Being a Nordic player, we have the privilege of an extensive partnership with Nordea, under which Nordea sells our general insurance policies, while we sell Nordea’s life and pension products. This partnership enables both companies to offer customers a complete, simple solution to their financial requirements.
• The technical result improved by DKK 353m and investment income was DKK 510m higher
• Excellent rating in customer survey for handling claims after the fireworks explosion at Seest, Denmark, in
• A focused effort, new systems and Nordic efficiency ensured fast claims handling after the storm in Denmark in January
• Quick assistance after two occurrences of heavy rain and cloudbursts in Bergen, Norway, minimises the consequences to human and property
The price at 31 December 2005 was 39% above the offer price
shareholders' eQuity DKKmreturn on eQuity aFter tax and % disContinued business *) Shareholders' equity is exclusive of dividend, which is deducted on payment in 2006
Management's report iFrs danish gaap profit/loss on gross business 525 309 1,739 2,083 1,826 1,017 -274 -225 profit/loss on ceded business -196 -101 -9 -718 -814 -1,135 -871 -329
Profit/loss on investments after transfer to insurance activities 272 273 888 378 517 685 -170 4 profit/loss for the period before tax 678 549 2,913 2,052 1,947 1,045 -774 109 Extraordinary items and minority interests 0 0 0 0 0 1 -1,256 7 profit/loss for the period, continuing business 493 400 2,125 1,496 1,462 959 -1,817 73 Profit/loss on discontinued and divested business after tax 3 -31 -28 -75 -55 -217 -274 -22 profit/loss for the period 496 369 2,097 1,421 1,407 742 -2,091 51
Business ceded as a percentage of gross premiums 4.9 2.6 0.1 4.7 5.0 6.8 5.5 2.6 Claims ratio, net of ceded business 74.9 77.7 72.1 74.0 72.6 78.3 83.6 80.1
From 1 January 2005, the accounting policies of TrygVesta follow the
The debate about future welfare in all Nordic countries demonstrates the need that will arise in the years ahead for private insurance schemes covering health and sickness, unemployment and other social events. However, it is also evident that ordinary citizens do not want private schemes to replace public arrangements on a full scale. Instead, private insurance will be a supplement to the public, tax-funded offer. At TrygVesta, we believe this is a growing business area, driven by a desire for more and more individualised cover. We intend to play an active role in developing this business area.
Nordic businesses are increasing their focus on risk management and risk hedging. Good corporate governance today requires boards of directors to focus on risk and risk hedging, which naturally implies a requirement for insurers to play a pro-active role in businesses’ risk management. TrygVesta has developed tools that enable us to play this role in a strong partnership with our customers.
On the threshold of 2005, we announced that TrygVesta’s special focus areas for 2005 would be: Focusing on direct nordic insurance
Nordic region and recorded progress in all of the three markets: Denmark, Norway and Finland. Not least our
Denmark, making the price of motor insurance more transparent by including mileage in the price calculation, and protecting customers against price increases if they report a claim.
Following the targeted restructuring of our corporate portfolio in 2003 and 2004, this part of our business records excellent profitability. Careful selection of large risks and continued focus on a balanced product mix enabled us to retain market share in the final quarters of 2005, without jeopardising profitability.
Other customers with concept agreements 108.2 106.1 102.5 98.5 100 processes perspective (index)
Customier satisfaction in claims handling 105 104 102 100 100 employee perspective (index)
results based on a stable and highly predictable performance over time.
TrygVesta's provisioning policy takes into account the probability that social inflation, changes in legal practice and similar factors occur from time to time. Accordingly, we are more likely to record run-off gains in a normal year.
We intend to continue to apply new technology and modern work organisation principles to eliminate redundant administrative routines, aiming to reduce our expense ratio over time.
We pursue an active capital strategy and keep a close balance between capital management and risk management by using the same in-house ALM models in our long-term capital planning. We seek to optimise our capitalisation on an ongoing basis while duly safeguarding our stakeholders’ interests and leaving the Group sufficient scope in which to develop and grow.
A3, respectively. Given the current structure of our business and investment profile, the targeted rating levels correspond to maintaining capital at 52-56% of net premiums.
This target enables us to meet the rating requirements of corporate customers and brokers and eliminates the risk that likely capital fluctuations may affect our ability to run the business and meet our obligations to our customers. On the other hand, we do not intend to accumulate capital in excess of what is required to continue to run our business and implement our corporate strategy.
TrygVesta improved its financial results markedly in 2005, reporting a profit on ordinary activities of DKK 2,913m before tax and a return on equity of 28% after tax.
Compared with the guidance provided in the announcement of financial results for the nine months ended 30 September 2005, the profit on ordinary activities before tax was DKK 513m better than our projection of DKK 2,400m, in particular, because equity markets performed better than expected. The combined ratio of 89 for 2005 is in line with the favourable scenario.
The return on investment activities before other financial income and expenses and transfer to insurance activities totalled DKK 399m. This was an excellent performance compared with the first three quarters of the year and the investment result was some DKK 300m better than projected in the announcement of financial results for the nine months ended 30 September 2005, which was based on our knowledge of equity market trends at 31 October 2005.
Commercial Denmark and, as expected, lower premium growth of 4.5% in Private & Commercial Norway following a review of our price structure in the private market in Norway. Corporate recorded a fall of 2.8%. In Finland, sales through Nordea’s branches saw sustained growth with gross premiums up 44% over 2004.
The gross claims ratio increased to 72.0 in 2005 from 69.3 in 2004, primarily due to claims after the storm in
The projections from 2004 have been restated to IFRS and differ from the 2004 annual report.
There were no judgments or change in the practice relating to personal accident insurance that could cause us to make extraordinary provisions.
The gross expense ratio was 16.9% in 2005, which was 0.2 percentage points lower than in 2004. In 2005, we continued our targeted efforts to reduce costs, both short term and longer term, by leveraging synergies in the Nordic collaboration and through continued measures to make business processes more efficient.
salary indexation, strategic investments in IT, growth in new markets and an increase in customer-oriented activities.
Group’s investment policy. We benefited both from the short-term bond portfolio and from the equity portfolio, which is heavily weighted in Denmark, Norway and the rest of Europe, all markets that provided handsome returns.
December 2005, the provision set aside to administer the run-off portfolio totalled DKK 96m.
1,545m higher than in 2004, and TrygVesta’s claims provision ratio was 126% in 2005 against 122% in
We have restructured our reinsurance programme in recent years, reducing the reinsurers’ share of the provisions for insurance contracts from DKK 3.3bn in 2004 to DKK 2.5bn in 2005.
Receivables were reduced by DKK 518m in 2005, mainly due to lower reinsurance receivables.
These figures exclude the proposed DKK 1,428m distribution of dividends for 2005.
Q4 Q4 profit/loss on gross business 173 -16 176 509 485 179 -73 -360 profit/loss on ceded business -34 -26 467 -101 -99 -167 -180 -10
Business ceded as a percentage of gross premiums 2.2 1.7 -7.4 1.7 1.7 3.0 3.5 0.2
Claims ratio. net of ceded business 73.5 87.1 72.1 75.4 72.9 77.1 81.9 82.6
Large claims and run-off results were in line with expectations for a normal year.
Private & Commercial Denmark reported a gross expense ratio for 2005 that was slightly below the level of last year, reflecting our investment in increased selling power. Our continuing efforts to combine sales offices into large powerful units had a favourable impact.
The favourable performance in 2005 was attributable to enhanced risk selection, a very low claims frequency for building and motor insurance in Norway and improved claims procurement.
Technical interest, net of reinsurance 25 28 93 87 140 204 263 197 key ratios
Business ceded as a percentage of gross premiums 1.0 0.5 1.3 1.6 1.9 2.0 5.4 -7.7
Claims ratio, net of ceded business 66.4 61.2 62.7 62.4 61.0 73.9 77.4 71.7
The gross claims ratio was 0.6 percentage point up on 2004, but it remains at a very low level. We attribute this to the effect of prior-year initiatives and enhanced risk selection based on the revised price structure that helps us retain existing profitable customers. In addition, as the claims frequency was lower due to favourable weather conditions, we recorded an extraordinarily favourable claims performance for, in particular, building and motor insurance.
Claims incurred in workers’ compensation, in particular, improved significantly in 2005 relative to 2004. This should be seen in the context of the premium increases introduced in the personal accident lines.
