We want to be perceived as the leading peace-of-mind provider in the Nordic region and we aim to prevent concerns from overshadowing our customers’ lives. Throughout 2007, our roughly 3,900 employees and our products interacted to provide peace of mind on a daily basis to more than 2.2 million private customers and more than 100,000 businesses.
Management’s report Page Foreword 3 Financial highlights and key ratios of TrygVesta 4 2007 in review 6 TrygVesta and the external community 8
2,561m, equivalent to 113% of the profit for the year after tax. The total amount distributed reflects TrygVesta’s strong capital position and the Group’s targeted rating of
Technical interest, net of reinsurance 501 343 170 185 537 595
Extraordinary items and minority interests 0 0 0 0 0 1
Total shareholders’ equity 10,010 9,951 8,215 6,802 6,117 5,360 Total assets 43,830 42,783 40,811 37,824 33,553 31,337
Key ratios Gross claims ratio 67.3 65.9 71.1 68.3 67.6 71.5 Business ceded as a percentage
Claims ratio, net of ceded business 69.4 69.6 71.2 72.9 72.6 78.3
Claims ratio, net 68.1 68.4 69.7 71.2 70.9 76.6 Expense ratio, net 17.1 17.2 17.6 17.6 22.2 24.3
Other data Return on equity before tax and discontinued and divested business 31 41 39 33 34 22 Return on equity after tax and
Number of full-time employees, end of period Continuing business 3,814 3,808 3,694 3,728 3,728 3,750 Discontinued and divested business 0 0 24 34 34 670 1) Calculated in accordance with ‘Recommendations & Financial Ratios 2005’ issued by the Danish Society of Financial Analysts except for per shares data, which is based on 68,000,000 shares as if such number of shares was outstanding during the periods presented. The 68,000,000 shares reflect the number of outstanding shares after giving effect to the four-to-one share split set forth in the company’s amended articles of association.
Accounting policies From 1 January 2005, the accounting policies of TrygVesta follow the IFRS standards. The comparative figures for 2004 have been restated to IFRS, but in addition to IFRS restatements, the figures for 2004 are net of divested business, which is henceforth included in ‘Profit/loss on discontinued and divested business’.
TrygVesta introduced a new children’s insurance in Norway covering all children, including those who have a disability or suffer from a serious illness.
TrygVesta introduced LEAN to offer enhanced quality to customers, improve employee satisfaction and make work processes better and more efficient.
Tryg Forsikring. At the same time Tryg Forsikring changed its name to TrygVesta Forsikring. The
TrygVesta’s first-quarter pre-tax profit was DKK 683m compared with DKK 700m in the first quarter of 2006.
TrygVesta launched a lower-priced motor insurance for young women below 29 years in Denmark.
TrygVesta extended the successful health insurance in Denmark to the Norwegian market, introducing the sale of treatment insurance.
TrygVesta implemented two web-based peaceof -mind initiatives focusing on prevention and advice. The websites tryghedsraadgiveren.dk and trygghets raadgiveren.no offer advice to everybody on how to prevent damage and injuries at home, while tryghedsbutik.dk and trygghetsbutikk.no offer products that improve safety at home and in the traffic.
Vesta Skadeförsäkring in Sweden reached a milestone with 100,000 insurances sold.
The market shares among the largest companies in Denmark did not change significantly in 2007. In motor insurance, where the competition is fiercest, focus is on additional parameters such as annual mileage. In Norway,
Finland. The markets are characterised by the four top insurers in each market holding more than 70% of the market between them.
We began selling health care insurance in Norway in late 2007, and we plan to start selling health care insurance in Sweden and Norway within the next few years.
At TrygVesta, we pay a lot of attention to labour market trends. Over the next few years, we intend to upgrade the workplaces in Denmark and Norway, ensuring that the physical facilities of our workplace make it attractive to be at work. We have also launched an employee branding project to ensure that we focus strongly on recruitment and employee retention. As part of the project we will look at obstacles that may prevent some potential employee groups from becoming part of the labour market.
As an insurance group, we have an obvious interest in following climate developments. Our business has extensive records describing historic performance of storm and other weather-related claims in the Nordic countries.
increased risk of, for instance, flooding and for improving building regulations or setting up early warning systems for areas with high risk exposure.
The growing awareness of climate issues induced several investment funds to set up climate indices, and a number of pension funds began screening their portfolios to ensure environmentally responsible conduct. So far, only a small proportion of Danish businesses prepare climate accounts, but we see a growing trend towards and interest in working systematically with and reporting about corporate environmental issues.
TrygVesta established an environmental organisation in 2007, defining climate targets for the Group, including a reduction of CO2 emissions by 10% from 2008 to 2010.
Western world towards the end of 2007, causing financial markets to become increasingly unstable.
In 2006, we carried out a comprehensive strategic analysis and review of our business during the period to 2010.
This has enabled us to develop a clear, shared perception of our future potential, and of the ways in which we can secure sustained high value creation for customers, shareholders and employees. In 2007, we focused on implementing the strategy plan, and these efforts will continue in the years ahead.
intend to meet our ambition by focusing even more on sales and adding new sales channels. We also consider the possibilities for expanding our strategic focus area to the Baltics.
“In relation to peace of mind, customers are refocusing from concerns for tangible objects to concerns for people: concerns about what could happen to themselves, their families, friends or colleagues. A large part of our business deals with human peace of mind and security. This proportion will increase steeply in the years ahead and come to represent our largest growth area. We will see growing demand within health care, in particular. Many people require access to treatment, prevention and rehabilitation services beyond those financed by taxes, and they are prepared to pay for such services. We are confident of
Tryg Vesta’s ability in all four Nordic countries to develop strong health care and welfare solutions that are in harmony with and continuation of the publicly funded welfare systems, and in a way that does not question the welfare systems or create first-rate and second-rate citizens.”
We want to be among those who set the agenda within
“TrygVesta should constantly challenge our understanding of how we retain and attract customers to ensure our continued success going forward. We all have a growing number of options today and this requires businesses to differentiate their products and services. In the long-term perspective, the most competitive company may be the company that is able to redefine what insurances are all about and how insurances are perceived by customers.
A key driver in working with innovation is to constantly offer our customers more than they expect. This is what makes going to work fun and meaningful.”
Member of the Group Executive Management in charge of New Markets
We focus on the experience and value to customers, and we trust our customers. Accordingly, we intend to expand the personal dialogue and also communicate increasingly with customers on the Internet. In 2007, we set up a
We have to think innovatively and be open to new ideas and ways of doing things, if we are to grow and develop our business in terms of added sales, new business and new areas of generating earnings. We intend to use the creative potential of our employees by supporting and setting up a framework for nurturing innovation and good ideas and facilitating their further development, with respect to major innovations as well as small current improvements.
Measures that simplify our working processes and methods are key to our ability to provide optimum service to our customers. We always strive for simplicity and high quality and the coming years will see a continuation of our work to implement the LEAN principle throughout the Group.
“We consider our managers to be the drivers implementing our strategy. This way of thinking makes heavy demands on managers’ ability to communicate the strategy in a simple and straightforward manner, to define frameworks and facilitate working processes, and to create opportunities for personal and professional development.
Customers choose the channel that is most convenient to them. Many of our customers will increasingly tend to use the Internet, while others find it easier to pick up the phone and call customer service. In some cases, personal contact would be desirable. We believe in giving our customers a choice to suit their preferences and the specific situation.”
Member of the Group Executive Management in charge of Private & Commercial Norway
Return on equity after tax 23 35 28 23 15 -47 1
Proportion of customers with concept agreement 108 108 108 106 102 98 100
1) Expected customer loyalty based on customer surveys. Benchmarks in the Customer/Processes/Learning perspective are primarily based on the data for the activities in Denmark and Norway.
ment of 3.8% in local currency (3.7% in DKK terms) and in line with our expectations for the full year. Gross earned premiums continued the upward trend during 2007 and the fourth quarter 2007 recorded a growth in local currency of 5.1% (7.1% in DKK terms) at Group level. The performance in 2007was favourably affected by an increase in the number of new customers and higher renewal rates among existing customers in all business areas. Corporate was a major growth driver, recording premium growth of 7.4%, or DKK 364m. In addition to more new customers and high renewal rates, the strong growth recorded by Corporate was attributable to price increases for workers’ compensation insurance in Denmark.
As the only major insurer in Norway we increased our market share in 2007 (in terms of earned premiums), by 0.7 percentage point, to 18.2%. The improvement was driven by our Norwegian commercial business and the
Finland and Sweden likewise contributed strong premium growth totalling 68.8%, continuing to perform in line with our targets and growth strategies. Focused efforts within
We began selling health care insurance in Norway at the end of 2007, and we intend to continue to focus on growth and on introducing new health care services over the coming year.
The profit after tax at DKK 2,266m was DKK 945m lower due to the lower investment result and higher taxes.
The high proportion of tax-free gains on shares we had in 2006 was not repeated in 2007 due to the unstable equity markets.
The return on investment activities was DKK 1,740m before transfer to technical interest, but after other financial income and expenses. The return was DKK 519m lower than in 2006, mainly due to unstable equity markets.
DKK 637m in 2007 due to the large number of Marine claims, an area with a high proportion of reinsurance cover. Weather-related claims were up by DKK 130m in 2007 to DKK 332m, which was also higher than expected. In a normal year, weather-related claims are expected to total DKK 225m.
Storm and weather, gross 332 202 911 225 Storm and weather, net 332 202 177 170 * Normal year is a weighed average of the last ten years.
59m, made up of the profit for the year less dividends paid in respect of the 2006 financial year, and including adjustments mainly for actuarial gains and losses on the pension provision under IAS 19 and other minor adjustments.
4.4bn at 31 December 2007. During 2007, we sold equities worth some DKK 0.7bn as a result of Management’s assessment of the size of the equity portfolio and its impact on the Group’s overall performance. Management assessed that an equity proportion of 8-10% of the investment portfolio would provide a good long-term balance between return and volatility in our overall performance. The equity proportion was reduced to around 4%
giving equities a lower weighting than is normal. The decision to have a lower proportion of equities was based on expected continued strong instability, uncertainty and high equity risk premiums in the first six months of 2008.
The very unstable equity market in January and until 18 February 2008 resulted in a loss of around DKK 400m less equity return than expected.
The tax charge was DKK 842m in 2007 against DKK 624m in 2006. The effective tax rate was exceptionally low in 2006 due to the reversal of a provision for deferred tax.
