Download IR team newsletter on impact of rising interest rates at tryg.com.
The return on bonds in the free portfolio (approximately 70% of the free portfolio) will vary, but given current interest rate levels, a very low return is expected. For shares, the expected return is around 7% with the MSCI World Index as benchmark, while the expected return for property is around 5%. The investment return in the income statement also includes the cost of managing investments, the cost of currency hedges and interest expenses on subordinated loans.
Together with the CMD targets for 2015-2017, a number of strategic initiatives were defined.
In 2017, large claims totalled DKK 243m, while weather claims totalled DKK 298m. Both figures were well below the normal levels of DKK 550m and DKK 500m. The overall run-off result was DKK 972m (1,239m) or 5.4% (7.0%) on the combined ratio. The lower level was primarily due to lower run-off for workers’ compensation.
Expenses The expense ratio was 14.0 (14.8 adjusted for one-offs), which was in line with the target announced at the Capital Markets Day in 2014.
The underlying claims ratio showed an under lying improvement of 0.2 percentage points for the Group.
Tryg’s solvency ratio displays low sensitivities to capital market movements. The highest level of sensitivity is towards spread risk, where a widening/ tightening of 100 basis points would impact the solvency ratio by approximately 12 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate movements.
Claims The claims ratio, net of ceded business, which covers both claims and business ceded as a percentage of gross premiums, was 72.3 (73.2 adjusted for one-offs). The lower claims level after one-offs primarily represented an improved underlying development. Weather claims and large claims were below the Q4 2016 level but run-off gains were also well below prior-year quarter.
The business area accounts for 49% of the Group’s total premium income.
Expenses The expense ratio for Corporate was 10.2 (11.0), and the drop was mainly due to commissions from the fronting business in Sweden. Although expense levels are quite low, Corporate also has a strong focus on reducing expenses as a way of improving our competitive position.
Key ratios Premium growth in local currencies 5.1 12.2 12.5 3.4
Claims The gross claims ratio was 73.0 (72.7) and net of ceded business 73.6 (72.7). The increase was primarily due to a lower run-off level.
Tryg’s investment activities reported an overall result of DKK 527m (DKK 987m). The result for the full year 2016 was positively impacted by a capital gain of DKK 500m on the sale of a property portfolio. The overall result for the investment activities in 2017 was more than three times higher than the expected normalised level. The purpose of our investment strategy is to support a high and stable technical result and thus reduce overall volatility to the greatest possible extent. Since 2010, this purpose has been supported by the strategic split of the investment portfolio into a match portfolio (assets matching the insurance reserves) and a free portfolio (the capital of the company). Tryg reported a DKK 598m (DKK 939m) return on the free portfolio, a DKK 227m (DKK 210m) result on the match portfolio and other financial income and expenses of DKK -298m (DKK -162m).
Insurance risk The insurance risk is managed by limiting the size of single large commitments and through the use of reinsurance, thus reducing the maximum cost of large claims. Furthermore, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operating within these boundaries, Tryg’s risk depends on the company’s choice of exposure within different segments and industries in the insurance market. Tryg operates in a relatively stable line of business. Quarterly fluctuations are driven mainly by large claims and weather events, and reinsurance is used extensively to smooth impacts on earnings.
Tryg’s solvency ratio displays low sensitivities towards capital market movements. The highest sensitivity is towards spread risk, where a widening/ tightening of 100 basis points would impact the solvency ratio by 12 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate fluctuations. A change in the UFR (Ultimate Forward Rate) would have an insignificant impact. This is unsurprising, considering that Tryg underwrites only non-life risks with low duration.
TrygFonden TrygFonden is the leading and most well-known peace of mind supporter in Denmark, supporting around 800 activities that contribute to this, such as coastal lifeguards, cuddle bears for children at hospitals and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributed DKK 600m to projects that create peace of mind throughout Denmark in 2017.