The favourable technical performance was reflected in the combined ratio of 92.4, which was an improvement of 2.2 points relative to 2004.
Business ceded as a percentage of gross premiums 12.8 6.5 9.0 11.4 11.9 15.4 7.1 12.9
The conventional corporate insurance lines, property, liability, motor and transport insurance saw a satisfactory claims performance which was better than in a normal year, while the claims performance in the marine businesses was still not satisfactory.
The gross expense ratio for Finland decreased 22.8 percentage points relative to 2004. The very favourable performance was mainly due to absolute costs being iFrs danish gaap
1,203m or 4.6%. The improvement was due to a larger investment portfolio and, in particular, higher equity returns, while the higher interest rates triggered a fall in the bond return.
Other financial income and expenses improved from a net expense of DKK 187m to a net expense of DKK
Our net investments amounted to about DKK 4.3bn in 2005, of which DKK 3.6bn was invested in bonds and the balance in equities and real property.
Danish mortgage bonds, placements in the Norwegian money market or Western European or US government bonds.
Return on investment activities 888 378 *) The item comprises gains and losses as a result of a changed discount rate, interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insurance items and costs of investment activities.
The bond portfolio had less interest rate sensitivity than the provisions.
Danish and Norwegian equity markets, and a reduced proportion of US shares in the portfolio from 1 January 2005. The return on Danish shares was 50.0%, while Norwegian shares generated a return of 45.1%
Our portfolio of listed shares is highly diversified. Our largest position accounted for only 2.8% of total listed shares and 0.4% of total investment assets. Furthermore, the proportion of domestic listed shares (Denmark and Norway) is very low, amounting to some 17%
of the listed shares portfolio at 31 December 2005, and our international share investments are placed in portfolios that are highly diversified with regard to geographical and industry distribution and with a low tracking error, meaning that we expect the portfolio return to be very close to the benchmark return. In both Denmark and Norway, the five largest companies account for more than 55% of the index, while the five largest components of our total equity portfolio account for 9.6%. We intend to maintain a diversified international equity portfolio in order to minimise risk relating to any single market or any single company.
The ratio of capital to premiums was 52.9% in 2005, up from 49.7% in 2004. Given the anticipated dividend distribution for 2005, this is well within our targeted range.
In order to make our capitalisation more transparent, we show a simplified capital model on TrygVesta Investor
The new loan increased the ratio of subordinate loan capital to the capital from 9.3% in 2004 to 11.8% in 2005, or 13.9% after payment of dividend.
On 5 July 2005, TrygVesta replaced the existing shortterm debt of DKK 600m by a five-year DKK 2,000m revolving credit facility. At 31 December 2005, we had utilised DKK 715m of this facility.
trygvesta had the following ratings at 31 december 2005 standard & poor's Moody’s
Insurance customers in the Nordic region are becoming increasingly focused on quality and reliability in the provision of services.
TrygVesta aims to enhance customer loyalty on an ongoing basis. We can achieve this only by constantly spotlighting customer satisfaction. As part of our active customer policy, we contact all private customers every year when we send out policy renewals and policy overviews. We also send all our concept customers at least one positive message each year.
We made such a survey after the hurricane in 1999 in
This special survey showed that TrygVesta’s staff handled the huge task very satisfactorily. It also showed that almost nine out of ten customers would recommend TrygVesta to their family and friends based on this performance. This is a very strong signal of loyalty and satisfaction.
In Norway, TrygVesta advanced to rank second among the three companies we usually consider our peers in the Norwegian market, and which hold an aggregate 82% market share. We believe that our new customer concept Vesta Trygghetsavtale, which involves that we take responsibility for meeting customers’ overall insurance requirements, contributed strongly to the improvement.
TrygVesta in Finland has some of the most loyal and satisfied customers, and we rank first or second in all categories.
Customer expectations to TrygVesta in Finland are the highest in the market at 76.3%. Number two on the list was at 73.6%. We succeeded in meeting the very high customer expectations as reflected, among other things, by customers rating TrygVesta best on pricequality relationship. We are rated 76.5% against 73.3%
In our letter to Danish concept customers this year we offered customers a say in the further development of our concepts by assessing the individual concept elements. We were very pleased to see that 19.3% of our
Customers and companies make increasing use of the Internet to communicate with each other, and we measure these trends in all markets.
The corresponding figures for 2004 were 1.5m visitors viewing a total of 9.8m pages.
In Finland, Nordea’s TrygVesta pages had 132,127 hits in 2005 against 71,823 hits in 2004.
IT systems across national borders we become more efficient and better able to cooperate across the organisation. It also provides economies of scale and competence building in our IT development.
Our general efforts to reduce expense levels in staff functions and enhance processes in the individual business areas were key to improving the Group’s performance both in 2004 and in 2005, and we intend to continue these efforts in 2006.
Tryg.dk technology and the website ideas were developed further in both countries. Both websites had a record number of hits in December 2005 when 123,710 visitors viewed 646,222 pages on vesta.no and 296,240 visitors to tryg.dk viewed 1,756,000 pages. An increasing number of visitors sign up to receive communications online.
We set up customer teams comprising representatives from the sales, underwriting, engineering and claims departments when quoting for new policies or renewals and servicing existing corporate customer policies.
We implemented a new, shared Nordic financial management system, SAP, in TrygVesta on 1 January 2005 which enables us to have shared Nordic processes. This improves the monthly reporting and allows for better current cost management. We intend to use SAP in the future to support further Nordic integration.
We began by having all managers with employees reporting to them attend courses on understanding the values as a tool in everyday work, using both in-house and external instructors to ensure that TrygVesta managers have a uniform understanding of the work with our corporate values.
We used theme packages covering individual aspects of the values to involve our employees in the work, for instance by asking them to find good examples of how the values are applied in their everyday work.
We intend to continue this work in 2006 to make sure that our corporate values are communicated throughout the organisation. As a result of the intensive work with the theme packages we have deferred our 2005 employee survey to 2006.
Our Investor Relations policy is designed to ensure that the valuation of our shares is based on open and direct communications with all stakeholders.
TrygVesta primarily wishes to attract investors who take a long-term view as well as investors with a medium -term investment horizon.
Assuming sufficient distributable reserves are available at the relevant time, we intend to target a pay-out ratio of not less than 50%.
The primary sources of information to investors and analysts are our half-year and quarterly interim reports and stock exchange announcements. Following all releases of interim reports, management is available to analysts, major institutional investors and private investors by way of roadshows, webcasts, telephone conferences and investor meetings to provide as broad a presence as possible. All stock market information is issued in a Danish and an English version.
All investors may ask questions and submit proposals at our general meetings.
Our Investor Relations department is available for queries on an ongoing basis although we refrain from commenting on the Group’s general financial position during a period of three weeks prior to announcement of our interim results.
The proposed dividend for the year is DKK 21 per share, totalling DKK 1,428m, and equalling a payout ratio of 68% of the profit for the year after tax. The dividend corresponds to an annual dividend yield of 6.6% relative to the price at 31 December 2005 of DKK 319.2 per share.
FinanCial Calendar 30 March Annual General Meeting 2006 10 May Financial results for the three months ending 31 March 2006 16 August Financial results for the six months ending 30 June 2006 8 November Financial results for the nine months ending 30 September 2006
change in the autumn of 2005. The first day of trading in the shares was 14 October 2005. On 19 December 2005, the TrygVesta share became a component of the
Turnover of TrygVesta shares totalled DKK 2.9bn on the first two days of trading with a subsequent average daily turnover of DKK 117m. This makes TrygVesta the second most traded financial share on the Copenhagen
trygvesta shares priCe developMent in 2005 aFter trygvesta's ipo distribution oF shareholders on allotMent 13 oCtober 2005
These focus areas will be supported by current and new initiatives, and as in 2005, our efforts will be backed by applying balanced scorecards for all departments, evaluating their activities in terms of the four measuring points.
The forecast for the technical result for 2006 is based on assumptions with respect to gross premiums written, gross claims incurred, gross expenses, result of business ceded and technical interest.
TrygVesta is committed to providing the market with precise profit guidance. Within the Group, we therefore attach great importance to using our very extensive records of previous performance which, together with TrygVesta’s size in our core markets, are very important when making performance forecasts. In addition, TrygVesta emphasises the importance of having a clear correlation between initiatives and the financial impact in all planning activities.
