Tryg Annual Report 2004 | Quarterlytics

Plain-text annual report

Annual Report 2004 and for the community, because insurance counteracts and alleviates the consequences when forces of nature and human beings turn from being friends and helpers We believe that we play a signiﬁcant role in society We create stability and foresight for the individual supplier of the Nordic region on the markets and i to being enemies and destroyers. within the business areas chosen by us. and for the people and companies we serve. d It is our vision to be the leading peace-of-mind n m f o e c a e p g n y p p u s i l healthhazard Water is the very foundation of life. Deserts bloom when touched by the life force of water. A thundering waterfall can be tamed and its power can be harnessed for the beneﬁt of us all. However, sudden downpours and ﬂoods can hit with enormous and unpredictable power, transforming water into a force of death. Water is powerful in all its forms. The Christian Bible mentions huge hailstones among the great plagues. Just as we value water, it also demands our respect and humility. healthhazard visionary villainous visionary villainous Intelligence, communication and creativity make human beings the most successful race on earth. We are constantly surprised by our ability to develop new ideas. There is no greater force of nature than the human brain. It is a vehicle for both good and evil. In fact, humans are the only beings who have the capacity to be consciously cruel. As history bears out, there is not necessarily a link between thought and thoughtfulness. drive destruction Conquering ﬁre is possibly the greatest feat of man in the history of humanity. Fire provides warmth. Fire provides light. Fire is an important ally. However, ﬁre can destroy values and visions built on the dreams of men and women over many decades. We have therefore feared the blind, consuming power of ﬁre for just as long as we have regarded it as an ally. Our civilisation, progress and prosperity would not have been possible without the mighty force of ﬁre. drive destruction force fragility Humans spend much more time training the body than any other being on earth. A year is very likely to pass before a human baby can stand and toddle hesitantly into the arms of mum or dad. Day by day and year by year, we train and develop our bodies as a tool. A grip. A step. A tender stroke or a powerful punch. The human body is like a strong machine but it is not invulnerable. Snap. Twist. Suddenly, the helplessness of our infancy returns. force fragility vitality violence vitality violence Harnessed by the arms of windmills and the sails of ships, wind has been carrying the heavy load for man for thousands of years. Wind aids us in producing ﬂour from grain, crossing frontiers, experiencing new worlds and creating the energy we need. However, wind is also capricious and violent. A breeze becomes a storm. A storm becomes a hurricane. Every- thing can be turned upside down. We owe wind a great deal, because it shares its propellant force with us. Management’s report Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The year in review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The external environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Strategy and goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Financial perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Financial forecast for 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Financial highlights and key ratios for TrygVesta . . . . . . . . . . . . . . . . . . . . . 42 Review of TrygVesta’s ﬁnancial performance . . . . . . . . . . . . . . . . . . . . . . . 43 Personal & Commercial Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Personal & Commercial Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Finnish general insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Other business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Investment activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Accounts Statement by the Supervisory Board and the Executive Management . . . . . . . . 70 Internal auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 New accounting rules as from 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Financial highlights and key ratios by geographical area . . . . . . . . . . . . . . . . 82 Income statement, balance sheet and cash ﬂow statement for TrygVesta . . . . . 86 Income statement and balance sheet for TrygVesta A/S (parent company) . . . . 102 Group overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Financial calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Vesta Forsikring AS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Facts about TrygVesta Facts about TrygVesta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 TrygVesta’s history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Supervisory Board and Executive Management . . . . . . . . . . . . . . . . . . . . . 