -27 profit/loss for the year incl. discontinued and divested business before tax 3,869 2,886 profit for the year 3,211 2,097 27 Earnings per share – continuing business of DKK 25 45,5 31,3
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 99 of 147
Notes assets 12 Owner-occupied property 326 329 total property, plant and equipment 424 438 14 Investments in associates 18 30 total investments in associates 18 30
Cash in hand and at bank 338 543 15 total other financial investment assets 36,052 33,413 deposits with ceding undertakings, receivable 18 27 total investment assets 38,215 35,196
Reinsurers’ share of provisions for unearned premiums 185 146 21 Reinsurers’ share of provisions for claims 1,376 2,484 16 total reinsurers’ share of provisions for insurance contracts 1,561 2,630
Other prepayments and accrued income 57 51 total prepayments and accrued income 531 474 total assets 42,783 40,811
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 100 of 147
Provisions for bonuses and premium rebates 374 313 total provisions for insurance contracts 25,957 26,757 22 Pensions and similar obligations 503 669 23 Deferred tax liability 959 939
Debt related to reinsurance 214 143 24 Debt to credit institutions 665 786
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 101 of 147
Vesta Forsikring AS has in its consolidated financial statements included provisions for contingency funds of NOK
Tryg Forsikring’s option to pay dividend to TrygVesta is influenced by this amount. The dividend payment is also affected by a contingency fund provision of DKK 670m, which is included in shareholders’ equity in Tryg Forsikring A/S’
financial statements. Dansk Kaution has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity.
Exchange rate adjustment of foreign entities for the year -143 132
Tax on entries recognised directly in equity -63 64 net income/expense taken directly to equity 20 -34
Profit for the year 3.211 2.097 total recognised income and expenses 3.231 2.063
Other items -31 -28 cash generated from operations, continuing business 3.325 4.298
Investments, discontinuing and divested business 0 145 total investments -1.881 -3.906 funding
Change in debt to credit institutions -121 177 funding, continuing business -1.509 -197
Funding, discontinuing and divested business 0 -10 total funding -1.509 -207 change in cash and cash equivalents, net -204 39
Cash and cash equivalents, begining of year 543 490 cash and cash equivalents, year-end 338 543 acquisition/sale of subsidiaries
In 2006, TrygVesta acquired 50 % of the shares in Ejendomsselskabet af 1. marts 2006 P/S
Ceded indirect insurance -52 8 direct insurance, by location of risk gross ceded gross ceded 2 technical interest
Return on discontinued business 9 -6 3 claims incurred, net of insurance
Administative expenses include fee to the auditors appointed by the Annual General Meeting: Grant Thornton 0 -1
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 105 of 147
Other than that, there are no incentive plans for the Supervisory Board and Group Executive Management.
In 2006, TrygVesta awarded share options to the Group Executive Management (5 persons) and other senior employees (52 persons). At 31 December 2006, the share option plan comprised 186,020 share options. These expenses amount to DKK 11,8m, which is higher than the DKK 7,9m stated in the annual report 2005. Each share option entitles the holder to acquire one existing share of DKK 25 nominal value in the company. The share option plan entitles the holders to buy 0.27 % of the share capital if all share options are exercised.
The share options can not be exercised before in 2009 at the ealiest. The share option agreement stipulates that the employees is entitled to the options unless the employee terminates the employment or the employment is terminated due to breach of the employment contract. If the employee is terminated due to restructuring or if the employee retire the employee will still be able to exercise the options. The share options are exercisable exclusively during a two-week period following the publication of full-year or half-year reports and in accordance with TrygVesta’s in-house rules on trading in the company’s shares.
In 2006, the fair value of share options in the income statement for the Group amounted to DKK 3.2m.
The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: Average share price (DKK) at the time of grant date 355.83
The risk-free interest rate is based on a bullet loan with the same maturity as the expected maturity for the options at the time of allocation.
The assumptions for calculating the market value at the end of the period are based on the same principles as for the market value at the time of allocation.
There are no comparative figures for 2005, as the agreement on share options was reached in 2006.
