Management’s review 3 Tryg at a glance 4 Business areas 5 Income overview 6 Introduction by Chairman and Group CEO
Great diversity of products We offer a broad range of insurance products for private individuals as well as businesses.
Copenhagen experienced the largest fire in its history. The fire heightened public awareness of the need to insure oneself
Tryg presented financial targets and customer targets for 2017 at Capital Markets Day
TryghedsGruppen decided to pay out a bonus to its members: 8% (DKK 696m)
Tryg split its share 1:5, meaning each share with a nominal value of DKK 25 was replaced by 5 shares with a nominal value of DKK 5
For the second year, running, Trygheds Gruppen paid out its member bonus corres ponding to 8% of the premium paid for 2016
Tryg presented new financial targets and customer targets for 2020 at Capital Markets Day
Annual report 2017 | Tryg A/S | 3Contents – Management’s review
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, dog and health.
Corporate provides insurance products including property, liability, workers’ compensation, transport, group life etc. to corporate custom­ ers under the brand Tryg in Denmark and Norway and Moderna in Sweden. Tryg is part of the global network AXA Corporate solutions.
Profit/loss on gross business 796 457 3,582 3,351 1,695 3,313 2,085 Profit/loss on ceded business -170 -140 -779 -951 710 -341 349 Insurance technical interest, net of reinsurance -4 -3 -14 -10 18 60 62
Profit/loss on continuing business 527 560 2,519 2,472 1,920 2,547 2,373 Profit/loss on discontinued and divested business after tax 0 0 -2 -1 49 10 -4
Claims ratio, net of ceded business 72.3 75.1 70.4 71.0 71.5 69.6 72.1
Run-off, net of reinsurance (%) -4.9 -6.7 -5.4 -7.0 -6.7 -6.1 -5.0 Large claims, net of reinsurance (%) 1.8 4.4 1.4 2.2 3.4 3.1 2.1 Weather claims, net of reinsurance (%) 2.8 2.6 1.7 2.0 3.4 2.4 3.2
Combined ratio on business areas Private 82.0 83.6 82.1 83.8 85.4 82.5 86.0 a) Ordinary dividend per share in 2017 includes dividends paid out in April, July and October of DKK 1.60 and proposed ordinary dividend of DKK 1.60 to be paid on 21 March 2018.
Annual report 2017 | Tryg A/S | 5Contents – Management’s review
New targets In November 2017, Tryg announced new ambitious 2020 targets, which were subsequently updated following the acquisition of Alka: a technical result of DKK 3,300m, a combined ratio of 86 or less, an expense ratio of around 14 and a return on equity of 21% or above after tax.
High customer satisfaction is important to achieving our financial targets, and Tryg therefore presented a new set of customer satisfaction targets. Tryg also wants to increase awareness of TryghedsGruppen’s member bonus, which was paid out to customers in Denmark for the second year running.
Stable and increasing dividend for shareholders Tryg's dividend policy seeks to distribute a steadily increasing annual dividend. The Supervisory Board therefore proposes a dividend of DKK 1.60 per share for Q4 2017, meaning that a total of DKK 6.40 (DKK 6.20 in 2016) per share has been paid out for 2017. The Supervisory Board has also proposed an extra ordinary dividend of DKK 1bn to be paid in 2018.
A new purpose for Tryg and a new strategy In 2017, the Supervisory Board and the Executive Board initiated a process aimed at defining a purpose for Tryg: As the world changes, we make it easier to be tryg. For many years to come, this will be our guiding principle, and the strategy for 2018-2020 is the first step towards fulfilling our purpose.
February Tryg acquired OBOS Tryg acquired OBOS Forsikring in Norway with a portfolio of approximately NOK 170m and 10,000 insurance customers. Tryg sees a considerable potential for selling insurance products to OBOS’s 416,800 members.
March First fully digitalised claim processed Tryg in Norway processed its first fully automated travel insurance claim. A customer reported a claim online; the claim was automatically assessed without the involvement of any employees; and the money was transferred to the customer’s account within a few seconds.
New, innovative car insurance in Sweden Moderna, Tryg’s Swedish branch, launched a new and innovative car insurance product. The insurance price is based on type of car, mileage and driving style, and independent of traditional parameters such as age and years of holding a driver’s licence.
Quarterly dividend Tryg paid out a quarterly dividend of DKK 1.60 per share for the first time, moving from half-year distribution to quarterly distribution as of Q1 2017.
August Tryg’s dog insurance – ‘best in test’ Tryg’s dog insurance was named ‘best in test’ by the Danish Consumer Council’s magazine TÆNK. Tryg won by offering some of the best coverage at the lowest price and with the same excess as other companies.
Smart Flex digital car insurance Moderna launched Smart Flex car insurance designed for sensible drivers with below-average mileage needs. With an app and a dongle installed in the car, drivers are able to measure and influence their driving style and thereby reduce the price of their insurance.
New websites tryg.dk and tryg.no Tryg launched two new and improved customer websites: tryg.dk and tryg.no. The design of the new websites is more modern, user-friendly and simple, making it easier for customers to buy insurance from mobile phones, tablets and computers.
Online meetings with customers Tryg in Denmark began offering online video meetings with customers, which makes it possible for customers to have face-to-face meetings with Tryg’s customer advisers from home or work, from their cottage in the country, or while on holiday.
September TryghedsGruppen’s member bonus For the second year running, Tryg’s majority shareholder TryghedsGruppen paid out a member bonus corresponding to 8% of the premium paid to Tryg for 2016, or the payout of DKK 700m in total to TryghedsGruppen ’s members who are Tryg’s Danish customers.
New updated insurance package Private Denmark launched a new updated insurance package which includes an app-controlled alarm. The alarm helps customers detect and limit damage to their property. The customers can choose between six different alarm components related to preventing break-ins, fire, indoor climate and water sensors. Read more at tryg.dk.
December Tryg acquired Alka On 4 December, Tryg concluded an agreement to acquire Alka Forsikring, the eighth-largest non-life insurance company in Denmark with a market share of approximately 6% of the private market. The transaction is expected to be closed in H1 2018 following a period of regulatory approval.
and increased governmental attention have sharply reduced the number of people killed or seriously injured on the roads. This could imply a potential reduction in the risk pool for motor insurers, and the consequences of this continue to be greatly debated. Recently, it has, however, become clear that newer cars are also significantly more expensive to repair due to the many built-in new technologies; repairing a bumper with a radar is significantly more expensive than just repairing a bumper. New risks are also emerging, creating various growth opportunities. This is particularly true for the insurance of people, pets and tech - nology. Tryg has been actively acquiring portfolios in these areas and developing new child insurance, pet insurance and cyber insurance products.
At a Capital Markets Day (CMD) hosted in London on 20 November 2017, Tryg launched new financial targets. The new financial targets are underpinned by four key strategic themes: claims excellence, digital empowerment of customers, product & service innovation and distribution efficiency, which are all described in more detail in the ‘Targets and strategy section’ on page 13. The financial targets were updated in December in connection with Tryg’s acquisition of Alka.
Tryg expects growth in gross premium income of 0-2% in local currencies in 2018 (excluding the acquisition of Alka), which is unchanged from 2017. Starting 1 January 2018, the FDM portfolio will be consolidated, while the OBOS portfolio in Norway was consolidated starting June 2017. The exposure to the Corporate segment is likely to be reduced, driven by an increased focus on profitability.
Tryg’s reserves position remains strong. At the CMD in November 2017, it was revealed that run-off gains are expected to be between 3% and 5% in 2020. Tryg’s systematic claims- reserving approach continues to include a margin of approximately 3.0% on best estimate.
In 2018, weather claims net of reinsurance and large claims are expected to be DKK 500m and DKK 550m, respectively, which is unchanged compared to previous years.
Employee development is a key priority in Tryg. We are committed to offering relevant career paths and to constantly offering the right opportunities for professional and personal development, for example in the form of special rotation programmes, whereby selected employees are moved to other departments and new challenging job functions as a way of developing their competencies.
Tryg delivered a strong result in 2017 and presented new ambitious financial targets for 2018-2020.
New purpose Technological developments are impacting our society at a speed that was unimaginable just a few years ago. These sweeping changes impact individuals and businesses and led Tryg to seek a new purpose which could simplify our customer offering. The new purpose ‘As the world changes, we make it easier to be tryga)’ is aligned with Tryg’s new strategy and is very meaningful to all Tryg employees.
We believe that this purpose will clarify direction and will unite and motivate Tryg’s employees, while differentiating Tryg in the market. The word ‘tryg’ means feeling protected and cared for, which is exactly what insurance is about.
Our employees – our most important resource Our employees are our most important resource and key to pursuing our purpose of making it easier to be ‘tryg’. All our employees must feel that they have an opportunity to be successful.
Segments: Private, Commercial and Corporate Geography: Denmark, Norway and Sweden a) ‘Tryg’ means: feeling protected and cared for.
Annual report 2017 | Tryg A/S | 10Contents – Management’s review
A very important initiative has been capturing feedback from customers who have contacted Tryg, whether in connection with customer service or claims handling, as a way of further improving the customer experience. Tryg has a strong focus on aligning targets and KPIs to the performance of individual employees and has a very strong system for ensuring this alignment. One element in the success culture is a systematic people review process for providing feedback and acknowledging the performance of every single employee.
Follow-up on 2017 targets In November 2014, Tryg communicated a set of financial targets for 2017, which have been fulfilled.
Next level pricing Next level pricing was Tryg’s most important initiative in the 2015-2017 period. The target was to be ahead of the competition for at least 25% of our products, and we estimate that the target has been reached. In 2017, Tryg continued to develop new products based on more advanced pricing models, but the most important initiative was especially the conversion of our affinity agreements to our newest products.
New targets and strategic initiatives for 2018-2020 On 20 November 2017, Tryg presented a set of new targets for 2020. The targets were later updated following the acquisition of Alkaa). The targets for 2020 are supported by four strategic initiatives, described on page 13.
To meet the financial targets and improve customer experience, Tryg decided to invest an additional DKK 500m in IT, which will be recognised as an intangible asset.
Digitalisation The development of new digital solutions has been very important in the three-year strategy CMD period 2014-2017 and will be even more important in the next three years. Focus has primarily been on direct private customers through self-service solutions for both customer service and claims handling. In 2017, a straight-through process for claims handling was developed in Norway, allowing digital claims handling in three seconds and without the involvement of employees.
the Transactional Net Promotor Score (TNPS). The target for 2020 is 70, which equates to a 13% improvement from the current level.
