Run-off gains/losses, net of reinsurance 207 219 1,221 972 1,239 1,212 1,131
Q1 New member of Tryg’s Executive Board Johan Kirstein Brammer was appointed Chief Commercial Officer (CCO) and joined the Executive Board. Johan remained responsible for Tryg’s Private business concurrently with undertaking his responsibilities as a member of Tryg’s Executive Board up until the Alka acquisition was finally approved in November 2018.
Alka synergies As part of the Alka acquisition, synergies in the amount of DKK 300m are expected to be achieved in 2021. Tryg has announced targets of DKK 75m in 2019, DKK 150m in 2020 and DKK 300m in 2021. Tryg will continuously report on the synergies achieved throughout the year.
The underlying claims ratio showed an under lying improvement of 0.4 percentage points for the Group and of 0.5 percentage points for the Private segment.
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 14 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate movements.
Results Q4 2018 The technical result was DKK 596m (DKK 622m), impacted by one-off costs of DKK 124m while the consolidation of Alka contributed a positive DKK 63m. The tecnical result adjusted for the Alka acquisition was DKK 656m. The profit before tax was DKK 149m (DKK 685m), impacted negatively by one-off costs of DKK 200m relating to the Alka transaction and a negative investment result, driven by turbulence in the equity markets. The reported combined ratio for the quarter was 88.2% based on a claims ratio of 72.6% and an expense ratio of 15.6%. The combined ratio excluding Alka and related one-offs was 85.9%, driven by a claims ratio of 71.5% and an expense ratio of 14.4%.
Investments The investment return totalled DKK -330m (DKK 86m) for Q4 2018, driven by a return of DKK -198m (DKK 138m) on the free portfolio,
Annual report 2018 | Tryg A/S | 19Contents – Management’s review
Results 2018 The technical result for 2018 was DKK 1,734m (DKK 1,565m) with a combined ratio of 81.6 (82.1). The development is attributable to the combination of higher premium income relating to the Alka portfolio and an improved level of underlying claims. Organic premium growth, excluding Alka and minor portfolio acquisitions, increased compared to 2017, driven by both the Danish and Norwegian part of the Private segment.
Expense ratio 17.5 23Contents – Management’s review Annual report 2018 | Tryg A/S |
Results Q4 2018 The technical result was a negative DKK -117m (DKK 60m), with a combined ratio of 111.8 (93.8). The results were negatively impacted by a higher level of large claims and run-off losses on some specific claims. Premium growth was a positive 2.9% (3.0%), primarily due to price hikes and growth in the guarantee business.
Key ratios Premium growth in local currencies 7.7 5.1 4.9 12.5
Premiums Gross premiums were up 7.7% (5.1%) in local currencies, driven by growth in motor, accident and pet insurance.
Tryg is focused exclusively on non-life insurance, it is mainly present in only three countries (Denmark, Norway and Sweden), and it has a fairly simple legal structure, which means that the SFCR report contains very little additional information compared to larger European peers, which typically offer both life and non-life insurance, which are present in many countries and have more complex legal structures. The additional information includes a geographical breakdown of capital charges, a balance sheet according to Solvency II as opposed to IFRS (statutory financial statements), and SCR (Solvency Capital Requirement ) components as per the end of 2017. The publication of Tryg’s SFCR report attracted a lot of attention in the insurance industry in 2017 with a clear focus on capital quality, including the use of transitional measures and the impact of long-term guarantee measures. Tryg’s solvency position does not factor in any benefits from these measures as the company is a pure non-life insurer with relatively short-term liabilities. In 2018, the report attracted less focus as analysts/investors have grown accustomed to the new solvency regime.
Annual report 2018 | Tryg A/S | 32Contents – Management’s review
NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. In 2018, NASDAQ Copenhagen accounted for 65% of the turnover of Tryg shares. This means that approximately 35% of all trading in 2018 took place on alternative exchanges. Daily turnover on NASDAQ averaged DKK 81m, and average daily volume was 535,198.
Tryg engages in ongoing risk identification, mapping insurance risks and other risks which may endanger the realisation of Tryg’s strategy or which may potentially have a substantial impact on Tryg’s financial position. The process involves identifying and continually monitoring the risks identified. As in previous years, Tryg undertook an Own Risk and Solvency Assessment (ORSA) in 2018. The purpose of the ORSA is to ensure and demonstrate a link between strategy, risk management, risk appetite, solvency and capital planning over the planning period.
Read more about Tryg’s risk management in the section Capital and risk management on pages 31-32 and in Note 1 on page 60
Acknowledging that our business must evolve and develop in the digital age, we realise that this may potentially have an adverse impact on our employees. Tryg mitigates the adverse impact through external outplacement programmes, while ensuring that many reductions in employee numbers take the form of natural departures.
