Capital management and risk management 42 Capital management and profit distribution 44 Risk management 47
Corporate governance 52 Supervisory Board 54 Group Executive Management 56 Corporate governance 58 Shareholder information 66
Our vision | is to be perceived as the leading peace-of-mind provider in the Nordic region.
In order to facilitate the realisation of our vision we created a common Nordic brand in 2010.
Tryg is the second-largest insurance company in the Nordic region. We are the largest player in Denmark and the third largest in Norway. We have operated our rapidly growing activities in Finland and Sweden since 2001 and 2006, respectively.
We strive for high customer and employee satisfaction, and several surveys indicate that Tryg is considered to be second-to-none in terms of claims handling. We offer insurances mainly through our own sales channels, and our business partners include Nordea and AXA Corporate Solutions.
Just after the turn of the year, Group CEO Stine Bosse announced that she wished to resign her position, and the
The total premium volume was DKK 19.5bn, distributed on high growth rates in Sweden and Finland, while Corporate Nordic reported falling premium volumes in Denmark and Norway.
The expense ratio in recent years has been almost steady including start-up costs in Sweden and Finland and affected by the refurbishment of our head offices to create The Living House and by branding activities in 2010. Branding activities affected the combined ratio by around 0.4 percentage point.
The events affected the claims ratio by around 7 percentage points. To this should be added higher-than-expected claims payments of around 2 percentage points of the combined ratio, mainly attributable to changed behaviour and increased use of insurances following the financial crisis in Denmark.
Finally, the investment result exceeded expectations due to rising equity prices. In 2010, we divided our investment portfolio into a match portfolio which creates the best possible match to our technical provisions, and a free investment portfolio comprising the active investments of the Group’s capital.
Looking ahead, the sale of the right to renew marine business will help reduce volatility in our earnings from insurance operations, which the Supervisory Board approves. The changed structure of our investment portfolio provides for a more stable performance and is a good basis for actively managing the Group’s capital.
Corporate governance is also an important area for the Supervisory Board. The Supervisory Board has reviewed each item of the updated corporate governance recommendations. The conclusions can be seen on page 58 of this annual report and the full version can be downloaded on tryg.com.
Moreover, a number of new rules have been introduced as from 2011 which provide very detailed regulation of the governance of insurance companies. The new rules have a decisive impact on the balance between the tasks of the Supervisory Board and the Executive Management and thus on the distribution of responsibilities between the governing bodies.
In compliance with the recommendations, the Supervisory Board has regularly considered the question of continuity and succession in the supreme management of Tryg. We benefit from that now that you, Stine, have decided to seek new challenges.
Morten Hübbe new Group CEO after having followed his competent work as Group CFO for more than seven years.
Morten, you have been involved in all major decisions since 2003 and you will now have the ultimate responsibility for our day-today operations. What are the particular focus areas that you believe the Supervisory Board should address in the years ahead?
Globally, the economic activity and prices of a number of raw materials increased, which may push up inflation in the longer term.
Overall, we believe that the decisions and actions taken in 2010 to improve profitability support the Supervisory Board’s focus and are balanced both short-term and longer-term.
performance adversely. In 2010, we divided our investment activities into a free portfolio and a match portfolio. This means that the immediate net effect of changes in interest rates on bonds and discounted provisions for claims is close to zero, while current returns will track changes in interest rates. Thus, an increase in interest rates would have a positive impact on our results going forward.
Since 2009 we have seen a distinct, marked increase in the number of claims in Denmark compared with other countries.
Based on the higher claims inflation seen, in particular, in 2009 and 2010, we will launch additional initiatives to improve profitability, including claims prevention consultancy, portfolio enhancing initiatives, changes in the scope of cover and premium increases.
Going forward, the number of persons in the working-age bracket is expected to be reduced in large parts of the western world, which may increase wage inflation. Tryg will continue to monitor developments in order to adjust premiums and claims procurement with a view to improving profitability.
Profit/loss on ceded business -554 -553 -598 -520 -313 Technical interest, net of reinsurance 337 494 491 158 134
Profit/loss for the year before tax 3,741 3,314 1,395 2,610 941
Profit/loss for the year, continuing business 3,109 2,421 882 1,985 676 Profit/loss on discontinued and divested business after tax a) 102 -155 -36 23 -83
Share performance Earnings per share - continuing business of DKK 25 45.8 35.8 13.3 31.3 10.8 Net asset value per share (DKK) 146.2 147.5 127.5 152.3 139.5
The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating expenses to earned gross premiums. Other key ratios are calculated in accordance with ’Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts.
Privat & Erhverv Privat & ErhvervPrivate Nordic Commercial Nordic Corporate Nordic
Tryg Garanti, the leading provider of guarantee insurances, is included in Corporate.
Enter Forsikring, which sells insurances to private individuals, is included in Private Nordic.
To focus even more on in-house recruitment, Tryg launched a career site on the Group’s intranet, which permits all employees to advertise their skills in-house. The data base supports Tryg’s wish to be a workplace in which openness and mobility across the Group are important elements of the corporate culture.
It was divested due to unsatisfactory profitability over a number of years, producing a loss also in 2010.
Tryg ranks first in the market for health insurances in Denmark.
On tryg.dk, customers can take their own health check-up before a trip. This service provides an overview of the travel insurance’s coverage.
Read about a +60 customer on page 32 in the Stakeholder Magazine.
In the annual image analysis among Denmark’s 140 leading companies performed by Berlingske Nyhedsmagasin, Tryg climbed from 23rd to a 14th place. Tryg was the best placed insurance company, recording strong progress on all nine benchmarks.
The Group’s Swedish subsidiary, Moderna Försäkringar AB, which was acquired in March 2009, became a branch of Tryg
Tryg in Finland was rated the third-best sales company. The jury emphasised Tryg’s sales processes and training.
Tryg Garanti launched a credit insurance to protect trade and industry against financial losses on debtors. The other players in this specialised market are Euler Hermes and Atradius.
An adjustment of the organisation resulted in changed responsibilities in Tryg’s senior management and a reduced number of second-tier managers. The new organisation reflects Tryg’s focus on efficiency and profitability.
Denmark. Tryg Backup provides automatic backup of data on the company’s computers and servers without limitation of the volume of backup data. Tryg is the only company offering such a product.
Tryg’s vision is to be perceived as the leading peaceof -mind provider in the Nordic region. The Group’s strategy plan for 2007-2010 has taken us one step closer to achieving our vision and has helped generate satisfactory returns on equity almost throughout the entire period, a strong market position in the Group’s principal markets and growth opportunities in Sweden and Finland.
The Group’s productivity will be increased through process improvements that also enhance the customer experience and result in increased customer retention. We intend to implement structural changes to make the entire Group operate on the same platform by 2020. Our ambition is to achieve an expense ratio of 10 by 2020.
We must increase the Group’s revenue per customer by ensuring a more correct price per risk. We will do this by offering more targeted products, services and claims handling. At the same time, we must be able to meet all of a customer’s peace-of-mind requirements by offering a range of solutions rather than individual products. Based on a high proportion of products and services per customer, we expect high retention rates and increased profitability.
We intend to reduce the Group’s claims expenses, the claims frequency and the average claim. We will do that through improved risk selection, partnership agreements with respect to claims procurement, and not least claims prevention initiatives. Customers will be provided with more information about how to prevent claims, and they must experience short response times when reporting a claim. We also intend to reduce the size of claims by taking swift action and limiting the scope of the loss.
In order to move closer to the Group’s vision of being perceived as the leading peace-of-mind provider in the Nordic region, Tryg launched a new brand in 2010 with a strong visual identity, which in a modern and simple way brings out our handshake: Dynamic, Compassionate and Innovative.
Changing Tryg’s name and brand is a natural next step in our still stronger common Nordic corporate culture and our close collaboration across national borders. The Group’s business divisions are pan-Nordic, and Tryg will increasingly be launching more Nordic products to our customers.
we mean customers who renew their commitment with us and act as ambassadors by speaking positively of and recommending
Tryg to others. We want our customers to experience the peaceof -mind delivery through segmentation of customer profiles and claims behaviour. We will continue to expand our active claims assistance and claims prevention consultancy rather than just providing financial solutions.
Tryg wants to increase the Group’s market positions and Nordic market share by balancing profitable growth through direct activities as well as partnerships. Our customers should be confirmed in their choice of insurer on an ongoing basis. We intend to maintain the Group’s high retention rate by being among the insurance companies with the highest customer satisfaction rates.
Nordic processes, systems and deliveries to customers as well as a common business platform in the Group. Tryg Transition is a business project designed to secure Tryg’s long-term Nordic position by improving efficiency, reducing product complexity and addressing market trends, for example with respect to self-service.
Communication increasingly takes place over the Internet and on mobile platforms. Accordingly, we intend to meet our customers on their own terms by increasingly communicating electronically and providing services that customers can access irrespective of where they are and through their preferred means of communication.
Tryg intends to use Corporate Social Responsibility (CSR) to provide a competitive edge and incorporate CSR thinking in everything we do. The Group’s CSR efforts cover four themes: climate, inclusion, well-being and prevention.
By intensifying our focus on costs and continuously increasing the portfolio per employee, we intend to improve the expense ratio and to gain a leading position in the area. Our ambition is to reduce the expense ratio to 10 by 2020.
Turning words into results – We use the balanced scorecard (BSC) to implement the Group’s strategy and retain our strategic focus areas.
In Denmark, the high retention rate was maintained despite substantial premium increases.
Administrative expenses and selling costs as a percentage of earned premiums.
Claims ratio before run-off 2006: 69.5 2007: 69.1 2008: 72.8 2010: 84.7
The ratio of claims incurred to gross earned premiums before run-off.
The claims ratio was affected by extraordinary claims due to hard winter weather, cloudbursts and a deterioration in some product areas such as house and contents insurances.
Tryg is 1 index point above the financial sector average, where banks are traditionally ranked higher than insurance companies.
Reduce the Group’s CO2 emission from air travel by 10% relative to 2008 level.
Fierce competition, high claims inflation, more weather claims and the economic downturn continued to put pressure on Danish insurers’ earnings in particular in 2010. Premium and profitability initiatives retained top priority in order to restore the earnings levels of prior years. Most companies, particularly the
Danish ones, implemented premium increases and profitability initiatives in the private and commercial markets, while competition for large corporate customers was fierce due to bids from several international players. Premium increases implemented in 2010 will feed through as gross earned premiums in 2011 and 2012. Behaviour in the market would generally indicate more measures to enhance profitability in the years ahead.
In the past few years, insurance companies across the Nordic region have generally increased premiums to counter higher claims costs and maintain profitability. However, these initiatives are not yet deemed to be sufficient.
Being one of the largest insurance companies in the Nordic region, Tryg offers a broad range of insurance products to private individuals and businesses. Tryg develops new products on a regular basis and continuously adapts existing peace-of-mind solutions to customer requirements and developments in society.
Tryg focuses on product development and worked on several new product launches in 2010. As the only insurer in the Nordic region, Tryg launched a new health product for customers aged 60 and over in May 2010. The health insurance reflects the
Group’s attitude that ’health has no age’. An increasing number of people see life in their 60s as an extension of their 40s and 50s, only with more time for the things they like to do best. We live longer, are active longer, and want to challenge ourselves and the world for a long time after we have left the labour market. As an insurance company, we want to support that movement, and that is why we have removed the age limit for health insurances.
