Editors Investor Relations | Publication 7 February 2013 | Design e-types | Layout amo design | Print Centertryk A/S | Paper Munken Polar 1 Income overview 2 Introduction by the Chairman 3 Introduction by the Group CEO
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Tryg is the second-largest insurance company in the Nordic region. We are the largest player in Denmark and the third-largest in Norway. In Sweden, we are the fifth-largest insurance company.
Combined ratio exclusive of run-off 101.2 92.1 97.9 93.2 Run-off, net of reinsurance (%) -6.7 -4.7 -4.7 -5.0 Large claims, net of reinsurance (%) 6.2 4.3 2.7 2.3 Weather claims, net of reinsurance (%) 4.5 2.2 3.6 1.8
The results of Tryg’s Finnish branch are included under discontinuing business as the business is no longer part of the continuing business. The comparative figures have been restated accordingly. The profit/loss on discontinued and divested business appears from the financial statements.
Management set a return on equity target of 20%. With Morten Hübbe at the helm, we made a significant change of direction towards a stronger focus on profitability, increased price differentiation and a clear division of responsibility for results. The Supervisory Board is pleased to note that in 2012 Tryg achieved a return on equity of 22.1% and satisfactory growth in profit, borne by a strong profit for the insurance business and an unusually high investment return. The good results were created concurrently with the satisfactory implementation of a number of strategic measures. Further improvements in results are needed, but the activities launched are beginning to bear fruit.
approximately DKK 800m in the form of taxes and other duties, while much of the dividend is distributed via TryghedsGruppen, Tryg’s principal shareholder, for charitable purposes and activities aimed at creating peace of mind.
Optimisation of the capital structure is an important focus area, which is why it has been decided to arrange a new subordinate loan of DKK
In 2012, the Supervisory Board focused, in particular, on risks, and Tryg established a process which ensures that all significant risks are reported and factored in when determining the Individual Solvency Requirement.
In early 2012, Tryg announced that the Group’s Finnish business was undergoing a strategic audit, as the business had not attained the size and business volume required to operate profitably after 10 years on the market. In November 2012, Tryg sold its Finnish business to If.
At the same time, Tryg’s strategic partnership with Nordea in Denmark and Norway was strengthened following the renewal of its agreement with Nordea to better accommodate Tryg’s focus on profitability. In
Tryg, it is with sadness but also considerable pride that I will be handing over to my successor in April, in the definite knowledge that a stable foundation has been created for the future Tryg. My years as Chairman have been marked by many exciting challenges, the listing of Tryg in 2005 as one of the greatest. Moreover, the change of direction achieved in recent years has been tremendously positive for Tryg’s customers, employees and shareholders. The many new initiatives have been necessary and ensure that Tryg can maintain its strong market position. I would like to express my sincere thanks to Tryg’s shareholders, management and employees and wish you all a promising future.
Creating peace of mind and value must be at the core of everything we do, and Tryg aims to do just that. This means that we must be the best in the industry when it comes to insurance, people and earnings.
The results for 2012 very clearly show that Tryg is on the right track.
In 2012, Tryg specified its financial targets with a combined ratio of 90 or less from Q3 2013 and an expense ratio of under 15 in 2015, while the target of a 20% return on equity was maintained.
Tryg creates good results. Consequently, we must focus on creating the best possible conditions for our employees to develop their competences and potential and for ensuring a high level of employee satisfaction. I am proud that – despite the many changes which have been introduced in recent times – Tryg still ranks above average in the employee satisfaction survey conducted by the financial sector.
Marketing and Legal to create a new area – People & Reputation –
Executive Management and strengthen the services provided by the staff functions, ensuring that Tryg can be best at insurance, people and earnings.
In 2012, CSR activities continued to focus on reducing the risk of climate-related claims and reducing the company’s CO2 emissions. As a large company, we are aware of our corporate social responsibilities, and CSR plays a natural role in our daily activities.
The progress realised in 2012 can largely be ascribed to the initiatives introduced in recent years. The result is a stronger Tryg resting on solid foundations from which we can generate further growth, and create peace of mind and value for customers, employees and shareholders in the coming years.
Tryg closed NASDAQ stock exchange The Tryg share did well on the Danish stock exchange in 2011, and in February 2012, Group CEO Morten Hübbe was invited to close trading at the NASDAQ stock exchange in New York.
Prestigious workplace Tryg was the highest-ranked financial business on the list of the most prestigious Danish workplaces in a YouGov survey conducted for the newspaper Ugebrevet A4.
Improved Customer Service results In Norway, Tryg improved results markedly in 2012 compared with last year’s customer service survey and still ranks as one of the best companies.
Roadside assistance in Commercial and Corporate From mid-April, Commercial and Corporate customers were offered peace of mind for drivers of vans up to 3,500 kg on the roads. Commercial and Corporate customers using Tryg Roadside Assistance will, among other things, be given assistance on the spot, assistance in case of a breakdown and free recovery. Like Private customers, these customers may now also choose Extended Tryg Roadside Assistance, which includes a number of additional services such as wheel change.
Tryg insured Danish Olympic delegation Tryg insured the Danish delegation at the London Olympics. About 300 people, including athletes, coaches, TEAM Danmark employees and invited guests, were covered by Tryg’s travel insurance.
S&P confirms ‘A-’ rating Standard & Poor’s confirmed Tryg’s and Tryg Garanti’s ‘A-’ rating in their annual assessment of both companies.
Changes in Group Executive Management Kjerstin Fyllingen left her position as Group Executive Vice President for Commercial and as Country Manager Norway. Rikke Larsen was appointed Group Executive Vice President for People & Reputation, which covers, among other things, HR, legal and a number of other staff areas.
New dividend policy Tryg changed its dividend policy with the distribution of the profit for the year 2012. In future, the annual dividend will consist of a 60-90% cash payment of the profit after tax.
Peace of mind after accidents In the 2012 skiing season, Tryg dispatched six air ambulances to pick up injured skiers. Every time we fill an air ambulance instead of sending injured skiers home by scheduled flights, we provide peace of mind and an enhanced sense of security for our customers. At the same time, we save money and improve our financial performance, thus serving the interests of our customers and our business.
In order to provide peace of mind and create value for customers, employees and shareholders, Tryg must be a financially well-run business. In 2012, a set of clearly defined financial targets were announced to the market. The financial targets include a return on equity of 20% after tax, a combined ratio of 90 or less, to be achieved from Q3 2013, and an expense ratio of under 15 in 2015. To ensure continuous improvements in earnings, and to create the foundation for a strengthened market position and improved competitiveness,
Tryg has defined a number of focus areas: • Increased price differentiation and ‘time to market’.
In response, Tryg has established an ambitious target of reducing expenses and claims costs in the period leading up to 2015.
Tryg during the past decades are now an integrated part of the company, and some products originating from these acquisitions constitute part of Tryg’s portfolio and are different from the products that Tryg currently sells to its customers. As part of the simplification process, measures have been launched to reduce the number of products and systems.
It is our responsibility as a company to ensure that our employees possess or develop competences which make them attractive in the labour market in times of mounting job insecurity. In return, our employees must be ready to develop their competences in step with company needs.
Index provider. Tryg therefore wants to be better than its competitors when it comes to customer satisfaction.
Competent and highly committed employees are a precondition for achieving Tryg’s objectives. Tryg wants to be among the companies with the highest level of employee satisfaction in the financial sector in the Nordic region. An attractive workplace focusing on competence development and skilled managers is the key to achieving this.
We focus on developing our managers and employee competences in accordance with Tryg’s strategy. At a time when there is a keen focus on costs, we attach importance to not hampering investments in competence development, but to strengthening such investments.
The Commercial segment encompasses the sale of insurance products to small and medium-sized businesses, which means businesses with 0-4 employees (small) and up to 50 employees
(medium-sized). In Denmark, sales and services are handled by Tryg’s own agents and sector agree ments. In Norway, the segment is serviced by franchisees and Tryg’s own agents. In Norway, group agreements have also been made with various associations. The Commercial customer segment generated revenue of DKK 3,687m in 2012.
Corporate customers are mainly large enterprises, and in Denmark and Norway Tryg sells insurance via its own sales team and through insurance brokers. For customers requiring an international insurance programme, Tryg’s partnership with the AXA Group enables the offering of complete insurance solutions. In addition, the Corporate business area handles all activities involving brokers. Consequently, medium-sized businesses using brokers are also included in the
In Sweden, insurance products for private customers are sold via the Moderna brand, through own agents, customer centres and the Internet. An important distribution channel is also dealers who sell insurance products as part of their sales of consumer products.
These include both boat and motorcycle dealers and shops selling electronics. In 2012, the business area posted revenue of DKK 1,654m.
Important elements in Tryg’s distribution strategy are being available to customers and for primary distribution to take place via own sales channels. Tryg makes it possible and easy for customers to take out insurance online, report a claim electronically, request quotes and calculate prices. So far, experience from the Nordic region shows that the Internet is a valuable tool for informing and advising customers and for servicing customers, for example in connection with a claim.
Sales are primarily effected through personal contact between the customer and the company, for example by phone.
In recent years, Tryg has focused on claims prevention as a way of creating peace of mind for customers, to draw attention to risks and to make customers address the risks and to mitigate damage and injury. Tryg offers preventive solutions for customers based on knowledge, data and expertise which are translated into preventive solutions that focus on preventing undesired situations from arising.
In 2012, Tryg gave customers who had previously suffered water damage in connection with cloudbursts the offer of a free inspection of their homes with a view to preventing and mitigating future claims. The inspections were carried out by experts who offered advice on specific, practical solutions. For agricultural businesses,
In cooperation with the Federation of Danish Motorists (FDM), Tryg also offers technical driving courses; against a small fee, customers are offered advice on driving economically and on how to improve their driving technique. The initiative has been introduced to provide increased peace of mind for customers in icy or slippery road conditions. See an overview of Tryg’s insurance products on page 152 and at the customer sites tryg.dk, tryg.no and modernaforsakringar.se.
The Nordic insurance market is characterised by a number of large companies being present in several of the Nordic countries. The four largest companies have a combined market share of 47% in the
Nordic market. In the individual countries, the four largest companies have a combined market share of 60-77%. For the Nordic market as a whole, total premium income amounts to approximately DKK 160bn.
At the beginning of 2012, the Danish government decided to abolish the tax exemption for company-paid health insurance. This is expected to impact the insurance companies’ premium income from these products, but derived negative effects on, especially, the private health care sector are also expected to follow in the wake of this step.
Finally, a reform of the law on early retirement and subsidised flexible employment schemes will tighten the rules and lead to higher workers’
compensation payments. Also, case handling is expected to become more protracted, resulting in more people being granted temporary workers’ compensation payments. The insurance companies will also be affected by a gradual increase in payroll tax in the period up until 2012.
As the second-largest general insurance company in the Nordic region, Tryg is affected by developments in the Nordic insurance market, but at the same time it is helping to shape developments.
Like many of the other Nordic companies, Tryg has introduced price adjustments in recent years in order to counter a negative development in the price/risk correlation. But whereas many of these price adjustments have been introduced in response to specific market trends, Tryg will continue to work on developing products which better take account of a large number of risk factors. A better balance must be struck between risk and premium, and Tryg’s products must be more differentiated, while also improving the company’s competitiveness in the Nordic market.
Steps aimed at process optimisation internally and in connection with the procurement of claims services are also central to improving Tryg’s competitiveness. In the long term, an efficient and more cost-effective insurance business will make Tryg better geared to manoeuvring in more uncertain and changeable markets. In the long term, this will also contribute to the foundation for profitable growth.
(93.2) despite a low interest rate level, which negatively impacted the combined ratio by 1.2 per centage points. Thanks to the improved result and several initiatives in the pipeline, Tryg is well on its way to achieving its targets of a return on equity of 20% and a combined ratio of 90 or below from Q3 2013.
The high investment return was influenced, in particular, by rising share prices, the credit crisis in southern Europe and a low interest rate level, which meant that the authorities carried out a technical adjustment of the discount rate which is used when discounting claims provisions in the insurance business. These factors led to significant price increases for especially bonds in the Nordic markets, and a one-off gain of DKK 150m as a result of the change in the discounting curve. In addition, the investment return benefited from solid gains on high-yield and emerging market bonds as well as write-down of owner-occupied property. The primary purpose of the investment business is to support the insurance business and to have a low risk profile. In this respect, the investment return in 2012 was extra ordi narily high and must, given the low interest rate levels, be expected to be lower in the coming years.
In 2012, the macroeconomic situation was generally characterised by low growth in the Danish economy accompanied by reticence on the part of consumers, which impacted small and medium-sized businesses. Large corporate customers benefited from growth in the export markets, especially the German market. The Norwegian market was basically unaffected by the economic crisis in southern Europe, which otherwise impacted the rest of Europe. Norway continued to see solid growth in its gross domestic product, increasing pay levels and employment rates, but still relatively low inflation. The Swedish economy was, like the Danish economy, influenced by general reticence among consumers.
Premium income was impacted by Tryg’s focus on profitability which, among other things, was improved through price increases and pruning unprofitable customers. Premium income for Private increased by 1.5% (6.1%) and was influenced by the high renewal rate in both the
Danish and Norwegian business. The lower growth is due to lower sales, especially in Denmark. Moreover, the development in motor insurance premiums was affected by the fact that car sales in Denmark, in particular, were comprised mainly of smaller vehicles with higher safety levels and thereby lower average premiums. Premiums in both
• The profit after tax for the year was DKK 2,208m (DKK 1,140m ) with a high return on equity after tax of 22.1% (13.1%).