115 Glossary of technical terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 4 0 0 2 t r o p e r l a u n n a Management’s report Foreword Focus on Nordic customers TrygVesta’s prime objective is to provide peace of mind to our We reduced costs signiﬁ cantly during the past year. We improved two million customers in the Nordic region; both when we our corporate business substantially. We divested three companies advise our customers on insurance and pension and on loss in order to focus on our core business: direct Nordic insurance. prevention, and when we service customers with a claim. We We laid the foundation for a shared identity and shared values work on an ongoing basis to make our service even better and throughout the Group. And we seriously began offering products to develop even further in order to continue to make our cus- in the form of concepts based on the stages our customers go tomers feel good and secure every time they are in contact through in their lifetime. with us. And we will be in touch with them several times a year – also outside claims situations. We have every reason to be pleased with our performance. We Our employees constitute our basis for being the customers’ for our next step: We intend to stay focused on our Nordic customers preferred supplier of products and services that offer peace and develop by taking care of our employees and their potential. have come a long way in a short time, and we have a clear strategy of mind. Therefore, it is vital that we always ensure that Tryg - Vesta is an attractive place to work. We invest in education and We want to be known for the results we create, and not for the under- training and help each individual develop their full potential lying strategy. The Balanced Scorecard is our key tool in realising in our large, Nordic organisation. our strategy and achieving sustained proﬁ tability. It also makes our strategy concrete and measurable and ensures that all employees All the changes that have occurred over the past year affect are aware of their own targets and those of the entire Group. our employees. They feel their own worth from and take pride in the results they have helped achieve. But we are also aware I hope you will enjoy reading our annual report. Stine Bosse Group CEO that all the changes have had a signiﬁ cant impact on their everyday working lives. They need time to adapt and for the changes to sink in. During 2004 we have reaped the beneﬁ ts of our ﬁ rst wave of Nordic synergies, which gave us room to make new investments. We set up shared staff functions, claims procurement, rein- surance and IT operations. Today, TrygVesta has a sound capital base, restored proﬁ tability and a strong strategic platform. We are riding on the second wave of Nordic synergies, which ma- terialise through our continued efforts to implement efﬁ ciency enhancements and cost savings throughout our organisation. And we are getting ready for the third wave, which we begin by strengthening our service and sales power vis-à-vis our customers. 2 The year in review E A R N E D P R E M I U M S , N E T O F R E I N S U R A N C E 14.2 14.5 DKKbn 12.5 9.6 10.4 C O M B I N E D R AT I O , N E T O F R E I N S U R A N C E 110.3 109.2 105.4 115 110 105 100 95 90 % 100.9 93.1 2000* 2001* 2002* 2003 2004 2000* 2001* 2002* 2003 2004 P R O F I T O N O R D I N A R Y A C T I V I T I E S B E F O R E TA X S H A R E H O L D E R S ’ E Q U I T Y DKKm 1,947 1,045 423 109 -774 2000* 2001* 2002* 2003 2004 7 6 5 4 3 2 1 0 DKKbn 6.1 5.4 4.3 4.6 4.3 2000* 31 Dec 2001* 31 Dec 2002 31 Dec 2003 31 Dec 2004 31 Dec 16 14 12 10 8 6 4 2 0 2,000 1,500 1,000 500 0 -500 -1,000 *) Throughout this annual report, figures for 2000, 2001 and 2002 are pro forma figures, as TrygVesta was established on 28 June 2002. Reference is also made to Financial highlights and key ratios for TrygVesta 3 Management’s report The year in review The year in review Financial performance in 2004 • TrygVesta’s Finnish operations generated premium growth • TrygVesta improved its ﬁnancial results considerably in of almost 60% in 2004, winning more than 1.5% of the 2004, generating a proﬁt on ordinary activities before tax Finnish market for personal customers in just three years. of DKK 1,947m against DKK 1,045m in 2003. • The divestment of the Polish and Estonian subsidiaries • The improvement was driven by the Group’s primary and the reinsurance company TBi focused operations even operations. Insurance operations reported a technical more in 2004. The divested companies reported a total result of DKK 1,456m for 2004, an increase of almost loss on ordinary activities before tax of DKK 172m for DKK 1,100m relative to last year. 2002-2004, and the divestment is expected to improve • The improvement materialised more quickly and strongly the Group’s long-term earnings. than we had expected. The combined ratio, net of rein- • TrygVesta proposes that a dividend of DKK 650m be surance, of 93.1 and the return on equity of 33.9% before declared. tax far outperformed the Group’s long-term target of a • TrygVesta estimates that the combined ratio, net of return on equity of 18-20%. reinsurance, for 2005 will be at the level of 92-96 with • The Group’s earnings are well balanced. The technical an expectation of 94 and a proﬁt on ordinary activities result was a proﬁt of DKK 722m for the Norwegian before tax of DKK 1,600m. business and DKK 790m for the Danish business. • The three primary business areas improved their ﬁnancial results strongly in 2004. The combined ratio, net of rein- surance, was 93.4 for Personal & Commercial Denmark, 84.3 for Personal & Commercial Norway, and 97.1 for the Nordic corporate business. • The results reﬂect a 2.1 point improvement of the expense ratio, generated by a DKK 225m reduction in the nominal amount of operating expenses, and a 5.7 point reduction of the claims ratio, achieved despite a signiﬁcant strength- ening of reserves within personal accident insurance as well as the impact of the ﬁreworks blaze in Kolding, Denmark, and the tsunami in Asia. 4 Highlights of the ﬁrst quarter of 2004 Highlights of the fourth quarter of 2004 • TrygVesta established a Nordic organisation, introducing • TrygVesta divested its reinsurance company TBi. shared staff functions across national borders, two dedicated • Losses resulting from the ﬁreworks blaze in Kolding, local business areas for personal and commercial customers, Denmark cost TrygVesta DKK 100m. one in Norway and one in Denmark, and