Management’s review 3 Tryg at a glance 4 Facts about Alka 5 Business areas 6 Income overview 7 Introduction by Chairman and Group CEO
New dividend policy stating a nominal, stable increasing dividend with an annual distribution of 60-90 per cent of the profit after tax
TryghedsGruppen decided to pay out a bonus to its members: 8 per cent of premium paid to Tryg for 2015
• Tryg received final approval of the Alka acquisition from the Danish Competition and Consumer Authority
Strong market position Tryg is one of the largest non-life insurance companies in the Nordic region. We are the largest player in Denmark and the third-largest in Norway. In Sweden, we are the fifth-largest company in the market.
Our 4,000 employees provide peace of mind for 4 million customers and handle approximately 1 million claims on a yearly basis.
As the world changes, we make it easier to be tryga).
More than 100 years of experience In 1903, a group of trade union managers founded Arbejdernes Livsforsikring, which became Alka Forsikring in 1944. Alka has thus more than 100 years of experience of insurance in Denmark.
A score of 80.2 in the annual customer satisfaction survey is a very strong position amongst customers
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 AXA Corporate solutions network.
Investment return after insurance technical interest -330 86 -332 527 987 -22 360
Return on equity after tax (%) 3.9 22.1 14.9 28.8 26.2 20.0 23.7
Net asset value per share (DKK) 37.56 41.78 34.37 34.16 38.46 Ordinary dividend per share (DKK) 1.65 1.60 6.60 6.40 6.20 6.00 5.80 Proposed extraordinary dividend per share (DKK) 3.31 3.54 Premium growth in local currencies 13.0 1.9 6.3 1.7 0.1 -0.8 -1.1
Run-off, net of reinsurance (%) -4.1 -4.9 -6.5 -5.4 -7.0 -6.7 -6.1 Large claims, net of reinsurance (%) 1.7 1.8 2.6 1.4 2.2 3.4 3.1 Weather claims, net of reinsurance (%) 1.6 2.8 2.0 1.7 2.0 3.4 2.4
The year 2018 showed improvements in all important areas. Profitability improved, the number of customers increased, and customer loyalty and employee job satisfaction increased. We were also pleased that the acquisition of Alka was approved by the authorities in November 2018.
Excluding Alka one-offs and earnings, technical result for 2018 was DKK 2,826m driven by a combined ratio of 84.5%. The 2018 technical result, as reported, was DKK 2,766m which together with a negative investment return yielded a total profit of DKK 1,731m, corresponding to a return on equity of 14.9 per cent after tax.
Dividend payments to shareholders It is very important for Tryg that our share- holders should receive a nominal, stable in- crease in dividend. A total dividend per share of DKK 6.60 will be paid out for FY 2018 (DKK 6.40 in 2017) including a Q4 dividend per share of DKK 1.65.
Efficient distribution and new products Efficient distribution is important to maintain a low expense ratio. In 2018, the development of online solutions as well as new distribution channels contributed to increasing efficiency. Tryg aims to increase revenue from new products and services. In 2018, we saw a significant increase in the number of products including surety and credit insurance, pet and child insurance policies.
Thanks to our employees The good results and the many initiatives implemented in 2018 have only been made possible because of the Tryg employees. We are therefore very pleased to note increasing job satisfaction in 2018, up from 76 to 78, compared with 72 for Nordic finance companies as a whole. The Supervisory Board and the Executive Board would like to thank the employees for their great efforts.
7Contents – Management’s review Annual report 2018 | Tryg A/S |
Annual report 2018 | Tryg A/S | 8Contents – Management’s review
Claims track-and-trace feature Private Denmark launched a claims track-and-trace feature, which means that customers are now able to follow the processing of claims online, which supports a positive claims experience.
Tryg acquires Troll Forsikring Tryg acquired Troll Forsikring in Norway with a portfolio of NOK 120m and 12,000 private customers. Tryg expects the portfolio to gradually produce profitability in line with our Norwegian Private portfolio, and the acquisition will have a negligible impact on Tryg’s solvency ratio.
TryghedsGruppen’s member bonus For the third year running, Tryg’s majority shareholder TryghedsGruppen paid out a member bonus correspond ing to 8% of the premiums paid to Tryg for 2017, equating to the payout of DKK 720m in total to Trygheds Gruppen’s members who are Tryg’s Danish customers.
New house insurance Private Denmark launched a new house insurance product, which includes a rat blocker. The rat blocker is another important claims prevention initiative from Tryg. The rat blocker prevents rats from entering private houses from the sewers and damaging houses, pipes etc.
Alka acquisition completed Tryg received approval of the Alka acquisition from the Danish Competition and Consumer Authority and could finally complete the transaction. Tryg firmly maintains its guidance for synergies of DKK 300m related to the Alka acquisition with a full run-rate impact in 2021.
Financial outlook increased IT investments, which will, for the most part, be offset by improved distribution efficiency.
The Nordic non-life markets remain very stable in terms of top-line growth (assumed to be in line with GDP) and product offerings. Tryg sees a future where personal insurance will become more relevant compared to the current situation. Health, child and accident insurance products are all part of this development, while product innovation is generally regarded as highly important in mature markets. Tryg wishes to quickly adapt to a future that may be characterised by different insurance needs in terms of product offerings and coverages.
The Nordic countries are characterised by a high level of non-life insurance penetration. For example, ratios of non-life insurance premiums to GDP are some of the highest in the world. This is ascribable to the fact that households are relatively wealthy and tend to cover their insurance needs well.
In 2019, weather claims net of reinsurance and large claims are expected to total DKK 600m and DKK 550m, respectively. The weather claims assumption now includes the Alka portfolio.
In the past few years, corporate tax rates have been lowered throughout Scandinavia. In Denmark, the rate will remain at 22% in 2019, while it is 25% in Norway and 22% in Sweden. Capital gains and losses on equities are not taxed in Norway, which reduces the expected tax payable for an average year to 22-23%.
Expected level 2019: DKK 550m the amounts of DKK 75m in 2019, DKK 150m in 2020 and DKK 300m in 2021. Following the approval of the acquisition, Tryg will book an annual depreciation charge of DKK 127m pertaining to the DKK 1.4bn value of customer relations and branding.
Annual report 2018 | Tryg A/S | 10Contents – Management’s review
profitable business. Tryg’s performance can be measured by its total shareholder return over the years. Tryg aims to increase the annual ordinary dividend, while maintaining stable results and a high level of return on capital employed.
Clear and ambitious targets must be set for each individual employee – and regular feedback must be provided. Tryg was pleased to see an increased level of employee satisfaction in 2018 and has now surpassed the general level of employee satisfaction in the financial sector in the Nordic region. Tryg is aiming for the highest level of employee satisfaction in the financial sector in the Nordic region.
Value creation for our shareholders Tryg’s shareholders must see Tryg as a company setting ambitious targets, and as an efficient and
Tryg’s new purpose is valid for all stakeholders – our customers, our employees and our shareholders.
Segments: Private, Commercial and Corporate Geography: Denmark, Norway and Sweden a) Tryg’ means: feeling protected and cared for.
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There is a strong correlation between customer loyalty and the number of products per customer, and therefore a target of increasing the number of products by 10% per customer has been set, corresponding to four products per customer. In 2018, the number of products per customer increased from 3.5 to 3.8.
Strategic initiatives Tryg has defined four strategic initiatives that support both our financial targets and our customer targets for 2020. Furthermore, synergies stemming from the Alka acquisition will also support Tryg's 2020 financial and customer targets.
Tryg has an employee satisfaction level above the average of the Nordic sector.
Partner agreement with NITO In Q2, Tryg Norway entered into a partnership with NITO – the largest partner agreement in Norway in 17 years. NITO has almost 90,000 members.
12Contents – Management’s review Annual report 2018 | Tryg A/S |
Tryg’s digital solutions also proved important when entering into new partner agreements with, e.g., the Norwegian Society of Engineers and Technologists (NITO), the Federation of Danish Motorists (FDM), OBOS in Norway and Danske Bank.
• Entering new markets. Tryg is planning to develop its profitable credit and surety business, Tryg Garanti, by introducing the product in countries outside the Nordics.
• Partner agreements. The new partner agreements with NITO, OBOS, FDM and Danske Bank will contribute significantly to boosting distribution efficiency in 2019/2020, as good leads are made available to the sales organisation.
Corporate Responsibility Corporate Responsibility (CR) is an integrated part of Tryg’s core business and is closely linked to our purpose ‘as the world changes, we make it easier to be tryg’. Tryg means feeling protected and cared for. We focus on activities related to human and labour rights, climate and environment as well as anti-corruption, and we are actively working to in - tegrate CR into our insurance, claims handling and prevention activities. CR plays a role in our decision- making, our risk mitigation, the improvement and development of our products and services, the optimisation of our operations and business partners, the development of our employees, and the contributions we make to society at large through our activities and strategic partnerships.
14Contents – Management’s review Annual report 2018 | Tryg A/S |
Capital markets developed negatively in 2018. Equities and other ‘risky assets’ were impacted by several geo-political turbulences and intensifying talk of a trade war between the US and China. Equities returned approximately -11% for 2018 (driven by a -14.9% return in Q4 2018), while emerging market debt (a small asset class for Tryg) returned -6.7%. The negative investment return for 2018 was due primarily to turbulence in the last quarter of 2018, with equities seeing a particularly negative development. The investment return totalled DKK -332 (DKK 527m) for the FY where approximately 2/3 of the difference compared to 2017 can be traced backed to vast differences in equity market performance.
In 2018, Danish customers received their third member bonus from TryghedsGruppen (Tryg’s 60% majority shareholder). The 8% bonus is appreciated by customers and is expected to
Results 2018 Tryg reported a technical result of DKK 2,766m (DKK 2,789m), or DKK 2,826m (DKK 2,789) adjusted for the Alka acquistion. The investment result was DKK -332m (DKK 527m) driven primarily by negative development in the equity markets. Other income and expenses were DKK -172m (DKK -77m). The 2018 results were impacted by one-offs of DKK -200m in Q4 2018 as a result of the Alka transaction, an amount of DKK -124m of which was booked in the technical result and DKK -76m in other income and expenses. Alka contributed with DKK 63m (for November and December) to the overall technical result.