Expected level, gross for 2012: DKK 550m the Commercial and Corporate segments fell by 2% when measured in local currencies. This development was also influenced by the reaction of customers to price increases, pruning and a weak economy, especially in the Danish market.
Tryg implemented significant price increases in 2010 to improve profitability, focusing in particular on the private sectors in Denmark.
The claims ratio, net of ceded business, which covers both claims and net reinsurance ratio, was 71.8 (76.6). The improvement covers, in particular, the effect of the profitability measures, the low level of weather claims and a satisfactory result from a lateral reinsurance agreement. The level of large claims was lower than in 2011, whereas the lower interest rate level had a negative impact on the claims ratio, net of ceded business.
On the Capital Markets Day in 2012, Tryg announced its target of reducing claims costs by a total of DKK 700m (including DKK 100m transferred from expenses) up to 2015. These reductions will be achieved, in particular, by exploiting Tryg’s size in connection with sourcing and through improved processes. In 2012, Tryg continually followed up on these initiatives, the total effect being DKK 120m, which was slightly higher than the savings target for 2012 of DKK
Weather claims, gross, totalled DKK 323m (DKK 1,756m). This significantly lower level can be attributed to the cloudburst in the Copenhagen area in July 2011 which triggered claims expenses of DKK 1.5bn.
In addition, weather claims in 2012 were at a lower level than expected for an average year. In 2012, Tryg introduced a new contents insurance product, where the risk of weather claims is a significant element in the pricing.
At DKK 713m (DKK 858m), the level of large claims was slightly lower than in 2011, but somewhat higher than the expected level of
Tryg’s expenses in the case of a high frequency of weather claims events. While traditional reinsurance provides cover per event, this cover takes effect if Tryg incurs more than DKK 400m in claims for weather damage originating from several events. As a result of the many storms and cloudbursts in H2 2011 and developments in H1 2012, Tryg saw reinsurance cover of DKK 136m. The agreement was renewed from 1 July 2012 at a slightly higher price. Tryg does not
The expense ratio was 16.4 (16.6) in 2012. The improvement must be seen in the context of a target of an expense ratio below 15 in 2015, which must be achieved through initiatives that will reduce the cost level by DKK 300m between now and 2015.
The profit on discontinued business was DKK 28m and primarily concerns the Finnish business, which was sold in Q4 and therefore falls under discontinued business. The Finnish business was sold for EUR 15m. At the same time, intangible assets concerning a large IT project were impaired by approximately DKK 100m so that the total impact on the profit was slightly negative. In addition, run-off on claims provisions from Marine Hull insurance, which Tryg stopped writing in 2010, is included, with a slightly positive result.
In 2012, Tryg’s total investment portfolio of DKK 45.5bn (DKK 41.3bn)
realised a high gross return of DKK 2,243m, corresponding to a return of 5.1% (4.8%) on the average invested capital during the period.
(DKK 184m). The return was impacted by significant price increases for equities and bonds and by negative developments in the financial markets, including the debt crisis in southern Europe. The equity portfolio, which is a globally diversified portfolio, generated a positive return of 13% (4.2%). Bond investments were impacted by the development in interest rates in Europe and produced a return of 4.5% and, for high-yield and emerging-market bonds in particular, there was a high return in 2012. The composition of the free portfolio was basically unchanged in 2012, and the portfolio is still made up of a diversified mix of real estate, equities and bonds.
Other financial income and expenses were negative by an amount of DKK 551m, particularly in relation to the write-down of owneroccupied property. In Q2 and Q4, write-down charges of DKK 150m and
taxes which totalled DKK 374m. Thus, the combined income tax and paid payroll taxes for 2012 totalled approximately DKK 800m. In 2011, taxes and duties totalled approximately DKK 600m.
DKK 6,410m at the end of 2012, and should be seen in relation to a capital base of DKK 8,832m after the proposed dividend. Relative to this, Tryg thus has surplus cover of DKK 2,422m, or 38%.
DKK 800m which is irredeemable by the creditor. The current capital requirement rules limit the amount of fixed-term subordinated loan capital which can be included in the capital base, which has meant that the existing subordinated loan from TryghedsGruppen of EUR 65m does not qualify for inclusion in Tryg’s capital base.
In connection with a change to the dividend policy, capital management will be based on the calculation of Individual Solvency. This decision has been made to strengthen the balance between Tryg’s risk profile and capital base, and does not change Tryg’s objective of a Standard & Poor’s ‘A-’ rating or its focus on a strong capital structure.
As previously mentioned, in connection with the repayment of the subordinated loan with TryghedsGruppen, Tryg has decided to arrange a loan of DKK 800m, which is irredeemable by the creditor.
Read more in the chapter Capital and risk management on page 38 in the annual report.
The profit after tax totalled DKK 404m for Q4 2012 (DKK 344m).
(DKK 398m) and a run-off level totalling DKK 237m (DKK 331m). As a result of the lower interest rate level, the effect of discounting on the combined ratio was 0.8 percentage points less than in Q4 2011.
Premiums in local currencies fell in Q4 by 0.5%, resulting from positive growth in the Private market and negative growth in the
• Technical result improved by DKK 466m to DKK 1,233m (DKK 767m).
• Still highest customer satisfaction among the largest companies in Denmark and Norway.
Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the Internet, Tryg’s own agents, franchisees (Norway), interest organisations, car dealers, estate agents and Nordea’s branches. The business area accounts for 48% of the Group’s total premium income.
Private was the business area where Tryg first implemented significant profitability measures. Thus, Private is the area which is farthest ahead in relation to the financial targets. To ensure continued satisfactory financial results, considerable focus is devoted to price differentiation, segmentation and optimising sales channels.
In 2012, the Danish economy was impacted by the economic crisis, especially in southern Europe. This particularly affected consumer spending and thereby the level of economic activity. For the insurance market, this meant a low turnover of homes and increased sales of smaller cars. In Norway, private consumption was still at a high level, with car sales slightly up on 2011. Inflation is low in both Denmark and
Norway, but due to increasing pay levels in Norway, Tryg is particularly
Profit/loss on gross business 183 349 414 1,125 Profit/loss on ceded business -6 -27 273 81 Insurance technical interest, net of reinsurance 15 4 80 27
Combined ratio exclusive of run-off 94.4 88.4 94.7 91.0 Run-off, net of reinsurance (%) -1.8 -1.6 -2.0 -3.3 Large claims, net of reinsurance (%) 1.6 0.6 0.4 0.1 Weather claims, net of reinsurance (%) 5.0 2.5 4.2 2.4
Index aware of developments in the inflation rate in Norway and the possible need to adjust pricing. In 2012, Tryg’s customer retention rate remained high, which is supported by customer surveys from EPSI
Nordea was renewed for Denmark and Norway for a term of five years. The agreement has been changed in relation to previous years and is now more in line with Tryg’s focus on profitability and portfolio development. Among other things, the partnership agreement makes it possible in future for Tryg to sell new products to existing Nordea customers through its own call centres.
The growth in Norway of 3.5% is explained by price increases, a
Norwegian economy with solid growth and a retention rate which has improved by almost one percentage point. The growth is seen, in particular, within house and motor insurance, and generally reflects the level of inflation in the Norwegian economy. The effect of price increases was evident in the average premium for Norwegian Private customers, which increased by 4.3% in 2012, while the corresponding increase for Danish Private customers was 3.3%.
A new contents insurance product was an important milestone in 2012, and price differentiation will also be essential in future
The gross claims ratio amounted to 72.8 (79.2), and the claims ratio, net of ceded business, which includes net reinsurance ratio, was 72.0 (76.3). The improved claims ratio, net of ceded business, is attributable to a significantly lower level of weather claims and the effect of profitability measures. Moreover, the claims ratio, net of ceded business, was also impacted by the lateral reinsurance agreement, which had a positive effect of DKK 93m, reducing the claims ratio by 1.0 percentage point. Claims prevention activities were also a high-priority area for Tryg in 2012. Tryg implemented various measures, especially vis-à-vis house-owners in Denmark to reduce claims following storms and cloudbursts. In 2012, the offer of a Tryg House Check was extended to customers who have previously made cloudburst claims. The offer involves inspecting the customer’s property to identify the risk of damage from cloudbursts, with the option of a quote for repairs which may prevent claims. In addition, several activities aimed at preventing claims have been implemented, for example the use of ‘burn block’ to counter the risk of fire in
This, of course, impacts the claims, especially where labour is involved in repairing damage. In addition to the possibility of raising prices by the rate of inflation, the effect is also countered by claims prevention measures where Tryg, through using its purchasing power and improved processes, achieves benefits that reduce the claims costs.
In addition, Private is, like other business areas, affected by reductions in the various staff functions, which will also have a positive effect on costs in the coming years.
• The quarter was characterised by a considerably lower level of weather claims than in Q4 2011.
For Q4 2012, the technical result totalled DKK 326m (DKK 192m)
and was impacted by the continual improvements resulting from profitability measures and favourable weather conditions. The combined ratio showed a solid improvement and totalled 86.8 (92.6)
Denmark was 90.2 (90.5), which was still high, while the retention rate in Norway was 86.8 (86.1).
Commercial encompasses the sale of insurance products to small and medium-sized businesses in Denmark and Norway. Sales are effected by Tryg’s own sales force, franchisees (Norway), customer centres and group agreements. The business area accounts for 18%
In 2011, the desire for special focus to be devoted to the business segment led to the establishment of Commercial as an independent business area. Creating results which are in line with Tryg’s overall objectives is particularly challenging for the Commercial business area. This focus is reflected in the measures which have been introduced, and which have resulted in clear improvements in the level of claims. Moreover, structural initiatives were implemented in 2012 which will further improve cost levels in the coming years.
(DKK 310m), with a combined ratio of 83.7 (92.1). The improved result is due to both the effect of profitability measures and significantly better weather conditions than in 2011. Moreover, medium-sized claims were considerably lower than in 2011, while run-off was unusually high.
The results were positively impacted by price increases and segmen t a tion and product development activities. In addition, the first structural adjustments of the organisation were made to increase efficiency and cut costs. The Danish and Norwegian markets developed differently. In Denmark, private consumption was marked by continued reticence, which both had an impact on the insurance requirements of businesses and the continued high level of
Profit/loss on gross business 150 183 159 567 Profit/loss on ceded business -19 -25 132 32 Technical interest, net of reinsurance 2 -2 19 5
Key ratios Premium growth in local currencies -3.1 -3.3 0.2 -2.0
Commercial business area, and the first product area to see product differentiation in 2013 is workers’ compensation insurance, in the form of a new tariff.
A combined fall in premium income of 2.0% (0.2%) was realised, when measured in local currencies. The fall was based on negative growth in Denmark of 2.7% and in Norway of 0.4%. The negative growth in Denmark resulted both from a fall in the retention rate and from lower sales. The retention rate was negatively affected by profitability measures, which in addition to price increases also comprised a demand for protective measures in basements, and by a large number of business failures due to the economic situation.
The fall in sales was attributable both to price increases and to the difficulties facing businesses. With a view to improving premium income, Tryg decided to change its sales organisation towards the end of 2012, the aim being to ensure greater activity in the Danish market through the use of more cost-effective channels.
The zero growth in Norway can also be ascribed to price increases and a competitive market, which led to a fall in renewals relative to last year. This development also calls for a stronger focus on sales.
With a view to strengthening the focus on sales and the quality of its customer service, in 2012 Commercial introduced a specialisation of the sales and service functions in its own sales channels. Similarly, franchisees have been offered training in commercial insurance with the aim of boosting sales.
The gross claims ratio amounted to 64.3 (75.4), and the claims ratio, net of ceded business, which includes net reinsurance ratio, was 63.4 (71.8). The improved claims ratio is attributable to a significantly lower level of both weather claims and large claims as well as the effect of profitability measures and a reinsurance agreement concerning the frequency of weather claims which had a positive impact of DKK 20m, corresponding to 0.5 percentage points in relation to the claims ratio, net of ceded business.
As mentioned above, Tryg has introduced profitability measures in relation to Commercial customers, primarily within building and
• The quarter was characterised by a lower level of weather claims than in Q4 2011.
The combined ratio totalled 82.6 (85.7), which is very low and which reflects the measures introduced, but also the fact that in
A technical result of DKK 156m (DKK 133m) was posted, based on continuous improvements as a result of the measures introduced. In
Q4 2012, weather claims were lower than for the prior-year period and also lower than for an average year.
Profit/loss on gross business -41 133 361 681 Profit/loss on ceded business 60 -9 107 -37 Insurance technical interest, net of reinsurance 10 -3 41 6
Key ratios Premium growth in local currencies -3.4 -1.4 0.8 -2.0
‘Tryg’ and ‘Tryg Garanti’ brands in Denmark and Norway and under the
Corporate is focused on improving profitability and satisfactory generating results relative to the capital attributable to the area. The Corporate market is the most competitive area, and new players enter the field regularly.
