primarily driven by the inclusion of Alka • Expense ratio of 14.2 (14.4) • Combined ratio of 85.1 (85.1) • Return on free investments portfolio of DKK 857m (DKK -33m) • Total investment return of DKK 579m
Financial highlights Q4 2019 • Premium growth of 10.4% or 5.6% (4.5%)
• For the fourth consecutive year, TryghedsGruppen paid out member bonus: 8% premiums paid to Tryg for 2018 • Barbara Plucnar Jensen joined the Executive
Positive financial performance The full-year technical result was DKK 3,237m with a combined ratio of 85.1, which together with a positive investment result yielded at a total pre-tax result of DKK 3,628m, corresponding to a return on equity of 24.6% after tax.
New CFO in Tryg On 1 March, Barbara Plucnar Jensen joined the Executive Board as new Group CFO in Tryg.
New members of Tryg’s Supervisory Board At Tryg’s annual general meeting, two new mem- bers, Karen Bladt and Klaus Wistoft, were elected to join the Supervisory Board as representatives of TryghedsGruppen.
Retention levels are very high in the Nordic region compared to nearly everywhere else in the world. This is a key profitability driver as it helps insurers keep their overall expenses low. Retention rates hover around 90% in the Private and Commercial (SMEs) segments, which represent more than 80% of Tryg’s total business. A direct distribution model also contributes importantly to the very efficient set-up. At the end of 2019, Tryg reported an expense ratio of 14.2 (14.1 excluding Alka at the end of 2018), while the target for 2020 remains an expense ratio of ~14. In the 2017-2020 period, the expense ratio will be impacted by increased IT investments, which will be offset primarily by improved distribution efficiency.
The trade war between the USA and China, Brexit and a general climate of political uncertainty in many European countries have dampened global growth outlooks. The Scandinavian economies remain relatively healthy, but small and open economies are not immune from global uncertainties. Expected GDP growth in 2020 (according to Nordea macroeconomic outlook) is 2.3% in Norway, 1.5% in Denmark and 1.0% in Sweden, and unemployment rates are likely to remain below 4% in Denmark and Norway, but somewhat higher in Sweden. Government indebtedness across the region remains low compared to larger European countries.
Strategic initiatives Tryg has defined four strategic initiatives to support both the financial targets and customer targets for 2020. KPIs have been defined for each initiative. Furthermore, synergies ascribable to Alka will also be part of the initiatives.
Fraud detection is another important initiative to be realised in 2020. Tryg has realised an increase in fraud detection, mainly due to enhanced fraud detection training and the implementation of Alka’s fraud detection methodologies. Increased benefits of DKK 30m has been achieved from implementing the fraud detection methodology in 2019.
Tryg will be implementing price adjustments of around 3% in 2020 to mitigate claims inflation.
The Corporate segment reported premium growth of 2.0% in local currencies. In Corporate Denmark, the development in premium income was helped by the member bonus model. Corporate Norway premium fell approximately 5% for the full year following double-digit price increases. The surety and credit business, Tryg Garanti, grew by 12% in 2019. In 2020, more profitability actions will be initiated to continuously improve the profitability of the Corporate segment. In Denmark, high single-digit price increases are being pushed through. Tryg will continue to work to re-balance its portfolio with the aim of increasing the Private and Commercial portfolios, where profitability is higher and capital requirements lower.
Taxes Tryg paid taxes of DKK 234m (DKK 37m) in Q4, equating to an aggregate tax rate of 24.8%. The slightly higher than normal tax rate is attributable to expenses related to share-based employee bonuses and the revaluation of investment properties.
Claims The gross claims ratio was 67.1 (58.6), with a claims ratio, net of ceded business, of 69.3 (62.8). The higher claims level was due to an increase in large claims and a lower level of run-off. In general, Tryg experienced an improved underlying claims ratio, primarily due to price initiatives in Norway for large customers in this segment.
Corporate sells insurance products to corporate customers under the brands ‘Tryg’ in Denmark and Norway, ‘Moderna’ in Sweden and ‘Tryg Garanti’. Sales are effected both via Tryg’s own sales force and via insurance brokers. Moreover, customers with international insurance needs are served by Corporate through its cooperation with the AXA Group.
Value adjustments, changed discount rate 322 -126 -351 7 Transferred to insurance technical interest -35 -54 -166 -209
Ordinary and extraordinary dividend The Supervisory Board regularly assesses the capital structure of the company in light of future internal earnings forecasts and balance sheet needs. The projections include initiatives set out in the company’s strategy for the coming years and are based also on the most significant risks identified by the company. The adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy.