Furthermore, Tryg worked on a modular treatment insurance in Norway at the end of 2010, which was introduced 1 January 2011. The insurance is tailored to individual customer requirements, ensuring an improved peace-of-mind delivery. The treatment insurance comprises four modules, with the base module being mandatory when the insurance is taken out. In addition, the customer may add optional modules such as psychological assistance and physical treatment depending on individual requirements. The launch of the modular treatment insurance was based on the very successful introduction of the modular health insurance in Denmark in 2009. The modular solution is unique, making the product extremely competitive in a market with only marginal differences between products.
At Tryg, we treat the Group’s private customers in accordance with their current stage of life. We work with five life stages characterised by different levels of activity, cohabitation, work life, financial situation and peace-of-mind requirements. Segmentation enables us to the greatest extent possible to offer advice and solutions tailored to the customers’ specific requirements, while at the same time the targeted advice and individual service make our customers even more satisfied and improve our potential for sales. Tryg segments private customers into five groups (life-stages) according to age and whether they have children living at home or not. The segmentation means that customers in each segment have several things in common. We use our segmentation to provide optimum service to customers.
Read about Tryg’s work with life stages in the Stakeholder magazine on page 34.
In 2010, Tryg focused on making the Group’s peace-of-mind deliveries visible and clearly positioning us as a peace-of-mind provider. In 2011, Tryg will launch a number of specific commitments to customers relating to our products and services.
In Denmark, motor insurance taken out by Tryg concept customers include roadside assistance, such as towing and battery jump-start.
House insurances cover damage to buildings due to fire, storm, water and other damage, legal expenses and householder comprehensive liability while contents insurances cover the loss of, or damage to, the contents of private dwellings with a range of additional features, such as cover for valuables temporarily away from home, legal expenses and liability arising from occupancy of the dwelling.
Personal accident insurances Personal accident insurances account for 9% of the Group’s premium income and cover accidental bodily injury or death. Compensation is in the form of a lump sum intended to help the policyholder cope with the financial consequences of an accident, thereby easing the strain of a changed everyday life.
Workers’ compensation insurances Workers’ compensation insurances account for 7% of the Group’s premium income and cover employees against bodily injury sustained at work (in Norway, also occupational diseases. Workers’ compensation insurances are mandatory and cover a business’ employees (except for public-sector employees and persons working as sole traders).
Tryg works with the concept of pro-active claims handling, pursuing a close dialogue with the claimant to optimise claims handling. Our pro-active claims handling team consists of claims handlers, social counsellors, legal experts, occupational health practitioners, orthopaedic surgeons and a network of psychologists. Pro-active claims handling has three winners: the business, the injured person and Tryg in the form of a shorter period of absence from work, enhanced self-esteem for the injured person and reduced expenses.
Professional liability insurances Professional liability insurances account for 4% of the Group’s premium income and cover various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products and professional liability incurred by professionals.
Tryg maintains a medium-term target of generating a return on equity exceeding 20%, corresponding to a combined ratio at the level of 90 including any run-off gains or losses, assuming an unchanged level of interest rates relative to 2010.
The combined ratio for 2011 is expected to improve based on the major initiatives implemented in 2009 and 2010 and the initiatives planned for 2011. However, Tryg still expects a high level of claims costs and follow the risk of a new claims inflation closely. The initiatives are expected to have an impact of more than DKK 1.0bn in 2011 with an additional impact in 2012. The initiatives mark the first major step on the road towards achieving the combined ratio targeted for the medium term, but additional important improvements are scheduled for 2012 and 2013 in order to achieve our long-term targets.
Tryg expects premium growth at the level of 2010, composed of sustained organic growth in Sweden and Finland and growth in Denmark and Norway that will to a great extent relate to the above initiatives.
The expense ratio is expected to fall in 2011. This will expectedly be achieved, among other things, because all divisions still have to reduce their direct costs by at least 2% each year. In 2011, additional cost reductions have been implemented in the form of less staffing due to efficiency improving initiatives and automation as well as lower travel, meeting and consultant costs. Furthermore, branding costs which affected the expense ratio by 0.4 percentage point in 2010 will be substantially reduced in 2011.
Read more about the investment return in the section Investment activities.
Equities and real estate in the investment portfolio are expected to generate returns of 7% and 6%, respectively. The outlook for bonds is based on the interest rates prevailing at 31 December.
At 31 December 2010, bonds in the investment portfolio yielded 1.4%, while bonds in the match portfolio yielded 2.3%.
The Group’s capital requirement and structure are described in greater detail in the section
Good risk selection, low costs and focus on efficient processes are the basis for the results achieved.
The pre-tax profit for 2010 was DKK 941m against DKK 2,610m in 2009, reflecting a sustained high underlying claims level and a number of one-off events. Winter claims, cloudburst and a workers’
0.1bn of unearned premium provisions for change of ownership insurance was made. With a view to improving profitability, Tryg has implemented significant initiatives in the past few years, and we record a distinct improvement in the underlying development in
The gross claims ratio was 80.2 in 2010 against 72.1 in 2009 and negatively impacted by 7 percentage points due to the abovementioned extraordinary one-off events.
terms) to DKK 19.5bn in 2010. Premium increases in Denmark and Norway and high growth rates in Sweden and Finland lifted premiums, while Corporate saw intensified competition. The commercial and corporate markets especially in Denmark remained affected by the lower level of activity in society in general, which resulted in fewer assets to insure as well as challenges on the claims side.
Gross earned premiums increased by 4.5% in 2010 to stand at
DKK 19.5bn, attributable to high premium growth rates in Sweden and Finland and the impact of the premium increases implemented in all four countries. Private Nordic generated premium growth of 8.3% in local currency terms, to stand at DKK 10.2bn.
9.6% in local currency terms (12.9% in DKK terms) to stand at DKK
4.3bn, affected by a portfolio transfer from Corporate to Commercial. Excluding this transfer, premium growth was 3.0%.
The gross claims ratio was 80.2 in 2010 compared with 72.1 in 2009. The development in the claims level was affected by rising claims costs, particularly in Denmark, and extraordinary claims, which impacted the claims ratio by around 7 percentage points.
For 2010, the Group had originally expected weather claims of DKK 200-300m and large claims of DKK 500-600m, corresponding to a total assumption of around DKK 800m.
The adverse development impacted, among others, contents, house and change of ownership insurances which recorded steeply increasing claims and required additional provisions (read more in the section Private Nordic). In addition to the Supreme Court decision in Denmark, the performance of workers’ compensation was affected by low economic activity, which reduced the number of less complex industrial injuries but increased the number of claims involving loss of ability to work. Overall, this impaired the performance since claims involving loss of ability to work account for only around 3% of the number of claims, but nearly 80% of claims paid.
After settlement of reinsurance, the claims ratio, net of ceded business was 81.8 against 75.0 in 2009.
The gross expense ratio was 17.0 against 17.2 in 2009. Overall, costs in Denmark and Norway remained at a competitive level with an expense ratio of 16.0. Sweden and Finland improved the expense ratio from 30.1 to 24.1 and are on track in enhancing profitability.
Paperless processes, digitalisation of a large number of internal processes, including in particular claims processes, will enhance efficiency by improving business processes and IT systems, enabling staffing to be reduced. In the longer term, digitalisation and automation will be among the most important competition and profitability drivers.
Dealer service in Norway Case processing time: 30 days Case processing time: 2 days
Tryg’s overall efforts to improve profitability include initiatives to optimise procurement of goods and services, more efficient claims handling and distribution platforms, and a sustained requirement for all managers to reduce their direct costs by at least 2% annually.
In the spring of 2010, Tryg sold the right to renew the Group’s marine portfolio, which at the time of divestment amounted to around
DKK 400m and had produced unsatisfactory results over a prolonged period. The results of the run-off portfolio are included in ’discontinued business’ in the financial statements. At 31 December 2010, less than 10% of the portfolio remained, and this is expected to be phased out around the summer of 2011. Run-off of the provisions for claims is expected to last a number of years.
At the beginning of 2010, Tryg divided the investment assets into a free and a match portfolio. The size of the match portfolio were DKK
30.9bn at the end of the year which corresponds to the discounted value of the technical provisions and hedging the related interest rate risk. The match portfolio is composed so as to best generate a return corresponding to the technical interest plus/less the value adjustment resulting from changed discount rates. In 2010, the match portfolio generated a return of DKK 974m as compared with the total return to technical provisions of DKK 979m. The total negative deviation for the year was thus DKK 5m. The free investment portfolio comprising equities, real estate and bonds amounted to DKK 9.5bn at 31 December 2010 and yielded a return of DKK 772m or 7.4%.
The gross investment return (before transfer to insurance and before other financial expenses) not related to investment activities was DKK 722m against DKK 1,193m in the same period of 2009.
The decrease was composed of dividends paid out of DKK 991m and own shares bought back of DKK 816m which was, however, offset by the profit for the year of DKK 593m. The return on equity was 6.6% in 2010 against 22% in 2009.
On 11 January 2011 Stine Bosse announced that she wished to resign her position as Group CEO. Stine Bosse has been with
Supervisory Board agreed with Stine Bosse that she would remain as Group CEO until 31 January 2011 and subsequently make her services available during the six-month notice period.
Group Executive Vice President Lars Bonde as member of the Executive Management. Morten Hübbe and Lars Bonde will thus form the senior management in charge of day-to-day operations in Tryg.
Gross earned premiums 8,122 8,962 10,181 Gross claims incurred -5,735 -6,751 -8,223
Key ratios Gross claims ratio 70.6 75.3 80.8 Business ceded as percentage of gross premiums 1.0 1.0 -0.4 Claims ratio, net of ceded business 71.6 76.3 80.4 Gross expense ratio 19.7 16.5 16.0
Denmark, Norway, Sweden and Finland. Sales take place through call centres, the Internet, own sales agents, franchisees (Norway), affinity groups, car dealers, real estate agents and Nordea’s branches.
Performance affected by weather claims and economic recession, but underlying operations improved
Weather claims and the economic downturn reduced the overall performance, while the underlying operations improved, particularly due to premium increases implemented in 2009 and 2010.
The effect of the economic downturn was particularly pronounced in the Danish part of Private Nordic, having a distinct impact on claims development related to house, contents and change of ownership insurances.
Gross earned premiums were up by 8.3% in local currency terms to stand at DKK 10,181m. Growth was 5.8% when adjusted for
The impact of the premium increases was clearly reflected in the development of average premiums for house and motor insurances in both the Danish and the Norwegian parts of the business.
The Norwegian private business recorded premium growth of 3.4%, composed of premium increases for particularly motor, house and contents insurances with an impact in 2010 of around
Sweden and Finland recorded growth in accordance with the plans for those areas. Finland sustained its strong growth, however, at the same time focussing on improving profitability
Read about how diversity in Tryg creates added value for the Group, employees and not least customers in the Stakeholder magazine page 22.
by premium initiatives. As already noted, Sweden focused particularly on the integration of Moderna with the Swedish business in Malmø, which Tryg founded in 2006. Growth in 2010 was nearly 20% in Finland and 20% in Sweden, adjusted for the fact that Moderna was included with an extra quarter in 2010.
