CSR represents good business ethics and common sense and supports our business model. That is why we urge all
Financial highlights and key ratios of TrygVesta l Introduction to TrygVesta l TrygVesta Annual Report 2008
The situation is expected to change in 2009 and 2010 as price competition becomes less important due to an increased requirement for capital among companies whose capital was reduced in 2008 as a result of losses on securities, unprofitable insurance operations and the upcoming tighter solvency rules with larger capital requirements. There is a good probability that the market will see reduced price competition from small and mediumsized companies which have extensively used low prices as a marketing tool in recent years.
Workers’ compensation l Markets and strategy l TrygVesta Annual Report 2008
Proactive claims handling is a focus area for TrygVesta, which pursues a close dialogue with the claimant to optimise claims handling. We have set up a proactive claims handling team consisting of claims handlers, social counsellors, legal experts, occupational health practitioners, orthopaedic surgeons and a network of psychologists.
Health care insurance, which is a relatively new product in the market, experiences strong demand. A health care insurance policy covers expenses involved in examination, treatment, medicine, surgery and rehabilitation in a private health care facility. The sustained increase in living standards has raised expectations with respect to services to be provided by the public health care services, and not least the quality of such services. Combined with increasing health care costs and waiting times in the public system, citizens’ higher requirements have generated substantial demand for health care policies, and this demand is expected to continue in the years ahead. The greater number of insured persons and the increased use of the private health care policies will together generate significant growth potential within health care insurance.
Goals and projects for 2009-10 • operational self-service platform • handling of motor claims in Denmark
Future reporting TrygVesta’s new process-oriented organisation, which was implemented on 1 January 2009, will result in future changes to our reporting so as to reflect the new areas of responsibility. The geographical reporting of the Danish and Norwegian businesses will continue unchanged while, beginning in the first quarter of 2009, Private & Commercial Denmark and Private & Commercial Norway will be reported as Nordic private and commercial business. Reporting on Corporate, Sweden and Finland will be unchanged.
Currency exchange rates, which have a major impact on the results of the insurance operations, were very volatile in 2008. TrygVesta’s insurance operations are directly exposed to fluctuations in NOK, SEK and EUR. Based on the expectation of a positive profit contribution from, the Norwegian part of the business, a depreciation of
The total portfolio in the two countries was DKK 691m at 31 December 2008. Growth was attributable to a sustained high inflow of customers. In Finland, it was a direct result of the sales organisation being enhanced and enlarged.
Weather related claims were DKK 112m in 2008 compared with DKK 332m in 2007. The reduction was due partly to the mild winter and partly to fewer cloudbursts in the summer of 2008 compared with the summer of 2007.
133m. Excluding “The Living House”, the expense ratio was 16.7, in line with 2007. Including costs of this project, the expense ratio was 17.3 in 2008. In light of high wage inflation of around 5-8%, high initial costs in New Markets, and high growth with derived commission expenses, the expense performance is considered satisfactory. Costs of expansion in the new markets had an impact of 1.5 percentage points in 2008 against 1.3 percentage points in 2007 and are financed through ongoing process improvements in Denmark and Norway.
(index), totalling 4.4% in 2009, but adversely impacted by the ongoing portfolio restructuring and premium reductions to customers as they build up their driving seniority.
materialise in the second half-year of 2009 and be fully recognised in the financial statements for 2010.
Gross earned premiums 4,509 4,490 4,636 Gross claims incurred -2,866 -2,962 -3,371
In 2008, we succeeded in reversing the negative trend in gross premiums from 2005-2007 to growth. As a result
Going forward, this development will generate higher premium growth rates, thereby strengthening TrygVesta’s position and market opportunities in Norway.
The potential for sales of insurance policies to small commercial customers is strong in Finland, as Nordea has a strong position in this customer segment. Sales through own channels significantly outperformed expectations in 2008.
Costs are primarily driven by selling commissions, but as the proportion of policies sold by the unit’s own call centre increases, the charge on the expense ratio will be gradually reduced for the benefit of future earnings.