These are often keen to compete on price, and Corporate’s focus on profitability means that premium income will fluctuate more than for
The technical result for 2012 was DKK 650m (DKK 509m), with a combined ratio of 87.7 (91.2). The improved result is primarily attri butable to the effect of profitability measures, including pruning of unprofitable segments and considerably more favourable weather conditions than in 2011. The level of large claims declined compared with last year, corresponding to a 0.3 percentage point reduction.
However, the lower interest rate level reduced the combined ratio by 2.4 percentage points relative to 2011. Run-off gains were high, primary due to the significant size of long-tailed workers’ compensation business, which – seen from a historical perspective – has had high run-off gains. Despite the high run-off gains, no changes have been made in the principles used for claims provisions.
ability of selected segments. Tryg distinguishes itself, in particular, on its significant knowledge of the segments and its high service levels.
Considering Tryg’s small market share in Sweden, it was therefore very positive that a survey among 143 insurance brokers ranked Tryg most highly among the insurance companies in the Swedish market.
In 2012, the market situation in the Corporate market was generally not impacted significantly by the economic situation in southern
In Norway, macro-economic growth also benefited the industrial companies. On account of Tryg’s smaller market share and focused approach to new business, Tryg’s Swedish business is only affected by macro-economic developments to a smaller extent.
All in all, gross premiums fell by 2.0% (0.8%) in local currencies. The negative growth was a combination of negative growth of 1.1% in the Danish Corporate segment, a negative growth in Norway of 5.2%
and a positive growth in Sweden of 10%. The negative growth in both
Denmark and Norway can be ascribed to price increases, pruning of customers and lower sales. As mentioned above, the Corporate market is characterised by changes in the competitive situation when new players try to gain market shares – a development which in 2011 was particularly pronounced in the Danish market, and which affected the Norwegian market in 2012. Tryg focuses on profitability, which during periods of fierce price competition will lead to fluctuations in premium income.
For its direct sales, Tryg has, over the years, developed concepts for the various customer groups which entice customers to stay with Tryg. This is deemed to be an important explanation for the higher level of loyalty compared with customers served by brokers.
The gross claims ratio amounted to 74.7 (80.4), and the claims ratio, net of ceded business, which includes the profit/loss from reinsurance, was 75.4 (78.4). The improved claims ratio is attributable to a significantly lower level of both weather claims and large claims as well as the effect of profitability measures. Moreover, the claims ratio was affected by a reinsurance agreement concerning the frequency of weather claims which had a positive impact of DKK 23m, corresponding to 0.4 percentage points in relation to the claims ratio.
The profitability measures in relation to Corporate customers have included higher prices, changes to the insurance cover for weather claims and pruning of customers and segments characterised by unsatisfactory profitability. In Norway, these included power stations, and in Denmark local authorities.
The technical result totalled DKK 121m (DKK 29m) and reflected the continued improvement based on profitability measures, but was also attributable to a considerably lower level of weather claims and large claims.
Gross premiums fell by 1.4% in Q4, representing a slightly lower reduction than for the full year.
The claims ratio was 77.8 (90.0), and the claims ratio, net of ceded business, was 78.5 (85.4), reflecting in particular a lower level of weather claims and large claims.
The expense ratio was 12.2 (13.1), corresponding to the level for the full year.
• The quarter was characterised by a considerably lower level of both weather claims and large claims than in Q4 2011.
Sweden comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Sales are effected via Tryg’s own sales team, call centres and the Internet. The business area accounts for 8% of the Group’s total premium income.
Important steps included divesting the Finnish business and improving pricing, while further integrating the original bank insurance business and the acquired Moderna. Moreover, important structural measures have been implemented in relation to distribution. With these initiatives, a solid foundation has been created for further developing the business and improving profitability.
Profitability measures have also been introduced for the rest of the
Private business area, and a conscious reduction has been made in the rest of the acquired Moderna’s non-niche Private portfolio.
• Technical result improved by DKK 116m to DKK 102m (DKK -14m).
• Combined ratio improved by 7.6 percentage points to 95.3 (102.9).
Key ratios Premium growth in local currencies 4.7 0.9 9.2 0.7
Combined ratio, exclusive of run-off 115.1 87.2 101.8 93.5 Run-off, net of reinsurance (%) -1.6 0.3 0.0 1.8 Weather claims, net of reinsurance (%) 1.4 1.3 1.3 1.2
The number of partnership agreements has been reduced significantly to ensure profitability and a volume which reflects the costs associated with administering the agreements.
Nordea was an important distribution channel in particular in connection with the original establishment of the business in Sweden. In 2012, Tryg and Nordea decided not to renew the distribution agreement. On the other hand, Moderna’s agreement with ICA Bank was renewed and expanded. Moreover, Moderna will launch a number of initiatives both to retain the profitable customers in the Nordea portfolio, to develop direct sales and to enter into more partnership agreements.
An improved expense ratio of 18.5 (19.1) was achieved in 2012, concurrently with considerably lower premium growth compared with prior years. To ensure further growth, Moderna implemented a number of structural initiatives at the end of 2012 which will result in additional cost level improvements in the coming years. The initiatives include a centralisation of functions within distribution, claims handling and staff services. The most important step was gathering all customer service and telemarketing functions in Malmö and the closing-down of a similar function in Luleå in northern Sweden.
The restructure results in approximately 50 jobs being cut, or approximately 11%. Moreover, Moderna will, in 2013, convert to using only one IT system, which will contribute to further cost reductions.
A technical result of DKK 54m (DKK -44m) was posted, based on continuous improvements as a result of the profitability measures introduced and a lower level of weather claims.
The combined ratio was 87.5 (113.5), which highlights the marked improvements achieved by this business area.
Gross premiums were up 0.9% in Q4, which was in line with expectations and the developments which generally characterised the year.
The expense ratio was 21.1 (24.9). The slightly higher level is attri b utable, in particular, to the accrual of Moderna’s premium income according to the risk, and to the fact that the premium income is therefore lower in Q4 than in the year as a whole.
Tryg’s primary focus is on operating a profitable insurance business, and the investment activities must support this focus in the best possible way. The investment strategy is based on a relatively low investment risk, and most of the assets are secure investment assets, primarily bonds. The purpose of the investments is both to match the insurance-related obligations in the best possible way, and to obtain a satisfactory absolute return on the remaining part of the investment portfolio. Consequently, the investment portfolio is divided into two portfolios – a match portfolio and a free portfolio.
The investment return after transfer of insurance technical interest and value adjustment of discounting of provisions totalled DKK 1,238m in 2012. After adjustment of other financial income and expenses, the net investment return totalled DKK 617m (DKK 54m), and after discon ti nued and divested activities the result was DKK 585m (DKK 61m).
Total investment return before other financial items 279 1.238 109 1,129 Other financial income and expenses, investments a) -59 -70
Total investment return 220 1,168 Other financial income and expenses, non-investment a) -166 -551
Investment return 54 617 Of which investment return on discontinued and divested business -7 32
Financial Supervisory Authority over time. These portfolios are provided as benchmarks for our managers who must ensure performance.
The free investment portfolio consists of the other investment assets which reflect Tryg’s equity. The portfolio is invested broadly in bonds, equities and investment property to ensure diversification and the best possible return based on a limited risk.
DKK 10.8bn at the end of 2012. The increase is attributable to satisfactory insurance operations as well as an increase in value due to developments in the financial markets. The equity portfolio, which is globally diversified, yielded a return of DKK 269m (DKK -87m), or 13.0%. This significantly exceeded the outlook announced by Tryg in the annual report for 2011. The property portfolio, which consists of Danish and
The bond portfolio was impacted in 2012 by decreasing interest rates, narrowing credit spreads, low risk appetite and a demand for alternative investments with high risk premiums. Moreover, the portfolio was supported by good absolute returns on both global high-yield bonds and emerging-market bonds which are primarily issued in USD or EUR.
Improved public finances in many high-interest countries, relative to the western economies, supported these asset classes. Moreover, financial senior credit bonds contributed to a good return. Based on the above-mentioned positive performance and a sensible portfolio allocation, Tryg’s bond portfolio made a substantial contribution to the total investment return.
Value adjustments, changed discount rate -196 -103 -103 Transferred to insurance technical interest -176 -105 -105
Investment activities before other financial income and expenses generated a profit of DKK 283m in Q4 2012 against DKK 188m for the prior-year period. The match portfolio had a mismatch of DKK 27m
The free portfolio generated a profit of DKK 256m (DKK 194m) in Q4, with equities accounting for DKK 67m (DKK 103m). Bonds etc. in the free portfolio generated a profit of DKK 146m (DKK 66m) and were affected by a high direct interest rate on credit bonds and high-yield bonds.
• High return on free portfolio of DKK 256m (DKK 194m).
In order to ensure the realisation of Tryg’s financial targets, Tryg is implementing an ambitious cost-cutting programme, the aim being to reduce costs and claims by a total of DKK 1bn in the period up until 2015. Costs must be reduced by DKK 400m, including DKK 100m from claims handling costs to be realised via claims. Claims must be reduced by DKK 600m. Claims-related cost reductions must be achieved through outsourcing and better procurement, for example via the use of online auctions for repairs. Costs must be reduced, in particular, through job cuts in the staff functions, where the number of employees has increased by 25% in recent years.
Claims expenses related to weather and large claims have been increasing in recent years. However, 2012 was an exception as both weather and large claims were lower than expected. In 2013, weather claims net of reinsurance are expected to total DKK 500m, and large claims DKK 450m.
An extraordinarily high investment return was realised in 2012, and a lower return is expected for the coming years as interest rates are low and are expected to remain so. As the investment risk is generally kept low, half of the investment portfolio is in bonds and will only make a modest contribution to the investment return as current interest rate levels are used to calculate the expected bond yields.
Tryg House Check In 2012, we gave many private customers in the Greater Copenhagen area who suffered water damage in connection with the cloudburst in 2011 the offer of a free inspection of their homes. With the Tryg House Check, customers are given advice and instructions on what they can do to prevent damage in future, and, if requested, a specific quote for the work required.
6,410m at the end of 2012 against DKK 6,320m at the end of 2011.
With a capital base of DKK 8,832m less proposed dividend, Tryg has a surplus cover of DKK 2,422m. In addition to the internal capital model, Tryg calculates the necessary capital each quarter based on the future Solvency II standard model. Under the standard model, the capital need is DKK 8,161m which – compared to the actual capital of
As part of the assessment of the capital structure, Tryg has decided to repay the existing subordinated loan from TryghedsGruppen of
EUR 65m in 2013 and to replace it with a new subordinated loan of
regime on 1 January 2014, was not adopted in 2012 as planned. Tryg
believes that the likely start date of Solvency II will be 1 January 2016 or later. It is unknown at present to which extent the individual parts of the Solvency II regime will be implemented earlier in Danish legislation.
It is important for Tryg that investors, shareholders and other stakeholders are able to form a true and fair view of Tryg’s development.
In 2012, Tryg held 220 investor meetings and participated in ten conferences for both institutional investors and private shareholders.
The Tryg share is listed on the Nordic exchange Nasdaq OMX Copenhagen and is covered by the OMX Copenhagen C20 index (OMXC20), comprising the 20 most traded shares on the exchange. In accordance with the recommendations issued by Nasdaq OMX Copenhagen, Tryg does not comment on financial results or outlook four weeks before the publication of financial statements. All financial information is published on tryg.com in Danish and English. It is possible to order annual reports and subscribe for news and RSS feeds on the website.
The index of insurance shares in Europe, the STOXX Euro Insurance
Index, rose by 33.4% in 2012. The positive development in performance and increased stability contributed to increasing the value of the Tryg share throughout 2012. The development was also supported by a generally higher demand for insurance shares, which are regarded as safe investments in turbulent times. The financial crisis has shown that the demand for insurance is largely constant, which benefits the insurance industry in times of crisis.
represent a large share of this trade which takes place outside of the established exchanges and, thus, does not have a direct impact on the price of and the liquidity in the Tryg share.
fell from 50 million shares in 2011 to 34 million shares in 2012.
Gruppen smba, Denmark, owns 60% of the issued shares and is the only shareholder owning more than 5% registered in the company’s register of shareholders. TryghedsGruppen invests in peace-of-mind and healthcare providers in the Nordic region, and supports charitable activities.
As of 31 December 2012, there was a free float of 40% of the shares, divided among 25,213 registered shareholders. The 200 largest shareholders owned 88% of the shares. At the end of 2012, Tryg held 621,292 treasury shares, corresponding to 1.0% of the share capital.
From the year 2012, Tryg has changed its dividend policy to achieve a higher degree of stability in the annual distribution. The new dividend policy reflects our expectations of high earnings in the insurance business and a low risk profile within the investment activities, as well as the requirement to have a solid capital position based on Tryg’s internal capital model (Individual Solvency). In future, Tryg’s internal capital model will provide the framework for the company’s capital requirement. Tryg’s future dividend policy will be based on the following assumptions: • A general objective of creating long-term value for the company’s shareholders.