Tryg will pay a Q4 dividend of DKK 1.70 per share on 27 January 2020, which is in line with Tryg’s policy of paying out a stable quarterly dividend. The full-year dividend is therefore DKK 6.80 per share, equivalent to the total distribution of just above DKK 2bn. In addition, Tryg will pay an extraordinary dividend of DKK 1.65 per share, equivalent to DKK 500m also on 27 January 2020.
Tryg focuses on managing the company in accordance with the principles of good corporate governance and generally complies with the Danish recommendations prepared by the Committee on Corporate Governance. The Recommendations on Corporate Governance are available at corporategovernance. dk. At tryg.com, Tryg has published its statutory corporate governance report based on the ‘comply-or-explain’ principle for each individual re- commendation. This section on corporate governance is an excerpt of the corporate governance report.
Tom Eileng (1954) Employee representative Deputy Chairman of Finansforbundet Tryg and Senior Commercial Adviser. Employed since 1986.
Annual report 2019 | Tryg A/S | 39Contents – Management’s review
Deputy Chairman Born in 1947. Joined the Supervisory Board in 2011. Danish citizen.
Born in 1954. Employee representative. Joined the Supervisory Board in 2016. Norwegian citizen. Employed since 1986. Career: Deputy Chairman of Finansforbundet Tryg and Senior Commercial Adviser. Education: Business Economist. Authorised adviser in life and non-life insurance.
Education: Insurance training, LL.M. Board seats, Chairman: P/F Betri Trygging, Tryg Livsforsikringsselskab A/S and Forsikringsakademiet. Board member: Danish Employers’ Association for the Financial Sector and cphbusiness (Copenhagen Business Academy).
Number of shares held: 70,408 Change in portfolio in 2019: +11,434
The Nightravens and lifebuoys are two initiatives that create peace of mind in society. The initiatives prevent crimes from happening by being present and making people feel safer in the night life or along the coastlines, lakes or by the harbours, which benefits customers, Tryg's business and society.
The carbon emissions chart covers both Norway and Denmark; air and train travel also include Sweden while car only applies for Denmark.
Responsible workplace Providing a healthy and safe working environment and ensuring the well-being of its employees is vital to Tryg. The materiality assessment indicated that there is a risk that Tryg can have adverse impacts on its employees through, for example, dissatisfaction, discrimination, or the physical or psychosocial working environment. To mitigate this risk, Tryg is continuously working to improve the conditions for the employees.
Annual report 2019 | Tryg A/S | 44Contents – Management’s review
signatories or in the process of becoming signatories. Tryg also ensures that external managers carry out active ownership on individual holdings. In 2019, Tryg further developed our external manager selection process to include a separate due diligence process on responsible investments. The due diligence process evaluates all new external managers on their commitment, processes and execution of responsible investment.
New external screening provider Tryg conducts an ethical screening each year based on controversial behaviour and controversial weapons. In 2019, the regular screening led to one company being flagged for controversial behaviour. In line with the escalation process, a dialogue was initiated with the relevant external managers, which has yielded satisfactory explanations and actions.
Statement by the Supervisory Board and the Executive Board 48Contents – Financial statements Annual report 2019 | Tryg A/S |
Management has specified the risks etc. related to the estimates of the claims provisions in note 1 ’Risk and capital management’ on pages 58-66 and in ’Accounting policies’, note 29 on pages 95-103. The principles of estimating the claims provisions have been specified in ’Accounting policies’, note 29 on pages 101-102, and further specified in note 1 on pages 61-64 and in note 19 on page 87.
Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assur- ance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.
As part of an audit in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain pro- fessional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Statement of financial position Total provisions for insurance contracts 32,224 31,948 30,018 31,527 31,814 Total reinsurers' share of provisions for insurance contracts 1,501 1,415 1,366 2,034 3,176
The third level consists of the internal audit which performs independent assessments of the entire control environment.