one dedicated • TrygVesta divested its Polish subsidiary. Nordic business area for the corporate market. • TrygVesta divested its Estonian subsidiary. • TrygVesta launched its value process and adopted the • Injuries suffered by Danish and Norwegian tourists and name of ‘TrygVesta’ rather than the ‘Tryg Vesta Group’. damage to their luggage as a result of the tsunami in • The partnership with CSC on IT operations was extended Asia cost TrygVesta DKK 28m after taking into account to comprise TrygVesta in Norway. the reinsurers’ share. • TrygVesta launched three new concepts in Denmark: Tryg Ung, Tryg Senior and Tryg Firma. Highlights of early 2005 • TrygVesta moved into the market for unemployment • The storm that hit all of Denmark on 8 January is expected insurance in Denmark. to result in claims payments of between DKK 750m and DKK 1bn to TrygVesta’s customers. Net of reinsurance, the Highlights of the second quarter of 2004 storm will entail expenses for TrygVesta of DKK 100m plus • Standard & Poor’s and Moody’s awarded good ratings to DKK 50-70m in reinsurance renewals. TrygVesta, conﬁrming TrygVesta’s renewed strength. • TrygVesta began selling unemployment insurance on an • Dansk Kaution was awarded a similar good rating by individual basis. Standard & Poor’s. • TrygVesta’s value process led to the formulation of common • TrygVesta strengthened provisions for workmen’s com- values for employees and customers. pensation in Denmark by DKK 175m due to the so-called • TrygVesta expands health insurance area in Norway. ‘ﬂex job ruling’ by the Supreme Court. Provisions in the workmen’s compensation and industrial diseases area in Norway were strengthened by DKK 135m. Highlights of the third quarter of 2004 • TrygVesta set up a common intranet and introduced an employee magazine across national borders. 5 Management’s report The external environment M A R K E T S H A R E S I N N O R D I C I N S U R A N C E , 2 0 0 3 25 20 15 10 5 0 I f T r y g V e s t a C o d a n L ä n s f ö r s ä k r i n g a r j G e n s i d g e i P o h o a j l l F o k s a m T o p d a n m a r k % S p a r e b a n k 1 T a p o a l i l A m . B r a n d Source: Financial supervisory authorities and trade organisations The external environment Stable Nordic insurance markets In TrygVesta’s opinion, this risk has been reduced considerably The Nordic general insurance markets stabilised in 2004 in the through the industry’s increased focus on risk management wake of large and necessary premium increases in 2002 and and return on capital. After many years of earnings signiﬁ- 2003. The insurance industry’s proﬁtability has reached a cantly underperforming investor return requirements, focus satisfactory level following years of unsustainably low proﬁt- on capital and risk should keep the industry’s attention on ability, especially in respect of insuring corporate customers. long-term earnings. Developments in the international insurance markets showed In recent years, insurance companies have given much greater very moderate pressure on prices in the second half of 2004. priority to risk management. The approach to risk is moving Not least the major natural disasters in 2004 weighed heavily towards more proactive management and prevention. This has on US and international insurance companies. This has moti- contributed to a change in corporate cultures towards increased vated the industry to stay focused on proﬁtability, thereby focus on proﬁtability. Moreover, the level of interest rates is reducing the risk of competition on prices in the Nordic market. considerably lower than it was, for example, ﬁve years ago. We are currently not seeing any signs of signiﬁcant changes This forces businesses to maintain a better correlation be- in proﬁtability in the Danish, Norwegian or Finnish markets tween premiums and claims as compared with only a few years in 2005 and 2006. ago. TrygVesta expects ﬂuctuations in insurance proﬁtability in the future as well. However, there is reason to be optimistic The insurance industry has had a history of recording highly about earnings in the next few years, and we have reason to be ﬂuctuating earnings on insurance operations, due in part to conﬁdent that the insurance industry generally wishes to the annual ﬂuctuations in the volume of claims. In addition, maintain stable earnings. we have seen multi-year periods of poor proﬁtability as a result of ﬁerce competition on prices. And these periods have been Price competition by the back door? succeeded by periods of steep price increases in an effort to The market is currently moving towards the use of multiple restore earnings. Historically, cyclical movements cause con- tariff criteria, thereby establishing a sharper division of cern for a decline in earnings. The rationale seems to be that customers into risk classes. We ﬁnd it disturbing when large such restored earnings might tempt some insurers to increase parts of the market expect to increase their earnings by intro- their market share at the expense of proﬁtability. ducing additional tariff criteria. Depending on how aggressively insurers intend to use these new criteria, there is a risk of allowing price competition to slip in by the back door. 6 S E L E C T E D S H A R E I N D I C E S , 2 0 0 4 S E L E C T E D T W O -Y E A R G O V E R N M E N T B O N D S , 2 0 0 4 50 40 30 20 10 0 -10 % 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec OSEBX, Norway MSCI, Europe KBX, Denmark MSCI, USA Norway Denmark Eurozone USA Public and private insurance Insurance against terrorist attacks The welfare debate continued throughout 2004 in the Nordic Due to terrorist activity all over the world, TrygVesta runs the countries and other European countries, challenging, among