The Supervisory Board focused strongly on the recommendations on corporate governance, which were updated in 2010. What are the Board’s perspectives after the developments of 2010?
Mikael Olufsen: The Supervisory Board is committed to maintaining Tryg’s strong capital and reserve position in anticipation of the changed Solvency II capital requirements. The changed capital requirements, possible consolidations, and the new competition may affect the structure of the market, but on the Supervisory Board we are confident that Tryg stands well prepared for the future.
So, Morten, after a 2010 performance strongly impacted by more one-off events than expected, improving performance is a key priority for the Supervisory Board. What are the management’s plans for improving profitability, and what are your expectations for our 2011 performance?
Claims handlers had an opportunity to participate in disabled sports when the Danish Handicap Sports Federation visited Tryg’s head office. The session was part of a collaboration initiated in
Strategy plan for 2011-2014 Recent years’ economic downturn has demonstrated the importance of sustaining the focus on our core business. In the years ahead, our focus will be on tight cost management, a new platform for sales and claims handling, and the ability to quickly adapt the Group to changes in the market.
Despite increased costs for branding activities, Tryg was able to reduce the expense ratio from
In 2010, the investment activities of the insurance companies benefited from rising equity prices. Strong earnings growth and moderate equity valuations relative to the return on bonds generated good equity returns despite a negative sentiment and economic challenges in several European countries.
compensation verdict produced claims which were DKK 1.4bn higher than in a normal year. These events are referred to as extraordinary events in the annual report. Additionally, an adjustment of DKK
625m in 2009, equalling a slight increase in the effective tax rate from 24 in 2009 to 28 in 2010. The effective rate in 2009 was low due to utilisation of accumulated tax losses in Sweden and tax-free gains on equities. The effective tax rate in 2010 was also positively affected by tax-free gains on equities but adversely affected by the distribution of profits on individual countries as, for example, Norway has a higher tax rate.
Overall, gross earned premiums fell by 5.9% or DKK 83m in 2010. Combined ratio was 92.7 in 2010 compared with the unusually low level of 83.5 in 2009. Run-off gains had a positive impact of 6.4 percentage points on the combined ratio compared with 7.0 percentage points in 2009, while large claims had a negative impact of 4.3 percentage points against 4.6 percentage points in 2009.
compensation is insured through public collective agreements and is therefore not offered as a product in Sweden. A significant proportion of the Swedish corporate business comprises commercial customers served by insurance agents. The Swedish business sector is highly internationalised, and the partnership with AXA
Going forward, the annual impact on claims will be limited, and it is estimated at DKK 15-20m.
value adjustments due to a changed discount rate. As it is impossible to perfectly match investments to the regulatory yield curve,
Tryg has rating agencies Standard & Poor’s and Moody’s perform external credit ratings once a year. At 31 December 2010,
See a simplified updated capital model on tryg.com under Investor > Key figures.
Based on Standard & Poor’s capital model, the capital requirement is DKK 9,857m and TAC before dividend DKK 10,607m. In this light and based on a profit of DKK 593m, the Supervisory
been finally calculated. This may be a prolonged process particularly for personal injuries. Even when the claim has been settled there is a risk that it will be resumed at a later date, triggering further payments.
Born 1962. Joined the Supervisory Board in 2010. Nationality: Danish. Administrative officer,
Born 1959. Joined the Supervisory Board in 2008. Nationality: Danish. Quality assurance manager with Tryg. Employed since 1985.
Number of shares held: 6,264. Change in portfolio in 2010: 0
The Supervisory Board monitors that Tryg’s capital structure is in line with the needs of the Group and its shareholders, and that the capital structure is in compliance with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan that are reviewed each year by the Supervisory Board.
The Supervisory Board and the individual Board members deem that each member has adequate time and resources to perform their office as a Supervisory Board member of Tryg in a satisfactory manner.
• Review the Group’s technical provisions. • Review the methodology for and calculation of the Group’s Individual Solvency Need. • Review the efficiency of the Group’s contingency plans. • Assess the Group’s internal control procedures to prevent fraud. • Supervise annual and interim financial statements. • Supervise the audit work performed by the external auditors. • Review and discuss the results of the work of the internal and external auditors and to supervise management’s follow-up on the recommendations reported by the internal and external auditors.
Reserve Revalua- for Equali- Share tion- exchange sation- Other Retained Proposed DKKm capital reserves rate adj. reserve reserves earnings dividents Total 2009 Adjustment beginning of year cf note 1 -35 -35 Profit for the year 201 816 991 2,008 Revaluation of owner-occupied properties 9 9 Exchange rate adjustment of foreign entities 487 18 505 Hedge of foreign currency risk in foreign entities -474 -474 Actuarial gains and losses on pension obligation 28 28 Tax on equity entries -2 119 -7 110
Executive orders, standards and interpretations not yet in force The International Accounting Standards Board (IASB) has issued a number of revised international accounting standards and the International Financial Reporting Interpretations Committee (IFRIC) has issued a number of interpretations that have not yet come into force. The interpretations are approved by EU but are not yet been effective.
In 2010, the rules relating to AFP (flexible pension scheme in Norway) were changed to the effect that AFP will be treated as a defined contribution plan in future. This change resulted in a total change of estimates of DKK 40m, which amount has been recognised as income.
Share-based payment The Tryg Group’s incentive programmes comprise share option programmes and employee shares.
Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straightline basis over the expected useful lives of 5–12 years.
Leasehold improvements are depreciated over the expected useful life, however with a maximum of the term of the lease.
The provision for annuities in workers’ compensation insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis (official mortality table).
Exchange rate adjustments concerning financial assets or liabilities which cannot be valuated to market value is in total DKK 52m (2009 DKK 1.4m)
Claims Frequency 16.3% 27.8% Average claims DKK 331,288 310,702 Total claims 978 954
Bought during the year -1,286,817 -32,170 -2,625,786 -65,645 Sold during the year 136,784 3,420 31,837 796
Provisions for unearned premiums, gross 6,111 196 177 174 6,658 Provisions for unearned premiums, ceded -138 0 0 0 -138
Debt falling due within one year 989 5,353 Debt falling due after more than five years 0 0 27 Earnings per share Profit/loss for the period from continuing business 1,985 676 Profit/loss on discontinued and divested business 23 -83
Mio. DKK 2009 2010 30 Related parties Supervisory Board and Group Executive Management
Notes Investment activities 2 Income from subsidiaries 2,079 475 Interest income 2 2 Value adjustment -2 -1 Interest expenses -14 -2 Investment management charges -7 -8
2 Income from subsidiaries Tryg Forsikring A/S 2,079 475 3 Other expenses Administrative expenses -46 -58
4 Tax Reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax 17 17
The Executive Management has a bonus scheme for up to 3 months’ salary (Group CEO up to 4 months’ salary) and participate in the share option programme as mentioned in Corporate governance.
Claims ratio, net of ceded business Gross claims ratio + business ceded as % of gross premiums.
Total reserve ratio Reserve ratio, provisions for claims + provisions for unearned premiums
Statement by the Supervisory Board and the Executive Management 72 Independent auditor’s report 73 Income statement and statement of financial position – Tryg Group 74 Statement of changes in equity – Tryg Group 78 Cash flow statement – Tryg Group 80 Notes – Tryg Group 81 Income statement – Tryg A/S (Parent company) 130 Statement of financial position – (Parent company) 131 Statement of changes in equity (Parent company) 132 Notes (Parent company) 133 Geographical segments 138 Other key ratios 140 Glossary 141