Total assets increased by DKK 1,047m to DKK 43,830m in 2007. Liabilities comprised mainly shareholders’ equity of
TrygVesta generated a cash inflow from operating activities of DKK 2.7bn in 2007 compared with DKK 3.2bn in 2006. Investments amounted to DKK 0.4bn in 2007, and there was a cash outflow from financing activities of DKK
Gross earned premiums at DKK 6,490m were 1.6% higher in 2007. Premium growth picked up in the fourth quarter of 2007, increasing at a rate of 2.4. Various premium reductions on motor insurance in the summer of 2006 continued to have an adverse effect on growth. Among
Claims ratio, net of ceded business 63.6 69.1 71.1 Gross expense ratio 16.7 17.4 17.7
Denmark under the Tryg brand name. Sales are handled by five customer centres, 16 local service centres, affinity groups, car dealers, real estate agents and Nordea’s branches. Private & Commercial Denmark has around 1,400 employees, and contributes some 40% of total earned premiums.
Private & Commercial Denmark continued the positive performance in 2007, lifting the technical result by DKK
446m to DKK 1,440m. The improvement was attributable to a low level of claims, cost reductions and higher interest rates.
Denmark, lasted a year and caused the average premium in motor insurance to drop by around 4%.
174m to DKK 4,041m in 2007, improving the claims ratio by 3.7 percentage points to 62.3 in 2007. Weatherrelated claims had a negative impact of 3.7 percentage points and large claims had a negative impact of 1.2 percentage points compared with 1.7 and 1.4 percentage points in 2006. Weather-related claims were, among other factors, adversely affected by some 2,200 hailstorm claims reported on one single day in Denmark. Hailstorm claims cost a total of some DKK 42m or an average of some DKK 19,000 per claim.
Our business ness performed favourably in Q4 2007, generating premium growth of 1.0% in local currency (6.0% in DKK)
Gross earned premiums 4,490 4,509 4,632 Gross claims incurred -2,962 -2,866 -2,823
Claims ratio, net of ceded business 67.8 65.3 62.2 Gross expense ratio 20.8 20.4 20.4
Q4, saw positive premium growth driven, among other things, by the effect of recent years’ sales initiatives and premium increases from 1 July 2007. This was the first time since 2004 we increased premiums in Norway, and we will continue this trend in 2008, increasing premiums in selected building segments with effect from 1 January 2008.
Premium growth in 2007 was mainly driven by our commercial business which recorded premium growth of 3.3%
DKK 2,962m. The claims ratio continued at a low level but increased by 2.4 percentage points to 66.0. The increase was mainly attributable to expenses relating to large claims, which were DKK 121m in 2007 compared with
The average building claim increased by some 9% in 2007 due to general pressure in the building sector, pushing up prices of building materials and skilled craftsmen. The average motor claim rose by only a few percentage points in 2007, which was in line with inflation in the industry.
principle in parts of the organisation in 2007. We will continue to implement LEAN over the next few years.
The gross expense ratio was 20.8 in 2007, which was 0.4 percentage point higher, mainly due to the relatively high wage inflation of 5.6%. A new IT supported process will be implemented in early 2008 to make our sales processes more efficient and enable us to finalise 90% of all sales at the customer’s premises. The process will entail cost reductions of around DKK 60m over the next two years.
The Corporate business area recorded a technical result of DKK 842m in 2007, which was in line with the 2006 level despite a significantly higher level of large claims.
Gross earned premiums 5,285 4,921 4,666 Gross claims incurred -3,904 -3,322 -3,296
Claims ratio, net of ceded business 77.2 73.9 79.6 Gross expense ratio 9.5 11.0 11.4
Corporate is a Nordic business area which provides insurances to corporate customers under the TrygVesta brand.
10m. Corporate has around 500 employees, and contributes some 30% of the Group’s total earned premiums.
TrygVesta Garantiforsikring, the leading provider of guarantee insurance in the Nordic region, is included in the Corporate business area.
Corporate outperformed the market substantially in terms of growth, driven by dedicated risk consultancy efforts with corporate customers being served by cross-disciplinary customer teams. In 2007, more than 250 employees completed our pan-Nordic risk consultancy training, a major contributor to the improvement of our service and consultancy standards.
As far as our insurance lines are concerned, the personal lines in particular recorded strong growth, supported by the new act on workers’ compensation insurance in Denmark which took effect on 1 July 2007. The new act triggered extraordinary premium increases of 12.5%, equivalent to premiums of around DKK 60m in 2007 and a similar amount in 2008. After a few years with a deliberate reduction of market shares in unprofitable segments of workers’ compensation insurance in Norway, we once again increased our market share in 2007 within the personal lines of the Norwegian part of the Corporate business. We did this as recent years’ price increases in the
Norwegian market made it attractive to increase the market share again in selected segments.
Corporate recorded a large inflow of new customers in 2007, while also continuing to record high renewal rates.
Nine out of 10 corporate customers renewed their policies in 2007. Generally, customer renewals at 1 January 2008 were satisfactory. As marine had negative earnings in 2007, we increased prices by about 15% at the beginning of 2008, causing a few marine customers to leave the Group. However, the marine business continued to be slightly unsatisfactory.
Combined ratio for 2007 was 86.7 compared to 84.9 in 2006. Large claims had a negative impact of 8.3 percentage points in 2007 compared to 6.0 percentage points the year before. Weather-related claims also rose but to a lesser extent, which had a negative impact of 1.1 percentage points compared to 1.0 percentage points in 2006. Large losses amounted to DKK 843m and had a significant negative impact on the financial results.
The higher level of large claims resulted in a gross claims ratio of 73.9 in 2007 against 67.5 in 2006. There were seven marine claims with a gross expense of DKK 453m and a net expense of DKK 133m, the difference being that reinsurers contribute a much greater proportion of large marine claims. This is also reflected in the net reinsurance ratio of 3.3, which was much lower than the ratio of 6.4 recorded in 2006. Thus, the overall claims ratio, net of ceded business was 77.2 in 2007 against
In early 2007 we began selling commercial insurances to small commercial customers. Setting up a commercial
Gross earned premiums 251 198 140 Gross claims incurred -188 -155 -113
Our Finnish branch provides insurances to private household customers and small enterprises under the brand name of Nordea Vahinkovakuutus. Insurances are sold by
Gross earned premiums at DKK 251m were 26.8% higher in 2007. The portfolio amounted to some DKK 300m in
We had a 3% share of the Finnish private market at the end of 2007. In 2008, we will continue to focus on growth, aiming to achieve our ambition of holding an 8%
Nordea. Continued strong growth requires us to continue to give high priority to new recruitment and retention of current employees in 2008.
Nordea sold two thirds of the policies in 2007, while our own staff sold the last third. The chart on the next page
Gross earned premiums 90 4 Gross claims incurred -80 -6 -
Gross claims ratio 88.9 144.9 Business ceded as % of gross premiums 0.0 0.4 -
compares the level of sales from the start-up in Sweden with the start-up in Finland. Sweden has significantly higher sales because we were able to use our experience from the start-up in Finland and set up our own sales centre in Sweden immediately. We increased the number of employees from 42 to 58 in 2007 in order to retain the high growth rate. Sales continued to be in line with our targets and strategy for the Swedish market.
In 2007 the return on TrygVesta’s investment activities before transfer to technical interest, but after other financial income and expenses totalled DKK 1,740m. This was
investment activities before other financial income and expenses was DKK 1,523m, equal to a return of 4.1%.
The proportion of equities fell from 14.8% to 11.9%, or by DKK 939m. The value of the portfolio of real property increased by some DKK 116m in 2007, lifting its proportion to 6.9% from 6.7%.
For security and rating considerations, our investment portfolio has a high proportion of highly liquid securities carrying low interest rate and credit risk. We do not invest in structured fixed income products such as CDOs, CLOs and hedge funds, nor does our portfolio include US mortgages.
The overall bond portfolio including cash yielded a return of DKK 1,103m in 2007, equal to 3.7% for the full year.
About 75% of the bonds, or DKK 23bn, are issued by banks or mortgage credit institutions, and 23% are issued by Western European and North American governments or regional authorities. 82% of the portfolio is rated AAA
We monitor interest rate sensitivity on an ongoing basis to match asset and liabilities as far as possible in order to minimise the impact of changing interest rates on our income statement. The duration including cash of the
Group’s total bond portfolio was 1.9 years at 31 December 2007 compared to 1.3 years at 31 December 2006.
December 2007. Royal Dutch Shell was the largest stake, accounting for 2.8% of the portfolio of listed equities and 0.3% of total investment assets. The 25 largest equities in our portfolio accounted for 31% of the total listed equity portfolio.
We reduced our equity exposure further in January 2008 to stand at DKK 1.7bn at 31 January 2008.
The investment return on real property was DKK 240m, including revaluation of DKK 103m and 6.1% from operations. The occupancy rate was 97.5 at 31 December 2007 compared with 94.9 at 1 January 2007.
TrygVesta is committed to providing the market with precise profit guidance. We attach great importance to using the very extensive records of previous performance which are very important when making financial forecasts.
TrygVesta’s outlook for 2008 is composed of the areas insurance activities, investment activities and tax.
Technical result before run-off 2,077 2,200 Investment result 340 400 Profit before tax 3,109 2,500 Profit after tax 2,266 1,900 2,000 1,800 *In local currency
The combined ratio for 2008 is estimated to be at the level of 89-91 with an expectation of 90 before run-off.
We generally base our expectations with respect to claims incurred on assumptions for the various products in the individual business areas. Expectations regarding claims ratios are based on historical performance in the form of average claims ratios for the past five years, with recent years’ trends generally being weighted stronger than those of prior years. Trends in the pricing of our insurance premiums, claims frequencies and the discount rate applied are the most important factors that may affect our overall performance. Assumptions for storm events and large claims are based on historical experience for not less than ten years, with recent years’ trends being weighted stronger than those of prior years. In addition, we incorporate the effect of profitability initiatives and the effect of any legislative measures in the anticipated claims level. The outlook for 2008 assumes weatherrelated claims for 2008 of around DKK 225m and large claims of around DKK 500m gross.
The outlook further includes other expenses such as those relating to IT, operations and our corporate headquarters, which are predominantly based on agreements that are known to us.
against previously 12-14% as TrygVesta cut back the proportion of equities to around 4% in January 2008. The proportion of bonds was increased correspondingly from around 82% to 90%. The outlook for 2008 is based on the level of interest rates prevailing at 31 January 2008.
Bonds are thus expected to account for around 90% of total investment assets and to yield a return of 4.7%
based on interest rates at 31 January 2008. Equities are expected to account for around 4% of total assets and to yield a return of 7.0% including dividends, but this may vary considerably between periods. Finally, the portfolio of real property is expected to account for 6% of assets and to yield a return of 6.1%. Real property returns correspond to annual rental income less administrative expenses and do not incorporate any appreciation or depreciation of real property values. In 2007, bonds, equities and real property yielded returns of 3.7%, 2.0%
going forward. We have changed this to 25% based on the composition of our business.