The increase in nominal costs by 9.5% to DKK 104m should be seen in the light of the strong gross premium growth, which led to an overall reduction of the expense ratio from 105.6 to 47.1. Costs are primarily driven by selling commissions, but as the proportion of policies sold by the unit’s own call centre increases, the charge on the expense ratio will be gradually reduced for the benefit of future earnings.
It was expected in 2008 that increased competition would yield weaker growth going forward. Due to the turbulent developments in the financial markets, a number of competitors refocused on profitable insurance operations, which, from a rational perspective, should create more stable price trends and a balanced competitive situation going forward.
Gross claims expenses at DKK 3,489m were down by 10.6%, or DKK 415m, due to run-off and fewer large claims, which amounted to DKK 330m (DKK 255m net) in 2008 compared with DKK 843m (DKK 439m net) in 2007. The underlying trend was an increase in claims in the personal lines.
TrygVesta Garantiforsikring was the centre of increased focus in 2008 as a result of the construction industry, the company’s main business area, being hit by the financial crisis. The company pursues a profitability focused underwriting policy focusing on low risk. The number and size of claims were satisfactory in 2008. Risks are reinsured to the effect that the greatest loss cannot exceed DKK 30.0m net of reinsurance. The company recorded a combined ratio of 74.3 in 2008 and contributed DKK 44m to the overall performance of Corporate.
The Group’s overall bond portfolio including cash yielded a return of DKK 1,882m in 2008, equal to 6.1% for the full year. The return in 2008 was affected by an overall drop in bond yields of around 1.2% in Denmark and 2.8%
TrygVesta’s risk instructions provide for an equity proportion of up to 8.0%. The equity proportion at 31 December 2008 was 3.4%. The present capital base permits the increased equity risk within the limits of the risk instructions. However, as a consequence of the financial crisis and the difficulties involved in procuring additional subordinate capital in the financial markets, we have decided not to buy back treasury shares in respect of 2009 in order to safeguard TrygVesta’s resources.
Group to. Structured and competent risk management is fundamental to maintaining confidence in TrygVesta and living up to the vision of being perceived as the leading peace-of-mind provider in the Nordic region.
Investment risk The risk that volatility of financial markets impacts our results. Interest rate risk constitutes a major part of investment risk. Interest rate risk is the risk of fluctuating market interest rates. Handled by the Investment risk committee
Capitalisation and risk management l Capitalisation and risk management l TrygVesta Annual Report 2008
In addition, TrygVesta also buys reinsurance for certain lines for which experience has shown that claims vary considerably. The largest single risks in the corporate portfolio are property risks protected by reinsurance cover up to DKK 1.5bn/NOK 1.6bn/SEK 1.8bn with a retention of
Danish wage inflation. TrygVesta hedges such risk using an inflation swap.
TrygVesta’s internal model the impact of value adjustment on liabilities and on assets in the hedge portfolio. Based on the internal model, the Group has calculated that the net interest rate risk would have a 90% certainty to stay within a range of +/- DKK 115m.
There is a risk that customers fail to pay for their insurance. Accordingly, TrygVesta has intensified efforts and processes towards customers with an account arrangement, large customers and commercial customers in sectors strongly impacted by economic trends. A separate review has been made of ratings for customers with large premium volumes in order to assess the risk of bankruptcy.
In 2008, the shareholders at the annual general meeting authorised the Supervisory Board to let TrygVesta acquire own shares within 10% of the share capital in the period up to the next annual general meeting. The Supervisory Board is authorised to distribute extraordinary dividends in accordance with the rules of the Danish Public Companies Act.
Activities in 2008 • Reviewed the Group’s technical provisions. • Reviewed the methodology for and calculation of the Group’s Individual Solvency Needs. • Reviewed the efficiency of the Group’s contingency plans. • Assessed the Group’s internal control procedures to prevent fraud. • Supervised annual and interim financial statements. • Supervised the audit work performed by the external auditors.
To the shareholder of TrygVesta A/S We have audited the annual report of TrygVesta A/S for the financial year starting on January 1 and ending on December 31, 2008, which comprises the management’s report, the statement by management, accounting policies, income statement, balance sheet, capital and notes for the Group as well as the parent company and the cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parents financial statements have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.
