Management’s review 3 Highlights 4 Tryg at a glance 5 Business areas 6 Income overview 7 Introduction by Chairman and Group CEO
9 Financial outlook 11 Targets and strategy 15 Tryg’s results 19 Private 21 Commercial 23 Corporate 25 Sweden 27 Investment activities 30 Capital and risk management 32 Investor information 34 Corporate governance 39 Supervisory Board 42 Executive Board 43 Corporate Responsibility in Tryg
Financial statements 47 Financial statements 114 Group chart 115 Glossary 116 Product overview
Financial highlights 2019 • Premium growth of 17.1% or 6.1% (4.1%)
excluding Alka in local currencies • Technical result of DKK 3,237m (DKK 2,766m)
(DKK -332m) • Profit before tax of DKK 3,628m (DKK 2,262m) • A total annual dividend of DKK 6.80 per share and extraordinary dividend of 1.65 per share • Solvency ratio of 162
excluding Alka in local currencies • Technical result of DKK 762m (DKK 596m)
improved by 0.5 and 0.5 percentage points • Expense ratio of 14.6 (15.6) • Return on free investments portfolio of DKK 226m (DKK -198m) • Total investment return of DKK 198m
(DKK -330m) • Profit before tax of DKK 940m (DKK 149m) • Q4 dividend of DKK 1.70 per share
Customer highlights Q4 2019 • TNPS of 68 (67) • Number of products per customer 3.8 (3.8) • In Q4, awareness of TryghedsGruppen's member bonus among non-customers increased to 28%, up by 27% compared with the same period prior year
Copenhagen experiences the largest fire in its history. The fire heightened public awareness of the need to insure oneself
Kjøbenhavns Brand (the oldest componens in Tryg's history) was established by Royal Decree as a result of the Copenhagen fire in 1728
Purpose As the world changes, we make it easier to be tryga).
Tryg is one of the largest non-life insurance companies in the Nordic region. We are the largest player in Denmark and the fourth-largest in Norway.
Private provides insurance products to private customers in Denmark and Norway. Private offers a range of insurance products including car, contents, house, accident, travel, motorcycles, pet and health.
Commercial provides insurance products including motor, property, liability, workers' compensation, travel and health to small and medium-sized business in Denmark and Norway.
Own sales agents • Call centres Real estate agents • Internet • Car dealers
Profit/loss on continuing business 706 112 2,845 1,733 2,519 2,472 1,920 Profit/loss on discontinued and divested business after tax -1 -2 -2 -2 -2 -1 49
Run-off, net of reinsurance (%) -4.7 -4.1 -5.5 -6.5 -5.4 -7.0 -6.7 Large claims, net of reinsurance (%) 1.8 1.7 2.1 2.6 1.4 2.2 3.4 Weather claims, net of reinsurance (%) 1.7 1.6 1.9 2.0 1.7 2.0 3.4
Note: Tryg´s acquisition of Alka affects the Financial Statement from closing the 8 November 2018
Good results and increased customer loyalty 2019 was characterised by a lot of changes, new initiatives and satisfactory financial results. Customer satisfaction reached record highs while customer retention was also at the highest level ever recorded. TryghedsGruppen paid out a member bonus for the fourth year running – now including the 380,000 Alka customers – meaning that 1.3 million customers (or approximately every fourth Dane) received a bonus equivalent to 8% of premiums paid in 2018.
Claims handling and prevention There was a strong focus on combating insurance fraud, primarily based on knowledge sharing with Alka. Alka has historically been very efficient at identifying insurance fraud at an early stage in the claims process. Prevention is key for the well-being of customers, products such as TrygDrive, a digital device that record driving behaviour, Tryg Alarm and a rat blocker, are all part of Tryg’s prevention strategy.
Efficient distribution Tryg is progressing well in reducing distribution costs through the use of new channels such as independent insurance agents in Private and Commercial. In addition, the partnership with Danske Bank in the Private and Commercial segment started positively.
Annual report 2019 | Tryg A/S | 7Contents – Management’s review
New Vet hotline Tryg Private launched its Vet hotline for Danish cat and dog owners, who can get online advice from an author - ised veterinarian for their pets via mobile or tablet. The service was launched in Norway earlier this year and has been available in Sweden for some time.
TryghedsGruppen’s member bonus For the fourth consecutive year, TryghedsGruppen, Tryg’s majority shareholder, paid out a member bonus. The total payout was DKK 925m, equivalent to 8% of premiums paid for 2018. The bonus was paid out to Tryg’s and Alka’s customers in Denmark on 12 June 2019.
Strategic partnership with Danske Bank Tryg started providing insurance solutions to Danske Bank’s 3 million Nordic customers. The partnership covers all the countries and markets in which Tryg operates, i.e. both Private and Commercial in Denmark and Norway, and Private in Sweden.
Tryg Mobil Commercial Denmark started testing a new initiative, Tryg Mobil, with the aim of increasing safety and avoiding accidents in traffic. When enabling Tryg Mobil, the driver’s mobile phone will automatically block the display to disable hand-held usage of the mobile by the driver.
Digital insurance check-up In October, Tryg launched an online insurance checkup feature. With this tool, customers are now able to compare their insurance cover and subsequently receive a recommendation based on products taken out by similar customers in Tryg.
New Nordic agreement with SEB On 1 December, Tryg and Moderna, Tryg's Swedish brand, entered into a new agreement with SEB (Skandi naviska Enskilda Banken) regarding all credit card insurance products in the Nordic region. The new contract runs for three years with an option for renewal and covers travel insurance on SEB's cards for private customers, Private Banking customers and Commercial customers in Denmark, Norway, Sweden and Finland.
Partnership with Arbejdernes Landsbank Commercial Denmark has signed an important strategic agreement with Arbejdernes Landsbank effective from 1 January 2020. Arbejdernes Landsbank already has a distribution agreement with Alka regarding sales to the bank's private customers.
The current three-year strategy period ends in 2020, and Tryg will therefore host a new CMD towards the end of the year and launch new financial targets. Financial targets for 2020 are a technical result of 3.3bn (including DKK 150m of synergies from the Alka acquisition), an expense ratio of ~14, a combined ratio at or below 86 and a return on equity at or above 21% after tax.
Weather claims, net of reinsurance Expected level 2020 (including Alka): DKK 600m
Expected level 2020 10Contents – Management’s review Annual report 2019 | Tryg A/S |
Tryg is very pleased to see a historically high level of employee satisfaction in 2019, surpassing the general level of employee satisfaction in the financial sector in the Nordic region. Tryg is aiming for the highest level of employee satisfaction in the financial sector in the Nordic region.
Value creation for our shareholders Tryg’s shareholders must see Tryg as a company with a key focus on profitability and efficiency, which reflects the company’s core strategy and its financial targets. Tryg’s performance can be measured by its long-term total shareholder return. Tryg aims to pay a nominal, stable and increasing ordinary dividend, while maintaining stable results and a high level of return on capital employed.
Tryg makes it easier to be ‘tryg’a) for its customers by offering them insurance against risk, efficient claims handling, and advice and services to prevent claims from arising in the first place. By making it easier for our customers to feel protected and cared for, we benefit all of Tryg’s stakeholders. Via TryghedsGruppen’s 60% ownership of Tryg, part of the company’s profit is returned to customers, who are also members of TryghedsGruppen.
As the world changes, we make it easier to be tryg a)
There is a strong correlation between customer loyalty and the number of products per customer, and therefore a target of increasing the number of products by 10% per customer has been set, corresponding to four products per customer. In 2019, the number of products per customer was 3.8.
Strategic initiatives Tryg has defined four initiatives in support of its financial targets and customer tagets
Annual report 2019 | Tryg A/S | 12Contents – Management’s review
Self-service levels continued to increase in 2019. Login numbers to Tryg’s digital universe for our Private customers, ‘My Page’, increased to approxi mately 3.3m logins corresponding to an increase of 30% compared to last year. New online initiatives such as digital invoicing and online insurance check-ups have also helped to further improve self-service levels. In 2019, the level of digital self-service increased to 60%.
Product & service innovation DKK 1bn in new products by 2020+
Finally, entering new markets and increasing the profitable credit and surety business, Tryg Garanti, is also considered an important initiative for reaching Tryg’s 2020 targets. In 2019, Tryg Garanti expanded to Germany, Austria and the Netherlands.
Increasing Distribution efficiency is a strategic priority for Tryg. The target is to generate savings of DKK 150m in 2020. In 2019, efficiency gains corresponding to approximately DKK 90m were realised.
Annual report 2019 | Tryg A/S | 14Contents – Management’s review
The investment result was DKK 579m (DKK -332m), driven primarily by higher equity market returns.
Results 2019 Premium growth was 17.1%, or 6.1% excluding Alka. The Private segment was up 7.8% excluding Alka, while Commercial (excluding Alka and Troll) reported 4.4% growth, whereas Corporate reported a lower growth of 2.0%.
Tryg reported a technical result of 3,237m (DKK 2,826m excluding Alka). The higher technical result was impacted positively by the growth in the private segment, the inclusion of Alka and related synergies stemming from the acquisition (DKK 90m in 2019). Weather and large claims were more than DKK 250m lower than normal in 2019, it is important to keep this in mind when looking at the technical result target of DKK 3.3bn in 2020.
Equities return DKK 404m (20.5%) in 2019 vs DKK -212m (-10.8%) in 2018.
As flagged at Q3, more profitability actions will be initiated in the Corporate segment.
The Private segment reported growth of 7.8% (excluding Alka), helped by partner agreement sales, more product offerings, increased retention rates and positive support from the TryghedsGruppen member bonus. Private Denmark and Private Norway are both contributing to the positive top-line performance.
The Commercial segment reported premium growth of 4.4% (excluding Alka) based on satisfactory growth both in Denmark and Norway. In Denmark, developments were positive with an improved retention rate helped by the member bonus from Tryghedsgruppen, but also by improved sales compared to previous years. In Commercial Norway, price initiatives of 7% supported growth as customers largely accepted the higher prices.
The segment Sweden increased 6.1%, helped by healthy growth in the pet insurance segment and also by positive developments in the motor and accident lines of businesses.
Claims The claims ratio, net of ceded business, was 70.9 (70.4 excluding Alka), while the underlying claims ratio showed an improvement of 0.5 percentage points, driven by price adjustments and claims procurement initiatives. At the CMD in November 2017, Tryg launched a new target, which includes a DKK 600m ‘claims excellence’ programme. In 2019, savings of DKK 200m were achieved, resulting in an accumulated total of DKK 350m for the years 2018 and 2019. It is important to note that part of the savings impacted the previous year’s results (run-off gain), but not current year figures.