Claims excellence is targeted to reduce claims costs by DKK 600m. The main initiatives relate to procurement, fraud and claims steering through continued focus on exploiting Tryg’s procurement power and extending this to areas that have not been targeted yet. Fraud is an important area, and through the use of technology and improved competencies, Tryg will be able to reduce the claims level. Tryg has many agreements with third-party suppliers, and by increasing the use of such agreements, it will be possible to reduce claims costs.
Digital empowerment of customers will be of paramount importance in future, and Tryg is therefore investing heavily in this area. Tryg’s target for 2020 is 50% straight-through processing for claims and
• Technical result: DKK 3.3bn • Combined ratio: ≤ 86 • Expense ratio: ~14 • RoE: ≥21
Dividend policy • Targeting a nominal, stable increase in dividend • Extraordinary dividend to further adjust the capital structure
Distribution efficiency is targeted to have an impact of DKK 150m in 2020. Tryg has been working intensively on reducing costs in the claims and administration part of the business. Efficiency increases through new technological solutions, product simplification and packaging together with a strong focus on digital channels will be the main initiatives supporting this target.
Impact of Alka acquisition The Alka acquisition led to an increase in the technical result target from DKK 2,800m presented at the CMD to DKK 3,300m after the acquisition. The higher technical result relates to improvements both in Tryg and in the Alka business for claims, procurement, distribution and backoffice costs. These improvements have not been included in the described strategic initiatives.
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At the Capital Markets Day in 2014, Tryg disclosed customer targets linked to the financial targets. As communicated at the CMD in November 2017, Tryg reached the NPS for the Group, while the target for a 5 percentage point increase in the number of customers with three or more products was reached in Denmark, but not in Norway although we also saw a strong improvement in the
• Combined ratio of 84.4 (85.3a) ) • Underlying claims ratio improved in both Private and for the Group • Expense ratio of 14.0 (14.8a) ) • FY dividend of DKK 6.40 per share and extraordinary dividend of DKK 3.31 per share a) Adjusted for one-offs
Results 2017 A profit before tax of DKK 3,239m (DKK 3,220m) was reported, driven primarily by a technical result of DKK 2,789m (DKK 2,390m) and an investment return of DKK 527m (DKK 987m). The combined ratio was 84.4 (86.7), driven by a claims ratio of 70.4 and an expense ratio of 14.0. The overall impact of large claims, weather claims and run-offs was close to 2016. The return on equity (after tax) was 28.8% (26.2%). Price adjustments of around 3% and the efficiency programme had a positive impact on results, as shown by an improvement in the underlying claims ratio for the full year, both for the private segment and at group level. Premium growth was 1.7%(0.1%), driven primarily by the private business in Denmark and small bolt-on acquisitions. The 2016 technical result was impacted by a one-off of DKK 250m, related primarily to write-downs of DKK 250m on intangibles and an extraordinary capital gain of DKK 500m on the sale of properties which boosted investment income.
In 2017, Danish customers received their second member bonus from TryghedsGruppen (Tryg’s 60% majority shareholder). The 8% bonus has been welcomed by customers, and Tryg expects the bonus to provide an important competitive advantage by boosting customer loyalty and customer targets. TryghedsGruppen has announced that the member bonus is a recurring payment although the level of bonus paid will be decided yearly.
In 2017, Private reported premium growth of 1.1%, with Private Denmark reporting healthy growth of 3.0%, while Private Norway reported a decline in premium income of 1.5%, but based on improved developments in the course of the year. The member bonus from TryghedsGruppen supported developments in Denmark, as did product conversions and price adjustments. The decline seen in Private Norway was attributable to the competitive situation in the Norwegian market and a weakened economic situation in western Norway. It should be added that, Private Norway has posted a growing number of customers in the second half of 2017, hence a stabilisation, or a modest top-line growth, is expected in 2018.
Premium income in Commercial was down 0.7% (-1.3%) in local currencies; a slightly positive development in Norway was offset by a more negative development in the Danish part of Commercial. The inclusion of the OBOS portfolio boosted the top-line development in Norway, while Tryg is strongly focused on improving retention levels and striking a better balance between sales and loss of business in the Danish part of Commercial. The development in customer numbers in both Denmark and Norway improved in the last part of the year.
Corporate premium income was up 2.1% (-1.2%) in local currencies, which is primarily ascribable to fronting agreements in the Swedish part of our Corporate business. In Corporate Denmark, the development in premium income was flat due to a generally competitive market, a positive impact from the member bonus model, which has been very positively received by this segment, and strong developments for the guarantee business. In Norway, premium income was roughly stable due to a very competitive market, which among other things, led to the loss of a number of large customers.
Initiatives introduced in 2016 focused on cutting down on back-office functions with the aim of reducing expense levels and increasing distribution power. In Denmark, there was an increased focus on integrating the customer service and claims handling functions. The most substantial improvement was seen in Norway, where the expense ratio dropped from 15.2 to 14.7 as a result of structural initiatives, implemented primarily in 2016. These initiatives contributed to improving the expense ratio to the current level of 14. The efficiency programme contributed to reducing expenses by DKK 125m in 2017.
In 2017, the number of employees was 3,373 against 3,264 at the end of 2016. The acquisition of OBOS added 24 employees to the Group, while new trainees were taken on for the integrated customer service and claims handling functions.
Investment return The investment return totalled DKK 527m (DKK 987m, or DKK 487m adjusted for the capital gain on the sale of properties).
Capital markets developed positively in 2017. Equities and other ‘risky assets’ posted solid returns despite some geo-political turbulence. The prolonged period of very low interest rate levels remains supportive of equities as an asset class. The CBOE Volatility Index (VIX), a key measure of market expectations of near-term volatility in equity markets, remains at one of the lowest levels seen in the past ten years. Equities returned approximately 16%, emerging-market debt (a small asset class for Tryg) returned just below 9%, while investment-grade bonds returned 4%.
Risky assets boosted the overall returns in the free portfolio, while both components of the match portfolio, – the ‘regulatory deviation’ and the ‘performance result’ – also posted strong results. The ‘regulatory deviation’ made a positive contribution of DKK 98m (DKK 47m) as the yield difference between Danish and Euro swap rates decreased, boosting the total return. The ‘performance result’ made a positive contribution of DKK 129m (DKK 163m) as Nordic covered-bond spreads narrowed against the swap curve.
The overall investment income was more than three times higher than the expected normalised level.
Capital position At the end of 2017, Tryg’s solvency capital requirement (SCR) was DKK 4,684m (DKK 5,077m). The reduction was driven primarily by a generally lower market risk (including a lower property exposure), the inclusion of Danish Workers’ Compensation in the partial internal model and currency movements. At the end of the year, own funds were DKK 13,162m (DKK 9,850m). This includes DKK 4bn raised for the acquisition of Alka, the proposed Q4 dividend and the announced extraordinary dividend of DKK 1bn. During the year, own funds were mostly impacted positively by the DKK 4bn raised for the Alka acquisition as well as net profits, and negatively by ordinary and extraordinary dividends. At year-end 2017, the solvency ratio was 281, or 196 when adjusted for the DKK 4bn raised for the Alka acquisition.
The Supervisory Board regularly assesses the need for capital adjustments. In 2017, Tryg decided to announce the payment of DKK 1bn in extraordinary dividend after assessing the company’s capital plan, in which the SCR is projected on the basis of Tryg’s forecasts. The projections include initiatives set out in the company’s strategy for the coming years, and also the most significant risks identified by the company. The adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
Dividend policy According to Tryg’s dividend policy, the aim is for the dividend to be steadily increasing in nominal terms on a full-year basis. Tryg introduced quarterly dividends in 2017. The payment has been DKK 1.60 per share per quarter, or a total of DKK 6.40 (DKK 6.20) for the full year. This equates to total dividend payments of DKK 1,827m, or 73% of the profit for the year. At the Capital Markets Day in November 2017, Tryg announced an extraordinary dividend of DKK 1bn to be paid after the AGM in March 2018.
Moody’s rating Following the acquisition of Alka in December 2017, Moody’s affirmed Tryg’s ‘A1’ insurance financial strength rating (IFSR) with a stable outlook. In its press release, Moody’s noted that “the affirmation reflects the beneficial impact of the Alka acquisition on Tryg’s market position in the Danish non-life market.
Annual report 2017 | Tryg A/S | 16Contents – Management’s review
Furthermore, thanks to the good underwriting performance of Alka in recent years, Moody’s expects Tryg’s strong profitability to continue. Given the funding mix of the transaction and that Alka has no debt on its balance sheet, the pro-forma financial leverage of Tryg will decline. More negatively, the acquisition will generate very large goodwill and will meaningfully reduce Tryg’s solvency ratio albeit from a relatively high level.”
Expenses The expense ratio was 13.7 (14.4 adjusted for one-offs). The efficiency programme contributed DKK 37m in the quarter, corresponding to an impact of 0.8 percentage points on the expense ratio. The reduction in the expense ratio was most significant for the Norwegian business based on the structural initiatives in this part of the business.
The number of employees increased in the quarter, up 43, equating to 3,373 employees at the end of the year.
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In Norway, premium income declined by 1.5% in local currencies, due mainly to the competitive market situation and a general reduction in retention rates. However, we saw an increase in the number of customer in the last quarter, due partly to sales to OBOS members. Customer focus is very important both in Denmark and in Norway, as evidenced by our consistently high Net Promoter Score (NPS), which reached 25 in 2017. Awareness of the member bonus from TryghedsGruppen is still increasing and reached 79% after the bonus payments in September 2017. This also means that there is a potential for increasing loyalty by boosting awareness of the member bonus model. The retention rate in Denmark increased from 89.7 to 90.2, while in Norway the retention rate dropped from 86.4 to 85.8, notably below the general decline in retention rates in the market. The number of customers with three or more products increased from 57.2% to 60.7%, with significant increases seen in both Denmark and Norway. The increase in customer numbers was strongly supported by the new package concept and digital solutions for partner agreements.
Profit/loss on gross business 454 407 1,783 1,566 Profit/loss on ceded business -57 -40 -211 -158 Insurance technical interest, net of reinsurance -3 -1 -7 -4
Key ratios Premium growth in local currencies 1.1 1.3 1.1 0.8
Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the Internet, Tryg’s own agents, franchisees (Norway), interest organisations, car dealers, estate agents and Nordea branches.
efficiency. In 2017, the expense ratio was most significantly reduced in the Norwegian part of Private, where the impact from the structural initiatives implemented in Norway led to a reduction in employee numbers. In both Denmark and Norway, the integration of the customer service and claims handling functions positively impacted expense levels.