Annual report 2017 | Tryg A/S | 30Contents – Management’s review
• Annual distribution of 60-90% of our profit after tax. • The capital level must at all times reflect our return on equity targets and statutory capital requirements.
Jukka Pertola (1960) Deputy Chairman Has special skills in the fields of management, insurance, IT and digitalisation, communication and finance. Jukka Pertola has more than ten years of board work experience from companies, foundations and organisations.
Education: Insurance training, LL.M. Chairman: P/F Betri Trygging, Tryg Livsforsikringsselskab A/S. Board member: Danish Employers’ Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet, the Danish Insurance Association and cphbusiness.
In addition to our work on equal opportunities at management level, we also ensure that employees have equal opportunities as regards pay levels and career opportunities, for example by ensuring an equal distribution of men and women in recruitment processes. At the same time, we also promote paternity leave while having a general focus on the importance of a good work-life balance, which can include flexible or reduced working hours.
The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2017 of Tryg A/S and the Tryg Group.
NOK/DKK, average rate for the period 79.99 80.09 83.52 89.42 96.04 SEK/DKK, average rate for the period 77.24 78.93 79.69 82.16 86.35
Operating equipment 67 49 11 Total property, plant and equipment 67 49 13 Equity investments in associates 225 218
Listed shares Nordic countries 51 47 United Kingdom 90 95 Rest of Europe 274 259 United States 1,196 1,377 Asia etc. 435 368
Profit/loss on gross business 3,582 3,351 231 4 227 Profit/loss on ceded business -779 -951 172 -1 173 Insurance technical interest, net of reinsurance -14 -10 -4 0 -4
Annual report 2017 | Tryg A/S | 68Contents – Financial statements
Profit/loss on ceded business - 157 - 129 - 318 - 439 0 0 - 68 - 47 - 77 - 96 - 1 - 2 Insurance technical interest, net of reinsurance - 7 - 6 - 2 - 1 - 1 - 1 - 1 - 1 0 0 0 0
Gross Ceded Gross Ceded a) Mainly Norway 4 Insurance technical interest, net of reinsurance Return on insurance provisions 184 149 Discounting transferred from claims provisions -198 -159 5 Claims, net of reinsurance Claims -12,804 -13,048 Run-off previous years, gross 939 1,429
Impairment losses and write-downs for the year 0 0 -38 0 -38
Software and assets under construction As at 31 December 2017 management performed a test of the carrying amounts of software and assets under construction.
Description of the Norwegian plan In the Norwegian part of the Group, about half of the employees have a defined-benefit pension plan.
Discount rate 1.7 1.4 Estimated return on pension funds 1.7 1.4 Salary adjustments 2.5 2.3 Pension adjustments 0.4 0.0
Unsettled fund transactions include debt for bonds purchased in 2016 and 2017, however, with settlement in 2017 and 2018, respectively. Financial instruments comprised by repo agreements, meaning financial instruments sold before the balance sheet date and repurchased after the balancesheet date, remains recognised in the balance sheet, while the received amount is recognised as Repo debt.
In December 2016 Tryg signed sales contracts about its two owner-occupied properties in
Earnings per share, continuing business 9.12 8.84 Diluted earnings per share, continuing business 9.12 8.84 Earnings per share 9.12 8.84 Diluted earnings per share 9.12 8.84 25 Sale of properties In December 2016 Tryg signed sales contracts of its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. The recognition in the accounts in 2016 is: Recognised in
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 held for sale.
When is it assessed that the parent company no longer has control over the subsidiary, it will be transferred to either assets held for sale or unquoted shares and when sold, it will be derecognised.
Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign entities. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net investment are recognised in other comprehensive income. The net asset value of the foreign entities estimated at the beginning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity.
Note Investment activities 1 Income from Group undertakings 2,577 2,525 Interest income 1 0 Administration expenses in connection with investment activities -6 -6
Annual report 2017 | Tryg A/S | 108Contents – Financial statements
Annual report 2017 | Tryg A/S | 112Contents – Financial statements