In 2019, large claims totalled DKK 455m (DKK 490m), while weather claims totalled DKK 416m (DKK 384m). Both the level of large claims and the level of weather claims were below normalised expectations of DKK 550m and DKK 600m a year. The overall run-off result was DKK 1,194m (DKK 1,221m), or 5.5% (6.5%) on the combined ratio. The run-off result was driven mainly by run-off gains in the long-tail segments.
Annual report 2019 | Tryg A/S | 16Contents – Management’s review
Tax Tryg paid a total tax bill of DKK 783m (DKK 529m), or 21.5% of the profit before tax.
The solvency ratio of 162 includes the ordinary and extraordinary dividend payments.
Own funds totalled DKK 8,119m (DKK 8,058m). In 2019, own funds were positively impacted mainly by the net profit, and negatively impacted by the ordinary dividend and the extraordinary dividend payment (due to be paid on 27 January 2020).
Tryg’s own funds comprise mainly shareholders’ equity, intangibles (fully deducted), Tier 2 instruments (subordinated debt and the Norwgian natural perils pool), Tier 1 instruments and future profits. Most of Tryg’s own funds consist of shareholders’ equity. Tier 2 capacity has been fully utilised, while Tier 2 bonds in the amount of DKK 142m are currently not included in the own funds as they exceed the 50% solvency capital requirement (SCR). Tier 1 capacity has also been almost fully utilised, with DKK 17m remaining at year-end 2019.
Tryg calculates its SCR based on a partial internal model in accordance with the Danish Financial Supervisory Authority’s Executive Order on Solvency and Operating Plans for Insurance Companies.
The model is based on the structure of the standard model. Tryg uses an internal model to assess insurance risks, while other risks are calculated using standard model components. Tryg’s SCR, calculated using the partial internal model, was DKK 5,021m at the end of 2019 compared to DKK 4,892m at the end of 2018. The slight SCR increase in 2019 was attributable primarily to premium growth and to a modest increase in market risk. Based on the standard formula, Tryg’s SCR was DKK 6,293m compared to DKK 5,980m at the end of 2018.
Dividend policy Tryg’s dividend policy targets a nominal, stable increase in dividend payments on a full-year basis. Tryg introduced quarterly dividends in 2017. The quarterly payment was DKK 1.70 per share, or a total of DKK 6.80 (DKK 6.60) for 2019. This equates to total dividend payments of DKK 2,056m, or 72% of the profit for the year. Additionally, an extraordinary dividend of DKK 1.65, amounting to a total payout of DKK 500m, will also be paid out.
Results Q4 2019 The technical result was DKK 762m (DKK 656m excluding Alka), driven by a positive development in the underlying claims ratio, sound cost control and the inclusion of Alka and related synergies. Investment income was DKK 198m (DKK -330m), driven primarily by positive equity market developments. The claims ratio (net) was 71.5, the expense ratio was 14.6, and the combined ratio was 86.1. The underlying claims ratio improved 0.5 percentage points both for Private and for the Group. The pre-tax result was DKK 940m, and the after-tax result was DKK 705m. Tryg pays a quarterly dividend of DKK 1.70 per share (DKK 514m) and an extraordinary dividend of DKK 1.65 per share (DKK 500m) and reports a solvency ratio of 162.
Claims The claims ratio, net of ceded business, was 71.5 (71.5 excluding Alka). Large claims of DKK 98m (DKK 84m) were higher than last year, but still below a normal quarter, while weather claims of DKK 94m (DKK 82m) were also higher than last year, but also below a normal Q4 characterised by relatively harsh Scandinavian weather conditions. The run-off result was DKK 256m (DKK 207m). The underlying claims ratio improved 0.5 percentage points both for the Private segment and for the Group.
Investments The investment return totalled DKK 198m (DKK -330m) for Q4 2019, driven by a return of
The underlying claims ratio showed an improvement of 0.5 percentage points for the Group and of 0.5 percentage points for the Private segment.
Annual report 2019 | Tryg A/S | 18Contents – Management’s review
Results 2019 The technical result for 2019 was DKK 1,951m (DKK 1,734m), with a combined ratio of 83.7 (81.6). The improved result was driven by the inclusion of Alka (and related synergies) and by an improved underlying claims ratio.
Expenses The expense ratio for Private was 13.7 (13.8), which was in line with the general guidance for Tryg, reflecting investments in digital solutions financed through distribution efficiency. Total employee numbers decreased from 1,329 at the end of 2018 to 1,317 in 2019, reflecting Tryg’s focus on efficiency. In Denmark, sales agents were recruited to target leads from the FDM portfolio, and furthermore around 30 independent sales agents were recruited in 2019. In Norway, the primary distribution channel is franchise agents, who are not directly employed by Tryg, and therefore not included in the employee numbers.
Profit/loss on gross business 572 597 2,185 1,959 Profit/loss on ceded business -77 -65 -231 -220 Insurance technical interest, net of reinsurance -1 -1 -3 -5
Results Q4 2019 The technical result totalled DKK 494m (DKK 531m), with a combined ratio of 83.8 (80.1). The lower technical result is driven primarily by a lower runoff result and somewhat higher weather-related claims in Norway. The underlying claims ratio improved by 0.5 percentage points, which is in line with developments in the previous quarter and positively impacted by Alka synergies.
Premiums Gross premiums increased by 16.2% (21.2%) in local currencies and were impacted by the Alka acquisition. Excluding the Alka acquisition, premium growth was 7.6%. The retention rate in Denmark increased from 91.2 to 91.6, while in Norway the retention rate increased from 86.7 to 87.1.
Expenses The expense ratio was 13.4 (13.5), approximately on the same level as corresponding year.
Premiums The development in gross premium income was a positive 8.3% (3.7%) in local currencies, impacted by the acquisition of Alka as well as the OBOS and Troll portfolios. An underlying improvement in premium income was also seen for both the Danish and Norwegian Commercial business areas. Commercial Denmark introduced a new and more efficient sales channel inspired by the Norwegian franchise set-up, while continuing to capitalise on the TryghedsGruppen member bonus. In Norway, premium development was positively impacted by price adjustments, particularly for large commercial customers, which were widely accepting of the price increases.
Combined ratio exclusive of run-off 93.6 89.6 94.0 91.2 Run-off, net of reinsurance (%) -3.3 -15.4 -7.2 -10.9 Large claims, net of reinsurance (%) 0.3 -1.0 3.3 1.6 Weather claims, net of reinsurance (%) 1.0 2.3 2.2 2.3
The business area accounts for 20% of the Group’s total premium income.
Premiums Gross premiums increased by 4.8% (6.8%) in local currencies, impacted by the acquisition of Alka. Growth was 4.3% excluding Alka. The retention rate in Denmark increased to 88.6 (88.0), while the retention rate in Norway increased significantly to 89.0 (87.7) due to a strong focus on customer loyalty.
Expense ratio 17.4 22Contents – Management’s review Annual report 2019 | Tryg A/S |
Key ratios Premium growth in local currencies 1.1 2.9 2.0 4.0
The business area accounts for 18% of the Group’s total premium income.
Claims The gross claims ratio totalled 70.8 (79.9), and the claims ratio, net of ceded business, 77.2 (85.7). As mentioned before, the lower claims level was due to a lower level of large claims and a higher level of run-off. Profitability remains challenging in the Corporate segment considering a combined ratio of 97.8 excluding run-offs, and price hikes will therefore be implemented. In the past two years, Corporate Norway has introduced profitability initiatives, but in 2020 these initiatives will be implemented in all countries. Depending on customer reactions, this may lead to a reduction in premium income, but profitability is expected to improve. Tryg expects further significant profitability initiatives to be implemented in 2021.
Tryg has been named ‘best workplace ’ in the insurance industry according to employees in the financial sector. The survey called ’Employee image 2019’ is conducted by the research company Wilke on behalf of FinansWatch, where Tryg scores 75.4 out of 100 based on 3,500 replies.
Expenses The expense ratio was 12.1 (10.3) and somewhat higher than for Q4 2018.
Results Q4 2019 The technical result was DKK 73m (DKK -117m), with a combined ratio of 92.6 (111.8). The results were positively impacted by a higher level of run-off gains, but also by an improved underlying combined ratio due to the launch of profitability initiatives, particularly in Norway. Premium growth was a positive 1.1% (2.9%), primarily due to price hikes as well as credit and surety business growth.
Expense ratio 24Contents – Management’s review Annual report 2019 | Tryg A/S |
Key ratios Premium growth in local currencies 3.3 7.7 6.1 4.9
Premiums Gross premium income totalled DKK 1,521m (DKK 1,471m), equating to growth of 6.1% (4.9%) in local currencies. Growth was attributable especially to motor insurance, accident insurance and pet insurance. Double-digit growth was posted for pet insurance in 2019. Tryg’s Swedish business, Moderna, is a small player in the Swedish market trying to grow in selected niches where it has a strong brand or through innovative solutions such as the driving app Moderna Smart Flex (a digital device for recording driving behaviour).
Expenses The expense ratio was 17.5 (16.1), which is a relatively stable level considering the size of the Swedish business. Employee numbers in Sweden were up 32 employees compared to the prior-year period, totalling 386 at the end of 2019.
Premiums Gross premium income was DKK 364m (DKK 361m), or up 3.3% (7.7%) in local currencies. As mentioned before, the primary drivers of growth in Sweden are motor insurance, accident insurance and pet insurance. The key focus is on generating profitable growth through niche products and innovative solutions in Sweden.
Expense ratio 26Contents – Management’s review Annual report 2019 | Tryg A/S |
Free portfolio, gross return 226 -198 857 -33 Match portfolio, regulatory deviation and performance 19 -42 -42 -2 Other financial income and expenses -47 -90 -236 -297
The total market value of Tryg’s investment portfolio was DKK 40bn (DKK 40bn) at year-end 2019. The investment portfolio consists of a match portfolio of DKK 29bn (DKK 29bn) and a free portfolio of DKK 11bn (DKK 11bn). The match portfolio is composed of low-risk fixed-income assets that match the Group’s insurance liabilities, so that fluctuations resulting from interest rate changes are offset to the greatest possible extent. The free portfolio reflects the Group’s capital, which is predominantly invested in fixed-income securities with a short duration, but also in equities and properties.
Tryg’s equity portfolio reported a return of DKK 404m (20.5%) in 2019 vs DKK -212m (-10.8%) in 2018. The large difference in the return on equities explains around 2/3 of the difference in the Group’s investment return in 2019 vs 2018. The fixed-income portfolio also produced a very good return of DKK 294m (4.4%) vs DKK -93m (-1.4%) in 2018, driven primarily by falling rates throughout most of the year and tightening credit spreads. The return on the investment property portfolio was DKK 159m (DKK 272m in 2018 driven by revaluations of DKK 155m), or 7.7%, helped by revaluations of DKK 68m in the last quarter of the year.