In 2017, Private Denmark launched a new car insurance product for young drivers under the age of 30. The driver may be rewarded with a cheaper insurance price of up to 30% depending on his/her driving style and behaviour.
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Claims The gross claims ratio totalled 62.7 (61.1), with a claims ratio, net of ceded business, of 65.4 (65.1). The higher claims level was mainly due to a higher level of large claims, but also a slightly higher run-off result. Generally speaking, the claims level for the Commercial area is acceptable, which has been accomplished through selected price and pruning initiatives as and when needed. In 2017, selected price initiatives for especially property were implemented.
Profit/loss on gross business 174 245 774 850 Profit/loss on ceded business -36 -78 -106 -154 Insurance technical interest, net of reinsurance 0 -1 -1 -1
Key ratios Premium growth in local currencies 2.3 -0.8 -0.7 -1.3
Combined ratio exclusive of run-off 94.9 92.2 91.1 89.9 Run-off, net of reinsurance (%) -9.0 -9.4 -8.5 -7.8 Large claims, net of reinsurance (%) 4.8 2.8 3.1 2.2 Weather claims, net of reinsurance (%) 3.9 1.9 1.8 1.6
The business area accounts for 22% of the Group’s total premium income.
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Results Q4 2017 The technical result totalled DKK 138m (DKK 166m), with a combined ratio of 85.9 (82.8). The result was negatively affected by a much higher level of weather claims and large claims, but also a high level of run-off gains. Premium growth was positive by 2.3% (-0.8%) due to the OBOS acquisition, and the expense level improved to 15.9 (16.5).
Key ratios Premium growth in local currencies 3.0 0.9 2.1 -1.2
Premiums Gross premium income increased by 2.1% (-1.2%) in local currencies. A slight increase of around 1.0% was seen in Denmark due to a positive development for the Guarantee business Tryg Garanti, whereas in Norway, premium income declined by 3.6% in local currencies due to the loss of a number of large customers and a competitive market situation, especially for the broker channel. In Sweden, which accounts for only 20% of the total Corporate business, premium growth was 20% due to fronting agreements. Fronting business is low-risk as it is ceded to other insurance companies.
Claims The gross claims ratio totalled 67.7 (60.8), with a claims ratio, net of ceded business, of 79.8 (77.8). The higher claims level was primarily due to a lower level of run-off gains as the total level of large claims and weather claims were much lower. The lower run-off level of DKK 239m (DKK 506m) was due to lower run-off for workers’ compensation. The corporate market is very competitive, which has led to unsatisfactory claims levels. As Tryg has a strong focus on profitability, initiatives have been implemented to improve profitability. In Norway, where profitability is most challenged, Tryg has communicated to the brokers that Tryg will implement price adjustments to improve profitability, and therefore a reduction in the portfolio is expected.
For the second year running, Tryg’s majority shareholder TryghedsGruppen paid out a member bonus in 2017. The bonus corresponded to 8% of the premium paid to Tryg for 2016, or the payout of DKK 700m in total to TryghedsGruppen’s members who are Tryg’s Danish customers.
also communicated the need for improved profitability, competition remains fierce and still more pronounced in the broker channel. Claims The gross claims ratio was 74.6 (84.3), with a claims ratio, net of ceded business, of 83.7 (88.5). The much lower level was primarily due to a much lower level of large claims. Also, the level of weather claims was somewhat higher primarily due to storms and flooding in Norway.
The business area accounts for 8% of the Group’s total premium income.
Results 2017 Sweden Private posted a result of DKK 171m (DKK 120m), which represented a significant improvement compared to the prior-year result. The result for 2017 was impacted by profitability initiatives to improve the extended warranty insurance for electronic products and the integration of the profitable Skandia child insurance portfolio. We also saw a significant improvement in the expense ratio supporting the result.
Premiums Premium income increased by 12.5% (3.4%) in local currencies. This was mainly due to the acquisition of Skandia’s child insurance portfolio, which is highly profitable and characterised by high retention levels. At the same time, Tryg’s private business in Sweden has mitigated the loss of a number of large affinity agreements and grown the portfolio at the end of the year, when adjusting for the Skandia acquisition. Moderna continues to focus strongly on developing innovative products, especially for the motor insurance segment, and launched a number of new products in 2017.
Expenses The expense ratio was much lower at 16.9 (19.0), which can be ascribed to a continued focus on effective distribution and the integration of the Skandia portfolio.
Expenses The expense ratio was 17.7 (20.2), reflecting the fact that the Skandia child insurance portfolio is now part of the business and with a low expense level, but also Private Sweden’s strong focus on more effective distribution.
Results Q4 2017 Sweden’s technical result totalled DKK 30m (DKK 23m), with a combined ratio of 91.3 (92.9). Weather claims were at a slightly higher level, while run-off gains were much lower at 5.9 (8.3). Premium growth was positive by 5.1% (12.2%). The expense level improved significantly to 17.7 (20.2), primarily as a result of the acquisition of the Skandia business and a strong focus on effective distribution.
Premiums Gross premiums increased by 5.1% (12.2%) in local currencies. The increase was not affected by the Skandia acquisition as Skandia was included from September 2016, but resulted from a strong focus on effective distribution channels.
In 2017, Moderna, Tryg’s Swedish branch, launched a new and innovative car insurance product together with Greater Than. The insurance price is based on type of car, mileage and driving style, and independent of traditional parameters such as age and years of holding a driver’s licence.
Several fixed-income asset classes posted very strong returns, emerging-market debt (a small asset class for Tryg) returned more than 9%, while investment-grade bonds and high-yields returned 4.0% and 2.8%. The return on the investment property portfolio was DKK 92m (5.6%). Tryg is still in the process of re-investing the proceeds from the property sales announced in December 2016. The property allocation target is likely to be met during the first part of 2018.
Match result The result of the match portfolio is the difference between the return on the match portfolio and the
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Other financial income and expenses The other financial income and expenses component is primarily made up of interest expenses related to outstanding subordinated debt, the cost of the currency hedge to protect the shareholders ’ equity and the cost of running the investment operations. These are the main elements included in other financial income and expenses. Other financial income and expenses totalled DKK -298m (-162m).
The total investment return was DKK 86m in Q4, split between a free portfolio return of DKK 138m (DKK 541m or DKK 41m adjusting for the sale of a property portfolio) and a match portfolio return of DKK 13m (DKK 8m). Other financial income and expenses amounted to DKK -65m (DKK 49m). The Q4 2016 figure was impacted by a write-up of DKK 93m on Tryg’s own domiciles in Ballerup and Bergen.
also posted good returns. Properties posted a quarterly return of 1.6%.The regulatory deviation in the match portfolio was DKK 11m (DKK 8m) as the yield difference between Danish and Euro swap rates narrowed, also in the last three months of the year. The performance result was DKK 2m (DKK 0m). Danish covered-bond spreads widened marginally, but a higher yield on the Norwegian bonds helped to drive a small positive performance.
Capital management Capital management is based on Tryg’s partial internal capital model, which was approved by the Danish FSA in November 2015. Tryg has modelled the insurance risk internally, while using the standard formula for all other risks. 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, investment mix and Tryg’s profitability in general.
The Solvency Capital Requirement (SCR) is calculated in such a way that Tryg would statistically be able to honour its obligations in 199 out of 200 years. In other words, Tryg could have a negative result greater than DKK 4,684m (the SCR) in 1 out of 200 years. Tryg’s SCR was DKK 4,684m at the end of 2017, down approximately DKK 400m from the end of 2016. The reduction was driven primarily by a generally lower market risk (including a lower property exposure), the inclusion of Danish Workers’ Compensation in the partial internal model and currencies movements. At the end of 2017, Tryg’s own funds were DKK 13,162m (after deducting the proposed Q4 dividend and the proposed extraordinary dividend of DKK 1bn) against DKK 9,850m at the end of 2016.
Own funds during the year were mostly impacted positively by the DKK 4bn raised for the Alka acquisition as well as net profits and negatively by ordinary and extraordinary dividends. The solvency ratio was 281 or 196 when adjusted for the DKK 4bn raised for the Alka acquisition at year-end 2017.
The key components of Tryg’s own funds are shareholders’ equity, intangibles, Tier 2 instruments (subordinated debt and Norwegian natural perils pool), ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryg’s own funds are constituted by shareholders’ equity. The Tier 2 capacity has been fully utilised; currently some DKK 250m of Tier 2 instruments are not in cluded in the own funds as they exceed the 50% SCR cap. Tryg has an additional ATier 1 capacity of DKK 1.9bn at the end of 2017.
At the Capital Markets Day on 20 November 2017, Tryg announced measures to reduce the SCR by up to 10%. The inclusion of Danish Workers’ Compensation in the partial internal model has lowered the SCR by approximately DKK 100m, while further work to include Sweden in the internal model and other minor adjustments will reduce the SCR further. All changes are subject to approval by the Danish FSA.
Ordinary and extraordinary dividend The Supervisory Board regularly assesses the need for capital adjustments. In November 2017, Tryg announced the distribution of extra ordinary dividends of DKK 1bn, corresponding to DKK 3.31 per
Moody’s rating Tryg has an ‘A1’ (stable outlook) insurance financial strength (IFSR) rating from Moody’s. The rating agency highlights Tryg’s strong position in the Nordic P&C market, robust profitability, very good asset quality and relatively low financial leverage. Moody’s also assigned an ‘A3’ rating to Tryg’s subordinated debt. The rating was reaffirmed following the Alka acquisition.
Investor Relations (IR) is responsible for Tryg’s communication with the capital markets. It is important that investors, analysts and other stakeholders are able to form a true and fair view of developments, including Tryg’s financial results. For this reason, Tryg’s IR team strives to be as open and transparent as possible to ensure that stakeholders’ information requirements are met at the highest possible level. IR is in charge of communication with equity investors, fixedincome investors and rating agencies.
Subscribe to all financial information at tryg.com. Follow @TrygIR on Twitter.
The Tryg share started the year at a price of DKK 127.7 and ended 2017 at DKK 155.2. The total return (price and dividends) of the share was 33%. The positive share price development was driven primarily by an improved underlying financial performance. After a period of deterioration, Tryg’s underlying claims ratio flattened out in Q1 2017 and started to improve in the following quarters. Additionally, capital markets continued to develop positively, boosting the company’s investment income. The insurance sector’s key attraction is its dividend yield. Therefore, earnings and solvency are always carefully scrutinised by investors. In the world of Solvency II, movements in solvency levels can be more difficult to predict and often also difficult to understand. A relatively simple business model and a trans parent capital position are therefore key competitive advantages.