Basis of opinion Our responsibility is to express an opinion on the annual report based on our audit. We conducted our audit in accordance with Danish auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual report is free from materiel misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual report, whether due to fraud or error.
Notes Assets 13 Owner-occupied property 306 1,315 14 Assets under construction 0 0
Total property, plant and equipment 386 1,361 16 Investments in associates 19 14
Statement of changes in equity – TrygVesta Group l Statement of changes in equity – TrygVesta Group l TrygVesta Annual Report 2008
Changes in accounting estimates • The assumptions for the allocation of insurance operating expenses to acquisition and administrative expenses respectively were re- assessed with effect from 30 June 2008. As a result, acquisition expenses total approximately 75% of insurance operating expenses, as compared with the previous total of approximately 65%. The change
• In October 2008, the Danish FSA changed the discount curve for discounting of provisions. As a result of the change, the discount rate is determined based on a risk-free interest rate and the mortage bond yield, enabling a better match between assets and liabilities. The effect of the change to the new yield curve is: Impact Impact DKKm 31 Oct. 31 Dec.
Profit/loss, shareholders’ equity and capital base are impacted by the same amount.
financial assets at fair value through income Financial assets are classified as financial assets available for trading at inception if acquired principally for the purpose of selling in the short term, or if they form part of a portfolio of financial assets in which there is evidence of short-term profit-taking. Derivatives are also classified as financial assets available for trading unless they are designated as hedges.
Dividend distribution Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (the date of declaration). Dividends expected to be paid in respect of the year are stated as a separate line item under equity.
Liability adequacy test Tests are continuously performed to ensure the adequacy of the technical 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 is charged to the income statement by raising the relevant provision. Any positive deviations are also recognised in the income statement.
Under claims incurred, the value adjustment of inflation swaps to hedge the inflation risk concerning annuities on workers’ compensation insurance totals DKK 8m (in 2007 DKK -22m.)
DKKm 5 Share option programmes In 2008, TrygVesta awarded share options to the Executive Management (3 persons) and other senior employees (69 persons) and other employees (39 persons). At 31 December 2008, the share option plan comprised 572,367 share options (at 31 December 2007 329,902 share options). Each share option entitles the holder to acquire one existing share of DKK 25 nominal value in the company. The share option plan entitles the holders to buy 0.84% of the share capital if all share options are exercised.
Outstanding options from 2007 allocation 31 Dec 2008 25,700 101,896 16,000 143,596 - 14 - 7
Provisions for bonuses and premium rebates 250 0 128 0 0 0 378
Market value adjustments concerning assets and liabilities that cannot be attributed to IAS 39: Investment property 107 70 Owner-occupied property 14 8
Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. External experts were not involved in valuing owner-occupied property.
Effective Adjusted 2008 Total 0-1 year 1-5 years > 5 years interest rate duration
DKKm 22 Provisions for claims Carrying amount Expected cash flow 2008 Total 0-1 years 1-2 years 2-3 years > 3 years
Provisions for unearned premiums, gross 4,946 4,763 66 39 78 Provisions for unearned premiums, ceded -172 -172 0 0 0
Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year 1,298 1,292 Exchange rate adjustment 43 -246 Present value of amounts accumulated during the year 60 56 Capital costs of previously accumulated pensions 56 49 Actuarial gains/losses -105 23 Paid during the period -46 -51 Change in recognised employers’ nat. ins. contribution 2 0 Effect associated with optional shift to contribution pension plan -16 0
See ‘Owner-occupied property and operating equipment’ in note 1 ‘Accounting policies’ for a more elaborate description of the valuation method used.
4 Tax Reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax 21 18
Specification of remuneration Supervisory Board -4 -4 Executive Management -16 -19
Gross claims ratio Calculated as the ratio of gross claims incurred to gross earned premiums.
Norwegian general insurance Comprises TrygVesta Forsikring A/S, Norwegian branch, the Norwegian subsidiaries and the Norwegian branch of TrygVesta Garantiforsikring A/S.