The forecast for gross expenses reflects the projected number of employees during 2006 and the related costs. The projected number of employees incorporates the effect of measures launched to improve efficiency.
Technical interest is based on interest rate assumptions at 31 December 2005.
of total investment assets and to yield a return of 2.6%.
Premiums are expected to increase by some 4%, assuming competitive conditions remain stable. We aim to retain our strategy of generating profitable growth.
TrygVesta estimates that the combined ratio for 2006 will be at the level of 89-93 with an expectation of 91 compared with the 89.0 achieved for 2005.
A number of different factors may therefore cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance.
TrygVesta’s corporate values, strategic basis and work on the company’s balanced scorecard. Please see the section Strategy and goals. TrygVesta has a competition compliance policy. See also the sections Our customers and Our employees and values.
TrygVesta A/S has adopted IFRS standards in its financial reporting beginning in the 2005 financial year.
The Supervisory Board carries out an annual self-assessment of the work of the Supervisory Board and the
Executive Management and an evaluation of the work and the efficiency of the cooperation between the Supervisory Board and the Executive Management.
6. remuneration to the members of the supevisory board and the group executive
The members of TrygVesta’s Supervisory Board receive a fixed annual remuneration of DKK 200,000 with the deputy chairman and the chairman receiving 75% and 150% more, respectively, than the other members.
TrygVesta pays a contribution of 25% of the fixed salary into a pension scheme. The bonus, which depends on the company’s financial results within the four perspectives of the balanced scorecard, is up to three months’ additional salary. In addition, the members of the Group Executive Management have company cars.
Members of the Group Executive Management are entitled to 12 months’ notice of termination and to 12 months’ severance pay. However, the Group CEO is entitled to 12 months’ notice of termination and to 18 months’ severance pay plus pension contributions.
Stock Exchange on 27 February 2006. The options will be granted on 28 February 2006.
Members of the Executive Management will be granted options as follows: 20960 options to Christine Bosse 7860 options to Morten Hübbe 6550 options to Erik Gjellestad 6550 options to Peter Falkenham 6550 options to Stig Ellkier-Pedersen
DKK 7.9m, with DKK 1.9m being attributable to members of the Executive Management, approximately DKK
After 2007, stock options will be granted in connection with announcement of the annual result.
salary to acquire shares at a discount to the market price. Shares at a discount to the market price will be offered at par value.
Financial Supervisory Authority governing financial business. We therefore also have an internal audit department. The Supervisory Board regularly receives and considers audit reports from our appointed auditors and internal auditors. The Supervisory Board of our former sole owner, Tryg i Danmark smba, intends to propose to the annual general meeting of TrygVesta
Board to be elected by the shareholders. The Supervisory Board of Tryg i Danmark smba recommends that the chairman of the audit committee be elected among the non-affiliated members of the Supervisory Board of
Part of our financial risk relates to the relationship between our liabilities, primarily insurance liabilities and the assets available to cover these liabilities. Management of interest rate risk and other risks impacting both assets and liabilities is also referred to as risk ManageMent
The risk that a counterparty fails to live up to financial obligations towards TrygVesta.
TrygVesta divides risk into the above general types for risk management purposes.
It ensures that key calculations are made on a consistent basis. We also use ALM in preparing for the new EU
To the widest extent possible, TrygVesta’s reinsurance programme consists of joint reinsurance treaties covering all of the subsidiaries of the Group, and the treaties are assessed and analysed on a Group-wide basis. TrygVesta’s structured approach to reinsurance is supported by the ALM model, which we use for assessing the impact of different reinsurance alternatives.
We determine the level of cover based on the risk exposure of our portfolio, using market-based simulation models. These models suggest that a loss in excess of DKK 4.5bn occurs less often than once every 250 years. We determined to raise the level of reinsurance protection as the simulation models indicated our previous cover corresponded to a loss occurring less often than once every 100 years. Our exposure to natural disasters in Norway is furthermore limited through our participation in the Norwegian Pool of Natural Perils.
DKK 50m, covering the risk of several injuries from the same cause, including terror.
Market risk is the risk that volatility in the financial markets and/or macroeconomic factors will impact our results of operations and financial position. We divide market risk into five subcategories: interest rate risk, equity risk, real property risk, currency risk and credit risk.
Committee, which is chaired by the Group CEO. The basic framework of TrygVesta’s investment risk management
is laid down in our investment policies, which are approved each year by the Supervisory Board. When reviewing the investment policies, we use the ALM
model to simulate the risk and return characteristics of alternative investment strategies. An investment policy may be revised during the period between the annual reviews when changed market conditions or other circumstances so require.
TrygVesta Group. The asset mix and risk of our investments focus on security and liquidity.
The figure to the right on the next page illustrates the impact on TrygVesta’s fixed-rate securities and discounted provisions for claims*) in the two scenarios. The pink line shows situations where the interest rate changes result in a net impact of DKK 0. All three scenarios are below the pink line, indicating that the impact on assets is greater than the opposite impact on provisions for claims. The parallel shift scenario corresponds to a negative net impact on the result of DKK
*) The calculation of the impact on TrygVesta’s liabilities excludes provisions for annuities in workers’ compensation, the provision for pension obligations and Finland.
Before 1 January 2005, only investment assets were affected by fluctuations in interest rates. The discounting of provisions for claims from 2005 has substantially reduced the impact of interest rate fluctuations on financial performance. Fluctuations in interest rates now have two opposite effects on TrygVesta’s financial results. A rising level of interest rates would have an adverse profit impact as it causes a drop in the value of TrygVesta’s bond portfolio. At the same time, rising interest rates would result in a correspondingly high discount rate, which would increase TrygVesta’s profit as it would trigger a fall in provisions for claims.
Most of TrygVesta’s provisions for claims are discounted using an interest rate curve based on market rates except for provisions for annuities in Danish workers’ compensation insurance, which are discounted using a fixed real rate of interest of 1% and therefore not directly affected by market fluctuations.
TrygVesta’s portfolio of fixed-interest securities stood at DKK 29.3bn at 31 December 2005, while the provisions for claims discounted using a market rate amounted to DKK 19.6bn, net of reinsurance. The respective durations were 1.6 and 2.3 years. A parallel shift of interest rates of 1% would reduce the market value of our securities by DKK 485m, while the opposite impact on provisions would be DKK 376m, triggering a negative net impact of DKK 109m. Thus, an increase in interest rates would initially have a relatively modest effect on our results.
Where a change in interest rates triggered a change in the discount rate applied to the provisions for annuities, the effect would be to lift profit by around DKK
In addition to the provisions for claims, TrygVesta’s provision for pension obligations in Norway is affected by changes in interest rates. However, such changes do not affect results as they are recognised in equity.
TrygVesta’s equity and real property portfolios are exposed to changes in equity markets and real property markets, respectively. We manage such risk through investment limits for various asset classes.
from Standard & Poor's as a condition for TrygVesta reinsuring business with such reinsurer.
The credit risk of our investments is connected to our investment in bonds. We manage this risk by maintaining a diversified bond portfolio generally with high credit ratings.
As operational risks are mainly internal, our management of these risks centres on establishing a satisfactory controlling environment in our operations. In practice, we organise this work through a structure of policies, procedures and guidelines that cover different aspects of our operations.
Group’s strategic risk. The Supervisory Board defines the overall strategy in the middle of the year within the framework of our vision, and the Executive Management use this as the basis for further strategic work.
The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2005 of TrygVesta A/S and the TrygVesta Group.
The consolidated financial statements have been prepared in accordance with the International Financial
Reporting Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
Executive and Supervisory Boards. Our responsibility is to express an opinion on the annual report based on our audit.
Financial Supervisory Authority’s executive order on auditing financial enterprises etc. and financial groups and in accordance with Danish and international auditing standards. Based on an evaluation of materiality and risk, we examined the business procedures, the accounting policies applied and the estimates made and verified the basis for the amounts and other disclosures in the annual report. We believe that our audit provides a reasonable basis for our opinion.
In addition, in our opinion, the annual report gives a true and fair view of the Parent’s financial position at 31 December 2005 and of the results of its operations for the financial year 2005 in accordance with the
TrygVesta Group was established on 28 June 2002 by way of a non-cash contribution from the Nordea AB
Management’s description of the basis for determining these pro forma figures.