51Contents – Financial statements Annual report 2018 | Tryg A/S |
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Relative run-off gains/losses 5.4 4.1 5.5 5.1 4.8 Return on equity after tax (%) 14.9 28.8 26.2 20.0 23.7 54Contents – Financial statements Annual report 2018 | Tryg A/S |
Other comprehensive income which can subsequently be reclassified as profit or loss Exchange rate adjustments of foreign entities for the year -50 -137 Hedging of currency risk in foreign entities for the year 49 135 Tax on hedging of currency risk in foreign entities for the year -11 -30
Investments Purchase and refurbishment of property -2 -10 Sale of property 117 2,307 Purchase/sale of equity investments and unit trust units (net) 1,540 -978 Purchase/sale of bonds (net) 3,268 -3,578 Deposits with credit institutions 250 -250 Purchase/sale of operating equipment (net) -61 -38 Acquisition of intangible assets -5,671 -102 Hedging of currency risk 49 135
The risk management is organised systematically in the company’s committee structure via the Executive Board’s own risk committee and the Supervisory Board’s own risk committee. The Supervisory Board’s risk committee is a specialist committee with intensive focus separately on risk and capital management during the year.
Monitoring of the capital base also involves capital projections based on expected business plans within the strategic planning period and stress on selected scenarios.
Emerging risk is also a part of the systematically implemented risk identification process in Tryg.
Provisions before discounting, end of year 673 885 1,043 1,129 1,248 1,651 1,790 1,762 2,180 3,597 7,494 23,453
Reserves from 2007 and prior years 2,509 Gross provisions for claims, end of year 24,847 a) The diagonal for 2018 is affected by the Alka acquisition, please see below.
67Contents – Financial statements Annual report 2018 | Tryg A/S |
SEK/DKK, average rate for the period 72.67 77.24 78.93 79.69 82.16
Gross Ceded Gross Ceded a) Mainly Norway 4 Insurance technical interest, net of reinsurance Return on insurance provisions 209 184 Discounting transferred from claims provisions -219 -198 5 Claims, net of reinsurance Claims -13,872 -12,804 Run-off previous years, gross 1,236 939
Insurance operating costs, gross -2,704 -2,516 Commission from reinsurers 194 160
Conditional shares In 2017 and 2018, Tryg allocated conditional shares in accordance with the Group’s remuneration policy. The beneficiaries will receive shares in Tryg A/S if certain conditions are fulfilled over a 2 to 3 year vesting period. In 2018, the fair value of Conditional shares is prorated relative to the vesting period and recognised in the income statement amounted to DKK 3m (DKK 1m in 2017). The maximum obligation for Tryg is 100,776 shares in Tryg A/S.
Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0-10 years) 24 15 CAGR -1.0 percentage point (0-10 years) -22 -14 Required return +1.0 percentage point -55 -153 Required return -1.0 percentage point 52 193 Combined ratio +1.0 percentage point -37 -142 Combined ratio -1.0 percentage point 37 143
Deposits with credit institutions 0 250 0 250 Derivative financial instruments, assets 0 1,079 0 1,079 Derivative financial instruments, debt 0 -746 0 -746
Financial instruments transferred from quoted market prices to observable input 3,114 950 Financial instruments transferred from observables or non-observables input to quoted market prices 11,115 1,379 Financial instruments transferred from non-observables to observable prices 0 0 86Contents – Financial statements Annual report 2018 | Tryg A/S |
The premium for the following financial years is estimated at 35 36 Number of active persons 442 450 Number of pensioners 588 605 Average expected remaining service time (years) 7.00 8.00
Lease liabilities recognised in statement of financial position at 1 January 789
2017 Tryg is committed to Investments in some Propertyfunds. The commitment amounts to DKK 674m and are expected called during 2018.
• Other costs, including amortisation of intangible assets, have been calculated on the basis of the fair values determined in the acquisition balance sheets, rather than the original carrying amounts.
2018 In 2018 Tryg Forsikring A/S paid Tryg A/S DKK 1,437m and Tryg A/S paid TryghedsGruppen smba DKK
2017 Tryg transferred DKK 40m to TryghedsGruppen regarding commitment fee related to capital increase in december 2017. The transactions between TryghedsGruppen smba and Tryg A/S is conducted on an arm's length basis.
The implementation of IFRS 9 ‘financial instruments’ is not expected to significantly change the group’s financial position.
Description of accounting policies Recognition and measurement The annual report has been prepared under the historical cost convention, as modified by the revaluation of owner-occupied property, where increases are recognised in other comprehensive income, and revaluation of investment property, financial assets held for trading and financial assets and financial liabilities (including derivative instruments) at fair value in the income statement.
Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium provisions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the premium provisions.
Other income and expenses Other income and expenses include income and expenses which cannot be ascribed to the Group´s insurance portfolio or investment assets, including the sale of products for Velliv, Pension & Livsforsikring A/S and depreciations of intangibles assets identified in Business combinations.
Leasing Right-of-use assets At inception of a contract, Tryg assesses whether a contract is, or contains, a lease. It has the following prerequisites: • The underlying asset is identifiable • The group has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use
105Contents – Financial statements Annual report 2018 | Tryg A/S |
Annual report 2018 | Tryg A/S | 106Contents – Management’s review
Tryg Forsikring A/S, Ballerup 100 2,575 9,066 6 Current tax assets Tax receivable at 1 January 17 15 Current tax for the year 14 17 Adjustment of current tax in respect of previous years 0 -1 Tax paid for the year -17 -14
The loss in Tryg A/S can only be utilised in Tryg A/S. The loss can be carried forward indefinitely. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax losses.
Combined ratio exclusive of run-off 89.6 93.3 92.3 89.5 94.9 92.4 88.0 89.5 92.2