risk of incurring substantial losses in case a major terrorist other things, the insurance industry. Insurance already con- attack occurs in Denmark or Norway. The section Risk tributes to welfare in Denmark, and so far almost 300,000 management contains an account of TrygVesta’s reinsurance Danes are comprised by some form of private health insur- of the risk of terrorist attacks. ance. Growing private wealth has already spurred the need for new insurance products, for example unemployment insur- TrygVesta believes that there are three valid reasons for estab- ance and health insurance. It is not uncommon for businesses lishing a government guarantee to counter the effects of major to protect employee groups against illness, and in Norway terrorist events: Terrorism is presumed to be politically moti- health and unemployment insurance is being introduced in vated. It is impossible to hedge the risk related to terrorist the market. Both the Danish and Norwegian insurance indus- attacks sufﬁciently in the reinsurance market. Finally, working tries support initiatives that supplement traditional public ar- groups under the auspices of the Norwegian Finansnæringens eas. TrygVesta considers this to be a growth area, and we will Hovedorganisasjon and the Danish trade association, Forsikring participate actively in developing our role in society. & Pension, have prepared scenarios which show that a terrorist Increased focus on risk management nies losing their entire shareholders’ equity. Forsikring & Pension The global markets focus increasingly on risk, and risk man- has initiated a dialogue with the Danish government to address agement has become a much greater priority for large and this issue, and Finansnæringens Hovedorganisasjon has initiated medium-sized enterprises over the past couple of years. For a similar dialogue with the Norwegian government. attack could result in Norwegian and Danish insurance compa- businesses it is not simply a question of hedging risk in relation to ﬁre, terrorist attacks, management scandals or bad weather. Securities markets It is also a question of taking a more professional approach to The beginning of 2004 was characterised by strong economic risk in order to better control costs and hence reduce the risk growth, but also by a series of unfavourable US unemployment of a loss. As a direct consequence of this, corporate customers ﬁgures and doubt as to the sustainability of the economic are tightening their requirements to insurers’ ﬁnancial strength. recovery. As appears from the chart, these factors contributed This brings focus on insurance company credit ratings, that is, to dampening the ﬁnancial markets and gave rise to falling interest an analysis of an insurance company’s ﬁnancial strength, rates on both sides of the Atlantic. The uncertainty following strategy, management, proﬁtability and risk management, etc. the bombings in Madrid on 11 March 2004 and speculations in a coming ECB rate cut also contributed to falling interest rates in the ﬁrst quarter. 7 Management’s report The external environment In the early spring, the market refocused on a more positive growth scenario for the global economy. At the same time, the key industrial and retail indicators gained momentum, thereby shifting focus from fear of deﬂation to an inﬂation scenario offering fair economic growth. This spurred expectations of a tighter US monetary policy, and in June 2004 interest rates were hiked for the ﬁrst time in four years. The second half of 2004 was characterised by strong activity in the US with rising interest rates towards the end of the year and decent share price increases. This rubbed off on European shares, but economic activity in Europe remained weak with slightly falling interest rates. In particular the high EUR exchange rates caused concern in the European business sector. The Norwegian stock market rose drastically due, among other things, to high oil prices, whereas the steep increase in the Danish KBX index was spurred by good returns generated by small and medium-sized shares and favourable company- speciﬁc news. 8 New view of insurance and prevention after large ﬁ re Paul Edvin Bersaas, Haugesund Customer with TrygVesta, Norway ‘You get a more varied view of insurance when you’ve gone to limit payments, within reasonable limits, of course. In our through something like this. We used to save on our cover dialogue with Vesta, it was a little bit of give and take from and terms and conditions to minimise the monthly premium. both parties, but we ended up with a result that was satisfactory We’ve stopped doing that.’ to everybody,’ says Paul Edvin Bersaas. Paul Edvin Bersaas, managing director of Haugesund Ventilasjon Haugesund Ventilasjon Service is now back to almost pre-ﬁ re Service in Norway, was close to the worst experience a business levels. The business has moved into a new building, which is owner can have in 2003. A ﬁ re broke out in a private home next to ﬁ tted with modern ﬁ re protection systems, and the backup the business, and the ﬁ re spread explosively to Paul Edvin Bersaas’ procedures have been tightened. premises. ‘Everybody knows the importance of safeguarding yourself ‘All 40,000 square metres burnt down to the ground and we against ﬁ re and similar events. Nevertheless, you often ‘forget’ lost everything: our machines, products, furniture and equip- to do something about it. Very few people remember to consult ment, and, worst of all, all our data and our backups. It felt like their insurer for advice and guidance, but we actually have a a living nightmare. But very quickly, a claims handler came common interest in this respect: to prevent and minimise the from Vesta in Bergen. He