We agree with Management’s comments on the pro forma figures, including the view that the figures make the financial statements more informative with respect to the technical operations.
Public Accountant Public Accountant Public Accountant auditorS' report to the shareholders of trygvesta a/S
for the financial year 2005. The consolidated financial statements have been prepared in accordance with
Therefore, the pro forma figures represent accounting figures for a period during which the Group did not exist as a legal entity. Reference is made to Management ’s description of the basis for determining these pro forma figures.
These consolidated financial statements are prepared in accordance with the International Financial Reporting
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below in part D.
The accounting policies applied for the parent company are in accordance with the executive order issued by the
IFRS. The most significant deviations from the recognition and measurement requirements of IFRS are: • Investments in subsidiaries and associates are valued according to the equity method, whereas under IFRS
The parent company’s investments in subsidiaries and associates are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the balance sheet, investments are measured at the pro rata share of the enterprises’ equity.
As of 1 January 2005, the accounting policies were changed to comply with IFRS. All comparative figures for 2004 have been restated in compliance with IFRS 1.
In accordance with IFRS 1, IAS 32 and IAS 39 were implemented on 1 January 2005 without the inclusion of comparative figures for one year. The option selected about not implementing IAS 32 and IAS 39 in 2004 has no effect on the recognition and measurement of financial instruments in the income statement or balance sheet as Danish GAAP (the previous accounting policies) applied for investment assets and loans does not differ materially from the recognition and measurement requirements of IAS 39. In accordance with the provisions on early implementation of IFRS 1, the company does not comply with the requirements of
effects of the changed accounting policies on the financial statements on adoption of ifrS
The combined impact of the changed accounting policies from applying IFRS is a DKK 14m improvement in the profit and a DKK 685m increase in shareholders’
• The difference between provisions for annuities relating to compulsory workers’ compensation in
Perils, credit and guarantee, and storm and large loss equalisation have been transferred to the Group’s equity after deduction of deferred tax. The equalisation provision relating to workers’ compensation has been transferred to provisions for claims according to the current best estimates of future cash flows of claims regarding workers’ compensations.
Provisions for claims are discounted if such discounting is material. TrygVesta already applied discounting of provisions relating to compulsory workers’ compensation insurance, but has decided to discount all provisions for claims, if material.
Discounting is based on a yield curve applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability and personal accident classes, in particular.
Provisions for claims include a best estimate provision to cover direct and indirect claims handling costs in connection with run-off on the provisions for claims.
Provisions for claims handling costs are discounted if such discounting is material.
In Norway, we operate a defined benefit plan, in which an old age and disability pension is set as a percentage of an employee’s final salary. This pension plan creates a constructive obligation to our Norwegian employees and current pensioners.
Actuarial gains and losses may be recognised in equity in full in the period in which they occur. Actuarial gains and losses are for example changes in the discount rate, increases in salaries, mortality and differences between the actual and the expected return on plan assets.
Under Danish GAAP (former accounting principles) the defined benefit pension plan in Norway was measured at an estimated market value using Norwegian assumptions relating to long-term economic developments.
calculated in accordance with the economic market assumptions on the balance sheet date. The expected future return on plan assets reflects the asset mix held by Nordea Liv og Pension in Norway unlike previously when the assumptions were based on expected longterm economic developments.
Under IFRS, dividends will not be recognised as a liability until approved by the company’s shareholders.
In accordance with IFRS, owner-occupied properties are stated at their revalued amounts, being the fair value at the revaluation date, and are depreciated over their estimated useful lives. Increases in the carrying amount arising on revaluation of owner-occupied properties are credited to the properties’ revaluation reserve in equity.
The company no longer charges an estimated rent of own properties to insurance operation expenses.
Technical interest is reduced by the portion of the increase in net provisions that relates to unwinding of discounting.
Changes in foreign currency exchange rates and market value adjustments, including changes in the discount rate applied are presented as value adjustments.
Previously changes in the discount rate applied were included as movements in provisions for claims.
In 2005, we changed the accounting estimates for discounting workers’ compensation in Norway. In 2004 we used a fixed interest of 3% and in 2005 we used a yield curve. The change results in a decrease of the discounted gross provisions of DKK 153m and DKK
The two above-mentioned changes in accounting estimates are due to an alignment of discounting approaches for the Group.
In the Danish business the discounting rate on annuities (workers’ compensation) was reduced from 2% to 1% in 2005. The change is due to falling interest rates and results in an increase of the discounted gross provisions of DKK 165m. In the income statement this amount has been expensed under Value adjustment.
On initial recognition, assets and liabilities are measured at cost. Measurement subsequent to initial recognition is effected as described below for each financial statement item.
The consolidated financial statements comprise the financial statements of TrygVesta A/S (the parent company ) and enterprises (subsidiaries) controlled by the parent company. Control is achieved where the parent company directly or indirectly holds more than 50%
of the voting rights or is otherwise able to exercise or actually exercises a controlling influence.
The financial statements of subsidiaries that present financial statements under other legislative rules are restated to the accounting policies applied by the Group.
Unrealised gains on transactions between the Group and its subsidiaries and associates are eliminated to the extent of the Group’s interest in the companies.
Group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classified as equity and transferred to the Group’s translation reserve.
are translated at the exchange rates at the balance sheet date.
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 a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions.
Changes in claims incurred due to changes in the yield curve and exchange rates are recognised as a value adjustment.
Insurance operating expenses represent acquisition costs and administrative expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Administrative expenses are accrued to match the financial year.
Income from associates includes the Group’s share of the associates’ net profit.
Other income and expenses includes income and expenses which cannot be ascribed to TrygVesta’s insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension.
and business in run-off in Tryg Forsikring A/S. Divested subsidiaries comprise the activities in Poland, Estonia and Tryg Baltica International A/S. Impairment losses or gains on Chevanstell Ltd. are also included in the line discontinued and divested business.
After completion of the development the asset is depreciated on a straight-line basis over the expected useful life, however with a maximum period of 4 years.
Properties held for renting yields that are not occupied by the Group are classified as investment properties.
Investments include financial assets at fair value through the income statement. The classification depends on the purpose for which the investments were acquired.
Management determines the classification of its investments at initial recognition and re-evaluates this at every reporting date.
A financial asset is classified as a financial asset available for sale at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there is evidence of shortterm profit-taking, or if so designated by management.
Derivatives are also classified as financial assets available for sale unless they are designated as hedges.
The fair values of quoted investments are based on stock exchange prices at the balance sheet date. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using valuation techniques. These include the use of similar recent arm’s length transactions, reference to other instruments that are substantially the same and a discounted cash flow analysis.
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses derivative financial instruments to hedge its risks associated with foreign currency fluctuations relating to investments in foreign operations.
Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign operations.
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held.
Amounts recoverable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in technical interest.
Changes due to changes in the yield curve or foreign currency exchange rates are recognised as value adjustments.
Claims and claims handling costs are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims handling costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the Group. Provisions for claims are estimated using the input of assessments for individual cases reported to the group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).
Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method, De Vylder’s credibility method and a proprietary collective reserve model for use in private business lines in Denmark. Chain-Ladder techniques are used for business lines with a stable run-off pattern. The Bornhuetter -Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder’s credibility method is used for areas that are somewhere in between the
Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets, for example the number of insured, other than premium volume.
compensation, the adjustment percentage published in 2005 with a premium of 1% is used as the expected future inflation rate.
Any deficiency is charged to the income statement by raising the relevant provision.
The Group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-administered funds. In Norway, the group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent on age, years of service and compensation. In Denmark, the Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions.
Employees of the Group are entitled to a fixed payment, when they reach retirement and when they have been employed with the group for 25 and for 40 years.
In special instances the employee can enter a contract with the Group to receive compensation for loss in pension benefits caused by the reduced working hours.
Deferred tax is measured according to the balance sheet liability method on all timing differences between the tax and accounting value of assets and liabilities.
Deferred income tax is measured using tax rules and tax rates that apply in the relevant countries by the balance sheet date when the deferred tax asset is realised or the deferred income tax liability is settled.
Provisions are recognised when, as a consequence of an event that has occurred before or on the balance sheet date, the Group has a legal or constructive obligation, and it is likely that an outflow of resources will be required to settle the obligation.