In order to reward and increase employee affiliation with the company, in March 2006 TrygVesta offered employee shares to employees at all levels of the parent company and Danish subsidiaries. Employees of non-Danish branches and subsidiaries were offered employee shares or an alternative cash consideration. Each employee was offered 18 free shares, a total of 37,441 shares equivalent to DKK 13m, corresponding to 0.06% of the share capital. The expense was provided in 2005 and does not influence the result of 2006.
average number of full-time employees during the year (continuing business) 3,740 3,702
Profit/loss on ceded business -17 -24 0 -29 -23 -15 -3 23
Profit/loss on ceded business -36 -18 -85 -47 -578 -9 -3 -7
Technical interest, net of reinsurance 4 2 31 -15 583 323 32 0 1) Personal accident and health insurance includes one-year group life policies of Vesta Forsikring AS.
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 109 of 147
dKKm private and private and commercial commercial finnish general Swedish denmark norway corporate insurance general insurance unallocated total
Profit/loss on business ceded -201 467 -76 -62 -302 -421 0 -1 0 0 1 8 -578 -9
Loss on discontinued and divested business 126 -28 profit for the year 3,211 2,097
Provisions for bonuses and premium rebates 256 191 0 0 118 122 0 0 0 0 0 0 374 313
Profit/Loss for the period before tax 2,160 1,530 1,700 1,494 -38 -43 -41 0 -72 -68 3,709 2,913 description of segments
Please refer to ‘Our business areas’ for a description of our primary segments
private and private and commercial commercial finnish general Swedish denmark norway corporate insurance general insurance unallocated total
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 111 of 147
Interest and dividend concerning financial assets at fair value with value adjustment in the income statement: Interest expenses -94 -68
Market value adjustments concerning assets and liabilities that cannot be attributed to IAS 39: Investment property 190 43
Exchange rate adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement amount to DKK 16m.
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 112 of 147
The accounting value of assests and liabilities at the time of divestment: Bonds 465
Technical interest, net of reinsurance 0 0 3 9 -5 19 -2 28 1) The line of business “Other insurance” includes indirect insurance.
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 113 of 147
Value adjustment for the year at revalued amount 4 8 accumulated depreciation
Depreciation is recognised in the income statement under insurance operating expenses.
In establishing the market value of the properties, the following return percentages were used for each property category.
Value adjustment for the year 184 30 fair value at the balance sheet date 2,127 1,726
Total rental income for 2006 is DKK 145m (in 2005 it was DKK 140m).
Total expenses for 2006 were DKK 44m (in 2005 DKK 38m). Of this amount, unlet property represented is DKK 2m.
(in 2005 DKK 2m), so the total expenses at the income leading investment property were DKK 42m (in 2005 DKK 36m).
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 115 of 147
Revaluations during the year 2 2 carrying amount 31 december 18 30
Shares in associates according to the latest financial statements: Shareholders’ profit/loss ownership name and registered office assets liabilities Equity revenue of the year share in %
Komplementarselskabet af 1 March 2006 ApS, DK 0 0 0 0 0 50
Receivables and deposits with ceding undertakings at amortized costs 1,794 1,842 other financial investment assets
The bond and share portfolio includes unit trusts in which the underlying assets are bonds and shares. In addition, the amounts include liquid assets allocated to the portfolio manager, money market deposits and debt and recievables from unsettled investment transactions.
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 117 of 147
Unlisted Equity investments is measured on a carefully estimated fair value, cf accounting policies.
Exposure to exchange rate risk 2006 properties bonds Shares insurance, etc. hedge Exposure
Exposure to exchange rate risk 2005 properties bonds Shares insurance, etc. hedge Exposure
Please refer to the part ‘Risk management’ and “Investment activities” for an elaboration of risk management and risk exposure.
Derivative financial instruments used in connection with hedging of foreign subsidiaries.
Gains and losses on hedges charged to equity in the period 101 0 101 gains and losses on hedges charged to equity at 31 december 2006 107 -119 -12
Reversed exchange rate adjustments in connection with the sale of Chevanstell totalled DKK 4m.
Receivables were written down in connection with direct insurance contracts, totalling DKK 129m (in 2005 DKK 148m).
Sold during the year 37 67,790 936 1,694,750 treasury shares No. of shares Nominal value (DKK’000) % of share capital
Used in connection with issue of employee shares -37,441 -936 -0.06
Pursuant to the authorisation granted by the shareholders in general meeting, TrygVesta may acquire up to a maximum of nom. DKK 170m worth of treasury shares, corresponding to 10.0% of the share capital in the period until the next annual general meeting in 2007.
In december 2005, Tryg Forsikring A/S raised a subordinate bond loan for EUR 150m at the price of 99,017.
Bloomberg, which applies a group of market players as its data sources.