assisted us in getting an overview, risk of ﬁ re, and – if it happens anyway – to limit the damage as which helped us a lot during the ﬁ rst days,’ says Paul Edvin Bersaas. much as possible,’ emphasises Paul Edvin Bersaas. Considering the circumstances, Paul Edvin Bersaas is satisﬁ ed with the assistance from Vesta. ‘In such a situation, both parties naturally seek to maximise beneﬁ ts for themselves. As a customer, you’re naturally inter- ested in getting maximum cover, while the insurer will seek 9 BatsfjordVardoVadsoKirkenesLakselvHammerfestAltaTromsoHarstadNarvikBodoMo��Management’s report Strategy and goals Strategy and goals TrygVesta’s strategy for 2004-2006, which was deﬁned in 2003, ing measures, in particular within staff functions, while at the remains unchanged in all respects. No events in 2004 in the same time making investments in growth and development. external environment or internally gave rise to strategy changes. See Financial perspectives for additional information on the The initiatives launched in 2003 and 2004 yielded quicker and ﬁrst, second and third waves of Nordic synergies. With the ini- better results than expected, thereby giving us the opportunity tiatives planned for 2005, we will embark on the next stage of to make increased investments in improving our customer our strategic transformation. service in the long term. As a consequence, we have only made few adjustments to our strategic focus areas for 2005. TrygVesta’s strategic focus areas for 2005 include: We intend to maintain our focus on proﬁtability in 2005, but • Retained commitment to existing customers at the same time we will retain our commitment to generating • Growth in personal and commercial portfolio growth and development in our operations. • Adjustments of resources and realisation of • Focus on direct Nordic insurance We have reaped the beneﬁts of our ﬁrst wave of Nordic syner- • Optimisation of corporate portfolio gies through shared staff functions, claims procurement, rein- • Common identity and shared values surance and IT operations, and today we have adequate capi- Group synergies tal resources, restored proﬁtability and a strong strategic The strategic focus areas will be discussed brieﬂy below and in platform. We will be reaping the beneﬁts of the second wave detail in the four subsequent sections: Customers, Processes, of Nordic synergies through efﬁciency improving and cost-sav- Employees and Financial perspectives. Initiatives in 2004 TrygVesta launched a wide variety of initiatives in 2004, including: • Establishment of a restructured Nordic organisation and • Divestment of the subsidiaries in Poland and Estonia implementation of the ﬁrst wave of Nordic synergies • Interactive rating with S&P and Moody’s (A- and A3) • Establishment of a joint procurement function, including • Launch of unemployment insurance in Denmark claims procurement • Implementation of reinsurance programme • Divestment of the reinsurance company TBi • Development of new concepts and service programmes • Completion of a joint employee survey • Launch of value process 10 From recovery to development 2002 2003 2004 2005 • Formation of TrygVesta • Contribution of capital • Loss of DKK 1.1 bn before tax • Premium increases and phase-out of unproﬁtable segments • Focus on direct Nordic • Customer-oriented insurance activities • Restructured Nordic • Second wave of Nordic organisation • First wave of Nordic synergies synergies Focus on direct Nordic insurance Growth in personal and commercial portfolio TrygVesta aims to further strengthen its core business. The We intend to continue the growth trend in 2005, and we are reinsurance company TBi was divested in October 2004, and conﬁdent that even more Danish, Norwegian and Finnish in December the Polish and Estonian subsidiaries followed suit. customers will take out insurances with us. This means that we intend to focus exclusively on our Nordic customers in the future. We will meet our customers’ needs In the long term, we expect to gain market shares by combin- for peace of mind through general insurance and life and pen- ing our concepts with strong distribution channels. We intend sion insurance products in cooperation with our partner Nordea. to strengthen sales of new policies through our partnership with Nordea and through our other sales channels. Retaining commitment to existing customers – with focus on concepts Our focus on proﬁtability remains unchanged, and our sales The needs to secure oneself, one’s family and company change performance in Finland is a case in point that growth can be over time. TrygVesta intends to meet the needs of our custom- achieved without resorting to price competition. Our long-term ers by pooling products and service beneﬁts in concepts tar- ambition is to grow our market share from 22% to 25% in geted at speciﬁc life stages and customer groups. Denmark, from 19% to 21% in Norway and from over 1.5% of the personal market in Finland to 8% by 2010. In addition, we intend to invest in increased proximity to our customers – also outside claims situations. We will make on- In 2004, our focus on direct insurance in the Nordic countries going efforts to ensure correct insurance for our customers spurred our interest in Swedish insurer Trygg-Hansa, which through our service programmes. was put up for sale for a period of time by its owner. TrygVesta is currently contemplating alternative ways for gaining a foot- We also intend to improve our claims handling procedures hold on the Swedish market. with a view to increasingly provide solutions rather than just provide ﬁnancial compensation. Adjustment of resources and realisation of Group synergies The organisational changes carried out in 2004 completed the More than eight out of ten personal and commercial custom- platform for achieving our strategic goals for the coming years. ers renewed their insurance policies with us in 2004, which is We have established two country-speciﬁc business areas, viz. not quite up to our long-term goal of achieving renewal from Personal & Commercial Denmark and Personal & Commercial nine out of ten customers. Increased customer focus in the Norway, and one Nordic business area for corporate custom- coming years will support the attainment of this goal. ers in Norway and Denmark. In addition, we have introduced pan-Nordic staff functions. 