Tryg
Annual Report 2003

Plain-text annual report

Annual Report 2003 Contact persons: Ms Stine Bosse, Group CEO, phone +45 44 20 30 40 Mr Erik Gjellestad, Member of the Group Executive Management, phone +47 55 17 25 25 Mr Morten Hübbe, Group CEO, phone +45 44 20 30 20 Mr Henrik Hougaard, Head of Corporate Communications +45 44 20 30 70 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 2 of 98 Estonian general insurance Business in run-off Investment activities 51 53 55 Targets reached in 2003 59 Focus areas ......................................................... 59 Targets reached................................................... 59 60 Outlook Strategic focus areas ........................................... 60 Targets ................................................................ 61 Management’s signatures Internal auditors’ report Auditors’ report Accounting policies 63 64 65 66 Income statement, balance sheet and cash flow 73 statement, the Tryg Vesta Group Income statement and balance sheet for Tryg Vesta Group A/S (parent company) 87 Group overview 92 Supervisory Board and Executive Management 93 Supervisory Board ............................................... 93 Executive Management ....................................... 95 Glossary of technical terms 98 Contents Contents Well poised for satisfactory performance The year in summary Facts about the Tryg Vesta Group Strategic platform The external environment 3 4 5 6 8 9 Financial perspectives 12 Profitability ........................................................... 12 Capital structure and ratings................................ 13 14 Customers Customer satisfaction .......................................... 14 Brands ................................................................. 16 Bancassurance and pension sales ...................... 16 Health insurance.................................................. 17 Unemployment insurance .................................... 17 Processes 19 Procurement ........................................................ 19 Customer service and IT ..................................... 19 Common alarm centre ......................................... 21 Employees 22 Employee satisfaction.......................................... 22 Competency development ................................... 22 Inclusiveness ....................................................... 23 Management and organisational changes........... 23 Risk management 25 Insurance risk ...................................................... 25 Market risk ........................................................... 26 Investment policy................................................. 27 Operational risk ................................................... 28 Shareholder information 29 Distribution of profit.............................................. 29 Shareholders’ equity............................................ 29 The Tryg Vesta Group history Organisation 30 31 Financial highlights and key ratios, Tryg Vesta Group 33 Review of the Tryg Vesta Group’s financial statements 34 Financial highlights and key ratios per business 37 area Danish general insurance Norwegian general insurance Tryg-Baltica international (TBi) Finnish general insurance Polish general insurance 39 42 45 47 49 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 3 of 98 Well poised for satisfactory performance responsible organisation. Our integration project has paved the way for several employees with an ethnic background. After our first full year under the ownership of Tryg i Danmark smba, the Tryg Vesta Group reports quite substantial improvements of the financial results. We achieved most of the targets we had set for 2003, and we have come a long way towards generating satisfactory overall results. We have also made a thorough strategic effort to define the framework for further enhancement in the years ahead. Understanding other cultures and ways of working is also the platform for the process improvements and synergies across national borders which will help us achieve our ambition of further improving our performance in the years ahead. The Tryg Vesta Group believes that the current round of general price adjustments is coming to an end, except in the area of personal accident insurance, where we anticipate that even more tasks will be transferred from public funding to private insurance over the next few years. We will introduce stricter terms Tryg i Danmark smba contributed fresh capital to the Tryg and conditions for a few commercial customers, while at Vesta Group in the summer of 2003. While reflecting the support of our owners, the capital contribution also made the same time offering them advice on how to manage and minimise risk. additional demands on the Group’s ability to generate a higher return on capital employed. As will appear from this annual report for 2003, the Tryg Vesta Group has a good platform for growth within the The Group reported premium growth in Denmark and segments and markets that are profitable. We will stay Norway of 11.2 per cent and 6.3 per cent, respectively, focused on providing high-quality services to our reflecting a high degree of loyalty among our customers. customers, both in connection with regular service and They confirmed their choice of the Tryg Vesta Group by advice and in connection with claims handling. maintaining their policies with the Group despite major premium increases that had resulted from a necessary review of the price/risk correlation. Part of the reason may be that the industry in general raised premiums, but also that our customers are very satisfied with our services – and surveys indicate that customer satisfaction continues to grow. The Tryg Vesta Group uses the Balanced Scorecard as a general management tool. This contributes very much to everybody in the Group making a targeted and focused effort to meeting our ambitions in relation to our stakeholders. We have arranged the description in this annual report of our performance in 2003 along the lines of the Balanced Scorecard’s four perspectives: Financial More than half a million out of our more than 2 million perspectives, Customers, Processes and Employees. customers were served by the Group’s claims handlers in 2003. Perceived quality and savings may go hand in hand as witnessed by the way we consolidated all the Group’s emergency calls into one alarm centre and the introduction of Tryg Reparation, which involves that we refer car repairs to selected garages and offer the customers a replacement car while their own car is being repaired. An inclusive workplace and understanding of other cultures and customs are natural features of a socially I hope you will enjoy reading our annual report. Stine Bosse Group CEO Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 4 of 98 The year in summary • The combined ratio improved from 111.7 in 2002 to 102.8 in 2003 • Profit before tax and extraordinary items • The combined ratio for the Group’s Danish general insurance operations improved from amounted to DKK 789m, an improvement of DKK 105.6 in 2002 to 96.6 in 2003. 1,867m compared with 2002. • The Group’s return on shareholders’ equity before tax amounted to 16.4 per cent against a negative return of 52.9 per cent in 2002. • The combined ratio for the Group’s Norwegian general insurance operations improved from 110.6 in 2002 to 103.9 in 2003. • Shareholders’ equity increased by DKK 1,092m • The large general insurance portfolios in to DKK 5,360m. Denmark and Norway saw premium growth of 11.2 per cent and 6.3 per cent, respectively. • The reserves for losses relating to personal • The technical result amounted to a profit of DKK injuries have been strengthened by DKK 699m, corresponding to an impact on the combined ratio 136m in 2003 compared with a loss of DKK 851m of 4.8 percentage points in 2002. Earned premiums, net of reinsurance Combined ratio . 14.6 13.3 11.2 10.0 16 12 n b K K D 8 4 0 . r . o . n , t n e c r e P 120 110 100 90 80 111.7 110.5 105.5 102.8 2000* 2001* 2002* 2003 2000* 2001* 2002* 2003 * Pro forma figures * Pro forma figures Profit/loss on ordinary activities before tax Shareholders’ equity 5.4 4.3 4.6 4.3 1,000 600 411 789 m K K D 200 -200 -600 -1,000 -1,400 89 -1,078 6.0 n b K K D 4.0 2.0 0.0 2000* 2001* 2002* 2003 2000* 2001* 2002* 2003 * Pro forma figures * Pro forma figures Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 5 of 98 Facts about the Tryg Vesta Group same product, price and quality through all sales channels. The Group applies a multi-channel distribution strategy with large customer centres and service centres or franchises, the Group’s own insurance agents and sales through real estate agents, The Tryg Vesta Group is the second-largest general car dealers and Nordea’s branches as the most insurer in the Nordic region. The Group comprises Tryg, important channels. In addition, the Group has signed Denmark’s largest general insurer with a market share agreements with a number of trade unions and of just over 22 per cent, Vesta, Norway’s third largest professional groups to offer their members personal insurer with a market share of around 20 per cent, the insurance. Likewise, industry agreements and reinsurer Tryg-Baltica international, Dansk Kaution and agreements with insurance brokers exist on the Tryg Polska in Poland. The Group also operates in commercial market. Estonia and has a fast-growing branch in Finland. The Tryg Vesta Group has a strong strategic quality, advice and service – both to the individual partnership with Nordea. The bank sells the Tryg Vesta personal customer and to the large industrial enterprise Group’s general insurance products, while the Tryg with several thousand employees. The Tryg Vesta Group’s 4,400 employees represent Vesta Group sells Nordea’s life and pension products. Moreover, Nordea Asset Management is the Tryg Vesta Group’s portfolio manager. Furthermore, the Tryg Vesta Group has a partnership with CSC, which will handle the Group’s IT operations starting 1 June 2004. The Tryg Vesta Group’s distribution strategy is based on marketing one brand in each country, offering the The Tryg Vesta Group has some two million personal customers and 250,000 commercial customers. The Group generates an annual premium income of DKK 17.3bn. Its employees processed 650,000 claims and paid claims expenses of more than DKK 11bn in 2003. Gross premiums 2003 according to business area Gross premiums 2003 distributed on products 3% 4% 4% 48% 41% Denmark Norw ay TBi Finland, Poland and Estonia Business in run-off 14% 15% 11% 5% 16% 18% 5% 16% Motor TPL Marine, transport etc. Fire etc. (commercial) Accident Motor comprehensive Fire etc. (personal) Workers compensation Other Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 6 of 98 The Tryg Vesta Group optimised its internal The Group’s future platform consists of two dedicated organisation in January 2004 in order to form a better local business areas for personal and commercial basis for further efficiency and profitable growth. customers in Norway and Denmark, respectively, and one dedicated Nordic business area for the corporate market. Organisation chart – new operational structure Group CEO Stine Bosse Personal & Commercial (P&C) Denmark Personal & Commercial (P&C) Norway Corporate Denmark & Norway Group Finance Stig Ellkier-Pedersen Erik Gjellestad Peter Falkenham Morten Hübbe Process responsibility Sales Jesper Joensen Sales Manager Jesper Joensen Sales Manager Bente Kirkenær Sales Managers Truls Holm Olsen, Martin Nielsen & Martin Hay Schmidt Group Management Secretariat Jakob Grane Group Control P&C, DK Lars Bentsen Møller Customer Services Karsten Kristiansen Customer Services Manager Jesper Joensen Customer Services Manager Karsten Kristiansen Customer Services Managers Truls Holm Olsen, Martin Nielsen & Martin Hay Schmidt Underwriting Adm. Birgitte Kartman Underwriting Manager Birgitte Kartman Underwriting Manager Karsten Kristiansen Communications Henrik Hougaard Group Legal Dept. Bjarne Lau Pedersen Underwriting Ole Kristian Bakken Underwriting Managers Kevin Carlson & Trond Thorsen Claims Handling Ane Jægersborg Claims Manager Lars Bonde Claims Manager Egil Rollheim Claims Manager Ane Jægersborg Product Development Manager Keld Holm Product Developm. Manager Trond Tepstad Product Developm.Managers Kevin Carlson & Trond Thorsen Group Control P&C, N Espen Strømme Group Control Corporate Peter Brondt Group Accounting and Administration Fatiha Benali Group Risks Ole Hesselager Group Investments Torben Jørgensen Travel, Health & Welfare Per Guldbrandsen Enter Roger Slinning Dansk Kaution Mads Løgstrup TBi Flemming Christiansen Bancassurance Flemming S. Pedersen Tryg Polska Otto Groegler Nordea Vahinkovakuutus Flemming S. Pedersen Nordicum Kindlustus Mikko Saario HR & Personnel, IT, Process Development and Purchasing Bjørn Thømt HR & Personnel Bjørn Thømt IT Martin Bøge Mikkelsen Process Development Geir Berge Hansen Purchasing Ole Hope Business responsibility Process responsibility Tryg Vesta Staff Tryg Vesta Competence Centre Subsidiary / branch Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 7 of 98 Strategic platform In addition to their relatively new common history and Nordic characteristics, the Tryg Vesta Group companies share strong competencies and values. Efforts to make the Tryg Vesta Group identity a household name began in earnest in early 2003 when the new Group Executive Management decided to be transformed from a conglomerate of companies to be perceived as one single Group. Tryg Vesta Group - mission Our mission is to secure a stable, qualitative supply of products offering peace of mind to Financial perspectives The Tryg Vesta Group’s ambition is to build the most profitable portfolio in the Nordic region within the next three years. Profitability takes priority to growth if required to ensure stable earnings. At the same time, the Group aims to balance the composition of its personal, commercial and corporate customers in order to maximise the spread of the Group’s risks. Customers The Group’s ambition is to have the highest level of customer loyalty in the Nordic region. Based on the expectations and requirements of each individual customer, the Group aims to continuously add perceived value, thereby confirming customers in their choice of the Tryg Vesta Group as their provider of personal customers and businesses. peace of mind. Our mission statement reflects the Tryg Vesta Group’s raison d’être and the activities the Group is engaged in. The word stable signals that the Group pursues a long- term strategy, and the word qualitative shows that the Group is committed to doing things properly. Tryg Vesta Group - vision We want to be perceived as the Nordic Processes The Group’s ambition is to improve productivity and enhance quality by automating and centralising processes as much as possible. In organising processes, focus will be on simplicity, reuse of data and the potential of self-service facilities. region’s most profitable provider of peace of Employees mind on the markets and within the business The Group’s ambition is to offer managers and areas chosen by us. Our vision reflects the Tryg Vesta Group’s commitment to its Nordic strategy and shows the goal and direction of the Group’s development. The term provider of peace of mind means that the Group offers a complete package comprising insurance, advice and supplementary services aimed at preventing instability employees free scope and responsibilities and to create the framework for commitment, drive and development of competencies. The Group will continuously develop its combined knowledge by focusing on learning and knowledge sharing. The Group emphasises being a Nordic workplace with Nordic values as bridgebuilders and drivers. and at restoring the customer’s peace of mind should Furthermore, it is the Group’s ambition to participate this happen. The Tryg Vesta Group’s operations are carried out decentrally, but the Group defines common strategies, goals and policies and has clear ambitions with respect to financial perspectives, customers, processes and actively in and to influence the public debate when it deals with subjects related to the Group’s existing or potential business areas. employees: Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 8 of 98 The external environment The Nordic general insurance market is driven by few, large companies. It is becoming increasingly transparent and competitive, and the whole Nordic region is characterised by having a saturated general insurance market. The market was characterised by premium increases both in 2002 and 2003, and most large companies raised premiums for personal as well as commercial customers. In order to operate a profitable business, the insurance industry looked even more carefully at its ability to attract capital than it did in previous years. 1999 and the World Trade Center disaster in September 2001. Captives The insurance companies’ increased focus on profitability and the resulting premium increases caused a few large companies to consider setting up their own captive insurance companies in 2003. Setting up a captive means that the company carries a higher proportion of its own insurance risk. However, it requires the company to have a very strong equity and good supporting reinsurance contracts. The role of insurance companies in relation to such customers changes from being risk bearers to being managers and service providers primarily. Consequently, the companies are focusing more Mild weather strongly on correct technical underwriting methods, that The number of claims due to exceptional weather is, on optimising the correlation between premiums and conditions, such as windstorms and flood, was below risk. Market shares, Nordic general insurance Denmark Norway Finland Sweden Tryg 22% If 31% If 36% Gjensidige Pohjola 30% Vesta 20% 22% Tapiola 16% LF Forsikring 29% If 23% Folksam 16% # 1 # 2 # 3 # 4 # 5 Topdanmark 17% Codan 13% Alm. Brand 12% If 5% 10% 9% 18% The local Insurance Group 8% Other 31% 8% Tryg Vesta Group 13% Source: Danish, Norwegian, Finnish and Swedish insurance associations, Gross premiums 2002 (Norway 2003) The performance of direct insurers has been driven by average in 2003. However, the prices of reinsurance continue to be high since the reinsurers have changed their assessment of weather-related risks in the Nordic region as a consequence of previous years’ windstorms and cloudbursts. From public to private The current welfare debate in the Nordic countries and other European countries makes demands on the transferred from public funding to private insurance. The Tryg Vesta Group welcomes this trend as it provides opportunities for a healthy and exciting development of the insurance companies. One example is unemployment insurance, which emerged as a business area to be reckoned with for Danish insurance companies in 2003, spurred by increasing unemployment rates and the perceived gap between the pay received in employment and unemployment SpareBank 1 Fennia Trygg-Hansa insurance industry. Responsibilities are being such factors as recent years’ earnings pressure due, in benefit rates. particular, to declining interest rates, capital losses on shares and increasing reinsurance prices, the latter Changes to the division of labour between the public primarily resulting from the European windstorms in late and the private sector are welcome, but it is disturbing Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 9 of 98 when an institution such as the Danish National Board several of them include the rating in their policies for of Industrial Injury changes its practice with retroactive permitted collaboration partners. effect. It is a problem when changed legal practice lets privatisation in the back door, so to speak, without Securities markets enabling the insurance companies to adjust their prices. For example, the Supreme Court of Denmark ruled in December 2003 that amounts received from a flex job should not be taken into account when determining occupational disability for a person who as a result of a work-related injury performs a flex job. If the National Board of Industrial Injury introduces the practice of reopening and reassessing claims, insurers will incur additional costs without having been able to include this risk when setting their prices. Likewise, the Supreme Court of Norway ruled in February 2004 that the scope of cover provided for occupational diseases shall be extended as several kinds of diseases may trigger compensation. Global focus on risks After several years of plummeting equity prices and interest rates, equity markets were up in 2003 by 16.5 per cent in Europe (MSCI), 26.8 per cent in the USA (MSCI), 31.2 per cent in Denmark (KBX) and 48.4 per cent in Norway (OSEBX) relative to the start of the year. Early 2003 was marked by the war in Iraq, the outbreak of SARS and a number of negative key economic indicators. This caused investors to flee from equity investments to the safe haven of bonds. At the same time, industrial and consumer confidence was low and unemployment on the rise, all of which contributed to both the USA and Europe pursuing expansive monetary and fiscal policies. Around mid-2003, the global economy rebounded. A global recovery is now materialising, primarily driven by one of the most expansive economic policies ever seen Businesses and insurance companies globally have in the USA with very low interest rates, tax cuts and refocused on risks in recent years against the backdrop high public spending in the form of defence of fear of terrorist attacks, management scandals, expenditure. The recovery was supported by continued widespread bad weather in recent years and the high consumer spending in the USA, partly backed by demand for targeted employment of the capital the biggest remortgaging wave ever. The war in Iraq impacted the financial markets. The anticipation that the war could quickly be brought to an end caused equity markets to surge in the early months of the conflict, while interest rates continued to fall due to deflationary fears. After positive key economic indicators had been issued in June, the rates started to move upwards and have stabilised. available. Capital base Earnings in the general insurance industry have only begun to pick up during the past year, and recent years’ low earnings have generally eroded the companies’ capital base. The companies are required to generate significantly higher and stable returns if the industry is to retain and attract investors to contribute share capital. Ratings International rating agencies rate companies’ expected ability to honour their commitments towards insurance customers and other creditors. Industrial customers, in particular, increasingly require insurers to be rated, and Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 10 of 98 Selected share indices, 2003 Selected two-year government bond yield, 2003 3 0 0 2 f i i o g n n g e b e h t m o r f e s a e r c n i % 60 50 40 30 20 10 0 -10 -20 -30 / 3 0 1 0 1 0 / / 3 0 3 0 1 0 / / 3 0 5 0 1 0 / / 3 0 7 0 1 0 / / 3 0 9 0 1 0 / / 3 0 1 1 1 0 / ) % ( e a r t t s e r e n t I 6 5 4 3 2 1 0 / 3 0 1 0 1 0 / / 3 0 3 0 1 0 / / 3 0 5 0 1 0 / / 3 0 7 0 1 0 / / 3 0 9 0 1 0 / / 3 0 1 1 1 0 / KBX OSEBX MSCI Europa MSCI USA Denmark Norw ay EU USA DKK/NOK exchange rate 2003 A large part of the Group’s activities are based in Norway, and its financial results are therefore impacted by the NOK/DKK exchange rate. As can be seen in the chart, the NOK/DKK exchange rate fell by 14 per cent during 2003. Accordingly, all other things being equal, earnings in Norway will show a falling trend when translated to Danish kroner due to the depreciating exchange rate. Most investments in shares in Norwegian subsidiaries were hedged in 2003. K O N K K D / 1.050 1.025 1.000 0.975 0.950 0.925 0.900 0.875 2 0 / 2 1 / 1 3 3 0 / 2 0 / 8 2 3 0 / 4 0 / 0 3 3 0 / 6 0 / 0 3 3 0 / 8 0 / 1 3 3 0 / 0 1 / 1 3 3 0 / 2 1 / 1 3 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 11 of 98 Financial perspectives Profitability was the core focus area of the Tryg Vesta Group throughout 2003. There was extensive focus on the correlation between customer price and risk, and on the Group’s own efficiency and expense ratio. Like the rest of the insurance industry, the Group was keenly aware of the stricter terms in connection with reinsurance and of the need to strengthen its overall capital base and optimise capital employed. Profitability Scrutinising commercial customers Focusing on personal customers Although the most massive profitability efforts in 2003 were targeted at the Tryg Vesta Group’s commercial customers, premiums were also raised for personal customers. Personal customers’ premiums were increased by up to 15 per cent on some policies. Distribution of gross premiums 2003 14% 44% 42% As part of the work to restore profitability, the Tryg Personal customers in Denmark & Norw ay Vesta Group made targeted efforts in 2003 to reassess Commercial