The equity market performance alone results in an outlook for 2008 at 18 February that provides a return on equity of around 23% before tax and around 16% after tax.
The composition of our business and an assessment of market conditions cause us to upgrade our medium-term expectations from a combined ratio of around 92 to the 89-91 range. About half of the improvement is attributable to a change in our accounting policies on unwinding.
A combined ratio of 89-91 results in a targeted improved return on equity from the earlier outlook of 19-21% after tax to 21-23%. Our outlook for the medium-term assumes that we return to having an equity share of 8-10% of total assets, assuming a return on equities of 7%.
Standard & Poor’s capital model, aiming to maintain our current rating of A-. This rating reflects strong creditworthiness and excellent financial strength and is a preferred rating among large corporate customers requiring that their insurer is rated.
Standard & Poor’s implemented a new capital model in the autumn of 2007. Redefining the measurement of capital,
In 2005, the Group raised a 20-year bond loan in the amount of EUR 150m, which was listed on the London
Subordinate loan capital accounted for 10% of the capital calculated according to Standard & Poor’s capital model for credit purposes in 2007, with the present limit being 25%.
TrygVesta had the following ratings at 31 December 2007: Standard & Poor’s Moody’s
Standard & Poor’s implemented a new capital model in the autumn of 2007, redefining the measurement of capital.
The main change is that investment risk is now included in the capital requirement rather than deducted in the calculation of capital. A number of other elements were also updated, including that the individual rating requirements are now based on risk allocation.
Financial Supervisory Authority. The changed discounting method results in capital being released while at the same time allowing TrygVesta to maintain its strong capital position and rating of A-. Read more about the capital model in Risk management and view a quarterly updated version of a simplified capital model at www.trygvesta.com
After the annual calibration of our capital requirement after payment of cash dividends we will return an additional DKK 660m to shareholders in the form of a share buyback. To this should be added the two one-off effects relating to Standard & Poor’s new capital model and changed discounting method, which increase the share buyback programme by DKK 745m.
This is more than the previous buffer which was around 2.5-3% of the minimum level.
The share buyback will be implemented pursuant to the safe harbour rules when approved by the shareholders at
The risk that volatility of financial markets impacts our results. Interest rate risk constitutes a major part of market risk. Interest rate risk is the risk of fluctuating market interest rates.
The risk that claims at the end of an insurance contract deviate significantly from our assumptions when pricing at inception of the contract.
We make technical provisions at the end of a period to cover expected future payments for losses already incurred. Provisioning risk is the risk that future payments deviate significantly from our assumptions when making the provisions.
Operational risk The risk of errors or failures in internal procedures, systems and processes, and risks that are not covered by the financial risks and strategic risks.
We rely on our capital base and financial strength to assume risks from our customers and for our customers to be confident that we are able to meet our obligations if and when they report a claim. Our aim is for our capital base to match our risk profile and support natural growth.
A- from Standard & Poor’s. We regularly assess our capital resources, including calculate our capital requirement based on a model used by Standard & Poor’s. The results of these calculations are posted quarterly at www.trygvesta.com. We also regurlarly assess capital and risk in our internal model, which simulates results of investments, insurance operations and reinsurance. We use the model as the basis to evaluate investment strategies and purchases of reinsurance and to determine riskbased return requirements for the individual business areas based on their specific risk profile.
Group’s risk management (see also the section on Corporate governance). In 2007, our Supervisory Board revised the structure of its instructions in which it defines our risk management framework with the purpose of optimising the control, monitoring and handling of our present and future risk exposure. The supreme body of this structure is the risk management committee which, in addition to the Group CEO and Group CFO, consists of the persons responsible for the various risk management areas: insurance risk, investment risk and operational risk.
In addition to the risk management committee we have set up a number of special committees to handle the risk management process within the areas of
All committees focus on risk management and have no commercial responsibility.
Our business cause us to incur losses on our insurance operations. An excessive premium relative to the risk may cause us to lose competitive advantages and have an adverse effect on our business platform. Accordingly, we strive to strike the correct balance between risk and premium, and we regularly follow up on our tariffs and pricing methods.
TrygVesta’s financial statements to explicit inflation risk in case of changes in Danish wage inflation. We hedge such risk using an inflation swap.
Insurance risk is the risk relating to our insurance operations. It is the most important risk that we are exposed to. The risk comprises underwriting risk, that is, the risk related to the determination of premiums, and provisioning risk, that is, the risk related to the assessment of future payments to be covered by premiums received.
The figure illustrates the impact on the fixed-rate securities and discounted provisions for claims based on simulated interest rate scenarios in TrygVesta’s ALM model with the portfolios of bonds and provisions at 31 December 2007.
The figure is based on simulation of 5,000 scenarios with a one-year horizon, with 90% of scenarios being within the light-blue frame.
Exposure to terrorist losses of a biological, chemical or radioactive character can only be covered partly by reinsurance today. Although we deem the occurrence of this type of losses with a catastrophic scope very unlikely, we are working actively within the Danish Insurance Association with a view to establishing a national arrangement for such losses. We expect a solution during 2008.
Fluctuating interest rate levels is a very important market risk to which we are exposed. Interest rate changes affect our investment assets as well as our provisions for claims, both of which are stated at market values. If interest rates
In order to have protection against natural disaster risks, we maintain cover in 2008 of up to DKK 4.5bn with retentions of DKK 100m in Denmark and NOK 100m in Norway. The level of cover was determined based on the risk exposure of the Group’s portfolio, using simulation models. These models suggest that a loss in excess of DKK 4.5bn occurs less often than once every 250 years. Our exposure to natural disasters in Norway is furthermore limited through our participation in the Norwegian Pool of Natural Perils.
In addition to reinsuring catastrophe events, we also buy protection for certain lines for which experience has shown that claims vary considerably. The Group’s Corporate portfolio includes very large property risks in Denmark and Norway. We have bought reinsurance in the
The equity portfolio primarily focuses on the large, liquid equity markets in Europe, the USA and Japan. We have defined a strategy with relatively little exposure in the
Nordic region (around 23% at 31 December 2007) in order to reduce company risk, because a few companies account for large parts of the markets in the two countries. Furthermore, we have tied each equity mandate to a recognised benchmark, which we monitor closely. As shown in the graph on the previous page, the Group’s portfolio tracks the benchmark, even outperforming it over time. The 25 largest equities in our portfolio account for some 31% of the total listed equity portfolio.
Group’s premium income in foreign currency is mostly matched by claims and expenses in the same currencies, primarily NOK, EUR, SEK and USD. We do not hedge the remaining, limited currency risk in connection with future cash flows in foreign currencies.
We use currency derivatives to hedge the risk of loss of value of balance sheet items due to exchange rate fluctuations in accordance with a general hedge ratio of 90-100 for each currency. We aim to hedge 98-100% of the net book value of the Norwegian entity.
Based on the actual amount of balance sheet items in foreign currencies and hedging as at 31 December 2007, 15% depreciation in the exchange rate of an exposed currency relative to DKK would result in a net loss of DKK
39m because the loss on the balance sheet items of DKK
30.3bn at 31 December 2007, while the provisions for claims discounted using a market rate amounted to DKK
DKK 568m, while the opposite impact on provisions would be DKK 547m, triggering a net impact of DKK 21m.
Danish workers’ compensation using a market rate, the average duration of provisions discounted using a market rate increased by 0.7 years to 3.0 years per 31 December 2007 with a corresponding increase in the duration of the bond portfolio to ensure continued matching interest rate sensitivity for assets and liabilities.
The equity and real property portfolios are exposed to changes in equity markets and real property markets, respectively. We manage such risk through investment limits for various asset classes. In certain circumstances, we also use interest rate and equity derivatives in our investment activities.
The figure shows the distribution on ratings of premiums ceded under the reinsurance programmes in 2007. We primarily cede premiums to reinsurers rated A or above.
The figure shows the distribution of receivables including receivables from reinsurers, in aggregate DKK 1,189m. Of these, 89% are held by companies rated A or above.
Management uses this as the basis for further strategy work. The balanced scorecard is used as a tool in this work to ensure current follow-up on the strategy and the initiatives launched in the business areas. During the year, the strategy is managed in Executive Management meetings and meetings to follow up on the balanced scorecard performance by business areas and staff functions. We also continuously monitor the market to ensure that we have an up-to-date basis for our assessment of external conditions, be it our competitors’ market initiatives, new legislation or other external factors that may impact the Group.
729m would be offset by a gain of DKK 690m on the currency hedging.
Receivables from policyholders arise on an ongoing basis and amounted to DKK 901m or 5.3% of gross premiums at 31 December 2007. The risk related to receivables from customers is limited because the insurance cover lapses if they fail to pay.
As operational risks are mainly internal, we focus on establishing a satisfactory controlling environment in the
Interest rate market – increase in interest rates of 1% Impact on fixed interest securities 1) -568 Higher discounting of provisions for claims 547 Impact on Norwegian pension obligation 193
Equity market Decrease of equity markets of 15% 2) -667 Impact arising from derivatives 0
The Supervisory Board believes that TrygVesta complies with the corporate governance recommendations published by OMX Nordic Exchange Copenhagen. The Supervisory Board considers that each Board member has adequate time and resources to serve as a Board member of
TrygVesta strives to develop and maintain strong relations to all relevant stakeholders as they are key to the Group’s future performance and potential. This includes that we emphasise open and honest communication, and that we reply to all enquiries in an accommodating manner.
TrygVesta’s annual general meeting is held every year before the end of April. The Supervisory Board convenes the annual general meeting giving not less than eight days’ notice. Shareholders may register to receive an elec-
• Presentation of the annual report for approval, including determination of the Supervisory Board’s remuneration
• four representatives are elected among the employees, who according to agreement in 2007 between the
Board prepares a description of the candidates’ background as part of the final proposals to be submitted to shareholders at the annual general meeting. The description outlines the recruitment criteria established, including requirements with respect to the candidates’ professional qualifications and international experience. When taking up office, new
Executive Management on a regular basis to ensure development of and follow-up on the Group’s strategies.
The Supervisory Board holds at least six annual meetings and an annual strategy seminar to discuss and define strategies and goals for the years ahead.