Share capital and ownership Tryg’s share capital totalled 1,510,739,955 on 31 December 2017. It comprises one share class (302,147,991 with a nominal value of DKK 5), and all shares rank pari passu. The number of shares was increased by 27,400,000 after the Alka acquisition. The majority shareholder, TryghedsGruppen smba, owns 60% of the shares and is the only
shareholder holding more than 5% of the share capital. TryghedsGruppen invests in peace of mind and healthcare providers in the Nordic region, and supports non-profit-making activities.
16 Mar. 2018 Annual general meeting 19 Mar. 2018 Tryg shares are traded ex-dividend 21 Mar. 2018 Payment of Q4 dividend and extraordinary dividend 11 Apr. 2018 Interim report Q1 12 Apr. 2018 Tryg shares are traded ex-dividend 16 Apr. 2018 Payment of Q1 dividend 10 July 2018 Interim report Q2 and H1 11 July 2018 Tryg shares are traded ex-dividend 13 July 2018 Payment of Q2 dividend 11 Oct. 2018 Interim report Q1-Q3 12 Oct. 2018 Tryg shares are traded ex-dividend 16 Oct. 2018 Payment of Q3 dividend
The prolonged period of very low interest rates in the wake of the financial crisis means that investors, all else being equal, attach even greater importance to dividends than in a more normal environment. This is particularly true for insurance investors as insurance is one of the sectors offering the highest dividend yield. From an investment perspective, a quarterly dividend will be 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.
• A competitive dividend policy in comparison with the policies of our Nordic competitors
Download Tryg’s statutory corporate governance report at tryg.com > Investor > Download.
Dialogue between Tryg, shareholders and other stakeholders Tryg’s Investor Relations (IR) department maintains regular contact with analysts and investors. Together with the Executive Board, IR organises investor meetings, conference calls and participates in conferences in Denmark and abroad. In 2017, Tryg held a Capital Markets Day in London presenting its new financial targets and customer targets for 2020. IR also communicates with stakeholders on social media via Twitter@TrygIR. The Supervisory Board is informed about the dialogue with investors and other stakeholders on a regular basis. Tryg has an IR policy, which states, among other things, that all company announcements are published in Danish and English. Tryg publishes quarterly interim reports in English. Furthermore, Tryg publishes an annual profile in Danish, English and Norwegian. The profile is addressed to Tryg’s private shareholders, customers, employees and other stakeholders and is published on 29 January 2018. Moreover, Tryg prepares quarterly investor presentations, which are used in our dialogue with investors and analysts. Tryg also publishes IR newsletters on relevant subjects 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. The consolidated financial statements are presented in accordance with IFRS. At tryg.com, stakeholders are invited to subscribe to press releases, company announcements as well as trading announcements by insiders. A number of internal guidelines ensure that the disclosure of price-sensitive information complies with legislation and stock exchange codes of conduct. Tryg has adopted a number of policies describing the relationship between different stakeholders.
See the IR policy at tryg.com > Investor > IR contacts > IR policy, and the CSR policy at tryg.com > CSR > CSR strategy > CSR policy.
All shareholders are encouraged to attend the AGM. The AGM is held by personal attendance as the Supervisory Board values personal contact with the Group’s shareholders. Shareholders may propose items to be included on the agenda for the annual general meeting, and may ask questions before and at the meeting. Shareholders may vote in person at the annual general meeting, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the AGM.
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The Supervisory Board holds one annual strategy seminar to decide on and/or adjust the Group’s strategy with a view to sustaining value creation in the company. The Executive Board works with the Supervisory Board to ensure that the Group’s strategy is developed and monitored. The Supervisory Board ensures that the necessary skills and financial resources are available for Tryg to achieve its strategic targets. The Supervisory Board specifies its activities in a set of rules of procedure and an annual cycle for its work.
Nine members of the Supervisory Board are elected by the annual general meeting for a term of one year. Of the nine members elected at the annual general meeting, five, and thus the majority, are independent persons, thus complying with recommendation 3.2.1. in Recommendations on Corporate Governance, while the other four members are dependent persons as they are appointed by Tryg’s majority shareholder, TryghedsGruppen. See page 38 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 nine years. The Supervisory Board has 13 members, eight men and five women (currently including two male and two female employee representatives).
See details about the independent board members in the section Supervisory Board on pages 37-38 and at tryg.com.
The Supervisory Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise required to perform its duties in the best possible way. The Supervisory Board focuses primarily on the following qualifications and skills: management experience, financial insight, organisation, IT and digitalisation, product development, communication, market insight, international experience, knowledge of insurance, reinsurance, capital requirements, general accounting insight and accounting principles (GAAP), including regulations and principles designed for the insurance industry and M&A experience.
Duties and composition of the Executive Board Each year, the Supervisory Board reviews and adopts the rules of procedure of the Supervisory
Involvement of the employee representatives in the committees is also considered important. The committees exclusively prepare matters for decision by the entire Supervisory Board.
Bill-Owe Johansson b) 67,742 67,742 a) Joined the Supervisory Board in March 2017 b) Resigned from the Supervisory Board in March 2017
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Tryg wants to strike an appropriate balance between management remuneration, predictable risk and value creation for the shareholders in the short and long term.
Each year the Supervisory Board evaluates the performance of the Executive Board against the targets set by the Supervisory Board for the financial year. The overall fulfilment of the weighted targets determines the number of investment shares offered to each member of the Executive Board. The targets for 2017 were a combination of corporate KPIs and developmental targets. The corporate KPIs were linked to Tryg’s technical result and the year’s fulfilment of Tryg’s CMD 2017 targets, which were specified as expense ratio, retention rate, premium growth and employee satisfaction. The development targets included targets such as implementation and anchoring of Tryg’s new long-term strategy and development of the management-level reporting to Executive Board.
Read more about the Matching Shares Programme in the remuneration policy at tryg.com.
Financial reporting, risk management and auditing Being an insurance business, Tryg is subject to the risk management requirements of the Danish Financial Business Act and Solvency II. The Supervisory Board defines Tryg’s risk management framework as regards insurance risk, investment risk, compliance risk and operational risk, as well as IT security, in policies and guidelines for the Executive Board. Risks associated with new financial reporting rules and accounting policies are monitored and considered by the Audit Committee, the finance management and the internal auditors. Material legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis.
Tryg engages in ongoing risk identification, mapping insurance risks and other risks which may endanger the realisation of Tryg’s strategy or which may potentially have a substantial impact on Tryg’s financial position. The process involves identifying and continually monitoring the risks identified. As in previous years, Tryg undertook an Own Risk and Solvency Assessment (ORSA) in 2017. The purpose of the ORSA is to ensure and demonstrate a link between strategy, risk management, risk appetite, solvency and capital planning over the planning period.
The Group’s internal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, which are supervised by the internal auditors.
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Whistleblower line Tryg has a whistleblower line, which allows employees, customers and business partners to report any serious wrongdoings or suspected irregularities. Reporting takes place in confidence to the Chairman of the Audit Committee and the Head of Compliance.
Tryg has published its statutory corporate governance report based on the ‘comply-or-explain’ principle for each individual recommendation.
Anders Hjulmand (1951) Board member Is experienced in the counselling of a number of Danish and international, privately and publicly owned companies and foundations, and experienced in the areas of law, management, strategy and business development.
Tom Eileng (1954) Employee representative Deputy chairman of Finansforbundet Tryg and Senior Commercial Adviser. Employed since 1986.
Lene Skole (1959) Board member Has experience from international companies, among other things through previous positions with Coloplast and Maersk Company Limited, UK. Lene Skole has particular skills in the fields of strategy, financing and communication.
Board seats, Deputy Chairman: Terma A/S, Rambøll Group A/S and Haldor Topsøe A/S. Board member: Bladt Industries A/S, Otto Mønsted A/S and Thomas B. Thriges Fond. Committee memberships: Remuneration Committee (Chairman) and Nomination Committee (Chairman) in Tryg; Remuneration Committee (Chairman) in Haldor Topsøe A/S. Number of shares held: 1,830 Change in portfolio 2017: 0
Career: Professional board member, Adjunct Professor at the Copenhagen Business School. Former Governor of Danmarks Nationalbank (Danish Central Bank). Education: Savings bank training, Graduate Diplomas in Organisation, Work Sociology, Credit and Financing. Board seats, Chairman: Sydbank A/S, Investeringsforeningen Sparinvest, Vordingborg Borg Fund and Museum South East Denmark. Board seats, Deputy Chairman: Tryg A/S and Tryg Forsikring A/S.
Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman) and Nomination Committee in Tryg, Risk Committee (Chairman) in Sydbank, and Dansk Landbrugs Realkredit’s Audit Committee (Chairman). Number of shares held: 21,000 Change in portfolio 2017: +1,000
Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years.
a) Dependent member of the Supervisory Board. b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance.
Tom Eileng Born in 1954. Employee representative. Joined the Supervisory Board in 2016. Norwegian citizen. Employed since 1986. Deputy chairman of Finansforbundet Tryg and Senior Commercial Adviser. Education: Business Economist. Authorised adviser in life and non-life insurance. Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond. Committee memberships: Remuneration Committee in Tryg. Number of shares held: 320 Change in portfolio 2017: +55
Joined the Supervisory Board in 2012. Danish citizen. Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training. Board member: Tryg A/S and Tryg Forsikring A/S. Member of the Tied Agents’ District Board of Finansforbundet. Number of shares held: 750 Change in portfolio 2017: +55
Born in 1963. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of SEAS-NVE A.m.b.A. Education: MSc (Economics and Business Administration), Lieutenant-Colonel Royal Danish Air Force Reserve, Pathfinder. Board seats, Chairman: SEAS-NVE Net A/S, Energy Denmark A/S, Fibia P/S, Danish Energy Association and Danish Utilities (DEA). Board seats, Deputy Chairman: TryghedsGruppen smba.