customers in Denmark & Norw ay the correlation between price and risk for each Other customers commercial customer. It proved necessary to introduce substantial premium increases for some commercial customers. In Denmark, increases for commercial customers averaged 48 per cent, in connection with contents and buildings policies. Most customers maintained their policies with the Group despite the increases. Net pricing to commercial customers served by brokers The long-standing tradition of paying insurance brokers, who make a living from advising businesses on purchasing insurance, on a commission basis was abolished both in Denmark and Norway in 2003. As part of the Group’s efforts, greatly enhanced security requirements and requirements for higher premiums were made to high-risk industries such as the wood industry in 2003. Previously, insurance brokers were paid a commission by the insurance companies, but in 2003 most of the large insurers in Denmark and Norway switched to so- called net pricing to commercial customers served by brokers. This system implies that commercial At the same time, the Group completely withdrew from customers will in future pay the brokers directly for their insuring Norwegian municipalities, a business that had advice and intermediary services, while the insurance been unprofitable for several years. company is paid for the actual insurance supply. Profitability is a matter of pricing as well as deductibles The Tryg Vesta Group was one of the first insurers to and security requirements, and in addition to raising introduce net pricing because the system promotes premiums, the Group therefore required many transparency and consistent terms for all commercial customers to strengthen security and accept higher customers whether served directly or through a broker. deductibles. Annual Report 2003 The Tryg Vesta Group The new model emphases the broker’s independence, making it clear to commercial customers in future that brokers are advisers and intermediaries, while the Tryg 18 March 2004 page 12 of 98 Vesta Group is the insurance provider. At the same Finally, the Tryg Vesta Group’s capital was time, the prices of each of the two services are shown supplemented by a loan of DKK 600m in order to give clearly. Costs the Group further financial flexibility and enhance its liquidity. The Tryg Vesta Group focused on costs in 2003, tightly Rating of Tryg Forsikring A/S controlling the number of employees and the use of In June 2003, Moody’s Investors Service and Standard consultants. The organisation spent substantial resources on paying attention to existing customers by way of service and profitability initiatives. In May 2002, the Tryg Vesta Group took over Zurich’s Danish and Norwegian general insurance operations. The newly acquired portfolios and former Zurich employees were finally integrated in 2003, creating the anticipated cost synergies. The profitability measures taken resulted in the & Poor’s confirmed their ratings of Tryg Forsikring A/S of A3 and BBB(pi), respectively. When making their decisions, the rating agencies emphasised the strengthened capital base and commercial and organisational improvements. Rating of Vesta Forsikring A/S In October 2003, Standard & Poor’s awarded a BBB(pi) rating to Vesta Forsikring A/S, bringing Vesta’s rating into line with that of the parent company, Tryg Forsikring A/S. administrative expenses falling by DKK 206m relative to Rating of Tryg-Baltica international 2002. Discontinuing London market business In September 2003, the Tryg Vesta Group decided to discontinue the Group’s business in the London market. The decision reflected the Group’s wish to focus mainly on Nordic insurance business and international Further to the decision to discontinue the London market business and based on an anticipated improved performance of TBi, A.M. Best confirmed in October 2003 its A- rating of Tryg-Baltica international originally awarded in the spring. reinsurance. The run-off is expected to last for ten Ratings of Tryg Vesta Group years, although most of the reserves are expected to be run-off over three years. S&P Moody’s A.M. Best Capital structure and ratings Tryg BBB(pi) A3 Vesta BBB(pi) TBi A- Capital structure The Tryg Vesta Group’s capital base was strengthened significantly in 2003 when the Group’s owner, Tryg i Danmark smba, decided to contribute share capital and subordinate loan capital totalling DKK 1.1bn. The increased liquidity was used to repay a bank loan of a similar amount. At the same time, the Group’s corporate structure was changed to enable it to better utilise its total capital base. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 13 of 98 Customers requirements. The more satisfied and loyal customers are, the longer they maintain their policies with the Group, which in the final analysis benefits profitability. In 2003, the Tryg Vesta Group refocused sharply from Danish surveys indicate that customers in large selling individual products to providing concepts that insurance companies become more loyal the longer offer peace of mind. In order to retain customer satisfaction and loyalty, the Group considers it they have been with the company. Around 18 per cent of customers who have been with their insurance important that customers buy more than one policy, company for less than a year leave the company again thereby becoming part of a concept offering favourable within a year, while 82 per cent stay with the company prices and service programmes. Concept customers get for at least one more year. This figure rises to 86 per more from the Group than just a request for payment, cent for customers who have been with the company for also when they do not have any claims. The portfolios of health and general insurance policies six to ten years, and to 89 per cent for customers who have been with the company for 11 to 20 years. sold through Nordea’s branches grew rapidly in 2003, This is the reason why the Tryg Vesta Group focuses not least thanks to the Group’s strong brands – Tryg strongly on existing customers. and Vesta – in Denmark and Norway. Customer satisfaction Like in previous years, the Tryg Vesta Group surveyed how customers perceived their insurance company in 2003. The results of the customer surveys are used to ensure that the Group’s services match customer In Norway, Norsk Kundebarometer measures customer satisfaction in various lines of industry. The survey showed that Vesta improved in terms of satisfaction but declined in terms of loyalty relative to 2002. Norwegian Customer Barometer 2002-2003 Danish Customer Index 2002-2003 2003 2002 y t l a y o l r e m o t s u C 84 82 80 78 76 74 72 70 68 66 64 62 SpareBank 1 Gjensidige Vesta If 2003 2002 ALKA Other Topdanmark Alm. Brand Tryg Codan y t l a y o l r e m o t s u C 84 82 80 78 76 74 72 70 68 66 64 62 62 64 66 68 70 72 74 76 78 80 82 84 62 64 66 68 70 72 74 76 78 80 82 84 Custom er satisfaction Custom er satisfaction Norsk Kundebarometer (Norwegian Customer Barometer) is prepared by the Department of Marketing of the BI Norwegian School of Management Dansk KundeIndex (Danish Customer Index) is prepared by the Aarhus School of Business and the Danish Centre for Management. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 14 of 98 In Denmark, Dansk KundeIndex measures customer satisfaction with Danish general insurance companies. The 2003 survey placed Tryg in the top four in terms of customer satisfaction and loyalty. Tryg advanced in terms of loyalty, and satisfaction seemed to be on the increase. As for banks, the small companies have the most satisfied and loyal customers. The Tryg Vesta Group not only has many satisfied and loyal customers in Denmark. Regular surveys of Danes’ preferred insurance company indicate that Tryg generally has a good image among the population. The Danes’ preferred insurance companies in 2003 Throughout 2003, Tryg ranked a clear number one on the list of Danes’ preferred insurance company. The Tryg Vesta Group’s surveys are based on the pan- European model for measuring customer satisfaction EPSI (European Performance Satisfaction Index). The model’s standardised questions can be used by all types of businesses, and the results are therefore comparable with those of other insurance companies and companies in other industries % 25 20 15 10 5 0 Tryg Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 y r a u n a J y r a u r b e F h c r a M l i r p A y a M e n u J l y u J t s u g u A r e b m e t p e S r e b o t c O r e b m e v o N r e b m e c e D Source: The media agency OMD regularly surveys Danes for their preferred insurance company. Throughout 2003, Tryg was the preferred company Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 15 of 98 Brands In Norway, one of Vesta’s ads in the daily Aftenposten was selected as the best ad in July. Regional paper Tryg and Vesta represent two very established and Adresseavisen selected another Vesta ad as the best strong brands within general insurance for the Tryg ad in August. Vesta Group. In the summer of 2003, Vesta ran a major campaign to profile the company, focusing on the company’s lifebuoy trademark. Vesta’s red-and-white tradition-rich lifebuoy is one of Norway’s best-known and most respected trademarks. Ever since 1952, the company has distributed lifebuoys, which in an appropriate manner reflect the philosophy of insurance. The lifebuoys have helped save more than 1,000 people from drowning. Today, there are some 23,000 Vesta lifebuoys all over Norway, and the lifebuoy has become a national symbol. Bancassurance and pension sales The partnership between the Tryg Vesta Group and Nordea continued its positive sales performance. The partnership involves Nordea selling the Group’s general insurance products through its branches in Denmark, Norway and Finland, while Tryg and Vesta sell the bank’s life insurance and pension products. Bancassurance Generating 17 per cent growth relative to 2002, Nordea’s sales of the Tryg Vesta Group’s general insurance products continued to surge. In 2003, In the spring of 2003, Tryg relaunched its six-year-old, bancassurance accounted for 5 per cent of the Group’s but still well-known TV commercial showing a chicken total sales of insurance policies to personal customers. sitting in front of a car tyre. The commercial was hugely successful, scoring among the top seven per cent among more than 1,000 campaigns rated by the media agency OMD. The TV commercial came in first among campaigns from insurance companies, banks and mortgage credit institutions. During the summer, Tryg launched two new commercials involving a fox and a hen, and a hedgehog crossing a busy road, respectively. Subsequent surveys showed that the two new TV commercials also got high impact ratings. Prizes won by the Tryg Vesta Group Tryg’s sponsorship of the Åh Abe children’s concerts in 2003 won the company the business-to-consumer- sponsorship prize for 2003. Tryg Polska won two prizes in Poland. Four products were nominated market leaders, and the company’s car owners’ assistance policy was rated as the best new product. In Denmark, where Nordea offers the same range of products and concepts as Tryg provides through its own sales channels, bancassurance accounted for 11 per cent, and the portfolio amounts to more than DKK 550m, with a highly satisfactory profitability. New sales to personal customers in Denmark 2003 5% 19% 34% 11% 31% Insurance agents Bancassurance Other partners Service centres Group insurance Nordea’s Norwegian branches began selling Vesta’s policies in 2003, initially as a pilot project in selected branches, but in the second half of the year, the Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 16 of 98 bancassurance concept was being implemented on a role as a provider of peace of mind to customers in the nation-wide scale. life insurance and pension areas. In Finland, sales of insurance policies through Nordea The Group continued to generate a substantial part of continued to rise steeply. The branch’s portfolio Nordea’s aggregate sales of new business in this area, increased from DKK 42m in 2002 to DKK 80m in 2003, among other things because the Group uses its good distributed on 32,000 customers. Tryg set up the relations to general insurance customers to offer the life Finnish branch in 2001 for the purpose of selling and pension insurance products as well. insurance through Nordea, which has a share of 40 per cent of the Finnish market. At the end of March 2003, Health insurance the potential customer base was extended to include all of the bank’s approximately three million customers in Finland. When the branch was set up in 2001, it only had access to Nordea Bank Finland’s 800,000 so-called core customers. New sales to personal customers in Finland ) 0 0 0 ' ( s e c i i l o p f o r e b m u N 60 40 20 0 49.5 36.8 0.7 2001 2002 2003 Pension sales Pension schemes and life insurance policies form a natural and important part of the Tryg Vesta Group’s overall product portfolio. Being a provider of peace of mind, the Group meets the customers’ expectations of covering all their requirements, also when it comes to personal safety such as personal accident insurance, health insurance, life and pension insurance and critical illness cover. The Group intends to continue to focus on employee training and sales tools, thereby further enhancing its The health insurance area continues to grow, and the Tryg Vesta Group is constantly developing competencies in this area. The Group launched development efforts in 2003 aiming to set up a common Nordic health concept for Tryg and Vesta. In 2003, the Tryg Vesta Group in Denmark launched three options to the health policies already written. At the end of 2003, 15,200 people were covered by the Group’s health insurance. Tryg’s Finnish branch began selling health insurance in 2003. Health insurance has been part of the Finnish insurance market for 10-15 years. The expansion of the product range to cover largely any insurance requirement further strengthened the Finnish operation’s position as an alternative to other insurance providers. On 1 January 2003, Norway introduced tax exemption for employer-paid health insurance for employees. Because of the exemption, employees are no longer subject to tax on such health insurance, and employers are not liable to a charge on the insurance premium. The tax exemption has renewed interest in health insurance, and this also benefits Vesta. Unemployment insurance In the final months of 2003, private unemployment insurance really became an issue in Denmark. In February 2004, the Tryg Vesta Group announced a partnership between the unemployment insurance fund, STA and Tryg, involving that Tryg offers supplementary Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 17 of 98 voluntary insurance to members of STA. In case of involuntary unemployment, members of STA will be eligible for a supplement of up to 80 per cent of their salary so far in addition to their benefits. At the same time, Tryg offers the members of STA the possibility of choosing whether they want to supplement the unemployment insurance with for instance psychologist assistance. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 18 of 98 Processes 2003 showed several examples of the Tryg Vesta Group capitalising on synergies across national borders, particularly in relation to IT and the creation of the Group’s common alarm centre, which was launched in earnest in early 2003. Improving the efficiency of work processes is a constant challenge, as illustrated by last year’s initiatives in relation to procurement and electronic customer servicing. Procurement The Tryg Vesta Group began working towards a common purchasing policy and a common purchasing process in the spring of 2003. The new agreement benefits all three parties: customers, garages and Tryg. Customer service and IT IT synergies The Tryg Vesta Group focuses strongly on capitalising on IT synergies. This is to be achieved through a common IT organisation set up in April 2003 and covering all the Group’s companies. The Group expects to reduce its IT-related costs in the years ahead by simplifying, harmonising, standardising and pruning measures. In the years ahead, the Group intends to strongly expand the common platforms it already uses across national borders in several respects. The Tryg Vesta Group considers procurement an Partnership with CSC organisational process and a strategic tool to reduce In 2003, the Tryg Vesta Group entered into a costs. Good procurement is basically a question of partnership with the IT company CSC to outsource the managing requirements and, thereby, managing costs. Group’s IT operations, the principal reason for switching IT operations provider being to reduce costs and Procurement in an insurance company is more than making administrative purchases in the form of office enhance quality. supplies and new PCs. It is also very much a matter of The partnership with CSC is expected to improve the purchasing in connection with claims, such as making quality, accessibility, reliability and speed of the Tryg agreements with craftsmen and garages to make Vesta Group’s IT systems and to provide operational repairs or with cleaning companies to clean up after savings. fires or flooding. The Group outsourced its IT operations in Denmark, The Tryg Vesta Group’s claims expenses amounted to Finland and Poland effective 1 December 2003 for an more than DKK 11bn in 2003, and the Group has in initial period of five years. In January 2004, the parties recent years focused particularly on procurement in agreed to extend the partnership to comprise Vesta connection with claims, thereby generating substantial effective 1 June 2004, thereby putting CSC in charge of savings. In 2001, Vesta entered into a partnership with all the Group’s IT operations. the Norwegian car industry, providing benefits and savings for both customers and the company in connection with claims resulting from damage to cars. In March 2003, Tryg launched a new agreement with a number of garages in Denmark. The agreement, called Tryg Reparation, includes that customers are offered a replacement car while their own car is being repaired. Customer service via Siebel The Tryg Vesta Group uses the US Siebel system, the market’s most advanced customer service system, as a common platform both in Denmark and in Norway. The system collects customer data and customer contact information, thereby making it easier for different Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 19 of 98 organisational units to collaborate in relation to Vesta – claims reported by e-mail customers and, ultimately, improving the quality of communications with customers. Vesta launched the second stage of implementation of the system in 2003, using, among other things, the experience Tryg had already gained with the system. A portable solution will be added in early 2004, providing access to the customer service system from laptops when visiting customers. Tryg has successfully used the solution for a couple of years. 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 2003 E-service In the past two years, Tryg’s web site has offered the Accessibility is a key word for the Tryg Vesta Group as Group’s Danish customers a similar option. Customers reflected, for example, in the Group’s strong focus on may seek information, report claims and generally use providing service to customers in the form of e-services. the self-service facilities almost 24 hours a day. At 31 In Finland, e-mail correspondence already accounts for a large part of the Group’s total communication with customers, and the intention is to increase the volume of e-services both in Finland and in the rest of the Group. In Norway, the Tryg Vesta Group participated from the start when the Norwegian banks launched eFaktura, December 2003, almost 60,000 customers had subscribed to the log in service, almost twice as many as the year before. Around 120 customers log in every day to view their policy overview, order a red or green international motor insurance card before going on holiday etc. Furthermore, some 50,000 price calculations are made on the web site each month, and around 900 users ask for a quotation. electronic invoice processing, in early 2003. Customers Tryg – e-mails received who join eFaktura receive invoices in their on-line banking system instead of in their physical mailbox. 100 ('000) The Tryg Vesta Group’s Norwegian customers were invited to view their policies and insurance terms and conditions via Vesta’s web site in May 2003. The option also includes such facilities as amending policies. Vesta received a total of 40,000 e-mails from customers in 2003, and the number of claims reported by e-mails increased by almost 80 per cent from 2002 to 2003. 80 60 40 20 0 2001 2002 2003 Tryg received almost 97,000 e-mails in 2003. Subjects included claims reporting, requests for quotations etc. This was a steep increase of 255 per cent over 2002, when Tryg received just under 38,000 e-mails. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 20 of 98 Common marine and aviation department The customers of the Tryg Vesta Group’s marine and aviation make up a very diverse group, and it takes a broad range of competencies to handle this diversified and specialised portfolio. The Group therefore decided to set up a common marine and aviation department at the end of 2003, uniting competencies across the two biggest companies, Tryg and Vesta. Marine customers alone account for an annual premium volume of DKK 230m, ranging from small fishing boats to very large ferries both in Denmark and Norway. The marine and aviation department has a total of 22 employees. Common alarm centre In 2003, the Tryg Vesta Group continued developing the common alarm centre, Tryg Alarm, in Denmark. The centre is staffed by employees and doctors round the clock ready to assist the Group’s travel and health insurance customers in an emergency. In addition to being able to provide care services, the employees’ core competencies include speaking at least two foreign languages. Network is a key word for Tryg Alarm. The alarm centre has a number of external partners around the world within such areas as transport, payment transfers and hospitals. Tryg Alarm’s regular staff includes a doctor, and seven medical consultants specialising in different fields are attached to the centre. Not only customers who hold travel and health insurance policies may call Tryg Alarm to get help. Tryg’s 24-hour claims service is a part of Tryg Alarm, which thus also handles calls from Danish insurance customers in connection with a claims situation. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 21 of 98 Employees The Tryg Vesta Group applied the Balanced Scorecard methodology in 2003 to strengthen efforts in relation to targets and initiatives. The aim is to enable all units to break down the Group’s overall targets in order for each employee to know his or her expected contribution and Future surveys of employee satisfaction in the Tryg Vesta Group will apply a common method. Competency development The Tryg Vesta Group spent DKK 40m on employee training in 2003 and began collaborating on common competency and management development initiatives. in order to maintain transparency and openness about Management development the organisation’s target and initiative efforts. The first stage of a common management development The Tryg Vesta Group made a great effort in 2003 to establish competency development for managers and employees. The Group also made its vision of being an inclusive workplace very visible and tangible by setting up dedicated integration training for persons with an ethnic background. Employee satisfaction Believing that satisfied employees are key to creating results, the Tryg Vesta Group measures employee satisfaction each year. The overall results of the survey are collected in Norway and Denmark to provide an overview of any potential concerted action that could be taken to heighten satisfaction in one or more areas. However, programme in the Tryg Vesta Group was launched in February 2004. The programme is intended to help embed the Group’s corporate values in the day-to-day work and in joint projects, while also focusing on teams and collaboration in order to develop the Group’s combined knowledge and promote the exchange of ideas and experience. The Tryg Vesta Group developed a management course for its 210 Norwegian managers and key professionals in 2003. The objectives of the courses included helping managers to become even better at forming strategies into practice and generally to enhance managers’ competency, focusing on higher employee satisfaction, improved business understanding, development of cross-cutting collaboration, and a common culture with shared the results are primarily followed up in the local values. departments, whose managers and employees together are responsible for cultivating and maintaining results and prepare the ground for improvement. The survey scored high in general on satisfaction in Denmark with an overall score of 4.03 on a scale from 1 to 5. The Group also developed management courses for all management levels in Denmark in 2003. Development courses for middle management employees and more experienced managers focused on collaboration, coaching and process improvement. Relatively new managers attended courses matching Tryg’s business and employees. More than 115 of a total of some 200 When measuring employee satisfaction, Vesta employs Danish managers attended such management a method which does not involve the use of a total development courses in 2003. To ensure future result as does the one employed in Denmark. Grouped executive talent, Tryg has developed a talent promotion into main categories, however, Vesta’s scores for 2003 process. Around ten potential managers completed this are on a level with other Norwegian companies. course in 2003. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 22 of 98 Teams and collaboration insurance as well as Danish culture and the Danish Almost 1,000 of Tryg’s 2,250 employees attended team language to the participants. building courses in 2003. Tryg has been focusing on teams for many years, but relaunched the concept in 2003 with more distinctive definitions of the characteristics of a good team, including the characteristics of a good team player and a good team manager. During the year, 63 per cent of Tryg’s employees spent two days in another department to gain knowledge and understanding of the work processes of other departments. Another objective of the arrangement was In 2003, 7.4 per cent of new employees taken on by Tryg had an ethnic background, and the total proportion of employees with an ethnic background increased from 1.9 per cent at 31 December 2002 to 2.9 per cent at 31 December 2003. Tryg also aims to include persons with an ethnic background among the trainees taken on each year. In 2003, two out of 32 trainees had an ethnic background. to promote in-house job rotation. Stages of life E-learning In 2003, Vesta developed its training strategy further by putting even greater emphasis on e-learning courses. The principal aim is to make training more uniform, but substantial savings are also generated because more employees are able to complete training from their own workplaces rather than attending courses in conventional classrooms. The Siebel customer service system applied by both Tryg and Vesta makes room for working closely together on training in using the system. Experience gained in using e-learning will be shared across national borders. Inclusiveness Inclusiveness is also about making room for employees of either sex and in different age groups. Human resources policies in both Denmark and Norway take into account that an employee’s working life has various stages with varying requirements. The Group needs employees at all stages of life. Committed to social responsibility, the Group aims to create a framework that provides development opportunities and support to all employees. In the light of overall labour market trends with an upcoming shortage of young people to recruit from, the Tryg Vesta Group is focused on recruitment and on retaining employees. Over the next five years alone, around 400 employees will be leaving the Group due to retirement or early retirement. The Tryg Vesta Group wishes to be an inclusive Management and organisational workplace with room for everyone. The Group believes in appreciating and benefiting from differences such as age, sex, ethnic background, nationality, religion and personality. Immigrants in Tryg changes Executive Management The Executive Management of the Tryg Vesta Group comprises Ms Stine Bosse, Group CEO of the Tryg Vesta Group, Mr Erik Gjellestad, CEO of Vesta, Mr Twelve immigrants started on a new two-year Morten Hübbe, Group CFO, Mr Peter Falkenham, Mr integration training programme with Tryg in March Stig Ellkier-Pedersen and Mr Bjørn Thømt, Members of 2003. Backed by EU grants and in collaboration with the Group Executive Management. municipalities all over Denmark, Tryg set up a special training programme for immigrants designed to teach Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 23 of 98 Ms Stine Bosse was appointed in January 2003, and Mr Morten Hübbe was appointed in June 2003. Internal organisation The Tryg Vesta Group set up transverse reinsurance and investment organisations as early as in 2002. The two organisations were adjusted in 2003 and implemented in additional parts of the Group. The Tryg Vesta Group set up a common IT organisation in April 2003 with the purposes of reducing costs and achieving further synergies within in the Group. Throughout 2003, the Group worked on changing its overall structure, and in January 2004, the Tryg Vesta Group announced that its future base would be two dedicated local business areas for personal and commercial customers, one in Norway and one in Denmark. Together and individually, they are responsible for generating targeted growth of the profitable part of the Group’s personal and commercial portfolios. Furthermore, the Group will be based on a single dedicated Nordic business area for the industrial market which across Tryg and Vesta will ensure targeted optimisation of the corporate portfolio by improving the correlation between price, risk and profitability, thereby creating a more balanced portfolio. Finally, the Group will set up shared staff functions. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 24 of 98 Risk management Risk management and ALM (Asset Liability Management) The Tryg Vesta Group’s overall financial risk can be divided into Vesta in Norway has, for example, scaled back its business of providing insurance to pilots against the eventuality that they lose their pilot’s certificate for health reasons. Vesta has also completely withdrawn from insuring municipalities. In Denmark, Tryg introduced stricter security requirements for some commercial customers in 2003, and raised premiums for fire insurance of companies in the wood industry. - insurance risk, involved in the current insurance Random risk operations - market risk, involved in investment activities and financing - operational risk, involved in operating a business. The Group manages such risks through its underwriting policy (acceptance rules, price, terms and conditions), by taking out reinsurance, in its current management of Random risk results from fluctuations in the number and size of claims. In the case of a large company such as the Tryg Vesta Group, which has many different types of customers and insurance products, normally only large claims from one-off events and many claims occurring at the same time after windstorms, cloudbursts, freezing rain and similar events have a significant impact on the Group’s financial results. investment activities, and through business procedures Systematic risk and policies. The Tryg Vesta Group is in the process of Systematic risk relates to changes in legislation, case further developing and implementing as its risk law, macroeconomic and technological developments management basis a so-called ALM (Asset Liability and general changes in policyholder behaviour. Such Management), a framework for measuring the Group’s fluctuations will impact several or all policies at one and total exposure, which explicitly takes into account the the same time, resulting in systematic fluctuations in the interaction of assets and liabilities. This framework for Group’s financial results. describing the Group’s exposure will be used for evaluating alternative strategies, primarily related to future portfolio composition, reinsurance strategies and the overall investment strategy. Due to changes in legislation and practice, systematic risk has historically affected, in particular, personal accident lines, which are characterised by claims being settled over several years. This is reflected in the Tryg The Group’s ongoing measurement of risk-based Vesta Group’s financial statements as run-off losses capital for the individual business areas and the and gains. resulting profitability requirements will also take place within the ALM framework. Reinsurance Insurance risk The Tryg Vesta Group makes systematic efforts to chart the insurance risk to which different insurance lines and customer groups are exposed in order to define requirements in respect of customer mix and earnings. In some cases, this results in activities being adjusted. The Tryg Vesta Group uses reinsurance as a key instrument to manage random risk. The Group’s reinsurance programme covers natural disasters up to a total of DKK 3.5bn with a retention per event of DKK 100m in Denmark, NOK 60m in Norway and DKK 75m in Poland. The maximum cover of DKK 3.5bn has been determined based on analyses of portfolio risk exposure Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 25 of 98 and on the assumption that a loss of this size occurs A natural disaster in Norway would be covered by the less often than once every one hundred years. Norwegian Pool of Natural Perils. Therefore, it would The Tryg Vesta Group regularly reviews the Group’s overall reinsurance cover. The review in 2002 caused the Group to change its reinsurance of commercial customers’ buildings and contents insurance – the so- called property area - in Denmark from proportional to non-proportional cover. The change means that only large claims of more than DKK 50m are covered, making it even more necessary for the Group to set its prices correctly. In 2003, the Tryg Vesta Group likewise switched from proportional to non-proportional cover of the entire marine area. Combined with other adjustments, these changes generated total savings of around DKK 500m in the Group’s annual reinsurance expenses. The reinsurance cover is intended to limit the financial impact of claims related to one-off events or events that may have a significant impact on the financial results, and such claims typically result from a large fire or a very severe windstorm. The biggest, single large claim for the Tryg Vesta Group in the past ten years was just under DKK 300m. A claim of between DKK 100m and DKK 300m would affect the Group’s combined ratio, net of reinsurance, in 2004 by between 0.5 and 0.7 percentage point, corresponding to negative financial results of between DKK 65m and DKK 95m. not impact the Tryg Vesta Group’s results and combined ratio because the Norwegian insurance companies settle the final bill for natural disasters caused by windstorms, landslides, flooding and similar events with the natural disaster pool, to which all policyholders in Norway make a contribution over their fire policy. In principle, it is similar to the Danish storm surge pool, which covers losses resulting from sea surges that cause flood. All fire insurance policyholders pay a contribution to this pool every year. Reinsurance companies The Tryg Vesta Group pursues a policy of cooperating with a broad range of international reinsurers in order to control and diversify the credit risk involved in the reinsurance programme and to avoid becoming dependent on individual reinsurers. This is ensured through regular monitoring of and follow-up on developments in the international reinsurance market. Credit risk is also managed through the Group’s security guidelines, which specify that the Group only cooperates on short-tail business with reinsurers having at least a BBB rating from Standard & Poor’s. In the case of long-tail business, characterised by claims being settled over several years, reinsurers are required to be rated least A by Standard & Poor’s. Acceptance rules The biggest natural disaster affecting the Tryg Vesta Besides reinsurance, the Tryg Vesta Group uses Group in the past ten years was the storm that hit acceptance rules, tariffs and individual risk assessment Denmark in December 1999 and resulted in losses to to manage insurance risk in order to achieve the the Group’s customers of just over DKK 2bn. A storm in required balance between various types of risks. Denmark causing losses of between DKK 600m and DKK 3bn would in 2004 impact the Group’s combined Market risk ratio, net of reinsurance, by between 1.3 percentage points and 1.7 percentage points, equal to an adverse impact on the financial results of between DKK 185m and DKK 240m. The results and shareholders’ equity of the Tryg Vesta Group are impacted by developments in the financial markets as assets and liabilities are marked-to-market on an ongoing basis. Market risk includes changes in interest rates, equity prices, exchange rates and real Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 26 of 98 property prices and the credit risk on bonds, money adverse market development would not cause market investments and similar instruments. The problems. The Tryg Vesta Group was rated green at 31 interest rate risk affecting the financial statements is December 2003 with an excess of DKK 1.8bn relative to limited as discounted provisions are only used for an amber rating. Workers’ Compensation. The insurance liabilities have a duration of around two years. Credit risk The Danish Financial Supervisory Authority introduced the so-called traffic light scenarios for general insurance companies and reinsurance companies effective 31 December 2003. Life insurance companies and pension funds have used the traffic light system since 2001. The object of the system is to calculate core capital performance in various hypothetical scenarios such as declining equity prices, changes in interest rates etc. Red indicates that a negative, but realistic market development would materially threaten the company’s core capital. Amber indicates that a more unrealistic, but not improbable market development would threaten the company’s core capital. Green indicates that a very The Tryg Vesta Group is exposed to credit risk on bonds and money market placements. The bond portfolio primarily comprises mortgage bonds and government bonds with a small proportion of corporate bonds. Currency risk Basically, the Group hedges risk relating to investments in shares and bonds denominated in foreign currency. Most investments in shares in foreign subsidiaries were hedged in 2003. Tryg Vesta Group – market risk exposure as at 31 December 2003 Type of asset Change Earnings impact before tax DKKm Assets Bonds Shares 0.85% point rate increase 12% fall in prices Real property 8% fall in prices Currency Credit risk 1%/3% fall in euro/non-euro exch. rates Weighted averagte loss Liabilities Provisions 0.85% point rate increase -327 -281 -161 -15 -52 70 Investment policy management agreements with Nordea concerning bonds, shares, cash funds and to some extent real The Tryg Vesta Group has a common organisation that property. Based on the investment policies, the Group manages investments on behalf of all the Group’s handles the management of asset mixes, benchmark companies. Investment policies are defined for each determination, duration limits, limits on the geographic company in the Group based on an overall investment distribution of assets, types and risk profile of bonds, policy, taking into account the characteristics of each shares and real property, respectively. The Group company and the legislative framework of each country. handles all investments in unlisted securities. The investment strategies defined in the Group are The Tryg Vesta Group’s investment policy aims to primarily carried out by way of external portfolio maximise return, taking into account the composition Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 27 of 98 and duration of liabilities and the company’s solvency. December 2003. The portfolio, worth DKK 1.2bn Overall, the Group’s liabilities have a duration of around comprising mainly office property, was sold to Nordea two years, which dictates an asset mix focused on a Liv & Pension. high degree of security, that is, limited fluctuations and strong liquidity. Therefore, bonds will continue to Operational risk constitute the majority of total investments with special focus on short-term bonds and low credit risk. Investments in shares, bonds and real property consist of well-diversified portfolios offering considerable risk diversification. Sale of real property The Tryg Vesta Group’s investment policy has aimed to reduce the proportion of investments in real property, which has been high up till now. In order to optimise its capital structure, the Tryg Vesta Group sold around half of its portfolio of investment properties in Denmark in In 2003, the Tryg Vesta Group set up a safety and security organisation, whose objects include to ensure that the required security policies and related business procedures are implemented and maintained. In November 2003, the Group appointed a chief security officer, who reports to the Group’s CFO. The chief security officer will primarily be focused on the Group’s IT security in 2004, but future areas will include security in relation to environmental policies, working environment and physical security Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 28 of 98 Shareholder information Tryg i Danmark smba is sole shareholder in the Tryg Vesta Group A/S. Distribution of profit Profit for the year amounted to DKK 742m. The Supervisory Board proposes a dividend of DKK 50m and that the remaining profit of DKK 692m be carried forward to next year. Shareholders’ equity At 31 December 2003, the shareholders’ equity amounted to DKK 5,360m and was increased by 1,092m in 2003. The increase is composed of the profit for the year of DKK 742m, dividend distribution of DKK 50m and a capital increase of DKK 400m. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 29 of 98 In 2002, Unibank and Tryg are part of the formation of Nordea. A year after this, Tryg establishes a branch in Finland from where insurance products and related services are sold to the Finnish bank customers of Nordea. In 2002, Tryg acquires the general insurance undertaking of Estonian Nordika Kindlustus, which was established in 1990. Later, the same year, Tryg i Danmark smba acquires all the general insurance activities of Nordea, and the Tryg Vesta Group is a reality. At the same time, The Group acquires the Danish and Norwegian parts of Zurich’s general insurance activities. The Tryg Vesta Group history The Tryg Vesta Group history is a result of a number of mergers and acquisitions. The Danish insurance company, Kjøbenhavns Brand dates farthest back. It was established by Royal decree of 1731 after the fire of Copenhagen in 1728. The first time for the name Tryg to appear was in 1911. Vesta was established in 1880, and the name Vesta is derived from the Roman mythology. Vesta is the goddess of hearth fire and thereby also of the home and family. In 1994, Tryg acquires the Danish insurance operations of Winterthur. In 1995, Tryg and Baltica merges and become Tryg- Baltica. In 2001, the name is simplified and becomes Tryg. Dansk Kaution, which was established in 1895, becomes part of Tryg in 1998. In the same year, Tryg enters the Polish general insurance market and acquires the controlling interest in the company Energo- Asekuracja, which was established in 1994. In 2002, the company changes name to Tryg Polska. In 1999, Tryg merges with Denmark’s second largest bank group, Unidanmark, and the general insurance activities of Unibank are integrated into Tryg. In the same year, Tryg acquires the English Colonia Baltica. The company is integrated into Tryg’s reinsurance company Tryg-Baltica international. Together they form TBi. At the end of 1999, Vesta, which has been part of Skandia since 1989, becomes part of the family. A merger with Æolus and Bergens Brand in 1962 is part of the Vesta history. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 30 of 98 Organisation Tryg Vesta Group A/S Tryg Forsikring A/S Vesta Forsikring AS Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S Nordea Vahinkovakuutus Tryg Polska Towarzystwo Ubezpieczen S.A. Nordicum Kindlustuse Eesti AS Dansk Kautionsforsikrings- Aktieselskab Chevanstell Ltd. (Business in run-off) Simplified legal structure Tryg Tryg is Denmark’s largest general insurer, serving more than one million households and businesses. Tryg has 2,250 employees and sells insurance policies through its own distribution channels, insurance brokers in the industrial market and the upper part of the commercial market as well as through Nordea’s branches, just as Tryg sells Nordea’s pension products. Read more at www.tryg.dk Vesta Vesta is Norway’s third-largest general insurer, serving some 600,000 households and businesses. Vesta has 1,460 employees and sells insurance policies through its own distribution channels, a well organised franchise network, insurance brokers in the industrial market and the upper part of the commercial market as well as through Nordea’s branches, just as Vesta sells Nordea’s pension products. Read more at www.vesta.no Tryg-Baltica international (TBi) TBi is the Tryg Vesta Group’s specialist in international reinsurance based in Copenhagen and Amsterdam. Read more at www.tbi.dk Nordea Vahinkovakuutus The Tryg Vesta Group’s branch in Finland only sells insurance policies to personal customers, and this is done through Nordea’s Finnish branches. Read more at www.nordea.fi Tryg Polska The Group’s company in Poland sells insurance policies to households and businesses through a countrywide network of branch offices, agents and brokers. Read more at www.tryg.pl Nordicum Kindlustus The Group’s Estonian company focuses first and foremost on insurance products to the commercial sector, but it also sells insurance products to personal Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 31 of 98 customers through its branch offices in all major towns in Estonia. Read more at www.nordicum.ee Dansk Kaution Dansk Kaution specialises in bonds and guarantees for Danish enterprises which conclude major contracts, especially within the building and construction sector and contract manufacturing business. Read more at www.danskkaution.dk Chevanstell Ltd. Chevanstell Ltd. consists of the Tryg Vesta Group’s London market business, which has been in run-off since September 2003. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 32 of 98 9.197 7.069 449 -5.862 -1.760 -181 -285 93 -52 -244 -1.482 47 -1.679 -375 21.606 4.268 29.833 82,9 24,9 107,8 Financial highlights and key ratios, Tryg Vesta Group DKKm Income statement Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments after transfer to insurance activities Other ordinary expenses Profit/loss on ordinary activities before tax Extraordinary items and minority interests Tax Profit/loss for the year 2003 2002 *) 2001 *) 2000 *) 28.01-31.12. 2002 **) 17.333 17.002 13.536 11.700 14.566 641 -11.344 -3.626 -101 136 675 -22 789 1 -48 742 13.311 899 -11.285 -3.577 -199 -851 -175 -52 -1.078 -1.256 243 -2.091 11.153 783 -8.902 -2.869 -77 88 1 0 89 7 -45 51 10.031 825 -8.366 -2.719 -86 -315 726 0 411 0 -78 333 Loss on business in run-off, net of reinsurance -699 -628 -316 -478 Balance sheet Technical provisions, net of reinsurance Total shareholders' equity Total assets Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Key ratios, continued business (excl. business in run-off) Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Key ratios accounted for according to other method Gross claims ratio Ceded business in percentage relative to gross premiums Gross claims ratio, net of ceded business Gross expense ratio Gross combined ratio, net of expenses to reinsurance Return on equity Return on equity before tax Return on equity after tax 22.475 5.360 31.359 21.606 4.268 29.833 17.673 4.564 24.032 15.826 4.305 23.575 77,9 24,9 102,8 76,6 24,2 100,8 73,7 5,8 79,5 22,9 102,4 16,4 15,4 84,8 26,9 111,7 83,4 25,7 109,1 77,9 6,9 84,8 24,3 109,1 -52,9 -47,4 79,8 25,7 105,5 80,1 25,3 105,4 78,3 1,5 79,8 24,5 104,3 2,2 1,2 83,4 27,1 110,5 83,7 26,9 110,6 88,8 -5,8 83,0 26,1 109,1 8,7 7,0 Number of full-time employees at the end of the period 4.420 4.408 4.317 4.264 *) The figures are pro forma figures as the Tryg Vesta Group was established on 28 June 2002. The basis of calculating these figures has been defined in the accounting policies on pp. 66-67. **) The Tryg Vesta Group was established on 28 June 2002. The subsidiaries have been included as from 28 June 2002. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 33 of 98 Review of the Tryg Vesta Group’s financial statements been below average. The development was impacted negatively by the falling technical interest. Key ratios Combined ratio, net of reinsurance Financial results The profit for the year before extraordinary items and tax amounted to DKK 789m against a loss of DKK 1,078m in 2002. The technical result improved by DKK 987m and the results of investment activities improved by DKK 850m. The accounting figures for 2000-2002 are pro forma figures. Technical result 120 100 80 60 40 20 0 110.5 105.5 111.7 102.8 83.4 79.8 84.8 77.9 27.1 25.7 26.9 24.9 2000* 2001* 2002* 2003 Expense ratio, n.o.r. Claims ratio, n.o.r. The technical result of DKK 136m is a significant improvement relative to 2002. The improvement of DKK *Pro forma figures 987m was achieved in spite of the falling interest rates in both Denmark and Norway, resulting in a reduction in the technical interest of DKK 258m. Technical result Compared with 2002, the combined ratio, net of reinsurance, improved by 8.9 percentage points. Of the 8.9 percentage points, 6.9 percentage points were attributable to claims and 2.0 percentage points to expenses. In Denmark and Norway, which together have 89 per cent of the premiums, the combined ratios were reduced by 9.0 and 6.7 percentage points, respectively. 42 For both business areas, it was primarily the claims ratios, which were improved. -64 -108 -219 -237 -292 -276 Denmark Norw ay Other Run-off 2002* 2003 In 2003, return on shareholders’ equity was provided by 16.4 per cent, while the return in 2002 was negative by 52.9 per cent. Premiums *Pro forma figures Both in Norway and in Denmark, the effect of last year’s premium increases on personal and commercial The positive development of the technical result is a policies materialised in 2003. Most of our customers consequence of the many profitability measures taken. chose to remain insured by the Group, at the same Further, weather-related losses and large losses have time, the inflow of new customers was satisfactory. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 34 of 98 439 m K K D 600 400 200 0 -200 -400 Total gross earned premiums of the Group were DKK “social inflation”, i.e. the ongoing displacement of tasks 17,333m, composed primarily of a growth of 11.2 per from public funding to private insurance. Therefore, the cent in Denmark and 6.3 per cent in Norway, both Tryg Vesta Group pursues a conservative reserve stated in local currency. The relatively lower growth in policy in general within these areas. Norway is due to deliberate deselection, primarily of the municipality segment. In addition, the development in earned premiums was affected by the run-off procedures of Chevanstell Ltd. in London initiated in September 200, and as a natural consequence thereof, fall in premium earnings was approximately DKK 600m. Additional fall in the premium earnings in 2004 is expected for Chevanstell Ltd. Simultaneous with the improvement of the financial results, the Group has increased its provisions considerably to strengthen its readiness for future expenses for personal injuries, including Workers’ Compensation and accidents. For the Group as a whole, the strengthening within these areas amounted to more than DKK 450m. Earned premiums, net of reinsurance, were 9.4 per cent Costs higher than in 2002. The relatively higher growth in earned premiums, net of reinsurance, compared with the growth in gross earned premiums, was due to the transition to a changed reinsurance programme The Group’s expense ratio, net of reinsurance, was 24.9 for 2003, which was an improvement of 2.0 percentage points relative to 2002. according to which the Group shall pay a lower The administrative expenses fell by DKK 206m to DKK premium to the reinsurers. 1,885m. The fall was attributable to general cost Claims The Group’s claims ratio, net of reinsurance, was 77.9 and has fallen by 6.9 percentage points since 2002. This was very satisfactory and was in particular due to constraints and utilisation of synergies within the Group. The expense ratio for Danish general insurance fell by 1.1 percentage point, and for Norwegian general insurance, it fell by 0.1 percentage point. the claims ratio for Danish general insurance operations Other ordinary expenses having fallen by 7.9 percentage points and that for the Other ordinary expenses are holding expenses in Tryg Norwegian insurance operations having fallen by 6.6 Vesta Group A/S. percentage points. The improved claims ratio included a strengthening of the reserves for earlier years. This applied primarily to the personal accident area and secondarily to the business in run-off. The combined ratio, net of reinsurance, included a strengthening of the reserves – so-called run-off losses – of DKK 699m in 2003, which impacted the combined ratio by 4.8 percentage points. Consequently, there are still run-off losses on personal accident business written in earlier years in Denmark, Norway and Poland. From experience, we know that the development within these areas is characterised by Profit on investments The Tryg Vesta Group’s total profit on investments before transfer to insurance activities was DKK 1,448m equivalent to a return of 6.2 per cent for 2003. The investment return was affected by a positive return on bonds, shares and real property. Transfer to insurance activities was DKK 773m in 2003 against DKK 1,017m in 2002. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 35 of 98 Tax Tax on the profit for the year was DKK 48m. Development of the shareholders’ equity in 2003 (DKKm) Shareholders' equity, 1 January 2003 The low tax expense was due to unrealised gains on shares, which are not subject to tax, a lower tax rate in Norway as well as to the use of some tax assets. The lower tax rate is not expected in future. Capital increase Profit for the year Dividend 4,268 400 742 -50 Shareholders' equity as at 31st December 2003 5,360 Balance sheet Relative to 2002, the balance sheet was increased by DKK 1,526m, the technical provisions by DKK 869m Cash flows and the shareholders’ equity by DKK 1,092m. Cash flows from operations in 2003 amounted to DKK 3,182m, which primarily was used to increase investments in bonds. Cash flows from funding amounted to DKK 383m and was made up of capital increase in Tryg Vesta Group A/S of DKK 400m and subordinate loan of DKK 700m and debt repaid to credit institutions of DKK 717m. Assets, provisions and shareholders’ equity (31.12.2003) 40,000 30,000 m K K D 20,000 10,000 0 9 5 3 , 1 3 3 3 8 , 9 2 6 0 6 , 1 2 5 7 4 , 2 2 0 6 3 , 5 8 6 2 , 4 Assets Provisions 2002 Shareholders' equity 2003 On assets, the increase was seen in the form of an increased bond portfolio and amounts owing, whereas there was a fall in relation to land and buildings owing to divestment of real estate property. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 36 of 98 Financial highlights and key ratios per business area DKKm 2003 2002 *) 2001 *) 2000 *) The Group Gross earned premiums Technical result Profit/loss on investments Other ordinary expenses Profit/loss on ordinary activities before tax Combined ratio The Group, continued business Gross earned premiums Technical result Profit/loss on investments Other ordinary expenses Profit/loss on ordinary acitivites before tax Combined ratio Danish general insurance Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Combined ratio Norwegian general insurance Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Combined ratio TBi Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax 17.333 136 675 -22 789 102,8 16.702 373 685 -22 1.036 100,8 8.242 439 393 832 96,6 7.161 42 316 358 103,9 716 -10 10 0 17.002 -851 -175 -52 -1.078 111,7 15.791 -559 -170 -52 -781 109,1 7.411 -64 -128 -192 105,6 7.111 -276 -55 -331 110,6 722 -112 2 -110 13.536 88 1 0 89 105,5 12.615 105 4 0 109 105,4 6.467 -49 49 0 106,8 5.134 202 -42 160 101,6 552 -12 -1 -13 11.700 -315 726 0 411 110,5 11.162 -321 711 0 390 110,6 6.211 -233 607 374 111,0 4.170 3 78 81 108,8 426 -55 0 -55 Combined ratio 105,8 120,3 110,2 115,5 Finnish general insurance Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax 61 -48 -1 -49 21 -66 -1 -67 2 -29 0 -29 Combined ratio 182,0 493,5 1.886,2 - - - - - *) The figures are pro forma figures as the Tryg Vesta Group was established on 28 June 2002. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 37 of 98 Financial highlights and key ratios per business area, continued DKKm 2003 2002 *) 2001 *) 2000 *) Polish general insurance Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax 491 -49 4 -45 496 -28 32 4 462 -7 -2 -9 361 -36 26 -10 Combined ratio 119.2 111.7 106.3 120.5 Estonian general insurance Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax 39 -1 0 -1 41 -13 0 -13 Combined ratio 106.1 136.5 Business in run-off** Gross earned premiums Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Combined ratio Tryg Vesta Group A/S (parent company) Loss on investments (excluding subsidiaries) Other ordinary expenses Loss on ordinary activities before tax 631 -237 -10 -247 175.6 -37 -22 -59 1,211 -292 -5 -297 149.8 -20 -52 -72 - - - - - 921 -17 -3 -20 - - - - - 538 6 15 21 108.3 108.6 - - - - - - *) The figures are pro forma figures as the Tryg Vesta Group was established on 28 June 2002. **) Business in run-off comprises run-off across the legal structure, including Chevanstell Ltd. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 38 of 98 Danish general insurance DKKm Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Key ratios accounted for according to other method Gross claims ratio Ceded business in percentage rel. to gross premiums Gross claims ratio, net of ceded business Gross expense ratio Gross combined ratio, net of expenses to reinsurance 2003 8,242 7,493 221 -5,657 -1,584 -34 439 393 832 88 11,777 75.5 21.1 96.6 70.6 6.2 76.8 20.3 97.1 Number of full-time employees at the end of the period 2,248 Pro forma 2002 Pro forma 2001 Pro forma 2000 7,411 6,314 326 -5,265 -1,399 -40 -64 -128 -192 55 10,396 83.4 22.2 105.6 82.2 1.7 83.9 21.1 105.0 2,330 6,467 5,781 338 -4,776 -1,399 7 -49 49 0 -334 8,842 82.6 24.2 106.8 79.0 2.6 81.6 23.9 105.5 2,458 6,211 5,729 392 -4,829 -1,528 3 -233 607 374 -518 8,313 84.3 26.7 111.0 90.7 -6.2 84.5 25.9 110.4 2,552 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 39 of 98 Financial results Key ratios The profit on ordinary activities before tax of the Danish Combined ratio, net of reinsurance, Personal general insurance operations for 2003 amounted to DKK 832m against a loss of DKK 192m for 2002. The profit was composed of a technical result of DKK 439m and a profit on investments of DKK 393m. The technical result for 2003 was a profit of DKK 439m against a loss of DKK 64m reported in 2002. The positive development of the technical result was a consequence of the many profitability measures taken. Further, weather-related losses and large losses have been below average. Moreover, the technical result includes build-up of equalisation provisions by DKK 34m. In addition, the financial results were affected by a very low technical interest, net of reinsurance, of DKK 221m for 2003 against DKK 326m recorded in 2002. The technical interest rate for 2003 was 2.62 per cent against 3.90 per cent in 2002. The positive development of the technical result was expressed in a combined ratio, net of reinsurance, of 96.6, which was a significant improvement relative to the combined ratio, net of reinsurance, of 105.6 recorded in 2002. 108.7 105.7 101.4 97.0 120 110 100 90 80 2000* 2001* 2002* 2003 * Pro forma figures Throughout the period, the personal insurance business showed a continued improved development towards a satisfactory level in 2003. Combined ratio, net of reinsurance, Commercial 130 120 117.0 114.6 113.7 110 100 90 80 98.3 2000* 2001* 2002* 2003 * Pro forma figures Relative to the level in 2002 and the years before, targeted measures within the commercial insurance operations resulted in a marked change of level in 2003. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 40 of 98 Premiums The claims level for the personal accident business The gross earned premiums for 2003 were DKK remained unsatisfactory, which is why this business 8,242m against DKK 7,411 recorded in 2002, area will be subject to considerations as to further price equivalent to an increase of 11.2 per cent, which is adjustments in 2004. higher than the general level in the market. This considerable increase was in particular attributable force in the middle of 2002, targeted work concerning to recent years’ premium increases having materialised. active claims handling has been performed within the Since the new Danish Damages Liability Act came into The premium increases should be viewed as part of the initiatives to enhance profitability, among other things in connection with the statutory changes concerning The Danish Damages Liability Act. personal business area. To be specific, this has resulted in the establishment of a differentiated and targeted administration for handling personal accident claims. Experience so far has been positive, and active claims handling is, other things being equal, expected to reduce the claims expenses within this business In connection with the premium increases, Tryg saw that the paramount part of its customers chose to area. continue being insured by Tryg. The reason for this was The development in claims under the Workers’ partly that the premium increases in particular were directed towards the commercial customers in relation to whom the insurance agents have a close relationship, and partly that the insurers in the Danish market in general increased premiums on commercial policies in 2003. In relation to the personal insurance business in 2003, general premium increases were introduced on household contents insurance policies by an average of 14 per cent. The initiatives within the commercial insurance business were primarily targeted at the relatively large Compensation insurance policies was not satisfactory, which has necessitated a considerable strengthening of the reserves. The negative development resulted in a run-off loss of DKK 150m within this area. In order to re- establish profitability, the premiums of selected customer segments have been increased. On 1 January 2004, a new Act on industrial injuries came into force. The Act extends the insurance cover considerably. This will among other things lead to compensation being payable for back injuries which were not covered previously under the Workers’ Compensation insurance. The amendment leads to premium increases of an average of 55 per cent. commercial customers. Consequently, the contents and property insurance policies for this customer segment Costs were on average increased by approximately 48 per cent. Claims In 2003, the claims ratio, net of reinsurance, was 75.5, which was an improvement relative to the claims ratio of 83.4 recorded in 2002. The marked improvement is in particular due to the premium increases mentioned on commercial policies as well as to loss limiting initiatives, which typically comprise an increase in the customers’ deductibles and safeguarding requirements. The development of expenses in 2003 was satisfactory, expressed by an expense ratio, net of reinsurance, of 21.1, which compared with 2002, was an improvement of 1.1 percentage point. The improvement of the expense ratio can partly be ascribed to the premium increases referred to and partly to the continued focus on streamlining internal processes. In addition to this, the expense ratio was affected favourably by the Zurich business acquired and integrated into Tryg, and by the achievement of anticipated synergies in this connection. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 41 of 98 Norwegian general insurance DKKm Exchange rate DKK/NOK, average of the year Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Profit/loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance Technical provisions, net of reinsurance, NOK Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Key ratios accounted for according to other method Gross claims ratio Ceded business in percentage rel. to gross premiums Gross claims ratio, net of ceded business Gross expense ratio Gross combined ratio, net of expenses to reinsurance Number of full-time employees at the end of the period 2003 93.68 7,161 5,612 339 -4,419 -1,414 -76 42 316 358 -547 8,788 9,940 78.7 25.2 103.9 72.9 7.8 80.7 22.4 103.1 1,460 Pro forma 2002 98.46 Pro forma 2001 92.16 Pro forma 2000 91.71 7,111 5,163 469 -4,404 -1,304 -200 -276 -55 -331 -494 9,030 9,193 85.3 25.3 110.6 75.8 9.2 85.0 22.6 107.6 1,374 5,134 3,818 343 -2,999 -881 -79 202 -42 160 46 6,404 6,868 78.5 23.1 101.6 77.2 2.0 79.2 22.0 101.2 1,272 4,170 3,290 327 -2,752 -825 -37 3 78 81 45 5,763 6,358 83.6 25.1 108.7 86.6 -4.1 82.5 24.4 106.9 1,141 Financial results The profit on ordinary activities before tax of the Norwegian general insurance operations for 2003 was DKK 76m in 2003, which in particular related to transfers to the Norwegian Pool of Natural Perils. The Norwegian Pool of Natural Perils is primarily employed for equalising expenses in connection with storm and DKK 358m against a loss of DKK 331 for 2002. The flooding. profit was composed of a technical result of DKK 42m and a profit on investments of DKK 316m. Further, the technical result was affected by the falling The technical result for 2003 was DKK 42m against a loss of DKK 276m reported in 2002. The development of the financial results was in general satisfactory and was primarily attributable to the profitability measures taken and to the fact that 2003 did not see any large losses. The equalisation provisions were increased by interest rates in Norway, expressed in a technical interest of DKK 339m, which was DKK 130m less than in 2002. Like in the Danish market, a continued very low interest level will, other thing being equal, necessitate profitability initiatives in the Norwegian market. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 42 of 98 The positive development of the technical result was Combined ratio, net of reinsurance, Commercial expressed in a combined ratio, net of reinsurance, of 103.9, which was a significant improvement relative to the combined ratio, net of reinsurance, recorded in 2002, which was 110.6. The combined ratio, exclusive of run-off losses, was 100.8 per cent in 2003. In 2003, the reserves were strengthened considerably for the Norwegian operations. The strengthening of the reserves – so-called run-off losses – amounted to just over DKK 500m, which primarily was attributable to the personal accident insurance business. This corresponded to an impact on the combined ratio, net of reinsurance, of 9.8 percentage points in 2003. As appears from the first line in the table above, the exchange rate of NOK fell relative to DKK during 2003. Consequently, the earnings in Norway, translated to Danish kroner, will show a falling trend due to the falling exchange rate. Key ratios Combined ratio, net of reinsurance, Personal 104.0 101.1 101.7 110 100 90 80 2000* 2001* 2002* 2003 * Pro forma figures Throughout the entire period, the personal insurance business developed at a satisfactory level, which was further improved in 2003. 124.5 129.4 116.3 106.7 140 130 120 110 100 90 80 2000* 2001* 2002* 2003 * Pro forma figures The profitability of the commercial insurance business was in general not satisfactory, and consequently there is a demand for further initiatives in the years ahead. Premiums The gross earned premiums for 2003 were DKK 7,161m compared with DKK 7,111m recorded in 2002. In local currency, this corresponds to an increase of 6.3 per cent. commercial insurance portfolio – having materialised. Further, it was attributable to Vesta’s customers having chosen to remain customers in Vesta, and to a satisfactory inflow of new customers. The growth in the personal insurance portfolio was 6 per cent in 2003, whereas the industrial customer segment saw a negative growth of 8 per cent, and the small and medium-sized commercial customer segment experienced a negative growth of 4 per cent. The development is in keeping with the wish to alter the Norwegian portfolio composition to include a relatively larger share of personal insurance policies. Moreover, the development within the commercial insurance area has been characterised by targeted 98.5 The growth was in particular attributable to recent years’ premium increases – primarily within the Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 43 of 98 work performed in relation to re-evaluating the unsatisfactory, and the expense ratios for the areas commercial insurance policies, and within selected were 130, 166 and 147 respectively. areas premiums have been increased considerably. As early as in 2002, considerable premium increases were Costs introduced in relation to Workers’ Compensation insurance policies in order to enhance profitability. The effects of the measures initiated are expected to further materialise in 2004. In 2002, Vesta decided to completely withdraw from insuring municipalities, a business area that had been unprofitable for several years. Viewed separately, this has led to a reduction in the market share of Norwegian Workers’ Compensation insurance from 26 per cent at the end of 2002 to 19 per cent at the end of 2003. Claims In 2003, the expense ratio was 25.2, which was a small reduction relative to the level of 25.3 in 2002. The expense ratio was affected, like in 2002, by provisions for pension commitments as a result of the low interest level. In 2003, provisions of just over DKK 94m were made in respect of pension commitments to the employees, corresponding to an increase in the expense ratio of 1.7 percentage point. The employees of Vesta are guaranteed a fixed monthly retirement benefit, and accordingly the company’s pension contributions to employees vary in line with interest rates. In 2003, the claims ratio, net of reinsurance, was 78.7, The expenses were affected in the opposite direction by which was an improvement relative to the claims ratio of a procurement project, which reduced the 85.3 recorded in 2002. administrative expenses. The development was satisfactory within the personal insurance business and less satisfactory within the commercial business area despite the fact that Vesta’s commercial customers were spared large losses again this year. A contributory factor to the unsatisfactory performance of the commercial insurance business was that the development within the personal insurance business, which formed 23 per cent of the total portfolio, performed unsatisfactorily. Consequently, it was necessary to strengthen the claims reserves considerably within this area. Most of the increased claims reserves related to losses on business written in earlier years, which resulted in substantial run-off losses. In the financial results for 2003, the run-off losses on the personal insurance business were approximately DKK 265m. It was in particular within the areas: Workers’ Compensation, diseases and other personal accident insurance in businesses that performance in 2003 was Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 44 of 98 Tryg-Baltica international (TBi) DKKm Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Profit/loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Number of full-time employees at the end of the period 2003 716 655 19 -495 -198 9 -10 10 0 -64 735 75.6 30.2 105.8 30 Pro forma 2002 Pro forma 2001 Pro forma 2000 722 646 24 -506 -271 -5 -112 2 -110 -20 667 78.3 42.0 120.3 32 552 511 24 -369 -194 16 -12 -1 -13 16 621 72.2 38.0 110.2 28 426 374 23 -303 -129 -20 -55 0 -55 18 393 81.0 34.5 115.5 28 Financial results The results before tax for TBi were DKK 0 against a loss of DKK 110m for 2002. The financial results still were not satisfactory, but they express an increased focus on profitability over growth, which was in focus in earlier years. The combined ratio, net of reinsurance, was 105.8, which was an improvement of 14.5 percentage points relative to the combined ratio of 120.3 recorded in 2002. The combined ratio was affected negatively by considerable run-off losses for 2001 and earlier, and positively by enhanced profitability for 2002 and 2003. The technical result amounted to a loss of DKK 10m, Premiums which was an improvement relative to the negative The premium development was formed by two opposite results for the previous years. trends: Earned premiums were reduced in line with the On 31 December 2003, TBi sold its wholly owned subsidiary Chevanstell Ltd., in relation to which run-off procedures were initiated on 4 September 2003. Chevanstell Ltd. was sold to Tryg Forsikring A/S. Consequently, the figures relating to Chevanstell Ltd. do not appear under TBi, on the other hand, they appear under business in run-off. plans for this business area since the extent of business written was reduced, and simultaneously, the rates increased. Therefore, the correlation between premium and risk was improved considerably in spite of the falling absolute premium level. Claims The claims ratio, net of reinsurance, was 75.6, which was an improvement of 2.7 percentage points on the Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 45 of 98 figure for 2002. This was especially attributable to the fact that Europe, where most of TBi’s business is placed, was spared large natural disasters owing to mild weather. The intensified demands for profitability of the business written also contributed considerably to the improved claims ratio. Costs The expense ratio, net of reinsurance, was 30.2, which was an improvement of 11.8 percentage points on the figure for 2002. The expenses were considerably affected by a one-off income influencing the expense ratio positively by 5.4 percentage points. The reduction in the administrative expenses was attributable to the reinsurance system which was implemented in 2002, and which has increased efficiency in the administration. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 46 of 98 Finnish general insurance DKKm Exchange rate DKK/EUR, average of the year Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Loss on investments Loss on ordinary activities before tax Profit on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Number of full-time employees at the end of the period 2003 742.92 Pro forma 2002 743.08 Pro forma 2001 745.74 Pro forma 2000 - 61 60 1 -47 -62 0 -48 -1 -49 1 50 78.2 103.8 182.0 42 21 17 1 -18 -66 0 -66 -1 -67 0 21 2 2 0 -2 -29 0 -29 0 -29 - - 104.3 389.2 493.5 35 91.1 1,795.1 1,886.2 14 - - - - - - - - - - - - - - - Financial results The loss on ordinary activities before tax of the Finnish general insurance operations for 2003 was DKK 49m, which was an improvement relative to the loss of DKK 67m recorded in 2002. The Finnish operations are still in a start-up phase and the most important goal is to achieve a sound and profitable business volume. Consequently, the financial results of the Finnish operations cannot be compared with the levels of the Tryg Vesta Group’s Norwegian and Danish general insurance operations, on the other hand, the Finnish operations should be viewed as an investment in compliance with the Group’s wish to be by the growth in the premium volume in spite of an unchanged level of expenses. Premiums The gross earned premiums were DKK 61m, which was a trebling relative to the DKK 21m recorded in 2002. Insurance policies are sold through Nordea’s branches in Finland, which have a market share of approximately 40 per cent of the Finnish market for banking services. Therefore, there is a significant potential for a further sizeable increase in premium earnings. During the year, the product portfolio was expanded with health insurance products among other things. present in the Nordic countries, where profitable operations are anticipated in the years ahead. Claims The Finnish operations continued their positive development, which among other things was expressed The claims ratio, net of reinsurance, was 78.2 for 2003 against 104.3 for 2002, which was a considerable Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 47 of 98 improvement. In view of the age of the portfolio, the level is considered satisfactory. Costs The expense ratio for 2003 was 103.8, which was a marked reduction relative to the expense ratio of 389.2 recorded in 2002. The level of expenses reflects the fact that the operations in Finland are in a start-up phase. In connection with this, the fixed costs will be large relative to the total level of expenses. The expenses are among other things affected by substantial depreciation of investments in an insurance technical system. In this way, investments were made in an advanced insurance system, which will be able to keep up with the continued development in the composition of customers and products. These expenses influenced the expense ratio, net of reinsurance, by 29.3 percentage points. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 48 of 98 Polish general insurance DKKm Exchange rate DKK/PLN, average of the year Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Profit/loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Number of full-time employees at the end of the period 2003 169.49 Pro forma 2002 194.16 Pro forma 2001 204.69 Pro forma 2000 185.59 491 336 14 -234 -166 1 -49 4 -45 3 276 69.7 49.5 119.2 523 496 320 10 -205 -153 0 -28 32 4 0 275 64.0 47.7 111.7 495 462 290 10 -181 -126 0 -7 -2 -9 -11 263 62.8 43.5 106.3 489 361 212 9 -157 -99 -1 -36 26 -10 -3 198 73.8 46.7 120.5 494 Financial results The loss on ordinary activities before tax of the Polish general insurance operations for 2003 was DKK 45m, which was a deterioration relative to the profit of DKK 4m recorded in 2002. The financial results were unsatisfactory and were composed of a negative technical result of DKK 49m and a profit on investments of DKK 4m. The financial results were impacted by a deliberate change of the portfolio composition reflecting a wish for a larger share of the personal insurance market. Premiums The gross earned premiums were DKK 491m, which by and large correspond to the level recorded in 2002. Further, the development in earned premiums was affected by the change towards a relatively larger share of personal customers in the portfolio. From a portfolio composition where the personal customers’ share of the earned premiums was approximately 60 per cent, this share is now approximately 70 per cent. In 2003, premium increases were implemented in relation to comprehensive motor insurance policies, and at the same time, it was decided to discontinue the sale of certain types of insurance policies due to their negative performance. Claims The claims ratio, net of reinsurance, for 2003 was 69.7 which was an increase of 5.7 percentage points. This was in particular attributable to a poorer performance in the motor portfolio, represented by a poorer Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 49 of 98 performance of claims both within the comprehensive and theft insurance products. In addition to this, the number of damage to motor cars abroad was relatively large. For the rest of the portfolio, the claims level corresponded by and large to the levels of earlier years. Costs The expense ratio for 2003 was 49.5, which was a slight increase on the level of 47.7 recorded in 2002. In 2004, efforts will be made to reduce the ratio by way of using less cost-consuming sales channels. Further, the number of employees in Poland was increased relative to 2002. This shall be seen as part of the initiatives to set up a less cost-consuming sales force to replace agents. In 2003, focus was on the implementation and distribution of a new IT system for policy and claims administration in Tryg Polska, just as electronic communications have been established between the head office in Radom and the 28 branch offices. In addition to this, the expense ratio was affected by a one-off adjustment concerning reinsurance commissions of DKK 16m. New name in 2003 As a consequence of the spin-off from Nordea, the Group’s Polish general insurance company changed its name from Nordea Ubezpieczenia to Tryg Polska in March 2003. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 50 of 98 Estonian general insurance DKKm Exchange rate DKK/EEK, average of the year Gross earned premiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Loss on ordinary activities before tax Profit on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Number of full-time employees at the end of the period Financial results The loss on ordinary activities before tax of the Estonian general insurance operations for 2003 amounted to DKK 1m, which was a significant improvement on the loss for 2002, which was DKK 13m. In spite of the improvement, the financial results were not satisfactory. Premiums The gross earned premiums were DKK 39m, which was a relatively small decrease of DKK 2m relative to 2002. The premium development was characterised by the considerable tariff rises implemented in relation to the portfolio and by an improved selection procedure in relation to customers. A natural consequence of this is 2003 47.48 Pro forma 2002 47.49 Pro forma 2001 - Pro forma 2000 - 39 34 1 -23 -13 0 -1 0 -1 2 21 67.2 38.9 106.1 76 41 37 1 -30 -21 0 -13 0 -13 0 20 81.4 55.1 136.5 82 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - a net loss of customers, however it has also enhanced the profitability of the remaining portfolio. Claims The claims ratio was 67.2 per cent, which was a sharp reduction on the level of 81.4 for 2002. The improved level was characterised by the mentioned profitability enhancement initiatives in relation to the portfolio. Costs The expense ratio was 38.9 relative to the expense ratio of 55.1 for 2002. This was primarily due to a change of Estonian legislation, which reduced the fixed administrative expenses on motor policies significantly. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 51 of 98 New name in 2004 In January 2004, the Tryg Vesta Group’s company in Estonia changed its name from Nordea Kindlustus to Nordicum Kindlustus. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 52 of 98 Business in run-off DKKm Gross earned permiums Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Change in equalisation provisions Technical result Profit/loss on investments Profit/loss on ordinary activities before tax Loss on business in run-off, net of reinsurance Technical provisions, net of reinsurance Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Number of full-time employees at the end of the period 2003 631 376 46 -469 -189 -1 -237 -10 -247 -182 828 125.2 50.4 175.6 41 Pro forma 2002 Pro forma 2001 Pro forma 2000 1,211 814 68 -857 -363 46 -292 -5 -297 -170 1,197 105.2 44.6 149.8 63 921 751 68 -575 -240 -21 -17 -3 -20 -32 1,543 76.3 32.0 108.3 55 538 426 74 -325 -138 -31 6 15 21 -21 1,159 76.3 32.3 108.6 49 Background Chevanstell Ltd. The Tryg Vesta Group’s business in run-off comprises In September 2003, after a number of years with run-off across the legal structure. It includes primarily losses, the Tryg Vesta Group chose to put the activities Chevanstell Ltd., which has carried on insurance of the company which is now called Chevanstell Ltd. business in the London market, a stop-loss agreement into run-off. between Chevanstell Ltd. and Tryg Forsikring to cover run-off from 1999 and earlier in Chevanstell Ltd., a relatively small reinsurance portfolio originally written by The technical result of Chevanstell Ltd. was a loss of DKK 115m relative to a loss of DKK 199m recorded in Baltica Forsikring (Tryg Forsikring), run-off in relation to 2002. old mortgage guarantees and the like. The technical provisions within the business in run-off area were essentially related to Chevanstell Ltd. Financial results The total technical result was a loss of DKK 237m, which was an improvement of DKK 55m relative to The earned premiums, net of reinsurance, were as planned reduced by more than 50 per cent. After the company was put into run-off, no new reinsurance treaties have been made. The claims ratio, net of reinsurance, was 93.6 relative to 98.2 in 2002, which is still at a high level. 2002. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 53 of 98 The English based actuarial firm, Tillinghast, has evaluated that the total reserves and provisions for claims reflect the recommendations of Tillinghast. The expense ratio, net of reinsurance was 9.1 percentage points higher than in 2002. The reason for this was the lower earned premiums as it has been impossible to adjust expenses to the small premium earnings. The results of the run-off procedures of Chevanstell Ltd. involve some uncertainty. In the parent company, Tryg Forsikring A/S, provisions of DKK 179m were made to cover this uncertainty among other things. Moreover, the provisions were made to cover the extraordinary expenses incurred in connection with restructuring in the Group. Other business in run-off The technical result of other business in run-off was a loss of DKK 122m relative to a loss of DKK 93m in 2002. The loss was primarily attributable to the stop-loss agreement between Tryg Forsikring and Chevanstell Ltd., which represents a loss of DKK 130m. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 54 of 98 Investment activities Investment activities DKKm Danish general insurance Norwegian general insurance TBi Polish general insurance Estonian general insurance Chevanstell Ltd. Total Tryg Vesta Group A/S Total investments Profit/loss 2003 2002* Assets (end-year) 2002 2003 699 701 29 18 1 37 1,485 -36 1,448 278 463 27 41 1 52 862 -20 842 13,096 10,379 10,666 10,640 815 369 31 962 688 435 27 1,243 25,939 23,412 -554 -298 25,385 23,114 Transferred to technical interest Investment income * Pro forma -773 -1,017 675 -175 The Tryg Vesta Group’s total profit on investment activities before transfer to technical interest was DKK 1,448m equivalent to a return of 6.2 per cent for the financial year 2003. The investment return was affected by a positive return on bonds, shares and real property. The total return and the return on bonds are calculated inclusive of debt in the parent company and all returns are calculated inclusive of currency hedges. Asset allocation As shown in the subsequent table, the proportion of shares in the Group was 9.2 per cent as at 31 December 2003 relative to 8.0 per cent as at 31 December 2002, as shares worth DKK 351m were per cent of the total investment assets against 14.6 per cent at the end of 2002. As at 31 December 2003, the total investment portfolio of the Tryg Vesta Group was allocated with approximately DKK 13.9bn in the Danish companies, approximately DKK 10.7bn in the Norwegian Asset allocation DKKm 2003 % 2002 % Bonds etc. Shares Real property 21,035 82.9 2,341 2,009 9.2 7.9 17,903 1,840 3,371 77.5 8.0 14.6 acquired in 2003. During the same period of time, the Total 25,385 100.0 23,114 100.0 proportion of bonds was increased from approximately 77 per cent to approximately 83 per cent. Real property worth DKK 1,278 was sold in 2003, reducing the portfolio of investment properties to DKK 2.0bn or 7.9 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 55 of 98 Investment assets Bonds etc. Real property Return Investments Total (nominal) (%) (net) companies, and small amounts in the other companies of the Tryg Vesta Group. The net investments were approximately DKK 3.3bn in 2003. Tryg Vesta Group – investment assets, investments and return 31.12.2003 DKKm Denmark Norway Tryg-Baltica international Poland Estonia Chevanstell Total Shares 1,883 457 0 1 0 0 9,873 9,543 815 365 31 962 1,339 667 13,096 10,666 0 3 0 0 815 369 31 962 Tryg Vesta Group A/S 0 -554 0 -554 2,341 20,627 2,009 24,977 Total, Tryg Vesta Group 2,341 21,035 2,009 25,385 1,448 6.2 Return (nominal) (%) 328 16.9 906 4.9 215 6.9 1,448 6.2 699 701 29 18 1 37 1,448 -36 6.1 6.8 3.9 4.5 2.6 3.5 - - 2,491 1,097 118 5 4 -169 3,715 -243 3,302 Bond portfolio DKKm 2003 % 2002 % Norwegian money market, cash etc.* Danish mortgage bonds Other corporate bonds 3,041 6,400 1,512 14.5 30.4 7.2 Government bonds and money market 10,082 47.9 1,496 6,066 2,652 7,689 8.4 33.9 14.8 42.9 Total 21,035 100.0 17,903 100.0 * Excl. government certificates in the money market The return on the total bond portfolio in the Tryg Vesta Group, including cash funds and loans, was DKK 906m, corresponding to 4.9 per cent for the full year 2003, while the return on the bond portfolio, excluding cash funds, was 5.4 per cent in Tryg and 6.7 per cent in Vesta. By way of comparison, a Danish government bond index with a term to maturity of 1-5 years yielded 4.2 per cent in 2003. The proportion of money market placements increased during the financial year as a result of Vesta having had a large inflow of new funds. The Norwegian money market was very attractive in the beginning of the year with an interest rate of just over 6 per cent. But as a Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 56 of 98 result of the Norwegian central bank’s interest rate cuts The portfolio is well diversified and consists of high- from 6.50 per cent at the end of 2002 to 2.25 per cent at quality buildings, typically in prime locations in major the end of 2003, the money market rate is now close to cities in Denmark and Norway. The portfolio mainly the level in Denmark and the Euro area. comprises office property, but also a small proportion of other commercial property and residential property. The considerable reduction in the real property portfolio, which has taken place this year, has not affected the characteristics of the portfolio noticeably. Shares Most of the equities are in the Danish and Norwegian portfolios, while the Polish and Estonian portfolios and that of Tryg-Baltica international contain almost no shares. During the year, the Tryg Vesta Group’s equity portfolio has changed so that the ratio between domestic equities (Denmark and Norway) and foreign equities now is 25/75, relative to 45/55 at the end of 2002. Furthermore, most of the international share mandates were indexed in an American and a European portfolio, where they previously were active mandates and different in Denmark and Norway. The domestic mandates are still active, but with reduced possibility for deviating from benchmark. 93 per cent of the Tryg Vesta Group’s bond portfolio – equivalent to DKK19.5bn – comprises Danish mortgage bonds, placements in the Norwegian money market and government bonds. The remaining part is invested in other corporate bonds with credit quality corresponding to investment grade. In the first six months, Tryg’s portfolio with Eastern European government bonds was sold, both as a consequence of the potential for further spread narrowing being limited and of the currency exposure. At the end of 2002, the portfolio was DKK 282m. Furthermore, Tryg’s portfolio of mortgage deeds of about DKK 207m was sold in 2003. The option-adjusted duration, including cash and cash equivalents, of the entire Group’s bond portfolio was 1.83 years at 31 December 2003, relative to 1.85 years at 31 December 2002, due to, among other things, Vesta’s strong focus on the money market. Real property The investment return on real property was DKK 215m, corresponding to a total return of 6.9 per cent. At the end of 2003, the proportion of real property in Tryg was reduced by DKK 1.29bn, which corresponds to a halving of the Danish real property portfolio. At the end of 2003, the total proportion was 9.6 per cent relative to 23.5 per cent at the end of 2002. During the year, Vesta’s proportion of real property was reduced from 7.2 per cent to 6.3 per cent. At the end of 2003, the renting percentage was 94.3 per cent against 94.7 per cent at the end of 2002 in Tryg and 95.5 per cent against 95.6 per cent in Vesta. There are no noticeable real property investments in the other companies of the Group. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 57 of 98 Geographical spread, shares DKKm Danish Norwegian Other European North American Other Total 2003 % 2002 % 418 162 831 876 53 17.9 6.9 35.5 37.4 2.3 601 236 696 271 37 32.7 12.8 37.8 14.7 2.0 2,341 100.0 1,840 100.0 The financial year was very satisfactory for the international equity markets with good price rises and extraordinarily satisfactory for the Danish and Norwegian markets. For the financial year, the return on investments in equities was DKK 328m, equivalent to a return of 16.9 per cent. The Danish listed equities produced a yield of 21.4 per cent, whereas the Norwegian listed equities produced a yield of 24.6 per cent. The international listed equities produced a yield of 19.3 per cent. The total yield was negatively affected by the poor, relative performance of the non-indexed portfolios of listed equities and by the unsatisfactory return on unlisted and illiquid equities. Moreover, the calculation of the return was affected by considerable changes in the equity portfolio during the year. Unlisted equities amounted to DKK 226m against DKK 267m at the end of 2002, and in Vesta particularly, the unlisted equity portfolio carries great weight. Continuous efforts will be made to reduce this portfolio. The total yield on unlisted shares was –3.9 per cent. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 58 of 98 Targets reached in 2003 Focus areas In the Tryg Vesta Group’s financial statements for 2002, the Group presented the below-mentioned areas targeted for special initiatives in 2003: (cid:57) Outsourcing of IT production (cid:57) Cost savings Denmark In connection with the interim financial statements, the Group expected that the combined ratio, net of reinsurance, for the Danish general insurance operations would be improved by 2 percentage points relative to the originally expected 102 for the full year 2003. In connection with the presentation of the financial results for the nine months ended 30 September 2003, the expectations were that the combined ratio would be under 100 at the end of 2003. The combined ratio for the Danish general insurance operations was 96.9, which meets these expectations. (cid:57) Procurement in relation to claims Norway A new Nordic partnership outside banking and finance Group expected a combined ratio of 106 in 2003 for its In the financial statements for 2002, the Tryg Vesta (cid:57) Establishment of the Group’s management development programme Norwegian general insurance operations. In connection with the presentation of the financial results for the six months ended 30 June 2003, this expectation was downrated to a level a little below the originally The establishment of a new Nordic partnership outside expected 106. The combined ratio for Norwegian banking and finance is still the Tryg Vesta Group’s general insurance operations was 103.9, which is better target. This may both include partnership models in than expected. relation to product combinations and in relation to distribution like the collaboration with Nordea. Further, it may be in relation to procurement. During 2003, the Group has discussed different models and talked with various potential partners, but since focus mainly was on profitability, the target as to a new partnership did not materialise. Targets reached The Group’s profit on ordinary activities of DKK 789m meets the expectations of a satisfactory profit on ordinary activities before tax for the full year 2003. At 30 June 2003, the Group downrated its expectations to the technical result due to the relatively low technical interest. The Group’s technical result for 2003 was DKK 136m, which lives up to the expectations of a positive technical result. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 59 of 98 Outlook down administrative expenses, and by ensuring early awareness of and reaction to predictable developments. Strategic focus areas In 2004, the Tryg Vesta Group will work with six strategic focus areas. The six areas shall contribute to the materialisation of the company’s total strategy supported by a Balanced Scorecard. The company’s six strategic focus areas are: • Increased profitability Preserve and extend our present profitable customer base This means that the Tryg Vesta Group shall continue to be a customer-oriented company founded on close relations to its customers. The company determines and measures on current basis customer retention, satisfaction and loyalty at all levels of the company, and service programmes must exist which ensure a good dialogue with the customers. Minimum 90 per cent of the customers must renew their insurance policies in 2004 and function as ambassadors for the companies • Preserve and extend our present profitable of the Group. customer base • Adjust the resources and extend group synergies • Optimise the industrial portfolio Adjust the resources and extend Group synergies The individual companies of the Tryg Vesta Group must be brought closer together, and the interaction between the units of the Group must be encouraged. The Group • Growth in the personal and commercial portfolios will gather its resources to harvest synergies and create even better results in future to the benefit of • Create a common identity and establish shared shareholders, customers and employees. The Group values In addition, one of the focus areas from 2003 will remain in focus: • A new Nordic partnership outside banking and finance Increased profitability With this strategic focus area, the Tryg Vesta Group will ensure coherence between claims paid and earned premiums, and at the same time optimise the company’s expenses relative to earned premiums. The target is to reduce the company’s combined ratio to the target set for 2004 by identifying and fixing the correct price per risk, providing prudent and excellent claims handling enabling customers to understand the handling and settlement of their claims, implementing efficient work processes in the entire company to keep will specify the areas within which a coherent organisation, common processes, values and policies are to be established, and it will use resources on implementing new and up-to-date technology and on establishing a coherent IT strategy for the entire Group. Optimise the industrial portfolio The Tryg Vesta Group will improve the coherence between price, risk and return on shareholders’ equity within its industrial portfolio, and will continue its efforts to create a portfolio, which from an overall perspective is even more balanced. Based on a sound risk analysis, the Group will examine its industrial business area and improve its underwriting guidelines so that they reflect the actual capital expenditure and create an even better coherence between price and risk. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 60 of 98 Growth in the personal and commercial portfolios increase in the requirements to the combined ratio in The Tryg Vesta Group sees great possibility of growth order to maintain the return on the shareholders’ equity. in the existing profitable part of the personal and On the basis of the falling rates and other measures commercial portfolios in the Nordic region. The Group taken, the Group intensified its target for combined ratio will target and develop the profitable part of the in connection with the presentation of the financial portfolio, and turn single-product customers into multi- results for the nine months ended 30 September 2003. product customers. The Group will attract new Therefore, the combined ratio for 2004 was fixed close customers based on a managed process – always to 100 for 2004 – aiming at a level of about 95 for 2005. taking profitability into mind – and the Group will focus An ambitious but realistic target. on offering concepts creating peace of mind, rather than on selling single products. Create a common identity and establish shared values By this strategic focus area, the Tryg Vesta Group means that focus must be on establishing one common identity and a set of shared values, which will serve as guidance for all of the Group’s activities in relation to customers, partners and employees. The Tryg Vesta Group is a Nordic insurance business based on Nordic values, and the employees must perceive their workplace as one united Group. Areas where it is These expectations are still intact. In order to reflect the natural movements in the business, the target for 2004 has been expressed by an interval delimited by “favourable development” and “negative development”. This allows for external circumstances, which are beyond the control of the Tryg Vesta Group. Such external circumstances may affect earnings – and consequently also the level of the combined ratio. A mild winter, few storms, few large losses and loyal customers affect the financial results positively, whereas a winter with changeable weather, many heavy storms and relatively many large losses will have crucial to share a common approach, and areas where a negative effect. To be specific, this means – as the national differences and characteristics of the Group mentioned under the paragraph on risk management – will continue to be its competitive strength, must be specified. Targets and policies will be established centrally – but business will be carried out locally. Targets In the financial statements for 2002, the Tryg Vesta Group expressed its expectations for a combined ratio of 102 in 2004 and 100 in 2005. In connection with the presentation of the financial results for the six months ended 30 June 2003, these expectations were preserved. But in connection with the financial results that should the Tryg Vesta Group incur a claim of between DKK 100m and DKK 300m, it would affect the combined ratio, net of reinsurance, by between 0.5 percentage point and 0.7 percentage point, and would impact the financial results by between DKK 65m and DKK 95m. While a storm in Denmark resulting in claims between DKK 600m and DKK 3bn, would affect the Group’s combined ratio, net of reinsurance, by 1.3 percentage point to 1.7 percentage point, corresponding to a negative effect on the result of DKK 185m to DKK 240m. for the nine months ended 30 September 2003, the The movements have been illustrated by the results achieved so far by the Group as well as the subsequent graph. increased focus on earnings within the actual insurance operations motivated an upgrading of the expectations. The background of focusing on earnings was the falling interest rates. A fall in the interest rates causes an Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 61 of 98 Combined ratio: Actual, targets and scenarios The return on investments for 2004 is expected to be 112 103 115 110 105 100 95 90 DKK 300-400m after transfer of technical interest, corresponding to a return on investment assets of 3.8 per cent. The expectations to the return on investments are based on the assumption that shares will produce a yield of 7.2 per cent, bonds a yield of 3.5 per cent and real property investments 6.8 per cent for the full year 100 2004. 95 The expectations to the profit/loss on ordinary activities before tax correspond to a return on the shareholders’ equity before tax of 14 per cent for 2004. On the whole, all expectations relate to 2004 and quarterly deviations are expected during the year – for instance seasonal variations resulting from the weather. 2002 2005 2004 2003 Actual Expected Negative development Favourable development Previously expected As mentioned, the Tryg Vesta Group has a target for a combined ratio of 100 for 2004. As a result of the risks involved in the operations, this means an expected combined ratio for 2004 within the level 98-102. Expectations to the results for 2004 DKKm Technical result Profit on investments Operating profit pre-tax Combined ratio (%) Actual 2003 136 675 789 102.8 Expected Favourable Negative 2004 development development 475 300 750 100 700 150 98 102 The reason for the relatively large spread in the expectations to the technical result is that a deviation of one percentage point in relation to the combined ratio will affect the financial results by approximately DKK 150m in case of anticipated earned premiums, net of reinsurance, of DKK 15bn in 2004. During the year, the Tryg Vesta Group will relate the actual results to the expectations and targets, and examine whether deviations, if any, merely result from operational movements or from actual deviations from the targets. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 62 of 98 Management’s signatures financial position and results as wells as cash flows of the Group. Today, the annual report for 2003 for Tryg Vesta Group annual report be adopted. We propose to the Annual General Meeting that the A/S and the Tryg Vesta Group was considered by the Supervisory Board and the Executive Management and approved by the Supervisory Board. The annual report has been prepared in accordance with the Danish Consolidated Insurance Business Act and the Danish Financial Supervisory Authority’s executive orders. We consider the accounting policies adopted appropriate to the effect that the annual report gives a true and fair view of the assets and liabilities, Ballerup, 17 March 2004 Executive Management Stine Bosse Erik Gjellestad Morten Hübbe /Fatiha Benali Supervisory Board Mikael O. Olufsen Chairman Mogens Jacobsen Deputy Chairman Per Skov Deputy Chairman Jørn Wendel Andersen John R. Frederiksen Jørn Hesselholt Håkon J. Huseklepp Jens Lyngbo Peter Wagner Mollerup Birthe Petersen Niels Erik Schultz-Petersen Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 63 of 98 Internal auditors’ report We have audited the annual report of Tryg Vesta Group A/S for the financial year 2003. Supplementary information As appears from the applied accounting policies on The annual report is the responsibility of the company’s page 66-67, the annual report contains pro forma Management. Our responsibility is to express an comparative figures for the financial years 2000, 2001 opinion on the annual report based on our audit. and 2002 for the Group. The Tryg Vesta Group was established on 28 June 2002 via payment in kind of the Nordea AB Group’s general insurance activities in Tryg Vesta Group A/S. Therefore, the pro forma figures represent accounting figures for a period of time during which the Group did not exist as a legal entity. Reference is made to the Executive Management’s description of the basis for stating the pro forma figures. We agree with the Executive Management on its comments on pro forma comparative figures and support the view that the pro forma comparative figures add increased informative value to the technical operations. Basis of opinion We conducted our audit on the basis of the Danish Financial Supervisory Authority’s executive order on the presentation of consolidated financial statements by financial enterprises and financial Groups and in accordance with Danish Auditing Standards. Based on materiality and risk we have evaluated the business procedures, the accounting policies used and the significant estimates made and verified the basis for amounts and disclosures in the annual report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not resulted in any qualifications. Opinion In our opinion, the annual report gives a true and fair view of the Group and parent company’s assets, liabilities and financial positions at 31 December 2003 and of the results of the Group and the parent company’s operations and of the Group’s cash flows for the financial year 2003 in accordance with Danish Accounting Standards. Ballerup, 17 March 2004 Gert Stubkjær Chief Internal Auditor Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 64 of 98 Auditors’ report To the shareholder of Tryg Vesta Group A/S We have audited the annual report of Tryg Vesta Group A/S for the financial year 2003. The annual report is the responsibility of the company’s Management. Our responsibility is to express an opinion on the annual report based on our audit. Basis of opinion We conducted our audit in accordance with Danish Auditing Standards. These standards require that we plan and perform the audit to obtain reasonable assurance that the annual report is free of material misstatement. An audit included examining, on a test basis, evidence supporting the amounts and disclosures in the annual report. An audit also included assessing the accounting policies used and significant estimates made by the Management, as well as evaluating the overall annual report representation. We believe that our audit provides a reasonable basis for our opinion. Our audit has not resulted in any qualifications. Opinion In our opinion, the annual report gives a true and fair view of the Group and parent company’s assets, liabilities and financial positions at 31 December 2003 and of the results of the Group and the parent company’s operations and of the Group’s cash flows for the financial year 2003 in accordance with Danish Accounting Standards. Supplementary information As appears from the applied accounting policies on page 66-67, the annual report contains pro forma comparative figures for the financial years 2000, 2001 and 2002 for the Group. The Tryg Vesta Group was established on 28 June 2002 via payment in kind of the Nordea AB Group’s general insurance activities in Tryg Vesta Group A/S. Therefore, the pro forma figures represent accounting figures for a period of time during which the Group did not exist as a legal entity. Reference is made to the Executive Management’s description of the basis for stating the pro forma figures. We agree with the Executive Management on its comments on pro forma comparative figures and support the view that the pro forma comparative figures add increased informative value to the technical operations. Copenhagen, 17 March 2004 Deloitte Grant Thornton Statsautoriseret Revisionsaktieselskab Statsautoriseret Revisionsaktieselskab Lone Møller Olsen Thomas Elsborg Jensen Christian Fløistrup State Authorised State Authorised Public Accountant Public Accountant State Authorised Public Accountant Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 65 of 98 Accounting policies Basis of preparation The consolidated financial statements and financial statements of Tryg Vesta Group A/S have been prepared in accordance with the Danish Consolidated Insurance Business Act and the Danish Financial Supervisory Authority’s executive orders on the presentation of consolidated financial statements by insurance companies and financial statements by general insurance companies. In principle, the parent company, Tryg Vesta Group A/S, is subject to the provisions of the Danish Financial Statements Act. As the object of the parent company is to own subsidiary undertakings whose activities are primarily focused on insurance business, the parent company financial statements have been presented in accordance with the Danish Consolidated Insurance Business Act to which the consolidated financial statements are subject. Apart from the changes described below, the accounting policies are unchanged from last year. ‘Intangible assets’ includes capitalised development costs and software, which are amortised on a straight- line basis over four years. With reference to the transitional provisions of section 83(3) of the executive order on general insurance companies relating to recognition and measurement of goodwill, development costs and software in future periods, comparative figures have not been restated. The above changes in the accounting policies do not affect the results for the year and shareholders’ equity. A few items in the income statement and balance sheet have been reclassified relative to last year. The reclassifications do not affect the results and shareholders’ equity. International accounting standards The Tryg Vesta Group intends to implement international accounting standards for the consolidated financial statements as at 1 January 2005. The Group has set up a working group to analyse the impact on the Group’s financial reporting of implementing the international accounting standards. The rules for accounting for goodwill, development Pro forma comparative figures costs and software were changed effective 1 January The management’s review, the financial highlights and 2003. Goodwill, development costs and software key ratios, the income statement and the notes to the acquired after 1 January 2003 are recognised and financial statements present pro forma comparative measured as follows: Any difference (goodwill) at the time of acquisition between the cost and the proportionate share of the acquired undertakings’ shareholders’ equity made up in figures for 2000, 2001 and 2002 prior to the formation of Tryg Vesta Group A/S as at 28 January 2002 and the company’s subsequent acquisition of the general insurance activities of Nordea AB as at 28 June 2002. accordance with the accounting policies applied by Tryg These sections of the annual report specify where pro Vesta Group A/S is recognised in the item ‘Intangible forma comparative figures are included. Pro forma assets’. Goodwill is amortised on a straight-line basis comparative figures are included in the annual report in over the expected useful life. order to make the annual report more informative with respect to the technical operations of the general insurance companies forming part of the Tryg Vesta Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 66 of 98 Group irrespective of the former ownership of the more than 50 per cent of the voting rights or is companies. otherwise able to exercise or actually exercises a Pro forma comparative figures are stated on the basis of a consolidation of the companies forming part of the Group as at 31 December 2003. See the Group overview on page 92. The following should be taken into account when evaluating the pro forma comparative figures: controlling influence. Minority interests The proportionate share of the profit and shareholders’ equity of subsidiaries attributable to minority interests is stated separately in the statement of the consolidated profit and consolidated shareholders’ equity. Tryg Forsikring A/S and Vesta Forsikring AS are stated Basis of consolidation net of their life and pension insurance activities, which The consolidated financial statements are prepared on were operated by wholly-owned subsidiaries. Tryg Polska SA and Nordicum Kindlustuse Eesti AS are included from the date when the companies were the basis of the financial statements of the parent company and its subsidiary undertakings by adding items of a uniform nature. acquired by Tryg Forsikring A/S and the Nordea Group, The financial statements of undertakings that present respectively. Insurance portfolios acquired from other companies, such as Zurich’s Danish and Norwegian general insurance portfolio, are included from the date of acquisition of the relevant portfolio. Tryg Ejendomme I A/S, which was divested on 31 December 2003, is included in the pro forma figures for the full period. Where the accounting policies have been changed during the period, the comparative figures of each financial statements under other legislative rules are restated to the accounting policies applied by the Group unless the result of such restatement is immaterial to the true and fair view. On consolidation, intragroup income and expenses, intragroup accounts and dividends, and gains and losses arising on transactions between the consolidated undertakings are eliminated. Shares in subsidiary undertakings are set off against the parent company’s proportionate share of the shareholders’ equity of the undertakings at 31 company have to the extent possible been adjusted on consolidation to comply with the current accounting December. policies. Such adjustments have only a minor impact on Goodwill arising on acquisitions represents the the amounts of the pro forma figures. difference at the time of acquisition between the acquisition price and the proportionate share of the Consolidated financial statements shareholders’ equity of the acquired undertaking made The consolidated financial statements comprise the up in accordance with the accounting policies applied financial statements of Tryg Vesta Group A/S (the by Tryg Vesta Group A/S. The full amount of goodwill parent company) and undertakings (subsidiary was previously amortised through the income statement undertakings) controlled by the parent company. See in the year of acquisition. As from and including the the Group overview on page 92. Control is achieved 2003 financial year, goodwill is capitalised. See ‘Basis where the parent company directly or indirectly holds of preparation’ above. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 67 of 98 Newly acquired or divested subsidiary undertakings are Technical interest consolidated at the results for the period subsequent to Technical interest represents a calculated return on the acquisition or prior to divestment, respectively. average technical provisions. The interest rate applied Any gains or losses arising on divestment of subsidiary undertakings are included in the income statement under ‘Investment gains or losses’. Currency translation The results of foreign subsidiary undertakings are based on translation of the items in the income statement at quarterly average exchange rates. Income and expenses in domestic undertakings denominated in foreign currency are translated at the exchange rate ruling on the date of the transaction. Assets and is the year’s average pre-tax yield to maturity on all bonds with a term to maturity of less than three years. Claims incurred Claims incurred represent claims paid during the year adjusted for changes in provisions for claims less reinsurers’ share. Amounts to cover expenses incurred to combat and contain losses and to survey and assess claims are included in the item. In addition, the item includes run-off results regarding previous years. The part of the increase in technical provisions that can be ascribed to discounting is transferred to technical liabilities denominated in foreign currency are translated interest. at the exchange rate at year-end. All currency translation gains and losses are included in the income statement under the item ‘Exchange rate adjustments’. Intragroup transactions Intragroup services are settled on a cost-covering basis or on market terms. Bonus and premium rebates Bonus and premium rebates represent anticipated and reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been laid down prior to the financial year or when the business was written. Insurance operating expenses Intragroup transactions in securities and other Insurance operating expenses represent acquisition investment assets are settled at market value. costs and administrative expenses less reinsurance Income statement Earned premiums and claims incurred in relation to general insurance comprise general insurance as well as simple types of cover on death related to general insurance policies written by the general insurance companies. Premiums Earned premiums represent gross premiums during the year, net of outward reinsurance premiums and changes in unearned premium provisions, commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Administrative expenses are accrued to match the financial year. Depreciation is charged on a straight-line basis over three to five years. Minor acquisitions costing less than DKK 100,000 are recognised as an expense in the year of acquisition, except for assets acquired as part of a specific project. Computer equipment held under finance leases is recognised and depreciated as if purchased by the company. corresponding to an accrual of premiums to the risk Costs are based on estimated time consumed or the period of the policies. Annual Report 2003 The Tryg Vesta Group estimated cost charge and are distributed in the 18 March 2004 page 68 of 98 statement by line of insurance and between acquisition Extraordinary items and administrative expenses. Reinsurance accepted Premiums, claims and commissions relating to Extraordinary items include amounts which by their nature are unusual for the company and which are clearly different from the ordinary operations. reinsurance accepted are generally included in the Tax income statement on an estimated and assessed basis The item ‘Tax’ represents estimated Danish and foreign and accrued relative to expiry of the contracts. corporation taxes for the year and movements in Commissions relating to unearned premium provisions deferred tax or tax asset. Tax on the profit for the year are included under ‘Prepayments and accrued income’. is calculated based on the pre-tax profit for the year Investment activities Profit from group undertakings includes the parent company’s share of the profit on ordinary activities of the subsidiary undertakings. Exchange differences arising on the translation of the net asset value of foreign subsidiary undertakings at the beginning of the year are included under the item ‘Exchange rate adjustments’. adjusted for non-taxable income and expenses. Tryg Vesta Group A/S is jointly taxed with the parent company Tryg i Danmark smba and the majority of the company’s subsidiary undertakings, including the subsidiary Tryg Forsikring A/S. Tax relating to the jointly taxed income is recognised in the jointly taxed Danish companies in proportion to their profit. Changes in deferred taxes or deferred tax assets are recognised in the companies having the liability or the claim. Income from land and buildings before value adjustment represents the profit from property Balance sheet operations less property management expenses. Intangible assets Interest, dividends etc. represent interest earned, dividends received etc. during the financial year. In addition, the item includes gains and losses on bonds drawn for redemption. Realised and unrealised investment gains and losses, including value adjustment of land and buildings, are recognised in the income statement. Development costs and capitalised software are measured at cost less amortisation. The assets are amortised on a straight-line basis over four years from the date they are taken into use. Goodwill acquired after 1 January 2003 is measured as the difference at the time of acquisition between the cost and the proportionate share of the acquired undertaking’s shareholders’ equity made up in Realised and unrealised gains and losses on derivative accordance with the accounting policies applied by Tryg financial instruments are also recognised in the income Vesta Group A/S. Goodwill is amortised on a straight- statement. line basis over the expected useful life. Investment management charges represent expenses relating to the management of investments. Brokerage and commission have been included in the purchase and sales price of the investment assets. Investments Land and buildings Land and buildings are measured at market value in accordance with the guidelines issued by the Danish Financial Supervisory Authority. The guidelines provide Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 69 of 98 for the market value of the Group’s land and buildings Other assets to be determined based on a systematic annual assessment of each individual property taking into account expected future operating return and a return requirement for each property. New developments and property under construction are measured at cost. Capital participation in subsidiary undertakings Capital participation in subsidiary undertakings is measured at the parent company’s proportionate share of the subsidiary undertakings’ shareholders’ equity at 31 December made up in accordance with the Group’s accounting policies. Listed shares, unit trust units, bonds etc. Listed shares, unit trust units, bonds etc. are measured