Tryg reported an improved technical result (excluding Alka) for Private, Commercial and Sweden while Corporate was impacted by a high level of large claims. The combined ratio was 85.1% (84.4%) driven by a claims ratio of 70.7% and an expense ratio of 14.4%. The combined ratio was 84.5% adjusting for the one-offs related to Alka split between a claims ratio of 70.4% and an expense ratio of 14.1%.
Large claims were substantially higher than in 2017 while weather claims were modestly higher, the run-off result was also higher. The return on equity (after tax) was 14.9% (28.8%). Price adjustments
Premiums Premiums totalled DKK 18,740m (DKK 17,963m), representing 6.3% growth in local currencies. Premiums grew 4.1% in local currencies excluding Alka. Developments were characterised by satisfactory growth in Private Denmark and Private Norway, price increases in the Corporate segment and satisfactory growth in Sweden, driven mainly by pet insurance. Alka contributed DKK 386m to the Group premium as the business was consolidated for approximately two months.
Price adjustments and generally positive economic developments throughout Scandinavia are likely to support top-line developments in 2019.
The Commercial segment reported premium income growth of 3.7% in local currencies, helped by Alka (DKK 48m), portfolio acquisitions and a positive portfolio development. The member bonus continues to support the Danish part of Commercial, which is currently showing very high retention levels.
The Corporate segment reported premium income growth of 4.0% in local currencies, helped by price increases and low-risk fronting agreements. In Corporate Denmark, the development in premium income was positively helped by the member bonus model, a good development in the surety and credit business (Tryg Garanti) and price adjustments. Corporate Norway’s top-line development was helped by the pricing initiatives pushed through to improve profitability in a highly competitive market.
In 2018, large claims totalled DKK 490m (DKK 243m), while weather claims totalled DKK 384m (DKK 298m). The level of large claims was somewhat below normalised expectations (DKK 550m), while the level of weather claims was also below the normal level (DKK 600m starting in 2019 including Alka). The overall runoff result was DKK 1,221m (DKK 972m) or 6.5% (5.4%) on the combined ratio. The higher level was primarily driven by higher releases in Motor TPL, Workers Compensation and Accident and Health.
Investment activities The investment return totalled DKK -332m (DKK 527m), impacted negatively by capital market turbulence in the last three months of 2018.
Other income and costs Other income and costs were DKK -172m (DKK -77m). The much higher figure compared to 2017 was driven by the inclusion of one-off costs of DKK 76m relating to Alka (transaction costs) and also a DKK 19m depreciation charge relating to customer relations and branding in connection with the Alka transaction.
Own funds totalled DKK 8,058m (DKK 13,162m). The comparative figure at the end of 2017 was positively impacted by the raising of capital in the amount of DKK 4bn to fund the Alka acquisition, while the year-end 2018 figure was impacted by intangibles of DKK 5.7bn relating to that acquisition. During 2018, own funds were positively impacted by the net profit, and negatively impacted by the ordinary dividend and the extraordinary dividend paid in March 2018 (announced at the CMD in November 2017) and the issuance of SEK 700m Tier 1 notes during the spring.
Tryg’s own funds comprise mainly shareholders’ equity, intangibles (fully deducted), Tier 2 instruments (subordinated debt and natural perils pool), Tier 1 instruments and future profits. The vast majority of Tryg’s own funds are constituted by shareholders’ equity. The Tier 2 capacity has been fully utilised, while currently DKK 140m of Tier 2 bonds are not included in the own funds as they exceed the 50% solvency capital requirement (hereafter SCR). The Tier 1 capacity has also been virtually fully utilised following the SEK 700m spring issue to help fund the Alka acquisition. The future profit item increased during 2018 from DKK 970m to DKK 1,408m. This follows the integration of the highly profitable Alka business and an initial conservative approach together with improved profitability of the underlying business.
The Supervisory Board regularly assesses Tryg’s capital position. In 2018, Tryg announced the payment of DKK 1bn in extraordinary dividend in
March following an announcement at the CMD in November 2017. Continuous assessments of the company’s capital position are carried out, in which the SCR is projected based on 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. Adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
Tryg calculates its individual SCR based on a partial internal model in accordance with the Danish Financial Supervisory Authority’s Executive Order on Solvency and Operating Plans for Insurance Companies. The model is based on the structure of the standard model. Tryg uses an internal model to evaluate insurance risks, while other risks are calculated using standard model components. The SCR, calculated using the partial internal model, was DKK 4,892m compared to DKK 4,684m at the end of 2017. The upward move in the SCR during 2018 was primarily driven by the inclusion of Alka, which increases the SCR by DKK 397m. A re-balancing of Alka’s investment portfolio will reduce this to approximately DKK 350m in the long term. The SCR, based on the standard formula, was DKK 5,980m compared to DKK 5,838m at the end of 2017.
Tryg has previously (at CMD in November 2017) announced plans to reduce the SCR by up to 10%. The plan included the introduction of a model for Danish workers’ compensation, which was adopted in 2018, and the inclusion of the Swedish business in the partial internal model, while also fine-tuning other parts of the model.
Moody’s rating Tryg has an ‘A1’ (stable outlook) insurance financial strength rating (IFSR) 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 and a ‘Baa3’ rating to the recent Tier 1 issue. All ratings were confirmed following the announcement of the Alka acquisition.
The underlying claims ratio (Tryg excluding Alka and one-offs) improved by 0.4 percentage points for the Group and 0.5 percentage points for the Private segment, continuing the positive trend seen in 2018. Tryg pays a quarterly dividend of DKK 1.65 (DKK 499m) and reports a solvency ratio of 165.
Premiums Premiums grew 4.5% excluding Alka, impacted by a good organic growth and helped by minor portfolio acquisitions. Premium growth came mostly from the Private segment in both Denmark and Norway, but a positive development was seen also in the Commercial business. Corporate growth was driven mainly by Tryg Garanti and price increases, mostly in the Norwegian part of Corporate, to improve the underlying profitability. Tryg will implement price adjustments of approximately 3% also in 2019 to offset the general claims inflation and improve the profitability of selected parts of the portfolio.
Expenses The reported expense ratio was 15.6% (13.7%), impacted negatively by one-offs in the amount of DKK 75m relating to the Alka acquisition. The expense ratio would have been 14.4% excluding the aforementioned one-offs.
Annual report 2018 | Tryg A/S | 18Contents – Management’s review
a return of DKK -42m (DKK 13m) on the match portfolio and other financial income and expenses of DKK -90m (DKK -65m).
The free portfolio negative result was driven by negative developments in equity markets. Tryg’s equity portfolio returned approximately -15% in the quarter. Additionally, fixed income returns were also negative, driven by a poor perf ormance of emerging markets debt in Q4 (-6.7% return).
Other financial income and expenses was DKK -90m (DKK -65m), a somewhat higher level than normalised expectations. Increased interest expenses on the loans (Tier 1 & Tier 2 loans), higher leasing costs (IFRS 16 accounting standard on leasing) and a write-down of a couple of minor strategic investments explain most of the difference compared to Q4 2017.
Other income and expenses Other income and expenses totalled DKK -117m (DKK -23m). The negative development was driven by one-off costs of DKK -76m in the form of transaction costs in connection with the Alka acquisition. Additionally, Tryg has started the depreciation of customer relations and branding from the Alka transaction. This had an additional negative impact of DKK -19m in the quarter. Tryg has announced that the depreciation of customer relations and branding will have an annual impact (booked on the other income and expenses line) of DKK -127m.
Premiums Gross premium income increased by 8.9% (1.1%) in local currencies, primarily due to the Alka acquisition. Premiums increased by 12.6% in Denmark, or 6.0% excluding of Alka. The increase was driven by a number of factors, such as increased retention rates, package concepts and a strong interest in Tryg’s claims prevention initiatives, including alarms for home insurance policyholders, and rat blockers for house insurance policyholders. Tryg also registered a further increase in awareness of the customer bonus from TryghedsGruppen.
In Norway, premium income increased by 3.8% in local currencies, mainly due to the OBOS and Troll acquisitions. The main driver related to OBOS has been sales to members, and the private portfolio is now three times bigger than when Tryg acquired the portfolio.
Claims The gross claims ratio totalled 65.5 (66.0), and the claims ratio, net of ceded business, 67.8 (68.4). The underlying claims level, excluding Alka, improved by 0.5 percentage points, which was attributable to the claims excellence programme and price adjustments aimed at mitigating increased claims inflation. The level of weather-related claims was somewhat higher, primarily due to winter weather in Norway in Q1 2018.
Key ratios Premium growth in local currencies 21.2 1.1 8.9 1.1
Combined ratio exclusive of run-off 83.0 84.2 85.8 85.6 Run-off, net of reinsurance (%) -2.9 -2.2 -4.2 -3.5 Large claims, net of reinsurance (%) 0.0 0.0 0.0 0.0 Weather claims, net of reinsurance (%) 1.3 2.4 2.4 1.9
The business area accounts for 51% of the Group’s total premium income.
Annual report 2018 | Tryg A/S | 20Contents – Management’s review
Results Q4 2018 The technical result totalled DKK 531m (DKK 394m), with a combined ratio of 80.1 (82.0). The higher technical result was due to the inclusion of Alka for approximately two months. The underlying claims ratio, excluding Alka, improved by 0.5 percentage points, which is in line with developments in previous quarters.
The retention rate in Denmark increased from 90.2 to 91.2, while in Norway the retention rate increased from 85.8 to 86.7.
Claims The gross claims ratio was 64.2 (65.7), and the claims ratio, net of ceded business, was 66.6 (68.3). The underlying claims ratio excluding Alka improved by 0.5 percentage points. It was impacted by the ongoing claims excellence programme and price adjustments aimed primarily at mitigating claims inflation. Weather claims were lower compared to an average fourth quarter and also below prior-year quarter.
Premiums The development in gross premium income was positive 3.7% (-0.7%) in local currencies, as mentioned impacted by the Alka and OBOS acquisitions. There was also an underlying improvement in premium income for both the Danish and Norwegian Commercial business. Excluding the acquisitions, growth in Commercial Denmark was 1.1% and in Commercial Norway 1.4%.