The development in claims deteriorated in 2010 in particular due to winter and cloudburst claims, which increased the claims ratio from 75.3 in 2009 to 80.8 in 2010.
Severe winter claims had an impact of DKK 500m on the performance, corresponding to a 5 percentage point impact on the combined ratio. Winter claims had major impacts in Denmark and
Norway of DKK 163m and DKK 260m respectively. The Swedish business was impacted by winter claims of DKK 66m, while the Finnish business was almost unaffected by extraordinary winter claims.
2010 was affected by a sustained increase in claims within contents, house and change of ownership insurances, particularly in the Danish part of the business. Tryg believes there is a clear connection between this trend and the economic downturn and claims inflation.
In Norway, the underlying claims ratio improved when disregarding weather claims, which was attributable to premium increases, particularly for house, motor and holiday home insurances, and the fact that Norway was not affected by the economic downturn to any significant extent.
Costs remained a key issue in 2010. The distribution of tasks between insurance agents, service centres and web-based self-service was optimised. The number of service centres in Denmark was reduced from 22 to 14, while the franchise offices in Norway was reduced from 85 to 70. This trend will continue in the years ahead through the continuous development of digital processes.
Gross earned premiums 3,694 3,777 4,263 Gross claims incurred -2,550 -2,797 -3,768
Profit/loss on ceded business -73 -98 39 Technical interest, net of reinsurance 117 39 30
The technical result was a loss of DKK 465m in 2010. The loss is composed of winter claims, large claims and cloudburst claims, which particularly affected the Danish part of Commercial Nordic, and continued challenges in the commercial business which are being addressed by profitability initiatives.
The economic climate affected the Danish part of the commercial market in particular, which has moved from boom to recession in the course of the past few years. This trend continued in 2010 and was among other things reflected in an increase of bankruptcies in Denmark by more than 13% from an already high level. The economic recession also triggered a fall in the number of persons employed by small and medium-sized enterprises. These trends are directly linked to a reduction in the number of workers’ compensation insurances while at the same time a decision by the Danish Supreme Court on workers’ compensation had an adverse impact on profit.
The performance in Norway was also negative compared with 2009, although the Norwegian part of the commercial business was not nearly as much affected by weather claims and unaffected by economic conditions. However, the level of large claims was high, and group life insurances saw an adverse development.
Gross earned premiums increased by 9.6% in local currency terms to DKK 4,263m in 2010. When adjusted for a transfer of business from Corporate to Commercial Nordic, growth amounted to 3.0%.
bles increased. The premium increases from the autumn of 2010 will have a major positive impact on profitability in 2011, while there was only a minor effect in 2010.
The Norwegian part of the commercial business did not require premium initiatives to the same extent as the Danish part, and only minor premium increases were implemented, covering in particular contents and building insurances in Norway.
Earned premiums in the Finnish part of Commercial Nordic increased by about 35% to about DKK 100m.
The economic downturn had a positive impact on workers’ compensation insurances in respect of the number of minor claims, whereas an increase in the number of claims involving loss of ability to work and thus significantly higher compensation resulted in an overall negative performance for workers’ compensation.
Gross earned premiums 5,165 5,127 5,044 Gross claims incurred -3,197 -3,348 -3,630
Key ratios Gross claims ratio 61.9 65.3 72.0 Business ceded as percentage of gross premiums 8.6 6.3 7.9 Claims ratio, net of ceded business 70.5 71.6 79.9 Gross expense ratio 10.6 11.9 12.8
’Moderna’ in Sweden. Corporate Nordic’s products are sold through its own sales force and through insurance brokers. Corporate Nordic serves customers paying annual premiums of more than DKK 900,000 or having more than 50 employees, and around one fourth of our customers pay annual premiums of more than DKK 10m.
All sales through brokers are written in Corporate Nordic irrespective of customer size. Tryg Garanti is included in the financial results of Corporate Nordic.
Competition intensified in 2010, particularly in the Danish part of Corporate Nordic and particularly in relation to workers’ compensation insurances. Competition was less fierce in the Norwegian part of Corporate Nordic, and general premium increases of 5-7% were implemented.
The run-off result was DKK 325m in 2010 against DKK 357m in 2009, and expenses in respect of large claims amounted to DKK
In the spring of 2010, Tryg divested its renewal rights for the marine business to Codan Forsikring. The results of the marine business were previously recognised in Corporate, but are now recognised in ’Profit/loss on discontinued business’, which is described in the section The Group’s financial performance.
5,044m, a fall of 5.9% in local currency terms. The business volume was reduced due to the economic downturn, which still persists particularly in the Danish market. A further cause of the lower earned premiums was an internal transfer of business between Commercial and Corporate.
In Denmark, lower demand for insurance and intensified competition put pressure on prices, and gross earned premiums fell by 12%. When adjusted for the transfer of business to Commercial, the fall was 6%. In particular the portfolio of workers’ compensation insurances was affected by the reduction. Increased risk in relation to workers’ compensation and lower premiums does not make for a sound combination, and Tryg has therefore reduced the business volume since the autumn of 2009. The adverse development was aggravated by intensified competition and businesses’ increased focus on costs. Tryg does not compromise on profitability, and accordingly lost several large customers in 2010.
Competition was less fierce in Norway, although premiums came under pressure early in the year, but the pressure subsided as the year progressed. Overall, the Norwegian part of Corporate
The Swedish part of the corporate business made a positive contribution to growth. The portfolio amounted to around SEK
A number of one-off events had an adverse impact on claims in 2010. Workers’ compensation insurances in Denmark were adversely affected by a decision by the Danish Supreme Court in
Nordic and had a 2.5 percentage point impact on the claims ratio.
The number of minor claims fell, whereas the number of claims involving loss of ability to work and thus significantly higher compensation resulted in an overall negative performance for workers’ compensation. The overall current claims ratio for workers’ compensation insurances is estimated to be close to 100. Accordingly, additional claims-reducing and premium initiatives will be introduced.
Winter losses and violent cloudbursts in August had an impact of 2.4 percentage points on the claims ratio.
Furthermore, the claims ratio was adversely impacted by the lower discount rate which, seen in isolation, added 1 percentage point to the claims ratio. Large claims amounted to DKK
The total net run-off result was DKK 325m in 2010, mainly attributable to the personal lines in the Norwegian part of the corporate business. In 2009, the run-off result was DKK 357m.
When adjusted for the interest rate effect, run-off, large claims and storms, the underlying claims ratio was higher compared
One such solution was ’Min bedrift’, a portal providing businesses with an overview of all their insurance agreements, correspondence and claims processing, and a new portal showing the insurances a business maintains for its employees. These initiatives will successively be deployed to all corporate customers and are expected to improve efficiency and restore costs to previous years’ lower level.
Tryg discounts technical provisions using the yield curve published by the Danish Financial Supervisory Authority and matches the disbursement profile of provisions with investment assets (bonds). This means that the impact of changing yields on the matching bond portfolio will more or less be offset by an almost corresponding change in the discounted technical provisions. Investment assets other than those included in the match portfolio are included in the free portfolio and are placed in equities, bonds and real estate.
The total negative deviation between the match portfolio return in 2010 and the return to technical provisions was DKK 5m.
Out of a match portfolio of DKK 30.9bn, this is equivalent to a deviation 0.02 percentage point. This is considered satisfactory and meets the target of a maximum deviation of plus/minus
The free portfolio amounted to DKK 9.5bn at 31 December 2010 and yielded a total gross return of DKK 772m, corresponding to a return of 7.4% on average invested capital.
The total investment return (free and match portfolios) before other financial income and expenses not related to investment was DKK 722m compared with DKK 1,193m in the same period of last year. The net investment return at DKK 570m exceeded expectations, mainly due to buoyant equity prices.
Out of the total bond portfolio, 90% is placed in AAA rated bonds, some 5% in AA rated bonds, and the remainder in A rated bonds and unrated Norwegian money market certificates with good credit quality.
The match portfolio, which solely comprises fixed income products, yielded a return of DKK 974m. This should be seen in relation to the negative amount of DKK 979m relating to technical provisions and
Value adjustment, changed discount rate -227 -227 Transferred to technical interest -752 -752
Other financial income and expenses, investment -45 Other financial income and expenses, non-investment -152
Tryg has defined an ambition of a maximum fluctuation of plus/minus DKK 50m in any quarter, corresponding to around 0.15% of the securities in the match portfolio. For the full year 2010, there was a negative deviation of DKK 5m, but deviations have been close to the tolerance threshold in the individual quarters.
Denmark is one of the only countries in the world that requires insurance companies to discount technical provisions. The Danish Financial Supervisory Authority publishes a discount rate which all companies must use. In countries which do not require discounting of technical provisions and where technical provisions are therefore unaffected by changes in market rates, insurance a) DKK 246m bought on futures contracts has been added to the equity portfolio.
b) Return on properties includes a calculated return on owner-occupied property (excl. cost concerning The Living House). The balancing item is recognised in
‘Other financial income and expenses’ to the effect that the total return shown corresponds to the investment return according to the income statement which does not include return on owner-occupied property.
Risk minimisation – create a return close to technical interest rate and discounting +/- DKK 50m per quarter.
Absolute return – creates the best return after risk, capital spending and investment costs.
Items that is not directly related to the return on investment approx. DKK 250m p.a.
Match – net return • Bonds • Derivatives • Deducted return of provisions
• Rent (domicile) • Interest expenses, loan • Interest income, operation
The new requirements for calculation under Solvency II, which are expected to be implemented in 2013, will change the rules and require all European companies to discount provisions.
Tryg discounts insurance liabilities and regularly adjusts the bond portfolio in order to minimise net interest rate risk (price changes caused by interest rate changes). Provisions are discounted using a yield curve defined by the Danish Financial Supervisory Authority. The yield curve is hypothetical, and it is not possible to invest and generate return and risk to match this curve perfectly. Tryg has designed a model portfolio which matches the return and risk of the regulatory yield curve as perfectly as possible. In the model portfolio, future interest payments and repayment dates of principals match the disbursement profile of the technical provisions as perfectly as possible.
The model portfolio is then used as the benchmark for external portfolio managers who for practical reasons are permitted to deviate within narrowly defined limits. This structure removes most of the market risks to which the match portfolio is exposed. The difference between the return to provisions and the return on the actual portfolio will continue to deviate, not least because an exact prediction of payments out of provisions is not possible.
In a perfect match, the return on the match portfolio (coupon and value adjustment) is identical to the return on provisions (value adjustment of provisions attributable to interest rate changes plus technical interest). A perfect match is impossible in practice. The above figures illustrate differences in the fluctuation between the value of an interest rate portfolio and the value of a discounted provisions portfolio in four scenarios (1) A scenario without any attempts to match interest rate sensitivity on the provisions; (2) A scenario matching the duration of assets and liabilities, hedging parallel yield curve changes; (3) A scenario matching the sensitivity of assets and liabilities to changes in specific interest rate points; (4) A scenario perfectly matching all payments from the asset portfolio with payments from the provisions and ’invested’ in the regulatory yield curve. The changes made by Tryg correspond to a movement from scenario 2 to scenario 3.
Tryg relies on its capital base and financial strength for the
Group to assume risks from customers. The platform is a capital base adapted to the Group’s risk profile taking into account natural growth. Tryg aims to have the necessary capital available, but no more than that. This approach thus determines our dividend policy.