Match portfolio The result of the match portfolio is the difference between the return on the match portfolio and the amount transferred to the technical result. The result can be split into a ’regulatory deviation’ and a ’performance result’. The regulatory deviation was DKK -73m (DKK 31m) for the full year 2019, driven primarily by negative developments in Q3 as
a very high level of volatility at the long end of the interest rate curve drove the negative development. The performance result was DKK 31m (DKK 0m) as Nordic covered bond spreads narrowed slightly.
Investment result in Q4 2019 The last quarter of 2019 was characterised by positive developments, especially in the equity markets. Tryg’s equity portfolio returned DKK 152m or 7.2%. The geo-political backdrop was positive, due primarily to eased trade discussions between China and the USA and generally positive macroeconomic data. Additionally, the UK parliamentary elections returned a clear mandate, thus removing some uncertainty. In general, the macro economic picture and geo-political tensions generally remain volatile and will drive most of the narrative in the capital markets also in 2020.
The match portfolio reported an overall result of DKK 19m (DKK -42m), driven primarily by a regulatory deviation contribution of DKK 23m (DKK -19m), while Nordic covered-bond spreads were almost flat, explaining the DKK -4m (DKK -23m) performance result.
Other financial income and expenses were DKK -47m (DKK -90m), which is broadly in line with the guidances. Q4 2018 was burdened by the write-down of a couple of minor strategic investments, as explained in the annual report 2018 (page 30).
The overall investment result in Q4 was DKK 198m (DKK -330m) with more than 80% of the performance swing being explained by changes in equity markets performance, 7.2% in Q4 2019 vs -14.9% in Q4 2018.
Risk management is based on Tryg’s targets and strategies and the risk exposure limits decided by the Supervisory Board. The assessment and management of Tryg’s aggregated risk and the associated capital requirement therefore constitutes a central element in the management of the company. Tryg’s Supervisory Board defines the framework for the company’s target risk appetite and thereby the capital which must be available to cover any losses.
Solvency II The Solvency II regime (introduced at the beginning of 2016) emphasises the need for sound risk management and introduced additional requirements concerning risk governance, consistency across the Group and top management reporting and involvement. Tryg has implemented a risk government structure in full compliance with Solvency II.
Capital management Capital management is a function of developments in Tryg’s own funds and the capital requirement (based on the approved partial internal model). As mentioned previously, Tryg has modelled the insurance risk internally, while all other modules are based on the standard formula. The capital model is based on Tryg’s risk profile and therefore takes into consideration the composition of Tryg’s insurance portfolio, geographical diversification, its claims reserves profile, reinsurance programme, investments mix and the overall level of profitability. The solvency ratio is defined as own funds divided by the solvency capital requirement (SCR).
The key components of Tryg’s own funds are shareholders’ equity, qualifying debt instruments (both Tier 1 and Tier 2 debt) and future profit,
At the end of 2019, Tryg’s SCR was DKK 5,021m, up approximately DKK 129m since the end of 2018. The slight SCR increase in 2019 was attributable primarily to premium growth and to a modest increase in the market risk. An application, for an updated internal model, has been submitted to the Danish FSA. The updated model will include Tryg’s Swedish business and also other adjustments.
Tryg will pay a Q4 dividend and an extraordinary dividend on January 27 2020
31Contents – Management’s review Annual report 2019 | Tryg A/S |
The Tryg share The Tryg share is listed on NASDAQ Copenhagen. Company announcements and transaction statements are published in both Danish and English, whereas interim reports and annual reports are published in English.
NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. Daily turnover on NASDAQ averaged DKK 86m, and average daily volume was 442,179.
This is particularly true for insurance investors as insurance is one of the sectors offering the highest dividend yield. From an investment perspective,
TrygFonden TrygFonden is the leading and most well-known peace-of-mind supporter in Denmark, supporting around 800 activities that contribute to creating peace of mind, such as coastal lifeguards, cuddle bears for children at hospitals and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and which contributed DKK 600m to projects that create peace of mind in all parts of Denmark in 2019.
TryghedsGruppen In 2019 and for the fourth year running, Tryg’s majority shareholder, TryghedsGruppen, paid out a member bonus to Tryg’s customers in Denmark corresponding to 8% of the annual premiums paid for 2018.
Annual report 2019 | Tryg A/S | 32Contents – Management’s review
Shareholders at 31 December 2019 a) Shareholders holding more than 10,000 shares.
Per cent a quarterly dividend is a clear reminder of the high profitability of our business and our focus on returning capital to shareholders. Tryg’s dividend policy is based on the following assumptions: • An aspiration to distribute a steadily increasing dividend in nominal terms on a full-year basis.
Annual general meeting Tryg’s annual general meeting will be held on 30 March 2020 at 15:00 CET at Tryg’s head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark.
The company announcements published in 2020 can be seen at tryg.com > Announcements
Moreover, Tryg prepares quarterly investor presentations, which are used in the dialogue with investors and analysts. Tryg also publishes IR newsletters on relevant topics on a regular basis. All announcements, financial reports, presentations and newsletters are available at tryg.com. This material provides all stakeholders with a comprehensive picture of Tryg’s position and performance.
Board ensures that Tryg’s capital structure is aligned with the needs of the Group and the interests of its shareholders and that it complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board.
The current eight members of the Supervisory Board were elected by the annual general meeting for a term of one year. Of the eight members elected at the annual general meeting, five, and thus the majority, are independent persons, thus complying with recommendation 3.2.1. in the Recommendations on Corporate Governance, while the other three members are dependent persons as they are appointed by Tryg’s majority shareholder, TryghedsGruppen smba. See pages 39-41 for information on when the individual members joined the Supervisory Board, were re-elected and when their current election period ends. To ensure the integration of new talent on the Supervisory Board, members elected by the annual general meeting may hold office for a maximum of twelve years. The Supervisory Board has 12 members, with an equal representation of men and women. Therefore, women are not underrepresented on Tryg’s
Supervisory Board, thus complying with legislation as well as Tryg’s policy. The Supervisory Board has members from Denmark, Sweden and Norway.
See details about the independent board members in the section Supervisory Board on pages 39-41 and at tryg.com > Governance
See CVs and descriptions of the skills in the section Supervisory Board on pages 39-41 and at tryg.com > Governance
The Supervisory Board considers the composition, development, risk and succession plans of the Executive Board in connection with the annual evaluation of the Executive Board, and regularly in connection with board meetings. Each year, the Supervisory Board discusses Tryg’s activities to guarantee diversity at management levels. Tryg ascribes great importance to diversity at all management levels. Tryg has prepared an action plan, which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women. In 2019, the share of women at management level was 35% against 33% in 2018. The target for 2019 of 38% or more women at management level was therefor not met. Tryg maintains the target of increasing the total share of women at management level to 41% or more in 2020.
See the tasks of the board committees in 2019 at tryg.com > Governance > Management > Supervisory Board > Board committees
Annual report 2019 | Tryg A/S | 35Contents – Management’s review
The Chairman of the Supervisory Board reports on Tryg’s remuneration policy each year in connection with the review of the annual report at the annual general meeting. The Supervisory Board's proposal for the remuneration of the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting.
Audit Risk Remuneration IT-Data Nomination DKK Fee Committee Committee Committee Committeea) Committee Total
Anders Hjulmandb) 90,000 90,000 Elias Bakk 382,500 382,500 Karen Bladtc) 292,500 292,500 Claus Wistoftc) 292,500 292,500 a) One-off fee of DKK 140,000 in 2018/2019. IT-Data Committee became permanent as of 1 April 2019. b) Resigned from the Supervisory Board in March 2019 c) Joined the Supervisory Board in March 2019
The targets for 2019 were based on Tryg’s technical result, Transactional Net Promoter Score, employee satisfaction levels, the implementation of Alka and the overall execution of the strategy.
Car Other Total fixed Share-based DKK Base salary Pension allowance benefits salary One-off fee remuneration a) Total fee
b) Barbara Plucnar Jensen took up the position as CFO on 1 March 2019, i.e. salary calculated pro rata for 2019. Was granted a sign-on bonus vesting in 2020.
From 2021, based on the performance in the financial year 2020, the variable pay is allotted as conditional shares.
The annual general meeting annually appoints an independent auditor on the recommendation of the Supervisory Board. At least once a year, the auditors meet with the Audit Committee without the presence of the Executive Board. The chairman of the Audit Committee handles any matters that need to be reported to the Supervisory Board.
Annual report 2019 | Tryg A/S | 38Contents – Management’s review
Claus Wistoft (1959) Board member Has special skills in the fields of management, business development and problem-solving, risk management and succession. Claus Wistoft has experience from politics.
Ida Sofie Jensen (1958) Board member Has experience from the healthcare sector as well as top management, strategy and communication. Chairman of TryghedsGruppen.
Karen Bladt (1967) Board member Has 10 years of experience as a member of various supervisory boards. Karen Bladt has particular skills in the fields of business development and problem-solving.
Board seats, Chairman: Danish Academy of Technical Sciences (ATV), Gomspace Group AB and GomSpace A/S, Asetek A/S, Siemens Gamesa Renewable Energy A/S, Tryg A/S and Tryg Forsikring A/S, IoT Denmark A/S, Monsenso ApS. Board seats, Deputy Chairman: Cowi Holding A/S. Board member: Industriens Pensionsforsikring A/S. Committee membership: Remuneration Committee (Chairman), Nomination Committee (Chairman) and IT-Data Committee in Tryg. Nomination Committee in COWI and in GomSpace. Remuneration Committee (Chairman) in Asetek. Experience: More than 25 years of top management experience in the IT and telecommunication industry and electrical engineering, the latest position being the CEO of Siemens Denmark from 2002 to 2017. Broad international experience with global and regional business responsibilities in both BtC and BtB. Competencies: Solid technological background in telecommunications, IT, digitalisation, business models, strategy and business development. Understanding of risk management, M&A, business know-how and judgement as well as insurance. Number of shares held: 4,000 Change in portfolio 2019: 0
Board member: Sampension AKP Livsforsikring A/S and member of the Executive Management of Bombebøssen. Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman) and Nomination Committee in Tryg as well as Audit and Risk Committee of Sampension (Chairman).
Born in 1975. Employee representative. Joined the Supervisory Board in 2017. Swedish citizen. Employed since 2006. Career: Team Manager in Moderna SE. Education: Norrea Real Gymnasium, financial services & insurance at Företagsekonomiska institut Stockholm. Education at ‘Forsikringsakademiet’ for new board members.
Experience: Team Manager in Moderna Affinity for 12 years, Business development in Moderna and Affinity for 2 years Competencies: Solid insurance knowledge from his years in the industry, business know-how and judgement, experience with organisation development, business development, customerhandling and interaction.