Expenses The expense ratio for Commercial was 17.5 (17.2). The expense level is generally too high for Commercial, especially for the distribution part, and Commercial Denmark has therefore started to recruit a new type of sales agents with the aim of lowering cost of sales. In Denmark, Commercial also decided to start working with independent sales agents selling only for Tryg. This is a new type of distribution channel in Denmark that has proven to be very efficient for Private Denmark in Q4.
Key ratios Premium growth in local currencies 6.8 2.3 3.7 -0.7
Combined ratio exclusive of run-off 89.6 94.9 91.2 91.1 Run-off, net of reinsurance (%) -15.4 -9.0 -10.9 -8.5 Large claims, net of reinsurance (%) -1.0 4.8 1.6 3.1 Weather claims, net of reinsurance (%) 2.3 3.9 2.3 1.8
Commercial encompasses the sale of insurance products to small and mediumsized businesses in Denmark and Norway. Sales are effected via Tryg’s own sales force, brokers, franchisees (Norway), customer centres as well as group agreements.
Claims The gross claims ratio was 52.2 (66.3), with a claims ratio, net of ceded business, of 56.7 (70.0). The much lower level was due to a substantial decrease in large claims and a higher level of runoffs, but also an underlying improvement driven by claims excellence initiatives.
Expenses The expense ratio was 17.5 (15.9), which was somewhat higher than for the prior-year period, primarily due to an extraordinarily low level last year. Going forward, Commercial will focus strongly on reducing costs.
The total number of employees increased from 479 at the end of 2017 to 516 in 2018. The increase was ascribable to the new type of low- cost sales agents in Denmark and the acquisition of Alka.
Results Q4 2018 The technical result was DKK 270m (DKK 138m), with a combined ratio of 74.2 (85.9). The result was positively affected by a substantial decrease in the level of large claims, but also a high level of run-off gains. Premium growth was a positive 6.8% (2.3%), primarily due to the Alka and OBOS acquisitions.
Profit/loss on gross business -30 148 398 854 Profit/loss on ceded business -87 -88 -225 -467 Insurance technical interest, net of reinsurance 0 0 0 -1
Key ratios Premium growth in local currencies 2.9 3.0 4.0 2.1
Results 2018 The technical result was DKK 173m (DKK 386m), with a combined ratio of 95.6 (90.0). The result was negatively affected by a significantly higher level of large claims. Premiums were up 4.0% (2.1%) and were impacted by price hikes, an increased level of fronting business and in Denmark a high retention level driven by the customer bonus model. The corporate market is generally challenged in all countries, even following significant price hikes, especially in Norway. Tryg is determined to improve profitability and will increase prices in 2019, which – depending on the reaction from competitors – might reduce premium income.
Premiums Gross premium income was up 4.0% (2.1%) in local currencies. An increase of around 5.4% was seen in Denmark due to a positive development for the Guarantee business (Tryg Garanti) and very high retention levels, which is probably ascribable to the customer bonus model. In Norway, premium increased by 1.7%, primarily due to price hikes. In Sweden, which accounts for only 20% of the total Corporate business, premium growth was 3.6%.
Claims The gross claims ratio totalled 79.9 (67.7), and the claims ratio, net of ceded business, 85.7 (79.8). The higher claims level was primarily due to the development in large claims in Norway. A higher level of large claims is bound to happen from time to time, and this is not a problem as such. The issue for Corporate is that the underlying profitability is not satisfactory, and price hikes will therefore be implemented, especially in Norway, and have a greater impact than the initiatives in 2018.
In Denmark, profitability initiatives will also be implemented, but Tryg’s position in the Corporate market in Denmark is generally much better due to the member bonus payments from TryghedsGruppen.
In Sweden, more significant steps were taken to improve profitability, especially for specific segments. Profitability still needs improving for motor insurance and liability.
Expenses The expense ratio was 10.3 (10.1) and in line with the level in Q4 2017.
Expenses The expense ratio for Corporate was 9.9 (10.2), and it was quite stable throughout the year. As the cost of handling large clients is relatively low – when taking account of premium levels – and as brokers are paid directly by the customers, Corporate should have a much lower expense ratio than Private and Commercial.
Sweden comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres, partners and online.
Premiums Premium income increased by 4.9% (12.5%) in local currencies. In 2017, growth was driven by the acquisition of Skandia’s child insurance portfolio. In 2018, growth of 4.9% was achieved through organic growth, especially from pet insurance, motor insurance and accident insurance. The inbound team performed strongly in 2018. Changed legislation in Sweden has made outbound sales more challenging as companies can’t close sales but must have customers accept after the call, for example using text messaging.
Results Q4 2018 Sweden’s technical result totalled DKK 38m (DKK 30m), with a combined ratio of 89.2 (91.3). Premium growth was a positive 7.7% (5.1%). The expense level improved to 17.2 (17.7).
Annual report 2018 | Tryg A/S | 26Contents – Management’s review
Employee numbers were more or less un- changed at 354 (353).
Expense ratio 27Contents – Management’s review Annual report 2018 | Tryg A/S |
Value adjustments, changed discount rate -126 -26 7 122 Transferred to insurance technical interest -54 -44 -209 -184
Tryg’s equity portfolio returned DKK -212m (approximately -11%) in 2018 vs DKK 353m (approximately 16%) in 2017. The drastic difference in returns from equities explains around 2/3 of the difference in the Group’s investment return in 2018 vs 2017. The fixed-income portfolio also produced a negative return of DKK -93m (DKK 153m), driven primarily by widening credit spreads across virtually all fixed-income asset classes. The return on the investment property portfolio was DKK 272m (DKK 92m) or 13.0%. The high return on the properties portfolio was helped by a properties revaluation of DKK 80m in Q1 and DKK 75m in Q4.
Total gross return/Total investment -198 -1.9 138 1.3 -33 -0.4 598 5.0 10,680 11,365 a) Senior/Bank deposits less than 1 year and derivative financial instruments hedging interest rate risk and credit risk. b) In addition to the equity portfolio exposure is derivatives contracts of DKK 235m.
The regulatory deviation made a slightly negative contribution of DKK -2m (DKK 98m) as the yield difference between Danish and Euro swap rates was virtually unchanged. The regulatory deviation is sensitive to the yield spread, but as the hedge portfolio has switched to a higher degree of Euro swaps, the sensitivity is lower.
The most important driver of the performance result is the difference in yields between Danish, Norwegian and Swedish covered bonds and equivalent swap rates. If spreads narrow (versus swap rates), the overall performance is positive; otherwise the overall performance is negative. The per formance made a contribution of DKK 0m (DKK 129m) as Nordic covered bonds, were broadly flat against the swap curve, looking at the full-year development. Tryg has previously mentioned that normalised long-term expectations for the match portfolio should be around zero.
Annual report 2018 | Tryg A/S | 29Contents – Management’s review
The match portfolio had a negative result in both its components, regulatory deviation and performance. The regulatory deviation produced a DKK -19m (DKK 11m) result as Danish swap rates widened 4 basis points vs the Euro swap rates, while the performance component produced a DKK -23m (DKK 2m) result as Nordic covered- bonds spreads also widened in the quarter, primarily in Denmark and Norway.
Match portfolio DKK -42m 30Contents – Management’s review Annual report 2018 | Tryg A/S |
Risk management is based on Tryg’s targets and strategies and the risk exposure limits decided by the Supervisory Board. The assessment and management of Tryg’s aggregated risk and the associated capital requirements therefore constitute a central element in the management of the company. Tryg’s Supervisory Board defines the framework for the company’s target risk appetite and thereby the capital which must be available to cover any losses.
Insurance risk The insurance risk is managed by limiting the size of single large commitments and through the use of reinsurance, thus reducing the maximum cost of large claims. Furthermore, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operating within these boundaries, Tryg’s risk depends on the company’s choice of exposure within different segments and industries in the insurance market. Tryg operates in relatively stable markets (Nordic non-life markets), while almost 60% of premiums (including the Alka book) are in the Private segment. Quarterly fluctuations are driven mainly by large claims and weather events, and reinsurance is used extensively to stabilise the overall earnings level.
Investment risk Invested assets are split into a match portfolio (DKK 29bn) and a free investment portfolio
(DKK 11bn). The objective is for the return on the match portfolio to be as close as possible to zero as capital gains and losses on the assets side should be mirrored by corresponding developments on the liabilities side. The free portfolio is intended to produce the maximum risk-adjusted return. The investment risk associated with the free portfolio is managed through limits on exposures within each asset class (bonds, shares, properties etc.).
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 ratio is defined as own funds divided by the Solvency Capital Requirement.
The Solvency Capital Requirement (SCR) is calculated in such a way that Tryg statistically should be able to honour its obligations in 199 out of 200 years. In other words, Tryg could have a negative result greater than DKK 4,892m (the SCR) in 1 out of 200 years. Tryg’s SCR was DKK 4,892m at the end of 2018, up approximately DKK 200m from the end of 2017. The consolidation of the Alka business resulted in a stand-alone increase of the SCR of just below DKK 400m, while a lower capital charge on equities, following the negative markets in Q4, reduced the SCR by approximately DKK 250m.
Tryg’s solvency ratio displays low sensitivity towards capital market movements. The highest sensitivity is towards spread risk, where a widening/tightening of 100 basis points will impact the solvency ratio by 14 percentage points. A lower sensitivity is displayed towards equity market falls and interest rate fluctuations. A change in the UFR (Ultimate Forward Rate) will have an insignificant impact. This is unsurprising, considering that Tryg underwrites only non-life risks with a relatively short duration.
Tryg will pay a Q4 dividend of DKK 1.65 per share on 25 January 2019, which is in line with Q1, Q2 and Q3 levels, and also in line with Tryg’s policy of paying out a stable quarterly dividend. The full-year dividend is therefore DKK 6.60 per share, equivalent to a total distribution of just below DKK 2bn. In March 2018 Tryg also paid an extraordinary dividend (announced at CMD in November 2017) of DKK 1bn.
Tryg will pay a Q4 dividend of DKK 1.65 per share on January 25
See a list of analysts and their recommendations at tryg.com > investor > share > analysts
Share capital and ownership Tryg’s share capital totalled 1,510,739,955 on 31 December 2018. It comprises one share class (302,147,991 shares 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.