Board member: Tryg A/S, Tryg Forsikring A/S, Danish Industry. Committee memberships: Audit Committee and Risk Committee of Tryg, Representatives of Danish Energy, Representatives of TryghedsGruppen smba and Representatives of Forenet Kredit. Number of shares held: 8,750 Change in portfolio 2017: 0
Born in 1959. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of Lundbeckfonden (+ Lundbeckfond Invest A/S). Education: Maersk International Shipping Education, Graduate Diploma in Finance and various international management programmes. Board seats, Chairman: LFI Equity A/S. Board seats, Deputy Chairman: Ørsted A/S, H. Lundbeck A/S, ALK-Abelló A/S, Falck A/S and TDC A/S. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee and Risk Committee in Tryg, Audit & Nomination Committee in ALK-Abelló A/S, Scientific and Remuneration Committee in H. Lundbeck A/S, and Remuneration Committee in Falck A/S. Number of shares held: 7,025 Change in portfolio 2017: +1,500
Tina Snejbjerg Born in 1962. Employee representative. Employed since 1987. Joined the Supervisory Board in 2010. Danish citizen. Officer of Tryg’s Personnel Department. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Risk Committee in Tryg, and Central Board of Forsikringsforbundet. Number of shares held: 750 Change in portfolio 2017: +55
Born in 1962. Joined the Supervisory Board in 2012. Norwegian citizen. Education: MSc in Economics and Business Administration, Chartered Financial Analyst (CFA) as well as Senior Executive Programme from London Business School and Harvard Business School. Board seats, Chairman: Seilsport Maritimt Forlag AS, Færder Nasjonalparksenter IKS, ThjømøeKranen AS. Board member: Tryg A/S, Tryg Forsikring A/S, Nordic Mining ASA, Forskningskonsernet Sintef, E-CO Energi AS (Vice Chairman), Scatec Solar ASA, Norconsult A/S (Vice Chairman), TF Bank AB and Teodin Acquico AS (Helly Hansen). Committee memberships: Audit Committee and Risk Committee in Tryg; member of the Audit Committee of E-CO (Chairman), Scatec Solar ASA, Norconsult (Chairman), TF Bank and Helly Hansen (Chairman). Number of shares held: 3,300 Change in portfolio 2017: 0
Born in 1955. Joined the Supervisory Board in 2015. Swedish citizen. Career: Professional board member and independent adviser. Former CEO of the Swedish banks SBAB and Nordnet as well as the insurance company SalusAnsvar. Education: BSc in International Business and Finance & Accounting. Board seats, Chairman: Bridge Scandinavia Ventures AB, Creador AB, FCG Fonder AB, HappyX AB, Insiderfonder AB, Investmentaktiebolaget QV, Irisande Care Group AB, Hypoteket AB, Papilly AB, Ponture AB.
Board member: Allert Östlund AB, DBT Capital AB, Havsgaard AB, Holmö Fastigheter AB, Tryg A/S, Tryg Forsikring A/S, Wonderbox AB. Committee memberships: Remuneration Committee in Tryg.
Annual report 2017 | Tryg A/S | 38Contents – Management’s review
Number of shares held: 136,204 Change in portfolio in 2017: +24,694
Born 1978. Joined Tryg in 2009. Joined the Executive Board in 2016.
Number of shares held: 7,470 Change in portfolio in 2017: +4,235
Number of shares held: 49,967 Change in portfolio in 2017: +7,367
In 2017, Tryg intensified its Corporate Social Responsibility (CSR) work by initiating an in-depth analysis of our existing CSR initiatives while also working on prioritising new potential initiatives and focus areas for 2018. As part of our analysis, both internal stakeholders and customers were involved in creating a materiality analysis mapping the importance of various CSR-related areas. Based on the analysis, a new strategy was decided. The strategy is closely linked to our business model (see page 10) and our purpose – ‘As the world changes, we make it easier to be tryg’.a) Our CSR strategy focuses on Tryg’s contribution to peace of mind in society, Tryg as a responsible workplace with responsible management, and competent and responsible customer relations.
Peace of mind in society The essence of Tryg’s purpose is to ensure peace of mind in a world that is changing. We believe a changing world represents a great opportunity to improve peace of mind in society, while also representing a risk of diminishing peace of mind if the right actions are not put in place. To increase and ensure peace of mind, we are actively working to develop and offer insurance products that meet demands in a changing world and ensure that people do not experience unnecessary challenges or insecurities if they experience an injury or damage to their belongings. Besides contributing to our customers’ peace of mind, we also want to contribute to peace of mind in society. For example, we share our knowledge and contribute to peace of mind in local communities. In 2018, we will continue to examine new ways of contributing to peace of mind by exploring the possibilities of expanding our CSR efforts in new areas and thereby increase peace of mind in society.
Conference with focus on concussions In January 2017, Tryg and Hjerneskadeforeningen welcomed 300 doctors, colleagues and individuals who have previously been affected by concussion to a conference focusing on the late effects of concussions on the brain. The conference was initiated because the late effects of concussions are not always handled correctly since practices are diverse and sometimes contradictory. This might lead to a longer course of illness, higher costs for companies, and larger compensation sums from Tryg. By knowing how to handle the late effects, it might be possible to minimise the uncertainty and malaise that some experience after a concussion, thereby increasing their peace of mind.
Cooperation with the Norwegian Society for Sea Rescue The Norwegian Society for Sea Rescue (Redningsselskapet ) is a nationwide humanitarian association with the purpose of saving lives and increase safety and peace of mind at sea and along the coastline. Tryg has sponsored an ‘Elias boat’, which is known from children’s TV and is a well-known, popular concept targeting smaller children. During the UCI Road World Championships in Bergen in September 2017, more than 1,100 children and their parents queued up and were welcomed onboard the ‘Tryg-Elias’ for a boat trip. This was one of several events in 2017 where Tryg and Redningsselskapet actively worked together for the common cause of preventing drownings and sharing knowledge about this issue. In 2018, we are planning more events together to raise awareness and teach people how to react in order to prevent drownings.
Equal opportunities In Tryg, we want to promote diversity at management level to ensure a strong and resilient organisation. As part of our focus on diversity, the first five female managers completed the Women’s Leadership Programme in 2017. The programme is run by the Danish Diversity Council, of which Tryg is a founding partner, and the aim is to strengthen the participants’ competencies, so they are better equipped to pursue top management positions. In 2018, we will continue to work with the Danish Diversity Council, and another five female leaders will be taking part in the Women’s Leadership Programme.
all employees must comply with the Code of Conduct, some departments and positions are more exposed to risks of improper conduct than others, for example when it comes to handling personal data or anti-corruption, including gifts. In order to mitigate the risk of employees violating the Code of Conduct, we continued to educate our employees in the guidelines in 2017. At the same time, we do also accept that some departments need stricter procedures than the ones stated in the Code of Conduct in order to mitigate the risks associated with certain positions.
Responsible investments As part of Tryg’s CSR strategy, we want to increase the transparency of our CSR initiatives. We are at risk of violating international standards when in- vesting and want to be transparent about our efforts to mitigate this risk. In 2017, we published our re- sponsible investment policy, which illustrates our belief in the importance of not violating international conventions when investing. Even though it provides no guarantees, in 2017, we established a process for conducting negative screenings for conventional breaks in our investment portfolio including not only our portfolio holdings, but also the ultimate parents. As part of this process, we have established an internal procedure for handling any conventional breaks identified through our negative screening. The first negative screening was completed in 2017, and our target is to do a screening in 2018 as well.
Annual report 2017 | Tryg A/S | 42Contents – Management’s review
due to e.g. an increase in the opening hours in our contact centres. Due to an increase in activities, we therefore believe that maintaining the 2017 level is an ambitious target for 2018.
Tryg’s environmental initiatives Tryg is at risk of impacting the environment negatively if the right actions are not taken. In Tryg, we strive to minimise our environmental footprint by sorting waste at centralised waste stations, which also helps to minimise waste in general. At the same time, we try to minimise food waste in our canteens by highlighting the issue and selling left-over food in Ballerup.
In 2017, we primarily focused on the environmental footprint of our own operations related to our office buildings. We have systematised our environmental management, and as a result Tryg was certified as an Eco-Lighthouse in Norway in 2017. The certification is evidence that we are actively working with our impact on the environment and the climate as certification is granted only to enterprises which satisfy certain requirements and implement environmental measures to create more environment and climate-friendly operations. In 2017, we continued our efforts to minimise energy use for heating in Bergen, while also installing new LED lightning. In 2017, we also continued to sort our waste and actively worked to minimise waste volumes, including paper and food. Besides our own environmental initiatives, we have also focused on how our customers can become more climate and environment-friendly in their operations. This work is important, since we believe that a greater impact can be achieved if more people and enterprises are working responsibly with climate and environmental issues. Therefore, we offer guidance to customers who wish to obtain the Eco-Lighthouse certification in Norway. As part of the Eco-Lighthouse certification, we will prepare a report on Tryg's environmental initiatives in spring 2018. Based on the report, we will adopt an action plan for the rest of 2018.
Annual report 2017 | Tryg A/S | 43Contents – Management’s review
Other key ratios 112 Group chart 113 Glossary 114 Product overview 115 Disclaimer 116
Contents – Financial statements 2017 Tryg’s Group consolidated financial statements are prepared in accordance with IFRS
Annual report 2017 | Tryg A/S | 44Contents – Financial statements
Morten Hübbe Christian Baltzer Lars Bonde Group CEO Group CFO Group COO
Jesper Hjulmand Ida Sofie Jensen Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund
In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial position at 31 December 2017 and of the results of the Group’s and the parent company’s operations and the cash flows of the Group for the financial year 1 January-31 December 2017.
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Also, in our opinion, the parent financial statements give a true and fair view of the financial position of the Parent at 31 December 2017 and of its financial performance for the financial year 1 January to 31 December 2017 in accordance with the Danish Financial Business Act.
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 2017. 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.
Independent auditor’s report 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 things.
To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014.
We were appointed auditors of Tryg A/S on 28 January 2002 for the financial year 2002 as part of the formation of the Company. However, we have been the appointed auditors of the underlying subsidiaries since before 1995. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of more than 16 years up to and including the financial year 2017.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management review and, in doing so, consider whether the management 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.
In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to consider whether the solvency ratio is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on this, we conclude that the solvency ratio is materially misstated, we are required to report on this. We have nothing to report in this respect.
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• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control.
b) Up until the sale of the group occupied property in 2016, the gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ‘Recommendations & Financial Ratios’ issued by the Danish Finance Society. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Finance Society’s definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. The sale of owner-occupied property in December 2016 does not affect the calculation.
Profit/loss on continuing business 2,519 2,472 1,920 2,547 2,373 Profit/loss on discontinued and divested business after tax a) -2 -1 49 10 -4
Statement of financial position Total provisions for insurance contracts 30,018 31,527 31,814 31,692 32,939 Total reinsurers’ share of provisions for insurance contracts 1,366 2,034 3,176 1,938 2,620
Relative run-off gains/losses 4.1 5.5 5.1 4.8 3.9 Return on equity after tax (%) 28.8 26.2 20.0 23.7 21.8
Annual report 2017 | Tryg A/S | 49Contents – Financial statements
Note General insurance Gross premiums written 18,358 17,842 Ceded insurance premiums -1,255 -1,210 Change in premium provisions -145 151 Change in reinsurers’ share of premium provisions 16 13 3 Premium income, net of reinsurance 16,974 16,796 4 Insurance technical interest, net of reinsurance -14 -10
Claims paid -12,807 -13,947 Reinsurance cover received 1,029 1,260 Change in claims provisions 942 2,328 Change in the reinsurers’ share of claims provisions -729 -1,164 5 Claims, net of reinsurance -11,565 -11,523
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Total receivables in connection with direct insurance contracts 1,471 1,108 Receivables from insurance enterprises 300 183 Other receivables 957 1,646
Pool. b) Cost related to the issue of new shares are deducted in proceeds recognised in retained earnings with DKK 50.3m.