In the table, amounts in NOK are translated into DKK using the exchange rate as of 31 December 2006 in order to avoid impact from currency fluctuations.
The inclusion of the Zurich portfolio acquired in 2002 and, to a minor extent, the Allianz portfolio acquired in 2001, has an impact on the figures. When the liabilities of these portfolios appear in the triangulation the ultimate liability for the preceding accident years is increased with effect from the financial year in question, whereas already existing liabilities concerning previous financial years remain unchanged. The combined impact of the two acquisitions amounts to
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 122 of 147
Market value adjustment of provisions, beginning of period -266 -42 -224
Change in claims in the financial year in respect of prior years -453 -41 -412
Provisions for claims, end of year 1) 20,068 1,312 18,756 gross ceded net
Paid in the financial year in respect of prior years -4,811 -805 -4,006
In 2005 provisions for claims regarding Chevanstell was recognised in the balance sheet with DKK 1,2 bn. after elimination. 3) Discounting also includes exchange rate adjustments.
The table consists of figures for Tryg Forsikring A/S and Vesta Forsikring AS, however exclusive of provisions for annuities in workers’ compensation in Tryg Forsikring A/S. At 31 December, these provisions totalled DKK 1,559m.
Please refer to the part “Risk management” for an elaboration of risk management and risk exposure.
Present value of pension obligations funded through establishment of funds 1,175 1,270
Change in recognised employers’ nat. ins. contribution -2 -2 recognised pension obligation, end of year 1,298 1,362
Pension cost recognised in the income statement: Pension costs concerning current financial year 67 68
Under the terms of the agreement, the group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
The premium paid to FPK in 2006 amounted to DKK 0.5m, which is less than 1% of the annual premium in FPK (2005). FPK writes in its half-year report for 2006 that it had a collective consolidation ratio of 118 at 30 June 2006 (107 at year-end 2005). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations.
Intellectual property rights 39 18 deferred tax, end of year 959 939
Unaccrued defered tax of shares 102 0 reconciliation of deferred tax, beginning of year
Change in deferred tax taken to the income statement 53 160
Change in deferred tax taken to equity -33 -13 non-capitalised tax loss
Under Finnish and Swedish rules, losses may be carried forward for ten years.
No deferred tax is associated with investments in subsidiaries (in 2005 DKK 1,3 bn).
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 126 of 147
Tryg Forsikring A/S has entered into a repo contract expiring on 26 January 2007 for a German 3.5% government bond. The asset, for which Tryg Forsikring A/S carries the risk and the return requirement at the balance sheet date, is recognised in the bond portfolio at a fair value DKK 749m and under ‘Other debt’ in the amount of DKK 750m.
Capitalised tax assets 0 0 capital base 5,545 4,624 weighted assets 8,094 6,404 27 Earnings per share
Basic earnings per share is calculated by dividing the profit for the year and the profit/loss from discontinued and divested business by the total average number of shares. The company has not issued warrants, convertible debt instruments or the like. The issued share options will not be exercised before at least in 2009, therefore, there is no difference between basic EPS and diluted EPS.
Profit/loss for the period from discontinued and divested business (DKKm) 126 -28
Tryg Forsikring A/S and Vesta Forsikring AS have signed an operating agreement with CSC for an amount of
Tryg Forsikring A/S has an annual obligation to Danica Pension with respect to the lease of the head office in Ballerup. The annual rent and taxes currently amount to DKK 80m. The remaining lease period is 19 years.
Most of the Danish companies in TrygVesta are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes.
In connection with the sale of Chevanstell Limited, Tryg Forsikring A/S issued few specific guarantees towards the buyer. Management believes that it is unlikely that these guarantees will result in a financial loss for Tryg
Companies of the TrygVesta are part of some disputes the outcome of which is not estimated to affect the financial position of the Group. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position beyond those receivables and obligations recognised in the balance sheet
Guarantee agreements with related parties: • Exercised, end of year 1,265 921
Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 129 of 147
Income from associates 5 0 2 Interest income, etc. 1 34
Cash in hand and at bank 3 8 total other financial assets 3 30 total investment assets 10,646 8,969
Other debt 5 8 total debt 675 748 total liabilities and equity 10,649 8, 990 10 capital adequacy, etc.