23 Jan. 2019 Tryg shares are traded ex-dividend 25 Jan. 2019 Payment of Q4 dividend 15 Mar. 2019 Annual general meeting 10 Apr. 2019 Interim report Q1 11 Apr. 2019 Tryg shares are traded ex-dividend 15 Apr. 2019 Payment of Q1 dividend 10 July 2019 Interim report Q2 and H1 11 July 2019 Tryg shares are traded ex-dividend 15 July 2019 Payment of Q2 dividend 10 Oct. 2019 Interim report Q3 and Q1-Q3 11 Oct. 2019 Tryg shares are traded ex-dividend 15 Oct. 2019 Payment of Q3 dividend
Shareholders at 31 December 2018 a) Shareholders holding more than 10,000 shares.
Quarterly dividends started in 2017 Tryg started paying quarterly dividends in 2017. The Tryg share has a distinct income profile in that the business generally grows in line with GDP, producing high margins, which are mostly returned to shareholders. 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.
Annual general meeting Tryg’s annual general meeting will be held on 15 March 2019 at 15:00 CET at Tryg’s head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark. The notice will be advertised in the daily press in February 2019 and will be sent to shareholders upon request.
Tryg focuses on managing the company in accordance with the principles of good corporate governance and generally complies with the Danish recommendations prepared by the Committee on Corporate Governance. The Recommendations on Corporate Governance are available at corporategovernance. dk. At tryg.com, Tryg has published its statutory corporate governance report based on the ‘comply-or-explain’ principle for each individual recommendation. This section on corporate governance is an excerpt of the corporate governance report.
Share and capital structure Tryg’s share capital comprises a single share class, and all shares rank pari passu. The majority share- holder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the company’s shares. The Supervisory Board ensures that Tryg’s capital structure is aligned with the needs of the Group and the interests of its shareholders, and that it complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board.
The representation of women in Tryg’s Supervisory Board is thus compliant with legislation as well as Tryg’s policy. The Supervisory Board has members from Denmark, Sweden and Norway.
See The board committees’ terms of reference can be found at tryg.com > Governance > Management > Supervisory Board > Board committees, including descriptions of members, meeting frequency, responsibilities and activities during the year
Three out of four members of the Audit Committee and three out of five members of the Risk Committee, including the chairman of the committees, are independent persons. Two out of the four members of the IT-Data Committee, including the chairman of the committee, are independent. Of the four members of the Remuneration Committee, two members are independent persons, and both members of the Nomination Committee are independent. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board.
Anders Hjulmand 360,000 360,000 Elias Bakk 360,000 360,000 Jørgen Huno Rasmussen a) 226,452 31,451 257,903 a) Resigned from the Supervisory Board in March 2018
Each year the Supervisory Board evaluates the performance of the Executive Board against the targets defined 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 2018 were based on Tryg’s technical result, Transactional Net Promoter Score, employee satisfaction levels, the incorporation of Alka and the implementation of the strategy.
Morten Hübbe 10,750,000 2,687,500 255,000 26,000 13,718,500 600,000 d) 4,481,377 18,799,877 Lars Bonde 5,253,713 1,313,428 255,000 26,000 6,848,141 600,000 d) 2,237,059 9,685,200 Johan Kirstein Brammer a) 4,704,301 1,176,075 239,234 24,392 6,144,003 1,925,000 e) 2,133,460 10,202,463 Christian Baltzer b) 3,780,645 945,161 200,847 20,478 4,947,132 240,000 d) - 5,187,132 a) Joined the Executive Board on 23 January 2018 b) Resigned from the Executive Board on 14 October 2018. One-off fee is a severence payment.
c) The maximum investment opportunity offered under the Matching Shares Programme at the beginning of 2019 (performance year 2018) d) One-off fee related to the Alka acquisition e) 1 January-8 November, Johan Brammer received a pay supplement of DKK 150,000 per month plus pension for managing two positions as Head of Private Denmark and CCO.
Other risks associated with the financial reporting are described in the section Capital and risk management on pages 31-32 and in Note 1 Risk management on page 60
The Supervisory Board and the Executive Board approve and monitor the Group’s overall policies and guidelines, procedures and controls in important risk areas. They receive reports about developments in these areas and about the ways in which the frameworks are applied. The Supervisory Board checks that the company ’s risk management and internal controls are effective. The Board receives reports on noncompliance with the frameworks and guidelines established by the Supervisory Board. The Risk Committee monitors the risk management on an ongoing basis and reports quarterly to the Supervisory Board.
Annual report 2018 | Tryg A/S | 39Contents – Management’s review
Supervisory Board Jesper Hjulmand (1963) Board member From positions with SEAS-NVE, Jesper Hjulmand has experience in the fields of M&A, strategy, organisational and management development, communication and business development. Chairman of the Board of TryghedsGruppen.
Lone Hansen (1966) Employee representative Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Employed since 1990.
Ida Sofie Jensen (1958) Board member Has experience from business operations and the healthcare sector as well as management, strategy, politics and finance. Deputy Chairman of TryghedsGruppen.
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. Deputy Chairman of TryghedsGruppen.
Torben Nielsen (1947) Deputy Chairman Has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Nationalbank. Tina Snejbjerg (1962)
Mari Thjømøe (1962) Board member Has special skills in the fields of financial planning and control, restructuring/financing, investment analysis, investor relations, asset management, strategic planning, branding as well as special knowledge of the insurance market. Mari Thjømøe has special insights into the Norwegian market.
Jukka Pertola Chairman Born in 1960. Joined the Supervisory Board in 2017. Finnish citizen. Career: Professional board member. Former CEO of Siemens. Education: MSc in Engineering. Board seats, Chairman: Danish Academy of Technical Sciences (ATV), Gomspace Group AB / GomSpace A/S, Leo Pharma A/S, Siemens Gamesa Renewable Energy A/S, Tryg A/S and Tryg Forsikring A/S, IoT Denmark A/S, Monsenso ApS. Board seats, Deputy Chairman: Cowi Holding A/S. Board member: Industriens Pensionsforsikring A/S. Committee membership: IT-Data Committee in Tryg A/S. chairman in nomination committee and remuneration committee, Remuneration and Nomination Committee (Chairman) in LEO Pharma A/S. Number of shares held: 4,000 Change in portfolio 2018: +2,800
Career: Professional board member, Adjunct Professor at 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, Ny Holmegaard Fonden, Ny Holmegaard Værk, Investeringsforeningen Sparinvest, Vordingborg Borg Fund and KTIF (Kapitalforeningen Tryg Invest Funds).
Board seats, Deputy Chairman: Tryg A/S and Tryg Forsikring A/S. Board member: Sampension AKP Livsforsikring A/S and member of the Executive Management of Bombebøssen (pension fund). Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman) and Nomination Committee in Tryg, Risk Committee (Chairman) in Sydbank and Remuneration and nomination committee at Sampension (Chairman). Number of shares held: 27,000 Change in portfolio 2018: +6,000
Born in 1963. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of SEAS-NVE A.m.b.A. Education: MSc (Economic and Business Administration), Lieutenant-Colonel Royal Danish Air Force Reserve, Pathfinder and MBA module ’Strategic business understanding’ (SDU). Board seats, Chairman: Cerius A/S, Energy Denmark A/S, Fibia P/S and TryghedsGruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S, SEAS-NVE Holding A/S and Central Board of the Confederation of Danish Industry. Committee memberships: Audit Committee, Nomination 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 2018: 0
Born in 1958. Joined the Supervisory Board in 2013. Danish citizen. Career: Group Managing Director of Lif (Medicine and Healthcare Industry), CEO of the subsidiary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry). Education: MSc in Political Science (cand.scient.pol.), European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University. Board seats, Deputy Chairman: Hans Knudsen Instituttet (business trust). Board member: Tryg A/S, Tryg Forsikring A/S and TryghedsGruppen Smba.
Committee memberships: Remuneration Committee and IT-Data Committee in Tryg A/S. Number of shares held: 2,368 Change in portfolio 2018: 0
Jukka Pertola 9/9 2/2 6/6 3/3 Torben Nielsen 9/9 6/6 2/2 6/6 Elias Bakk 9/9 Lone Hansen 9/9 3/3 Jesper Hjulmand 9/9 4/6 4/6 Ida Sofie Jensen 8/9 6/6 2/3
Tina Snejbjerg Born in 1962. Employee representative. Employed since 1987. Joined the Supervisory Board in 2010. Danish citizen. Career: Officer of Tryg’s Personnel Department. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee in Tryg and the Central Board of Forsikringsforbundet. Number of shares held: 898 Change in portfolio 2018: +148
Born in 1955. Joined the Supervisory Board in 2015. Swedish citizen. Career: CEO of Allert Östlund AB, 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, Irisande Care Group AB, Hypoteket AB, Papilly AB, Ponture AB, Juvinum Food & Beverage AB, Ywonn Media Group AB. Board member: DBT Capital AB, Havsgaard AB, Holmö Fastigheter AB, Tryg A/S, Tryg Forsikring A/S, Wonderbox AB. Committee memberships: Remuneration Committee and IT-Data Committee in Tryg. Number of shares held: 1,810 Change in portfolio 2018: +580
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.
Education: BSc (International Business Administration and Modern Languages), MSc (Finance and Accounting), management programme at Wharton. Board seats, Chairman: Alka. Board seats, Deputy Chairman: Kapitalforeningen Tryg Invest Funds. Board member: Simcorp A/S and KBC BV.
Number of shares held: 162,099 Change in portfolio in 2018: +25,895
Number of shares held: 11,489 Change in portfolio in 2018: +4,361
and to establish a closer link to our Corporate Responsibility strategy.
In addition to this Corporate Responsibility section, we have published an independent Corporate Responsibility report with extended Environmental, Social and Governance (ESG) data.
Peace of mind in society Nightravens As part of our efforts to create peace of mind in society, we are committed to running the Nightravens secretariat in Norway. The Nightravens are local groups of volunteers who walk the streets at night offering help and preventing unwanted incidents. There are more than 300 groups of Nightravens in Norway made up of a diverse mix of volunteers in terms of their nationality, gender and age.
Responsible workplace In 2018, Tryg conducted an internal assessment of the 17 UN Sustainable Development Goals (SDGs) and the assosiated169 targets. As one of the largest non-insurance companies in the Nordic region, we have a responsibility and an opportunity of making an impact on the SDGs and use our expertise to help realise the goals. See our 2018 independent Corporate Responsibility report for further information on methodology and selected targets.