Tryg aims for its capital and risk management to optimise the company’s financial strength and ensure financial flexibility.
In addition to requirements by the rating agencies, the Danish authorities call for active capital management in that they require an individual solvency need to be assessed. These requirements are the precursor of the Solvency II rules which are expected to apply as from 2013. Tryg assesses its individual solvency need on the basis of the Group’s internal capital model, which estimates the necessary capital taking into account the actual business composition, profitability, reserving profile, reinsurance protection and the investment mix chosen and also includes scenarios representing the additional risk that may apply in particularly stressed situations. The assessment takes into account the geographic diversification effect and the effect of the defined investment policy, under which interest rate risk on the bond portfolio matches the corresponding interest rate risk on the discounted provisions, thereby ensuring that, for practical purposes, Tryg’s net interest rate risk is negligible. The individual solvency need is assessed on a quarterly basis and reported to the Danish Financial Supervisory Authority.
Tryg currently determines its targeted capital with a view to supporting the company’s rating of A- from Standard &
test calculation carried out in the autumn of 2010, Tryg had an excess of DKK 1,800m over the capital requirement calculated according to the standard model. If the QIS5 capital requirement is maintained, it is expected that several companies will need to strengthen their capital in order to comply with the new capital requirements. Based on the internal capital model, the capital requirement for Tryg would be somewhat lower than QIS5.
Solvency II permits companies to use internal models in full or in part. Tryg’s approach is to use the existing internal model for areas in which risk differs from that assessed in the standard model. With respect to insurance risk, we believe that Tryg could more correctly model own risk. For example, the standard model does not consider geographic diversification among Nordic countries, an important aspect of Tryg’s Nordic exposure. Conversely, the treatment of investment risks in the existing internal model is very similar to that of the standard model due to the homogenous investment risk across national borders created by efficient financial markets. The aim is that in future under Solvency II,
Tryg’s capital structure comprises equity and subordinated loan capital. The relationship between the two components is assessed on a regular basis in order to maintain the optimum structure that takes into account return on equity, cost of capital and flexibility. Regulators and rating agencies assess the actual capital differently. Regulators require companies to calculate a capital base comprising mainly equity less intangible assets and other statutory adjustments plus subordinated loan capital of up to 25% of the Solvency I requirement. Standard & Poor’s applies the term Total Available Capital (TAC), under which intangible assets are also deducted from the capital base, and subordinated loan capital generally may not exceed 25% of the total capital.
EUR 65m subordinated loan with TryghedsGruppen, which owns 60% of Tryg. This brought Tryg’s total subordinated debt to approximately EUR 215m. The total ratio of debt to equity was around 19% at 31 December 2010, and the cost of debt in 2010 was DKK 83m. See table overleaf.
The former credit facility which is included as part of Tryg’s cash resources expired in 2010. To replace this facility, a new senior credit facility in a total amount of DKK 2bn was raised. The new facility has a term to maturity of 12 months, and the utilisation ratio was 0 at 31 December 2010.
capital. The strategic considerations are processed each year in a capital plan which tests the extent to which the capital supports Tryg’s strategy. The possibility of additional contributions of capital is dealt with in Tryg’s capital contingency plan, which describes measures that can be applied in the short term to improve the Group’s solvency, if required. As a result of the strategy chosen for the future and distribution for 2010, restructuring of investment assets and additional hedging of insurance liabilities could substitute for around DKK 1.4bn of capital in 2011.
Furthermore, there would be room for increasing the capital base by raising additional subordinated loan capital. In relation to the Danish solvency rules, the full potential of subordinated loan capital has already been utilised (around DKK 800m). The subordinated loan capital could be increased by around DKK
880m (after dividends) in relation to Standard & Poor’s capital model, at 31 December 2010.
Dividend is determined on the basis of the Group’s profit distribution policy. Tryg intends to pursue a risk-based transparent policy for capital management, and thus also for dividend distribution. At 31 December, a capital requirement is determined based on the Standard & Poor’s model corresponding to the level of an A rating plus a buffer of 5%. Any capital in excess thereof will be distributed as dividend. The relationship between cash dividend and share buy back is determined by the
of the profit for the year must be paid out in cash.
Board proposes that DKK 256m be distributed by way of cash dividend, equivalent to 4 DKK per share.
The Group Executive Management’s responsibility for the overall risk and capital management is handled in a risk management environment, in which separate committees handle the areas of underwriting and reinsurance, provisions, investment risk, and operational risk and security. Risk management is supported by
Tryg’s internal capital model and has been developed on an ongoing basis over the past ten years. In addition, we make an annual mapping of risk to identify new risks that cannot currently be assessed using statistical analyses. Such data is compiled in the Group’s risk data base, forming the basis for an annual risk report to the Executive Management and the Supervisory Board.
The risk of random fluctuations is assessed and managed based on statistical analyses of historical experience for the various lines of business. Systematic shifts in claims levels are also identified by means of statistical methods combined with information about changes in societal, climate-related and other conditions. The insurance premium must be adequate to cover expected claims, but must also comprise a risk premium equal to the return on the part of the Group’s capital used to protect against random fluctuations. All other things being equal, this means that insurance lines or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium.
The chart headed Insurance development in Norway shows how, in practice, there may be significant variation in the fluctuations observed in different lines, and thus in the underwriting risk of those lines. Underwriting risk is continuously assessed based on analyses in Tryg’s internal capital model which provide target premium levels for the respective parts of the insurance business. This applies to definition and updating of tariffs and for individual pricing of major agreements in the corporate area and with business partners. Risk is furthermore managed on an ongoing basis by monitoring profitability, business procedures, acceptance policies, authorities and reinsurance.
Reinsurance is used to reduce underwriting risk in areas where this is particularly required. The need for reinsurance is assessed on the basis of Tryg’s internal capital model, which compares the price of buying reinsurance with the reduced capital need achievable.
The catastrophe reinsurance programme also covers other catastrophe events, including terrorist events up to DKK 4.2bn.
Denmark has established a guarantee scheme for terror that came into force on 31 March 2010. Under the scheme, the government provides a guarantee of up to DKK 15bn for the total Danish market to cover total claims expenses in excess of DKK 5bn. At 1 January 2011, the Danish Terrorism Insurance Pool for general insurance had protected the first DKK
In addition, Tryg buys reinsurance for certain lines for which experience has shown that claims vary considerably. The largest single risks in our corporate portfolio are property risks protected by reinsurance cover of DKK 1.7bn with a retention of DKK 100m for the first claim and DKK 50m for each subsequent claim. Building and contents risks exceeding the upper level are protected by facultative reinsurance. Other lines covered by reinsurance include liability, motor, fish farms and guarantee insurance.
The duration of the provisions, that is, the average period until such amounts are paid out to customers, was 3.2 years at 31
Underwriting risk The risk related to entering into insurance contracts. The risk that claims at the end of an insurance contract deviate significantly from our assumptions when pricing at inception of the contract.
Investment risk The risk that volatility of financial markets impacts the Group’s results. Investment risk includes elements such as interest rate risk, equity risk, foreign exchange risk and liquidity risk.
Investment risk is the risk that volatility in the financial markets will impact the results of operations and thus the financial position of the company. Investment assets as well as provisions for claims are exposed to interest rate changes.
In 2010, Tryg divided the investment activities into two investment portfolios. Read more in the section Investment activities.
Currency risk is kept at a very low level. The Group’s premium income in foreign currency is mostly matched by claims and expenses in the same currencies, and thus, only the profit for the period is exposed to currency risk. Tryg uses currency derivatives to hedge the risk of a loss of value of balance sheet items due to exchange rate fluctuations Exchange rate adjustments and hedging of foreign entities are taken directly to equity.
Group’s operations. In practice, this work is organised through a structure of procedures, controls and guidelines that cover the various aspects of the Group’s operations, including the IT
Strategic risk relates to Tryg’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputation as well as changed market conditions.
Reserving risk Increase in social inflation of 1% -614 Estimation error of e.g. 10% on workers’ compensation and motor -1,189
Market risk Investment risk Interest rate market – increase in interest rates of 1%: Impact on fixed interest securities -795 Higher discounting of provisions for claims 706 Impact on Norwegian pension liability 225
Currency market Decline of 15% of exposed currency relative to DKK -435 Impact derivatives 420
Born 1940. Joined the Supervisory Board in 2006. Nationality: Danish. Former Chairman of the Board of Governors, Danmarks Nationalbank (Danish Central Bank) and Managing
Born 1951. Joined the Supervisory Board in 2002. Nationality: Danish. Professional board member and interim management projects.
Committee memberships: Audit committee of Tryg A/S and Risk committee of Tryg A/S.
Born 1946. Joined the Supervisory Board in 2007. Nationality: Norwegian. Senior Advisor of HitecVision and professional board member.
Born 1948. Joined the Supervisory Board in 2002. Nationality: Danish. CEO, Fortunen A/S
Mr Frederiksen has mangement and board experience within M&A, strategy, finance and treasury.
Born 1963. Joined the Supervisory Board in 2010. Nationality: Danish. CEO of SEAS-NVE
Educational background: MSc (Economic and Business Administration) and Lieutenant of the reserve, Danish Air Force.
From his positions with SEAS-NVE and his former work with the Danish Air Force,
Ms Skole has experience from international corporations, including her work with Coloplast and The Maersk Company Ltd., UK. Ms Skole has skills within strategy, financing and communication.
Committee memberships: Audit committee of Tryg A/S, Risk committee of Tryg A/S and
Number of shares held: 1,643. Change in portfolio in 2010: 0
Educational background: LL.M., several management training programmes at INSEAD, Wharton and Harvard.
Number of shares held: 4,801. Change in portfolio in 2010: 0
Educational background: Graduate Diplomas in Organisation, Marketing Management and Accounting and management training programmes at Wharton, Ashridge and London Business School.
Number of shares held: 1,911. Change in portfolio in 2010: 0 56 | Annual report 2010 | Tryg A/S
Educational background: BSc Business Economics and management training programmes at INSEAD and IMD.
Number of shares held: 809. Change in portfolio in 2010: 0
Number of shares held: 2,462. Change in portfolio in 2010: 0
On 8 April 2010, the Corporate Governance Committee published new corporate governance recommendations and recommended that they be incorporated as from the financial year beginning on 1 January 2010. The Supervisory Board believes that Tryg complies with the recommendations apart from two recommendations. See an explanation of these deviations last in the chapter.
A complete review of the Statutory report on corporate governance with respect to each individual recommendation can be downloaded on tryg.com > Download.
Tryg holds its annual general meeting of shareholders each year before the end of April. The Supervisory Board convenes the annual general meeting in accordance with the Danish Companies
Act and the company’s articles of association, giving not less than three weeks’ notice, by way of a company announcement, on tryg.com and in at least one national newspaper. Shareholders may elect to receive the notice by mail or as an electronic notice of the general meeting, or they may download the notice on tryg.com. The notice includes relevant information about the time and place of the meeting and sets out the agenda, which as a minimum comprises the following items: • Report of the Supervisory Board on the activities of the company during the past financial year
General meetings are also webcast, enabling stakeholders to view the general meeting on tryg.com during and after the meeting.