The cash flow statement of the Group is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the
Cash flows from financing activities comprise changes in the size or composition of the Group’s share capital and related costs as well as the raising of loans, instalments on interest-bearing debt, and payment of dividends.
The pro forma comparative figures are stated on the basis of a consolidation af the companies forming part of the Group as at 31 December 2003.
Change in the reinsurers' share of provisions for claims -487 -190 3 claims incurred, net of reinsurance -10,418 -9,860 bonus and premium rebates -161 -162
Income from investment properties 101 91 6 Interest income and dividends, etc, 1,035 834
Notes assets 12 Owner-occupied property 329 273 total property, plant and equipment 438 446 14 Investments in associates 30 28 total investments in associates 30 28
Cash in hand and at bank 543 490 15 total other financial investment assets 33,413 29,216 deposits with ceding undertakings, receivable 27 28 total investment assets 35,634 31,445
Other prepayments and accrued income 50 58 total prepayments and accrued income 474 441 total assets 40,811 37,824
Debt related to reinsurance 143 485 21 Debt to credit institutions 786 609
Current tax liabilities 385 0 total debt 2,842 3,488 accruals and deferred income 250 250 total liabilities and equity 40,811 37,824 23 capital adequacy, etc.
Other items -28 -26 total cash generated from operations 4,298 5,176 investments
Acquisition/sale of equity investments and unit trust units (net) -709 -710
Purchase/sale of operating equipment (net) 9 -74 1 Acquisition of subsidiaries 0 517
Additions relating to sale of subsidiaries 0 -5 changes in cash and cash equivalents, gross 64 12
Cash and cash equivalents, beginning of year 560 548 cash and cash equivalents, year-end 624 560 discontinued business
Ceded indirect insurance 8 5 direct insurance, by location of risk
In respect of provisions for claims, the calculated return for grouped classes of risk is calculated as the monthly average provision plus a co-weighted interest rate from the current yield curve for each risk group. The interest rate is weighted according to the expected settlement pattern of the provisions.
Run-off previous years, reinsurers' share -82 -144 4 insurance operating expenses, net of reinsurance
Insurance operating expenses and claims incurred include the following staff expenditure: Salaries and wages -1,561 -1,494
Members of the Supervisory Board of TrygVesta A/S do not receive bonuses and are not participants in any severance plans. The Group Executive Management has a bonus scheme for up to 3 months’ salary. Other than that, there are no incentive plans for the Supervisory Board and Group Executive Management.
At the annual general meeting, the Supervisory Board will show management's future share programme based on a share element for the Group Executive Management and key employees with a view to establishing incentives relevant to ensure competitive remuneration of the Group
Administrative expenses include fee to the auditors appointed by the Annual General Meeting: Grant Thornton -1 -1
Profit/loss on business ceded 467 -101 -62 -73 -421 -549 -1 0 8 5 -9 -718
Reinsurers' share of provisions for claims 124 -66 320 648 1,260 1,562 0 0 780 936 2,484 3,080
Profit/loss for the period before tax 1,530 1,102 1,494 1,058 -43 -47 -68 -61 2,913 2,052
Norway under the brand names “Vesta” and “Enter”. TrygVesta's products in Norway are distributed through 85 franchisee offices who are licensed to use our brand and exclusively sell our products and Nordea products. We also sell through our own sales agents, three regional customer centers, 35 local service centers, car dealers and Nordea’s 125 bank branches.
Norway, as well as underwriting insurance arranged by brokers for commercial and corporate customers. The results of our guarantee and surety bond subsidiary, Dansk Kaution, are also included in our
Corporate business unit. Dansk Kaution is the leading supplier of guarantee insurance and surety bonds in Denmark.
TrygVesta's branch in Finland sells general insurance products to private household customers, mainly through Nordea's 376 Finnish bank branches under the “Nordea” brand name.
dKKm 5 Segments private & private & finnish commercial commercial general denmark norway corporate insurance unallocated total
Accruals and deferred income 250 250 250 250 * Other assets and liabilities are not directly attributable, and it is not possible to allocate these items so that they present a true and fair view. Accordingly, the amounts are recognised in a single line item Unallocated activities.
danish norwegian finnish general insurance general insurance general insurance other total
dKKm 5 technical result, net of reinsurance, by lines of business accident and workers' motor health 1) compensation motor tpl comprehensive
Profit/loss on ceded business -24 5 -29 50 -15 -22 23 -7
Profit/loss on ceded business -70 -56 196 -53 91 -414 -123 -82
Technical interest, net of reinsurance 1 7 38 38 26 25 19 2 credit & norwegian guarantee group life 1)
Market value adjustment, net 588 220 8 reconciliation of tax expense
Difference between Danish and foreign tax rate - 21 effective tax rate % %
Technical interest, net of reinsurance 0 2 0 14 0 6 9 12 credit & fire & contents fire & contents guarantee
Technical interest, net of reinsurance 19 36 28 72 1) Indirect insurance are included in “Other insurance”.
Value adjustment for the year at revalued amount 8 0 accumulated depreciation
Depreciation for the year -1 0 balance at revalued amount at 31 december 329 273
Value adjustment for the year 30 6 fair value at the balance sheet date 1,726 1,727
Total expenses for 2005 are DKK 38m. Of this amount, not-hired property is
DKK 2m. The total expenses at the income leading investment property are
Revaluations during the year 2 14 carrying amount, 31 december 30 28
Shares in associates according to the latest financial statements: Shareholders' profit/loss ownership name and registered office assets liabilities equity revenue for the year share in %
Forward exchange transactions and currency swaps are used for forward currency hedging of holdings of shares, bonds, investments in subsidiaries and insurance balance sheet items. Interest derivatives in the form of forward transactions, repos, swaps and forward rate agreements are used to control cash flows and interest in connection with holdings of bonds. Share derivatives are sometimes used to adjust share exposure.
Ltd. is estimated on a current basis and is hedged 90-100% by entering into short-term forward exchange transactions in NOK and GBP.
gains and losses on foreign exchange hedges charged to equity gains losses net
10m in expenses when the loan was raised. The fair value of the loan at the balance sheet date was DKK 1,124m.
The table consists of figures for Tryg Forsikring A/S and Vesta Forsikring A/S. Other companies in the group are included in “Other”, which comprises provisions for claims for Dansk Kaution, travel and health, our Finnish business unit and Chevanstell Ltd. The provision for Chevanstell Ltd. includes an offset of the stop-loss treaty between Tryg Forsikring A/S and Chevanstell Ltd.
For the claims year 2000, a contribution to the revision of the estimates came from business written by Chevanstell Ltd., which at that time operated under the name TBi UK in the London market. Although Chevanstell is not directly included in the triangulation, it has impacted the figures through the stop-loss treaty between Tryg Forsikring A/S and Chevanstell Ltd. that was put in place in 2000 to cover business written before 2000.
The inclusion of the Zurich portfolio acquired in 2002 and, to a minor extent, the Allianz Norwegian portfolio acquired in 2001 affects the figures.
As the liabilities of these portfolios appear in the triangulation, the ultimate liability for the preceding claims years is increased but, naturally, not as a result of a revision of already existing liabilities. The combined impact of the two acquisitions amounts to DKK 210m gross and DKK 200m net of reinsurance.
Paid in the financial year in respect of the current year -5,325 -4,902
Reinsurer's shares of provisions for claims, beginning of period 2,096 2,118
Paid in the financial year in respect of the current year -562 -302
Paid in the financial year in respect of prior years -805 -612
Change in claims in the financial year in respect of the current year 925 877
Change in claims in the financial year in respect of prior years -66 -99
Provisions for claims, end of year 1) 1,644 2,096 net of reinsurance
Falling due after more than one year 1,066 1) The table consists of figures for Tryg Forsikring A/S and Vesta Forsikring AS. Other companies in the
Group are included in “Other”. 2) Comprises provisions for claims for Dansk Kaution, travel and health, our Finnish business unit and
Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year 606 556
Employers' nat. ins. contribution 14.1 14.1 20 deferred tax tax asset
Change in deferred tax taken to the income statement 160 251
The Danish joint taxation rules were changed in 2005, which means that the Finnish loss can no longer be deducted in the Danish taxable income. The loss under the Finnish rules can be carried forward for ten years.
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to utilise the tax loss, cf. IAS 12.