Employee satisfaction The annual employee satisfaction survey measures employee satisfaction and monitors a) ’Tryg’ means feeling protected and cared for.
Annual report 2018 | Tryg A/S | 44Contents – Management’s review
the development in employee satisfaction levels. Processes are in place to ensure that low-scoring departments receive clear guidance and support, and that action plans are made. In 2018, the overall employee satisfaction score was 78, up from 76 in 2017. It proofs that our efforts are working, and we will continue this focus going forward.
A diverse company and a driver of change Women in management positions remain a continuous focus area in Tryg. To support our target, we focus specifically on our recruitment process, while an internal rotation programme is in place to improve conditions and career opportunities for talented women and men.
To further boost and encourage women in management positions, Tryg has an action plan, which is revised annually, outlining actions to support our target of increasing the number of women in management positions. In 2018, we raised our target from 38% to 41% in 2020. In 2018, the share of women in management positions was 33%, a decrease of 4 percentage points compared to 2017 hence we did not meet our target of 38%. Compared to 2017, the number of women in management positions decreased by three. In 2018, Tryg increased the total number of management positions and the declining in share of women in management positions is mainly due to organisational changes. When recruiting, we focus on getting the best competencies for the job. Going forward, we will continue our efforts on attracting women for management positions.
Tryg remains a committed member of the Danish Diversity Council to help inspire and grow the number of women in management positions. To inspire positive role models in Tryg, our LeadThe Future programme encourages female managers to act as role models by sharing their experiences and knowledge about their own career choices.
Tryg's Supervisory Board has an equal gender distribution. Read more in the Corporate Governance section on page 35-36.
Strengthening our employees Tryg offers training, e-learning and education to our employees as well as identifying career opportunities through our People Review to ensure development and capacity building.
Our materiality assessment indicated that there is a risk of violating human and labour rights in our supply chain through our outsourcing activities. To mitigate any violations, we actively monitor our outsourcing suppliers and seek constructive dialogue. Prior to signing a supplier contract, all suppliers undergo a preapproval process. Our suppliers are required to sign our Code of Conduct which outlines our expectations for our business relations.
Tryg has established a process for auditing our outsourcing suppliers to ensure that any potential or actual adverse impacts and risks in our supply chain are handled. All outsourcing suppliers are asked to fill out a self-assessment questionnaire prior to a scheduled on-site audit. If the on-site audit reveals any potential red flags, it will lead to an action plan and follow-up dialogue. If a supplier does not comply with the requirements imposed by Tryg, we will engage in dialogue to ensure improvement. In case of repeated failed attempts at collaboration, Tryg can terminate the contract as a final resort.
Our materiality assessment showed that the climate and the environment are material issues for Tryg and for our stakeholders. Extreme weather events such as flooding, cloudbursts and storms present a risk to Tryg and are causing harm and concern to our customers and to society in general. Tryg’s Corporate Responsibility policy further outlines our commitment to minimising our own environmental footprint.
We continuously work to minimise and sort our waste at local waste stations to reduce waste volumes. In 2018, several new initiatives to reduce waste at the offices in Norway, resulted in gathering and sorting of large volumes of glass and plastic.
In 2018, Tryg’s estimated carbon emissions increased by 3% compared to 2017. The increase is mainly due to an ongoing renovation of our office buildings, extended opening hours and an update of our calculation method for carbon emissions. Thus, we have not achieved our target of a 1% reduction in 2018 compared to 2017. Our target for 2020 is a 2% reduction compared to 2018.
In 2019, Tryg will develop a climate and environmental action plan and focus on a waste reduction initiative at our canteen facilities to grow understanding of waste reduction.
Data security and GDPR In 2018, the EU’s General Data Protection Regulation (GDPR) came into force. Tryg is a data-driven company, and we need data to assess our customers’ claims risk. This is the foundation of providing our core product: insurance. Implementing the GDPR regulation means increasing transparency on how we handle customer data and what types of data we use.
The process continues in 2019, and all outsourcing suppliers are expected to be audited by 2020.
Responsible investments Our materiality assessment identified responsible investments as a material issue for Tryg. We are at risk of violating international standards when investing, and we want to be transparent about our efforts to mitigate this risk. In 2017, we published our Responsible investment policy, which illustrates our belief in the importance of not violating international conventions or principles when investing.
In 2018, we updated our process for ethical screenings for potential violations of the conventions in our investment portfolio, including not only our portfolio holdings, but also the ultimate parents. We established an internal procedure for handling any such violations. We perform an ethical screening annually, and will continue our screening practice in 2019.
To measure satisfaction levels among our customers and to help us improve, we ask our customers to rate our performance when having been in contact with Tryg.
In 2018, our Transactional Net Promotor Score (TNPS) was 67. Our target is a score of 70 by 2020.
47Contents – Management’s review Annual report 2018 | Tryg A/S |
Note Statement by the Supervisory Board and the Executive Board 49 Independent auditor’s reports 50 Financial highlights 54 Income statement 55 Statement of comprehensive income 56 Statement of financial position 57 Statement of changes in equity 58 Cash flow statement 59 1 Risk and capital management 60 2 Operating segments 69 2 Geographical segments 71 2 Technical result, net of reinsurance, by line of business 73 3 Premium income, net of reinsurance 75 4 Insurance technical interest, net of reinsurance 75 5 Claims, net of reinsurance 75 6 Insurance operating costs, net of reinsurance 75 6 Matching shares and conditional shares 77 7 Interest and dividends 78 8 Value adjustments 78
Note 10 Tax 78 11 Intangible assets 79 12 Property, plant and equipment 82 13 Investment property 83 14 Equity investments in associates 83 15 Financial assets 85 16 Reinsurers’ share 87 17 Current tax 88 19 Premium provisions 88 19 Claims provisions 89 20 Pensions and similar liabilities 90 21 Deferred tax 91 22 Other provisions 92 23 Amounts owed to credit institutions 92 24 Debt relating to unsettled funds transactions and repos 92 25 Earnings per share 93 26 Contractual obligations, collateral and contingent liabilities 93 27 Acquisition of activities 95 28 Related parties 96 29 Financial highlights 97 30 Accounting policies 98
Contents – Financial statements 2018 Tryg’s Group consolidated financial statements are prepared in accordance with IFRS
The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2018 of Tryg A/S and the Tryg Group.
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 2018 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 2018.
We recommend that the annual report be adopted by the shareholders at the annual general meeting.
Also, in our opinion, the parent financial statements give a true and fair view of the financial position of the Parent at 31 December 2018 and of its financial performance for the financial year 1 January to 31 December 2018 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 2018. 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.
Management has specified the risks etc. related to the estimates of the claims provisions in note 1 ’Risk and capital management’ on pages 61-62 and in ’Accounting policies’, note 30 on pages 98-99. The principles of estimating the claims provisions have been specified in ’Accounting policies’, note 30 on pages 104-105, and further specified in note 1 on pages 63-66 and in note 19 on page 89.
• In cooperation with our own internationally qualified actuaries and based on our knowledge of the industry, experience and historical observations, we have assessed the statistical models applied to estimate the claims provisions and we have tested significant estimates and assumptions focusing on consistency and possible changes.
On 8 November 2018, Tryg Forsikring A/S has taken over Forsikrings-Aktieselskabet Alka at a total purchase price of DKK 8,477m, resulting in the recognition of goodwill of DKK 4,241m and other intangible assets of DKK 1,429m.
The allocation of the purchase price to assets and liabilities acquired relies on assumptions and estimates made by Management. Due to the significance of these assumptions and estimates and the size of the acquired business, the audit of the acquisition of Forsikrings-Aktieselskabet Alka is considered a key audit matter.
Management has specified the purchase price allocation in ’Acquisition of subsidiaries’, note 27 on page 95 and the risks etc. related to the assumptions and judgements in ’Accounting policies’, note 30 on page 99. The principles of accounting for business combinations have been specified in ’Accounting policies’, note 30 on page 100.
The most important assumptions and estimates relate to: • Identification of acquired assets and liabilities. • Future cash flow anticipated from the acquired customer relationship and brand value. • Discount rate applied.
• We have consulted with Deloitte’s subject matter experts regarding the valuation methodologies and assumptions applied.
• We have obtained supporting documentation of Management’s estimates and key assumptions and corroborated certain information – including the applied discount rates – with third party sources.
• Evaluate the overall presentation, structure and content of the consolidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view.
52Contents – Financial statements Annual report 2018 | Tryg A/S |
Annual report 2018 | Tryg A/S | 53Contents – Management’s review
Profit/loss on gross business 3,400 3,582 3,351 1,695 3,313 Profit/loss on ceded business -624 -779 -951 710 -341 Insurance technical interest, net of reinsurance -10 -14 -10 18 60
Total investment return -123 711 4 Return on insurance provisions -209 -184
Profit/loss for the year 1,731 2,517 25 Earnings per share 5.73 9.12
Acquisition costs and administration expenses -2,704 -2,516 Reinsurance commissions and profit participation from reinsurers 194 160 6 Insurance operating costs, net of reinsurance -2,510 -2,356
Total other financial investment assets 41,753 43,511 15 Total investment assets 43,340 45,060
Reinsurers' share of premium provisions 181 245 19 Reinsurers' share of claims provisions 1,234 1,121 16 Total reinsurers' share of provisions for insurance contracts 1,415 1,366
Note Equity and liabilities 18 Equity 11,334 12,616 1 Subordinate loan capital 2,868 2,412
Statement of changes in equity The total number of shares at the end of the year (302,147,991 shares).
Total changes in equity in 2018 0 -12 18 -304 -984 -1,282 2017 Profit/loss for the year -39 -271 2,827 2,517 Other comprehensive income -32 -1 -33
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 b) 137 3,841 3,978 Issue of employee shares 10 10 Issue of share options and matching shares 6 6
Note Financing Issue of new shares 0 3,978 Exercise of share options/purchase of own shares (net) -17 -4 Subordinate loan capital 502 0 Dividend paid -2,980 -3,279 Change in lease liabilities -135 0 Change in amounts owed to credit institutions 188 128
Change in cash and cash equivalents, net -69 29 Additions relating to purchase of subsidiaries 186 13 Exchange rate adjustment of cash and cash equivalents, 1 January 1 -8
Liabilities arising from financing activities Amounts owed Subordinated to credit 2018 loans institutions Total
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. The third level consists of the internal audit which performs independent assessments of the entire control environment.