Board or a third party as their proxy. The proxy form and form for voting by correspondence will be available on tryg.com on or
The Supervisory Board has resolved that general meetings will be held by physical attendance as the Supervisory Board emphasises the oral dialogue with shareholders. The Supervisory
Tryg issues press releases and company announcements on a regular basis and publishes annual and interim reports, which are available on tryg.com. Furthermore, Tryg publishes regular IR newsletters on topical issues to shareholders and other stakeholders. This material enables all stakeholders to get a reasonable impression of the Group’s position and performance.
The financial statements are prepared in accordance with IFRS, and all company announcements and financial statements are published in Danish and English. On tryg.com, stakeholders may receive the latest news as e-mail and RSS feeds.
Investor Relations maintain regular contact to equity analysts and investors. Investor Relations also organise investor presentations, teleconferences and webcasts with the Group Executive Management and participate in conferences in Denmark and abroad. The Supervisory Board is regularly informed of the dialogue with investors and other stakeholders.
Identification of stakeholders is an integral part of the strategy review at the Supervisory Board’s annual strategy seminar, which always focuses on investors, customers, society and employees.
See Tryg’s CSR policy on tryg.com > CSR > CSR strategy > CSR policy.
Management reports 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 holds an annual strategy seminar to define and/
Management with guidelines and instructions describing reporting requirements and requirements for communication with the
The financial legislation governing Tryg furthermore defines requirements with respect to reporting by the Executive Management to the Supervisory Board on developments in the most important areas of activity.
Board material is distributed. The Chairman and the Deputy Chairman furthermore plan the future composition of the Supervisory Board.
See Tryg’s Statutory report on corporate social responsibility on tryg.com > Download.
The description of skills is available on tryg.com and in the notice convening the annual general meeting.
Eight members of the Supervisory Board are elected by the shareholders atthe general meeting for a term of one year. Four of the eight members elected by the shareholders are independent members.
The section Supervisory Board and tryg.com describe which Supervisory Board members are considered to be independent members.
The process of selecting new Supervisory Board members is comprehensive and transparent for the Board members. The Chairman and Deputy Chairman are in charge of selecting candidates for the four independent seats on the Supervisory Board and submit the recommendation for choice of candidate to the Supervisory Board.
Prior to the election of new members, the Supervisory Board prepares a description of the candidates’ background, professional qualifications and experience. A balanced distribution with respect to, among other things, age, gender and nationality is sought in the composition of the Supervisory Board, and the need for integrating new talent is considered. When taking up office, new Supervisory
Under the Danish Companies Act, employees are entitled to elect a number of representatives to the Supervisory Board, equal to half the number of other members at the time employee elections are held. Tryg has agreed with the Group’s staff organisations that two Supervisory Board members are elected among the employees in Denmark, one member among the employees in Norway, and one member among the employees in Sweden. The most recent election of a Swedish employee representative was held in 2010.
The next ordinary election of the four employee representatives will be held in 2012. Pursuant to the applicable legislation, employee representatives have the same rights, duties and responsibilities as any other members of the Supervisory Board.
The Supervisory Board holds at least seven annual meetings and an annual strategy seminar to discuss and define strategies and
goals for the years ahead. In 2010, the Supervisory Board held eight Board meetings and the annual strategy seminar. The
Supervisory Board discusses the Supervisory Board’s tasks on a regular basis, and no later than at the last meeting of the year, it schedules the meetings of the coming year.
See the Supervisory Board members’ CVs, including position, directorships and holding of Tryg shares and changes in portfolios in the section Supervisory Board and on tryg.com >
See when the Supervisory Board members joined the Board, were re-elected and when their term expires in the section Supervisory
Tryg’s Supervisory Board has set up an Audit committee, a Remuneration committee and a Risk committeee. No formal Nomination committee has been set up. The Chairman and the Deputy
The terms of reference of the Board committees are available on tryg.com.
Two out of four members of the Audit committee and the
Risk committee, including the chairman of the committees, are independent. In the Remuneration committee, one of four members is independent, while one of the Chairman and the
Board at the beginning of the year, which are discussed at the first Board meeting of the year.
Management. In addition, the Supervisory Board reviews and approves the rules of procedure of the Supervisory Board and the Executive Management each year to ensure they are aligned with Tryg’s requirements.
• Bodil Nyboe Andersen, chairman (independent) • Lene Skole (independent) • Jørn Wendel Andersen • Rune Joensen
• Ensure that the Group is being monitored by independent auditors and by internal auditors.
The Remuneration committee has four members elected by the Supervisory Board. The remuneration committee is chaired by the Chairman of the Supervisory Board. In addition, the committee must include at least one member of the Supervisory Board of TryghedsGruppen and at least one independent member of the Supervisory Board. At present, the committee has one independent member.
The Remuneration committee’s work is based on Tryg’s remuneration policy and guidelines for incentive pay.
• Mikael Olufsen, chairman • John R. Frederiksen • Paul Bergqvist (independent) • Berit Torm
• Recommend the remuneration policy (including general guidelines for incentive pay) to the Supervisory Board for approval prior to approval by the shareholders.
• Prepare recommendations to the Supervisory Board as to which employees the company considers to be risk-takers.
• Prepare recommendations to the Supervisory Board about elements that should be included in the remuneration of the Supervisory Board and the Executive Management as well as the amount of the specific remuneration.
• Ensure that the Supervisory Board is kept informed of the market level of remuneration paid to the supervisory boards and executive managements of the company’s peers, and, on behalf of the Supervisory Board, to follow practice in the area to ensure that any new forms of remuneration are discussed and considered by the Supervisory Board.
In 2010, Tryg established a Risk committee. The purpose of the Risk committee is to support the Supervisory Board in its work with and supervision of capital management and risk management. The overall responsibility rests with the Supervisory Board, while the Risk committee monitors the risk management environment and the related processes. In 2011, the Supervisory Board will determine whether the risk committee should be made permanent.
The Chairman of the Supervisory Board reports on the Group’s remuneration policy each year in connection with the presentation of the annual report at the annual general meeting. The Supervisory Board’s proposal for remuneration to the Supervisory Board of Tryg for the current financial year is also submitted for approval by the shareholders at the annual general meeting of each year.
Members of Tryg’s Supervisory Board receive a fixed fee and are not part of any form of incentive programme. The Board members ’ remuneration (basic fee) is fixed on the basis of trends in a peer group, taking into account Board members’ required skills and efforts and the scope of the Board work, including number of meetings. The Chairman of the Supervisory Board receives a triple basic fee and the Deputy Chairman receives a double basic fee.
In 2010, the Executive Management, Group Executive Management and senior executives were offered a performance-related bonus of up to three months’ salary including pension (four months for the Group CEO). The bonus was linked to the achievement of pre-defined benchmarks and paid out in cash. The assessment of benchmark achievement included the Group’s overall performance as well as individual performance within the respective areas of responsibility. Specific benchmarks for 2010 were defined within all four perspectives of the balanced scorecard
(financial, customer, processes and learning), reflecting the strategic focus areas of the Group and the individual business areas or organisational units, including growth, profitability, cost reduction, customer satisfaction, customer loyalty, image, processes, communication, employee satisfaction and development, and innovation.
Tryg performs an annual risk identification process mapping insurance risk and other risks related to the achievement of the
The Executive Management reports to the Supervisory Board on the Group’s risk management work. The overall responsibility for the Group’s internal controls and risk management systems in connection with the financial reporting process rests with the Supervisory Board and the Executive Management. The
Supervisory Board and the Executive Management approve and monitor the Group’s general policies, procedures and controls in key areas in relation to the financial reporting process, including compliance with relevant legislation and regulations, internal business procedures, limits and segregation of responsibilities, continuous monitoring of significant risks. A compliance status
is reported annually to the Supervisory Board in connection with approval of the Group’s risk management instructions. However, any non-compliance with limits and guidelines that may occur is reported immediately to the Supervisory Board.
In connection with major acquisitions, a general risk analysis is performed, and the significant business procedures and internal controls are reviewed. The Executive Management has established a formal Group reporting process which comprises monthly reporting, including budget reporting and deviation reporting.
The Supervisory Board ensures that the Group is monitored by competent and independent auditors. The Group’s internal auditor participates in all Board meetings. The external auditors participate in the annual Board meeting at which the annual report is presented.
In at least one Audit committee meeting each year, the internal and external auditors have a dialogue without the presence of the Executive Management. The Audit committee will handle any matters that need to be reported to the Supervisory Board.
Tryg has set up an internal audit department in compliance with the Danish Financial Business Act. The internal audit department regularly reviews the quality of the Group’s internal control systems and business procedures. The department is responsible for planning, performing and reporting the audit work to the
Executive Management do not include a right to reclaim variable components of remuneration in exceptional cases. The variable component of the Executive Management’s remuneration is deemed to be modest, and the Supervisory Board has therefore deemed that a claw-back provision would not be necessary.
Information that may influence the pricing of Tryg shares is published in accordance with the rules applicable to the distribution of news in the EU. The Group’s website is updated simultaneously with the release of new information. In addition, information is distributed directly to the London Stock Exchange, the press, equity analysts, investors and other stakeholders. All financial information may be downloaded on tryg.com/investor, where stakeholders may also order reports and subscribe for news, reports and RSS feeds.
OMX Copenhagen, Tryg refrains from commenting on matters relating to financial performance or forecasts during a period of four weeks prior to the release of financial reports.
DKK 257.5. Including dividends of DKK 15.5, the share thus fell 22.3% in 2010. Tryg shares underperformed the market in general in 2010, with the OMX C20 increasing by 35.9% while the
DJ Euro Insurance Index was at the same level as in 2009.
a) In terms of percentage of turnover on Nasdaq OMX Copenhagen.
On 16 April 2010, Tryg initiated a share buy back programme running until 7 February 2011. During the period, Tryg bought 2,615,470 own shares at a total price of DKK 799m. Tryg holds a total of 3,495,322 shares as own shares, corresponding to 5.8%.
Tryg has a total share capital of DKK 1,598,289,325 comprised of a single class of shares (63,931,573 shares of DKK 25 nominal value each), and all shares rank pari passu. The principal shareholder, TryghedsGruppen smba, Kgs. Lyngby, Denmark, holds 60%
At 31 December 2010, the 40% free float was distributed among 28,608 registered shareholders. The 200 largest shareholders held 73.2% of the free float. At 31 December 2010, Tryg held own shares corresponding to 5.2% of the share capital.
The Executive Management and Investor Relations meet with institutional investors and equity analysts each quarter after the publication of financial statements. In 2010, Tryg held around 285 investor meetings and participated in 12 investor conferences. Tryg also participated in five events for private shareholders in Denmark.
The Group’s performance is followed by 21 equity analysts, six of whom are based in London. The equity analysts’ recommendations with respect to Tryg shares are available on tryg.com. The website, which is available in a Danish and an English version, is being updated and developed on an ongoing basis, making it an important source for providing information about the Group’s performance to interested investors.
In 2010, Tryg’s Investor Relations department issued an IR newsletter about winter losses in the year. Newsletters are issued when deemed appropriate and deal with topical issues in order to create a better understanding of factors of importance to Tryg’s performance.