• A competitive dividend policy in comparison with those of our
Financial calendar 2013 18 April 2013 Annual general meeting 19 April 2013 Tryg shares trade ex-dividend 24 April 2013 Payment of dividend 30 April 2013 Interim report for Q1 10 July 2013 Interim report for H1 2013 10 October 2013 Interim report for Q1-Q3 2013
Date No. Company announcement 8 February 2012 2 Tryg reconsiders strategy for Finland 13 February 2012 3 Annual general meeting 22 March 2012 4 Notice of annual general meeting 29 March 2012 5 Election of employee representatives for Supervisory Board 17 April 2012 6 Tryg changes reporting structure from Q1 2012 19 April 2012 7 New Investor Relations Director in Tryg 19 April 2012 8 Resolutions from annual general meeting 18 June 2012 10 Changes in Group Executive Management 19 June 2012 11 Announcement of new financial targets and Capital Markets Day in London 2 August 2012 12 Interim reports for Q2 2012 and H1 2012 6 November 2012 15 Tryg sells Finnish business and concludes new partnership agreement with Nordea 13 December 2012 17 New dividend policy and repayment of subordinate loan
The 2011 cloudburst led us to start reflecting on how we could prevent and minimise damage to, for example, electronics. Together with one of our small subsuppliers, we have developed a solution: a sensor which stops lifts if there is water in the basement and switches electrical panels off automatically if water is leaking into the basement. A modest investment of DKK 7,500 which will save our customers a lot of trouble if a new cloudburst strikes.
One of Tryg’s corporate customers, AP Pension, suffered several million kroner’s worth of damage as a result of the cloudburst. The cost of repairing its lifts alone was significant. Although the damage is covered by insurance, it causes great inconvenience to a business of this size to have to go through a claims procedure. AP Pension has now been one of the first to install sensors in its basements.
Tryg focuses on managing the Group in accordance with the principles for good corporate governance. Tryg complies to the widest possible extent with the Recommendations on Corporate Governance prepared by the Danish Committee on Corporate Governance, which were most recently updated in 2011. The recommendations are available at www.corporategovernance.dk. Tryg has published the statutory report according to the ‘comply-or-explain’ principle for each recommendation at tryg.com. A summary of the report is provided below. Download Tryg’s statutory corporate governance report at tryg.com > Investor > Download.
Tryg provides quarterly updates of the Group’s outlook. This material provides all stakeholders with a comprehensive picture of Tryg’s position and performance. The consolidated financial statements are prepared in accordance with IFRS, and all company announcements and financial statements are published in Danish and English. Stakeholders may order printed annual reports and subscribe to news at tryg.com. A number of internal guidelines ensure that the disclosure of price-sensitive information complies with the stock exchanges’
Investor Relations maintains regular contact with analysts and investors. The Executive Management and Investor Relations also organise investor meetings, teleconferences and webcasts and attend conferences in Denmark and abroad. The Supervisory Board is informed of the dialogue with investors and other stakeholders on a regular basis.
Kgs. Lyngby, Denmark, owns 60% of the issued shares and is the only shareholder owning more than 5% to be registered in the company’s register of shareholders.
The Supervisory Board ensures that Tryg’s capital structure is in line with the needs of the Group and the interests of its shareholders and complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board.
Each year, the Supervisory Board proposes the distribution of dividend and possibly a share buyback. In 2010, the annual general meeting authorised the Supervisory Board to allow Tryg to acquire treasury shares up to 10% of the share capital until 14 April 2015.
• Presentation of the annual report for adoption, including remuneration for the Supervisory Board and discharge from liability of the
Shareholders may propose items to be included on the agenda for the annual general meeting and may ask questions at the annual general meeting. Shareholders may vote in person at the annual general meeting, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the annual general meeting.
The Supervisory Board will consider any public takeover bid as prescribed by legislation and, depending on the nature of such bid, convene an extraordinary general meeting.
Identification of stakeholders is an integral part of the strategy review at the Supervisory Board’s annual strategy seminar, which always focuses on investors, customers, society and employees. The Supervisory Board also receives regular reports about Tryg’s investor mix and employee and customer satisfaction.
Tryg has adopted a number of policies describing Tryg’s relationship with various stakeholders, including a CSR policy which describes
Tryg has adopted an Investor Relations policy which states, among other things, that all company announcements and financial statements are published in Danish and English and that Tryg publishes interim financial statements each quarter.
The Supervisory Board is responsible for the central strategic management and financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and framework on the basis of regular and systematic review of the strategy and risks. The Executive Management reports to the
Supervisory Board on strategies and action plans, market developments and Group performance, funding issues, capital resources and special risks. The Supervisory Board holds an annual strategy seminar to define and/or adjust the Group’s strategy. The Executive
Each year, the Supervisory Board discusses Tryg’s activities to guaran tee diversity at management levels. Tryg places great emphasis on diversity at all levels of management, and in January 2012 the company signed the ‘Charter for More Women in Management’. Tryg supports the charter which aims to guarantee equal career opportunities for women and men. Tryg has prepared an action plan which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women. In 2012, the number of women at management level was 34.0%, and
The tasks of the Chairman and Deputy Chairman are defined in the
The Chairman and Deputy Chairman hold preparatory meetings with the Executive Management before all board meetings. According to the Supervisory Board’s rules of procedure, no board member may perform work for Tryg without a prior decision to that effect by the Supervisory Board. Furthermore, such work must be of a nonrecurring nature.
The Supervisory Board has 12 members, and the Supervisory Board deems the number of members adequate to ensure a constructive
debate, sufficient diversification and an efficient decision-making process. The Supervisory Board considers the number of board members each year when preparing the annual general meeting.
Furthermore, the Supervisory Board performs an annual evaluation of the performance and achievements of the Supervisory Board and its members’ competencies to assess whether the Supervisory Board has the competencies required to perform its duties in the best possible way. In 2012, new requirements from the Danish Financial
Board as a whole has the knowledge and experience necessary to perform its tasks.
Prior to the election of new members, the Supervisory Board prepares a description of the candidates’ background, directorships, professional qualifications and experience. A balanced composition of the Supervisory Board in terms of, among other things, age, gender and nationality is sought, and the need for integrating new talent is considered.
Eight members of the Supervisory Board are elected by the annual general meeting for one year at a time. Of the eight members elected at the annual general meeting, four are independent persons as stated in recommendation 5.4.1 in Recommendations on Corporate
Gruppen. See details about the independent board members in the section Supervisory Board on pages 54-55 and at tryg.com > Governance > Management > Supervisory Board. This is also described in the notice convening the general meeting.
Under the Danish Companies Act, employees are entitled to elect a number of representatives to the Supervisory Board, equal to half the number of other members at the time employee elections are held. Tryg has agreed with Tryg’s staff organisations that two board members are elected among employees in Denmark, one member among employees in Norway and one member among employees in
The Supervisory Board holds at least seven meetings a year and an annual strategy seminar to discuss and define strategies and targets for the years ahead. In 2012, the Supervisory Board held seven board meetings and the annual strategy seminar. The Supervisory Board discusses the Supervisory Board’s tasks on a regular basis, and at the last meeting of the year at the latest, it determines its meeting and work schedule for the coming year.
office as board members of Tryg in a satisfactory manner. Information about the board members’ position, directorships and shareholding and changes in portfolios can be found under their CVs.
See the CVs in the section Supervisory Board on pages 54-55 and at tryg.com > Governance > Management > Supervisory Board.
Audit Committee held four meetings in 2012 and reported regularly to the Supervisory Board. In August 2012, the Audit Committee carried out an evaluation of the preceding year’s work. See the tasks of the Audit Committee in 2012 at tryg.com > Governance > Management > Supervisory Board > Board committees.
Tryg has had a Risk Committee since 2010. The Risk Committee is responsible for supervising asset and risk management. The Risk
See the tasks of the Risk Committee at tryg.com > Governance > Management > Supervisory Board > Board committees.
Tryg has set up a Nomination Committee which is primarily tasked with ensuring the correct composition and size of the Executive
Members of the Executive Management are employed on a contractual basis, and all terms of their remuneration are fixed by the
The purpose of the matching shares programme is both to retain the member of the Executive Management, and to create a joint financial interest between the Executive Management and the company’s shareholders. Read more about the matching shares programme in the remuneration policy at tryg.com > Governance > Remuneration.
Some members of the Executive Management still have unexercised share options, which were allocated under a previously adopted share-option programme. Please refer to Note 7 on page 98 for further details.
Each member of the Executive Management has 25% of the basic salary paid into a pension scheme. One of the members of the
Tryg has adopted a policy for remuneration of the Supervisory Board and the Executive Management, including general guidelines for incentive pay. The remuneration policy was adopted by the Supervisory Board in February 2011 and approved by the annual general meeting on 14 April 2011.
The Chairman of the Supervisory Board reports on Tryg’s remuneration policy each year in connection with the consideration of the annual report at the annual general meeting. The Supervisory Board’s proposal for remuneration to the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting of each year.
Members of Tryg’s Supervisory Board receive a fixed fee and are not comprised by any form of incentive or severance programme. The board members’ remuneration is fixed on the basis of trends in peer companies, taking into account board members’ required competencies, efforts and the scope of the board’s work, including the number of meetings.
The Supervisory Board uses policies to define the framework for risk management in Tryg in the areas of insurance risk, investment risk and operational risk, as well as IT security. With reference to these frameworks, guidelines are issued from the Supervisory Board to the
Executive Management. A Risk Management Committee comprising the Group CFO, Head of Group Risk and Head of Investments monitors the risk management environment.
Tryg conducts an annual risk identification process, mapping insurance risks and other risks related to the realisation of the Group’s strategy or which may have a potentially substantial impact on the Group’s financial position. The process involves registering and quantifying the risks identified. Quantification of the risks identified is included in the state ment of the individual solvency requirement that the Supervisory
Board considers every quarter. In 2012, Tryg performed an assessment of the company’s risk and solvency (Own Risk and Solvency Assessment, also known as ‘ORSA’) in preparation for future requirements for insurance companies under EU law (Solvency II). The purpose of the
ORSA is to link strategy, risk management and solvency as the aim of the ORSA is to ensure a sensible correlation between the strategy for assuming risks and the available capital over a period of three to five years.
Group’s general policies and guidelines, procedures and controls in significant risk areas, and receive reports on trends in these areas as well as the application of the defined frameworks. The Supervisory
The Group’s internal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, which are supervised by the internal auditors. In 2012,
Total remuneration of the Supervisory Board in 2012 Audit Risk Remuneration DKK Fee Committee Committee Committee Total
Board considers whether the financial statements have been prepared on a going-concern basis, including the underlying assumptions and uncertainties.
Risk management is an integral part of Tryg’s business operations. The
The Supervisory Board ensures that the Group is monitored by competent and independent auditors. The Group’s internal auditor attends all meetings of the Supervisory Board. The independent auditor attends the annual board meeting at which the annual report is presented.
The internal and independent auditors’ long-form audit reports are reviewed by the Supervisory Board. The audit agreement and associated audit fee are agreed between the Supervisory Board and the auditor on the basis of a recommendation from the Audit Committee. Each year, the Audit Committee reviews the framework for the independent auditors’ performance of non-audit services.
At least once a year, the internal and external auditors meet with the Audit Committee without the presence of the Executive
Tryg has set up an internal audit department which regularly reviews the quality of the Group’s internal control systems and business procedures. The department is responsible for planning, performing and reporting the audit work to the Supervisory Board.
The deviation is explained in Tryg’s statutory corporate governance report, which is available at tryg.com > Downloads.
Total remuneration of the Executive Management in 2012 Value of Car/ Total matching DKK Basic salary Pension car allowance fixed salary shares a) Total fee
Morten Hübbe 8,215,144 2,053,786 255,000 10,523,930 850,000 11,373,930 Tor Magne Lønnum 4,638,741 1,007,173 154,564 5,800,478 550,000 6,350,478
International management and board experience within M&A, strategic development, marketing, branding and financial management. Being a Swedish citizen, Paul Bergqvist has special insights into Swedish market conditions.
Education: Savings bank training, Graduate Diplomas in Organisation and Work Sociology as well as Credit and Financing. Chairman: Investeringsforeningen Sparinvest, Eik banki p/f, Plass Data A/S, VP Lux S.à.r.l., Investeringsforeningen Sparinvest SICAV, Luxembourg and Museum Sydøstdanmark. Deputy Chairman: Tryg A/S, Tryg Forsikring A/S, VP Securities A/S and Bankernes Kontantservice A/S. Board member: Nets Holding A/S and member of the Executive Board of Bombebøssen and DLR Kredit A/S. Committee memberships: Audit and Risk Committee (Chairman) and Nomination Committee in Tryg A/S. Number of shares held: 3,500 Change in portfolio in 2012: +2,000
Special skills in management, governance, finance, financial services and risk management from his role as Governor of Danmarks Nationalbank and board positions.
Education: MSc in Forestry, PMD Harvard Business School. Chairman: TryghedsGruppen smba, Tryg A/S, Tryg Forsikring A/S, Egmont Fonden (Egmont Foundation), Egmont International Holding A/S, Ejendomsselskabet Gothersgade 55 ApS, Ejendomsselskabet Vognmagergade 11 ApS, Malaplast Co. Ltd and Gigtforeningen (Danish Rheumatism Association). Board member: WWF Verdensnaturfonden (WWF in Denmark) and Danmark-Amerika Fondet (Denmark-America Foundation). Committee memberships: Chairman of Remuneration and Nomination Committee in Tryg A/S. Number of shares held: 3,018 Change in portfolio in 2012: 0
Education: Insurance training courses. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 200 Change in portfolio in 2012: 0
Education: Graduate Diploma in Organisation, Graduate Engineer and Ph.d. Chairman: Subsidiaries in the FLSmidth Group, LundbeckFond Invest A/S and the Lundbeck Foundation. Deputy Chairman: Cembrit Holding A/S and TryghedsGruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S, Vestas Wind Systems A/S and Bladt Industries A/S. Number of shares held: 366 Change in portfolio in 2012: 0
Mari Thjømøe b) Born 1962. Joined: 2012. Nationality: Norwegian. Professional board member and independent advisor. Former CFO of KLP.