11 Management’s report Strategy and goals In 2004, we brought down total costs by DKK 225m and Optimisation of corporate portfolio when disregrading the activities divested, the total number Developments in TrygVesta’s corporate business contributed of employees was reduced by 29. to signiﬁcantly improved proﬁtability in that area in 2004. In 2005, we intend to take a number of steps to consolidate proﬁtability. We intend to implement further cost savings in 2005, primarily in our staff functions, but also in our three business areas, We intend to strengthen the risk advice we provide to our with a view to providing scope for substantial investments in corporate customers by applying and improving our strong employee training, IT and increased selling power. These cost competencies within risk management. Forging closer relations savings and investments will safeguard and consolidate our with our customers will position us as an active player in the position in terms of combined ratio and contribute to achieving ongoing efforts by businesses to professionalise their risk man- substantial competitive strength. agement. Our ambition to be an attractive partner within risk management applies to existing and new customers alike. Balanced Scorecard in TrygVesta Since 1999, TrygVesta has used the Balanced Scorecard (BSC) All TrygVesta employees must know the goals deﬁned for the as the most important tool in pursuing our strategy. Group as a whole and for their speciﬁc business areas. We believe We use BSC to translate the general goals of our strategy into employees contribute to deﬁning the activities required to that we will become better at implementing the strategy if all concrete actions and results within the ﬁelds of ﬁnance, attain our goals. customers, processes and employees. BSC enables us to constantly maintain coherence between the BSC approach for the newly-formed Group. In 2004, our BSC strategy’s overall goals and the actions implemented through- efforts also focused on making the individual BSCs accessible out the Group. BSC makes the strategy more concrete and to all employees of the Group on our shared intranet. We strive measurable and helps the individual employees prioritise their to obtain the greatest possible degree of openness and tasks in accordance with the overall focus of the Group and the transparency in our activities. 2004 was characterised by efforts to commu-nicate a common business area. 12 TrygVesta’s common values We supply peace of mind because: • We show people respect, openness and trust • We show initiative, share knowledge and assume responsibility • We provide solutions characterised by quality and simplicity • We create sustainable results Common identity and shared values Creating a common identity and shared values across national borders is an important prerequisite for the continued success of our Nordic integration and strategy. 2004 was characterised by efforts to improve TrygVesta’s value process. As part of these efforts we carried out a survey asking several hundred Danish, Norwegian and Finnish customers how they perceive the values that currently reﬂect our Group. In early 2005, our efforts were translated into a set of common values for employees and customers throughout the Group. Actual ﬁgures for selected BSC benchmarks for TrygVesta Customers, personal customers (index) Renewal ratio Customer loyalty Share of customers with concept agreements Processes (index) Portfolio (nominal prices) per full-time employee Customer satisfaction in claims handling Employees (index) Employee satisfaction Financial perspectives Return on equity after tax (%) Combined ratio, net of reinsurance Gross expense ratio 2004 2003 2002 2001 101 109 106 129 104 100 106 102 124 102 102 101 98 116 100 100 100 100 100 100 105 102 101 100 24.5 93.1 21.2 15.4 100.9 22.4 -47.4 109.2 23.6 1.2 105.4 24.3 13 Management’s report Customers S H A R E O F D A N I S H M U LT I P L E - P O L I C Y C U S T O M E R S % 66 64 62 60 58 56 54 52 50 1998 1999 2000 2001 2002 2003 2004 Tryg’s longstanding focus on concepts has induced an increasing number of Danish customers to take out more than one policy with the company. Customers TrygVesta’s ambition is to have the highest level of customer The Tryg Firma concept targeting small businesses was also loyalty in the Nordic region. launched in 2004. One of TrygVesta’s strategic focus areas in 2004 was to To the concepts, we add agreements such as Tryg Reparation preserve and extend the existing proﬁtable customer base. and Tryg Bygning, under which we cooperate with selected We have now created proﬁtability. Therefore, our forward- garages, sewerage builders and plumbers. These agreements looking strategic focus area is our commitment to our existing enable TrygVesta to offer much better services to customers customers and generation of growth in the personal and com- with a claim, while our claims expenses are reduced, and the mercial portfolios. Our goal is that nine out of ten customers repairers’ turnover is increased. renew their insurance policies with