The audit committee supports the Supervisory Board in its work with and supervision of: • the annual report, including checking the accuracy of financial information disclosed in the annual report, and ensuring that accounting policies are relevant and applied consistently
• internal control and risk management. In this context the audit committee reviews and assesses management ’s guidelines for identifying, monitoring and managing the most important risks at least once a year, including an assessment and review of internal control and risk management systems
TrygVesta is an insurance group subject to the requirements of the Danish Financial Business Act on risk management and the involvement of the Supervisory Board and the Executive Management. The Supervisory Board defines the framework for risk management in TrygVesta with respect to insurance risk/reinsurance, investment risk and operational risk, including IT security. This framework is then implemented in risk policies that define detailed guidelines for the Group’s risk management. The risk management committee comprising the Group CEO,
Group CFO and selected senior executives monitors the risk management environment. The Executive Management reports to the Supervisory Board on how the framework for the Group’s risk management is implemented.
The Supervisory Board ensures that the Group is monitored by competent and independent auditors. Each year, the annual general meeting appoints external auditors recommended by the Supervisory Board. The Supervisory
Board has defined an evaluation procedure providing for the work and results of the Supervisory Board, the chairman of the Supervisory Board and the individual members and for the composition of the Supervisory Board to be assessed for the purpose of optimising the Board’s work.
The duties of the chairman and the deputy chairman of the Supervisory Board are defined in the rules of procedure of the Supervisory Board, and include preparing Board meetings and performing evaluations of the Supervisory
TrygVesta Group’s overall performance as well the individual member’s performance within the business area he or she is responsible for. Specific benchmarks are defined within all four perspectives of the balanced scorecard
(financial, customer, processes and learning). These benchmarks reflect the strategic focus areas of the Group and the individual business areas, including growth, profitability, cost reduction, customer satisfaction, customer loyalty, image, processes, communication, employee satisfaction and development, and innovation. Members of the Executive Management may chosse to receive their bonus by acquiring TrygVesta shares at a discount to the market price or they may elect to receive a cash payment.
Members of the Executive Management who elect to receive their bonus by acquiring shares at a discount to the market price can buy the shares at par with a total discount equal to the bonus for which the individual member is eligible. TrygVesta believes it is appropriate that part of the Executive Management’s remuneration consists of stock option based payment in order to ensure focus on share price performance and build loyalty and motivation.
Any grant of stock options is based on the principle that the exercise price may not be lower than the market price.
TrygVesta has adopted a policy with respect to remuneration of the members of the Supervisory Board and the Executive Management of TrygVesta A/S and has also prepared overall guidelines for an incentive structure, which will be submitted for shareholder approval at the annual general meeting to be held on 3 April 2008. The complete text of the remuneration policy is posted at www.trygvesta.com.
Chairman DKK 750,000 Deputy Chairman DKK 500,000 Board member each DKK 250,000 Total renumeration in total* DKK 3,687,500 * Christian Brinch joined the Supervisory Board in March, and his remuneration therefore only covers the last three quarters of 2007.
The remuneration paid to the Executive Management reflects a wish to secure a profitable and stable performance for the Group in the short term as well as in the longer term, including to induce the Executive Management to focus on increasing value creation for shareholders.
tive Management of TrygVesta and the Executive Management of TrygVesta Forsikring. In addition to Stine
Furthermore, TrygVesta has set up a stock option programme for certain senior executives and employees to reward outstanding performance.
(“all trades”) on OMX Nordic Exchange Copenhagen on 27 February 2007 which was DKK 456.76 plus a 10%
supplement. The options were granted on 28 February 2007, and each option entitles the holder to acquire one share at the exercise price. We buy treasury shares to cover our stock option programmes.
Members of the Executive Management are also entitled to company cars. A contribution of 25% of the fixed salary of the Executive Management is paid into a pension scheme.
Members of the Executive Management are entitled to 12 months’ notice of termination and to 12 months’ severance pay. However, the Group CEO is entitled to 12 months’ notice of termination and to 18 months’ severance pay plus pension contributions during such period.
Like the Executive Management, the remaining members of the Group Executive Management and senior executives of
Stine Bosse 5,200,000 1,734,000 1,300,000 113,000 8,347,000 13,527 Morten Hübbe 3,000,000 750,000 750,000 156,000 4,656,000 7,101 Peter Falkenham 2,575,000 644,000 644,000 106,000 3,969,000 5,072
Mr Brinch runs his own business providing strategic consulting and board services.
Trond Christiansen Born 1945, Norwegian citizen Joined the Supervisory Board in 2003
Ms Nyboe Andersen has competencies within the areas of management, strategy, treasury and financial business from her former positions as Chairman of The Board of Governors of
Paul Bergqvist Born 1946, Swedish citizen Joined the Supervisory Board in 2006
Mikael Olufsen Chairman Born 1943 Joined the Supervisory Board in 2002
Deputy chairman of the Board of Trustees of the Egmont Foundation. Deputy chairman of
Mr Olufsen has experience in managing large international companies, including in strategic development. In addition, Mr Olufsen has experience as a board member of Danish and international companies.
Bodil Nyboe Andersen Deputy Chairman Born 1940 Joined the Supervisory Board in 2006
Niels Bjørn Christiansen Born 1966 Joined the Supervisory Board in 2006
A/S, Danfoss International A/S, Danfoss Commercial Compressors S.A., France, Danfoss Bauer GmbH, Germany, Thermia Värme AB, Sweden.
John R. Frederiksen Born 1948 Joined the Supervisory Board in 2002
Sjælsø Enterprise A/S, Sjælsø Gruppen A/S, Ejendomsforeningen Danmark and Komplementarselskabet Uglen ApS.
Mr Frederiksen has experience within management, strategy and finance from serving as chairman of a number of companies and other positions, including with property companies.
TrygVesta, The Finance Sector Union of Norway and Sogn og Fjordane Bustadbyggelag.
Peter Wagner Mollerup Elected by the employees Born 1966 Joined the Supervisory Board in 2002
Board member of TrygVesta A/S, TrygVesta Forsikring A/S and The Danish Financial Services Union.
Stine Bosse Group CEO Born 1960 Joined TrygVesta in 1987 Joined the Group Executive Management in 1999
Peter Falkenham Member of the Group Executive Management in charge of Private & Commercial Denmark Born 1958 Joined TrygVesta in 2000 Joined the Group Executive Management in 2000
Educational background: BCom (International Trade), MSc (Engineering), management training programmes, including St. Gallen and
We want our customers to perceive our peace-of-mind provision every time they are in contact with us. To achieve this, we need to have insight into and be conscious of our customers’ need for peace of mind and to give a high priority to loss prevention. We want to help eliminate concerns and promote peace of mind for our customers. Focusing on this ambition, we launched a number of initiatives in 2007 aimed at improving dialogue with our customers and helping them take action to prevent damage and injury.
The insurance industry is notorious for writing complex sentences and using fine print. We want to change that.
We want our customers to feel well-informed and confident in their communication with us. Many customers know us from our written communication only, and it is therefore important for us that our customers understand what we write.
Our customer concepts are an important tool in enhancing customer loyalty. We develop our customer concepts on an ongoing basis and add new benefits such as special insurance cover, additional benefits and discounts for customers who take out more than one product with
TrygVesta. Surveys indicate that concept customers are characterised by greater loyalty.
We launched a number of new customer concepts in 2007: • We launched the Peace-of-Mind Adviser in Denmark and Norway at www.tryghedsraadgiveren.dk and www.
Denmark and Norway at www.tryghedsbutik.dk and www.trygghetsbutikk.no, respectively. The site sells high-quality security products selected and tested by our experts.
• In October 2007 we launched an enhanced travel insurance to cover events that become excluded with the reduced Danish public travel and health coverage.
We also extend our annual travel insurance to cover family members not living in the household who travel together with the customer. Furthermore, it will improve the possibilities for concept customers to cover travel companions.
In Denmark, we came in at the top half among our peers.
Our customer satisfaction ratings improved greatly from 2006. Our loyalty ratings were largely unchanged from last year’s ratings.
no had 2.6m visitors against 3m in 2006, consisting of 1.7m at tryg.dk against 1.9m in 2006 and some 1m at trygvesta.no against 900,000 in 2006.
Our Swedish website www.vesta.se, which was launched in June 2006, had some 182,000 visitors in 2007 against some 23,000 in 2006. In Finland, we had a total of 88,532 visitors to Nordea’s TrygVesta pages against
In order to further promote its profile, TrygVesta’s guarantee business in Denmark, Norway and Sweden launched new websites in 2007. The guarantee business in Denmark also changed its legal name from Dansk Kaution to
Source: EPSI Rating (EPSI is an independent non-profit organisation for measuring customer satisfaction in the Nordic region).
Our employees are TrygVesta’s most important asset because they are our face to the customers in their everyday experience of our provision of products and services that offer peace of mind. The labour market continued to tighten in 2007, and employers intensified their efforts to retain and recruit the best employees. We launched a range of activities in 2007 designed to prepare ourselves to meet the employees of the future and strengthen the Group as an attractive workplace.
TrygVesta wants to be a modern workplace that promotes innovation, collaboration and our corporate values. Over the next two years, Danish and Norwegian firms of architects and designers will work with TrygVesta to transform the physical office framework in Ballerup and Bergen into modern workplaces. Key words for the project are trust, security and transparency, which translate our values into a design framework. The modernisation efforts aim to forge closer relations between employees and improve the work situation of individual employees. These aims will be reflected in open-plan office environments, quiet rooms and café environments. The project is scheduled for completion by the end of 2010.
Both theme packages comprised a board game, which has proved to be an efficient tool to promote important dialogue in the departments. The theme package dealing with well-being and stress also enhanced knowledge about how to handle busy periods and stress in the
Group, determine employee satisfaction and follow up on our employees’ knowledge about the Group’s strategy, values and balanced scorecard benchmarks. The status survey is also used as a tool in the follow up on results from the full-scale employee survey made in the intermediate years. The 2007 status survey indicated, among other things, that 90% of the Group’s employees were very satisfied or satisfied with working at TrygVesta. Furthermore, employee knowledge of the Group’s strategy and use of the balanced scorecard had increased significantly compared with the 2006 employee survey. A full-scale employee survey will be conducted in September 2008.
Today, nurturing employees is very much about creating the right basis for facilitating the development of the competencies of each individual employee. At the same time, competency building helps us achieve our strategic goals and remain competitive. At TrygVesta, we want human competencies to be on the agenda of all managers, and we want all employees to have a development plan. We created several new employee training programmes in 2007, and we intend to continue this development in the years ahead: • In the autumn of 2007 we launched a large-scale training programme under the heading “Your role as a peace-of-mind provider”, which will initially be attended by customer service and sales staff. Subjects taught include showing empathy and being attentive when talking to customers. After the new peace-of-mind providers have completed the programme, we will follow up on their competencies with initiatives such as status talks and role plays. The programme will run from September 2007 to May 2008.