Born in 1958. Joined the Supervisory Board in 2013. Danish citizen. Career: Group Managing Director of Lif (Medicine and Healthcare Industry), CEO of the subsidiary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry). Education: MSc in Political Science (cand.scient.pol.), European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University. Board seats, Chairman: TryghedsGruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S. Committee memberships: Remuneration Committee, Nomination Committee and IT-Data Committee in Tryg.
Experience: General top management experience as CEO of Lif since 2004 and former CEO of Herlev University Hospital. Representative in TryghedsGruppen since 2010, Deputy Chairman 2014-2019 and Chairman since 2019. Competencies: Solid business know-how and judgement, analytical approach to problem-solving and strategy, networking skills and the ability to evaluate succession scenarios as well as understanding of digitalisation. Number of shares held: 2,905 Change in portfolio 2018: +537
Born in 1959. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of Lundbeckfonden (+ Lundbeckfond Invest A/S). Education: The A.P. Møller Group International Shipping Education, Graduate Diploma in Finance and various international management programmes.
Born in 1962. Joined the Supervisory Board in 2012. Norwegian citizen. Career: Professional board member and independent adviser.
Education: MSc in Economy and Business Administration, Chartered Financial Analyst (CFA), the Senior Executive Programme from London Business School and Effective Board Management from Harvard Business School. Board seats, Chairman: TF Bank AB. Board seats, Deputy Chairman: Norconsult A/S and Norconsult Holding. Board member: Tryg A/S, Tryg Forsikring A/S, Scatec Solar ASA, ICE ASA and Hafslund E-CO AS. Committee memberships: Audit Committee and Risk Committee in Tryg, Audit Committee in Norconsult and ICE (Chairman), Remuneration Committee in TF Bank (Chairman), the Audit Committees in Scatec Solar, Hafslund E-CO and TF bank. Experience: Senior management experience from large cap companies, insurance and real estate. Extensive experience from board of directors within finance, energy and renewables and is engaged in developing sustainable businesses and good governance. Headed the Norwegian IR associations for a number of years and received the Womens Board Award for Norway. Competencies: Business know-how from experience with the financial sector and energy as well as risk management, strategy, restructuring, business development, M&A, IR and financial communication and working with regulatory authorities.
Born in 1959. Joined the Supervisory Board in 2019. Danish citizen. Career: 1st Deputy Mayor, Municipality of Syddjurs and member of the finance committee. Agriculturalist, wind energy production, tenanted properties and project development of building sites. CEO in Demex Holding A/S and C.W. Holding A/S. Education: Agricultural education at Bygholm Agricultural College and various business courses. Board seats, Chairman: Midttrafik I/S.
Competencies: Analytical approach to problem-solving, solid business know-how and business development, understanding of risk management and succession. Number of shares held: 2,500 Change in portfolio 2019: +2,500
Born in 1967. Joined the Supervisory Board in 2019. Danish citizen. Career: Director/owner of HASLE Refractories A/S and member of the regional labour market council in Bornholm. Education: MSc.Eng in Operations and Supply Chain. Management, Aalborg University and the CBS Executive course for Supervisory Board members in the financial sector, insurance and pension at CBS Executive. Board member: Tryg A/S, Tryg Forsikring A/S, HASLE Refractories A/S, Bornholmstrafikken Holding A/S and TryghedsGruppen smba. Experience: 10 years of experience as a member of various Supervisory Boards and top management experience as the owner of HASLE Refractories A/S since 2003. Competencies: Business-knowhow and judgement, experienced in business development with an analytical approach to problemsolving.
Experience: As senior advisor of commercial customers, Tom Eileng is experienced in handling of and interaction with customers. In the capacity of Deputy Chairman of Finans- forbundet in Tryg, Tom Eileng is also experienced in independent and auto nomous management. Competencies: Solid business know-how and experienced in handling customers and with interacting, understanding of risk management, insurance, sales, underwriting and reinsurance. Number of shares held: 607 Change in portfolio 2019: +139
Supervisory Audit Risk Nomination Remuneration IT-Data Name Board Committee Committee Committee Committee Committee
Mari Thjømøe 8/8 6/6 6/6 Claus Wistoft 7/8 Karen Bladt 7/8 Tom Eileng 8/8 6/6 Tina Snejbjerg 8/8 6/6 Carl-Viggo Östlund 8/8 6/6 3/3
Annual report 2019 | Tryg A/S | 41Contents – Management’s review
Education: MSc Economics, University of Copenhagen. Board member: J. Lauritzen. Committee memberships: Audit Committee in J. Lauritzen (Chairman).
Number of shares held: 0 Change in portfolio in 2019: 0
Read more about the Executive Board on tryg.com 42Contents – Management’s review Annual report 2019 | Tryg A/S |
Tryg has been a signatory member to the UN Global Compact since 2008. In addition to this statutory section on Corporate Responsibility, Tryg publishes its annual Corporate Responsibility report on Tryg.com providing extensive Environmental, Social Governance (ESG) data.
The Corporate Responsibility Board, chaired by the CFO, supervisees our Corporate Responsibility efforts.
Actively creating peace of mind Actively creating peace of mind is one of the strategic elements of our Corporate Responsibility strategy where Tryg can contribute to society through creating peace of mind as well as offering relevant products with a prevention element to our customers. In 2019, Tryg launched the ‘Mobile blocker’ currently offered to our Commercial customers. The Mobile blocker prevents drivers from using their mobile phone while driving, which provides employers with a tool to ensure the health and safety of their employees and other road users.
Annual report 2019 | Tryg A/S | 43Contents – Management’s review
One of the areas in which Tryg has a potential adverse impact on the environment is waste production, which is why Tryg is committed to reducing waste and consumption. Tryg continuously works on minimising and sorting waste at local waste stations to bring down waste volumes. In 2019, Tryg outsourced the canteen services at the head office in Denmark. The new supplier was selected due to its high food quality standards and Corporate Responsibility efforts. With the arrival of the new canteen provider, Tryg has established a new sorting system in the canteen to ensure easier sorting of food waste and ordinary waste. In collaboration with the canteen staff, Tryg is working to establish a waste target.
Tryg’s Supervisory Board is composed of six men and six women, and under Danish law as well as Tryg's own policy, there is equality among the genders.
Tryg has taken specific steps to ensure approval of all final candidates for managerial positions from the CEO and HR director, as well as ensuring that all management positions are advertised both internally and externally. Furthermore, Tryg is increasing awareness in the organisation of unconscious bias in recruiting processes.
Focus on diversity and women in management In 2019, Tryg’s share of women in management positions was 35% compared to 33% in 2018. This indicates a stabilising tendency towards the share of women in management. However, as the target for women in management positions is 41% in 2020, further actions will be required.
Additionally, in 2019, Tryg increased diversity on its Executive Board with with the appointment of Barbara Plucnar Jensen as new CFO, thus increasing diversity on the Executive Board to 25%.
Business ethics Ethics can determine a company’s future and are essential to conducting business responsibly. Tryg is committed to running an ethical, transparent and responsible business. The materiality assessment showed that business ethics, GDPR and data pro tection are material matters to Tryg. Building knowledge and capacity in this field, for example internally among the employees through e-learning, requires continuous attention.
A commitment to ethics and strong corporate govern ance is the foundation on which Tryg builds its business. Tryg’s Code of Conduct defines the rules which all employees and business partners are required to adhere to. Tryg’s tax policy and anti-corruption policy further outline Tryg's commitment to conducting itself as a responsible company at all times.
Responsible Investments Tryg’s responsible investment policy and policy for execution of active ownership were updated in 2019 to ensure a continuous focus on responsible investing. External portfolio managers are selected on the basis of having a responsible mindset similar to Tryg’s. However, a screening of the holdings is carried out each year to ensure that individual holdings do not deviate from expectations. The portfolio holdings screening is carried out by an external screening provider. Furthermore, in 2019 Tryg launched its formal escalation process which guides the process after a screening of investments.
Responsible investing is important to Tryg as it ensures that investments are conducted in accordance with our values. The materiality assessment identified responsible investments as a material issue to Tryg. Tryg is at risk of violating international standards when investing and wants to be transparent about its efforts to mitigate this risk.
See Responsible investment policy See Policy for execution of active ownership See Process for ethical screening
Active Source Management Tryg’s initiatives on active ownership are pri marily directed towards managing and monitoring Tryg’s external managers’ responsible investment processes. In 2019, Tryg launched a process related to ensuring compliance by external managers with Tryg’s responsible investment policy called Active Source Management.
Tryg’s primary focus is selecting external managers who share the principles and have policies in place to ensure that investments are managed respon sibly. External asset managers are UN PRI
Human rights and responsible supply chain management Tryg is committed to respecting human rights as described in the Universal Declaration of Human Rights. Tryg’s commitment is enforced through our signatory membership to the UN Global Compact and is outlined in the Corporate Responsibility policy as well as Tryg’s Code of Conduct.
Annual report 2019 | Tryg A/S | 45Contents – Management’s review
To mitigate any violations, we actively monitor our outsourcing suppliers regarding compliance of our Code of Conduct and the principles outlined in the UN Global Compact. We work closely with our suppliers to promote shared values.
Implementation of the Corporate Responsibility audit process and supplier assessment continued in 2019. The building of capacity and training of internal auditors in Corporate Responsibility audits is an ongoing effort, and during the year the training continued. The trainings are held ad hoc as needed before any audits.
In 2019, Tryg’s audit revealed no violations or red flags among the audited high-risk outsourcing suppliers. The process continues in 2020, and all high-risk outsourcing suppliers are expected to be audited by 2020.
Note 10 Tax 76 11 Intangible assets 77 12 Property, plant and equipment 80 13 Investment property 81 14 Equity investments in associates 81 15 Financial assets 82 16 Reinsurers’ share 85 17 Current tax 86 19 Premium provisions 86 19 Claims provisions 86 20 Pensions and similar liabilities 88 21 Deferred tax 89 22 Other provisions 90 23 Other debt 90 24 Earnings per share 90 25 Contractual obligations, collateral and contingent liabilities 90 26 Acquisition of activities 93 27 Related parties 93 28 Financial highlights 94 29 Accounting policies 95
Other key figures 114 Group chart 115 Glossary 116 Product overview 117 Disclaimer 118
47Contents – Financial statements Annual report 2019 | Tryg A/S |
The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2019 of Tryg A/S and the Tryg Group.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2019. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The claims provisions amount to DKK 24,859m at 31 December 2019 (2018: DKK 24,847m).
Independent auditor’s report How the matter was addressed in the audit
• Based on the actuarial estimates of the claims provisions and analyses, and in cooperation with our own internationally qualified actuaries, we have assessed the development in the claims provisions, including run-off gains/losses and the development in the size of the margin included in Management’s estimate of the claims provisions.