The tax rate in Denmark was lowered from 30% to 28%, which reduced the value of the tax asset by
DKK 715m had been utilised at 31 December 2005. In 2005, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5% p.a. The unutilised part of the loan facility is measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The costs are amortised until the loan facility expires in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 715m. At 31 December 2004,
Debt falling due after more than five years 0 0 22 other debt
Capitalised tax assets 0 -3 capital base 4,624 4,390 weighted assets 6,404 5,616 24 earnings per share
Other relevant matters: Tryg Forsikring A/S has signed a portfolio management contract for DKK 134m.
Tryg Ejendomme A/S is jointly and severally liable with the partly demerged company Nordea Pension Danmark, ejendomsselskab IV A/S for the liabilities existing at the time of publication of the demerger in 2003, up to a maximum of the reversed value of DKK 382m.
Most of the Danish companies in TrygVesta are commonly registered for VAT and payroll tax with Tryg i Danmark smba and are jointly and severally liable for payment of all such direct and indirect taxes. Tryg i Danmark smba left the joint taxation following the listing of Tryg Vesta A/S in 2005.
Companies of TrygVesta are part of some disputes the outcome of which is not estimated to affect the financial position of the Group. Management believes that the outcome of these legal proceedings will not affect the Group's financial position beyond those receivables and obligations recognised in the balance sheet at 31 December 2005.
An amount of DKK 0.1m has been provided for claims payments.
Guarantee agreements with related parties: • Exercised, end of year 921 648
Following an individual assessment, all guarantees are issued without additional security.
No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Guarantee agreements are made on market terms.
Tryg i Danmark smba controls 60% of the shares in TrygVesta A/S.
TrygVesta adopts IFRS for the first time in the annual financial statements for the year ended 31 December 2005, which will include comparative financial statements for the year ended 31 December 2004. With regard to IFRS TrygVesta have developed accounting policies based on the standards and related interpretations that are effective on 31 December 2005. IFRS 1 also requires that those policies be applied to the opening
IFRS balance sheets as of 1 January 2004 and the annual IFRS financial statements for the two years ended 31 December 2005 and 2004.
In March 2004 the International Accounting Standards Board (“IASB”) issued IFRS 4 – phase I “Insurance Contracts (“IFRS 4”), which is a temporary standard until phase II is completed. This standard applies to all insurance contracts that an entity issues and to reinsurance contracts that it holds. Under IFRS 4 – phase I, an insurer is temporarily exempt from some requirements of other IFRS rules, including the requirement to consider the IFRS framework in selecting accounting policies for insurance contracts. IFRS 4 does not apply to all other (non-insurance contract-related) assets and liabilities of an insurer. All non-insurance items are recognised in accordance with the applicable IFRS guidelines.
• Prohibition to de-recognise insurance liabilities in its balance sheet until they are discharged, cancelled or expire
In addition, an insurer is permitted to change its accounting policies for insurance contracts only if, as a result, that TrygVesta's financial statements present information that is more relevant and no less reliable, or more reliable and no less relevant.
The Danish FSA has issued new accounting rules that apply from 1 January 2005. These new Danish FSA rules attempt to convert the old
When TrygVesta refers to Danish GAAP in the annual financial statements, TrygVesta is referring to the rules in effect at the time, and not the new Danish GAAP effective as of 1 January 2005.
• Presented the insurance provisions as gross liabilities and the related reinsurers’share as assets
The IFRS consolidated financial information as of 31 December 2004 has been prepared in accordance with the recognition and measurement provisions of those standards and interpretations issued and effective, or issued and early adopted, as of 31 December 2005.
“TrygVesta 2004 comparative IFRS figures” TrygVesta have included a detailed discussion of the reclassifications and adjustments affecting the income statement and balance sheet.
Profit for the year ended 31 December 2004 in accordance with IFRS 1,421
GAAP this provision was accounted for under change in the equalisation provisions. Under IFRS equalisation provisions are not permitted and are therefore adjusted to shareholders’ equity as of 1 January 2004. The amount reflected in the reconciliation of profit is the change in equalisation provisions from 1 January 2004 to 31 December 2004 under Danish GAAP.
IAS 19, TrygVesta has retrospectively from 1 January 2004 applied the new option to recognise the actuarial gains and losses in full in the period in which they occur in shareholders’ equity. Under Danish GAAP these were recognised in the income statement.
D) Under Danish GAAP, TrygVesta discounted provisions related to workers’ compensation. TrygVesta has chosen to also discount all other claims provisions as allowed under IFRS. As a result, initial changes in claims provisions, changes in discount rates or changes in duration of claims provisions could have positive or negative effects on earnings.
F) Under Danish GAAP, employee benefits and bonus and premium rebates to certain affinity groups are expensed as incurred. Under IFRS, these amounts are recognised as liabilities.
G) Under Danish GAAP, proposed dividends were recognised as a liability. Under IFRS, dividends are not recognised as a liability until approved on the Annual Generel Meeting.
The following is a reconciliation of the significant differences on a line item basis in TrygVesta's consolidated financial statements between
reconciliation of the transition from danish gaap to ifrS year ended 31 december 2004 ifrS
1) Danish GAAP according to the issued financial statements of 2004 but adjusted for divested business in 2004 which in the income statement to the line “Loss on the discontinued and divested business”. Reclassification on the divested business 2004 in the table above is made for the purpose of comparability.
• changes in the provision for unexpired risk under IFRS is part of change in premium provision, whereas under Danish GAAP it was classified as “change in other insurance provisions, net of reinsurance”
Under Danish GAAP earned premiums, net of reinsurance was equal to gross premiums written less premiums paid to TrygVestas reinsurers for the reinsurance protection TrygVesta purchase plus the net change in provisions for unearned premiums. The basis for the amount of gross premiums written recognised in any accounting period varies by the volume and type of contacts that
TrygVesta write. Earned premiums were recorded in accordance with the terms of the underlying policies and according to various estimates that TrygVesta were required to make. Earned premiums under Danish GAAP includes self-insurance contracts covering assets of TrygVesta and self-insurance for employee related matters.
GAAP TrygVesta allocate premiums written but not yet earned to provision for unearned premiums, which represents a liability on balance sheet. The provision for unearned premiums comprises the proportion of gross premiums written that are estimated to be earned in a subsequent financial period, computed separately for each insurance contract using the pro rata method, and adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contact. As time passes, the unearned premium reserve in relation to a policy is gradually reduced and the corresponding amount released through the profit and loss account as premiums are earned. The change in the unearned premium reserve was disclosed on TrygVesta Danish GAAP
income statement under “Change in the gross provisions for unearned premiums”.
• “changes in the provision for unexpired risk” under IFRS is part of “change in premium provision” whereas under Danish GAAP it was classified as “change in other insurance provisions, net of reinsurance”
The total effect on earned premiums as a result of implementing IFRS amounts to DKK 5m, as follows: dKKm
(i.e. greater than four years). Under Danish GAAP, TrygVesta only discounted provisions related to workers’ compensation.
IFRS provides an option to discount all insurance liabilities. The Danish FSA requires the discounting of all insurance liabilities if material. TrygVesta are now discounting all of provisions for claims. TrygVesta use a yield curve and select discount rates commensurate with the estimated cash flow of each of TrygVesta provisions to calculate discounted insurance liabilities.
As a result of the application of a different interest rate, technical interest net of reinsurance increases by DKK 6m as a result of the implementation of IFRS. Since all technical provisions are discounted under IFRS, the effect of accretion of discounted technical provisions increases. This had an effect on technical interest, net of reinsurance of a reduction of DKK 166m. Hence, total technical interest, net of reinsurance is DKK 160m lower under IFRS.
presentation). The third element results from the effects on results due to timing of income recognition as a result of discounting.
As claims are recognised on a discounted basis in the financial statements, income is recognised earlier. This effect is reflected in
Decomposition of the movement of the discounting on claims provisions within an accounting period
The classification of the effects of discounting in the income statement as described above is prescribed under Danish FSA and allowed under IFRS. The purpose of the classification in the income statement of the three elements of discounting is to accomplish offsetting of similar types of interest income and interest expense. The interest rate used to discount claims provisions is the same interest rate used to calculate technical interest. As such, the accretion of the discount is classified in technical interest to offset the interest income calculated. The interest on investment assets is premarily earned on fixed rate instruments. Therefore, as interest rates move, the marking to market of the fair value of investment assets creates gains and losses. The portion of the discount related to changes in yield curve moves with the gains and losses on investment assets. The timing effect discussed above is also related to technical interest and is therefore classified within technical result.