Total changes in equity in 2016 -35 -86 12 -127 56 -1,031 1,004 -207
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Note Financing Issue of new shares 3,978 0 Exercise of share options/purchase of own shares (net) -4 -999 Subordinate loan capital 0 800 Dividend paid -3,279 -1,714 Change in amounts owed to credit institutions 128 115
Change in cash and cash equivalents, net 29 6 Additions relating to purchase of subsidiaries 13 0 Exchange rate adjustment of cash and cash equivalents, 1 January -8 -2
Interest income 622 723 Interest expenses -107 -113 Dividend received 19 25
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Tryg’s risk profile is continuously measured, quantified and reported to the management and the Supervisory Board. Given the extensive requirements for the Supervisory Board’s involvement in capital and risk management, Tryg’s Supervisory Board has a special Supervisory Board Risk Committee to address these topics separately during the year.
Tryg’s risk management is organised into three levels of control. The first level of control is handled in the business where the company’s policies are implemented, and day-to-day compliance is verified. The risk management function is the second level of control, supported by decentralised risk managers affiliated with the individual business areas. The risk management function ensures a consistent approach across the organisation, risk assessment at group level and reporting to the management and the Supervisory Board. This involves an ongoing identification and assessment of the most significant risks in the company. Furthermore, the function prepares specific recommendations in relation to capital management, reinsurance, investment risk management and more. Tryg’s risk management function is also responsible for determining the company’s capital requirement.
How is the actual risk profile measured? Tactically - Risk reports - Internal controls - Capital model - Stress tests
Notes The capital base is continuously measured against the capital requirement calculated on the basis of Tryg’s partial internal model, where insurance risks are modelled using an internal model, while other risks are described using the standard formula.
Company’s Own Risk and Solvency Assessment (ORSA) ORSA is the company’s own risk assessment based on the Solvency II principles, which implies that Tryg must assess all material risks that the company is or may be exposed to. The ORSA report also contains an assessment of whether the calculation of solvency capital requirement is reasonable and is reflecting Tryg’s actual risk profile. Moreover, the projected capital requirement is also assessed over the company’s strategic planning period. Tryg’s risk activities are implemented via continuous risk management processes, where the main results are reported to the Supervisory Board and the Risk Committee during the year. The ORSA report is an annual summary document assessing all these processes.
Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a sufficient degree via ordinary diversification. In case of major events involving damage to buildings and contents, Tryg’s reinsurance programme provides protection for up to DKK 5.75bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 160m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m, after total annual retention of DKK 300m. Tryg has also taken out reinsurance for the risk of large claims occurring in sectors with very large sums insured. Tryg’s largest individual building and contents risks are covered by up to DKK 2bn. Retention for large claims is DKK 100m, gradually dropping to DKK 25m. Single risks exceeding DKK 2bn are covered individually.
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. Long-tailed reserves in particular are subject to interest rate and inflation risk. Interest rate risk is hedged by means of Tryg’s match portfolio which corresponds to the discounted claims reserves. In order to manage the inflation risk of Danish workers’ compensation claims reserves, Tryg has bought zero coupon inflation swaps. Tryg determines the claims reserves via statistical methods as well as individual assessments.
Operational risk Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal, Tryg focuses on an adequate control
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Insurance risk Effect of 1% change in: Combined ratio (1 percentage point) +/- 180 +/- 175
Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities -1,118 -1,131 Higher discounting of claims provisions 1,014 1,061 Net effect of interest rate rise -104 -70 Impact of Norwegian pension obligation b) 153 173
Equity market 15 % decline in equity market -285 -365 Impact of derivatives related thereto 20 -15
Real estate market 15 % decline in real estate markets -257 -229
Compliance risk Compliance risk is the risk of loss as a result of lack of compliance with rules, regulations, market standards or internal guidelines. The handling of compliance risk is coordinated centrally via the Group’s Compliance & Legal department, which, among other things, sits on industry committees in connection with legislative monitoring, ensures implementation of regulation in Tryg through business procedures, provides ongoing training in compliance matters and performs compli- ance controls within the organisation. Compliance risks and the result of the performed compliance controls are reported to the Supervisory Board’s Risk Committee.
Emerging risk Emerging risk cover new risks or known risks, with changing characteristics. The management of this type of risk will be handled in the individual business areas, which monitor the market and adapt the products as the conditions change. In the event of a change in insurance terms, it is ensured that Tryg’s reinsurance cover is consistent with the new conditions.
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Estimated accumulated claims End of year 496 152 278 654 1,449 222 1,088 273 2,077 202 314 1 year later 463 214 344 730 2,134 253 1,476 309 1,884 254 2 year later 477 184 323 722 2,257 288 1,260 303 1,917 3 year later 482 174 282 699 2,293 283 1,254 297 4 year later 501 174 285 709 2,241 269 1,269 5 year later 473 162 290 712 2,235 259 6 year later 501 167 278 715 2,241 7 year later 492 158 277 708 8 year later 489 157 276 9 year later 488 157 10 year later 488 488 157 276 708 2,241 259 1,269 297 1,917 254 314 8,180
Provisions before discounting, end of year 12 6 8 16 83 11 102 40 358 92 237 965
Reserves from 2006 and prior years 165 Provisions for claims, end of year 1,121
Reserves from 2006 and prior years 2,379 Provisions for claims, net of reinsurance, end of the year 22,804
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Credit risk 2017 2016 Bond portfolio by ratings DKKm % DKKm %
Liquidity risk Maturity of the Group’s financial obligations including interest 2017 0-1 years 1-5 years > 5 years Total
The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost.
Prices used for determination of fair value in respect of both loans are based on actual traded prices from Bloomberg.
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Profit/loss on ceded business -211 -106 -467 -5 10 -779 Insurance technical interest, net of reinsurance -7 -1 -1 -5 0 -14
Equity investments in associates 225 225 Reinsurers’ share of premium provisions 47 22 176 0 0 245 Reinsurers’ share of claims provisions 53 172 867 29 0 1,121 Other assets 48,671 48,671
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Profit/loss on ceded business -158 -154 -643 -3 7 -951 Insurance technical interest, net of reinsurance -4 -1 0 -5 0 -10
Run-off, net of reinsurance (%) -4.7 -5.4 -5.5 -6.0 -5.9 Number of full-time employees 31 December 1,933 1,839 1,859 2,007 2,046
Claims ratio, net of ceded business 73.2 69.0 73.0 67.9 69.2
Claims ratio, net of ceded business 74.0 79.7 65.2 79.8 81.3
Claims ratio, net of ceded business 70.4 71.0 71.5 69.6 72.1
c) Adjustment of gross expense ratio included only in ‘Tryg ’. The adjustment is explained in a footnote to Financial highlights.
Profit/loss on ceded business - 7 - 7 - 1 - 1 - 21 - 8 - 35 - 44 - 30 - 24 - 15 - 130 Insurance technical interest, net of reinsurance - 2 - 1 0 0 0 0 - 1 - 1 - 3 - 2 0 0
Gross claims ratio 64.9 57.6 88.2 92.8 72.0 22.3 60.7 63.5 67.8 68.1 92.9 41.2 Combined ratio 79.2 71.4 100.3 105.4 86.1 34.6 79.3 83.3 83.1 83.8 110.3 102.9
Average claims DKK b) 23,874 25,091 4,797 4,558 75,265 72,474 17,513 17,913 9,537 9,837 82,852 57,384 Total claims 55,434 46,883 57,785 57,186 11,116 11,008 74,872 77,441 260,926 250,450 3,208 2,896
Fire and contents Fire and contents Credit and guarantee Tourist assistance (Private) (Commercial) Change of ownership Liability insurance insurance insurance
Gross claims ratio 69.0 77.0 51.4 61.2 96.8 90.2 82.2 65.8 31.1 21.0 72.8 76.5 Combined ratio 86.8 94.7 79.1 94.6 111.3 103.3 103.3 85.3 58.8 53.6 85.9 90.6
Average claims DKK b) 8,911 9,036 43,226 53,344 20,475 21,846 74,485 64,807 367,332 765,692 6,174 5,716 Total claims 345,325 363,113 29,599 30,020 4,036 3,807 11,013 10,917 443 120 86,645 96,868 a) The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance contracts in the year. b) Average claims are total claims before run-off in the year relative to the number of claims in the year.
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Reinsurance cover received 267 286 Run-off previous years, reinsurers’ share 33 -190 6 Insurance operating costs, net of reinsurance Commissions regarding direct insurance contracts -259 -296 Other acquisition costs -1,643 -1,733
Insurance operating costs, gross -2,516 -2,737 Commission from reinsurers 160 150
In the calculation of the expense ratio, costs were in 2016 stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner-occupied property based on a calculated market rent of DKK 36m in 2016.
Administative expenses include fee to the auditors appointed by the annual general meeting: Deloitte -6 -7
Expenses have been incurred for the Group´s Internal Audit Department. -9 -9
6 Insurance operating costs, gross, classified by type Commissions -249 -296 Staff expenses -1,509 -1,615 Other staff expenses -166 -164 Office expenses, fees and headquarter expenses -500 -416 IT operating and maintenance costs, software expenses -222 -249 Depreciation, amortisation and impairment losses and write-downs -98 -223 Other income 228 226
Total lease expenses amount to DKK 26m (DKK 26m in 2016)
Insurance operating costs and claims include the following staff expenses: Salaries and wages -1,926 -2,036
Conditional shares In 2017, Tryg allocated conditional shares in accordance with the Group’s remuneration policy. The beneficiaries will receive shares in Tryg A/S if certain conditions are fulfilled over a 2 to 3 year vesting period. In 2017, the fair value of Conditional shares is prorated relative to the vesting period and recognised in the income statement amounted to DKK 1m (DKK 0m in 2016). The maximum obligation for Tryg is 25,910 shares in Tryg A/S.