• In 2008, we intend to launch a Nordic talent development programme for qualified and ambitious employees with good potential for building a career in our Group.
We intend to perform an in-depth review of our recruitment processes in all four Nordic countries in 2008. This will include charting the requirement for present and future skills and employee profiles. The project is carried out in a collaboration between a number of departments in the Group.
• to simplify the process of recruiting the right employees and make it more efficient
• to enhance the profiling of the Group’s values and communicate them better
“TrygVesta shares closed the year at DKK 388, equivalent to a market capitalisation of DKK 26.4bn. The shares provided a negative return including dividends of 2.9% for 2007”
Over the summer of 2007 financial markets became increasingly jittery due to a liquidity and loan crisis triggered by non-performing US sub-prime loans. The period from mid-July to end-August 2007 saw equity markets drop by some 12%, with financial equities being hit particularly hard. The financial unrest continued during the remainder of the year with TrygVesta shares trading at
However, equity markets began to pick up towards the end of 2007.
TrygVesta shares closed the year at DKK 388, equivalent to a market capitalisation of DKK 26.4bn. The shares provided a negative return including dividends 2.9% for 2007.
Competing insurance shares performed as follows in 2007: Alm. Brand minus 28.5%, Sampo minus 4.9% and
Topdanmark minus 21.4%. Codan was delisted on 31 Juli 2007. The share increased by 11.4% up to the delisting.
TrygVesta shares had average daily turnover of DKK 117m in 2007. The total volume traded on OMX The Nordic
Exchange Copenhagen was DKK 47.9bn. The ten most active traders in 2007 in terms of turnover were: Our shareholders
The Group’s website at www.trygvesta.com is an important vehicle for providing information about the Group’s performance to prospective investors. The website will be relaunched in early 2008 in a more user-friendly version and with improved content. Teleconferences and webcasts can be downloaded as podcasts from the new website, and interested parties can stay updated on the latest news through RSS feeds. Our Investor Relations department focuses strongly on making updated and relevant information easily accessible to investors, and urges all interested parties to use the website.
TrygVesta shares (free float) was held by 28,420 registered shareholders. Of the 40% free float shares, the 200 largest shareholders held 66%. Some 24% of the free float shares was held by international investors, and 76%
TrygVesta’s annual general meeting will be held on 3 April 2008 at Øksnehallen, Halmtorvet 11, DK-1700 Copenhagen V, Denmark. The invitation to attend the meeting will be advertised in the press and will be sent to all shareholders who so request. Notice of the annual general meeting will also be posted on www.trygvesta.com.
FINANCIAL CALENDAR 2008 25 February Annual report 2007 3 April at 14:00 Annual general meeting 2008 5 May Interim report for the first quarter of 2008 18 August Interim report for the first half of 2008 10 November Interim report for the third quarter of 2008
Any queries relating to the annual general meeting may be addressed to: Bjarne Lau Pedersen, Chief Group Legal Adviser
ANNOUNCEMENTS IN 2007 09.01.2007 No. 02 TrygVesta introduces share-based payment 05.02.2007 No. 03 TrygVesta starts selling commercial insurance in Finland 28.02.2007 No. 05 TrygVesta’s fourth quarter 2006 report 09.03.2007 No. 06 Notice of the Annual General Meeting of TrygVesta A/S
28.03.2007 No. 08 Resolutions from the annual meeting of shareholders (AGM)
09.05.2007 No. 09 TrygVesta’s Q1 2007 results 09.05.2007 No. 10 Change of name 01.06.2007 No. 11 Change in share capital and votes 21.06.2007 No. 12 TrygVesta – Higher premium growth in 2007, revised return policy and Capital Markets Day 09.11.2007 No. 13 TrygVesta’s interim report for the first half of 2007 04.09.2007 No. 14 TrygVesta receives DKK 85m in an arbitration case regarding reinsurance 23.11.2007 No. 15 Third quarter 2007 report 23.11.2007 No. 17 Peter Falkenham promoted to COO
The past year went according to plan and expectations, though with some positive surprises. Growth rates in our
Corporate business and Swedish business exceeded my expectations. I was also positively surprised by our ability to innovate: While creating solutions for our own needs, we have developed solutions for our customers. To illustrate, like many workplaces, we’ve felt the need to address the issue of stress, and have put this topic on the agenda throughout the organisation. One initiative was to develop an e-learning programme that provides employees with more information on stress, relaxation techniques to help alleviate the problem, and the chance to communicate with colleagues on the subject via games and other initiatives. Originally, we wanted to find a solution for our own use, but have actually developed a new product that will also benefit our customers. The product
StressStop is a telephone line with stress consultants ready to give advice and guidance on stress. We have so far launched the product for employees on Danish workplaces.
What does TrygVesta do in order to be abreast of the development?
The focus on our customers and employees has increased and is on the rise. In all four Nordic countries where we provide peace of mind, the labour market has changed in recent years. The competition for the available workforce is intense. Fortunately, we still attract and retain the best employees, so we can provide the highest level of customer service. We need to find new talent groups with new ideas and competencies. And we must always maintain and develop TrygVesta as an attractive workplace.
Responsibility (CSR). How do you see TrygVesta’s position in this field?
CSR has always existed in TrygVesta. It’s intrinsic to our way of thinking. We provide peace of mind. Our product is a direct provision to society and we’re an integral part of the Nordic welfare system. Insurance is based on the idea that everyone accepts their responsibility and contributes to the shared burdens. CSR is therefore a very natural topic of conver sation. We’re very serious when we say we provide peace of mind.
Providing peace of mind TrygVesta’s vision is to be perceived as the leading peace of mind provider in the Nordic region. This year’s annual report features a themed section with four articles that describe four areas where we will launch new initiatives - for customers, employees, the environment, and society. As the basis for the other articles, Stine Bosse, Group CEO, talks about the current challenges and recent developments in the Group.
That question brings us back to our employees. The point of difference is our employees because they decide how we meet the customers. By that I mean the way they talk, write and communicate with customers. We need the most skilled and friendly employees and that is exactly what we have.
There could be occasions when, with hindsight, we may say we probably shouldn’t have done that. But innovation requires courage and learning from mistakes. We can’t have a “no mistakes” culture and also be an innovative company at the same time.
Many of TrygVesta’s customers need increasingly individualised health and peace-of-mind services that are not covered by the public sector. What do you think of the relationship between public-sector and private services?
I believe the environment and climate change will mean a great deal - in a number of areas. Naturally, we should make sure we remain a sustainable company that cares about the environment. But climate change also has a serious effect on our customers. In recent years, we’ve experienced violent storms, and high levels of rainfall that have caused extensive damage. First and foremost, we want to help our customers prevent damage by advising customers on what precautions to take and focusing attention on sub-standard building, bad drainage and other factors that can contribute to wind and water damage. We specialise in this field and it would be irresponsible not to share this knowledge with the general public and our customers in particular. We also make sure that our own emergency systems are constantly upgraded so that we can deal with a wider and more extensive range of damages.
Challenges and opportunities go hand in hand. We must do a lot to maintain the momentum we already have. As I
Monica Rydland Anundsen works with strategic development of Corporate at the divisional management group in
Norway. Today, for the very first time she will be taking part in the new Innovation Driver programme at TrygVesta ’s BusinessLab in Ballerup, Denmark.
Monica Rydland Anundsen imagines that she will be presented with a tightly structured programme. That she will be given some methodical tools and instructions on how and when to use them.
At BusinessLab in Ballerup, the music and lighting system menu offers a choice of different moods: Growth and new beginnings
Driver programme: “The idea is to come up with something that none of us has thought of before and that we can only think together. The course participants are trained in making new discoveries. And coming up with new ideas is very
When employees change cerebral hemispheres Innovation Driver is the name of TrygVesta’s new in-house training programme, which aims to develop employees’ ability to think along new lines. Monica Rydland Anundsen was one of the first employees to take part in the programme. An experience that has raised activity levels in the creative side of her brain.
As the participants begin to relax and use their creative grey matter, they begin to notice the opportunities provided by unconventional work processes. So, the programme also includes a form of personal development: “For me, development, increased interaction, and security are what drive my work. Both in relation to teamwork with my colleagues and the products we can develop for our customers. The Innovation Driver programme proved to be right for me. This new way of working gives me more strings to by bow,” explains Monica Rydland
Working with statistics, focus groups and risk assessments is one thing. Working with emotions and your imagination is quite another: “We tell employees to trust their intuition. They join the project without knowing what they’ll get out of it. That takes courage. Employees may not appreciate the link between what they’re doing today and what it will lead to in three months’ time. Accepting insecurity is a challenge.
cardboard insurance product is a tangible prototype. We transform ideas into words and make them tangible. This is what theatrical and artistic processes can do,” explains
Malene Bendtsen, who has a background in economy, marketing, innovation management and adult education theory.
He quickly gets to the point: “We believe it will have more to do with people and less to do with possessions. It’s about personal peace of mind and security more than insuring things. It’s about insuring yourself, your closest relatives, and your family, against claims from third parties. It’s about your right to the good life,” explains Stig Ellkier-Pedersen. In his view, this is a new tendency among customers and therefore an obvious business opportunity.
People in the Nordic region are interested in new kinds of insurance products. This is evident from the enormous growth in health insurance, for example, and in the general demand for healthcare. The health sector is constantly developing new treatments and new training methods that probably cannot be financed through taxes.
“There is a lot of potential to explore here. It generates a whole new energy. Instead of asking, we get customers to show us, so that product development is on their terms as much as possible,” says Stig Ellkier-Pedersen.
In 1728, the city of Copenhagen burned down. This prompted a number of citizens to establish “the fire fund” to counteract the consequences of the fire. Now, at the beginning of the 21st century, alarm bells are ringing again. This time due to global warming: “It’s not just a hypothetical question about what will happen in the future. It’s a question of what has already happened: In recent years, we’ve had warmer weather, more rainfall, more wind – and more claims. TrygVesta has already faced considerable additional expenses in both Denmark and Norway,” explains Lars Bonde, Chief
Group has therefore allocated reinforcements to this area, including extra backup from claims experts and additional suppliers who can help repair the damage. New initiatives, however, lead to higher costs: “If the number of claims continues to rise, insurance premiums will follow suit, but we’re not there yet. We’ve now reached a point where we must face certain questions: Should we involve ourselves in how houses are built? What houses should we insure? What demands should we make? Can we develop products that encourage customers to reduce pollution, or can we assess the damage in a particular way that inspires environmental awareness?” says Lars Bonde, before adding: “We must also ask ourselves what we can do to be more environmentally friendly. We want sustainability to be a key word at all levels of our company – from product development through transport.”