Education: Master of Economics and Business Administration, Financial Analyst (CFA) and management programme at the London Business School. Chairman: Bank2 ASA, Norgani Hotels AS and Seilsport Maritimt Forlag AS. Board member: Tryg A/S, Tryg Forsikring A/S, Petoro AS, SinOceanic Shipping ASA, Argentum Fondsinvesteringer AS and Sevan Marine ASA. Number of shares held: 200 Change in portfolio in 2012: +200
Lone Hansen Employee representative Born 1966. Employed in 1990. Joined: 2012. Nationality: Danish. Chairman of the Association for Tied Agents and Key Account Managers in Tryg.
Tina Snejbjerg Employee representative Born 1962. Joined: 2010. Nationality: Danish. Senior clerk in Tryg’s personnel department. Employed since 1987.
Born 1959. Joined: 2010. Nationality: Danish. Executive Vice President of Coloplast A/S. Former CFO of The Maersk Company Ltd., UK.
a) Dependent board member. b) Independent board member, see definition in Corporate Governance Recommendations.
Truls Holm Olsen Group Executive Vice President, Corporate and Country Manager in Norway
Board member: Tryg Garantiforsikring A/S, Energon AS, Norsk Naturskadepool (Norwegian Natural Perils Pool) and Tryg Almennyttige Stiftelse.
Born 1963. Employed in 2011. Joined the Group Executive Management in 2011.
Board member: Tryg Garantiforsikring A/S, Svensk Försäkring, Försäkringsbranschens Arbetsgivarorganisation and Försäkringsbranschens Pensionskassa.
Number of shares held: 2,110 Change in portfolio in 2012: +1,010
Education: State-authorised public accountant, Executive Master of Business and Administration, University of Bristol and École Nationale des Ponts et Chaussées.
Board member: Tryg Garantiforsikring A/S (Chairman), Thermopylae AS (Chairman) and Finansnæringens Fellesorganisasjon.
Number of shares held: 3,510 Change in portfolio in 2012: +1,810
Born 1971. Employed in 2000. Joined the Group Executive Management in 2012.
Number of shares held: 0 Change in portfolio in 2012: 0
Board member: Finanssektorens Arbejdsgiverforening (Danish Employers’ Association for the Financial Sector) and Tjenestemændenes Forsikring.
Number of shares held: 3,687 Change in portfolio in 2012: +733
Born 1960. Employed in 1996. Joined the Group Executive Management in 2009.
Number of shares held: 2,617 Change in portfolio in 2012: +1,010
Back row, from left Truls Holm Olsen, Lars Bonde, Rikke Larsen, Nicklas Larsen, Tor Magne Lønnum. Front row, from left Morten Hübbe, Per Fornander, Birgitte Kartman.
In Tryg, corporate social responsibility is an integrated part of running a healthy business. Thus, responsibility and sustainability are key to developing our business and to our branding. More specifically,
Moreover, anti-corruption and responsible sourcing and investments guide all Tryg’s processes and planning activities. See Tryg’s CSR
In 2012, Tryg made its expertise available to the Danish Ministry of the Environment and participated in the recording of the ministry’s climate campaign movie. The campaign focuses on how citizens can prevent water damage caused by climate change. In 2013, we expect to launch a climate check programme for our customers which will help them identify preventive measures and give benefits to customers who implement such measures.
Such initiatives benefit society significantly in that they minimise damage to infrastructure and buildings as well as reducing CO2 emissions.
Another focus area is Tryg’s Mobility Management programme which unites our interest in reducing CO2, improving the health of our employees and cutting costs with society’s interest in reducing road congestion and promoting sustainable transport. Key to the programme is changing the transport habits of Tryg’s employees, both those who drive to and from work and those who take a taxi when going to meetings. The programme has been developed in collaboration with the Municipality of Ballerup, Formel M and neighbouring businesses in Ballerup.
Specific initiatives aimed at making it easier for employees to choose to go by bike or public transport as alternatives to private motor vehicles include access to commuter bicycles to and from the nearest bus and train station, more bicycle parking spaces, more changing and showering facilities and the offer of bicycle repairs at the main office. Two electric cars are available when attending meetings and supple ment a new taxi arrangement with a company offering environmentally friendly solutions. Moreover, air travel has been reduced considerably since 2009 through the use of video conference facilities.
The CO2 reduction target for 2013 is 23% compared to 2007. Since 2007, Tryg has produced climate accounts on its consumption of electricity, energy, air travel and vehicular transport. See the climate accounts at tryg.com > CSR > Thematic areas > Climate.
Today, non-discrimination is an important human rights issue in the Nordic countries. Tryg is therefore taking active steps to ensure equal treatment and to create an inclusive culture in Tryg. By reflecting the society of which we are part and exploring diversity as a quality and a resource, we want to contribute to creating an inclusive society.
In 2012, the Private sales function held a total of ten workshops, and the aim is to hold 30 workshops in 2013. In 2012, as a supplement to these workshops, Tryg took part in the City of Copenhagen’s
Innovækst project, the purpose of which is to measure the results of diversity efforts. Tryg also signed the City of Copenhagen’s Diversity
In August 2012, Tryg commissioned a study on access for people with disabilities at our main office in Ballerup. Access to Tryg and the canteen facilities were assessed, and the study showed that all minimum requirements were met, and Tryg was given seven out of seven points. This means, among other things, that access for wheelchair users and people with visual, hearing and developmental disabilities was satisfactory, which is in line with Tryg’s efforts to ensure nondiscrimination and socially responsible conduct.
In 2012, Tryg held a career day for people with disabilities, which was attended by 60 people. The career day was intended to provide inspiration for people with physical or mental disabilities on how to improve their chances in the job market. The day was part of a national campaign for job seekers launched by the Danish Ministry of
Cross offices. The partnership agreement runs for three years and aims to create dialogue and common values for Tryg, customers and society. The efforts strengthen Tryg’s ambition of being the leading
peace-of-mind provider in the Nordic region and its ability to increase customer satisfaction and loyalty.
A total of fourteen new refugee guides were recruited in 2012. The plan for 2013 is to strengthen and disseminate knowledge about the project, to extend it to the Oslo area and to develop a set of guidelines for children, young people and unaccompanied asylum seekers on life i Norway.
knowledge about the significance and importance of the consent to use and disclose information on insurance matters and claims history, 40 seminars on personal data protection were held in 2012 by Tryg departments and units in business areas and staff functions.
Tryg also advises its employees on good behaviour in the social media when topics on which they communicate relate to Tryg.
See Tryg’s guidelines on social media communication at tryg.com > CSR > CSR strategy > Plans of action.
WomenMen a) Non-western background is calculated by Statistics Denmark. a) Tryg is environmentally responsible b) Tryg is socially responsible c) Tryg offers equal opportunities for women and men d) Tryg’s employees are accepted regardless of their background and lifestyle
Tryg’s general procurement terms and conditions, requiring suppliers to comply with human rights and reduce the climate impact of their activities. All new contracts include a similar requirement and a right to rescind contracts with suppliers who aid and abet human rights violations. Moreover, 2012 also saw suppliers of motor services being introduced to an extended CSR programme, whereby they are required to report annually on their CO2 emissions, measures introduced to protect human rights and labour rights as well as anti-corruption measures. Watch the film on CSR for caravan workshops (in Danish) at tryg.com > CSR > CSR in sourcing.
Tryg contributes to the DI Frontier Market Energy and Carbon Fund, the purpose of which is to establish, run and sell plants for the generation of renewable energy in sub-Saharan Africa based on hydropower, wind power, solar power and biomass. See more about CSR in investments at tryg.com. > CSR > CSR in investments.
The objective was to strengthen our customers’ competencies and inspire them to implement health, environmental and safety concerns in their day-to-day operations.
Providing our customers with knowledge within areas of specific importance to them will both help to reduce claims and increase customer value. However, it also strengthens our role as a peace-of-mind provider and should be viewed in the context of Tryg’s strong focus on corporate social responsibility.
Tryg A/S (parent company) Income statement – Tryg A/S (parent company) 136 Statement of financial position – Tryg (parent company) 137 Statement of changes in equity (parent company) 138 Notes (parent company) 139
The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2012 of Tryg A/S and the Tryg Group.
Furthermore, in our opinion the Management’s report gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the
Tryg A/S for the financial year 1 January to 31 December 2012, page 69-141, which comprise the income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and notes, including the accounting policies, for the Group as well as for the parent company, and the consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and the parent financial statements are prepared in accordance with the Danish Financial Business Act. In addition, the consolidated and parent financial statements are prepared in accordance with Danish disclosure requirements for listed financial services companies.
Act and Danish disclosure requirements for listed financial services companies, and for such internal control as management determines is necessary to enable the preparation and fair presentation of consolidated and parent financial statements that are free from material misstatement, whether due to fraud or error.
Profit/loss for the year, continuing business 928 2,109 741 1,148 2,180 Profit/loss on discontinued and divested business after tax a) -82 -101 -148 -8 28
Relative run-off gains/losses 4.1 3.6 3.9 4.0 4.1 Return on equity after tax (%) 9.3 22.5 6.6 13.1 22.1
The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property.
a) Profit/loss on discontinued and divested business after tax includes Marine Hull insurance, which was divested in 2010, and the Finnish branch of Tryg
Forsikring, which was sold in 2012, but is awaiting authority approval. Comparative figures are restated accordingly.
Note General insurance Gross premiums written 20,192 20,128 Ceded insurance premiums -1,123 -1,147 Change in premium provisions -96 354 Change in reinsurers’ share of premium provisions 45 35 4 Premium income, net of reinsurance 19,018 19,370 5 Insurance technical interest, net of reinsurance 171 62
Claims paid -15,250 -15,480 Reinsurance cover received 1,142 964 Change in claims provisions -533 805 Change in the reinsurers’ share of claims provisions 354 131 6 Claims, net of reinsurance -14,287 -13,580
Acquisition costs and administration expenses -3,271 -3,295 Reinsurance commissions and profit participation from reinsurers 89 103 7 Insurance operating costs, net of reinsurance -3,182 -3,192
Investment activities 15 Income from associates 1 6 Income from investment property 118 123 8 Interest income and dividends 1,252 1,196
Total investment return 902 1,110 5 Return on insurance provisions -841 -525
Profit/loss on continuing business 1,148 2,180 11 Profit/loss on discontinued and divested business -8 28
Interest and rent receivable 497 369 Other prepayments and accrued income 224 121
Total provisions for insurance contracts 34,220 34,355 22 Pensions and similar liabilities 1,026 1,102 23 Deferred tax liability 1,191 1,143
Reserve for foreign Revalua- currency Equalisa- Share tion translation tion Other Retained Proposed DKKm capital reserves adjustment reserves reserves earnings dividend Total
Profit/loss for the year -40 654 1,594 2,208 Change in equalisation reserve for the year 2 -2 0 Revaluation of owner-occupied property 42 42 Foreign currency translation adjustment of foreign entities for the year 192 -1 2 193 Hedging of currency risk in foreign entities for the year -184 -184 Actuarial gains and losses on pension obligation -62 -62 Tax on changes in equity -12 46 16 50
Dividend paid -400 -400 Dividend, treasury shares 6 6 Purchase and sale of treasury shares 66 66 Exercise of share options 44 44 Issue of share options and matching shares 9 9
Change in cash and cash equivalents, net -456 99 Cash and cash equivalents – discontinued and divested business at 1 January 2012 0 -11 Foreign currency exchange rate adjustment of cash and cash equivalents, beginning of year 1 14
Risk management at Tryg is organised on the basis of three lines of defence: The first line of defence is the business managers, who manage and control all significant risks associated with their own activities. This takes place on an operational level and involves establishing business procedures, contingency plans and control descriptions and ensuring that risks are hedged as appropriate.
Risk management The Supervisory Board has overall responsibility for the company’s risk management and proactively defines risk appetite and the risk management framework, assessing the total risk and capital requirements within Tryg on an ongoing basis. This is achieved by means of policies and guidelines drawn up in accordance with Section 71 of the Danish Financial Business Act and by continuously taking a view on the calculation of the company’s capital requirements.
In order to be able to monitor the organisation’s risk management work closely, the Supervisory Board has appointed a special Risk Committee consisting of representatives from the Supervisory Board, which reviews Tryg’s capital and risk status on a quarterly basis.
Tryg’s risk management is administered through a risk management environment, in which the Risk Management Committee, with representatives from the Group Executive Management, monitors the overall risk and asset management process. The areas of underwriting and reinsurance, provisions, investment risk as well as operational risk and security are administered by similar sub-committees. To support risk management in the organisation, Tryg has established a structure where each business area is supported by a risk manager responsible for risk identification, risk control, event registration, contingency plans and compliance.