The Supervisory Board’s Risk Committee meets minimum four times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status.
How is the actual risk profile measured? Tactically - Risk reports - Intern al controls - Capital model - Stress tests - Reassurance
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.
Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy. In overall terms, Tryg’s investment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the discounted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s property portfolio constitutes the company’s largest investment risk. The Property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2018, investment properties accounted for 5.7% (including property funds) and Tryg’s equity portfolio accounted for 4.7% of the total investment assets.
Insurance risk Effect of 1% change in: Combined ratio (1 percentage point) +/- 187 +/- 180
Equity market 15 % decline in equity market -288 -285 Impact of derivatives and related thereto 36 20
Notes 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 environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines covering the various aspects of the Group’s operations. The Supervisory Board defines the overall framework for managing operational risk in Tryg’s Operational risk policy and in the Information Security Policy.
Before determining the strategic position, the strategic decisions are subject to a risk assessment, explaining the risk of the chosen strategy to Tryg’s Supervisory Board and Executive Board.
Emerging risk Emerging risk cover new risks or known risks, with changing characteristics. The management of this type of risk is 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.
62Contents – Financial statements Annual report 2018 | Tryg A/S |
Reserves from 2007 and prior years 167 Provisions for claims, end of year 1,234 a) The diagonal for 2018 is affected by the Alka acquisition, please see below.
Estimated accumulated claims regarding Alka 8 28 60 386 20 129 15 18 4 5 3 676
Notes 64Contents – Financial statements Annual report 2018 | Tryg A/S |
Estimated accumulated claims regarding Alka 1,225 1,237 1,293 1,268 1,275 1,305 1,397 1,432 1,542 1,586 1,777 15,337
The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2018 to prevent the impact of exchange rate fluctuations.
Expected cash flow, not discounted DKKm 0-1 year 1-2 years 2-3 years > 3 years Total
Notes 66Contents – Financial statements Annual report 2018 | Tryg A/S |
Investment risk Bond portfolio including interest derivatives Duration 1 year or less 11,286 17,509 Duration 1 year-5 years 15,527 14,770
Listed shares Nordic countries 23 51 United Kingdom 71 90 Rest of Europe 318 274 United States 1,049 1,196 Asia etc. 203 435
The portfolio of unlisted shares totals. Please refer to note 15 fair value hierarchy 1,014 179
The share portfolio includes exposure from share derivatives of DKK 240m (DKK -135m in 2017) Unlisted equity investments are based on an estimated market price.
Liquidity risk Maturity of the Group’s financial obligations including interest 2018 0-1 years 1-5 years > 5 years Total
Loan terms: Lender Listed bonds Listed bonds Listed bonds Principal NOK 800m NOK 1,400m SEK 1,000m
Amortised cost value of the loan recognised in statement of financial position 506 The fair value of the loan at the statement of financial position date 491 The fair value of the loan at the statement of financial position date is based on a price of 96 Total capital losses and costs at the statement of the financial position date 3 Interest expenses for the year 5 Effective interest rate 2.1%
Loan terms: Lender Listed bonds Principal SEK 700m Issue price 100 Issue date April 2018 Maturity year Perpetual Loan may be called by lender as from 2023 Repayment profile Interest-only Interest structure 2.5 % above STIBOR 3M
68Contents – Financial statements Annual report 2018 | Tryg A/S |
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
NOK/DKK, average rate for the period 77.53 79.99 80.09 83.52 89.42
Claims ratio, net of ceded business 73.8 73.2 69.0 73.0 67.9
Run-off, net of reinsurance (%) 0.4 -4.8 -2.8 -11.0 -3.3 Number of full-time employees 31 December 402 398 385 387 425
Run-off, net of reinsurance (%) -6.5 -5.4 -7.0 -6.7 -6.1 Number of full-time employees, continuing business at 31 December 4,027 3,373 3,264 3,359 3,599 b) Amounts relating to eliminations and one-off items. In 2018 cost, claims and other costs were negatively affected by DKK 75m, DKK 49m and DKK 76m. The costs are related to integration and transaction costs for the acquirement of Alka. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme.
c) Adjustment of gross expense ratio included only in 'Tryg '. The adjustment is explained in a footnote to Financial highlights.
Notes 72Contents – Financial statements Annual report 2018 | Tryg A/S |
Profit/loss on ceded business - 152 - 157 - 167 - 318 0 0 28 - 68 - 167 - 77 - 3 - 1 Insurance technical interest, net of reinsurance - 6 - 7 - 1 - 2 - 1 - 1 - 1 - 1 0 0 0 0
Gross claims ratio 67.3 69.0 71.3 51.4 96.9 96.8 95.9 82.2 13.9 31.1 87.3 72.8 Combined ratio 86.8 86.8 94.2 79.1 110.8 111.3 107.7 103.3 59.9 58.8 101.7 85.9
Average claims DKK b) 8,955 8,911 65,645 43,226 21,202 20,475 71,911 74,485 2,866,734 367,332 5,723 6,174 Total claims 342,695 345,325 29,761 29,599 4,022 4,036 12,189 11,013 64 443 105,877 86,645 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.
b) Group Life, one-year policies related to Norwegian Group Life and Alka Group Life. Result of Alka Life is included from 8 November 2018.
Other Total exclusive of Group Life DKKm insurance Group Life one-year policies b) Total
Gross claims ratio 63.7 17.5 67.2 65.9 78.4 74.2 67,4 66.1 Combined ratio 194.5 100.0 85.2 84.4 84.4 84.4 85,1 84.4
3 Premium income, net of reinsurance Direct insurance 19,037 18,168 Indirect insurance 50 45
Reinsurance cover received 606 267 Run-off previous years, reinsurers' share -15 33 6 Insurance operating costs, net of reinsurance Commissions regarding direct insurance contracts -227 -259 Other acquisition costs -1,877 -1,643
Administrative expenses include fee to the auditors appointed by the annual general meeting: Deloitte -24 -6
The fee is divided into: Statutory audit -3 -3 Other audit assignments -1 -1 Tax advice -1 -1 Other services -19 -1
Total lease expenses amount to DKK 0m (DKK 26m in 2017). Please refer to note 12 and 24 regarding lease recognised costs according to IFRS 16.
Insurance operating costs and claims include the following staff expenses: staff expenses: Salaries and wages -2,227 -1,926
Allocated share options and matching shares -10 -6 Pension plans a) -301 -280 Other social security costs -6 -5 Payroll tax -470 -410 a) In 2018 defined benefit plans were included with DKK 35m (DKK 49m in 2017).
Remuneration for the Supervisory Board and Executive Board is disclosed in note 28 'Related parties'.
Average number of full-time employees during the year (continuing business) 3,914 3,315 76Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes In 2011-2018, Tryg entered into an agreement on matching shares for the Executive Board, Risk-takers and Other employees as a consequence of the Group’s remuneration policy. Executive Board, Risk-takers and Other employees are allocated one share in Tryg A/S for each share they acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum over the 3- or 4-year maturation period.
In 2018, the reported fair value of matching shares for the Group amounted to DKK 7m (DKK 5m in 2017). At 31 December 2018, a total amount of DKK 29m was recognised for matching shares.
Average per Total value Average per Total fair matching share at time of matching share value at Executive Risk- at grant date allocation at 31 Dec. 31 Dec. 2018 Board takers Other Total DKK DKKm DKK DKKm
7 Interest and dividends Interest income and dividends Dividends 12 19 Interest income, bonds 568 601 Interest income, other 0 4
Interest expenses Interest expenses subordinate loan capital and credit institutions -88 -89 Interest expenses, other -52 -18 8 Value adjustments Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments -64 -35 Unit trust units -224 460 Share derivatives 12 -8
Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property 147 9 Owner-occupied property -1 0
9 Other costs Other costs DKK -300m (DKK -194m in 2017). The increase can be attributed to one-off costs related to the acquisition of Alka DKK 76m and depreciations related to trademarks, customer relationships and agricultural portfolio DKK 34m.
10 Tax Tax on accounting profit/loss -498 -712 Difference between Danish and foreign tax rates -19 -42 Tax adjustment, previous years 4 -47 Adjustment of non-taxable income and costs -31 80 Change in valuation of tax assets 12 0 Change in tax rate 3 1
Effective tax rate % % Tax on accounting profit/loss 22 22 Difference between Danish and foreign tax rates 1 1 Tax adjustment, previous years 0 2 Adjustment of non-taxable income and costs 1 -3 Change in valuation of tax assets -1 0 78Contents – Financial statements Annual report 2018 | Tryg A/S |
Amortisation and write-downs at 31 December -104 -199 -1,458 -102 -1,863
Impairment losses and write-downs f or the year 0 0 -38 0 -38
Alka The impairment test at year-end for Alka is based on the valuation at the time of acquisition due to the short period of ownership, and lack of indications of impairment since closing. Goodwill recognised DKK 4,241m. Please refer to note 27.
At 31 December 2018, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit.
11 Intangible assets (continued) - Earned premium assumed CAGR 0-10 years 10% 10% - Earned premium assumed CAGR > 10 years 2% 2% - Required return before tax 9% 15% - Expected level of Combined ratio 90% 91%
Moderna In 2016, Tryg acquired Skandia's child and adult accident insurance portfolio. The insurance activities were incorporated into the Tryg Group's business structure from 1 September 2016.
At 31 December 2018, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit. Moderna portfolio consists from 1 January 2017 of Moderna, Securator and Skandia, which was prior to this date three separate cash-generating units. The reasons behind the merger of Securator and Skandia into Moderna, is that they are managed together as part of the Swedish business and reported under the segment ’Sweden’.
Comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres and online.
80Contents – Financial statements Annual report 2018 | Tryg A/S |
11 Intangible assets (continued) - Earned premium assumed CAGR 0-10 years 3% 2% - Earned premium assumed CAGR > 10 years 2% 1% - Required return before tax 11% 13% - Expected level of Combined ratio 92% 92%
DKKm 11 Intangible assets (continued) Software and assets under construction As at 31 December 2018 management performed a test of the carrying amounts of software and assets under construction.