Focus on climate initiatives – policy, science and the business community
Sustainable Business Development, along with about 20 other major companies such as Danfoss, Grundfos and
Climate change has been the subject of intense media interest in recent years. And many insurance customers already have an opinion on this issue. A survey conducted by TrygVesta in Norway showed that three out of four
Norwegians are concerned about how climate change will ultimately affect life on Earth: “Our job is to provide peace of mind, and when so many people are concerned about the climate it has a major impact on us. We’ve found that concerns in this field have risen significantly in recent years. We’ve also realised that people expect us to solve the problems. The Norwegian survey shows that customers expect a great deal from their insurance company. They expect us to have the skills required to find solutions. That’s why we’re working hard to adapt to the new situation – and find new solutions,” says Lars Bonde.
In 2007, TrygVesta devised a system for its environmental work and established an interdepartmental corporate steering committee to drive the Group’s climate and environmental commitments.
Group’s CO2 emissions in 2008-2010. TrygVesta will also screen environmental and climate issues throughout the entire Group in 2008 as the basis for an annual measurement and reporting in the future.
It’s a matter of maintaining a long-term and sustainable approach,” explains Helle Kjærgaard: “We work with a CSR umbrella concept that covers three areas: The environment. Employees. And society. We’ve always worked with CSR at TrygVesta. What’s new is that we now have one specific concept and work towards systematising our activities in this field. We want to make sure that our experiences are collected and outlined to benefit the whole organisation. We used to do this but without really considering why. We put our thoughts into action but not into words.”
When companies take responsibility CSR, Corporate Social Responsibility, will come to mean even more at TrygVesta in the next few years. TrygVesta has joined an extensive Nordic cooperation on CSR-driven innovation – a project that is set to last for some years.
Research from the Copenhagen Business School show that social responsibility makes sound business sense: “Citizens and consumers, banks and suppliers are so sensible and responsible that companies who actually take on responsibility and invest in projects that might not appear to benefit the company initially, actually make good returns on their investments or the costs of social responsibility activities,” says Steen Hildebrandt, Professor at the
Income statement for TrygVesta A/S (parent company) 140 Statement of changes in equity (parent) 142 Notes (parent company) 143 Financial highlights and key ratios by geography 148 Organisation chart 150 Glossary 151
The management’s report gives a true and fair view of developments in the activities and financial position of the company and describes significant risk and uncertainty factors that may affect the company.
96 of 152 l Independent auditors’ report l TrygVesta Annual Report 2007
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual report.
Opinion In our opinion, the annual report gives a true and fair view of the Group’s assets, liabilities and financial position at December 31, 2007, and of the results of the Group’s operations and the Group’s cash flows for the financial year starting on January 1 and ending on December 31, 2007 in accordance with International Financial Reporting Standards as adopted by the EU and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises.
Acquisition costs and administrative expenses -2,769 -2,697 Commission and profit commission from the reinsurers 95 102 5 Total insurance operating expenses, net of reinsurance -2,674 -2,595
Total return on investment activities 1,740 2,259 3 Interest on insurance provisions -1,400 -1,031
Notes Assets 11 Intangible assets 335 220 13 Owner-occupied property 306 326
Temporarily acquired assets 0 6 18 Current tax assets 93 43 Cash in hand and at bank 298 338
Accrued interest and rent earned 666 474 Other prepayments and accrued income 59 57
Notes Liabilities 19 Shareholders’ equity 10,010 9,951 20 Subordinated loan capital 1,101 1,099 21 Provisions for unearned premiums 5,403 5,173 21 Provisions for claims 21,104 20,410 Provisions for bonuses and premium rebates 409 374
Total provisions for insurance contracts 26,916 25,957 22 Pensions and similar obligations 403 503 23 Deferred tax liability 1,109 959
Total liabilities and equity 43,830 42,783 19 Capital adequacy 27 Earnings per share 28 Contractual obligations, contingent liabilities and collateral 29 Related parties
100 of 152 l Statement of changes in equity l TrygVesta Annual Report 2007
DKKm Reserve Revalua- for Equali- Share tion exchange sation Other Retained Proposed capital reserves rate adj. reserve reserves earnings dividends Total
Equity entries in 2007 Profit for the year 75 1,035 1,156 2,266 Change in equalisation provision 0 Revaluation of owner-occupied properties -3 -3 Exchange rate adjustment of
Dividend paid -2,244 -2,244 Dividend own shares 14 14 Purchase of own shares -96 -96 Issue of employee shares 32 32 Issue of share options 8 8
Dividend paid per share DKK 17 (total for 2006 DKK 33 DKK) Dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the average number of shares 67,648,000. The dividend is not paid until approved by the shareholders at the annual general meeting of the subsequent year.
102 of 152 l Cash flow statement – TrygVesta Group l TrygVesta Annual Report 2007
Change in other payables and other amounts receivable -316 13 Cash flow from insurance operations 2,281 3,195 Interest income 1,164 886 Interest expenses -186 -207 Dividend received 169 261
The financial statements of the parent company are prepared in accordance with executive order no. 1467 dated 13 December 2006 issued by the Danish FSA on the presentation of financial reports by insurance companies and profession-specific pension funds, which is largely identical to IFRS. The deviations from the recognition and measurement requirements of IFRS are: • Investments in subsidiaries and associates are valued according to the equity method, whereas under IFRS valuation is made at cost or fair value. Furthermore the requirements regarding presentation and disclosure are less comprehensive than under IFRS.
The executive order on application of international financial reporting standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differences between the format of the annual report under international financial reporting standards and the rules issued by the Danish FSA. The following is a reconciliation of differences in the profit for the year and shareholders’ equity.
Equity at 31 December - Danish FSA executive order 10,031 9,974
Changes in accounting policies TrygVesta introduced a simpler model for unwinding effective on 1 January 2007. Unwinding means that the discount on the provision is unwound as the settlement date gets closer and the amount is transferred from claims to technical interest in the income statement.
In 2007, the Group implemented: • IFRS 8 ’Segment information’. Replacing IAS 14, the standard will enter into force on 1 January 2009. Implementation of the standard will entail a change in the identification of segments from primary and secondary segments to operating segments. The standard has no effect on recognition and measurement in the annual report.
• IFRIC 8 concerning ‘Scope of IFRS 2’ comes into force for financial years commencing on or after 1 May 2007. The group already treats group transactions concerning share-based payment in accordance with these principles. The interpretation has not changed the accounting treatment currently applied.
• IFRIC 11 concerning ‘Group and Treasury Share Transactions’. The interpretation specifies that the accounting treatment of share-based payment does not rely on the way in which the shares are acquired by the company at the exercise date. The interpretation has not changed the accounting treatment currently applied.
• IAS 23 (updated 2007) concerning ‘Borrowing costs, which is effective for financial years commencing on or after 1 January 2009. IAS 23 (updated 2007) requires the recognition of borrowing costs in the cost of a qualifying asset (intangible assets, property, plant and equipment and inventories). The standard is not expected to have financial reporting impact (IAS 23 remains to be adopted by the EU).
Profit/loss on gross business 2,528 232 2,760 1,739 145 1,884 2,083 147 2,230
Transferred from provisions for claims concerning discounting -457 -240 -697 -378 -153 -531 -301 -150 -451
Return on investment activites after transfer to Insurance activities 1,207 21 1,228 888 6 894 378 -7 371
Profit/loss on discontinued and divested business after tax 126 126 -28 -28 -75 -75
Business ceded as a percentage of gross premiums 3.6 0.1 3.7 0.1 0.0 0.1 4.7 -0.1 4.6
A more detailed description of primary assumptions about the future and other primary sources of estimation uncertainty is given in the risk management section in the management’s report.
Defined benefit pension schemes The company operates a defined benefit plan in Norway. A “defined benefit” plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, depending on age, years of service and compensation. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The projected unit credit method is a cash-flow calculation, which calculates the obligation as the present value of benefit attributed to current and prior years. The defined benefit obligation is calculated periodically by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting estimated future cash outflows.
Changes in the present value are primarily made due to changes in assumptions about discount rate, expenses, return on plan assets, future salary increases and future pension increases. Since the provision for pension funds is based on actuarial calculations involving statistics and cash flow from such factors as investments, changes in interest rates, inflation and expectation of life, it may mean that the TrygVesta Group’s provision may be inadequate to cover its actual liability towards employees and current pensioners.
Accounts adding items of a uniform nature. The financial statements of subsidiaries that present financial statements under other legislative rules are restated to the accounting policies applied by the group.
Enterprises in which the group exercises significant influence but not control are classified as associates. Significant influence is typically achieved through direct or indirect ownership or disposal of more than 20% but less than 50% of the votes.
On consolidation, intra-group income and expenses, shareholdings, intra -group accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated.
In accordance with IFRS 1 TrygVesta Group has elected not to apply IFRS 3 retrospectively to past business combinations (business combinations that occurred before the date of transition to IFRS).
On initial recognition, transactions in foreign currencies are translated into the functional currency at the exchange rate ruling at the transaction date. Assets and liabilities denominated in foreign currency are trans lated at the exchange rates at the balance sheet date. Translation differences are recognised in the income statement under value adjustments.
On consolidation, the assets and liabilities of the group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classified as equity and transferred to the group’s translation reserve.
Segment income and segment costs as well as segment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity.
Premiums Earned premiums represent gross premiums earned during the year, net of outward reinsurance premiums and adjusted for changes in the provision for unearned premiums, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the provision for unearned premiums.
The portion of premiums paid to reinsurers that relate to unexpired risks at the balance sheet date is reported as the reinsurers’ share of provisions for unearned premiums.
Technical interest According to the Danish FSA’s executive order, technical interest is presented as a calculated return on the year’s average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions.
Changes in claims incurred due to changes in the yield curve and exchange rates are recognised as a market value adjustment.
Bonus and premium rebates Bonus and premium rebates represent anticipated and reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the business was written.
The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the employment relationship. In case of termination due to restructuring or retirement, the employee is still entitled to the options.
Interest, dividends, etc. represent interest earned, dividends received, etc. during the financial year. In addition, the item includes gains and losses on bonds drawn for redemption. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of land and buildings, exchange rate adjustments and the effect of movements in the yield curve used for discounting, are recognised as value adjustments.
Intangible assets - software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful life (four years).
After completion of the development the asset is depreciated on a straight-line basis over the expected useful life, however with a maximum period of 4 years. The basis of amortisation is reduced by any impairment writedowns.
Owner-occupied property and operating equipment Owner-occupied properties are measured in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment writedowns. Revaluations are performed regularly to avoid the carrying amount differing materially from the owner-occupied property’s fair value at the balance sheet date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the upcoming year. The resulting operating income is divided by the percentage return requirement of the property, which has been adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity.