The most important assessments and assumptions of future events relate to
• Estimated future claims payments, which are based on the completeness and the accuracy of historical claims and payment patterns, among other factors.
• Expectations for future inflation. • Determination of the margin included in
Statement on the management’s review Management is responsible for the management’s review.
In connection with our audit of the consolidated financial statements and the parent financial state- ments, our responsibility is to read the management’s review and, in doing so, consider whether the management’s review is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
• Conclude on the appropriateness of Management ’s use of the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern.
MNE no 29421 51Contents – Financial statements Annual report 2019 | Tryg A/S |
a) Profit/loss on discontinued and divested business after tax includes mainly Marine Hull insurance.
NOK/DKK, average rate for the period 75.80 77.53 79.99 80.09 83.52 SEK/DKK, average rate for the period 70.62 72.67 77.24 78.93 79.69
Profit/loss on gross business 3,803 3,400 3,582 3,351 1,695 Profit/loss on ceded business -566 -624 -779 -951 710 Insurance technical interest, net of reinsurance 1 -10 -14 -10 18
Profit/loss on continuing business 2,845 1,733 2,519 2,472 1,920 Profit/loss on discontinued and divested business after tax a) -2 -2 -2 -1 49
Relative run-off gains/losses 5.1 5.4 4.1 5.5 5.1 Return on equity after tax (%) 24.6 14.9 28.8 26.2 20.0 52Contents – Financial statements Annual report 2019 | Tryg A/S |
Note General insurance Gross premiums written 22,563 18,999 Ceded insurance premiums -1,259 -1,362 Change in premium provisions -143 85 Change in reinsurers' share of premium provisions 38 -47 3 Premium income, net of reinsurance 21,198 17,675 4 Insurance technical interest, net of reinsurance 1 -10
Claims paid -15,419 -13,294 Reinsurance cover received 388 466 Change in claims provisions 562 658 Change in the reinsurers' share of claims provisions 40 125 5 Claims, net of reinsurance -14,429 -12,045
Statement of comprehensive income 54Contents – Financial statements Annual report 2019 | Tryg A/S |
Reinsurers' share of premium provisions 216 181 19 Reinsurers' share of claims provisions 1,285 1,234 16 Total reinsurers' share of provisions for insurance contracts 1,501 1,415
Total receivables in connection with direct insurance contracts 1,727 1,476 Receivables from insurance enterprises 240 144 Other receivables 588 803 17 Current tax assets 52 0 Cash at bank and in hand 868 627
Interest and rent receivable 147 169 Other prepayments and accrued income 296 400
Total provisions for insurance contracts 32,224 31,948 20 Pensions and similar obligations 303 277 21 Deferred tax liability 911 912
Total equity and liabilities 59,059 56,545 1 Risk and capital management 25 Contractual obligations, collateral and contingent liabilities 26 Acquisition of activities 27 Related parties 28 Financial highlights 29 Accounting policies 55Contents – Financial statements Annual report 2019 | Tryg A/S |
Pool and contingency fund provisions - The contingency fund provisions DKK 809m have been reclassified from retained earnings to reflect the possible dividend is affected by the total amounts related to Norwegian Natural Perils Pool and contingency fund provisions .
Reserve for Share exchange rate Other Retained Proposed Non-controlling DKKm capital adjustment reservesa) earnings dividend interest Total 2019 Profit/loss for the year 60 230 2,553 2,843 Other comprehensive income 18 -57 -39
Dividend paid -2,040 -2,040 Dividend own shares 1 1 Purchase and sale of own shares -43 -43 Issue of conditional and matching shares 27 27 Non-controlling interest 1 1
Total changes in equity in 2019 0 18 60 158 514 1 751 2018 Profit/loss for the year 25 -290 1,996 1,731 Other comprehensive income -12 -4 -16
Dividend paid -2,980 -2,980 Purchase and sale of own shares -27 -27 Issue of share options and matching shares 10 10
Carrying amount at 1 January 2,868 494 3,362 Exchange rate adjustments 6 0 6
Interest income 467 546 Interest expenses -169 -138 Dividend received 24 12
Cash flow statement 57Contents – Financial statements Annual report 2019 | Tryg A/S |
Risk management in Tryg The Supervisory Board defines the basis for the risk appetite through the business model and the current strategy. The Supervisory Board has regulated the management of risk activities through policies and guidelines to the business supported by underlying business processes and a power of attorney structure. The company’s risk management forms the basis for the risk profile being in line with the specified risk appetite at all times. Tryg’s risk profile is continuously measured, quantified and reported to the management and the Supervisory Board.
How is this supported? Tactically - Policies - Capital plan - Contingency plan
• Internal audit • Internal audit function 3rd line of defence External audit
Notes Tryg’s capital base currently consist of Tier 1 and 2 capital, such as shareholders’ equity and subordinated loans.
The model calculates Tryg’s capital requirement with 99.5% solvency level with a 1-year horizon, which means that Tryg will be able to fulfill its obligations in 199 out of 200 years. The partial internal model has been used for a number of years, and was approved by the Danish Financial Supervisory Authority in 2015.
Tryg’s risk activities are implemented via continuous risk management processes, where the main results are reported to the Supervisory Board and its Risk Committee during the year. Therefore, the ORSA report is an annual summary document assessing all these processes.
Insurance risk Insurance risk comprises two main types of risks: Underwriting risk and provisioning risk.
Reserving risk Reserving risk relates to the risk of Tryg’s insurance provisions being inadequate. The Supervisory Board lays down the overall framework for the handling of reserving risk in the insurance policy, while the overall risk is measured in the capital model. The uncertainty associated with the calculation of claims reserves affects Tryg’s results through the run-off on reserves.
At the end of 2019, Tryg’s claims reserves net of reinsurance totalled DKK 23,574m with an average duration of approximately 4.5 years.
Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy. In overall terms, Tryg’s investment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the discounted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s property portfolio constitutes the company ’s largest investment risk. The Property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2019, investment properties accounted for 5.5% (including property funds) and Tryg’s equity portfolio accounted for 5.2% of the total investment assets.
Tryg does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance business in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to fluctuations in the other Scandinavian currencies due to its ongoing insurance activities. Premiums earned and claims paid in other currencies create a natural currency hedge, for which reason other risk mitigation measures are not required in this area. However, the part of equity held in other currencies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using currency swaps.
In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentration risk. These risks primarily relate to exposures in high-yield bonds, emerging market debt exposures as well as Tryg’s investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance policy. For a non-life insurance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant asset class on Tryg’s balance sheet, which by nature is somewhat illiquid is the property portfolio.
Major events -100 -100 Catastrophe event up to DKK 7,250m -168 -168 a)
Equity market 15% decline in equity market -367 -288 Impact of derivatives and related thereto 25 36
Real estate market 15% decline in real estate markets -361 -372
Currency market Equity: 15% decline in exposed currency (exclusive of EUR) relative to DKK -883 -1,316 Impact of derivatives 898 1,242 Net impact of exchange rate decline 15 -74
Technical result per year: Impact of 15% change in NOK and SEK exchange rates relative to DKK +/- 95 +/- 134 a) Catastrophe event up to DKK 6,750m in 2018 b) Including the effect of the zero coupon inflation swap c) Additional sensitivity information in note 20 'Pensions and similar obligations'
Reserves from 2008 and prior years 2,770 Gross provisions for claims, end of year 24,859 a) The diagonal for 2018 and 2019 is affected by the Alka acquisition.
Notes 61Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes 62Contents – Financial statements Annual report 2019 | Tryg A/S |
Estimated accumulated claims End of year 13,049 14,829 14,358 13,142 12,631 12,336 12,533 12,598 12,370 14,822 15,799 1 year later 13,594 14,850 14,055 13,185 12,547 12,621 12,667 12,401 13,929 14,762 2 year later 13,629 14,809 13,992 13,107 12,425 12,445 12,588 13,872 13,842 3 year later 13,471 14,751 13,907 12,928 12,264 12,361 13,983 13,843 4 year later 13,369 14,654 13,786 12,677 12,226 13,651 13,890 5 year later 13,271 14,574 13,825 12,600 13,499 13,497 6 year later 13,252 14,548 13,686 13,777 13,239 7 year later 13,135 14,466 14,773 13,706 8 year later 13,078 15,620 14,848 9 year later 14,228 15,444 10 year later 14,018 14,018 15,444 14,848 13,706 13,239 13,497 13,890 13,843 13,842 14,762 15,799 156,889
Provisions before discounting, end of year 624 800 1,055 1,048 1,049 1,370 1,220 1,645 2,126 3,221 7,549 21,707
Reserves from 2008 and prior years 2,638 Provisions for claims, net of reinsurance, end of the year 23,574 a) The diagonal for 2018 and 2019 is affected by the Alka acquisition.
Shares Nordic countries 250 154 EU ex. Nordic countries 566 446 North America 2,674 1,995
Assets and Assets and debt Hedge Exposure debt Hedge Exposure a) Due to correlation between DKK and EUR the exposure limit is DKK 3bn. All other currencies have a lower limit.
AAA 34,281 91.6 34,112 89.7 AA 261 0.7 479 1.3 A 692 1.8 1,169 3.1 BBB 1,023 2.7 850 2.2 BB 547 1.5 583 1.5 B or lower 604 1.6 850 2.2
Liquidity risk Maturity of the Group’s financial obligations including interest 2019 0-1 years 1-5 years > 5 years Total
Repayment profile Interest-only Interest-only Interest-only Interest structure 3.75 % above NIBOR 3M (until 2023) 2.75 % above NIBOR 3M (until 2025) 2.75 % above STIBOR 3M (until 2026) 4.75 % above NIBOR 3M (from 2023) 3.75 % above NIBOR 3M (from 2025) 3.75 % above STIBOR 3M (from 2026)
Amortised cost value of the loan recognised in statement of financial position 499 506 The fair value of the loan at the statement of financial position date 501 491 The fair value of the loan at the statement of financial position date is based on a price of 100 96 Total capital losses and costs at the statement of the financial position date 2 3 Interest expenses for the year 13 5 Effective interest rate 2.4% 2.1%
66Contents – Financial statements Annual report 2019 | Tryg A/S |
Description of segments Please refer to the accounting principles for a description of operating segments.
Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under 'Other'.
Notes DKKm Private Commercial Corporate Sweden Other a) Group 2 Operating segments
Total liabilities 46,974 67Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under 'Other'.