Assets under construction are not depreciated but tested once a year for impairment or when there is any indication of a decrease in value.
Software with a limited useful lifetime is amortised over 4 years using the straight-line method. Amortised software is assessed for impairment at the balance sheet date or when there are indications that the future cash flow cannot justify the carrying amount.
In the event that the recoverable amount is lower than the carrying amount, the difference is recognised in the income statement. The recoverable amount is the higher of fair value less sales costs and value in use.
81Contents – Financial statements Annual report 2018 | Tryg A/S |
12 Property, plant and equipment Leases ROU Operating Leases ROU Owner-occupied 'Group-occupied DKKm equipment equipment a) property b) property c) Total
c) Lease assets (Right of use-assets), Group occupied property consists of leases of offices buildings. Contract terms are from 2 to 18 years and with yearly rent adjustments. Tryg has no lease contracts with variable lease payments based on sale or similar.
Increase in applied rate of return of 0.25% -46 -58 Decrease in applied rate of return of 0.25% 49 63 Decrease in net rental income of 3% -40 -41 Decrease in occupancy rate of 3% -8 -8 14 Equity investments in associates Cost Cost at 1 January 215 201 Additions for the year 13 14 Disposals for the year -2 0
14 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 %
Ejendomsselskabet af 1. marts 2006 P/S, Denmark is sold in January 2019
Notes 84Contents – Financial statements Annual report 2018 | Tryg A/S |
Financial assets at amortised cost only deviate to a minor extent from fair value.
15 Financial assets (Continued) Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: Carrying amount at 1 January 1,504 2,381 Exchange rate adjustments -5 -31 Addition purchase Alka 138 0 Gains/losses in the income statement a) 210 -8
Gains/losses in the income statement for assets held at the statement of financial position date recognised in value adjustments 75 -39 a) Hereof realised DKK 41m. 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 -521m (DKK -386m in 2017).
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 according to statement of financial position 27,777 159 37,023 333 Inflation derivatives, recognised in claims provisions 7,346 -521 3,311 -386
Bonds measured on the basis of observable inputs consist of Norwegian bonds issued by banks and to some extent Danish semi-liquid bonds, where no quoted prices based on actual trades are available.
Receivables are written down in full when submitted for debt collection. The write-down is reversed if payment is subsequently received from debt collection and amounts to DKK 52m (DKK 42m in 2017).
Other receivables do not contain overdue receivables 16 Reinsurer's share Impairment test As at 31 December 2018, 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 0m in 2017). The use of reinsurance creates a natural counterparty risk. The Risk will be handled by applying a wide range of reinsurers with at least an 'A' rating.
DKKm 15 Financial assets (Continued) Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes Gains and losses on hedges charged to other comprehensive income: 2018 Gains Losses Net
Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January -152 -15 Value adjustment for the year -50 -137
Solvency II – Own funds 8,058 13,162 19 Premium provisions Premium provision at 1 January 5,559 5,487 Addition on acquisition of Alka and Troll portfolio (2017 Obos) 454 79 Value adjustments of provisions, beginning of year -59 -132 Paid in the financial year 18,820 17,991 Change in premiums in the financial year -18,921 -17,868 Exchange rate adjustments 8 2
Premium provisions at 31 December 5,861 5,559 17 Current tax Net current tax at 1 January -194 -317 Exchange rate adjustments 2 6 Purchase or sale of activity -7 0 Current tax for the year -583 -666 Current tax on equity entries -12 -30 Adjustment of current tax in respect of previous years 37 -32 Tax paid for the year 639 845
Current tax is recognised in the statement of finansiel position as follows: Under liabilities, current tax -118 -194 Net current tax -118 -194 18 Equity Number of shares Shares outstanding Own shares Number of shares of DKK 5 (1,000) 2018 2017 2018 2017
Number of shares as a percentage of issued shares at 31 December 99.87 99.93 0.13 0.07 Nominal value at 31 december (DKKm) 1,509 1,510 2 1
DKK of the share capital in the period up until 31 December 2019. Own shares are acquired for use in the Group's incentive programme.
Claims provisions at 1 January 23,925 -1,121 22,804 Addition, purchase of Alka and Troll portfolio 1,626 -37 1,589 Value adjustments of provisions , beginning of year -209 10 -199
Paid in the financial year in respect of the current year -7,132 250 -6,882 Paid in the financial year in respect of prior years -6,125 310 -5,815
Addition, purchase of Obos portfolio 70 -21 49 Value adjustments of provisions, beginning of year -726 44 -682
Pension obligation, gross 1,105 1,133 Fair value of plan assets 875 885
Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January 885 960 Exchange rate adjustments -10 -73 Investments in the year 31 83 Estimated return on pension funds 14 2 Actuarial gains/losses -8 -50 Paid during the period -37 -37
Total recognised obligation at 31 December 277 290 20 Pensions and similar obligations (continued) Specification of pension cost for the year: Present value of pensions earned during the year 26 28 Interest expense on accrued pension obligation 18 17 Expected return on plan assets -14 -2 Accrued employer contributions 5 6
Development in deferred tax Deferred tax at 1 January 656 702 Exchange rate adjustments -9 -48 Change in deferred tax relating to change in tax rate -3 -1 Change in deferred tax previous years 33 13 Purchase or sale of activity 288 0 Change in capitalised tax loss 38 0 Change in deferred tax recognised in income statement -91 -10
The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely.
Description of the Swedish plan Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa – FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30. This years premium paid to FPK amounted to DKK 12m, which is about 1,9 % of the annual premium in FPK (2017). FPK writes in its interim report for 2018 that it had a collective consolidation ratio of 141 at 30 June 2018 (consolidation ratio of 140 at 30 June 2017). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations.
91Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes DKKm 2018 24 Other Debt Debt related to Leasing are included in Other Debt. Please refer to note 12 for specification of ROU assets.
Maturity of undiscounted lease liabilities Due 1 year or less 131 Due 1 year-5 years 346 Due more than 5 years 496 Total Lease liabilities 31 December 973
Amounts recognised in statement of cash flow Total cash out-flow for leases 135
a) Please refer to Note 30 Accounting policies for further description b) Please refer to Note 26 Contractual obligations 22 Other provisions Other provisions at 1 January 111 125 Exchange rate adjustment -1 -4 Change in provisions 1 -10
Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 22m and use of existing restructuring provisions amounts to DKK 24m. The balance as at 31 December 2018 amounts to DKK 102m (DKK 104m at 31 December 2017).
Unsettled fund transactions include debt for bonds purchased in 2017 and 2018, however, with settlement in 2018 and 2019, respectively. Financial instruments comprised by repo agreements, meaning financial instruments sold before the balance sheet date and repurchased after the balancesheet date, remains recognised in the balance sheet, while the received amount is recognised as Repo debt.
Diluted number of shares (1,000) 302,043 279,080 Earnings per share, continuing business 5.74 9.12 Diluted earnings per share, continuing business 5.74 9.12 Earnings per share 5.73 9.12 Diluted earnings per share 5.73 9.12 26 Contractual obligations, collateral and contingent liabilities Contractual obligations Obligations due by period 2018 <1 year 1-3 years 3-5 years > 5 years Total a) Other contractual obligations mainly consists of IT and outsourcing agreements Please refer to note 12 for lease agreements recognised as ROU.
Notes 94Contents – Financial statements Annual report 2018 | Tryg A/S |
DKKm 27 Acquisition of activities 2018 Alka In December 2017 Tryg agreed to acquire Forsikrings-Aktieselskabet Alka (Alka). The transaction was approved as per 5 November 2018 with closing 8 November 2018, whereby Tryg acquired 100% of the shares in Alka and its subsidiaries. The acquisition affects the Financial statement from 8 November 2018. The result will be recognised under Private Denmark and Commercial Denmark.
Troll Forsikring AS. The agreement meant that Tryg would acquire the production and distribution of the insurances sold to Troll's policyholders. The agreements was signed in February and the acquisition was approved by the Danish and Norwegian FSA in March 2018.
Total reinsurance of provisions 19 64 83 49 Receivables, other assets and accrued income 277 83 360 113
Supervisory Board 1 0 Executive Management 0 0 Risk-takers 1 0 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 Management and their members’ family.
Premium income - Parent company (TryghedsGruppen smba) 0.5 0.4 - Other related parties 4.5 2.2
Claims payments - Key management 0.0 0.1 - Other related parties 0.4 1.0
Supervisory Board 1 0 Executive Board 1 0 Risk-takers 5 0 96Contents – Financial statements Annual report 2018 | Tryg A/S |
The Executive Board is paid a fixed remuneration, car allowance and pension. The variable salary is awarded in the form of share based remuneration and cash, see 'Corporate governance'.
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.
1,788m in dividends. Further Tryg A/S also made a capital contribution of DKK 2,000m to Tryg Forsikring. In 2018, TryghedsGruppen smba has invested DKKm 313 in ’Kapitalforeningen Tryg Invest’. The amount is recognised under Other Financial investment assets and Debt to Group undertakings.
Intra-group transactions Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The companies in the Tryg Group have entered into reinsurance contracts on market terms. Transactions with Group undertakings have been eliminated in the consolidated financial statements in accordance with the accounting policies.
Change in accounting policies IFRS 16, Leases Tryg has implemented IFRS 16 one year ahead of its effective date and will consequently recognise lease assets (Right of Use-asset) and lease liabilities in the balance sheet. The implementation of IFRS 16 has no significant impact on either profit or loss or equity. Lease assets recognised comprise ' Group-occupied property' and 'Operating equipment'. Lease liabilities are recognised in the line item 'Other debt'. Early 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 the fact that our income is primarily related to premiums accounted for under IFRS 4. Tryg has elected not to implement regarding intangibles, short term and low value lease contracts. The total impact on the balance sheet 1 January 2018, using the modified retrospective approach was; Assets Total property, plant and equipment 789 Total assets 789
As a consequence of applying the modified retrospective approach comparative figures has not been restated.
Other Going forward from 01.01.2018 Tryg has classified depreciation related to some intangible assets, such as customer relationship and distribution. The reclassification has not affected Profit and Loss or Equity but depreciation related to said items will be presented in the line item ’other costs’ instead of the line item ’Acquisition costs and administration expenses’ where they were previously presented.