How is the actual risk profile measured? Tactically - Risk reports - Internal controls - Capital model - Stress tests - Reassurance
Tryg’s risk management environment 58Contents – Financial statements Annual report 2019 | Tryg A/S |
Reserving risk 1% change in inflation on person-related lines of businessb) +/- 412 +/- 402 10% error in the assessment of long-tailed lines of business (workers' compensation, motor liability, liability, accident) +/- 1,755 +/- 1,696
Profit/loss on ceded business -220 -165 -225 -4 -10 -624 Insurance technical interest, net of reinsurance -5 0 0 -5 0 -10
NOK/DKK, average rate for the period 75.80 77.53 79.99 80.09 83.52
Average claims DKK b) 22,950 24,634 5,390 5,595 71,146 63,754 18,794 15,763 9,320 9,605 77,416 68,061 Total claims 73,735 53,060 84,348 58,510 12,776 11,779 87,595 76,710 342,983 283,335 2,213 2,492
Administrative expenses include fee to the auditors appointed by the annual general meeting: Deloitte -8 -24
Number of Matching shares exercisable 31.12.18 0 0 0 0 75Contents – Financial statements Annual report 2019 | Tryg A/S |
DKK 4,2bn 77Contents – Financial statements Annual report 2019 | Tryg A/S |
At 31 December 2019, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit. Moderna portfolio consists from 1 January 2017 of Moderna, Securator and Skandia, which was prior to this date three separate cash-generating units. The reasons behind the merger of Securator and Skandia into Moderna, is that they are managed together as part of the Swedish business and reported under the segment ’Sweden’. Comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres and online.
The impairment test compares the carrying amount with the estimated present value of future cash flows. The test did indicate an impairment of DKK 7m (DKK 26m) due to revaluation of the Groups IT-systems. The write-down is due to related system development costs will be higher, while for some of the systems benefits are also expected to be lower. The cost is recognised as write-downs under depreciations in the income statement.
Such instruments include unlisted shares, unit trust investments and some unlisted bonds. The fair value of Investment property is also based on non-observable input. Please refer to note 13 and accounting policies section Investment property.
Other receivables do not contain overdue receivables 16 Reinsurer's share Impairment test As at 31 December 2019, management performed a test of the carrying amount of total reinsurers' share of provisions for insurance contracts and receivables. The impairment test resulted in impairment charges totalling DKK 0m (DKK 0m in 2018). The use of reinsurance creates a natural counterparty risk. The Risk will be handled by applying a wide range of reinsurers with at least an 'A' rating.
DKKm 15 Financial assets (Continued) Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes Gains and losses on hedges charged to other comprehensive income: 2019 Gains Losses Net
Gains and losses at 1 January 3,100 -2,890 210 Value adjustments for the year 191 -209 -19
Solvency II – Own funds 8,119 8,058 19 Premium provisions Premium provision at 1 January 5,861 5,559 Addition on acquisition of Alka and Troll portfolio 0 454 Value adjustments of provisions, beginning of year 2 -59 Paid in the financial year 22,660 18,820 Change in premiums in the financial year -22,530 -18,921 Exchange rate adjustments 4 8
Paid in the financial year in respect of the current year -8,414 158 -8,255 Paid in the financial year in respect of prior years -7,082 262 -6,820
25 Contractual obligations, collateral and contingent liabilities (continued) Offsetting and collateral in relation to financial assets and obligations Collateral which is not offset in the statement of financial position
Notes 92Contents – Financial statements Annual report 2019 | Tryg A/S |
Other Software is amortised according to the straight-line method over the assessed economic lifetime. Going forward from 1 June 2019 certain intangible assets, such as core system software will have a depreciation period of up to 8 years. It has no bearings on prior periods, hence comparative figures have not been restated.
Future orders, standards and interpretations that the Group has not implemented, and which have still not entered into force but could affect the Group significantly: • IFRS 9 ‘Financial Instruments’ a)
• can exercise its controlling influence to affect the variable return.
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 and security reserve. The Danish and Swedish provisions comprise contingency fund provisions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated.
Notes using the tax rules and tax rates that apply in the relevant countries on the statement of financial position date when the deferred tax asset is realised, or the deferred income tax liability is settled.
Transactions with Group undertakings and associates Tryg A/S exercises full control over Tryg Forsikring A/S and Tryg Invest A/S. In 2019 Tryg Forsikring A/S paid Tryg A/S DKK 2,039m and Tryg A/S paid TryghedsGruppen smba DKK 1,224m in dividends.
Run-off, net of reinsurance (%) -4.7 -4.1 -5.5 -6.5 Number of full-time employees, continuing business at 31 December 4,151 4,027 b) Amounts relating to eliminations and one-off items. In 2018 Cost, Claims and Other Costs were negatively affected by DKK 75m, DKK 49m, DKK 76m. The costs are related to integration and transaction costs for the aquirement of Alka.
Read more in the chapter Capital and risk management on pages 30-31, and in Note 1 on page 58-66, for a description of some of the factors which may affect the Group’s performance or the insurance industry.