Claims ratio, net of ceded business 66.4 66.7 67.9 69.7 71.3
Run-off, net of reinsurance (%) -5.4 -6.8 -4.7 -5.4 -5.5 Number of full-time employees 31 December 2,650 2,520 1,933 1,839 1,859
Run-off, net of reinsurance (%) -9.7 0.4 -4.8 -2.8 -11.0 Number of full-time employees 31 December 419 402 398 385 387
Run-off, net of reinsurance (%) -5.5 -6.5 -5.4 -7.0 -6.7 Number of full-time employees, continuing business at 31 December 4,151 4,027 3,373 3,264 3,359 b) Amounts relating to eliminations and one-off items. In 2018 Cost, Claims and Other Costs were negatively affected by DKK 75m, DKK 49m, DKK 76m. The costs are related to integration and transaction costs for the aquirement of Alka. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme.
Notes 70Contents – Financial statements Annual report 2019 | Tryg A/S |
Accident and Workers’ Motor comprehensive Marine, aviation and DKKm health Health care compensation Motor TPL insurance cargo insurance
Gross claims ratio 59.2 59.3 108.5 106.1 80.7 49.5 65.3 54.1 67.7 70.7 68.9 51.9 Combined ratio 73.6 72.6 120.4 117.7 93.6 62.9 82.2 72.4 82.8 83.2 82.0 79.1
Gross claims ratio 66.8 67.3 71.3 71.3 14.9 96.9 76.1 95.9 18.0 13.9 87.5 87.3 Combined ratio 85.0 86.8 91.7 94.2 24.3 110.8 90.8 107.7 56.0 59.9 101.0 101.7
Profit/loss on ceded business - 15 - 43 - 566 - 630 0 6 - 566 - 624 Insurance technical interest, net of reinsurance - 1 3 0 - 11 1 1 1 - 10
Gross claims ratio 25.5 63.7 67.9 67.2 82.7 78.4 68.3 67.4 Combined ratio 54.5 194.5 84.8 85.2 94.8 84.4 85.1 85.1
Gross Ceded Gross Ceded a) Mainly Norway 4 Insurance technical interest, net of reinsurance Return on insurance provisions 166 209 Discounting transferred from claims provisions -165 -219 5 Claims, net of reinsurance Claims -16,031 -13,872 Run-off previous years, gross 1,173 1,236
Insurance operating costs, gross -3,081 -2,704 Commission from reinsurers 227 194
Fees for non-audit services provide by Deloitte Statsautoriseret Revisionspartnerselskab to the Group amount to DKK 4m (DKK 20m in 2018) and consist of varius declaration tasks, mainly related to restructuring of investment setup and review of interim balances, objective tax advice and consulting services mainly related to GAP analysis and review, as well as other general accounting, consulting services and tax advice.
73Contents – Financial statements Annual report 2019 | Tryg A/S |
Remuneration for the Supervisory Board and Executive Board is disclosed in note 27 'Related parties'.
Average number of full-time employees during the year (continuing business) 4,148 3,914 74Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes In 2019, Tryg entered into an agreement on matching shares for the Executive Board, as a consequence of the Group’s remuneration policy. Executive Board, are allocated one share in Tryg A/S for each share they acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum over the 4-year maturation period.
In 2019, the reported fair value of matching shares for the Group amounted to DKK 11m (DKK 7m in 2018). At 31 December 2019, a total amount of DKK 40m was recognised for matching shares.
DKKm 6 Matching shares and conditional shares Total numbers Fair value
Average per Total value Average per Total fair matching share at time of matching share value at Executive Risk- at grant date allocation at 31.12 31.12 2019 Board takers Other Total DKK DKKm DKK DKKm
Matching shares allocated in 2011-2018 at 31.12.19 84,591 71,614 42,897 199,102 114 23 198 39
Matching shares allocated in 2011-2017 at 31.12.18 57,456 46,905 37,305 141,666 105 15 164 23
Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property 62 147 Owner-occupied property -10 -1
9 Other income and costs In 2019 Other income encompasses a one-off allowance regarding
Other costs DKK -356m (DKK -300m in 2018). The increase can primarily be attributed to depreciations related to trademarks, customer relationships and write-down of an agricultural portfolio DKK 157m (DKK 34m).
Effective tax rate % % Tax on accounting profit/loss 22.0 22.0 Difference between Danish and foreign tax rates 1.0 0.8 Tax adjustment, previous years 1.5 -0.2 Adjustment of non-taxable income and costs -3.0 1.4 Change in valuation of tax assets 0.0 -0.5 76Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes DKKm 11 Intangible assets Trademarks Assets and customer under con- Goodwill relations Software a) struction a) Total
Amortisation and write-downs at 31 December -104 -354 -1,572 -100 -2,130
Amortisation and write-downs at 31 December -104 -199 -1,458 -102 -1,863 a) Hereof proprietary software DKK 494m (DKK 524m at 31 December 2018) b) Hereof Trademarks and customer relationships related to Alka DKK 1.4bn and the total goodwill
Primary assumptions for impairment test: When assessing the cash flow management has based its estimates of premiums earned on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development from past experiences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to normalised large- and weather claims. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management's own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future.
11 Intangible assets (continued) - Earned premium assumed CAGR 0-10 years 3% - Earned premium assumed CAGR > 10 years 2% - Required return before tax 8% - Expected level of Combined ratio 81%
Sensitivity information Impact on the calculated present value from the following changes: CAGR +1.0 percentage point (0-10 years) 1.2bn CAGR -1.0 percentage point (0-10 years) -1.0bn Required return +1.0 percentage point -4.1bn Required return -1.0 percentage point 6.0bn Combined ratio +1.0 percentage point -1.2bn Combined ratio -1.0 percentage point 1.2bn
Obos In 2017, Tryg acquired Obos' insurance portfolio. The insurance activities were incorporated into the Tryg Group's business structure from 1 June 2017.
The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Obos. The cash flows in the latest prognosis period have been extrapolated for financial years after the prognosis periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market's expectations for the Group.
The impairment test shows a calculated value in use of approximately DKK 0.3bn (DKK 0.4bn) relative to a recognised goodwill of DKK 49m (DKK 49m) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.0% will result in a write down of goodwill.
78Contents – Financial statements Annual report 2019 | Tryg A/S |
11 Intangible assets (continued) - Earned premium assumed CAGR 0-10 years 4% 10% - Earned premium assumed CAGR > 10 years 2% 2% - Required return before tax 13% 11% - Expected level of Combined ratio 87% 90%
Sensitivity information Impact on the calculated present value from the following changes: CAGR +1.0 percentage point (0-10 years) 14 24 CAGR -1.0 percentage point (0-10 years) -13 -22 Required return +1.0 percentage point -48 -55 Required return -1.0 percentage point 58 52 Combined ratio +1.0 percentage point -30 -37 Combined ratio -1.0 percentage point 30 37
In 2014, Tryg acquired Securator A/S, Optimal Djurförsäkring i Norr AB. The insurance activities were incorporated into the Tryg Group's business structure and merged into Tryg in 2015.
The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Moderna. The cash flows in the latest prognosis period have been extrapolated for financial years after the prognosis periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market's expectations for the Group. The impairment test shows a calculated value in use of approximately DKK 1.5bn (DKK 1.7bn) relative to a recognised goodwill of DKK 0.5bn (DKK 0.5bn) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.5% will result in a write down of goodwill.
11 Intangible assets (continued) - Earned premium assumed CAGR 0-10 years 3% 3% - Earned premium assumed CAGR > 10 years 2% 2% - Required return before tax 11% 11% - Expected level of Combined ratio 91% 92%
Sensitivity information Impact on the calculated present value from the following changes: CAGR +1.0 percentage point (0-10 years) 45 34 CAGR -1.0 percentage point (0-10 years) -42 -29 Required return +1.0 percentage point -211 -280 Required return -1.0 percentage point 288 384 Combined ratio +1.0 percentage point -177 -163 Combined ratio -1.0 percentage point 177 164
79Contents – Financial statements Annual report 2019 | Tryg A/S |
12 Property, plant and equipment Leases ROU Operating Leases ROU Owner-occupied ’Group-occupied DKKm equipment equipment a) property property’ b) Total
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -231 -20 0 -84 -335
Accumulated depreciation and value adjustments at 31 December -247 -46 0 -182 -475
b) Lease assets (Right of use-assets), Group occupied property concists of leases of offices buildings. Contract terms are from 2 to 17 years and with yearly rent adjustments. Tryg has no lease contracts with variable lease payments based on sale or similar.
13 Investment property Fair value at 1 January 1,345 1,324 Exchange rate adjustments 6 -5 Additions for the year 9 19 Disposals for the year -272 -148 Value adjustments for the year 60 141 Reversed on sale 3 14
Total rental income for 2019 is DKK 74m (DKK 87m in 2018).
Total expenses for 2019 are DKK 12m (DKK 20m in 2018). External experts were involved in valuing the majority of the investment properties.
Sensitivity Tryg’s property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above.
Carrying amount at 31 December 0 242 a) Ejendomsselskabet af 1. marts 2006 P/S, Denmark was sold in January 2019 81Contents – Financial statements Annual report 2019 | Tryg A/S |
15 Financial assets (Continued) The Fair value hierarchy ’Quoted market prices and consolidated reference prices’ (level 1) consists of financial instruments that are quoted and traded in a principal and active market (markets generally accessable and with substantial volume and trade frequency).
If, at the balance sheet date, a financial instrument’s classification differs from its classification at the beginning of the year, the classification of the instrument changes. Changes are considered to have taken place at the balance sheet date. Developments in the financial markets can result in reclassifications between the categories. Some bonds have become illiquid and have been moved from ’Quoted prices or consolidated reference prices’ to the ’Observable input’ category, while other bonds have become liquid and have been moved from ’Observable input’ to the ’Quoted prices or consolidated reference prices’ category.
15 Financial assets Financial assets at fair value with value adjustments in the income statement 44,239 41,694 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income 0 59 Receivables measured at amortised cost with value adjustment in the income statement 3,476 3,050
15 Financial assets (Continued) Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: Carrying amount at 1 January 1,522 1,504 Exchange rate adjustments 5 -5 Addition, purchase of Alka 0 138 Gains/losses in the income statement a) 66 210
Gains/losses in the income statement for assets held at the statement of financial position date recognised in value adjustments -1 75 a) Hereof realised DKK 5m Inflation derivatives are measured at fair value on the basis of non-observable input and are included under claims provisions at a fair value of DKK -723m (DKK -521m in 2018).