Date No. a) Company announcement 25.02.2010 3 TrygVesta Forsikring AS Annual report 2009 11.03.2010 4 TrygVesta sells marine hull business 15.03.2010 5 TrygVesta changes name to Tryg 18.03.2010 6 Notice of the annual general meeting of TrygVesta A/S
Tryg’s annual general meeting will be held on 14 April 2011 at 14:00 CET at Falkoner Centret, Falkoner Alle 9, 2000 Frederiksberg, Denmark. The invitation to attend the meeting will be advertised in the daily press in March 2011 and will be sent to shareholders who so request. Notice of the meeting will also be posted on tryg.com. Shareholders unable to attend the annual general meeting may follow it live via webcast on tryg.com.
Queries relating to the annual general meeting Bjarne Lau Pedersen, Chief Legal Adviser bjarne.lau@tryg.dk
Note Tryg Group Statement by the Supervisory Board and the Executive Management 72 Independent auditors’ report 73 Income statement 74 Statement of comprehensive income 75 Statement of financial position 76 Statement of changes in equity 78 Statement of cashflows 80
Notes 1 Accounting policies 81 2 Earned premiums, net of reinsurance 92 3 Technical interest, net of reinsurance 92 4 Claims incurred, net of reinsurance 92 5 Insurance operating expenses, net of reinsurance 92 6 Technical result, net of reinsurance, by line of business 100 7 Interest and dividends 102 8 Value adjustment 102 10 Profit/loss on discontinued and divested business 103 11 Intangible assets 104 12 Property, plant and equipment 106 13 Investment property 108 14 Investments in associates 109 15 Total other financial investment assets 110 16 Reinsurer’s share 115 17 Current tax 115 18 Shareholders’ equity 115 19 Capital adequacy 116 20 Subordinate loan capital 117 21 Provisions for claims 118 22 Pensions and similar obligations 122 23 Deferred tax 124 24 Other provisions 125 25 Debt to credit institutions 125 26 Other debt 125 27 Earnings per share 125 28 Contractual obligations, contingent liabilities and collateral 126 29 Acquisition of subsidiary 127 30 Related parties 128 31 Financial highlights 129
The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2010 of Tryg
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
Mikael Olufsen Bodil Nyboe Andersen Jørn Wendel Andersen Chairman Deputy Chairman
Group for the financial year 1 January – 31 December 2010.
We have audited the consolidated and parent financial statements of Tryg A/S for the financial year 1 January to 31 December 2010, which comprise the income statement, balance sheet, statement of changes in equity and notes, including the accounting policies as well as the management’s report, for the Group and the Parent, and the statement of comprehensive income and cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parent financial statements have been prepared in accordance with the Danish Financial Business Act.
In addition, the consolidated and parent financial statements have been prepared in accordance with additional Danish disclosure requirements for listed companies. The management’s report has been prepared in accordance with the Danish Financial Business Act.
Management’s responsibility for the consolidated and parent financial statements and the management’s report
Our responsibility is to express an opinion on these consolidated and parent financial statements and this management’s report is based on our audit. We conducted our audit in accordance with Danish and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated and parent financial statements and the management’s report are free from materiel misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and parent financial statements and the management ’s report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and parent financial statements and the management’s report, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of consolidated and parent financial statements and to the fair review of a management’s report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the entity’s accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated and parent financial statements and the management’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification.
Acquisition costs and administrative expenses -3,056 -3,304 Commission and profit commission from the reinsurers 81 92 5 Insurance operating expenses, net of reinsurance -2,975 -3,212
Investment activities 14 Income from associates 0 -5 Income from investment properties 136 128 7 Interest income and dividends 1,287 1,133
Profit/loss on continuing business 1,985 676 10 Profit/loss on discontinued and divested business 23 -83
Operating equipment 83 118 Owner-occupied property 1,358 1,385 Assets under construction 172 353 12 Total property, plant and equipment 1,613 1,856 14 Investments in associates 17 13
Total provisions for insurance contracts 29,042 32,031 22 Pensions and similar obligations 496 671 23 Deferred tax liability 1,330 1,387
Debt related to direct insurance 383 419 Debt related to reinsurance 168 187 25 Debt to credit institutions 611 30 17 Current tax liabilities 303 106
Nullification of own shares -102 102 0 Dividend paid -442 -442 Dividend own shares 32 32 Purchase of own shares -418 -418 Exercise of share options 19 19 Issue of employee shares 30 30 Issue of share options 15 15
Proposed dividend per share DKK 4.00 (in 2009 DKK 15.50) Dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the number of shares, year end (63,931,573). The dividend is not paid until approved by the shareholders at the annual general meeting of the subsequent year.
Interest income 1,573 1,132 Interest expenses -173 -96 Dividend received 14 10
• Unlike IAS 19, the Danish FSA’s executive order does not allow for actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions to be taken to equity. Actuarial gains and losses will therefore be recognised in the parent company’s income statement.
• The Danish FSA’s executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the equity of the parent company have been adjusted accordingly on the transition to IFRS.
Changes in accounting policies From 1 January 2010, the operating business segments in Tryg are Private Nordic, Commercial Nordic and Corporate Nordic.
• IFRIC 17 ‘Distributions of Non-cash Assets to Owners’, IFRIC 18 ‘transfer of Assets from Customers’
Accounting estimates and judgements The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets • Measurement of goodwill
Liabilities for unpaid claims are estimates that involve actuarial and statistical projections of the claims and the administration of the claims. The projections are based on the Tryg Group’s knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other effects that might influence the future development of the liabilities.
The Tryg Group establishes claims provisions covering both known case reserves and estimated claims that have been incurred by its policyholders but not yet reported to the company (known as “IBNR” reserves) and future developments on claims which are known to the Tryg Group but have not been finally settled. The Group also includes in its claims reserves direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the Tryg Group.
Segment reporting Segment information is based on the Group’s management and internal financial reporting system and is prepared in accordance with the Group’s accounting policies.
Ratios Earnings per share (EPS) are calculated according to IAS 33. Other key ratios are calculated in accordance with ”Recommendations and Ratios 2010” issued by the Danish Society of Financial Analysts and the executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA.
Interest and dividends represent interest earned and dividends received during the financial year.
Other income and expenses Other income and expenses include income and expenses which cannot be ascribed to Tryg’s 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 business remains unchanged in the respective items whereas assets and liabilities from divested activities are consolidated in one line as “assets concerning divested business” and “liabilities concerning divested business”, respectively.
Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when the asset is ready to be brought into use.
Depreciation of plant and equipment is calculated using the straight-line method over their estimated useful lives, as follows: • IT, 4 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years
Land and buildings Land and buildings are divided into owner-occupied property and investment property. The Tryg Group’s owner-occupied properties consist of the head office buildings at Ballerup and Bergen and a few summer houses. The remaining properties are classified as investment properties.
Impairment test for intangible assets and property, plant and equipment The carrying amounts of intangible assets and property, plant and equipment are tested at least once a year for impairment for each cash-generating unit to which the asset belongs. The asset is written down to the recoverable amount if the carrying amount of the asset is higher than the recoverable amount.
Investments in subsidiaries The parent company’s investments in subsidiaries are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the statement of financial position, investments are measured at the pro rata share of the enterprises’ equity.
Income after taxes from investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised intra-group profits and losses.
Receivables Receivables are non-derivative financial instruments 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.
Other assets Other assets include current tax assets and cash in hand and at bank. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash in hand and at bank is recognised at nominal value at the balance sheet date.
Revaluation reserves Revaluation of owner-occupied properties is recognised in equity unless the revaluation offsets a previous impairment loss, and relates primarily to owner-occupied properties.
son, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for business lines with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder’s credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for example the number of insured.
Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through 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. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. The FTP plan is primarily a defined benefit plan in terms of the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined benefit accounting. The plan is therefore accounted for as a defined contribution plan.
The actuarial gains and losses arising from experience adjustments and changes in actuarial estimates is recognised in equity.
The plan was closed for new business as at 1 January 2009.
Deferred tax is measured according to the balance sheet liability method on all timing differences between the tax and accounting value of assets and liabilities. Deferred income tax is measured using tax rules and tax rates that apply in the relevant countries by the balance sheet date when the deferred tax asset is realised or the deferred income tax liability is settled.
Cash flows from acquisition and divestment of enterprises are shown separately under cash flows from investing activities. Cash flows from acquired enterprises are recognised in the statement of cashflows from the time of their acquisition, and cash flows from divested enterprises are recognised up to the time of sale.
Gross Ceded Gross Ceded 3 Technical interest, net of reinsurance Interest on insurance provisions 845 752 Transferred from provisions for claims concerning discounting -687 -618 4 Claims incurred, net of reinsurance Claims incurred -13,534 -16,500 Run-off previous years, gross 652 883
5 Insurance operating expenses, net of reinsurance Commission regarding direct business -439 -492 Other acquisition costs -1,775 -1,914
5 Insurance operating expenses, net of reinsurance (continued) Administative expenses include fee to the auditors appointed by the Annual General Meeting: Of which services other than audit: Deloitte -1 -2
In the calculation of the expense ratio costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner- occupied property based on a calculated market rent of DKK 11m. (in 2009 DKK 12m)
Total expenses for leases amounts to DKK 37m (2009 DKK 35m)
Share option programmes In 2010, Tryg awarded share options to the Executive Management (3 persons), senior employees (96 persons) and other employees
15m). As at 31 December 2010, a total amount of DKK 56m was recognised for share option programmes issued in 2006-2010. Fair values at the time of allocation are based on the Black & Scholes option pricing formula.
Total fair value Per Total fair Group Other Per option per option option at value at Executive senior Other at grant at grant 31 Dec. 31 Dec. Management employees employees Total date DKK date DKKm DKK DKKm 5 Share option programmes Spec. of outstanding options: Allocation 2006-2007 Allocated in 2006-2007, beginning of year 61,070 247,306 16,000 324,376 64/99 26 73/15 15
5 Share option programmes Years Year of allocation of exercise 1 Jan. 2010 Exercised Cancelled Expired 31 Dec. 2010
Average share Average Average price (DKK) term to exercise Years at time of Expected Expected Risk-free maturity Share price Year of allocation of exercise allocation Volatility maturity interest rate 31 dec. 2010 31 dec. 2010
The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: The expected volatility is based on the average volatility of Tryg shares. The expected maturity is 4 years, corresponding to the average of the exercise period of 3 to 5 years. The risk-free interest rate is based on a bullet loan with the same term as the expected term of the options at the time of allocation. The calculation is based on the strike price as set out in the option agreement and the average share price at the time of allocation. The dividend payout ratio is not included in the calculation as the strike price is reduced by dividends paid in order to prevent option holders from being placed at a disadvantage in connection with the company’s dividend payments. 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.
Tryg did not grant employee shares at a discount to the market price to the employees in 2010.
In 2009, Tryg granted employee shares at a discount to the market price to employees at all levels in the Group. Employees of non-Danish branches were offered employee shares or alternatively a cash consideration. Each employee was offered 17 shares at a discount to the market price equal to DKK 25 per share, equivalent to a total of 38,829 shares or around DKK 11.2m being granted to the employees. Senior executives received part of their bonus in the form of shares at a discount to the market price. In 2009, a total of 31,713 shares were granted at discount to the market price of DKK 25 per share or DKK 9.9m. The grant of shares equalled 0.1% of the share capital. The amount was provided in 2008 and did not affect the profit for 2009.