Under IFRS, claims incurred, net of reinsurance are treated the same as under Danish GAAP except that claims handling costs are included in this item, and accruals for claims handling costs are also included.
As discussed above in Section 3 “Technical interest, net of reinsurance”, a difference as a result of the implementation of IFRS
results from discounting of claims provisions in the form of the timing of recognition of income. As claims are recognised on a discounted basis in the financial statements, income is recognised earlier. In 2004 the total difference on claims incurred, net of reinsurance as a result of discounting amounted to DKK 283m.
Other -6 5 Change in other insurance provisions, net of reinsurance
Under Danish GAAP, changes in other insurance provisions, net of reinsurance represented changes in other insurance provisions for risk not yet run off, which represented the estimated amount of future expected expenses and claims in excess of provisions for unearned and future premiums in respect of potential claims within the cover period of the insurances.
Under IFRS, the amounts included under “Change in other insurance provisions, net of reinsurance” reclassified under earned premiums, net of reinsurance.
The effect of the IFRS implementation is a reclassification of DKK 25m from “Change in other insurance provision, net of reinsurance” to earned premiums, net of reinsurance.
TrygVesta have with affinity groups where the amount reimbursed depends on the claims record, and for which the criteria for payment have been determined prior to the financial year or when the business was written.
Under IFRS, insurance operating expenses, net of reinsurance are the same as under Danish GAAP except that direct and indirect claims handling costs are reclassified and moved to claims incurred, net of reinsurance.
IAS 19 was implemented, which permits the option of recognising actuarial gains and losses in full in equity rather than the income statement in the period in which they occur. Actuarial gains and losses may be triggered (for example, by changes in the discount rate, increases in salaries, mortality and differences between the actual return on plan assets and the expected return on plan assets). The change in accounting practice improves the result for 2004 by DKK 47m since these amounts are no longer reflected in the income statement.
Under Danish GAAP, equalisation provisions are used to equalise fluctuations in future profits for areas which historically have been subject to substantial random fluctuations. For the majority of these provisions, their use to offset claims can only occur if the relevant losses exceed a predetermined size. Examples of these claims include windstorms, natural perils, credit insurance and workers’ compensation. The size and the criteria for establishing equalisation provisions were either determined by legislation or determined by actuarial calculations. In periods where such claims occur, the provisions are utilized as claims are made.
Because equalisation provisions are prohibited under IFRS, the difference recognised in the income statement for the year ended
December 31, 2004 represents the write-off to shareholders’ equity of the amount recognised in the current year under Danish
Under Danish GAAP, income from investment assets consisted of interest, dividends, realized gains/losses relating to investment assets, together with rental income and property expenses. Under Danish GAAP, a calculated “internal rent” on owner-occupied properties reduced expenses and was reclassified to increase total insurance operating expenses, net of reinsurance.
Under IFRS, income from investment assets are the same, except internal rent is not recognised.
Under IFRS, unrealized gains and losses are calculated in the same way as under Danish GAAP, and includes the effect of discounting all claims reserves. Under IFRS TrygVesta have elected to use a yield curve which TrygVesta believe is a more precise method since it allows for greater matching of the rate used to the relevant period, except for annuity reserves for Danish workers’ compensation for which TrygVesta use a fixed rate of 1%.
reconciliation of the transition from danish gaap to ifrS as of december 31, 2004 dKKm
Subordinate loan capital 700 0 700 16 Technical provisions, net of reinsurance 23,467 1,745 25,212 17 Provisions for other risks and charges 169 1,203 1,372
The largest component of investment assets is bonds. Under Danish GAAP, purchases and sales of investments were recognised on settlement date and purchases and sales not yet settled were off-balance sheet items until the settlement date. Under Danish
GAAP, investments were measured at fair value as of the balance sheet date based on the average quoted market price on that date and any unrealized gains and losses recognised in unrealized gains and losses on investment assets.
Due to the change in recognition from settlement date under Danish GAAP to trade date under IFRS TrygVesta recognised DKK
1,306m of additional investments on December 31, 2004. This was due to an increased volume of trading activity that occurs at the end of the year. The change from measuring investments by the average quoted market price to the closing quoted market price totals DKK 3m.
As a result of the implementation of IFRS, the balance of prepaid tax of DKK 271m as of December 31, 2004 is reclassified from amounts owing to other assets.
Under Danish GAAP, other assets includes deferred tax assets. However, under Danish GAAP other assets did not include amounts relating to net prepaid income tax (prepaid income tax less income taxes payable).
Under IFRS, other assets include net prepaid income tax. IFRS requires deferred tax assets and deferred tax liabilities to be presented net in the balance sheet. Since the net position at December 31, 2004 is a net deferred tax liability, deferred tax assets are reclassified to provisions for other risks and charges.
Under Danish GAAP technical provisions, net of reinsurance consisted of the following balances: • Provisions for unearned premiums, net of reinsurance
IFRS provides an option to discount all insurance liabilities. The Danish FSA requires the insurance liabilities to be discounted if the effect thereof is material. Under IFRS TrygVesta are now discounting all of their provisions for claims. A yield curve is used and select discount rates commensurate with the estimated cash flow of each of TrygVestas provisions to calculate TrygVestas discounted insurance liabilities.
Under Danish GAAP, provisions for claims, net of reinsurance represented amounts to cover claims incurred before the balance sheet date, whether reported or not, but did not include any provision for claims handling costs. Under IFRS, provisions for claims, net of reinsurance are treated the same as for Danish GAAP except that accrued claims handling costs are included in this item.
The effect at December 31, 2004 of including discounted provisions for claims handling costs in provisions for claims, net of reinsurance as a result of the implementation of IFRS amounted to DKK 502m.
Under Danish GAAP, equalisation provisions represented reserves recorded to equalise fluctuations in future profits for areas which historically have been subject to substantial random fluctuations. For the majority of these provisions, their use to offset claims can only occur if the relevant losses exceed a predetermined size. These provisions are actuarially determined. In periods where such losses occur, the provisions were utilized as claims were made. Equalisation provisions were presented net of reinsurance.
• The difference between provisions for insurance contracts regarding workers' compensations under the Danish FSA made up at discount rates of respectively 2% and 2.75%
TrygVesta collect premiums regarding the Norwegian Pool and pay out claims relating to natural disasters (under the definition of the Norwegian Pool). If the collected premiums exceed TrygVestas proportional share of the total claims, under Danish GAAP the difference was recorded under “Change in equalisation provisions”. The other equalisation provisions described above were also recorded under “Change in equalisation provisions”.
The provisions relating to the Norwegian Pool, credit and guarantee, and storm and large losses in the amount of DKK 1,411m have been adjusted to shareholders’ equity.
Under Danish GAAP, bonus and premium rebates represent anticipated and reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been determined prior to the financial year or when the business was written.
Under IFRS, a provision has been made regarding a liability towards affinity groups and changes to this liability has been included in the bonus and premium rebates. This provision has been recorded at DKK 108m.
Under Danish GAAP TrygVesta were allowed to net the reinsurers' share of technical provisions in technical provisions, net of reinsurance.
Under Danish GAAP, provisions for self-insurance represented TrygVesta estimated incurred liabilities for items TrygVesta selfinsure. TrygVesta classified these item under technical provisions, net of reinsurance.
Under IFRS, the accounting for self-insurance provisions is the same as Danish GAAP except that TrygVesta classify the liability within provisions for other risks and charges.
As a result of the implementation of IFRS, TrygVesta recognised deferred taxes on contingency funds of DKK 574m. TrygVesta have also reclassified deferred tax assets of DKK 251m from other assets to provisions for other risks and changes. The implementation of IFRS effected the book basis of several items on balance sheet. Below is a summary of all changes in deferred taxes as a result of the implementation of IFRS.
Discounting of deferred tax; deferred tax on equities, real estate, etc. 154
Under Danish GAAP, provisions for self insurance represented estimated incurred liabilities for items that TrygVesta self-insure.
As a result of the implementation of IFRS TrygVesta have reclassified self-insurance provisions of DKK 38m from technical provisions, net of reinsurance to provisions for other risks and charges.