Accounting regulation Implementation of changes to accounting standard and interpretation in 2018 The International Accounting Standards Board (IASB) has issued several changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations.
No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2018 that will have a significant impact on the group. See below regarding IFRS 9 ‘Financial instruments’
a) enters into force for the accounting year commencing 1 January 2018 – Insurance companies are allowed to postpone the implementation to 1 January 2022 if certain criteria are met.
b) enters into force for the accounting year commencing 1 January 2022.
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 Tryg’s recognition and measurement. Tryg has postponed the implementation of IFRS 9 to 1 January 2022 when IFRS 17 Insurance Contracts will be applicable. Tryg can postpone IFRS 9 due to the fact that our activities are predominantly connected with insurance and that our liabilities connected with insurance is relatively greater than 80 per cent of the total liabilities. The impact of IFRS 17 is currently being assessed and is expected to be concluded in due course in time of the implementation date.
The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets and liabilities • Valuation of property • Business Combinations • Measurement of goodwill, Trademarks and Customer relations • Control of subsidiaries
Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions involve several uncertainty factors.
The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that has incurred, but are not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the 98Contents – Financial statements Annual report 2018 | Tryg A/S |
Claims provisions are discounted. As a result, initial changes in discount rates or changes in the duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accidents, in particular.
The Financial Supervisory Authority’s discount curve, which is based on Eiopa’s yield curves, is used to discount Danish, Norwegian and Swedish claims provisions in relation to the relevant functional currencies.
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 several factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. Cf. note 11.
Notes Basis of consolidation The consolidated financial statements are prepared on the basis of the financial statements of Tryg A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group’s accounting policies.
Generally, subsequent changes in estimates of conditional acquisition prices are recognised directly in the income statement.
Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized businesses, in Denmark and Norway. Corporate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insurance products to private individuals in Sweden as well as sale of Product insurances in the Nordic region.
Geographical information is presented on the basis of the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden.
Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual insurance 100Contents – Financial statements Annual report 2018 | Tryg A/S |
The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the reinsurers’ share of premium provisions.
Changes in claims provisions due to changes in yield curve and exchange rates are recognised as a price adjustment. Tryg hedges the risk of changes in future pay and price figures for provisions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the effect of changes to inflation expectations under claims.
Bonus and premium discounts Bonus and premium discounts represent anticipated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the insurance was taken out.
Investment activities Income from associates includes the Group’s share of the associates’ net profit.
Discontinued and divested business Discontinued and divested business is consolidated in one item in the income statement. Discontinued and divested business includes gross premiums, gross claims, gross costs, profit/loss on ceded business, insurance technical interest net of reinsurance, investment return after insurance technical interest, other income and costs and tax in respect of the discontinued business. Any reversal of earlier impairment is recognised under other income and costs.
Notes tinued 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. Discontinued business also comprises the Tryg Forsikring A/S run-off business.
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.
Depreciation of operating equipment is calculated using the straight-line method over its estimated economic lifetime as follows: • IT, 4-8 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years
Right-of-use asset (ROU asset) and lease liability are recognised at the lease commencement date. The ROU asset is initially measured the cost, which comprises the initial amount of the lease liability adjusted for • lease payments made at or before the commencement date • any initial direct cost incurred • estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset • lease incentives received
Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occupied property at the statement of financial position date. The fair value is calculated based on market-specific 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.
Costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, when it is probable that future economic benefits associated with the 102Contents – Financial statements Annual report 2018 | Tryg A/S |
Notes item will flow to the Group, and the cost of the item can be measured reliably. Ordinary repair and maintenance costs are expensed in the income statement when incurred.
Investments Investments include financial assets at fair value which are recognised in the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of it's investments on initial recognition and re-evaluates this at every reporting date.
Realised and unrealised profits and losses that may arise because of changes in the fair value for the category financial assets at fair value are recognised in the income statement in the period in which they arise.
Notes of bonds and insurance provisions. Share derivatives in the form of futures and options are used from time to time to adjust share exposures.
Calculation of value is generally performed based on rates supplied by Danske Bank with relevant information providers and is checked by the Group’s valuation technicians. Discounting based on market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow.
The Group continuously assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to it's recoverable amount. Impairment losses are recognised in the income statement.
Other provisions Provisions are recognised when the Group has a legal or constructive obligation because of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the best estimate by management of the expenditure required to settle the present obligation.
Debt related to leasing and the external investors share of Kapitalforeningen Tryg invest are included in Other debt.
Note Investment activities 1 Income from Group undertakings 1,783 2,577 Interest income 0 1 Administration expenses in connection with investment activities -1 -6
Proposed distribution for the year: Dividend 1,996 2,827 Transferred to reserve for net revaluation according to the equity method 347 -1,026 Transferred to retained earnings -612 716
107Contents – Financial statements Annual report 2018 | Tryg A/S |
Total equity and liabilities 11,422 12,625 7 Deferred tax assets 8 Own funds 9 Contractual obligations, contingent liabilities and collateral 10 Related parties 11 Reconciliation of profit/loss and equity 12 Accounting policies
2018 Profit/loss for the year 347 -612 1,996 1,731 Other comprehensive income -16 -16
Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares).
109Contents – Financial statements Annual report 2018 | Tryg A/S |
Average number of full-time employees for the year 13 17 3 Tax Reconciliation of tax costs Tax on profit/loss for the year 14 17 Tax adjustments, previous years 0 -1
Carrying amount at 31 December 1 0 5 Equity investments in Group undertakings Cost Cost at 1 January 6,995 6,987 Additions for the year 2,000 8
Revaluation and impairment to net asset value Revaluation and impairment at 1 January 2,081 3,140 Revaluations for the year 1,768 2,545 Dividend paid -1,437 -3,604
Tax receivable at 31 December 14 17 7 Deferred tax assets Capitalised tax losses Tryg A/S 0 0
8 Own funds From 2016, Tryg A/S calculates solvency ratio and own funds on Group level according to Solvency II rules. Please refer to note 18 in the Tryg Group on Solvency II own funds.
9 Contractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
10 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Board and their members’ related family.
For matching shares allocated to Executive Board in 2018 for fiscal year 2017, see Section
Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for the Tryg Group.
There is no difference in profit/loss or equity recognised after Danish FSA and IFRS.
Notes 113Contents – Financial statements Annual report 2018 | Tryg A/S |
Combined ratio exclusive of run-off 83.0 84.9 83.5 92.4 84.2 82.6 83.3 92.4 86.3
Key ratios Gross claims ratio 52.2 61.0 59.7 61.9 66.3 61.1 62.9 60.6 58.3
Claims ratio, net of reinsurance 56.7 65.3 63.9 65.5 70.0 64.3 64.3 63.3 66.3
Claims ratio, net of reinsurance 101.5 84.5 79.3 77.1 83.7 80.4 73.1 81.6 88.5
Combined ratio exclusive of run-off 106.3 108.2 95.0 100.4 100.2 94.1 91.5 98.7 111.6
Key ratios Gross claims ratio 71.7 69.6 61.6 76.5 73.0 70.7 70.5 69.6 72.7
Claims ratio, net of reinsurance 72.0 69.8 61.9 76.8 73.6 70.7 71.3 69.6 72.7
Combined ratio exclusive of run-off 95.3 94.7 89.7 98.1 97.2 92.9 90.6 99.3 101.2
Key ratios Gross claims ratio 69.0 69.9 61.3 69.4 68.5 64.4 63.4 67.9 72.0
Claims ratio, net of reinsurance 72.6 69.9 67.3 73.1 72.3 69.0 67.4 72.9 75.1
Combined ratio exclusive of run-off 92.3 92.5 88.2 93.7 90.9 88.0 86.7 93.7 99.8 a) Amounts relating to eliminations and one-off items are included under 'Other’. Please refer to note 2 Geographical segments.
Q4 2018 Quarterly outline 115Contents – Financial statements Annual report 2018 | Tryg A/S |
Run-off, net of reinsurance (%) -6.0 -8.0 -8.3 -6.7 Number of full-time employees 31 December 1,105 1,042 a) Includes Danish general insurance and German and Finnish guarantee insurance. The gross premium income related to German and finnish guarantee insurance amount to DKK 54m
Run-off, net of reinsurance (%) -4.1 -4.9 -6.5 -5.4 Number of full-time employees, continuing business at 31 December 4,027 3,373 b) Amounts relating to eliminations and one-off items. In 2018 Cost, Claims and Other Costs were negatively affected by DKK 75m, DKK 49m, DKK 76m. The costs are related to integration and transactions costs for the acquirement of Alka. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software.
Share performance Earnings per share (DKK) 5.73 9.12 8.84 6.91 8.74 Diluted earnings per share (DKK) 5.73 9.12 8.84 6.91 8.73 Earnings per share of continuing business (DKK) 5.74 9.12 8.84 6.74 8.70
Diluted average number of shares (1,000) 302,043 276,080 279,399 285,101 292,788
Number of full-time employees, continued business, at 31 December 4,027 3,373 3,264 3,359 3,599
Key ratios are calculated in accordance with ’Recommendations & Financial Ratios’ issued by the Danish Society of Financial Analysts.
Danish general insurance Comprises the legal entities Tryg Forsikring A/S (including Finnish and German guarantee branch and Tryg Livsforsikring A/S and excluding the Norwegian and Swedish branches).
Total reserve ratio Reserve ratio, claims provisions + premium provisions divided by premium income.
Annual report 2018 | Tryg A/S | 119Contents – Management’s review
Fire and contents – Commercial Commercial fire and contents insurance, which includes building insurance, represents 13% of total premium income and covers the loss of or damage to the buildings, stock or equipment of commercial customers. Moreover, Tryg provides cover for operating losses in connection with covered claims.
General third-party liability insurance General third-party liability insurance represents 6% of total premium income and covers various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products, and third-party liability for professionals.
Should one or more of these risks or uncertainties materialise, or should any underlying assumptions prove to be incorrect, Tryg’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. Tryg is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law.
Read more in the chapter Capital and risk management on pages 31-32, and in Note 1 on page 60-68, for a description of some of the factors which may affect the Group’s performance or the insurance industry.
121Contents – Management’s review Annual report 2018 | Tryg A/S |