Effective risk management involves identifying, assessing and quantifying risk in all significant areas. As an insurance company, Tryg is able to utilise statistical experience as a basis for identifying and quantifying most risks. This takes place within the framework of Tryg’s internal model, which is used for calculating the capital requirement, determining the investment profile, selecting a reinsurance programme and defining earnings requirements for product and business areas. In addition, there will be several risks, often associated with the company’s strategy, operational matters or similar, which cannot be readily assessed based on historical experience. In order to reflect these risks as well, an identification process has been established where all business managers and the Group Executive Management assess significant risks relating to business plans and the most important activities.
Under the internal capital model, the capital requirement (individual solvency requirement) is determined using a 99.5% safety level, equal to the safety level applied in the future Solvency II requirements.
The insurance premium must be adequate to cover expected claims, but must also comprise a risk premium equal to the return on the part of Tryg’s capital that is used to protect against random fluctuations. All things being equal, this means that insurance sectors or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium as these areas require a larger capital base.
In light of the considerable cloudburst claims in Denmark in 2010 and 2011 and similar cloudburst claims in the rest of Europe, Tryg has adjusted its risk assessment associated with weather-related events upwards. As a consequence of this, in 2012/2013 Tryg took out what is known as an aggregate cover for small or medium-sized events resulting in nature-related claims. The aggregate cover amounts to DKK 500m, with an annual retention of DKK 400m.
In the field of buildings and contents insurance, major events in 2013 were covered by catastrophe reinsurance cover of DKK 5.5bn with retention of DKK 150m. The primary risk for individual events is storms, and the scope of the cover is defined using simulation models such that this cover will prove insufficient in statistical terms less than once every 250 years. The reinsurance programme for catastrophes also covers other disastrous events, including terrorist attacks, up to a maximum of DKK 4.0bn.
Investment risk The risk of volatility in the financial markets impacting the Group’s results. Investment risk includes elements such as interest rate risk, equity risk, currency risk, credit risk and liquidity risk. Handled by the Investment Risk Committee
Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities -850 -851 Higher discounting of claims provisions 889 864 Net effect of interest rate rise 39 13 Impact of Norwegian pension obligation a) 296 291
Real estate market 15% decline in real estate markets -593 -530
Natural disasters in Norway are covered by the Norwegian Natural Perils Pool (NNP). Insurance companies in the Norwegian market pay claims of up to DKK 600m for these types of events, and joint reinsurance then covers up to NOK 12.5bn. Tryg pays a market share of this retention, which is again covered by Tryg’s catastrophe programme. Tryg also utilises the option of member companies to act as reinsurers for NNP correspon ding to its own share of the pool. The risk assumed is subsequently hedged through Tryg’s catastrophe programme, thereby reducing costs.
In addition, reinsurance is bought for a number of sectors which, from experience, are exposed to major claims. The largest single risks in Tryg’s corporate portfolio are in the area of buildings and contents insurance, protected by reinsurance cover of DKK 1.7bn and with retention of DKK 50m, but with additional annual retention. This means that, in practice, retention is DKK 100m for the first claim, DKK 75m for the second claim and DKK 50m for subsequent claims. If there are more than four major claims in the same year, additional frequency cover has been purchased, reducing retention to DKK 25m for subsequent claims. Tryg buys individual reinsurance cover for buildings and contents risks above this limit. Other sectors covered by reinsurance include liability, motor, fish farming and guarantee insurance.
In the event of a major insurance event covered by the reinsurance programme, receivables from reinsurers may increase, entailing a credit risk. This risk is managed through requirements to assess the reinsurers’ credit ratings and to spread reinsurance across several reinsurers.
Provisioning risk At the end of the term of insurance, the insurance risk relates to the claims provisions made to cover future payments in respect of damage which has already occurred. When damage occurs, there is a certain delay before the customer submits a claim. Depending on the complexity of the claim, a longer or shorter period of time may pass before the size of the claim is finally agreed. This may be a prolonged process, particularly for personal injuries. Even once the claim has been settled, there is a risk that it will be reopened at a later date, triggering further payments.
In determining the claims provisions, both individual assessments and statistical calculations are used. At the end of 2012, claims provisions totalled DKK 27,242m. The duration of these provisions, that is, the average time until these amounts were disbursed to customers, was 3.6 years. Most of the claims provisions relate to personal injury claims. These provisions are exposed to changes in inflation, the discount rate, disbursement patterns, economic trends, legislation and court decisions.
The calculation of claims provisions will always be subject to uncertainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from provisioning risk, and this is also expected to be the case in future. The Supervisory Board defines the overall framework for managing provision risk in Tryg’s insurance policy. This entails, among other things, that assessments of provisions are based on an underlying model analysis, and that internal control calculations and evaluations are performed.
Claims provisions relating to annuities under Danish workers’ compensation insurance are discounted using the current market rate and simul taneously increased based on the wage inflation rate each year. This exposes Tryg to an explicit inflation risk. To hedge this, Tryg uses a number of zero coupon inflation swaps in Danish kroner, in which Tryg receives a fixed amount in return for payment of an amount based on the trend in Danish consumer prices.
Estimated acc. claims, end of year 2,141 1,005 923 959 305 520 192 255 734 1,512 290 1 year later 2,261 961 935 852 303 483 219 393 815 2,280 2 years later 2,135 957 979 857 288 467 221 370 812 3 years later 2,127 1,023 977 850 286 503 209 317 4 years later 2,125 934 961 816 321 525 209 5 years later 2,141 929 933 869 316 494 6 years later 2,149 937 967 851 314 7 years later 2,070 934 955 851 8 years later 2,071 999 953 9 years later 2,029 1,042 10 years later 2,017 2,017 1,042 953 851 314 494 209 317 812 2,280 290 9,578
Provisions before discounting, end of year 59 133 72 33 11 6 29 34 263 865 198 1,702
Reserves from 2001 and prior years 235 Other 187 Reinsurers’ share of claims provi- sions, end of year 2,080
Estimated accu- mulated claims End of year 9,542 10,079 10,485 11,188 11,649 12,387 13,445 14,029 16,817 16,341 14,997 1 year later 9,812 10,228 10,466 11,198 11,905 13,069 14,121 15,446 16,837 16,017 2 years later 9,933 9,877 10,273 11,007 11,415 13,104 14,713 15,502 16,779 3 years later 9,996 9,813 10,159 10,609 11,176 13,631 14,731 15,307 4 years later 9,986 9,921 9,906 10,371 11,555 13,595 14,680 5 years later 9,881 9,896 9,726 10,675 11,547 13,523 6 years later 9,862 9,672 9,762 10,590 11,527 7 years later 9,673 9,683 9,661 10,603 8 years later 9,785 9,536 9,623 9 years later 9,718 9,507 10 years later 9,659 9,659 9,507 9,623 10,603 11,527 13,523 14,680 15,307 16,779 16,017 14,997 142,223
Provisions before discounting, end of year 376 508 579 816 1,210 1,605 2,294 2,593 3,317 3,982 7,648 24,927
Estimated accumulated claims regarding Moderna: End of year 800 1,521 1,862 1,654 1 year later 681 1,161 1,526 1,842 2 years later 547 894 1,166 1,566 3 years later 449 623 898 1,182 4 years later 366 431 637 893 5 years later 256 361 433 637 6 years later 140 254 363 433 7 years later 124 138 256 364 8 years later 123 139 256 9 years later 124 139 10 years later 123
The acquisition of Moderna in April 2009 affects the diagonals with its share of the claims, net of reinsurance. As a consequence of the merger of Moderna and Tryg’s Swedish branch in Malmö in 2010, the diagonal is changed corresponding to its share of the claims, net of reinsurance.
Other provisions comprise the claims provisions for Tryg Garantiforsikring A/S and in 2011 the Finnish branch of Tryg Forsikring A/S.
In 2012, the Finnish branch is included under liabilities associated with assets held for sale. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2012 to prevent the impact of exchange rate fluctuations.
Expected cash flow Carrying amount DKKm 0-1 year 1-2 years 2-3 years > 3 years Other Total
Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy.
Interest rate risk Interest rate risk is the risk of losses resulting from changes in market interest rates. Tryg’s investment portfolio is divided into a match portfolio and a free portfolio.
The match portfolio corresponds to the value of the discounted claims provisions and is designed to replicate the interest rate sensitivity of the discounted provisions to the widest possible extent. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The bond portfolio is thus adjusted continuously to minimise the net interest rate risk.
In practice, it is not possible or expedient to aim for a complete match. The administration costs alone associated with a complete match mean that, in practice, a certain degree of mismatch is acceptable within an appropriate limit defined in the investment policy. Add to this that the provisions are discounted using a mathematical interest rate curve specified by the Danish Financial Supervisory Authority, meaning that it cannot be perfectly replicated in the market and that a certain degree of mismatch is therefore to be accepted.
Interest rate basis risk The positive or negative additional return stemming from the bond spread risk reflects changes in the price of the bond investment resulting from changes in the market’s assessment of the expected credit quality of the specific security and the level of the general credit demand in the market. Tryg covers risk from five years and onwards, primarily using local interest rate swaps, which is a different curve than the Danish Financial Supervisory Authority’s discount curve. For example, illiquidity of Norwegian government bonds included in the Danish Financial Supervisory Authority’s curve may occasionally result in sharp declines or increases in the value of the Norwegian provisions whereas Tryg’s hedging of Norwegian interest rate swaps shows a more moderate response. The net interest rate risk of the match portfolio versus the insurance obligations can thus generate relatively large short-term fluctuations of up to DKK 200-300m, while long-term hedging turns out to have ideal properties.
Bond spread risk Interest rate basis risk is the risk of various changes in the discount curve and the market interest rate curve, respectively, used by Tryg to price its financial interest rate assets. In the interest rate curve between one to five years, the interest rate risk is hedged by means of investments in AAA-rated Nordic and European mortgage bonds, government bonds and possibly highly rated corporate bonds with relevant regulatory interest curve properties. Even though the interest rate risk of these corresponds to the interest rate risk of the provisions, there is still a difference and thereby risk as the investments also carry a bond spread risk. They will thus generate a positive or negative additional return relative to the interest rate curve, to which should be added refinancing and investment costs which are not included in the regulatory interest curve.
Norwegian pension scheme Tryg is also exposed to interest rate changes as a result of its liabilities under the Norwegian pension scheme, which is a defined-benefit plan
The option-adjusted duration is used to measure duration. The option adjustment relates primarily to Danish mortgage bonds and reflects the expected duration-shortening effect of the borrower’s option to cause the bond to be redeemed through the mortgage institution at any point in time.
The share portfolio includes exposure of DKK -120m sold on futures contracts (DKK -44m in 2011). Unlisted equity investments are measured based on an estimated market price.
Equity and real estate risk The equity and real estate portfolios are exposed to risks as a consequence of changes in equity markets and real estate markets, respectively. At the end of 2012, the equity portfolio accounted for 4.5% of the total investment assets. This proportion is expected to be in the range 2.3-6.0% in 2013. In 2008, Tryg bought the head office in Ballerup, significantly increasing the proportion of real estate. This proportion is expected to be reduced over time. In addition to owner-occupied property, Tryg’s real estate portfolio consists of office and rental property, which account for 17.8% and 22.3%, respectively, of total investment assets.
Currency risk Currency risk is the risk of incurring a loss on foreign positions as a result of changes in exchange rates. Tryg keeps the currency risk low.
Tryg’s premium income in foreign currencies is matched by claims and costs in the same currencies, and only the profit for the period is therefore exposed to currency risk. The risk of a loss of value of statement of financial position items as a consequence of exchange rate fluctuations is hedged by means of currency derivatives in accordance with a general hedging rate of 90-100% per currency. The aim is for the net carrying amount of the Norwegian entity to be hedged 98-100% over time. Foreign currency translation adjustments and hedging of foreign entities are charged directly to equity.
To manage currency risk, Tryg uses currency spots as well as forward exchanges and currency swaps with a typical duration of one to three months. Furthermore, Tryg uses so-called NDF contracts (non-deliverable forward contracts), which are short-term forward contracts on a currency with limited revenue. The contracts are needed to hedge the currency risk relating to Tryg’s equity portfolio and Tryg’s insurance exposure to these currencies.
Profit/loss on ceded business 507 86 -421 2 -423 Insurance technical interest, net of reinsurance 171 62 -109 3 -112
Profit/loss on ceded business -311 507 818 -11 829 Insurance technical interest, net of reinsurance 124 171 47 5 42
Reinsurers’ share of provisions for insurance contracts 2,067 2,317 250 74 176
Impact of exchange rate fluctuations in SEK and NOK Currency Change excl. on statement of financial position 2010 2011 Change effect Currency effect
Credit risk 2011 2011 2012 2012 Bond portfolio by ratings DKKm % DKKm %
Viewed separately, the new loan combined with early repayment of the existing subordinate loan will strengthen Tryg’s capital base by DKK 800m. Tryg has therefore decided to purchase treasury shares worth DKK 800m as part of an extraordinary distribution.
Concentration risk Concentration risk is the risk that arises as a result of either single large commitments or exposure to relatively few sectors/portfolios. Tryg identifies any risk concentrations by continuously monitoring the credit portfolio, and risk is managed via exposure limits and rating requirements for the exposure.
Liquidity risk Liquidity risk is the risk that Tryg fails to meet its financial liabilities or cannot meet such liabilities without sustaining a loss. A general insurance company such as Tryg naturally has good liquidity, as premium payments fall due before claims are paid. Payments received are largely invested in securities that can easily be realised and/or mortgaged (repos). Tryg also has access to funding and liquidity from the money and bond markets. Tryg continuously monitors the liquidity requirement and adapts its contingency plans so that it can obtain the necessary liquidity at all times.