Profit/loss on business ceded 38 39 -399 9 -313 Technical interest, net of reinsurance 77 30 27 0 134
Private Commercial Corporate DKKm Nordic Nordic Nordic Other Group 6 Operating segments
Profit/loss on business ceded -87 -98 -325 -10 -520 Technical interest, net of reinsurance 85 39 34 0 158
Investments in associates 17 17 Reinsurers’ share of provision for unearned premiums 48 0 147 0 195 Reinsurers’ share of provision for claims 93 118 914 0 1,125 Other assets 43,403 43,403
Provisions for bonuses and premium rebates 206 21 137 0 364 Other liabilities 6,067 6,067
Description of segments Please refer to ‘Results’ for a description of our operating segments. Amounts relating to Tryg A/S, Tryg Ejendomme A/S and eliminations are included in ‘Other’. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments. These amounts are thus included under ‘Other’. Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. The distribution on segments in Moderna has been altered during Q2 as to medium sized enterprise. Comparative figures have been restated accordingly. A presentation of segments broken down by geography is provided in ‘Geographical segments.’
Profit/loss on ceded business - 13 - 20 0 0 - 47 - 23 - 36 - 27 - 12 - 11 - 33 - 47 Techn. interest net of reinsurance 5 11 3 2 23 1 11 16 32 24 6 2
Average claims DKK b) 39,044 43,342 7,409 7,567 78,086 83,801 18,421 25,374 10,428 11,554 51,719 83,551 Total claims 31,112 31,833 33,700 32,987 13,800 14,395 91,489 80,073 241,946 264,675 3,171 3,122
Profit/loss on ceded business - 70 65 - 255 - 114 0 0 31 - 56 - 39 - 31 - 1 - 1 Techn. interest net of reinsurance 36 33 16 18 4 3 5 3 2 2 4 4
Profit/loss on ceded business - 43 - 44 - 518 - 309 - 2 - 4 Techn. interest net of reinsurance 7 5 154 124 4 10
b) Average claims are total claims before run-off relative to the number of claims incurred.
7 Interest and dividends Interest income and dividends Dividends 14 10 Interest income cash in hand and at bank 67 43 Interest income bonds 1,197 1,054 Interest income other 9 26
Interest expenses Interest expenses subordinated loan capital and credit institutions -90 -88 Interest expenses others -26 -8 8 Value adjustment Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments 62 61 Unit trust units 485 233 Share derivatives -38 5
Value adjustments concerning assets or liabilities that cannot be attributed to IAS39 Investment property 19 74 Owner-occupied property 1 0
9 Tax Tax on profit for the year -653 -235 Difference between Danish and foreign tax rate -43 -28 Prior-year tax adjustment -4 9 Adjustment non-taxable income and expenses 58 18 Change in valuation of tax assets 55 -26 Change in valuation of tax loss carried forward -37 0 Other taxes -1 -3
Profit/loss on discontinued and divested business is excluded in ‘Marine, aviation and cargo’ in the accounts broken down by line of business.
Additions during the year 0 0 134 134 Disposals during the year 0 0 -49 -49
Amortisation for the year 0 -18 -144 -162 Impairment writedowns for the year 0 0 -3 -3
Intangible assets under development amount to a total of DKK 115m in the total software (in 2009 DKK 114m). Additions for internally developed software expenses amount to DKK 30m (DKK 28m in 2009). Amortisation is recognised in the income statement under insurance operating expenses and claims incurred.
Insurance activities in Sweden In 2009, Tryg acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB and MF Bilsport & MC specialfösäkringar. The insurance activities were incorporated into the Tryg Group’s business structure in 2009 and are reported under Sweden. In 2010 the companies were merged into Tryg Forsikring A/S as Moderna Försäkringar, branch of Tryg Forsikring A/S.
Addition on acquisition of subsidiary a) 11 1 0 12 Additions during the year 45 0 199 244 Disposals during the year -22 0 0 -22
Value adjustment for the year at revalued amount in profit and loss 0 -2 -27 -29 Value adjustment for the year at revalued amount in equity 0 11 0 11
2010 Komplementarselskabet af 1. marts 2006 ApS, DK 0 0 0 0 0 50
Komplementarselskabet af 1. marts 2006 ApS, DK 0 0 0 0 0 50
Quoted market Observable Unobservable DKKm prices input input Total 15 Total other financial investment assets Fair value hierarchy for financial instruments measured at fair value in the balance sheet
Financial assets at fair value with value adjustment in the income statement Bonds 20,808 13,770 43 34,621
Cash in hand and deposits in credit institutions 3,450 0 0 3,450
Financial instruments measured at fair value in the balance sheet on the basis of non-observable input: Carrying amount 1 January 121 338 Exchange rate adjustment 10 4 Gains/losses in the income statement 90 -47
Gains/losses in the income statement for assets held at the balance sheet date recognised in value adjustments 96 -54
Bonds measured on the basis of observable inputs mainly consist of Norwegian bonds issued by banks and to some extent Danish semi liquid bonds, where no quoted prices within the last 5 days exist.
Non-observable input, total result DKK -47m (DKK 96m in 2009), mainly comprises inflation derivatives of DKK -60m hedging (DKK 75m in 2009) inflation risk on technical provisions which recorded an accounting loss of DKK 83m (DKK -62m in 2009).
DKKm Bonds Shares Property Total 15 Financial assets at fair value with value adjustment in the income statement
Cash in hand and at bank 777 0 0 777 0.8 0
Cash in hand and at bank 462 0 0 462 0.9 0
The note should be seen in connection with the expected cash flow from the Group’s provisions for unearned premiums and provisions for claims, see note 21. Please refer to the section on ‘Investment and interest rate risk’ in ‘Capitalisation and risk mangement’ in the ‘Management’s report’.
DKKm Properties Bonds Shares Insurance Hedge Exposure 15 Exposure to exchange rate risk
Please refer to the section on ‘currency risk’ in ‘Capitalisation and risk mangement’ in the ‘Management’s report’.
Impact on shareholders’ equity from the following changes: Interest rate increase of 0.7-1.0 pct. point 26 -75 Interest rate fall of 0.7-1.0 pct. point -42 13 Equity price fall of 12% -191 -262 Fall in property prices of 8% -336 -334 Exchange rate risk (VaR 99.5) -12 -12 Loss on counterparties of 8% -218 -315
Due within one year 11,024 34 30,751 -19 Due within one to five years 0 0 3,709 -8 Due after more than five years 3,623 0 6,379 -51
Specification of writedowns on receivables from insurance contracts Balance at 1 January 120 124 Exchange rate adjustment 6 3 Writedowns and reversed writedowns for the year -2 8
Impairment test As at 31 December 2010, management performed a test of the carrying amount of total reinsurers’ share of provisions for insurance contracts. The impairment test resulted in impairment charges totalling DKK 17m (DKK 17m in 2009).
17 Current tax Current tax, beginning of year -137 -303 Exchange rate adjustment -25 -15 Addition on acquisition of subsidiary a) -24 0 Current tax for the year -576 -170 Current tax on equity entries 118 82 Adjustment of prior-year current tax -8 14 Tax paid during the year 349 482
Current tax is recognised in the balance sheet as follows: Under assets, current tax 0 196 Under liabilities, current tax -303 -106
Net current tax, end of year -303 90 a) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 18 Shareholders’ equity
Cancellation in connection with buyback programme. -4,068,427 -101,711 -6.02 0 0 0.00 Used in connection with issue of employee shares -70,354 -1,758 -0.11 -17 0 0.00 Used in connection with exercise of stock options -66,430 -1,661 -0.1 -31,820 -796 -0.05
Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital until the next annual general meeting in 2011. Treasury shares are acquired for use in the Group’s incentive programme and as part of the share buy back programme.
Shareholders’ equity according to annual report 9,631 8,458 Subordinate loan capital 732 804 Proposed dividend -991 -256 Solvency requirements to subsidiary undertakings -4,579 -5,031
The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. Tryg manages its capital requirement as described in ‘Capitalisation and risk management’ in the Management’s report’
Lender Listed bonds TryghedsGruppen Principal EUR 150m EUR 65m Issue price 99.017 100 Issue date December 2005 April 2009 Maturity year 2025 2032 Loan may be called by lender as from 2015 30 June 2012 Repayment profile Interest-only Interest-only Interest structure 4.5% (until 2015) 5.13% above EURIBOR 3M (interest until 30 June 2012) 2.1% above EURIBOR 3M (from 2015) 7.63%–6.63% (max. og min. until 30 June 2012) 5% above EURIBOR 3M (interest from 1 July 2012-30 June 2019) 6% above EURIBOR 3 M (interest from 1 July 2019)
b) Tryg Forsikring A/S has subscribed the subordinated loan capital in connection with acquisitions made in April 2009, see note 29.
Prices used for determination of fair value in respect of both loans are based on an assessment of the credit spread of the loans provided by Nordea.
The fair value of the loan at the balance sheet date 893 950 499 499 The fair value of the loan at the balance sheet date is based on a price of 80 85 103 103 Total capital losses and costs the balance sheet date 14 12 0 0 Interest expenses of the year 51 50 24 33
The share of subordinated capital included in the calculation of the capital base total DKK 804m (DKK 732m in 2009)
Estimated accu- mulated claims End of year 8,611 9,252 11,335 10,757 11,092 11,828 11,627 12,571 13,249 14,691 17,030 1 year later 8,938 9,490 11,696 10,863 11,096 11,727 11,883 13,196 14,629 15,362 2 year later 9,148 9,689 11,696 10,524 10,952 11,554 11,390 13,768 14,519 3 year later 9,354 9,801 11,752 10,522 10,838 11,158 11,614 13,773 4 year later 9,441 9,730 11,742 10,548 10,570 11,294 11,546 5 year later 9,573 9,720 11,651 10,520 10,645 11,162 6 year later 9,325 9,934 11,638 10,442 10,440 7 year later 9,443 9,908 11,504 10,310 8 year later 9,429 9,960 11,493 9 year later 9,508 9,889 10 year later 9,746 9,746 9,889 11,493 10,310 10,440 11,162 11,546 13,773 14,519 15,362 17,030 135,271 Cumulative pay-
Reserves from 1999 and prior years 1,659 Other reserves 724 Gross provisions for claims, end of year 24,883
The table consists of figures for Tryg Forsikring A/S, Tryg Forsikring, norwegian branch of Tryg Forsikring A/S, Enter Forsikring AS and Moderna Försäkringar, branch of Tryg Forsikring A/S. Other group units are included in the item ’Other reserves’, which comprises the provisions for claims for Tryg Garantiforsikring A/S and the Finnish branch.