at the most recent prices quoted at the end of the year. Unquoted shares, fixed-interest loans etc. are measured at a conservatively estimated market value at the end of the year based on the companies’ most recent financial statements available. Operating equipment Operating equipment is measured at cost less accumulated depreciation. Operating equipment is depreciated on a straight-line basis over the estimated useful economic lives of the assets, which are three to five years. Computer equipment held under finance leases is treated as if purchased by the company. The lease debt is included in ‘Other debt’. Tax asset The tax asset comprises deferred net tax assets calculated as 30 per cent of the present value of net positive timing differences between accounting and taxable values, plus tax losses to the extent they are expected to be offset against future taxable income. Accruals and deferred income Prepaid acquisition costs mainly comprise the part of commission expenses to other insurance companies etc. relating to unearned premiums provisions. Derivative financial instruments Other accruals and deferred income comprise prepaid Derivative financial instruments are measured at the expenses and claims expenses paid in respect of future market value at the end of the year. Derivative financial settlements with cedants. instruments are used to the extent they enable the Group to manage its assets and liabilities more efficiently, thereby reducing risk or causing only a small increase in risk. Dividend Proposed dividends are recognised as a liability when adopted by the shareholders at the general meeting. Dividends expected to be declared for the year are Deposits with ceding undertaking, receivable shown in the profit allocation. Deposits comprise amounts owed to the company in respect of reinsurance business accepted, and retained Technical provisions by the ceding undertaking pursuant to the reinsurance contract. Amounts owing Unearned premium provisions represent the proportion of premiums and reinsurance premiums collected which relates to subsequent financial years. Amounts owing are measured at nominal value less a Provisions for claims represent amounts to cover claims provision for any losses. Annual Report 2003 The Tryg Vesta Group incurred before the balance sheet date, whether 18 March 2004 page 70 of 98 reported or not. Provisions for claims are calculated on Provisions for other risks and charges the basis of information available concerning the extent Provisions for other risks and charges comprise of the losses plus an amount based on past experience amounts intended to cover liabilities or expenses to cover claims incurred but not reported. The attributable to the past financial year or prior financial provisions include direct costs of combating, containing, years, and which on the balance sheet date are likely or inspecting and assessing claims. Long-tail provisions certain, but uncertain in respect of size or time of calculated using statistical methods are discounted. payment. Provisions for bonus and premium rebates represent The commitment relating to the pension scheme in amounts expected to be paid to policyholders in view of Vesta, which is a defined benefit plan, has been marked the claims experience during the financial year. to estimated market employing Norwegian assumptions in relation to the long-term real economy, pension and Provisions for annuities relate to compulsory Workers’ Compensation insurance in Denmark, which is settled mortality. by payment of annuities. The provisions are calculated Provisions for tax comprise deferred net tax amounts using actuarial principles at the present value by calculated as 30 per cent of the present value of net discounting expected future payments. positive timing differences between accounting and Equalisation provisions represent amounts included to equalise future claims, net of reinsurance, in areas where experience has shown that claims vary. Equalisation provisions in credit and guarantee insurance are calculated in accordance with rules laid down by the Danish Financial Supervisory Authority. For Workers’ Compensation insurance in Denmark, equalisation provisions are calculated as the difference between the technical provisions made up at basic interest rates of 2.00 per cent and 2.75 per cent, respectively. In addition, equalisation provisions comprise the compulsory Norwegian Pool of Natural Perils in Vesta, Norway. The rules governing the setting up and application of equalisation provisions are laid down by the regulatory authorities of the relevant countries. taxable values less tax losses to the extent that they are expected to be offset against future positive taxable income. Deferred tax is not provided on untaxed contingency reserves. It is not expected that future movements in technical provisions will result in a crystallisation of tax on the contingency reserve. The untaxed contingency reserves are disclosed in the notes to the financial statements under shareholders’ equity. Deposits with ceding companies, payable Deposits comprise amounts due in respect of reinsurance business accepted and retained pursuant to the reinsurance contracts. Debt Debt is generally measured at nominal value. Other technical provisions represent provisions for risk not yet run off. The provisions represent the amounts Cash flow statement deemed necessary, in addition to unearned premiums The cash flow statement is presented in accordance provisions and future premium rates, to cover future, with the indirect method based on premiums. anticipated expenses and settlement of claims not yet incurred within the period of coverage of the policies. The cash flow statement shows the actual inflow and outflow of payments for the year divided into cash inflow Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 71 of 98 from operations, and changes in liquidity resulting from purchases or sales of investments as well as funding activities. The item ‘Cash and cash equivalents’ comprises cash at bank and at hand and demand deposits. . Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 72 of 98 Income statement, balance sheet and cash flow statement, the Tryg Vesta Group Income Statement DKKm Note General Insurance Earned Premiums Gross premiums written Ceded reinsurance premiums Change in the gross provisions for unearned premiums Change in the reinsurers' share of the provisions for unearned premiums 1 2 Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred Gross claims paid Reinsurance recoveries Change in the gross provisions for claims Change in the reinsurers' share of the provisions for claims 3 Claims incurred, net of reinsurance Change in other insurance provisions, net of reinsurance Bonus and premium rebates Insurance operating expenses Acquisition costs Administrative expenses Acquisition costs and administrative expenses Commission and profit commission from the reinsurers 4 Total insurance operating expenses, net of reinsurance Change in the equalisation provisions 5 Technical result 2003 17,053 -2,552 336 -215 14,622 641 -10,967 1,672 -1,808 -256 -11,359 15 -56 -2,080 -1,885 -3,965 339 -3,626 -101 136 Pro forma 2002 28.01.-31.12.2002 *) 17,073 -3,730 -11 39 13,371 899 -11,992 2,528 -1,255 -583 -11,302 17 -60 -2,038 -2,091 -4,129 552 -3,577 -199 -851 7,230 -1,771 2,001 -357 7,103 449 -5,769 1,194 -1,030 -269 -5,874 12 -34 -1,037 -1,044 -2,081 321 -1,760 -181 -285 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 73 of 98 Income Statement DKKm Note Investment activities Income from investment assets Income from non-consolidated undertakings Income from land and buildings Interest and dividends, etc. Realised gains on investment assets 6 7 Total income from investment assets 7 Unrealised gains on investment assets Charges relating to investment assets Investment management charges Interest expenses Total charges relating to investment assets 7 Unrealised losses on investment assets Exchange rate adjustments Return on investment activities before transfer to insurance activities 2 Technical interest transferred to insurance activities Total return on investment activities 4 Other ordinary expenses Profit/loss from ordinary activities before tax 8 Extraordinary expenses Profit/loss before tax 9 Tax Profit/loss for the year The minority interests share of the profit/loss Tryg Vesta Group's share of the profit/loss for the year 2003 Pro forma 2002 28.01.-31.12.2002 *) 0 193 883 165 1,241 476 -55 -77 -132 0 -137 1,448 -773 675 -22 789 0 789 -48 741 1 742 17 230 978 286 1,511 0 -49 -34 -83 -450 -136 842 -1,017 -175 -52 -1,078 -1,256 -2,334 243 -2,091 0 -2,091 0 112 541 60 713 0 -18 -19 -37 -3 -62 611 -518 93 -52 -244 -1,482 -1,726 47 -1,679 0 -1,679 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 74 of 98 Balance Sheet as at 31 December DKKm Note Assets 10 Intangible assets 11 12 Investment assets Land and buildings Other financial investment assets Capital participation Unit trust units Bonds Loans secured by mortgage Other loans Deposits in credit institutions 13 Total other financial investment assets Deposits with ceding undertakings, receivable Total investment assets Amounts owing Amounts owing in connection with direct insurance business From policyholders From insurance brokers Total amounts owing in relation to direct insurance business Amounts owing from insurance companies Amounts owing from subsidiary undertakings 14 Other amounts owing Total amounts owing Other assets Furniture, equipment, computer hardware, motor vehicles, etc. Cash in hand and at bank Tax assets Other 15 Total other assets Prepayments and accrued income Accrued interest and rent earned Prepaid acquisition costs Other prepayments and accrued income Total prepayments and accrued income Total assets Total assets to cover the Danish companies' insurance provisions 2003 2002 2002 39 2,009 2,323 18 19,968 0 70 415 22,794 142 29,945 803 478 1,281 1,474 51 1,810 4,616 392 558 425 9 1,384 262 41 72 375 31,359 16,791 0 #REFERENCE! 3,371 1,825 14 17,785 200 73 291 3,526 #REFERENCE! #REFERENCE! 17,785 200 73 291 20,188 #REFERENCE! 147 147 23,706 #REFERENCE! 1,098 764 1,862 1,358 408 468 735 282 86 355 723 1,098 764 1,862 1,358 0 408 3,628 468 735 495 7878 #REFERENCE! #REFERENCE! #REFERENCE! 1,776 #REFERENCE! 282 86 355 723 29,833 #REFERENCE! - Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 75 of 98 Balance Sheet as at 31 December DKKm Note Liabilities 16 Shareholders' equity Share capital Share premium account Retained profits Total shareholders' equity Minority interests Subordinate loan capital Insurance provisions Provisions for unearned premiums Gross provisions The reinsurers' share Provisions for unearned premiums, net of reinsurance Provisions for claims 17 Gross provisions The reinsurers' share Provisions for claims, net of reinsurance Provisions for annuities by Workers' Compensation Gross provisions Provisions for annuities, net of reinsurance 18 Provisions for bonuses and premium rebates, net of reinsurance Equalisation provisions 19 20 Other insurance provisions, net of reinsurance Total insurance provisions, net of reinsurance Provisions for other risks and charges Provisions for pensions and similar obligations 21 Other provisions Total provisions for other risks and charges Deposists with ceding undertakings, payable Debt Debt related to direct insurance Debt related to reinsurance Debt to credit institutions Corporation tax Other debt Dividend for the financial year 22 Total Debt Accruals and deffered income Total liabilities 2003 2002 2002 1,700 2,968 692 5,360 4 700 5,239 -393 4,846 18,212 -3,324 14,888 1,159 1,159 76 1,424 82 22,475 141 179 320 0 391 520 656 22 647 50 2,286 214 31,359 1,300 2,968 0 4,268 1010 0 5,711 -667 5,044 17,836 -3,965 13,871 1,139 1,139 64 1,438 50 1,300 #REFERENCE! #REFERENCE! 0 0 5,711 -667 5,044 17,836 -3,965 13,871 1,139 1,139 64 1,438 51 21,606 #REFERENCE! 185 352 537 6 425 580 1,249 3 953 0 3,210 196 #REFERENCE! 185 352 6 425 580 1,249 3 953 0 #REFERENCE! 196 29,833 #REFERENCE! Forward transactions, etc. 23 Capital adequacy 24 25 Contingent liabilities 26 Intra-group transactions Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 76 of 98 Cash flow statement DKKm Cash generated from operations Premiums Claims paid Ceded business Expenses Change in other payables and other amounts receivable Cash flow from insurance activities Interest and dividends Taxes Total cash generated from operations Investments Acquisition/sale of real property (net) Acquisition/sale of equity investments and unit trust units (net) Purchase/sale of bonds (net) Purchase/sale of secured loans and other loan (net) Purchase/sale of operating equipment (net) Acquisition of subsidiaries Total investments Funding Capital increase Subordinate loan capital Change in debt to credit institutions Total funding Changes in cash and cash equivalents, net Price adjustment of cash and cash equivalents, beginning-of-year Additions relating to acquisition of subsidiaries Changes in cash and cash equivalents, gross Cash and cash equivalents, beginning-of-year Cash and cash equivalents, year-end Cash and cash equivalents comprise cash balance and demand deposits. 2003 17,479 -11,076 -562 -3,542 -254 2,045 1,393 -256 3,182 22 -394 -3,464 210 -56 -6 -3,688 400 700 -717 383 -123 -54 -177 735 558 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 77 of 98 Notes DKKm 1 Earned premiums, net of reinsurance Direct insurance Indirect insurance Ceded reinsurance premiums Direct insurance, by location of the risks Denmark Other EU countries Other countries 2 3 Technical interest, net of reinsurance Transferred from investment activities Discounting Claims incurred, net of reinsurance Direct business Indirect business Reinsurance recoveries Run-off gains/losses previous years, net of reinsurance Run-off previous year, gross Run-off previous year, reinsurers' share 2003 16,468 921 17,389 -2,767 14,622 8,114 226 8,128 16,468 773 -132 641 -12,268 -507 -12,775 1,416 -11,359 -1,215 516 -699 Pro forma 2002 28.01.-31.12.2002 *) 16,006 1,056 17,062 -3,691 13,371 7,314 279 8,413 16,006 1,017 -118 899 -12,524 -723 -13,247 1,945 -11,302 -620 -8 -628 8,671 561 9,232 -2,129 7,103 3,920 155 4,596 8,671 518 -69 449 -6,382 -417 -6,799 925 -5,874 -270 -105 -375 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 78 of 98 Notes DKKm 4 Insurance operating expenses, net of reinsurance Commission regarding direct business Other acquisition costs Total acquisition costs Total administrative expenses Insurance operating expenses, gross Commission, etc. from reinsurers Insurance operating expenses, gross includes the following staff expenditure: Salaries and wages Commission Pensions Other expenses to social security Payroll tax, etc. Average number of full-time employees during the year Administrative expenses include fee to the auditors appointed by the Annual General Meeting Deloitte Grant Thornton KPMG Of which services other than audit Deloitte KPMG Beyond this, other ordinary expenses are defrayed to the Group's Internal Audit Department. Other ordinary expenses Holding expenses form part of other ordinary expenses Remuneration for the Executive Management is paid by Tryg Forsikring A/S and Vesta Forsikring AS and is charged to Tryg Vesta Group A/S via the cost allocation. Remuneration for the Executive Management Remuneration for the Supervisory Board 2003 -655 -1,425 -2,080 -1,885 -3,965 339 -3,626 -1,657 -9 -231 -120 -97 -2,114 -4,438 -11.1 -0.6 0.0 -11.7 -5.0 0.0 -5.0 -22 7 2 Pro forma 2002 28.01.-31.12.2002 *) -527 -1,511 -2,038 -2,091 -4,129 552 -3,577 -1,775 -7 -239 -163 -118 -2,302 4,437 -10.8 0.0 -2.2 -13.0 -4.6 -0.5 -5.1 -52 - - -219 -818 -1,037 -1,044 -2,081 321 -1,760 -940 -3 -37 -97 -55 -1,132 4,437 -3.6 0.0 -0.6 -4.2 -3.5 -0.4 -3.9 -52 - - Incentive schemes based on shares have not been made with the Executive Management. But the Executive Management has earned bonuses of DKK 2,5m for 2003. *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 79 of 98 Notes DKKm 5 Technical result, net of reinsurance, distributed on business lines 1 1 2 3 4 5 Accident and health insurance Workers' compensation insurance Motor TPL Comprehensive motor insurance Marine, aviation and cargo 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 2,597 2,544 3,079 2,973 2,679 -2,477 2,421 -2,082 3,080 -1,798 2,966 -2,070 10 -2 -514 -36 -1 152 -189 92.2 19.2 7 -1 -591 -40 -13 190 -108 85.7 24.4 0 -38 -607 -8 -1 62 691 59.1 20.0 0 -42 -632 -50 3 85 260 70.8 21.6 773 945 -723 0 -3 -214 -182 -1 28 -149 76.7 22.7 1,334 1,385 -888 0 -7 -371 -418 66 53 -179 64.4 26.9 Liability 2003 2002 Credit and guarantee insurance 2002 2003 Other insurance 2003 2002 764 802 -593 0 0 -179 -97 -20 45 -42 73.9 22.3 699 714 -386 0 0 -180 -158 -4 64 51 54.1 25.2 130 132 10 7 0 -40 -36 0 6 80 -12.8 30.3 120 122 -6 0 0 -50 -33 0 9 42 5.1 40.9 1,437 1,459 1,478 -1,035 1,521 -881 0 0 -518 39 -67 71 -32 70.1 35.0 5 0 -475 -275 -5 34 -78 57.6 31.3 Gross premiums Gross earned premiums Gross claims incurred Change in other technical provisions Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Change in equalisation provisions Technical interest, net of reinsurance Technical result Gross claims ratio Gross expense ratio 1,960 1,974 1,987 -2,063 2,000 -2,016 -2 -3 -489 -13 0 111 -471 4 -1 -491 75 -1 147 -281 806 789 -897 0 0 -109 -30 -15 12 -250 774 810 -979 0 0 -141 -5 -5 66 -254 104.1 100.6 113.6 120.8 24.6 24.5 13.8 17.4 Fire and contents (personal) 2003 2002 Fire and contents (commercial) 2003 2002 Gross premiums 2,833 2,682 2,675 2,514 Gross earned premiums Gross claims incurred Change in other technical provisions Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Change in equalisation provisions Technical interest, net of reinsurance Technical result Gross claims ratio Gross expense ratio Gross premiums Gross earned premiums Gross claims incurred Change in other technical provisions Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Change in equalisation provisions Technical interest, net of reinsurance Technical result Gross claims ratio Gross expense ratio 2,768 -1,940 2,560 -1,948 2,728 -1,260 2,563 -1,993 0 -8 -663 -71 8 78 172 70.3 24.0 0 -3 -601 -95 -51 128 -10 76.2 23.5 0 -2 -633 -579 -3 74 325 46.2 23.2 0 -5 -598 -195 -189 123 -295 77.9 23.4 Total 2003 2002 17,053 17,073 17,389 -12,775 17,062 -13,247 15 -56 -3,965 -1,013 -101 641 136 73.6 22.9 17 -60 -4,129 -1,194 -199 899 -851 77.8 24.3 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 80 of 98 Notes DKKm 6 7 Interest and dividends, etc. Dividends on capital participation Interest on securities, etc. Capital gains by drawing and servicing of securities, etc. Realised and unrealised gains/losses on investment assets Land and buildings Other capital participation Bonds listed on the stock exchange excl. index-linked bonds Mortgage loans Other loans and advances Allocated to the following items Net realised gains/losses on investment assets Net unrealised gains/losses on investment assets 8 Extraordinary expenses Goodwill in connection with acquisition of subsidiares Restructuring and run-off expenses 9 Taxation Taxation regarding previous years Current tax Dividend tax foreign equities Change in deferred tax assets Tax prepaid 2003 Pro forma 2002 28.01.-31.12.2002 *) 52 917 -86 883 21 252 361 7 0 641 165 476 641 0 0 0 52 -29 -3 -68 -48 250 46 949 -17 978 57 -889 670 0 -2 -164 286 -450 -164 -956 -300 -1,256 10 185 -1 49 243 0 9 542 -10 541 51 -447 455 0 -2 57 60 -3 57 -1,182 -300 -1,482 12 57 -1 -21 47 0 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 81 of 98 Notes DKKm 10 Intangible assets Acquisition sum Balance 1 January Additions during the year Balance 31 December Amortisation and write-downs Balance 1 January Amortisation during the year Balance 31 December Book value 31 December 11 Land and Buildings Acquisition sum Balance 1 January Forein exchange adjustment, beginning-of-year Additions by the acquisition of subsidiares Additions during the year Disposals during the year Balance 31 December Write-ups Balance 1 January Additions by the acquisition of subsidiaries Write-ups during the year Reversal of revaluation Revaluation, real property disposed of Balance 31 December Depreciation and write-downs Balance 1 January Additions by the acquisition of subsidiaries Write-downs during the year Reversal of write-downs Write-downs, real property disposed of Balance 31 December Book value 31 December Book value by type of property Business property Office property Production and warehouse property Residential property Of which property used by the companies for their operation Public land assessment Non-assessed property In establishing the market value of the properties, the following return percentages were used for each property category Business property Office property Production and warehouse property Residential property 2003 2002 2002 0 42 42 0 -3 -3 39 3,091 -100 0 289 -1,409 1,871 357 0 77 -19 -223 192 -77 0 -48 5 66 -54 2,009 121 1,694 0 194 2,009 358 1,140 6 - - - - - - - 0 14 3,032 45 0 3,091 0 314 50 -7 0 357 0 -84 -1 8 0 -77 3,371 314 2,798 44 215 3,371 409 2,276 9494 0 14 3,032 45 0 3,092 0 314 50 -7 0 357 0 -84 -1 8 -77 #REFERENCE! 3,526 314 2,798 44 215 3,371 409 2,276 Lowest % 2003 Tryg / Vesta 8.00 / - 6.50 / 8.75 - / - 5.50 / - Average % 2003 Tryg / Vesta 8.00 / 7.25 / 7.47 - / - 6.07 / - Highest % 2003 Tryg / Vesta 8.00 / 8.00 / 21.86 - / - 6.50 / - All properties 5.50 / 8.75 7.03 / 7.47 8.00 / 21.86 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 82 of 98 Notes DKKm 12 Capital participation Book value Acquisition value Shareholding of more than 5% of the company share capital according to the latest annual reports Eidsvåg Fabrikker, Bergen Bilskadeinstituttet, Oslo Nygårdstangen, Bergen Finansnærings huset, Oslo Account Data A/S, Frederiksberg Forsikringsakademiet A/S, Hørsholm Kommune A/S Forsikringens Hus, København Moskenes Fiskindustri, Moskenes Lofoten Trålerrederi, Stamsund Norsk Tillitsmann, Oslo Riksheim Henningsvær, Henningsvær Minox Technology, Notodden Industrifinans Boligeiendom, Oslo Andøy Trafikklag, Andenes Privathospitalet Hamlet af 1994 A/S, Frederiksberg Norsk Stålpress, Bergen Høyteknologisenteret, Bergen 13 Other financial investment assets Book value Capital participation Unit trust units Ordinary bonds Foreign bonds Loans secured by mortgage Other loans Deposits in credit institutions Acquisition value Capital participation Unit trust units Bonds Loans secured by mortgage Other loans Deposits in credit institutions 14 Other amounts owing The sale of Tryg Ejendom I A/S to Nordea Pension Danmark, livsforsikringsselskab A/S, forms part of amounts owing by DKK 1,2 bn 15 Tax assets Land and buildings Bonds and loans secured by mortgage Operating equipment and provisions, etc. Other assets Debt Tax loss to be carried forward 2003 2,323 2,218 The company shareholders' equity 2003 2002 #REFERENCE! 2,113 2002 1,825 2,113 Ownership share 2003 29 4 20 32 1 31 43 3 46 20 -1 11 33 2 11 5 70 2,323 18 9,302 10,666 0 70 415 22,794 2,218 25 18,987 0 70 100 21,400 63 -59 227 36 23 135 425 28 23 15 15 14 12 12 10 10 10 10 8 7 6 6 6 6 1,825 14 6,935 10,850 200 73 291 20,188 2,113 27 17,584 199 73 291 20,285 69 -2 240 24 15 149 495 #REFERENCE! #REFERENCE! 6,935 10,850 200 73 291 #REFERENCE! 2,113 27 17,584 199 73 291 20,285 69 -2 240 24 15 149 495 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 83 of 98 Notes DKKm 16 Shareholders' equity Share capital Balance 1 January Share capital when founded Capital contribution by way of non-cash contributions Capital increase during the year Balance 31 December The share capital is distributed in shares of DKK 100 or multiples thereof Share premium account Balance 1 January Premium by way of non-cash contributions transferred to retained profits Balance 31 December Retained profits Balance 1 January Balance 1 January before change of accounting policies Transferred from share premium account Balance 31 December Total shareholders' equity 2003 1,300 0 0 400 1,700 2,968 0 0 2,968 0 692 0 692 5,360 In Vesta Forsikring AS and Dansk Kautionsforsikrings-Aktieselskab untaxed provisions for contingency fonds form part of the shareholders' equity with NOK 2.026m and DKK 139m respectively 17 Gross provisions (provisions for claims) Of which provisions calculated by discounting Workers' Compensation (Denmark) Reduction from discounting Settlement period Discounting interest rate Inflation Workers' Compensation (Norway) Reduction from discounting Settlement period Discounting interest rate Inflation 18 Provisions for annuities Workers' Compensation Settlement period Discounting interest rate Inflation 19 Equalisation provisions Financial quarantee insurance Workers' Compensation Storm and large perils Equalisation provisions for Norwegian general insurance Other insurance 18,212 793 54 4,3 year 3.2% 3.2% 2,393 399 4,2 year 3.5% 3.5% 1,159 11,5 year 2.75% 0% 270 94 185 869 6 1,424 2002 0 1 1,000 300 1,300 0 4,647 -1,679 2,968 0 -1,679 1,679 0 2002 0 1 1,000 300 1,300 0 #REFERENCE! -1,679 #REFERENCE! 