Matching shares allocated in 2011-2016 at 31.12.17 41,478 24,895 41,647 108,020 98 11 155 17
Matching shares allocated in 2016 at 31.12.16 17,233 15,562 0 32,795 128 4 127 4
Number of Matching shares exercisable 31 Dec. 2016 0 0 0 0
Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property 9 431 Owner-occupied property a) 0 93
Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK 127m (DKK 1m in 2016)
9 Tax Tax on accounting profit/loss -712 -708 Difference between Danish and foreign tax rates -42 -40 Tax adjustment, previous years -47 8 Adjustment of non-taxable income and costs 80 -24 Change in valuation of tax assets 0 17 Change in tax rate 1 0 Other taxes 0 -1
Effective tax rate % % Tax on accounting profit/loss 22 22 Difference between Danish and foreign tax rates 1 1 Tax adjustment, previous years 2 0 Adjustment of non-taxable income and costs -3 1 Change in valuation of tax assets 0 -1
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Notes DKKm 10 Intangible assets Trademarks Assets and customer under con- Goodwill relations Software a) struction a) Total
Amortisation and write-downs at 31 December -104 -171 -1,364 -92 -1,731
DKKm 10 Intangible assets Trademarks Assets and customer under con- Goodwill relations Software a) struction a) Total
Impairment losses and write-downs for the year -100 0 -200 0 -300
The impairment test at year-end for the Obos portfolio is based on the valuation at the time of acquisition due to the short ownership period and the lack of indications of impairment since the acquisition. Goodwill recognised DKK 51m. Please refer to note 27. The assets and liabilities have not changed significantly since the acquisition and the recoverable amount calculated would exceed the carrying amount with the same margin or very close to that margin.
Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0 - 10 years) 15
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 impairment test shows a calculated value in use of approximately DKK 1.2bn (1.2bn) relative to a recognised goodwill of DKK 0.5bn (0.5bn) and Equity of DKK 0.8bn (0.7bn) and does not indicate any impairment in 2017.
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The impairment test compares the carrying amount with the estimated present value of future cash flows. The test did indicate an impairment of DKK 38m due to revaluation of the groups it-systems. The write-down is due to specific outdated IT systems. The cost is recognised as write-downs under depreciations in the income statement.
11 Property, plant and equipment Operating Owner-occupied Assets under DKKm equipment property construction Total
Additions for the year 40 0 0 40 Disposals for the year -2 0 0 -2
Accumulated depreciation and value adjustments at 31 December -206 0 0 -206
Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January -173 -571 -81 -825
Total rental income for 2017 is DKK 88m (DKK 129m in 2016).
Total expenses for 2017 are DKK 20m (DKK 24m in 2016). Of this amount, expenses for non-let property total DKK 0m (DKK 0m in 2016), total expenses for the income-generating investment property are DKK 20m (DKK 24m in 2016).
Value adjustments of DKK 420m and a fair value as at 31 December 2016 of DKK 1,015m relates to sale of property based on sales contracts. External experts were involved in valuing the majority of the other investment properties.
Business property 6.4 6.9 Office property 7.9 6.9 Residential property 6.0 6.0
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. The sensitivity in 2016 is exclusive of the property sold.
Increase in applied rate of return of 0.25% -58 -51 Decrease in applied rate of return of 0.25% 63 57 Decrease in net rental income of 3% -41 -37 Decrease in occupancy rate of 3% -8 -9 13 Equity investments in associates Cost Cost at 1 January 201 201 Additions for the year 14 0
Revaluations at net asset value Revaluations at 1 January 17 28 Dividend received, this year -10 -10 Reversed on sale 0 -14 Value adjustments for the year 3 13
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13 Equity investments in associates (continued) Shares in associates according to the latest annual report: Profit/loss Ownership Name and registered office Assets Liabilities Equity Revenue for the year share in %
14 Financial assets (Continued) The Fair value hierarchy Quoted market prices (level 1) consists of financial instruments that are quoted in an active market. Tryg uses the price quoted in the principal market.
Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement 746 681 Derivative financial instruments at fair value with value Adjustments in other comprehensive income 0 21 Financial liabilities at amortised cost with value adjustment in the income statement 6,887 6,978
14 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 2,381 1,977 Exchange rate adjustments -31 19 Gains/losses in the income statement -8 464
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 -386m (DKK -398m in 2016).
In 2017 no unit trust units was transferred to category Observable input.
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Gains and losses at 31 December 2,903 -2,742 161 2016 Gains Losses Net
Gains and losses at 1 January 2,496 -2,420 76 Reversed hedges in profit/loss 0 -23 -23 Value adjustments for the year 156 -183 -27
DKKm 14 Financial assets (Continued) Derivative financial instruments Derivatives with value adjustments in the income statement at fair value: Fair value Fair value in statement in statement of financial of financial Nominal position Nominal position
Derivatives, repos and reverses are used continuously as part of the cash and risk management carried out by Tryg and its portfolio managers.
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15 Reinsurer’s share Impairment test As at 31 December 2017, management performed a test of the carrying amount of total reinsurers’ share of provisions for insurance contracts and receivables. The impairment test resulted in impairment charges totalling DKK 0m (DKK 2m in 2016). The use of reinsurance creates a natural counter party risk. The Risk will be handled by applying a wide range of reinsurers with at least an ‘A’ rating.
Net current tax -194 -317 14 Financial assets (Continued) Receivables Total receivables in connection with direct insurance contracts 1,471 1,108 Receivables from insurance enterprises 300 183 Reverse repos 602 0 Other receivables 355 1,646
Number of shares at 1 January 274,595 282,316 7,946 7,243 Bought during the year -211 -7,793 211 7,793 Sold during the year 27,400 0 0 0 Cancellation in connection with buyback programme 0 0 -7,793 -7,018 Used in connection with exercise of incentive programme 161 72 -161 -72
Solvency II - Own funds From 1 January 2016 Solvency II rules are effective: Equity according to annual report 12,616 9,437 Proposed dividend -1,483 -2,017 Intangible assets -1,105 -884 Profit margin, solvency purpose 970 970
Solvency II - Own funds 13,162 9,850 18 Premium provisions Premium provision at 1 January 5,487 5,571 Addition on acquisition of Obos portfolio (2016 Skandia) 79 35 Value adjustments of provisions, beginning of year -132 32 Paid in the financial year 17,991 17,967 Change in premiums in the financial year -17,868 -18,131 Exchange rate adjustments 2 13
Paid in the financial year in respect of the current year -6,283 80 -6,203 Paid in the financial year in respect of prior years -6,259 959 -5,300
Addition, purchase of Skandia portfolio 1,362 0 1,362 Value adjustments of provisions, beginning of year 392 -34 358
Change in claims in the financial year in respect of the current year 13,053 -210 12,843 Change in claims in the financial year in respect of prior years -1,439 189 -1,250
Claims provisions at 31 December 25,452 -1,820 23,632 19 Pensions and similar obligations Jubilees 42 37
Defined-benefit pension plans: Present value of pension obligations funded through operations 65 70 Present value of pension obligations funded through establishment of funds 1,068 1,198
Pension obligation, gross 1,133 1,268 Fair value of plan assets 885 960
Specification of change in recognised pension obligations: Recognised pension obligation at 1 January 1,268 1,192 Adjustment regarding plan changes not recognised in the income statement and expected estimate deviation 0 37 Exchange rate adjustments -95 64 Present value of pensions earned during the year 33 18 Capital cost of previously earned pensions 16 22 Actuarial gains/losses -39 -8 Paid during the period -50 -57
Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January 960 978 Exchange rate adjustments -73 51 Investments in the year 83 34 Estimated return on pension funds 2 7 Actuarial gains/losses -50 -66 Paid during the period -37 -44
Impact on equity from the following changes: Interest rate increase of 0.3 percentage point 46 52 Interest rate decrease of 0.3 percentage point -49 -55 Pay increase rate, increase of 1 percentage point -92 -103 Pay increase rate, decrease of 1 percentage point 78 88 Turnover, increase of 2 percentage point 22 31 Turnover, decrease of 2 percentage point -26 -33
The pension funds are managed by Nordea Liv & Pension and regulated by local legislation and practice.
19 Pensions and similar obligations (continued) Specification of pension cost for the year: Present value of pensions earned during the year 28 11 Interest expense on accrued pension obligation 17 22 Expected return on plan assets -2 -6 Accrued employer contributions 6 6
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Notes DKKm 26 Contractual obligations, collateral and contingent liabilities Contractual obligations
Tryg has signed the following contracts with amounts above DKK 50m: Tryg is comitted to Investments in some Property funds. The commitment amount to DKK 674m and are expected called during 2018.
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Tryg Forsikring A/S and Tryg Livsforsikring A/S have registered the following assets as having been held as security for the insurance provisions: Equity investments 14 36 Unit trust units 1,759 3,950
Inflation derivatives, recognised in claims provisions 405 0 405 0 -411 -6
Inflation derivatives, recognised in claims provisions 414 0 414 0 -425 -11
Contingent liabilities In May 2016, Tryg received notice of an action from Finansforbundet in Norway (the Finance Sector Union of Norway) on behalf of a group of pensioners. The action concerned the adjustment in the pension schemes of Norwegian employees made in 2014.
Tryg has now received the actual lawsuit. According to Tryg’s preliminary calculations, the claim will not exceed a maximum of approximately DKK 300m after tax for the persons affected by the adjustment.
Tryg and its legal advisor do not agree that the adjustment was wrongful and consider the claim uncertain. Consequently, Tryg expects an action to be resolved in court and does not expect a ruling to be made for the next 2 years.
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27 Acquisition of subsidiaries The Group has not incurred any significant acquisition costs in connection with the closed acquisitions.
2016 In August 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia’s activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsäkringar. The transaction was approved by the Danish FSA and implemented 1 September 2016. The acquisition affects the Financial statement from 1 September 2016.
H1 2018, following a period of regulatory approval. The acquisition did not have any impact on the financial statements 2017. Please refer to management’s review for further information.
Share-based Cash Number of Base Variable Variable 2016 persons salary salarya) salary Pension Total a) Exclusive of severance pay
Supervisory Board 2 0 Executive Management 1 0 Risk-takers 1 0
The Executive Board is paid a fixed remuneration and pension. The variable salary is awarded in the form of a matching share programme, see ‘Corporate governance’. Besides this, the Executive Board have free car appropriate to their position as well as other market conformal employee benefits. 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 and CFO to 24 months’ salary and a notice period of 6 months.
28 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 Board and their members’ family.