Subsequent 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 item will flow to the group, and the cost of the item can be reliably measured. Ordinary repair and maintenance costs are charged to the income statement during the financial period in which they are incurred.
Impairment of intangible assets, equipment, owner-occupied property and investment property The carrying amount of intangible assets, operating equipment, owner-occupied property and investment property are tested at least once a year for impairment in the cash-generating unit to which the asset belongs, and the asset is written down to the recoverable amount through the income statement if the carrying amount is higher. The recoverable amount is generally calculated as the present value of the future cash flows expected to be derived from the activity to which the asset belongs.
The results of foreign subsidiaries are based on translation of the items in the income statement at average exchange rates for the period. Income and expenses in domestic enterprises denominated in foreign currency are translated at the exchange rate ruling on the date of the transaction.
Financial assets at fair value through income Financial assets are classified as financial assets available for sale at inception if acquired principally for the purpose of selling in the short term, or if they form part of a portfolio of financial assets in which there is evidence of short-term profit-taking. Derivatives are also classified as financial assets available for trading unless they are designated as hedges.
Derivative financial instruments and hedge accounting The group’s activities expose it to financial risks, including changes in share prices, foreign currency exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance balance sheet items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks related to the portfolio of bonds and technical provisions. Equity derivates are used from time to time to adjust equity exposures.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at their fair value. The valuation is performed in securities systems with data usually provided by Nordea, and the valuation is verified using own valuation methods. Derivatives which include expected future cash flows are discounted on the basis of market interest rates.
Reinsurers’ share of provisions for insurance contracts Contracts entered into by the group with reinsurers under which the group is compensated for losses on one or more contracts issued by the group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets.
Receivables Receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market other than receivables that the group intends to sell in the short term. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the impairment review of receivables.
Exchange adjustment reserve Assets and liabilities of foreign entities are recognised at the exchange rate at the balance sheet date. Income and expense items are recognised at the average exchange rates for the period. Any resulting exchange rate differences are taken to equity. When an entity is wound up, the balance is transferred to the income statement.
Dividend distribution Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (the date of declaration ). Dividends expected to be paid in respect of the year are stated as a separate line item under equity.
Treasury shares The purchase and sale sums of treasury shares and dividends thereon are taken directly to retained earnings under equity.
Provisions for insurance contracts Premiums are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as unearned premium provisions. Unearned premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period. However, as a minimum to the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any variations in the risk. This applies to gross as well as ceded business.
Claims and claims handling costs are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims handling costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the group. Provisions for claims are estimated using the input of assessments for individual cases reported to the group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The provisions include claims handling costs.
Provisions for bonus and premium rebates represent amounts expected to be paid to policyholders in view of the claims experience during the financial year.
Provisions for claims are determined for each product line based on actuarial methods. In cases where product lines encompass more than one business unit, the claims provisions are distributed, as a main rule, based on reported number of claims in Denmark and individual claims in Norway. The models currently used are Chain-Ladder, BornhuetterFerguson, the Loss Ratio method, De Vylder’s credibility method and a proprietary collective reserve model for use in private business lines in Denmark. Chain-Ladder techniques are used for business lines with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future runoff performance. De Vylder’s credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson /Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for example the number of insured.
Several assumptions and estimates underlying the calculation of the provisions for claims are mutually dependent. Most importantly, this can be expected to be the case for interest rate and inflation assumptions.
Workers’ compensation is an area in which explicit inflation assumptions are used, with annuities for the insured being indexed with the workers’ compensation index. An inflation curve that reflects the market ’s inflation expectations plus a real wage spread is used as an approximation to the workers’ compensation index.
Pension obligations The group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-administered funds. In Norway, the group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent on age, years of service and compensation. In Denmark, the group operates a defined contribution plan. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions.
In special instances the employee can enter a contract with the group to receive compensation for loss in pension benefits caused by reduced working hours. The group recognises this liability based on statistical models.
Financial liabilities Bond loans, debt to credit institutions, etc. are recognised at the raising of the loan as the proceeds received less transaction costs. In the subsequent periods, financial liabilities are measured at amortised cost, applying the ‘effective interest rate method’, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement under financial expenses over the term of the loan. Transaction costs in connection with floating-rate loans or floating-rate credit facilities are amortised over the loan period using straight-line amortisation.
Insurance operating expenses, gross -2,769 -2,697 Commission, etc. from reinsurers 95 102
Notes 5 Insurance operating expenses, gross, classified by type Commision -406 -341 Staff expenses -1,594 -1,581 Other staff expenses -198 -174 Office expenses and fees, headquarter expenses -462 -402 Operating and maintenance costs IT, software expenses etc. -198 -271 Depreciation, amortisation and impairment writedowns -102 -76 Other income 191 148
Total expenses for lease amounts to 106 DKKm (2006 101 DKKm).
Share option programmes In 2007, TrygVesta awarded share options to the Executive Management (6 persons) and other senior employees (88 persons). At 31 December 2007, the share option plan comprised 329,902 share options (at 31 December 2006 186,020 share options). Each share option entitles the holder to acquire one existing share of DKK 25 nominal value in the company. The share option plan entitles the holders to buy 0.49 % of the share capital if all share options are exercised. Specification of outstanding options: Share options Total Numbers Fair Value
Number of options exercisable end of 2006 0 0 0 0 0 0 0 0
Outstanding options from allocation 2006 31 Dec 2007 44,540 138,860 0 183,400 - 12 - 22
Number of options exercisable end of 2007 0 0 0 0 0 0 0 0
Total share options Out- Total Numbers allocated Exercised Cancelled Expired standing Period of exercise
The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: Average share price (DKK) at the time of allocation 456.76 355.83 Exercise price (DKK) 0 0 Expected volatility 24.10% 17.90% Expected maturity 4 years 4 years Risk-free interest rate 3.90% 3.30%
Employee shares In 2007, TrygVesta granted employee shares at a discount to the market price to employees at all levels in the parent company and Danish subsidiaries. Employees of non-Danish branches were offered employee shares or alternatively a cash consideration. Each employee was offered 23 shares at a discount to the market price equal to DKK 25 DKK per share, equivalent to a total of 49,338 shares or around DKK 23m being granted to the employees. Senior executives received part of their bonus in the form of shares at a discount to the market price. In 2007, a total of 20,321 shares were granted at discount to the market price of DKK 25 per share or DKK 9m.
In 2007, TrygVesta offered its employees employee shares at a discount to the market price equal to DKK 25 per share subject to achievement of specific financial benchmarks for 2007. Employees of non-Danish branches were offered employee shares or an alternative cash consideration. Senior executives of TrygVesta may elect to receive part of their bonus for 2007 in the form of shares at a discount to themarket price. Bonus will be granted in early 2008. Provisions have been made for the above obligations in 2007.
Total fair Other Per value per Per option Total fair Group senior Other option option at 31 value at 31 Executive em- em- at grant at grant December December Management ployees ployees Total date DKK date DKK DKK DKK
Outstanding options from allocation 2007 31 Dec 2007 40,916 89,586 16,000 146,502 - 14 - 7
6 Operating segments Private and Private and Finnish Swedish Commercial Commercial general general Denmark Norway Corporate insurance insurance Other Total
Description of segments Please refer to ‘Our business areas’ for a description of our Operating segments.
Profit/loss on business ceded -87 -200 -82 -75 -172 -316 -1 0 0 0 -1 0 -343 -591 Technical interest, net of insurance 164 128 182 111 137 98 14 6 3 0 1 0 501 343
A presentation of segments broken down by geography is provided in ‘Financial highlights and key ratios by geography’.
Notes 6 Technical result, net of reinsurance, by line of business
Fire & contests Fire and contests Change Credit & guarantee Tourist assistance (Private) (commercial) of ownership Liability insurance insurance
Profit/loss on ceded business - 102 - 134 - 280 - 311 0 0 - 88 - 3 - 32 - 36 - 1 - 2 Technical interest, net of reinsurance 113 80 61 38 9 6 21 14 4 4 7 6
Profit/loss on ceded business - 5 0 - 340 - 588 - 3 - 3 Technical interest, net of reinsurance 0 - 1 478 328 23 15
Exchange rate adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement amounts to DKK 73m (2006 DKK 1m).
Claims incurred includes in 2006 a DKK 139m gain in connection with the commutation of the reinsurance agreement with Chevanstell Limited.
Intangible assets under development amounts to total DKK 220m (DKK 125m in 2006). Additions for internally developed expenses amount to DKK 22m (DKK 5m in 2006). Amortisation is recognised in the income statement under insurance operating expenses and claims incurred.
Accumulated depreciation Balance 1 January -3 -1 Depreciation for the year -1 -2
Lowest Average Highest percentage percentage percentage 14 Investment property Fair value 1 January 2,127 1,726 Exchange rate adjustment 13 -13 Additions during the year 23 235 Disposals during the year -5 -5 Value adjustment for the year 105 184
Total rental income for 2007 was DKK 160m (DKK 145m in 2006).
Notes 15 Investments in associates Cost Balance 1 January 0 14 Additions during the year 0 -14
Komplementarselskabet af 1. marts 2006 ApS, DK 0 0 0 0 0 50 2006 Shareholders’ Profit/Loss Ownership Name and registered office Assets Liabilities Equity Revenue of the year share in %
Total other financial investment assets, cash and investments in associates in accordance with the balance sheet 35,863 36,070
Due in 1 year or less 12,112 19,220 Due after 1 years through 5 years 15,293 9,698 Due after 5 years through 10 years 3,386 1,291 Due after more than 10 years 18 133
The Bond portfolio includes unit trusts in which the underlying assets are bonds.
DKKm 16 Maturity of the group’s interest-bearing financial assets and debt Effective Adjusted 2007 Total 0-1 year 1-5 years > 5 years interest rate duration
Cash in hand and at bank 601 601 0 0 4.2 0
Cash in hand and at bank 338 338 0 0 3.7 0
The duration of interest-bearing debt is stated at zero as such debt is measured at amortised cost and is not subject to value adjustment.