us. We know from customer satisfaction surveys that customers involving, among other things, a new pricing system. In further having more than one policy with the company are more loyal developing the concept philosophy we will, of course, draw on than customers having only one policy. This is one of the reasons the experience we have gained from the Danish and Norwegian TrygVesta intends to launch new concepts in Norway in 2005, why we continually develop our concept philosophy, which offers markets. customers cash beneﬁts as well as added security when they take out all their policies with the company. You can read more TrygVesta has strong brands in the Danish and Norwegian in this section, which also describes all the beneﬁts we derive markets, built up over many years. We therefore not only from our partnership with Nordea. intend to maintain the branding of Tryg in Denmark and of Concepts Vesta in Norway, but will aim to position the brands even more strongly and make the values embedded in the brands One of TrygVesta’s characteristics as a supplier of products common to both. and services that offer peace of mind are concepts that target customer needs. We want to offer customers a comprehensive The Tryg and Vesta brands will be visible in the marketplaces, insurance package comprising products, service guarantees while TrygVesta as a brand will be used to designate the and related services. Group, eventually also in relation to corporate customers. More than 280,000 Danes have already chosen the Tryg Familie concept which was launched in 1998. Another two life-stage oriented concepts for personal customers were added in 2004, when TrygVesta launched Tryg Ung and Tryg Senior. 14 TrygVesta’s customer concepts Customers who take out all their policies with TrygVesta get Tryg Familie is for the 29 to 59 year olds. In addition to the cash added security as well as cash beneﬁts. beneﬁts on, for example, policies and private alarms, Tryg Familie customers are covered by free psychological crisis therapy and Vesta Avtalen is an offer to customers holding at least three an under-insurance guarantee. They can also take out a motor policies. In addition to cash beneﬁts, the customers are covered insurance with a slightly increased deductible, which ensures by an under-insurance guarantee. Psychological crisis therapy is that the premium vill not rise if they report a claim. available to them, and they are eligible for a rental car for up to ten days if their car is damaged and it is insured under a Tryg Senior offers cash beneﬁts and added security to people comprehensive policy with Vesta. over 50 years old, including health check-ups at a special price and cover in the event of theft by deception. Tryg Ung is for customers under the age of 29, who do not own a home or holiday home. In addition to cash beneﬁts, policyholders Tryg Firma is a special offer to small businesses based on their are offered courses in driving technique, antivirus software, free special insurance, advice and service requirements. In addition psychological crisis therapy and social counselling. to ﬁnancial beneﬁts on insurance of passenger cars, vans and lorries, the offer to businesses includes a special favourably priced security package ensuring service and salvage in a number of important areas. The TrygVesta Group’s brands 15 Management’s report Customers D I S T R I B U T I O N PA R T N E R S H I P W I T H N O R D E A I N T H E N O R D I C R EG I O N s r e m o t s u C General insurance products Life insurance products s r e m o t s u C Partnership with Nordea The market is growing The partnership with Nordea enables TrygVesta to offer our While the welfare debate is raging in the Nordic and other customers life and pension insurances. At the same time, European countries, the market continues to grow, and Nordea’s customers are offered TrygVesta’s general insurance TrygVesta continuously seeks to meet any new demands that policies through the banks in Denmark, Norway and Finland. may arise. One example is unemployment insurance, which emerged as an important new business area for the insurance Generating 11% growth in 2004 relative to 2003, Nordea’s companies in 2003 and 2004. sales of our general insurance products continued to generate fair growth. Bank distribution accounted for 11% of TrygVesta’s TrygVesta launched unemployment insurance in Denmark in total sales of new policies to personal customers in 2004. early 2004. During the year, members of seven unemployment insurance funds were offered to take out unemployment We set up a branch in Finland in 2001 to sell insurance through insurance to supplement their beneﬁts. The new type of insur- Nordea, which has 40% of the banking market for personal ance has been subject to great interest since it was launched customers in Finland. Insurance sales continue to surge, and on 1 April 2004. In January 2005, TrygVesta furthermore began sales of new policies increased by 30% to 64,500 in 2004, while selling unemployment insurance in Denmark that does not gross earned premiums increased by almost 60%. Of total sales, require membership of speciﬁc unemployment insurance funds. 5% was accounted for by the ‘Solo market’, Nordea’s elec- tronic Internet marketplace. In 2004, the partnership TrygVesta intends to expand health policies in Norway in 2005 resulted in TrygVesta achieving a market share of over 1.5%. and the Norwegian trade has introduced unemployment policies. TrygVesta’s partnership with Nordea has reached its most mature stage in Denmark. After many years, bank distribution still generates strong and satisfactory new sales, standing at almost 50,000 policies or almost 18% of TrygVesta’s total sales of new policies in 2004 and contributing to continued growth in the total portfolio in 2004. Nordea’s Norwegian branches began selling TrygVesta’s Nor- wegian policies in 2003, and bank distribution now accounts for 3% of our sales to Norwegian personal customers. There is still a very great potential in Norway. 