The share of capital included in the calculation of the capital base totals DKK 873m (DKK 848m in 2011). The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost.
Total investment return after insurance technical interest 585 Other income and costs -60
Profit/loss on continuing business 2,180 Profit/loss on discontinued and divested business after tax 28
Run-off gains/losses, net of reinsurance 326 212 506 -29 0 1,015
Equity investments in associates 21 21 Reinsurers’ share of premium provisions 1 0 236 0 0 237 Reinsurers’ share of claims provisions 249 319 1,448 64 0 2,080 Assets held for sale 742 742 Other assets 50,474 50,474
Total investment return after insurance technical interest 61 Other income and costs -30
Equity investments in associates 14 14 Reinsurers’ share of premium provisions 1 2 189 0 0 192 Reinsurers’ share of claims provisions 256 374 1,182 62 1 1,875 Other assets 50,151 50,151
Description of segments Please refer to the accounting policies for a description of operating segments. Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments but are included under ‘Other’.
Claims ratio, net of ceded business 68.7 73.9 82.3 75.2 70.9
Number of full-time employees, end of period 1,450 1,398 1,338 1,338 1,282
Gross claims ratio 65.7 79.5 77.5 64.0 35.1 63.1 62.7 70.9 73.4 65.2 50.9 40.9 Combined ratio 80.5 93.3 86.4 72.3 55.6 76.8 81.6 88.9 89.7 81.3 80.4 57.5
Average claims DKK b) 37,586 39,432 5,765 5,837 88,842 97,258 23,977 25,090 10,960 11,244 60,838 84,256 Total claims 35,293 36,243 51,597 47,547 11,507 9,582 75,681 72,300 264,163 240,070 3,320 2,659
Gross claims ratio 89.9 75.8 111.1 73.4 158.9 91.0 75.1 78.2 65.0 65.5 102.7 72.6 Combined ratio 101.1 91.7 110.5 87.4 166.1 98.9 93.0 92.3 98.1 94.5 118.0 86.6
Interest on insurance provisions 841 525 Discounting transferred from claims provisions -670 -463 6 Claims, net of reinsurance Claims -16,822 -14,958 Run-off previous years, gross 1,039 283
In adddition, expenses have been incurred for the Group’s Internal Audit Department.
In the calculation of the expense ratio, costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner-occupied property based on a calculated market rent of DKK 46m (DKK 33m in 2011).
Staff expenses -1,901 -1,977 Other staff expenses -210 -206 Office expenses and fees, headquarter expenses -528 -473 IT operating and maintenance costs, software expenses -230 -218 Depreciation, amortisation, impairment losses and write-downs -149 -129 Other income 179 185
Remuneration for the Supervisory Board and Executive Management is disclosed in Note 29
Average number of full-time employees during the year (continuing business) 4,095 4,016
Allocation 2011 Allocated in 2011, beginning of year 8,285 101,169 26,220 135,674 72 10 137 19
Outstanding options from 2011 allocation at 31 Dec. 2012 8,285 98,752 26,566 133,603 10 19
Number of options exercisable at 31 Dec. 2012 51,165 153,305 18,670 223,140
Allocation 2006-2010 Allocated in 2006-2010, beginning of year 192,916 588,355 77,773 859,044 64/99/69/94/75 69 0/12/43/53 22
Outstanding options from 2011 allocation at 31 Dec. 2011 8,285 101,169 26,220 135,674 10 10
Notes 7 Share option programmes Specification of outstanding options: Year of allocation Years of exercise 1 Jan. 2012 Additions Exercised Cancelled Expired 31 Dec. 2012
Average share Average price at time Average exercise Year of Years of of allocation Expected Expected Risk-free time to expiry, price, allocation exercise (DKK) volatility maturity interest rate 31 Dec. 2012 31 Dec. 2012
In 2012, the fair value of share options recognised in the consolidated income statement amounted to DKK 7m (DKK 13m in 2011). At 31 December 2012, a total amount of DKK 76m was recognised for share option programmes issued in 2006-2011. Fair values at the time of allocation are based on the Black & Scholes option pricing formula.
The Group Executive Management includes retired managers with a total of 27,465 units with a value of DKK 2.2m at the time of allocation. Risk-takers are included under ‘Other senior employees’.
Matching shares allocated at 31 Dec. 2012 5,948 3,846 9,794 301 3 427 4
In 2011 and 2012, Tryg entered into an agreement on matching shares for the Executive Management and selected risk-takers as a consequence of the Group’s remuneration policy. The Executive Management and selected risk-takers are allocated one share in Tryg A/S for each share that the Executive Management member or risk-taker acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum. The shares are reported at market value and are accrued over the 4-year maturation period. In 2012, the reported fair value of matching shares for the Group amounted to DKK 2m.
Price adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property 15 82 Owner-occupied property -10 -350
Notes 10 Tax Tax on accounting profit/loss -401 -754 Difference between Danish and foreign tax rates -13 -57 Tax adjustment, previous years 32 2 Adjustment of non-taxable income and costs -64 49 Change in valuation of tax assets -7 -89 Change in tax rate 0 12 Other taxes -2 0
Profit/loss on ceded business 0 0 0 0 0 3 -8 -7 -8 -4 Insurance technical interest, net of reinsurance 5 2 0 0 2 1 6 1 13 4
Tryg Forsikring A/S and If P&C Insurance Company Ltd (Finland) entered into agreement on 6 November 2012 on If’s acquisition of Tryg’s Finnish branch at a total price of DKK 112m. The sale is expected to be finalised in spring 2013, pending authority approval. The comparative figures have been restated to reflect the sale.
Trademarks Assets and customer under DKKm Goodwill relations Software construction Total 12 Intangible assets
Amortisation and write-downs Balance at 1 January 0 -51 -632 -54 -737
Transferred to assets held for sale 0 0 3 0 3
Impairment losses and write-downs for the year 0 0 -13 -54 -67
Software and assets under construction In 2010, Tryg launched an IT project ‘Tryg Transition’, the aim of which was to design new IT processes and achieve efficiency improvements at Tryg. In 2012, management chose to change the direction of the project and instead focus on improving the efficiency of the existing processes. Based on this, Tryg Transition is impaired, including the related pilot project in Finland. A total impairment of DKK 123m has been made for Tryg Transition. The part relating to the pilot project in Finland is recognised under discontinued business. All other impairment is recognised under insurance operating costs.
Accumulated depreciation Balance at 1 January -85 -42 0 -127 Foreign currency translation adjustments -1 -1 0 -2 Transferred to assets held for sale 4 0 0 4
Total rental income for 2012 is DKK 152m (DKK 156m in 2011).
15 Equity investments in associates Cost Balance at 1 January 0 0
Revaluations at net asset value Balance at 1 January 13 14 Foreign currency translation adjustments 0 1 Value adjustments for the year 1 6
2012 Komplementarselskabet af 1. marts 2006 ApS, Denmark 0 0 0 0 0 50
Financial assets at fair value with value adjustment in the income statement Equity investments 187 199 Unit trust units 2,378 3,261
NonQuoted Observable observable DKKm market prices input input Total 16 Financial assets (continued)
Financial instruments measured at fair value in the statement of financial position based on non-observable input: Carrying amount at 1 January 227 217 Foreign currency translation adjustments 0 5 Gains/losses in the income statement 11 -13
Bonds measured on the basis of observable input mainly consist of Norwegian bonds issued by banks and to some extent Danish semi-liquid bonds, where no quoted prices based on actual trades are available.
Non-observable input, total result DKK -13m (DKK 11m in 2011), mainly comprises unlisted shares and bonds. Inflation derivatives are measured at fair value on the basis of non-observable input and are included under claims provisions at a fair value of DKK 3m (DKK 37m in 2011).
Investment assets as per the section ‘Investment activities’ in the management’s review 37,232 1,860 2,199 41,291 Consisting of: Cash and cash equivalents allocated to portfolio management -33 0 0 -33 Debt and receivables relating to unsettled funds and property transactions 779 0 0 779
Investment assets according to statement of financial position 38,400 187 2,199 40,786 Unit trust units 2,378 Deposits with credit institutions 1,635 Derivative financial instruments 614 Associated shares 14
Sensitivity information Impact on equity from the following changes: Interest rate increase of 0.7-1.0 percentage point -24 112 Interest rate fall of 0.7-1.0 percentage point 87 -182 Equity price fall of 12% -223 -279 Fall in property prices of 8% -330 -283 Exchange rate risk (VaR 99) -23 -19 Loss on counterparties of 8% -500 -320
Derivative financial instruments Derivatives with value adjustment in the income statement at market value: Market value Market value in statement in statement of financial of financial Nominal position Nominal position
Gains and losses on hedges charged to other comprehensive income: Price adjustments for the year 273 -300 -27 191 -375 -184
Price adjustments Price adjustments of foreign entities recognised in other comprehensive income in the amount of: Balance at 1 January 307 337 Price adjustments for the year 30 192
Current tax is recognised in the statement of financial position as follows: Under assets, current tax 93 0 Under liabilities, current tax -260 -652
Net current tax, end of year -167 -652 19 Assets held for sale and associated liabilities Intangible assets 0 112 Property, plant and equipment 0 2 Investment assets and cash equivalents 0 603 Reinsurers’ share of claims provisions 0 7
Premium provisions 0 125 Claims provisions 0 540 Other debt 0 77
In the statement of financial position at 31 December 2012, assets and liabilities relating to the Finnish branch are classified as ‘Assets held for sale’ and ‘Liabilities associated with assets held for sale’. The proceeds from the sale of the activity are expected to correspond to or exceed the carrying amounts of the associated assets and liabilities. The activity did not fulfil the conditions for classification as assets held for sale and associated liabilities at 31 December 2011. The Group had no other assets held for sale and associated liabilities at 31 December 2011.
Cancellation in connection with buyback programme -2,615,470 -65,387 -4.03 0 0 0.00 Used in connection with issue of employee shares 0 0 0.00 -10 0 0.00 Used in connection with exercise of share options -56,360 -1,409 -0.09 -121,532 -3,039 -0.20
Claims provisions, beginning of year 24,255 1,333 22,922 Price adjustment of provisions, beginning of year 69 5 64
Claims provisions, end of year 26,159 1,755 24,404 a) Comprises premiums and claims provisions for Tryg Garantiforsikring A/S and, in 2011, the Finnish branch of Tryg Forsikring A/S. In 2012, the Finnish branch is included under ‘Liabilities associated with assets held for sale’.
22 Pensions and similar liabilities Jubilees, schemes for elderly employees etc. 49 60
Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year 1,572 1,990 Adjustment beginning of year regarding plan changes not recognised in the income statement and expected estimate deviation 57 0 Foreign currency translation adjustments 13 120 Present value of pensions earned during the year 49 81 Capital cost of previously earned pensions 58 52 Actuarial gains/losses 310 -22 Paid during the period -69 -70
Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year 951 1,013 Adjustment beginning of year regarding plan changes not recognised in the income statement and expected estimate deviation -17 0 Foreign currency translation adjustments 9 58 Investments in the year 88 130 Estimated return on pension funds 41 41 Actuarial gains/losses -15 -84 Paid during the period -44 -49
Specification of pension cost for the year: Present value of pensions earned during the year 40 69 Interest expense on accrued pension obligation 57 51 Expected return on plan assets -41 -40 Accrued employer contributions 10 11
The premium for the following financial years is estimated at: 80 114 Number of active persons and number of pensioners 1,472 1,428
Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa – FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.
This year’s premium paid to FPK amounted to DKK 15m, which is about 3% of the annual premium in FPK (2011). FPK writes in its interim report for 2012 that it had a collective consolidation ratio of 104 at 30 June 2012 (consolidation ratio 134 at 30 June 2011). 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 31 22 Debt and provisions 284 422 Capitalised tax loss 81 13
Reconcillation of deferred tax Deferred tax, beginning of year 1,282 1,191 Foreign currency translation adjustments 9 56 Change in deferred tax relating to change in tax rate -10 -12 Change in deferred tax previous years 0 7 Change in capitalised tax loss 0 65 Change in deferred tax taken to the income statement -6 -247 Change in valuation of tax assets 0 89 Change in deferred tax taken to equity -84 -6
24 Other provisions Other provisions, beginning of year 1 11 Change in provisions 10 87
Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs.
25 Amounts owed to credit institutions Overdraft facilities 11 14 26 Debt relating to unsettled funds transactions and repos Unsettled funds transactions 779 1,050 Repo debt 3,382 420
27 Earnings per share Profit/loss on continuing business 1,148 2,180 Profit/loss on discontinued and divested business -8 28
Average number of shares (1,000) 60,401 60,491 Diluted number of shares (1,000) 0 223
Diluted average number of shares (1,000) 60,401 60,714 Earnings per share, continuing business 19.0 36.0 Earnings per share, discontinued and divested business -0.1 0.5 Diluted earnings per share, discontinued and divested business -0.1 0.5 Earnings per share 18.9 36.5 Diluted earnings per share 18.9 36.4
Obligations due by period DKKm <1 year 1-3 years 3-5 years > 5 years Total 28 Contractual obligations, collateral and contingent liabilities
The amounts include the following: Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S, have signed a 5-year outsourcing agreement with CSC for an amount of DKK 365m. The contract expires in 2015.