Premium income - Parent company (TryghedsGruppen smba) 0.4 0.5 - Other related parties 2.2 3.7
Specification of remuneration Share-based Cash Number of Base Variable Variable 2017 persons salary salarya) salary Pension Total
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Tryg transferred DKK 40m to TryghedsGruppen regarding commitment fee related to capital increase in december 2017. The transactions between TryghedsGruppen smba and Tryg A/S is conducted on an arm’s length basis.
The companies in the Tryg Group have entered into reinsurance contracts on market terms.
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No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2017 that will have a significant impact on the group.
a) enters into force for the accounting year commencing 1 January 2019, but will be applied from 1 January 2018.
b) enters into force for the accounting year commencing 1 January 2018 But insurance companies are allowed to postpone the implementation to 1 January 2021 if certain criteria are met.
The implementation of IFRS 9 ‘financial instruments’ and IFRS 16 ‘leases’ is not expected to significantly change the group’s financial position.
However, IFRS 16 will change the composition of the statement of financial position, but without adding new risks. Implementing IFRS 16 Tryg will recognise assets and liabilities in the balance sheet but it is not expected to have a significant impact on either profit or loss or equity. Earlier application of IFRS 16 is only possible because Tryg also applies IFRS 15 ‘Revenue from Contracts with Customers’, however applying IFRS 15 have no significant impact on the statement of financial position or profit or loss due to our income is primarily related to premiums accounted for under IFRS 4.
Tryg will primarily be effected by lease agreements related to cars and premises. The total impact on the balance sheet 1 January 2018, using the modified retrospective approach is expected to be; Assets Total property, plant and equipment 674 Total assets 674
Equity and liabilities Total debt 674 Total equity and liabilities 674
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 effect Trygs recognition and measurement. Tryg expects to postpone the implementation of IFRS 9 to 1 January 2021 when IFRS 17 Insurance Contracts will be applicable. Tryg can postpone IFRS 9 due to 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.
Changes to accounting estimates There have been no changes to the accounting estimates in 2017.
Claims provisions are management's best estimate based on actuarial and statistical projections of claims and administration of claims including a margin incorporating the uncertainty related to the range of actuarial scenarios and other short and long-term risks not reflected in standard actuarial models. The projections are based on Tryg’s knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other factors that might influence future developments in the liabilities.
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Valuation of property Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a market- determined rental income as well as operating expenses in proportion to the property’s required rate of return. Cf. note 12.
Measurement of goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations was acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least annually. Impairment testing involves estimates of future cash flows and is affected by a number of factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. Cf. note 10.
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 • exercises a controlling influence over the relevant activities in the enterprise in question • is exposed to or has the right to a variable return on its investment, and • can exercise its controlling influence to affect the variable return.
Business combinations Newly acquired or newly established enterprises are recognised in the consolidated financial statements
Notes from the date of acquisition and the date of formation, respectively. The date of acquisition is the date on which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of comprehensive income up to the date of disposal or the settlement date. The date of disposal is the date on which control of the divested enterprise actually passes to a third party.
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 acquisition. Non-current assets which are acquired with the intention of selling them are, however, measured at fair value less expected selling costs. 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.
In the event of negative balances (negative goodwill), the calculated fair values, the calculated acquisition price of the enterprise, the value of minority interests in the acquired enterprise and the fair value of previously acquired equity investments are revalued. If the balance is still negative, the amount is recognised as income in the income statement.
Segment income and segment costs as well as segment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity managed at Group level.
Sale and lease back of owner-occupied property – operating lease Sale and lease back transactions are carried out at fair value and any gains or losses are recognised immediately either in the income statement or other comprehensive income. Losses are recognised in the income statement unless it is a reversal of a write up previously recognised in other comprehensive income. Gains are recognised in other comprehensive income unless it is a reversal of write down previously recognise in the income statement.
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.
Investment activities Income from associates includes the Group’s share of the associates’ net profit. Income from investment properties before fair value adjustment represents the profit from property operations less property management expenses.
Investment management charges represent expenses relating to the management of investments including salary and management fees on the investment area.
The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested business in the income statement includes the profit/loss after tax of the run-off for the marine hull business and the divested activities in the Finnish branch.
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Notes Statement of financial position Intangible assets Goodwill Goodwill was acquired in connection with acquisition of business. Goodwill is calculated as the difference between the cost of the undertaking and the fair value of acquired identifiable assets, liabilities and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the investment and is recognised under intangible assets. Goodwill is not amortised but is tested for impairment at least once per year.
Software Acquired computer software licences are capitalised on the basis of the costs incidental to acquiring and bringing to use the specific software. The costs are amortised based on an estimated economic lifetime of up to 4 years.
Assets under construction Group-developed intangibles are recorded under the entry ‘Assets under construction’ until they are put into use, whereupon they are reclassified as software and are amortized in accordance with the amortization periods stated above.
Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market.
The fair value is calculated on the basis of marketspecific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions. Cf. note 12.
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 that the carrying
Notes amount of the investment represents the Group’s proportionate share of the enterprises’ net assets.
Profit after tax from equity investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised intra-group profits and losses.
Financial assets measured at fair value with recognition of value adjustments in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment via the income statement.
Other assets Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments
Notes 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 definedcontribution 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. FTPPlanen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribution plan.
The capital value of the pension obligations less the fair value of any plan assets is recognised in the statement of financial position under pension assets and pension obligations, respectively, depending on whether the net amount is an asset or a liability.
In case of changes to the benefits stemming from the employees' employment with the group so far, a change is seen in the actuarially calculated capital value which is considered as pension costs for previous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs. The plan is closed for new business.
Other provisions Provisions are recognised when the Group has a legal or constructive obligation as a result 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.
Comprehensive income 2,484 2,488 a) Please refer to note 25 Sale of properties in the Tryg Group.
Nullification of own shares -39 39 0 Dividend paid -3,361 -3,361 Dividend own shares 82 82 Purchase and sale of own shares -20 -20 Issue of new shares a) 137 3,841 3,978 Issue of employee shares 10 10 Issue of share options and matching shares 6 6
Nullification of own shares -35 35 0 Dividend paid -1,766 -1,766 Dividend, own shares 52 52 Purchase and sale of own shares -1,000 -1,000 Exercise of share options 1 1 Issue of share options and matching shares 3 3
Dividend per share in 2017 includes ordinary dividend paid out in April, July and October of DKK 1.60, proposed ordinary dividend of DKK 1.60, totalling DKK 6.40 (DKK 6.20 in 2016 ) and proposed extraordinary dividend of DKK 3.31. (DKK 3.54 in 2016).
Annual report 2017 | Tryg A/S | 105Contents – Financial statements
1 Income from Group undertakings Tryg Invest A/S 2 0 Tryg Forsikring A/S 2,575 2,525 2 Other expenses Administration expenses -71 -63
Average number of full-time employees for the year 17 15 3 Tax Reconciliation of tax costs Tax on profit/loss for the year 17 15 Tax adjustments, previous years -1 0
Revaluation and impairment to net asset value Revaluation and impairment at 1 January 3,140 3,148 Revaluations for the year 2,545 2,542 Dividend paid -3,604 -2,550
Annual report 2017 | Tryg A/S | 107Contents – Financial statements
9 Related parties (continued) Share-based Cash Number of Base variable variable 2016 persons salary salary salary Pension Total a)
Supervisory Board 2 0 Executive Management 1 0 Risk-takers 0 0
Intra-group trading involved - Providing and receiving services 14 16 - Intra-group accounts 3,530 -701
Key ratios Gross claims ratio 65.7 62.7 63.8 71.8 67.9 63.2 65.9 74.2 71.3
Claims ratio, net of reinsurance 68.3 65.8 65.8 73.7 69.7 65.3 67.1 76.4 73.6
Combined ratio exclusive of run-off 84.2 82.6 83.3 92.4 86.3 84.5 84.9 94.1 89.3
Combined ratio exclusive of run-off 94.9 92.4 88.0 89.5 92.2 92.8 84.7 90.2 91.3
Key ratios Gross claims ratio 74.6 69.3 59.2 67.2 84.3 42.9 60.6 55.2 69.2
Claims ratio, net of reinsurance 83.7 80.4 73.1 81.6 88.5 76.9 72.2 73.2 89.7
Combined ratio exclusive of run-off 100.2 94.1 91.5 98.7 111.6 98.3 98.0 100.9 106.2
Q4 2017 - Quarterly outline Download a further detailed version of the presentation at tryg.com/uk > investor > Downloads > tables
Claims ratio, net of reinsurance 73.6 70.7 71.3 69.6 72.7 73.4 66.0 75.1 52.1
Claims ratio, net of reinsurance 72.3 69.0 67.4 72.9 75.1 69.2 67.6 72.0 74.2
Annual report 2017 | Tryg A/S | 110Contents – Financial statements
Run-off, net of reinsurance (%) -5.5 -6.0 -4.7 -5.4 Number of full-time employees 31 December 1,933 1,839
Run-off, net of reinsurance (%) -8.0 -10.0 -6.7 -10.6 Number of full-time employees 31 December 1,042 1,040
Run-off, net of reinsurance (%) 7.4 1.5 -4.8 -2.8 Number of full-time employees 31 December 398 385
Other income and costs -23 -112 -77 -157 Profit/loss before tax 685 800 3,239 3,220 Run-off gains/losses, net of reinsurance 219 301 972 1,239
Net asset value per share (DKK) 41.78 34.37 34.16 38.46 37.41 Market price/net asset value 3.7 3.7 4.0 3.6 2.8 Ordinary dividend per share (DKK) 6.40 6.20 6.00 5.80 5.40 Extraordinary dividend per share (DKK) 3.31 3.54 Price/Earnings 17.0 14.4 20.4 15.8 13.3
Key ratios are calculated in accordance with ‘Recommendations & Financial Ratios’ issued by the Danish Society of Financial Analysts.
Group chart at 1 January 2018. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated.
Danish general insurance Comprises the legal entities Tryg Forsikring A/S (including Finnish guarantee branch and Tryg Livsforsikring A/S and excluding the Norwegian and Swedish branches).
Solvency II New solvency requirements for insurance companies issued by the EU Commission. The new rules came into force at 1 January 2016.
Glossary The financial highlights and key ratios of Tryg have been prepared in accordance with the Executive Order issued by the Danish Financial Supervisory Authority on the Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds and also comply with ‘Recommendations & Ratios’ issued by the Danish Finance Society.
Compensation takes the form of a lump sum intended to help the customer cope with the financial consequences of an accident, thereby making their daily lives easier. The insurance can include a number of supplementary covers, including treatment by a physiotherapist or chiropractor.
Annual report 2017 | Tryg A/S | 115Contents – Management’s review
Annual report 2017 | Tryg A/S | 116Contents – Management’s review