11 contractual obligations, contingent liabilities and collateral 12 related parties balancE
Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 132 of 147
NOK 2,251m under provisions for insurance contracts. In the consolidation, these provisions, due to their nature as additional provisions, are included in shareholder’ equity (retained earnings), net of deferred tax. When assessing Vesta Forsikring AS’ option to pay dividend to the parent company Tryg Forsikring this amount should be considered. Tryg Forsikring’s option to pay dividend to TrygVesta is influenced by this amount. The dividend payment is also affected by a contingency fund provision of DKK 670m, which is included in shareholders’ equity in Tryg Forsikring A/S’ financial statements. Dansk Kaution has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity.
Profit/loss on discontinued business after tax 126 -28 2 interest and dividends, etc.
Interest and dividend concerning financial assets at fair value with value adjustment in the income statement: Interest expenses -35 -60
Remuneration of the Executive Management is paid by Tryg Forsikring A/S and Vesta Forsikring AS
Executive Management has a bonus scheme for up to 3 months’ salary and participate ind the share option programme as mentioned in
Administrative expenses include fee to the auditors appointed by the Annual General meeting: Grant Thornton 0.0 -0.4
Profit/loss on ceded business -7 4 -14 27 -113 34 -134 65
Tryg Forsikring A/S, Ballerup 100 2,058 8,925 7 investments in associates cost
In 2005 TrygVesta A/S held a ownership share of 28% of the company
Debt and provisions 0 0 deferred tax, end of year 0 0 reconciliation of deferred tax, beginning of year
Change in deferred tax taken to the income statement 0 -3 non-capitalised tax loss
Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 136 of 147
Solvency requirements to subsidiary undertakings -2,527 -2,512 capital base 5,568 4,651 weighted assets 8,117 6,431 11 contractual obligations, contingent liabilities and collateral
The Danish companies in the TrygVesta group are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for payment of imposed corporation tax. From 2005, the companies are liable for the company´s own share of the imposed corporation tax.
Transactions with related parties also comprise rental income as premises are being let to a member of the board on market terms.
Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 138 of 147
Tryg Forsikring A/S Ballerup Denmark 3,345 100 1,100 10,643 Vesta Forsikring AS Bergen Norway 1,331 100 781 4,582 Enter Forsikring AS Bergen Norway 71 100 45 153 Slettebakksveien AS Bergen Norway 0 100 6 27 Respons Inkasso AS Bergen Norway 2 100 0 1 Thunes Vei 2 AS Bergen Norway 2 100 48 50 Dansk Kautionsforsikrings- Aktieselskab Ballerup Denmark 69 100 45 529 ApS Kbil 9 nr. 2032 (in liquidation) Ballerup Denmark 0 100 0 0 Tryg Ejendomme A/S Ballerup Denmark 59 100 2 741 TrygVesta IT A/S Ballerup Denmark -6 100 3 293 group ovErviEw
Group overview / TrygVesta Annual Report 2006 / Page 140 of 147
Profit/loss for the period before tax 2,160 1,530 1,102 1,245 839 -185
Business ceded as a percentage of gross premiums 3.8 -3.9 3.5 3.5 6.1 1.6 Claims ratio, net of ceded business 72.2 74.1 77.1 75.1 76.5 83.6
Profit/loss for the period before tax 1,700 1,494 1,058 817 359 -331
Business ceded as a percentage of gross premiums 3.5 5.2 6.4 6.9 7.8 9.2 Claims ratio, net of ceded business 69.1 69.2 69.9 69.6 80.7 85.0
Number of full-time employees, end of period 1,460 1,431 1,454 1,454 1,460 1,374 finnish general insurance Gross premiums earned 198 140 97 97 61 21
Profit/loss for the period before tax -38 -43 -47 -47 -49 -67
Profit/loss for the period before tax -41 - - - - -
The Danish Rheumatism Association number of shares held in trygvesta: 1,918 bodil nyboE andErSEn deputy chairman born 1940
Tryg i Danmark smba number of shares held in trygvesta: 1,078
Members of the Supervisory Board / TrygVesta Annual Report 2006 / Page 143 of 147
Sogn og Fjordane Bustadbyggelag number of shares held in trygvesta: 0
Members of the Supervisory Board / TrygVesta Annual Report 2006 / Page 144 of 147
Chairman of the Board of Norrköpings Segelsällskap number of shares held in trygvesta: 0 trond chriStianSEn
Modern Languages); MSc (Finance and Accounting); management training at Wharton chairman of the board of
Members of the Group Executive Management / TrygVesta Annual Report 2006 / Page 146 of 147
Member of the group Executive Management in charge of private & commercial norway born 1958