Tryg Forsikring A/S has signed the following contracts with amounts above DKK 50m: Telephony services contract with Telenor for DKK 105m, which expires after 2015. Lease contracts on premises for DKK 313m. The contracts expire after 5 years.
Contingent liabilities Companies in the Tryg Group are party to a number of disputes. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2012.
TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Management and their members’ family.
Premium income - Parent company (TryghedsGruppen smba) 0.3 0.3 - Other related parties 2.9 3.0
Supervisory Board 4 0 Executive Management 0 0 Risk-takers 1 20
2011 Number of persons Basic salary Variable salary Pension Total a)
DKKm 29 Related parties (continued) Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 4 years, and share options, which are recognised over 3 years. The Executive Management and risk-takers are included in incentive programmes. Please refer to Note 7 for information concerning this.
The Executive Management is paid a fixed remuneration and pension. The variable salary is awarded in the form of a matching share programme, see ‘Corporate governance’.
Each member of the Executive Management is entitled to 12 months’ notice and severance pay equal to 12 months’ salary plus pension contributions (the Group CEO is entitled to severance pay equal to 18 months’ salary). Members of the Executive Management can assert no further claims in this respect, for example claims for compensation pursuant to Sections 2a and/or 2b of the Danish Salaried Employees Act, as such claims are regarded as being included in the severance pay.
Current year’s effect of actuarial gains and losses on pension obligation after tax -288 288 0 -46 46 0
The comparative figures have been restated to reflect the above changes.
Implementation of changes to financial reporting standards and interpretations in 2012 The International Accounting Standards Board (IASB) has issued a number of amendments to the International Financial Reporting Standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations.
New and revised executive orders, standards and interpretations which the Group has not yet applied and that have been issued but which are not yet effective: • Amendments to IFRS 7 related to the offsetting of assets and liabilities a)
• Reissue of IFRS 9 to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirementsc)
• IAS 27 (as revised in 2011) ‘Separate Financial Statements’ a)
• Amendments to IAS 32 ‘Annual Improvements 2009-2011 Cycle (tax effect of equity distribution)’ a)
a) Effective for annual periods beginning on or after 1 January 2013. b) Effective for annual periods beginning on or after 1 July 2012. c) Effective for annual periods beginning on or after 1 January 2015. d) Effective for annual periods beginning on or after 1 January 2014.
Claims provisions -150 Equity and capital base are affected by the same amounts.
Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are: • Liabilities relating to insurance contracts • Valuation of defined-benefit plans • Fair value of financial assets and liabilities • Valuation of property • Valuation of goodwill
Claims provisions are estimated based on actuarial and statistical projections of claims and the administration of claims. The projections are based on Tryg’s knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other factors that might influence future developments in the liabilities.
The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that have been incurred, but not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the Group but have not been finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg.
The Norwegian and Swedish provisions are discounted based on euro swap rates, to which a country-specific interest rate spread is added that reflects the difference between Norwegian and Swedish government bonds and the interest rate on German government bonds. Finnish provisions are discounted using the Danish discount curve.
Owner-occupied property is assessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a deduction for depreciation and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a marketdetermined rental income as well as operating expenses in proportion to the property’s required rate of return.
Measurement of goodwill Goodwill is acquired in connection with the acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least once annually. Impairment testing involves estimating future cash flows and is affected by a number of factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition.
Any excess of the cost of acquisition of the enterprise over the fair value of the acquired identifiable assets, liabilities and contingent liabilities is recognised as goodwill under intangible assets. Goodwill is tested for impairment at least once a year. If the carrying amount of an asset exceeds its recoverable amount, the asset is written down to the lower recoverable amount.
Foreign currency translation A functional currency is determined for each of the reporting entities in the Group. The functional currency is the currency used in the primary economic environment in which the reporting entity operates. Transactions in currencies other than the functional currency are transactions in foreign currencies.
Geographical information is presented for the economic areas in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden.
Key ratios Earnings per share (EPS) are calculated according to IAS 33. This and other key ratios are calculated in accordance with Recommendations and Ratios 2010 issued by the Danish Society of Financial Analysts and the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Financial Supervisory Authority.
Insurance technical interest According to the Danish Financial Supervisory Authority’s executive order, insurance 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.
Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding.
Claims Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item includes run-off gains/losses in respect of previous years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to insurance technical interest. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred.
Insurance operating costs Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs and is accrued over the term of the policy. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year.
Leases Leases are classified either as operating or finance leases. The assessment of the lease is based on criteria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custommade, the lease term and the present value of the lease payments.
Share option programme The value of services received as consideration for options granted is measured at the fair value of the options.
The statement of financial position items concerning discontinued activities are reported unchanged under the respective entries whereas assets and liabilities concerning divested activities are consolidated under one item as assets held for sale and liabilities associated with assets held for sale.
The comparative figures in the income statement, including result figures in the five-year financial highlights and key figures, have been restated to reflect discontinued business. Discontinued and divested business in the income statement includes the profit/loss after tax of the sale of the right to renew the marine hull business in 2010 and the divested activities in the Finnish branch. Discontinued business also comprises the Tryg Forsikring A/S run-off business.
Assets under construction Group-developed intangible assets are recognised under assets under construction until they are put into use, after which they are reclassified as software and amortised in accordance with the amortisation periods stated above.
Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in less active markets.
The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions.
Impairment test of intangible assets and property, plant and equipment Operating equipment and intangible assets are assessed at least once a year to ensure that the depreciation and amortisation methods and the depreciation and amortisation periods that are used are in line with the expected economic lifetimes. This also applies to the residual value. Impairment is performed if a decrease in value has been demonstrated. A continuous assessment of owner-occupied property is performed using the same method as for investment property.
Goodwill is tested annually for impairment, or more often if there are indications of impairment, and impairment testing is performed for each cash-generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments.
Net revaluation of equity investments in subsidiaries is taken to reserve for net revaluation under equity if the carrying amount exceeds cost.
Statement of financial position items of foreign subsidiaries are translated using the exchange rates applicable at the statement of financial position date.
Revaluation reserves Revaluation of owner-occupied property is recognised in other comprehensive income unless the revaluation offsets a previous impairment loss, and relates primarily to owner-occupied property.
Contingency fund reserves Contingency fund reserves are recognised as part of retained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Supervisory Authority and when it is for the benefit of the policyholders. The Norwegian contingency fund reserves include provisions for the Norwegian Natural Perils Pool, security reserve, administration reserve and guarantee reserve. The Danish and Swedish provisions comprise contingency fund provisions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated.
Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability, workers’ compensation and personal accident and health insurance classes, in particular.
Provisions for bonuses and premium discounts etc. represent amounts expected to be paid to policyholders in view of the claims experience during the financial year.
Reserve adequacy test Tests are continuously performed to ensure the adequacy of the insurance provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency results in an increase in the relevant provision, and the adjustment is recognised in the income statement.
Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. A definedbenefit 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 salary. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribution plan.
The liability recognised in the statement of financial position in respect of defined-benefit pension plans is the present value of the definedbenefit obligation at the statement of financial position date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs.
Expectations as regards returns on plan assets are based on the returns for each asset class and the current allocation thereof. Market expectations of future returns are taken into consideration.
The defined-benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined-benefit obligation is determined by discounting the estimated future cash outflows by a duration that matches the conditions of the underlying pension obligation.
The actuarial gains and losses arising from experience-based adjustments and changes in actuarial estimates is recognised in other comprehensive income.
Other employee benefits Employees of the Group are entitled to a fixed payment when they reach retirement and when they have been employed with the Group for 25 and for 40 years. The Group recognises this liability at the time of signing the contract of employment.
Total receivables 23 85 5 Current tax assets 17 24 Cash at bank and in hand 0 1
Total equity and liabilities 9,025 10,999 6 Deferred tax assets 7 Capital adequacy 8 Contractual obligations, contingent liabilities and collateral 9 Related parties 10 Reconciliation of profit/loss and equity 11 Accounting policies
Profit/loss for the year 911 -171 400 1,140 Revaluation of owner-occupied property for the year 20 20 Foreign currency translation adjustment of foreign entities for the year 29 29 Hedging of currency risk in foreign entities for the year -27 -27 Actuarial gains and losses on pension obligation -399 -399 Tax on changes in equity 112 -22 90
Total changes in equity in 2012 0 1,904 -1,126 1,194 1,972
1 Income from Group undertakings Tryg Forsikring A/S 1,189 2,265 2 Other expenses Administration expenses -57 -67
Remuneration for the Executive Management is paid partly by Tryg A/S and partly by Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S, and is charged to Tryg A/S via the cost allocation. Remuneration for the Supervisory Board, the Executive Management and risk-takers can be seen from Note 29 concerning related parties of the Tryg Group. Refer to Note 7 of the consolidated financial statements for a specification of the audit fee.
Average number of full-time employees during the year 0 11 3 Tax Reconciliation of tax costs Tax on accounting loss before profit/loss in subsidiaries and tax 15 19 Tax adjustment, previous years 0 -1
Revaluation and impairment to net asset value Balance at 1 January 1,352 1,998 Revaluations for the year 902 2,304 Dividend paid -256 -400
5 Current tax assets Tax payable, beginning of year 17 17 Current tax for the year 16 24 Adjustment of current tax in respect of previous years 0 -7 Tax paid for the year -16 -10 6 Deferred tax assets Capitalised tax losses Tryg A/S 0 0
Subordinate loan capital 848 873 Solvency requirements for subsidiaries – 50% -2,507 -2,405
Solvency ratio 112 90 8 Contractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are taxed jointly with TryghedsGruppen smba. As of 1 July 2012, the companies and the other jointly taxed companies are thus jointly and severally liable for any obligation to withhold tax deducted at source on interest, royalties and dividends in respect of the jointly taxed companies.
Gruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Management and their members’ related family. Related parties are the same as for the Tryg Group; please see Note 29 in the consolidated financial statements.
Intra-group trading involved: - Providing and receiving services -61 -40 - Intra-group account 23 84
Reconciliation of equity Equity – IFRS 9,007 10,979 Deferred tax provisions for contingency funds 17 17
Key ratios Gross claims ratio 77.3 78.4 73.3 89.2 76.0 80.4 71.8 69.0 70.1
Combined ratio exclusive of run-off 99.9 102.8 98.4 98.5 112.9 96.7 92.1 97.3 103.4
Key ratios Gross claims ratio 80.1 76.5 81.1 86.3 88.1 87.5 77.7 75.3 67.2
Claims ratio, net of ceded business 80.4 80.5 82.6 83.4 88.6 88.1 77.5 76.3 66.4
Combined ratio exclusive of run-off 105.8 103.5 93.7 96.7 115.1 107.8 92.8 88.7 87.2
Key ratios Gross claims ratio 77.0 75.7 72.4 89.5 78.5 79.9 68.7 70.3 70.2
Combined ratio exclusive of run-off 100.8 99.6 93.5 97.3 101.2 98.5 91.1 91.5 92.1 a) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’.
Number of full-time employees, end of period, continuing business 4,076 3,913 Number of full-time employees, end of period, discontinued and divested business 242 189 a) Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 April 2009. b) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. c) Adjustment of gross expense ratio included only in ‘Tryg’.
Other key ratios are calculated in accordance with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts.
Danish general insurance Comprises the legal entities Tryg Forsikring A/S (excluding the Norwegian and Swedish branches) and Tryg Garantiforsikring A/S (including Finnish branch).
Individual solvency New Danish solvency requirements for insurance companies comprising the companies’ own determination of their capital requirements calculated using their own methods.
The rules entered into force on 1 January 2008, and the figures must be reported to the Danish Financial Supervisory Authority four times a year.
Gross premium income Total reserve ratio Reserve ratio, claims provisions + premium provisions
Earnings per share Profit or loss for the year x 100
Solvency II New solvency requirements for insurance companies issued by the EU Commission. The new rules are expected to come into force in 2014/2015, at the earliest.
Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch, and the Swedish branch of Tryg Garantiforsikring A/S.
Diluted number of shares Average number of shares adjusted for number of share options which may potentially dilute.
The branch has been sold. Final authority approval expected in Q1 2013.
Motor insurance Motor insurance accounts for 32% of total premium income and comprises mandatory third-party liability insurance providing cover for injuries to a third party or damage to a third party’s property, and a voluntary comprehensive insurance policy that provides cover for damage to the customer’s own vehicle from collision, fire or theft.
Personal accident insurance Personal accident insurance accounts for 9% of total premium income and covers accidental bodily injury and death resulting from accidents.
Transport insurance Transport insurance represents 2% of total premium income and covers damage to goods in transit due to the collision, overturning or crashing of the means of transport.
Health insurance Health insurance represents 2% of total premium income. The insurance covers the costs of examinations, treatment, medicine, surgery and rehabilitation at a private health facility. In recent years, increasing health costs and waiting times in the public system have led to a significant demand for private health insurance. The growth in health insurance is, however, expected to decline, as the new government has removed the tax deduction from schemes funded by employers.
Tryg offers a broad range of insurance products to both private individuals and businesses. Tryg continuously develops new products and adapts existing peace-of-mind solutions to customer requirements and developments in society. Also, Tryg focuses strongly at all times on striking a better balance between price and risk.
Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark tryg.com CVR no. 26460212