0 #REFERENCE! 1,679 #REFERENCE! 4,268 #REFERENCE! 17,836 575 46 4,3 year 3.5% 3.5% 2,355 407 4,8 year 3.5% 3.5% 1,139 12,0 year 2,75% 0% 270 79 166 907 1616 1,438 17,836 575 #REFERENCE! 4,3 år 3.5% 3.5% #REFERENCE! #REFERENCE! 4,8 år 3.5% 3.5% 1,139 12 år 2,75% 0% 270 79 166 907 1,438 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 84 of 98 Notes DKKm 20 Other insurance provisions, net of reinsurance Provisions for life insurance, indirect insurance Provisions for open financial years Provision for unexpired risk 21 Other provisions Costs of restructuring and run-off During the year, DKK 173m has been spent of which DKK 121m was spent on Chevanstell Ltd, the wholly owned subsidiary of Tryg Forsikring 22 Debt Of which debt falling due after more than 5 years 23 Capital adequacy Shareholders' equity according to the annual report Capitalised tax assets Solvency requirements to subsidiary undertakings Supplementary capital Capital base Weighted assets Solvency pursuant to s. 21, subs.1 of the Commercial Banks and Savings Banks, etc. Consolidated Act 24 Forward transactions, etc. Forward transactions, etc Market value Purchase of interest derivatives Sale of interest derivatives Forward purchase of foreign currency Forward sale of foreign exchange Unsettled deals Acquisition value Purchase of interest derivatives Sale of interest derivatives Forward purchase of foreign currency Forward sale of foreign exchange Unsettled deals 25 Contingent liabilities Surety, guaranty and lease agreements, etc. beyond insurance obligations do not exceed Additional circumstances 2003 2002 2002 1 7 42 50 352 352 3,210 #REFERENCE! 1 7 42 51 352 352 67 67 4,268 0 -2,561 0 1,707 2,818 61% 3,307 715 110 3,455 130 3,309 713 109 3,400 130 375 3,307 715 110 3,455 130 3,309 713 109 3,400 130 375 1 0 81 82 179 179 2,286 0 5,360 -6 -2,610 700 3,444 3,999 86% 1,025 1,218 122 5,599 281 1,026 1,212 122 5,795 299 425 Tryg Forsikring A/S has concluded a collaboration agreement with CSC according to which CSC will handle the IT operations of Tryg Forsikring A/S, amounting to DKK 513m. The agreement is for a period of five years. Tryg Forsikring A/S has an annual obligation towards Danica regarding lease of head office in Ballerup. The annual rent and tax, etc. currently amount to DKK 74m. Remaining contract period is 22 years. Tryg Forsikring A/S committed itself towards Nordea Pension Danmark, livsforsikringsselskab A/S, to repurchase one property in connection with spinn-off of the subsidiary, Tryg Ejendomme I. Lease guarantees have been issued and consequently, the liabilities provided for amounted to DKK 33m. Tryg Ejendomme II DKE A/S is jointly and severally liable together with the partly split up company Ejendom I A/S for all obligations existing at the time of the publication of the spin-off, however maximum with the reversed value of DKK 382m. Most of the companies of the Tryg Vesta Group are jointly taxed and jointly and severally liable for payment of imposed corporation tax. Most of the Danish companies within the Tryg Vesta Group are commonly registered for VAT and payroll tax, and are jointly and severally liable for payment of all such direct and indirect taxes. Companies of the Group are part of some disputes the outcome of which is not estimated to affect the financial position of the Group. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 85 of 98 Notes DKKm 26 Intra-group transactions The management fee is fixed on a cost-covering basis. The companies of the Tryg Vesta Group have concluded reinsurance treaties and agreements about interest payment on current accounts based on market terms. Under the item " Gross claims paid", DKK 50m has been recognised as revenue, which can be related to the fact that Tryg i Danmark smba (Owner of Tryg Vesta Group A/S, which is the parent company of Tryg Forsikring A/S) has quaranteed and consequently will pay Tryg Forsikring A/S an amount corresponding to the loss which Tryg Forsikring may incur in connection with the case: AON 77. 2003 2002 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 86 of 98 Income statement and balance sheet for Tryg Vesta Group A/S (parent company) Income Statement DKKm Note Investment activities Income from investment activities Income from subsidiary undertakings Interest and dividends, etc. 1 2 Total income from investment assets Charges relating to investment assets Investment management charges Interest expenses Total charges relating to investment assets Exchange rate adjustment Total Return on investment activities 3 Other ordinary expenses Profit/loss from ordinary activities before tax 4 Extraordinary expenses Profit/loss before tax 5 Tax Profit/loss for the year 2003 28.01.-31.12.2002 *) 795 43 838 -10 -57 -67 -13 758 -22 736 0 736 6 742 -425 4 -421 -3 -5 -7 -16 -445 -52 -497 -1,182 -1,679 0 -1,679 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 87 of 98 Balance Sheet as at 31 December DKKm Note Assets 6 6 7 8 Investments in subsidiary undertakings Capital participation in subsidiary undertakings Loans to subsidiary undertakings Total investments in subsidiary undertakings Other financial investment assets Deposits in credit institutions Total other financial investment assets Total investment assets Amounts owing Amounts owing from subsidiary undertakings Other amounts owing Total amounts owing Other Assets Cash in hand and at bank Deferred tax assets Total other assets Total assets Liabilities Shareholders' equity Share capital Share premium account Retained profits Total shareholders' equity Subordinate loan capital Debt Debt to credit institutions Other debt Dividend for the financial year Total debt Total liabilities 9 Capital adequacy 10 Contingent liabilities 11 Intra-group transactions 2003 5,929 600 6,529 100 100 6,629 47 0 47 50 6 56 2002 4,584 702 5,286 0 0 5,286 92 1 93 14 0 14 6,732 5,393 1,700 2,968 692 5,360 700 601 21 50 672 6,732 1,300 2,968 0 4,268 0 1,100 25 0 1,125 5,393 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 88 of 98 Notes DKKm 2003 28.01.-31.12.2002 *) 1 2 3 4 5 Income from subsidiary undertakings Tryg Forsikring A/S Vesta Forsikring AS Nordicum Kindlustuse Eesti AS Interest and dividends, etc. Interest on securities, etc. Other ordinary expenses Administrative expenses Remuneration for the Executive Management is paid by Tryg Forsikring AS and Vesta Group A/S and is charged to Tryg Vesta Group A/S via the cost allocation. Average number of full-time employees Remuneration for the Executive Management Remuneration for the Supervisory Board Administrative expenses include fee to the auditors appointed by the General Meeting: Deloitte Grant Thornton KPMG Of which services other than audit: Deloitte KPMG Beyond this expenses are defrayed to the Group's Internal Audit Department Extraordinary Expenses Goodwill in connection with the acquisition of subsidiaries Tax Change in deferred tax asset 795 - - 795 43 43 -22 -22 0 5 2 -1.5 -0.2 0.0 -1.7 -1.0 0.0 -1.0 0 0 6 6 -524 101 -2 -425 4 4 -52 -52 0 - - -1.9 0.0 -0.6 -2.5 -1.3 -0.5 -1.8 -1,182 -1,182 0 0 *) Subsidiaries included from 28 June 2002 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 89 of 98 Notes DKKm 6 Capital participation in subsidiary undertakings Acquisition sum Balance at 1 January Exchange rate adjustment during the period Additions by non-cash contributions Divestments during the year Capital increase during the period Balance at 31 December 7 8 Write-downs Balance 1 January Write-down by non-cash contribution Profit/loss for the year of subsidiaries Write-downs of subsidiaries divested Dividend Balance at 31 December Book Value 31 December Name and registered office Tryg Forsikring A/S, Ballerup The company has advanced a subordinate loan of DKK 600m to Tryg Forsikring A/S. Tax asset Operating equipment and provision etc. Shareholders' equity Share capital Balance 1 January Share capital when founded Capital contribution by non-cash contribution Capital increase Balance 31 December The share capital is distributed in shares of DKK 100 or multiples thereof Share premium account Balance 1 January Premium on non-cash contribution Transferred to Retained profits Balance 31 December Retained profits Balance 1 January Transferred from share premium account Transferred cf. distribution of profit Balance 31 December Total Shareholders' Equity In Vesta Forsikring AS and Dansk Kautionsforsikring-Aktieselskab, untaxed provisions for contingency fonds form part of the shareholders' equity with NOK 2.026m and DKK 139m, respectively. 2003 6,190 0 2,546 -2,527 600 6,809 -1,606 0 795 -19 -50 -880 5,929 2002 0 43 5,647 0 500 6,190 0 -1,182 -424 0 0 -1,606 4,584 Ownership interest % Profit for the year Shareholders' equity as at 31.12.2003 100 795 5,929 6 6 1,300 0 0 400 1,700 2,968 0 0 2,968 0 0 692 692 5,360 0 0 0 1 1,000 300 1,300 0 4,647 -1,679 2,968 0 1,679 -1,679 0 4,268 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 90 of 98 Notes DKKm 9 Capital adequacy Shareholders' equity according to the annual report Capitalise tax assets Solvency requirements to affiliated undertakings Tier 2 capital Capital base Weighted assets Solvency pursuant to s. 21, subs. 1 of the Commercial Banks and Savings Banks, etc. Consolidated Act 10 Contingent Liabilities 2003 5,360 -6 -2,610 700 3,444 3,999 86% 2002 4,268 0 -2,561 0 1,707 2,818 61% The company is jointly taxed together with most companies of the Tryg Vesta Group, and together they are jointly and severally liable for payment of imposed tax. The company is commonly registered for VAT and pay roll tax together with most of the Danish companies within the Tryg Vesta Group, and together they are jointly and severally liable for payment of all such direct and indirect taxes. The company is part of some disputes the outcome of which is not estimated to affect the financial position of the company. 11 Intra-Group transactions The management fee is fixed on a cost-covering basis. The companies of the Tryg Vesta Group have concluded reinsurance treaties and agreements about interest payment on current accounts based on market terms. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 91 of 98 Group overview Tryg Vesta Group A/S has the following subsidiaries: Overview DKKm Tryg Vesta Group A/S Tryg Forsikring A/S Vesta Forsikring AS Enter Forsikring Slettebakksveien Respons Inkasso Thunes Vei 2 Dansk Kautionsforsikrings-Aktieselskab ApS SMBK nr. 98 Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S Tryg Forsikring II A/S *) Tryg Forsikring, Rejse og Sundhed A/S *) Tryg Polska Towarzystwo Ubezpieczen S.A. Chevanstell Ltd. Nordicum Kindlustuse Eesti AS ApS KBIL 9 nr. 2032 Tryg Ejendomme II / DKE A/S *) Expected to have merged into Tryg Forsikring A/S as at 1 January 2004. Registered office Profit/loss for the year Ownership Share Shareholders' equity capital 31.12.2003 2003 share in % 31.12.2003 Country Denmark Ballerup Norway Bergen Norway Bergen Norway Bergen Norway Bergen Norway Bergen Denmark Ballerup Denmark Ballerup k Denmar Ballerup Denmark Ballerup Denmark Ballerup Radom Poland London United Kingdom Estonia Tallinn Denmark Ballerup k Denmar Ballerup 795 381 64 1 2 4 87 0 -258 41 10 -41 -257 -1 0 0 100 100 100 100 100 100 100 100 100 100 100 98 100 100 100 100 1.100 0 44 6 0 46 193 0 850 160 3 190 624 0 0 1 5.929 2.573 149 26 1 49 491 0 458 278 69 139 158 9 0 381 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 92 of 98 Supervisory Board and Executive Management Supervisory Board Member of the Supervisory Board of Arla Foods Holding A/S, CEO Arla Foods International A/S. Mr John R. Frederiksen Born in 1948 Chairman of the Supervisory Board of A/S Kollektivhuset Hellebo, Chairman of the Supervisory This overview shows the executive positions of the Board of Ejendomsselskabet Norden A/S, Chairman of members of the Supervisory Board in Danish the Supervisory Board of Ejendomsselskabet Storken companies which are not fully owned by the Tryg Vesta A/S, Chairman of the Supervisory Board of Group. Mr Mikael Olufsen, Chairman Born in 1943 Chairman of the Supervisory Board of Danish Cereal Holding A/S, Member of the Supervisory Board of Egmont International Holding A/S. Mr Mogens Jacobsen, Deputy Chairman Born in 1944 Member of the Supervisory Board of Nordea Pension Danmark, livsforsikringsselskab A/S. Mr Per Skov, Deputy Chairman Born in 1941 Chairman of the Supervisory Board of Utility Development A/S, Member of the Supervisory Board of Dagrofa A/S, Member of the Supervisory Board of Denerco Oil A/S, Member of the Supervisory Board of Denerco Petroleum A/S, Member of the Supervisory Board of DSV, De Sammensluttede Vognmænd af 13.7.1976 A/S, Member of the Supervisory Board of Kemp & Lauritzen A/S, Member of the Supervisory Board of Nordlux A/S, Member of the Supervisory Board of Privathospitalet Hamlet A/S, Member of the Supervisory Board of Superfos A/S, Member of the Supervisory Board of Superfos Industries A/S. Mr Jørn Wendel Andersen Born in 1951 Member of the Supervisory Board of AF A/S, Member of the Supervisory Board of Arla Foods Finance A/S, Ejendomsselskabet Uglen A/S, Chairman of the Supervisory Board of Jacob Holm & Sønner A/S, Chairman of the Supervisory Board of Jacob Holm & Sønner Finans A/S, Chairman of the Supervisory Board of Jacob Holm Industries A/S, Chairman of the Supervisory Board of Jacob Holm Industriinvest A/S, Chairman of the Supervisory Board of JHS af 27. februar 1997 A/S, Member of the Supervisory Board of Danarota Technic A/S, Member of the Supervisory Board of Dønnerup A/S, Member of the Supervisory Board of Fortunen A/S, Member of the Supervisory Board of Freja Ejendomme A/S (Statens Ejendomssalg A/S), Member of the Supervisory Board of Højgård Ejendomme A/S, Member of the Supervisory Board of Holdingselskabet Allindemaglegård A/S, Member of the Supervisory Board of Holdingselskabet Dønnerup Agri A/S, Member of the Supervisory Board of Oak Property Invest A/S, Member of the Supervisory Board of RGS 90 Industrimiljø, Stigsnæs A/S, Member of the Supervisory Board of Råstof og Genanvendelse Selskabet af 1990 A/S, Member of the Supervisory Board of Sjælsø Enterprise A/S, Member of the Supervisory Board of Sjælsø Gruppen A/S, Member of the Supervisory Board of RENOFLEX-GRUPPEN A/S, CEO Fortunen A/S, CEO Oak Property Invest A/S. Mr Jørn Hesselholt Born in 1944 CEO Hesselholt Fisk Eksport A/S. Mr Håkon J. Huseklepp, employee representative Born in 1955 Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 93 of 98 Mr Jens Lyngbo Born in 1943 Member of the Supervisory Board of Nordea Pension Danmark, livsforsikringsselskab A/S. Mr Peter Wagner Mollerup, employee representative Born in 1966 Ms Birthe Petersen, employee representative Born in 1949 Mr Niels Erik Schultz-Petersen Born in 1941 Deputy Chairman H.A.G. A/S. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 94 of 98 Executive Management Ms Stine Bosse, Group CEO Born in 1960 Joined Tryg in 1987 Education 2002: LinKS, University of Pennsylvania, USA 2001: LinKS, Insead, France 1997: Knowledge Management, ICBI, London 1990: The Danish Employers’ Association’s Executive Training at Bøgehøj 1987: LLM, University of Copenhagen Executive positions CEO Tryg i Danmark smba, CEO Tryg Forsikring A/S, Chairman of the Supervisory Board of Tryg Forsikring, Rejse og Sundhed A/S, Chairman of the Supervisory Board of Tryg-Baltica Forsikring, internationalt Mr Erik Gjellestad, Member of the Group Executive Management Born in 1953 Joined Vesta in 2002 Education 2001-2002: Corporate Entrepreneurship, Babson College – USA 1995: Leadership Development, Henley management College, Great Britain 1976: B. Com., Norway Business School Executive positions CEO Vesta Forsikring AS, Member of the Executive Management of Tryg Forsikring A/S, Member of the Supervisory Board of Tryg Forsikring II A/S, Member of the Supervisory Board of Fjord Line AS, Member of the Supervisory Board of Finansnæringens Hovedorganisation (the Norwegian Financial Service Association), Representative, Nordea Liv AS. forsikringsselskab A/S, Chairman of the Supervisory Previous positions 1997-2002: CEO, Sparebank1 Skadeforsikring AS 1996-1997: European IT Development Centre Manager, General Accident plc. 1991-1996: Director, Aktiv Forsikring AS 1989-1991: CEO, NICE AS 1986-1988: Head of Insurance operations, Aktiv Forsikring AS 1981-1986: Product Manager, Marketing Manager, Deputy Manager, Storebrand Skadeforsikring AS 1977-1981: Advertisement Sales Representative, Market Analyst, Sales Manager, Det Beste AS Board of Vesta Forsikring AS, Chairman of the Supervisory Board of Tryg Forsikring II A/S, Chairman of the Supervisory Board of ApS KBIL 9 NR. 2032, Member of the Supervisory Board of Tryg Ejendomme II/DKE A/S, Member of the Supervisory Board of Center For Ledelse, Member of the Supervisory Board of Flügger A/S, Member of the Supervisory Board of Forsikring og Pension. Previous positions 1999-2001: Director, Tryg 1995-1999: Human Resource Director, Tryg 1993-1995: Personnel Manager, Tryg 1991-1993: Deputy Functional Manager responsible for product and concept development, Claims and Underwriting Department, Tryg 1990-1991: Head of Underwriting Department, Tryg 1988-1990: Head of Claims Department, Tryg Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 95 of 98 Mr Morten Hübbe, Group CFO Mr Peter Falkenham, Member of the Group Born in 1972 Joined Tryg in 2003 Education Executive Management Born in 1958 Joined Tryg in 2000 1996: MSc, Finance and Accounting, Copenhagen Education Business School 1984: B. Com (International Trade), Copenhagen 1994: BSc in International Business Administration and Business School Modern Languages (Baint. – SPRØK), Copenhagen 1982: MSc Engineering, The Technical University of Business School Executive positions Member of the Executive Management of Tryg i Danmark smba, Member of the Executive Management of Tryg Forsikring A/S, Member of the Supervisory Board of Tryg Forsikring II A/S, Member of the Supervisory Board of Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S, Member of the Supervisory Board of Dansk Kautionsforsikrings- Aktieselskab A/S, Member of the Supervisory Board of Tryg Ejendomme II/DKE A/S, Member of the Supervisory Board of Vesta Forsikring AS, Member of the Supervisory Board of m Tryg Polska Towarzystwo Ubezpieczen SA. Previous positions 2002-2003: CFO, Tryg Denmark Executive positions Member of the Executive Management of Tryg Forsikring A/S, Chairman of the Supervisory Board of Dansk Kautionsforsikrings-Aktieselskab, Chairman of the Supervisory Board of Tryg Polska Towarzystwo Ubezpieczen SA, Chairman of the Supervisory Board of Nordicum Kindlustuse Eesti AS, Chairman of the Supervisory Board of SafeExIT A/S, Member of the Supervisory Board of Tryg Ejendomme II/DKE A/S, Member of the Supervisory Board of Tryg Forsikring II A/S, Member of the Supervisory Board of Tryg Forsikring, Rejse og Sundhed A/S, Member of the Supervisory Board of Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S, Member of the Supervisory Board of ApS KBIL 9 NR. 2032, Member of the Supervisory Board of Vesta Forsikring AS, Member 2001-2002: Nordic CFO, Zurich Nordic of the Supervisory Board of Solar Holding A/S. 2000-2001: Deputy CFO, Zurich Nordic 1999-2000: Operations Manager – Nordic Investment Previous positions Dept., Zurich Nordic 1996-2000: Managing Director, ABB Energi og Industri 1997-1999: Financial Analyst, Alm. Brand Forsikring A/S 1991-1997: Controller, Zurich 1989-1996: Managing Director, ABB Komponent A/S 1988-1989: Managing Director, ABB Cylinda A/S 1987-1988: Manager, Asea Cylinda A/S, 1987-88 1985-1987: Head of Export Marketing, LK as 1985: Management Assistant, LK as 1982-1984: Project Manager, Crone og Koch Rådgivende Ingeniører Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 96 of 98 Mr Stig Ellkier-Pedersen, Member of the Group office, Egnssparekassen Lolland-Falster, Sparekassen SDS 1974-1978: Vice President and Head of Central Personnel, Copenhagen, Sparekassen SDS Mr Bjørn Thømt, Member of the Group Executive Management Born in 1954 Joined Vesta in 1981 Education 1985: University degree in insurance, Norwegian School of Management 1979: B. Com., Norwegian School of Economics and Business Administration Executive positions Deputy Managing Director of Vesta Forsikring AS, Member of the Executive Management of Tryg Forsikring A/S, Chairman of the Supervisory Board of Enter Forsikring AS, Chairman of the Supervisory Board of Polygon AS, Member of the Supervisory Board of Finansnæringens Hus AS, Member of the Supervisory Board of Norsk Varekrigsfond Previous positions 2000-2004; Division Manager, Products, Vesta 1994-2002: Division Manager, Group Services, Vesta 1988-1994: Division Manager, Claims Dept., Vesta 1987-1988: Functional Director, Næringsliv, Vesta 1985-1987: Product Manager, Fire – Commercial, Vesta 1983-1985: Head of Department, Commercial Underwriting, Vesta 1981-1983: Claims Consultant, Vesta 1979-1981: First Consultant, Prisdirektoratet Executive Management Born in 1947 Joined Tryg in 1999 Education 2000: Leadership in the Knowledge Society, Insead, France 1995: Strategy, Change and Leadership, Insead, France 1994-95: Leadership in Organisations, Insead, France 1971: Machine engineer, Danmarks Ingeniørakademi (the Danish Engineering Academy), production line Executive positions Member of the Executive Management of Tryg Forsikring A/S, Member of the Executive Management of Tryg Forsikring II A/S, Member of the Supervisory Board of Tryg Forsikring, Rejse og Sundhed A/S, Member of the Supervisory Board of Forsikringshøjskolen Rungstedgård A/S (The Danish Insurance Academy), Member of the Supervisory Board of FA, Finanssektorens Arbejdsgiverforening (Danish Employers’ Association for the Financial Sector). Previous positions 2000-2001: Executive Vice President, Business Area Personal, Service Centres and Bank Distribution, Tryg 1999-2000: Executive Vice President, Business Area Personal, Sales East and Bank Distribution, Tryg 1996-1999: CEO, Livsforsikringsaktieselskabet Enhjørningen and Skadeforsikringsaktieselskabet Enhjørningen, Unibank 1994-1996: CEO, Livsforsikringsaktieselskabet Enhjørningen, Unibank 1990-1994: Executive Vice President and Head of Personnel and Education and Management Development, Unibank 1986-1990: Executive Vice President and Head of Personnel and Education, Copenhagen, Sparekassen SDS 1977-1986: Senior Vice President and Head of main Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 97 of 98 Glossary of technical terms The financial highlights and key ratios of the Tryg Vesta Group have been prepared in accordance with the Danish Financial Supervisory Authority’s executive order on the presentation of consolidated financial statements by general insurance companies. Under “Accounting policies”, the items of the income statement and balance sheet are further commented. Gross earned premiums include gross premiums adjusted for reserves (earned premiums) with the deduction of bonus and premium rebates. Net of reinsurance (n.o.r.) means that the amount is calculated after deduction of reinsurers’ share. Return on shareholders’ equity in percentages expresses the relation between the profit/loss for the year and the average shareholders’ equity for the year. Profit/loss for the year x 100 Average shareholders’ equity Key ratios accounted for according to other method refers to the fact that the key ratios in the annual report of the Tryg Vesta Group are calculated in accordance with the rules stipulated by the Danish Financial Supervisory Authority, according to which the combined ratio, net of reinsurance, is stated as the sum of the claims ratio, net of reinsurance, and the expense ratio, net of reinsurance. However, the key ratios may also be accounted for according to another method, which is used by some other players in the Danish insurance market. Accoding to this method, the combined ratio is calculated as the sum of the gross claims ratio, gross expense ratio and the result of ceded business in percentage relative to gross premiums. This method makes it easier to indentify the actual costs of reinsurance. Claims ratio, net of reinsurance expresses the relation between claims incurred, net of Danish general insurance reinsurance, and earned premiums, net of reinsurance. Claims incurred, net of reinsurance, x 100 Earned premiums, net of reinsurance consists of the legal companies Tryg Forsikring A/S, Tryg Forsikring II A/S (exclusive of the branch in Finland), Tryg Rejse og Sundhed as well as Dansk Kaution. Norwegian general insurance consists of Vesta Forsikring AS, including subsidiaries. Expense ratio, net of reinsurance expresses the relation between insurance operating expenses, net of reinsurance, and earned premiums, net of reinsurance. Insurance operating exp. net of reinsurance, x 100 Earned premiums, net of reinsurance Combined ratio, net of reinsurance is the sum of the expense ratio, net of reinsurance, and the expense ratio, net of reinsurance. Annual Report 2003 The Tryg Vesta Group 18 March 2004 page 98 of 98 

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