Derivatives according to statement of financial position 24,861 328 27,777 159 Inflation derivatives, recognised in claims provisions 7,741 -724 7,346 -521
Quoted market prices or consolidated Observable Non-observable references price a) input input Total
Derivative financial instruments, assets 1 1,127 0 1,128 Derivative financial instruments, debt 0 -800 0 -800 a) Consolidated reference prices means Nasdaq consolidated reference prices
Financial instruments transferred from ’Quoted market prices or consolidated reference prices’ to ’Observable input’ 0 3,114 Financial instruments transferred from ’Observable input’ or ’Non-observable input’ to ’Quoted market prices or consolidated reference prices’ 3,559 11,115 83Contents – Financial statements Annual report 2019 | Tryg A/S |
Equity and Investment Derivatives and DKKm Bond unit trust units property other items Other lending Total
Investment assets according to investment activities Other, hereof financial instrument in liabilities -2,458 0 0 -800 0 -3,257 Classified according to investment strategy 9 -1,444 1,756 -246 -75 0
Investment assets according to balance sheet 38,042 3,054 1,345 899 0 43,340
Investment assets according to investment activities Other, hereof financial instrument in liabilities -2,523 0 0 -740 0 -3,263 Classified according to investment strategy -223 -1,013 1,376 -140 0 0 a) The setup of Tryg invest is impacting Tryg’s balance sheet as external customers investments are booked under “total other financial investments” with opposing liabilities entries such as “debt to group undertakings” and “other debt”.
84Contents – Financial statements Annual report 2019 | Tryg A/S |
Gains and losses at 31 December 3,291 -3,099 191 2018 Gains Losses Net
Value adjustments at 31 December -170 -202 85Contents – Financial statements Annual report 2019 | Tryg A/S |
Premium provisions at 31 December 5,996 5,861 17 Current tax Net current tax at 1 January -118 -194 Exchange rate adjustments -2 2 Purchase or sale of activity 0 -7 Current tax for the year -734 -583 Current tax on equity entries 4 -12 Adjustment of current tax in respect of previous years -50 37 Tax paid regarding previous year -3 0 Tax paid for the year 830 639
Net current tax -73 -118 18 Equity Number of shares Shares outstanding Own shares Number of shares of DKK 5 (1,000) 2019 2018 2019 2018
Number of shares at 1 January 301,743 301,945 405 203 Bought during the year -500 -382 500 382 Used in connection with exercise of incentive programme 457 180 -457 -180
Defined-benefit pension plans: Present value of pension obligations funded through operations 51 40 Present value of pension obligations funded through establishment of funds 1,139 1,065
Pension obligation, gross 1,190 1,105 Fair value of plan assets 940 875
Specification of change in recognised pension obligations: Recognised pension obligation at 1 January 1,105 1,133 Exchange rate adjustments 16 -16 Present value of pensions earned during the year 31 30 Capital cost of previously earned pensions 22 19 Actuarial gains/losses 73 -4 Paid during the period -57 -57
Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January 875 885 Exchange rate adjustments 13 -10 Investments in the year 72 31 Estimated return on pension funds 18 14 Actuarial gains/losses 0 -8 Paid during the period -37 -37
Total recognised obligation at 31 December 303 277 20 Pensions and similar obligations (continued) Specification of pension cost for the year: Present value of pensions earned during the year 26 26 Interest expense on accrued pension obligation 21 18 Expected return on plan assets -17 -14 Accrued employer contributions 5 5
The premium for the following financial years is estimated at 35 35 Number of active persons 407 442 Number of pensioners 581 588 Average expected remaining service time (years) 6.29 7.00
Average return on plan assets 1.9 1.7 Weighted average duration of the defined benefit obligation (years) 13 13
Employer contributions 19.1 19.1 Mortality table K2013 K2013 88Contents – Financial statements Annual report 2019 | Tryg A/S |
21 Deferred tax Tax asset Operating equipment 14 9 Debt and provisions 65 77 Capitalised tax loss 1 0
Tax liability Intangible rights 429 389 Land and buildings 77 105
Development in deferred tax Deferred tax at 1 January 912 656 Exchange rate adjustments 5 -9 Change in deferred tax relating to change in tax rate 0 -3 Change in deferred tax previous years 34 33 Purchase or sale of activity 5 288 Change in capitalised tax loss -1 38 Change in deferred tax recognised in income statement -26 -91 Change in deferred tax taken to equity -18 0
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the statement of financial position in the amount of DKK 22m (DKK 13m at 31 December 2018).
Impact on equity from the following changes: Interest rate increase of 0.3 percentage point 57 49 Interest rate decrease of 0.3 percentage point -61 -52 Pay increase rate, increase of 1 percentage point -83 -76 Pay increase rate, decrease of 1 percentage point 74 66 Turnover, increase of 2 percentage point 38 30 Turnover, decrease of 2 percentage point -45 -36
The pension funds are managed by Livsforsikringsselskapet Nordea Liv AS and regulated by local legislation and practice.
The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30. This years premium paid to FPK amounted to DKK 12m (DKK 12m in 2018), which is about 2,2 % of the annual premium in FPK(2018). FPK writes in its interim report for 2019 that it had a solvency ratio of 132 at 30 June 2019 (Solvency ratio of 141 at 30 June 2018). The Solvency Ratio is defined as the own funds relativ to the solvency capital requirement.
89Contents – Financial statements Annual report 2019 | Tryg A/S |
Diluted number of shares (1,000) 301,954 302,043 Earnings per share, continuing business 9.42 5.74 Diluted earnings per share, continuing business 9.42 5.74 Earnings per share 9.42 5.73 Diluted earnings per share 9.42 5.73 25 Contractual obligations, collateral and contingent liabilities Contractual obligations Obligations due by period 2019 <1 year 1-3 years 3-5 years > 5 years Total a) Other contractual obligations mainly consists of investment commitments, IT and outsourcing agreements. Please refer to note 12 for lease agreements recognised as ROU.
DKK 399m are expected called during 2020 and DKK 616m within 5 years.
2018 Tryg is comitted to investments in some Investment funds. The commitment amounts to DKK 263m and are expected called during 2019.
23 Other debt and debt to group undertakings Debt related to external customers investments amounts to DKK 2,493m please refer to note 15 Reconciliation of Tryg´s Investment portfolio.
Amounts recognised in statement of cash flow Total cash out-flow for leases 147 135
Amounts recognised in income statement Interest on lease liabilities -39 -38
Debt related to leasing are included in Other debt. Please refer to note 12 for specification of ROU assets.
25 Contractual obligations, collateral and contingent liabilities (continued) The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
Interest and rent receivable 5 144 Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements 0 8,388 a) Registered assets included Tryg Forsikring A/S in 2018. As of 1 July 2019 non-life insurance companies are no longer required to have registred assets.
Management believes that the outcome of these disputes will not affect the Group's financial position significantly beyond the obligations recognized in the statement of financial position at 31 December 2019.
27 Related parties The Group has no related parties with a decisive influence other than the parent company, TryghedsGruppen smba and the subsidiaries of TryghedsGruppen smba (other related parties). Related parties with significant influence include the Supervisory Board, the Executive Management and their members’ family.
Supervisory Board 2 0 Executive Board 0 0 Risk-takers 4 0 26 Acquisition of activities 2019 There have been no acquisions in 2019.
Assets Intangible assets 0 1,429 Tangible assets 0 112 Financial assets 0 5,680 Total reinsurance of provisions 0 83 Receivables, other assets and accrued income 0 360
Purchase price in cash 0 8,345 2018 Alka In December 2017 Tryg agreed to acquire Forsikrings-Aktieselskabet Alka (Alka). The transaction was approved as per 5 November 2018 with closing 8 November 2018, whereby Tryg acquired 100% of the shares in Alka and its subsidiaries. The acquisition affects the Financial statement from 8 November 2018. The resultat will be recognised under Private Denmark and Commercial Denmark.
Troll In February 2018 Tryg and Troll Forsikring made a declaration of intent whereby Tryg would acquire Troll
93Contents – Financial statements Annual report 2019 | Tryg A/S |
Intra-group transactions Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms.
Risk-takers independent control functions 4 6 0 0 1 7 a) Total expenses in 2018 for matching shares programs allocated in 2018 and previous year.
Base salary are charges incurred during the financial year. Variable salary includes the charges for matching shares and conditional shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this.
Each member of the Executive Board is entitled to 12 months' notice and severance pay equal to 12 months’ salary plus pension contribution except Group CEO who is entitled to severance pay equal to 18 months' salary. If a change of control clause is actioned CEO and COO are entitled to severance pay equal to 36 months´salary.
Notes 29 Accounting policies The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 December 2019 and in accordance with the Danish Statutory Order on adoption of IFRS.
Accounting regulation Implementation of changes to accounting standards and interpretation in 2019 The International Accounting Standards Board (IASB) has issued several changes to the international accounting standards, and the International Financial Reporting
The following interpretations have been implemented for the first time for the accounting year that began on 1 January 2019: • IFRIC 23 ‘Uncertainty over Income Tax Treatments’
There has not been implemented any other new or amended standards and interpretations that have affected the Group significantly.
b) Expected to enter into force for the accounting year commencing 1 January 2022.
The implementation of IFRS 9 ‘financial instruments’ is not expected to significantly change the Group’s financial position.
Regarding IFRS 9 the assessment of no significant impact on the statement of financial position or profit and loss is based on the assumption that Tryg already carry all financial instruments at fair value through profit and loss. The implementation of IFRS 9 will not affect Tryg’s recognition and measurement. Tryg has postponed the implementation of IFRS 9 to 1 January 2022 when IFRS 17 ’Insurance Contracts’ will be applicable. Tryg can postpone IFRS 9 due to the fact that our activities are predominantly connected with insurance and that our liabilities connected with insurance is relatively greater than 80 per cent of the total liabilities. The impact of IFRS 17 is currently being assessed and is expected to be concluded in due course in time of the implementation date.
The changes will be implemented going forward from the effective date.
The calculation of the claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions about factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation. The Group’s actual liability for losses may be subject to material positive or negative deviations relative to the initially estimated claims provisions.
The Financial Supervisory Authority’s discount curve, which is based on EIOPA’s yield curves, is used to discount Danish, Norwegian and Swedish claims provisions in relation to the relevant functional currencies.
Notes Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. This has the greatest impact on assumptions regarding interest rates and inflation.
Defined benefit pension schemes The Group operates a defined-benefit plan in Norway. A defined-benefit plan is a pension plan that defines an amount of pension benefit an employee will receive on retirement, depending on age, years of service and salary.
Business Combinations In Business combinations, significant assessments are made when considering the fair value of the assets required and liabilities assumed and when identifying intangible assets, such as trademarks, customer relations and goodwill as part of the transactions.
On initial recognition, assets and liabilities are measured at cost, with the exception of financial assets, which are recognised at fair value. Measurement after initial recognition is affected as described below for each item. Anticipated risks and losses that arise before the time of presentation of the annual report and that confirm or invalidate affairs and conditions existing at the statement of financial position date are considered at recognition and measurement.
Consolidation Consolidated financial statements The consolidated financial statements comprise the financial statements of Tryg A/S (the parent company) and the enterprises (subsidiaries) controlled by the parent company. The parent company is regarded as controlling an enterprise when it
On consolidation, intra-group income and costs, intragroup accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated.