Paid in the financial year in respect of the current year -8,273 -195 -8,078 Paid in the financial year in respect of prior years -6,663 -327 -6,336
Change in claims in the financial year in respect of the current year 16,502 757 15,745 Change in claims in the financial year in respect of prior years -857 -52 -805
Paid in the financial year in respect of the current year -7,175 -152 -7,023 Paid in the financial year in respect of prior years -6,308 -204 -6,104
and Moderna Försäkringar, branch of Tryg Forsikring A/S. Other units in the Group are included in ’Other’
b) Comprises provisions for claims for Tryg Garantiforsikring A/S, the Finnish branch of Tryg Forsikring A/S.
c) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29
Provisions for unearned premiums, gross 5,615 158 152 156 6,081 Provisions for unearned premiums, ceded -153 -12 -15 -10 -190
The table consists of figures for Tryg Forsikring A/S, Tryg Forsikring, Norwegian branch of Tryg Forsikring A/S, Enter Forsikring AS
Gross pension obligation 1,304 1,572 Fair value of plan assets 856 951
Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year 1,123 1,304 Exchange rate adjustment 206 81 Present value of amounts accumulated during the year 55 52 Capital costs of previously accumulated pensions 47 58 Acturial gains/losses -70 181 Paid during the period -57 -62 Change in recognised employers’ nat. ins. contribution 0 -42
Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year 628 856 Exchange rate adjustment 118 57 Investments in the year 149 73 Estimated return on pension funds 40 53 Acturial gains/losses -42 -47 Paid during the period -37 -41
Specification of pension cost for the year: Present value of amounts accumulated during the year 45 44 Interest expense on accrued pensions obligation 47 58 Expected return on plan assets -40 -53 Accrued employers’ nat.insurance contribution 8 6
The premium for the following financial years is estimated at: 55 66
Notes 22 Pensions and similar obligations Assumptions used: % % Discount rate 4.6 3.8 Estimated return on pension funds 5.8 4.5 Salary adjustment 4.0 4.0 Pension adjustment 4.0 3.8
Moderna Försäkringar, branch of Tryg Forsikring A/S complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa - FPK.
Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the c ollaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
The premium paid to FPK in 2010 amounted to DKK 12m, which is about 2.6 % of the annual premium in FPK (2009). FPK writes in its half-year report for 2010 that it had a collective consolidation ratio of 112 at 30 June 2010 (cosolidation ration 113 at 30 June 2009). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations.
Tax liability Intangible rights 134 121 Land and buildings 176 206 Bonds and loans secured by mortgages 46 14 Contingency funds 1,196 1,261
Reconcillation of deferred tax Deferred tax, beginning of year 949 1,244 Exchange rate adjustment 133 70 Addition on acquisition of subsidiary a) 97 0 Change in deferred tax previous years -3 0 Change in capitalised tax loss -80 34 Change in deferred tax taken to the income statement 138 53 Change in deferred tax taken to equity 10 -119
The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely in Denmark and Luxembourg.
Other provisions, end of year 6 1 25 Debt to credit institutions Bank loans 600 0 Bank overdrafts 11 30
Debt falling due within one year 611 30 Debt falling due after more than five years 0 0
From 2005 to july 2010 Tryg has had a loan facility with a consortium of banks for DKK 2,000m, of which DKK 600m was utilised at 31 December 2009. In 2010, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5 % p.a. The unutilised part of the loan facility was measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost was depreciated linear until the loan facility expired in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 600m.
Tryg A/S has established committed credit facilities totalling DKK 1,000m with af number of Danish banks. These credit facilities expire on 31 December 2011. In addition, Tryg Forsikring A/S has established committed repo facilities DKK 1,000m with at number of Danish banks. These repo facilities expire on 31 December 2011. None of the facilities had been utilised at 31 December 2010.
26 Other debt Unsettled transactions 27 2,051 Interest derivatives 3 9 Exchange and inflation rate derivatives 0 367 Repo debt 0 1,896 Other debt 959 1,030
The company has not issued warrants, convertible debt instruments or the like.
The amounts include the following: Tryg Forsikring A/S and Tryg Forsikring, norwegian branch of Tryg Forsikring A/S have signed an operating agreement with
Tryg Forsikring A/S has signed a portfolio management contract for DKK 143m. The contract expires in 2013. Tryg Forsikring A/S has signed a telephony service contract with Telenor for DKK 145m. The contract expires in 2015. Tryg Forsikring A/S has signed a car leasing contrakt with NF Fleet for DKK 30m. The contract expires in 2015. Tryg Forsikring A/S has signed a it leasing contrakt with IBM for DKK 7.5m. The contract expires in 2011. Tryg Forsikring A/S has signed a it leasing contrakt with a external company back up of the hard disk DKK 8.8m.
Most of the Danish companies in Tryg group are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes.
Companies of the Tryg Forsikring group are part of some disputes. 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 statement of financial position at 31 December 2010.
DKK 1,896m (DKK 0 in 2009) of the company’s bond portfolio was sold in repo transactions and must be repurchased. The value of the bond portfolio remains recognised in the balance sheet and has been provided as security for financial liabilities concerning repo transactions.
DKKm 29 Acquisition of subsidiary 2010 There have been no acquisitions of subsidiaries during 2010.
2009 In 2009 Tryg Forsikring A/S acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB og MF Bilsport
Carrying amount Market value Acquired businesses before takeover a) at takeover
Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees with the exception of Sjælsø Gruppen A/S, are issued without additional security. The company has full recourse against the individual companies.
Specification of remuneration Supervisory Board -4 -5 Executive Management -19 -20
Members of the Supervisory Board of Tryg A/S do not receive bonuses and are not participants in any severance plans. The Executive Management has a bonus scheme for up to 3 months’ salary (Group CEO up to 4 months’ salary) and participate ind the share option programme in Tryg Forsikring as mentioned in ‘Corporate governance’. Other than that, there are no incentive plans for the Supervisory Board and Executive Management.
If a member of the Executive Management is given notice of termination by Tryg Forsikring A/S and such termination is not due to breach on the part of the member of the Executive Management, such member is entitled to cash severance pay equal to 12 to 18 months’ fixed salary inclusive of pension contribution and taxed benefits. Severance pay is paid at expiry of the period of notice. Members of the Executive Management can raise no further claims in this respect, including claims for compensation pursuant to sections 2a and/or 2b Salaried Employees Act, as such claims are included in the severance pay.
Transactions between TryghedsGruppen smba and Tryg A/S are on market terms
Intra-group trading involved Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The companies in Tryg Group have entered into reinsurance contracts on market terms.
Proposed distribution for the year: Dividend 991 256 Transferred to Net revaluation as per equity method 1,470 -1,965 Transferred to Retained profits -432 2,134
Liabilities Shareholders’ equity 9,652 8,475 8 Debt to credit institutions 600 0 Debt to subsidiaries 8 0
Of which services other than audit: In addition, expenses have been incurred for the Group’s Internal Audit Department.
Revaluations and impairment writedowns at net asset value Balance 1 January 1,524 3,151 Revaluations during the year 2,238 641 Dividend paid -611 -2,440
From 2005 to july 2010 Tryg A/S has had a loan facility with a consortium of banks for
DKK 2,000m, of which DKK 600m was utilised at 31 December 2009. In 2010, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5 % p.a.
Tryg has established committed credit facilities totalling DKK 1,000m with a number of Danish banks. These credit facilities expire on 31 December 2011.
Claims payments - Parent company (TryghedsGruppen smba) 0.7 0.2 - Other related parties 6.2 2.6
Members of the Supervisory Board of Tryg A/S do not receive bonuses and are not participants in any severance plans.
11 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
Profit reconciliation Profit - IFRS 2,008 593 Current years effect of actuarial gains and losses on pension obligation after tax 21 -164 Change in the year in deferred tax provisions for contingency funds 0 -4
Equity reconciliation Shareholders’ equity - IFRS 9,631 8,458 Deferred tax provisions for contingency funds 21 21 Change in the year in deferred tax provisions for contingency funds 0 -4
Key ratios Gross claims ratio 66.2 64.6 64.5 71.6 82.0 Business ceded as % of gross premiums 3.6 2.4 3.7 2.5 0.7 Claims ratio, net of ceded business 69.8 67.0 68.2 74.1 82.7
Number of full-time employees, end of period 2,211 2,221 2,356 2,293 2,342
Key ratios Gross claims ratio 64.0 63.0 70.6 70.8 76.7 Business ceded as % of gross premiums 3.5 4.9 3.6 3.7 3.1 Claims ratio, net of ceded business 67.5 67.9 74.2 74.5 79.8
Number of full-time employees, end of period 1,455 1,379 1,450 1,398 1,338
Key ratios Gross claims ratio 78.1 74.9 72.9 84.2 80.9 Business ceded as % of gross premiums 0.2 0.4 0.3 0.6 0.8 Claims ratio, net of ceded business 78.3 75.3 73.2 84.8 81.7
Key ratios Gross claims ratio 65.5 64.2 67.6 72.1 80.2 Business ceded as % of gross premiums 3.5 3.4 3.5 2.9 1.6 Claims ratio, net of ceded business 69.0 67.6 71.1 75.0 81.8
Number of full-time employees, end of period 3,783 3,788 4,065 4,310 4,291 a) Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 april 2009.
b) Amounts relating to Tryg A/S, Tryg Ejendomme A/S and eliminations are included in ‘Other’.
Technical interest ratio, net of reinsurance 2.3 3.2 3.0 0.9 0.7 Return on equity before tax on continuing business (%) 41.3 33.3 15.3 29.3 10.4 Return on equity after tax on continuing business (%) 34.4 24.3 9.7 22.3 7.5 Average provisions for unearned premiums 5,178 5,288 5,252 5,654 6,514
Average reinsurers’ share of provisions for insurance contracts 2,096 1,574 1,312 1,178 1,454 Reserve ratio, provisions for unearned premiums (%) 32.9 33.2 30.0 34.8 35.0 Reserve ratio, provisions for claims (%) 130.2 130.1 116.3 125.8 127.8
Number of full-time employess, end of period, discontinued and divested business 25 26 26 26 1
Share performance Earnings per share (DKK) 47.3 33.5 12.8 31.7 9.5 Diluted earnings per share (DKK) a) 31.7 9.5
The financial highlights and key ratios of Tryg have been prepared in accordance with the executive order issued by the Danish Financial Supervisory Authority on the presentation of financial reports by insurance companies and profession-specific pension funds and also comply with “Recommendations & Financial Ratios 2010” issued by the Danish Society of Financial Analysts.
Finnish general insurance Comprises Tryg Forsikring A/S, Finnish branch and the Finnish branch of Tryg Garantiforsikring A/S.
Individual Solvency New Danish solvency requirements for insurance companies. With effect from the 1 January 2008, companies are required to make their own determination of their capital requirements applied with own methods. The Individual Solvency shall be reported four times a year.
Claims incurred + insurance operating expenses + result of reinsurance x 100
Relative run-off gains/losses Run-off result relative to provisions for claims, beginning of year.
Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch and the Swedish branch of Tryg Garantiforsikring A/S.
Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding Tryg’s future results of operations, financial condition, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by terminology such as ”targets”, ”believes”, ”expects”, ”aims”,
A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including but not limited to general economic developments, changes in the competitive envrironment, developments in the financial markets, extra ordinary events such as natural disasters or terrorist atttacks, changes in legislation or case law and reinsurance.
Tryg urges readers to refer to the section on risk management for a description of some of the factors that could affect the Group’s future performance or the insurance industri.
Tryg is not under any duty to update any of the forwardlooking statements or to conform such statements to actual results, except as may be required by law.
Group chart at 1 January 2011. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated.
About Tryg 1 Preface 4 Financial highlights and key ratios 8 Group overview 9 Highlights of 2010 10
Strategy and outlook 12 Strategy 14 KPI (Key performance Indictors) 16 The insurance industry 18 Customers and products 20 Outlook 22
This is a translation of the Danish annual report 2010. In case of any discrepancy between the Danish and the English version of the annual report 2010, the Danish version shall apply.