The portfolio of unlisted shares totals 237 209 Unlisted Equity investments is measured on estimated fair value, cf ‘Accounting policies’
16 Sensitivity information Impact on shareholders’ equity from the following changes. Interest rate increase of 0.7-1.0 pct. point -2 68 Interest rate fall of 0.7-1.0 pct. point 27 -56 Equity price fall of 12% 533 646 Fall in property prices of 8% 214 201 Exchange rate risk (VaR 99.5) 8 17 Loss on counterparties of 8% 220 220
The impact on the income statement is similar to the impact on shareholders’ equity. The calculation is made in accordance with the disclosure requirements of the executive order issued by the Danish FSA on the presentation of financial reports by insurance companies and profession-specific pension funds. Please refer to the part ‘Risk management’ for an elaboration of risk management and risk exposure
Derivatives with value adjustment in the income statement according to IAS 39: Fair value: Gross Net Gross Net
Derivative financial instruments used in connection with hedging of foreign subsidiaries: Gains Losses Net Gains and losses on hedges charged to equity at 1 January 107 -119 -12 Reversed hedges in profit and loss 37 0 37 Gains and losses on hedges charged to equity in the period 0 -135 -135
Writedowns during the year include reversed writedowns totalling DKK 12m (2006: DKK 6m).
18 Current tax Current tax, beginning of year 186 277 Exchange rate adjustment 8 -6 Current tax for the year 746 649 Tax booked on equity -24 30 Tax paid during the year -673 -764
Pursuant to the authorisation granted by the shareholders in general meeting, TrygVesta A/S may acquire up to a maximum of nom. DKK 170m worth of treasury shares, corresponding to 10.0% of the share capital in the period until the next annual general meeting in 2008.
In 2007, Tryg Vesta acquired treasury shares worth nom. DKK 5,530k, corresponding to 221,200 shares at a total cost of DKK 96,533k.
Treasury shares are acquired for use in the Group’s incentive programme.
The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. TrygVesta manages its capital requirement as described in “Capitalisation” in the management’s report.
The loan is an interest-only loan, and the lender has no option to call the loan or otherwise terminate the loan agreement with TrygVesta Forsikring A/S. The loan is automatically accelerated upon the liquidation or bankruptcy of TrygVesta Forsikring A/S.
Reserves from 1999 and prior years 180 Other reserves 62 Provisions for claims, end of year 1,428
Reserves from 1999 and prior years 2,391 Other reserves 281 Provisions for claims, net of reinsurance, end of the year 19,676
21 The amounts in foreign currency in the table are converted to Danish kroner according to the exchange rate at 31 December to prevent the impact of exchange rate fluctuation.
Total, beginning of period 20,068 1,312 18,756 Market value adjustment of provisions, beginning of period 276 38 238
Paid in the financial year in respect of the current year -5,786 -139 -5,647 Paid in the financial year in respect of prior years -5,343 -348 -4,995
Change in claims in the financial year in respect of the current year 11,680 504 11,176 Change in claims in the financial year in respect of prior years -740 -11 -729
Provisions for claims, end of year 1) 20,761 1,366 19,395 2006 Gross Ceded Net
Total, beginning of period 19,788 1,644 18,144 Market value adjustment of provisions, beginning of period -266 -42 -224
Provisions for unearned premiums, gross 5,116 4,879 54 36 147 Provisions for unearned premiums, ceded -184 -184 0 0 0
The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S,
Present value of pension obligations funded through operations 129 123 Present value of pension obligations funded through establishment of funds 1,163 1,175
Gross pension obligation 1,292 1,298 Fair value of plan assets 932 825
Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year. 1,298 1,362 Exchange rate adjustment 43 -41 Present value of amounts accumulated during the year 60 65 Capital costs of previously accumulated pensions 56 49 Actuarial gains/losses -105 -91 Paid during the period -46 -44 Change in recognised employers’ nat. ins. contribution 2 -2 Effect associated with optional shift to contribution pension plan -16 0
Estimated return on pension funds 43 33 Actuarial gains/losses -9 26 Paid during the period -32 -31 Effect associated with optional shift to contribution pension plan -9 0
Pension cost recognised in the income statement: Pension costs concerning current financial year 60 67 Calculated interest concerning obligation 56 51 Expected return on plan assets -43 -34 Pension costs concerning previous financial years 10 11 Effect associated with optional shift to contribution pension plan -7 0
The premium for the following financial year is estimated at: 103 103
The premium paid to FPK in 2007 amounted to DKK 1.0m, which is less than 1 % of the annual premium in FPK (2006). FPK writes in its half-year report for 2007 that it had a collective consolidation ratio of 131 at 30 June 2007 (118 at 30 June 2006). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations.
23 Deferred tax Tax asset Operating equipment 84 104 Debt and provisions 0 122 Bonds and loans secured by mortgages 84 9
Reconciliation of deferred tax, beginning of year Deferred tax, beginning of year 959 939 Exchange rate adjustment 27 -20 Change in tax rate in Denmark -20 73 Change in deferred tax taken to the income statement 119 0 Change in deferred tax taken to equity 24 -33
Under Finnish rules, losses may be carried forward for ten years and under Swedish rules, losses may be carried forward indefinitely.
The total current and deferred tax relating to items recognised in equity is recognised in the balance sheet in the amount of DKK -4m (2006 DKK 35m).
Debt falling due within one year 2 69 Debt falling due after more than five years 0 0
DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost are depreciated linear until the loan facility expires in July 2010.
26 Other debt Unsettled transactions 1,857 1,160 Interest derivatives 8 5 Repo debt 0 750 Other debt 732 774
The issued share options will not be exercised before at least in 2009, therefore, there is no difference between basic EPS and diluted EPS.
Profit/loss for the period from discontinued and divested business -1 126 Average number of shares 67,648 67,824 Basic earnings per share of DKK 25 0 2
TrygVesta Forsikring A/S has an annual obligation to Danica Pension with respect to the lease of the head office in Ballerup. The annual rent and taxes currently amount to DKK 80m. The remaining lease period is 18 years. The leasing contract contains the right to completely or partly rent out or completely or partly disposal by providing guarantee.
TrygVesta Forsikring A/S has signed a portfolio management contract for DKK 60m. The contract expires in 2010. TrygVesta Forsikring A/S has signed a car leasing contrakt with NF Fleet for DKK 30m. The contract expires in 2012.
Most of the Danish companies in TrygVesta group are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes.
Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees are issued without additional security. The company has full recourse against the individual companies.
Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a member of the board on market terms.
Remuneration, etc. includes pension contributions Supervisory Board 0 0 Group Executive Management -5 -3
DKK m 29 Members of the Supervisory Board of TrygVesta A/S do not receive bonuses and are not participants in any severance plans. The Group Executive Management has a bonus scheme for up to 3 months’ salary, however, the CEO has up to 4 months’ salary, and participate ind the share option programme as mentioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Group Executive Management.
If a member of the Group Executive Management is given notice of termination by TrygVesta and such termination is not due to breach on the part of the member of the Group Executive Management, such member is entitled to cash severance pay equal to 12 to 18 months’ fixed salary inclusive of pension contribution and taxed benefits. Severance pay is paid at expiry of the period of notice.
Members of the Group Executive Management can raise no further claims in this respect, including claims for compensation pursuant to sections 2a and/or 2b Salaried Employees Act, as such claims are included in the severance pay.
Transactions with subsidiaries have been eliminated in the consolidated financial statements in accordance with the accounting policies.
Notes Investment activities 2 Income from subsidiaries 2,396 3,219 Income from associates 0 5 Interest income, etc. 0 1 Value adjustment -1 -1 Interest expenses -30 -35 Investment management charges -4 -5
Profit on continuing business 2,334 3,165 5 Profit/loss on discontinued and divested business -1 126
Proposed distribution for the year: Dividend 1,156 2,244 Transferred to Net revaluation as per equity method 79 1,782 Transferred to Retained profits 1,098 -735
Total investment assets 10,732 10,643 8 Current tax assets 21 3 Cash in hand and at bank 1 3 9 Deferred tax assets 0 0
DKKm Revaluation equity Share method Retained Proposed capital capital earnings dividends Total
Dividend paid per share DKK 17 (total for 2006 DKK 33 DKK). Dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the average number of shares (67,648,000). The dividend is not paid until approved by the shareholders at the annual general meeting of the subsequent year.
Remuneration of the Executive Management is paid by TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S and is charged to TrygVesta A/S by the cost allocation.
Administrative expenses include fee to the auditors appointed by the Annual General meeting: Deloitte -0.9 -0.9
Effective tax rate % % Tax on financial loss 25 28 Changes to previous year 0 -4 Tax on non-taxable income and expenses 0 -2 cf ‘TrygVestas Financial performance 2007‘ in ’Management’s report’ for futher information regarding the tax.
Claims incurred includes a DKK 139m gain in 2006 in connection with the commutation of the reinsurance agreement with Chevanstell Limited.
Profit/loss on ceded business 0 -7 0 -14 0 -113 0 -134 Technical interest, 1) The line of business ‘Other insurance’ includes indirect insurance.
TrygVesta Forsikring A/S, Ballerup 100 10,732 2006 TrygVesta Forsikring A/S, Ballerup 100 10,643
Revaluations and impairment writedowns at net asset value Balance 1 January 0 0
The loss in TrygVesta A/S can only be utilised in TrygVesta A/S. The loss can be carried forward indefinitely.
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to utilise the tax loss.
Companies of the Tryg Forsikring Group are part of some disputes. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position beyond those receivables and obligations recognised in the balance sheet.
Premium income - Parent company (Tryg i Danmark smba) 0.2 0.1 - Other related parties 17.3 6.2
Claims payments - Key management 0.3 0.1 - Other related parties 43.6 0.5
Remuneration, etc. includes pension contributions Supervisory Board 0 0 Executive Management -3 -2
Intra-group trading involved - Providing and receiving services 0 4 - Intra-group account 0 27 - Sale of unlisted shares 15 0
Intra-group trading involved - Providing and receiving services 49 38 - Intra-group account 131 74
Claims ratio, net of ceded business 69.3 70.7 73.2 76.5 75.1 76.5
Number of full-time employess, end of period 2,242 2,231 2,215 2,223 2,223 2,248
Number of full-time employess, end of period 1,384 1,460 1,431 1,454 1,454 1,460
Finnish general insurance Gross premiums earned 251 198 140 97 97 61
Key ratios Gross claims ratio 74.9 78.1 80.9 75.3 68.5 77.5 Business ceded as % of gross premiums 0.4 0.2 0.2 0.2 0.2 1.0
Claims ratio, net of ceded business 75.3 78.3 81.1 75.5 68.7 78.5
Number of full-time employess, end of period 127 77 48 51 51 42
150 of 152 l Organisation chart l TrygVesta Annual Report 2007
Unwinding Unwinding of discounting takes place with the passage of time as the expected time to payment is reduced. The closer the time of payment, the smaller the discount. This gradual increase of the provision is not recognised under claims, but in technical interest in the income statement.
Net asset value per share Calculated as year-end shareholders’ equity divided by the average number of shares.
Earnings per share Calculated as the profit for the year divided by the average number of shares.
Price/net asset value Calculated as the quoted price of the share divided by the net asset value per share.