Under IFRS, purchases and sales of bonds are recognised on the trade date and measured by the closing quoted market price on that balance sheet date.
1,309m of additional investments on December 31, 2004. This was due to increased volume of trading activity that occurs at the end of the year.
As a result of the implementation of IFRS, DKK 79m of income taxes payable has been reclassified as of December 31, 2004 to other assets.
Under Danish GAAP, TrygVesta calculated the provision for holiday allowances based on those amounts for the current holiday season and an estimate for accruals for prior years.
Under IFRS, provisions for holiday allowances includes a more accurate accrual of prior years’ amounts and additional amounts regarding senior employees.
As a result of the implementation of IFRS, certain accounts are recorded under different line items in the income statement. The most significant effect of these presentational differences occur within the income statement subtotals for “Return on investment activities before transfer to insurance activities” under Danish GAAP, which is referred to as “Total return on investment activities” under IFRS. The following provides a “mapping” of the presentational differences from Danish GAAP to IFRS.
3 Realized gains from investment assets 97 -97 total income from investment assets 1,021 924 4 Unrealized gains or losses on investment assets 127 -127
3 “Realized gains from investment assets” under Danish GAAP is included in “Income from investments assets”, whereas under IFRS it is included in “Value adjustments”.
4 “Unrealized gains and losses from investment assets” under Danish GAAP is shown separately, whereas under IFRS it is included in “Value adjustments”.
7 “Investment management charges” under Danish GAAP is included in “Income from investment assets”, whereas under IFRS it is shown separately.
Investment management charges -3 -3 total return on investment business 2,056 1,451 profit before tax 2,019 1,419 profit/loss on continuing business 2,037 1,416 5 Profit/loss on discontinued and divested business -28 -75 profit/loss for the year 2,009 1,341 proposed distribution of the profit for the year: Transferred to Net revaluation reserve as per the equity method 1,409 477
Loans to subsidiaries 0 600 7 Investments in associates 14 14 total investments in subsidiaries and associates 8,939 8,078
Cash in hand and at bank 8 1 total other financial investment assets 30 78 total investment assets 8,969 8,156
Current tax asset 21 0 9 Deferred tax asset 0 3 total other assets 21 3
Vesta Forsikring AS has in its consolidated financial statements included provisions for contingency funds of NOK 2,251m under provisions for insurance contracts. In the consolidation, these provisions, due to their nature as additional provisions, are included in shareholders’ equity
At the Annual General Meeting, the Supervisory Board will show management's future share programme based on a share element for the Group Executive Management and key employees with a view to establishing incentives relevant to ensure competitive remuneration of the Group
Tax on non-taxable income and expenses -1 -2 effective tax rate % %
Tax on non-taxable income and expenses -2 -4 5 profit/loss on discontinued and divested business
Adjustment, beginning of year 0 178 revaluations and impairment writedowns at net asset value
At 31 December 2004, TrygVesta A/S had a subordinate loan of DKK 700m, for which the lender is
Change in deferred tax taken to the income statement -3 -3 non-capitalised tax loss
The loss in TrygVesta A/S can only be utilised in TrygVesta A/S.
At 31 December 2004, Tryg Vesta A/S had three floating-rate loans totalling DKK 600m, which were repaid in 2005.
The Danish companies in TrygVesta are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for payment of imposed corporation tax. From 2005, the companies are liable for the company's own share of the imposed corporation tax.
registered profit/loss ownership capital equity dKKm office country for 2005 share in % 31.12.2005 31.12.2005
ApS KBIL 9 nr. 2032 Ballerup Denmark 0 100 0 0
TrygVesta IT A/S Ballerup Denmark -2 100 2 49 group overview
Profit/loss for the period before tax 426 252 1,530 1,102 1,245 839 -185 0
Business ceded as a percentage of gross premiums 6.8 3.8 5.2 6.4 6.9 7.8 9.2 3.1
Number of full-time employees, at the end of the period 1,431 1,454 1,454 1,460 1,374 1,272 finnish general insurance
Business ceded as a percentage of gross premiums 2.6 -3.6 0.2 0.2 0.2 1.0 18.7 0.0
Number of full-time employees, at the end of the period 48 51 51 42 35 14 financial highlightS and Key ratioS by geography
miKael olufSen, chairman, born 1943 chairman of the Supervisory board of
The Danish Rheumatism Association vice chairman of the Supervisory board of
Tryg i Danmark smba per SKov, deputy chairman, born 1941 chairman of the Supervisory board of
The Group Executive Management of TrygVesta comprises Ms Christine Bosse, CEO of Tryg and Group CEO
Mr Erik Gjellestad, CEO of Vesta, Mr Stig Ellkier-Pedersen and Mr Peter Falkenham.
The Danish Welfare Commission morten hÜbbe, group cfo, born 1972 member of the executive management of
Stig ellKier-pederSen, member of the group executive management, born 1947 member of the executive management of
FA, Finanssektorens Arbejdsgiverforening peter falKenham, member of the group executive management, born 1958 member of the executive management of
The financial highlights and key ratios of TrygVesta have been prepared in accordance with the executive order issued by the Danish Financial Supervisory
Authority on the presentation of financial reports by insurance companies and profession-specific pension funds and also comply with “Recommendations
& Financial Ratios 2005” issued by the Danish Society of Financial Analysts except for per share data, which are based on 68,000,000 shares as if such number of shares was outstanding during the periods presented.
The 68,000,000 shares reflect the number of shares after giving effect to the four-to-one share split approved by the shareholders at the extraordinary general meeting held on 21 September 2005. The section
gross claims ratio is calculated as the ratio of gross claims incurred to gross earned premiums.
Gross earned premiums business ceded as a percentage of gross premiums is calculated as the ratio of the result of business ceded to gross earned premiums.
return on equity is calculated as the profit for the year as a percentage of the average shareholders’ equity.
Tens of thousands of unfortunate and worried customers called in to report claims.
Tryg’s claims centres were prepared and had called in extra staff.
Claims assessors already on site deemed that additional assistance was required. Claims handlers, customer advisers and sales agents stepped in to assist.
Some three weeks after the storm, Tryg had received 44,924 claims involving a total cost of DKK 557m.
Tryg had now received 49,806 claims. 47% of them had been settled, the total cost being DKK 658.4m.
51,326 claims had been reported, and 62% of them had been settled.
The number of claims had reached 52,123, of which 75% had been settled.
The remaining 20% had not been settled mainly due to the heavy workload among builders or because they involved major damage that takes time to repair.
In most cases, claims assessors were able to give the go-ahead to repair the damaged buildings on site.
Heavy rains in the western part of Norway resulted in new record precipitation of 159 millimetres in just 24 hours, triggering flooding and a mudslide that ravaged four houses.
Rescue personnel were on site within a few minutes. In spite of their efforts, three people were killed and five injured and taken to hospital. 50 persons had to be evacuated from their homes.
Claims assessors began their work. Geological investigations revealed a risk of further mudslides.
They could pass on the information to customers fast, including what customers could do themselves to contain the loss, various insurance agreements, when claims assessors could inspect the damage, and how soon their claim could be finally made up.
14.11.05 / fire ravaged 69 flatS on the iSland of amager
Late in the evening, 69 flats in a five-floor residential property on Amager were destroyed by a violent fire. The fire broke out in a flat on the fifth floor. Hardly anything could be saved, and the fire made 200 people homeless.
Meeting with the people from the affected property at the local school. The meeting was attended by 125 people. Tryg’s claims handlers were present and answered many questions, mainly on immediate temporary rehousing for exampel in hotels.
The Copenhagen Police had not yet completed their technical investigations on the cause of the fire. Work to clear the site continued.
Technology ruled out electrical installations as the cause. Meetings with demolition firm, bricklayers and engineers. Demolition started.
From one moment to the next, 200 became homeless and were left without their clothes or other belongings. The uncertainty was the worst part, and everybody was deeply affected by the tragic event. Tryg therefore offered psychological crisis therapy. Many of the residents accepted the offer to deal with their fears, feelings and thoughts.
However, rehousing was part of the property’s insurance, and all residents were rehoused within a few days. In addition, our claims handlers maintained ongoing contact with the customers. Even though all residents had been rehoused, it was important for them to follow the process continuously and to know when they could return to their real homes.