The purchase method is applied for new acquisitions if the Group gains control of the acquired enterprise. Subsequently, identifiable assets, liabilities and contingent liabilities in the acquired enterprises are measured at fair value at the date of the acquisition. Non-current assets which are acquired with the intention of selling them are, however, measured at fair value less cost to sell.
96Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes Restructuring costs are recognised in the pre-acquisition balance sheet only if they constitute an obligation for the acquired enterprise. The tax effect of revaluations is taken into account. The acquisition price of an enterprise consists of the fair value of the price paid for the acquired enterprise. If the final determination of the price is conditional upon one or more future events, such events are recognised at their fair values at the date of acquisition. Costs relating to the acquisition are recognised in the income statement as incurred.
Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual insurance contract. The calculation is generally based on the pro rata method, although this is adjusted for an unevenly divided risk between lines of business with strong seasonal variations or for policies lasting many years.
The portion of premiums paid to reinsurers that relates to unexpired risks at the statement of financial position date is reported as the reinsurers’ share of premium provisions.
Technical interest According to the Danish FSA’s executive order, technical interest is presented as a calculated return on the year’s average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus an actual interest from the present yield curve for each individual group of risks. The interest is applied according to the expected run-off pattern of the provisions.
97Contents – Financial statements Annual report 2019 | Tryg A/S |
Insurance operating costs Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year.
Share-based payment The Tryg Group’s incentive programmes comprise conditional share programmes, employee shares and matching shares.
Conditional shares Some senior employees have been allocated shares in accordance with the conditional shares scheme. Equity-settled ’Conditional shares’ are measured at the fair value at the grant date and recognised under staff costs over the period from the grant date until vesting fulfilment of certain conditions.
The shares are recognised at market value and are accrued from one to four years.
The holder acquires the shares in the open window following publication of the annual report for the previous year. The shares (matching shares) are provided free of charge, three or four years after the time of purchase of the investment shares. The holder may not sell the shares until six months after the matching time.
Interest and dividends represent interest earned and dividends received during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of investment property, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as value adjustments.
Other income and costs Other income and costs include income and expenses which cannot be ascribed to the Group´s insurance portfolio or investment assets, including the sale of products for Velliv, Pension & Livsforsikring A/S, Danske Bank and depreciations of intangibles assets identified in Business combinations.
Notes Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected economic lifetime of 5–15 years.
• The Group has the right to direct the use of the asset
Right-of-use asset and lease liability are recognised at the lease commencement date. The ROU asset is initially measured the cost, which comprises the initial amount of the lease liability adjusted for
When it is assessed that the parent company no longer has control over the subsidiary, it will be transferred to either assets held for sale or unquoted shares and when sold, it will be derecognised.
Equity investments in associates Associates are enterprises in which the Group has significant influence but not control, generally in the form of an ownership interest of between 20% and 50% of the voting rights. Equity investments in associates are measured using the equity method so the carrying amount of the investment represents the Group’s proportionate share of the enterprises’ net assets.
Notes Calculation of value is generally performed based on rates supplied by Danske Bank with relevant information providers and is checked by the Group’s valuation technicians. Discounting based on market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow.
The Group continuously assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount. Impairment losses are recognised in the income statement.
Receivables are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when a clear indication of asset impairment is observated. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows.
Foreign currency translation reserve Assets and liabilities of foreign entities are recognised using the exchange rate applicable at the statement of financial position date. Income and expense items are recognised using the average monthly exchange rates for the period. Any resulting differences are recognised in Other comprehensive income. When an entity is wound up, the balance is transferred to the income statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive income in respect of the part that concerns the hedge.
Own shares The purchase and sale sums of own shares and dividends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buyback programme.
Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use definedbenefit accounting. The plan is therefore accounted for as a defined-contribution plan.
Deferred income tax is provided on temporary differences concerning investments, except where Tryg controls, when the temporary difference will be realised, and it is probable that the temporary difference will not be realised in the foreseeable future.
Other provisions Provisions are recognised when the Group has a legal or constructive obligation because of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the best estimate by management of the expenditure required to settle the present obligation. Provisions for restructurings are recognised as obligations when a detailed formal restructuring plan has been announced prior to or at the statement of financial position date at the latest to the persons affected by the plan.
Debt Debt comprises debt in connection with direct insurance and reinsurance, amounts owed to credit institutions, current tax obligations, debt to group undertakings and other debt. Derivative financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are assessed at amortised cost based on the effective interest method.
Debt related to leasing and the external investors share of Kapitalforeningen Tryg Invest are included in Other debt. The External investors share of Kapitalforeningen Tryg Invest relates to shares, bonds and investment properties.
103Contents – Financial statements Annual report 2019 | Tryg A/S |
Note Statement of comprehensive income Profit/loss for the year 2,843 1,731 Other comprehensive income
Proposed distribution for the year: Dividend 2,553 1,996 Transferred to reserve for net revaluation according to the equity method 865 347 Transferred to retained earnings -575 -612
Total equity and liabilities 12,255 11,422 7 Deferred tax assets 8 Own funds 9 Contractual obligations, contingent liabilities and collateral 10 Related parties 11 Reconciliation of profit/loss and equity 12 Accounting policies
Total investment assets 12,234 11,407 6 Current tax assets 17 14
105Contents – Financial statements Annual report 2019 | Tryg A/S |
Dividend paid -2,040 -2,040 Dividend own shares 1 1 Purchase and sale of own shares -42 -42 Issue of share options and matching shares 27 27 Non-controlling interest 1 1
Total changes in equity in 2019 0 826 -589 514 1 751 2018 Profit/loss for the year 347 -612 1,996 1,731 Other comprehensive income -16 -16
106Contents – Financial statements Annual report 2019 | Tryg A/S |
Tax on profit/loss for the year 22 22 Adjustment of non-taxable income and costs 1 0 4 Intangible assets Assets under construction Cost Cost at 1 January 1 0 Additions for the year 0 1
Carrying amount at 31 December 1 1 5 Equity investments in Group undertakings Cost Cost at 1 January 8,995 6,995 Additions for the year 0 2,000
Ownership Name, registered office and activity share in % Profit/loss Equity
Tryg Forsikring A/S, Ballerup 100 1,782 11,395 6 Current tax assets Tax receivable at 1 January 14 17 Current tax for the year 17 14 Adjustment of current tax in respect of previous years 1 0 Tax paid for the year -14 -17
Tax receivable at 31 December 17 14 7 Deferred tax assets Capitalised tax losses Tryg A/S 0 0
Companies in the Tryg Group are party to a number of disputes in Denmark, Norway and Sweden. Management believes that the outcome of these disputes will not affect the Group's financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2019.
Notes 108Contents – Financial statements Annual report 2019 | Tryg A/S |
Gruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Board and their members’ related family.
DKKm 10 Related parties (continued) Base salary Share-based Cash Number of incl. car variable variable 2018 persons allowance salary a) salary Pension Total a) Total expenses recognised in 2018 for matching shares and conditional shares allocated in 2018 and previous year.
The members of the Supervisory Board in Tryg A/S are paid with a fixed remuneration and are not covered by the incentive schemes.
Each member of the Executive Board is entitled to 12 months' notice and severance pay equal to 12 months’ salary plus pension contribution (Group CEO is entitled to severance pay equal to 18 months' salary). If a change of control clause is actioned CEO and COO are instead entitled to Severance pay equal to 36 months' salary.
109Contents – Financial statements Annual report 2019 | Tryg A/S |
Notes 110Contents – Financial statements Annual report 2019 | Tryg A/S |
Combined ratio exclusive of run-off 84.9 85.4 83.1 89.8 83.0 84.9 83.5 92.4 84.2
Claims ratio, net of reinsurance 72.8 68.3 64.2 71.6 56.7 65.3 63.9 65.4 70.0
Combined ratio exclusive of run-off 93.6 94.3 89.7 98.4 89.6 93.3 92.3 89.5 94.9
Key ratios Gross claims ratio 86.1 59.7 62.0 76.0 92.7 96.8 58.8 70.7 74.6
Combined ratio exclusive of run-off 100.7 92.1 93.5 105.3 106.3 108.2 95.0 100.4 100.2
Q4 2019 Quarterly outline Download a further detailed version of the presentation at tryg.com/uk > investor > Downloads > tables 111Contents – Financial statements Annual report 2019 | Tryg A/S |
Claims ratio, net of reinsurance 53.8 70.8 67.8 76.7 72.0 69.8 61.9 76.8 73.6
Combined ratio exclusive of run-off 104.8 98.8 98.2 102.9 95.3 94.7 89.7 98.1 97.2
Combined ratio exclusive of run-off 90.7 89.4 87.4 95.1 92.3 92.5 88.2 93.7 90.9 a) Amounts relating to eliminations and one-off items are included under 'Other’. Please refer to note 2 Geographical segments.
Q4 2019 Quarterly outline 112Contents – Financial statements Annual report 2019 | Tryg A/S |
Run-off, net of reinsurance (%) -2.7 -6.0 -4.4 -8.3 Number of full-time employees 31 December 1,083 1,105 a) Includes Danish general insurance and German, Dutch, Austrian and Finnish guarantee insurance. The gross premium income related to those branches amounts to DKK 78m (DKK 54m in 2018).
Diluted average number of shares (1,000) 301,954 302,043 276,080 279,399 285,101
Net asset value per share (DKK) 40.05 37.56 41.78 34.37 34.16 Market price/net asset value 4.9 4.4 3.7 3.7 4.0 Ordinary dividend per share (DKK) 6.80 6.60 6.40 6.20 6.00 Extraordinary dividend per share (DKK) 1.65 3.31 3.54 Price/Earnings 21.0 28.6 17.0 14.4 20.4
114Contents – Financial statements Annual report 2019 | Tryg A/S |
Group chart at 1 January 2020. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated.
Relative run-off result Run-off gains/losses net of reinsurance divided by claims provisions net of reinsurance beginning of year.
Fire and contents – Commercial Commercial fire and contents insurance, which includes building insurance, represents 12% of total premium income and covers the loss of or damage to the buildings, stock or equipment of commercial customers. Moreover, Tryg provides cover for operating losses in connection with covered claims.
Workers’ compensation insurance Workers’ compensation insurance accounts for 4% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occupational diseases). Workers’ compensation insurance is mandatory and covers a company’s employees (except for public sector employees and persons working for sole proprietors).
Tryg sells its products primarily via its own sales channels such as call centres, the Internet, tied agents, franchisees (Norway), interest organisations, car dealers, real estate agents, insurance brokers and Nordea branches. Moreover, Tryg engages in international cooperation with the AXA Group. It is an important element of Tryg’s distribution strategy to be available in places where customers want it and that most distribution takes place via the company’s own sales channels.
118Contents – Management’s review Annual report 2019 | Tryg A/S |