16 130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 S A L E S O F N E W P O L I C I E S T H R O U G H B A N K D I S T R I B U T I O N S A L E S O F N E W P O L I C I E S T H R O U G H B A N K D I S T R I B U T I O N B Y M A R K E T S 2 0 0 4 123,000 Number % 111,000 96,000 2002 2003 2004 53 39 8 Denmark Norway Finland Insure their car rather than their children A survey of Norwegians’ top insurance objects priorities puts The survey, made by market research ﬁrm Norstat for Vesta children in ﬁfth place – after their home, their car, the contents in 2004, asked parents about their insurance priorities. of their home and themselves. Although as many as 72% of the population were aware of the insurance companies’ children’s The replies were: insurances, only 37% of the respondents had considered insuring 1. Home/house/villa their own children. Among those who had, only a small portion 2. Car had actually taken out the children’s insurance. Accordingly, 900,000 children in Norway are not adequately insured. 3. Home/contents 4. Personal/accident 5. Children 6. Travel/leisure 7. Cottage/holiday home 8. Boat 9. Dog 10. Bicycle etc. 68 % 66 % 53 % 48 % 24 % 13 % 11 % 9 % 4 % 3 % Yes please, send me a smoke alarm More than 52,000 customers accepted TrygVesta’s offer of an approved smoke alarm given in a letter to more than 215,000 Danish concept customers in late November 2004. As TrygVesta’s business is the customer’s peace of mind, we wish to help customers prevent damage and therefore paid the cost of the smoke alarm as well as the postage. 17 Management’s report Customers Customer satisfaction Each year we survey how customers perceive TrygVesta. The results of the surveys are used to ensure that the Group’s services match customer requirements. The more satisﬁed and loyal customers are, the longer they keep their policies with the Group, which beneﬁts proﬁtability in the ﬁnal analysis. TrygVesta’s surveys are based on EPSI (European Performance Satisfaction Index), the pan-European model for measuring customer satisfaction. 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. S AT I S FA C T I O N A N D L O YA LT Y I N D E N M A R K 2 0 0 3 - 2 0 0 4 Competitor 3 EPSI Competitor 2 Competitor 4 Tryg Competitor 1 78 y t l a y o L 62 62 Satisfaction 78 Tryg tops the score among the four biggest insurance companies in Denmark as far as customer satisfaction and loyalty are 2003 2004 concerned. Loyalty scores unchanged, while satisfaction scores slightly lower than in 2003. We have addressed this challenge by boosting customer advisory services. The survey, conducted by Dansk KundeIndex, also shows that the small companies have the most satisﬁed and loyal customers – a phenomenon which is also known from the banking world. This is the ﬁrst time the survey in Norway was based on the pan-European EPSI model, and we are therefore unable to track a year-on-year trend. This year’s survey shows that compared with our Norwegian competitors, Vesta faces a challenge with respect to customer satisfaction and loyalty. We expect that the upcoming stronger positioning of TrygVesta’s brands both in Denmark and Norway and the further development of the Group’s concept philosophy in the Norwegian market will provide the necessary boost. 18 S AT I S FA C T I O N A N D L O YA LT Y I N N O R W AY 2 0 0 4 EPSI 78 y t l a y o L Competitor 2 Competitor 1 Vesta Competitor 3 62 62 Satisfaction 78 Source: Danish Customer Index and EPSI Norway When comparing the results for Denmark and Norway, it is important to consider the impact of diffferences of opinion and cultural differences between the two countries. A 1,500 kilo sowing machine landed on his foot Mogens Povlsen and Kaj Brødsgaard, Ørbæk Customers with TrygVesta, Denmark ‘Such an accident is annoying – I wish we could undo it. But ‘I think that at most two weeks went by after the accident now that it has happened, it’s a comfort that our insurances before everything had been settled by Tryg. We got a fair were in order and up to date. Imagine if they hadn’t been …,’ treatment. Kaj got preliminary damages for pain and suffering says farmer Mogens Povlsen. and for lost earnings. My liability and workmen’s compensation policy covered that. I’m glad we did not have to go to court – On the morning of 16 September 2004, Mogens Povlsen and you can easily imagine a lot of arguing, so we were very happy his long-standing friend and colleague, Kaj Brødsgaard, were to have the matter settled so quickly,’ says Mogens Povlsen. repairing a sowing machine. When they lowered the machine, the jack didn’t work properly, and the full weight of the ‘Once we had reported the claim and submitted the medical one-and-a-half tonne sowing machine crashed down on report, everything went smoothly. You hear a lot about how Kaj Brødsgaard’s foot. difﬁ cult these things can be, but we didn’t have to ﬁ ght with Tryg about anything,’ says Kaj Brødsgaard. ‘It hurt terribly. Normally, when something like this happens, you go into shock, but it just hurt too much. When we got the machine lifted and my boot off, we could see that something was really wrong,’ says Kaj Brødsgaard. Kaj Brødsgaard, who had never had a work-related injury dur- ing his 45 years on the labour market, suffered two open frac- tures of his mid-foot. He was operated on and stitched up, and has had metal pins in his foot for the past four months. There’s no doubt in Mogens Povlsen’s and Kaj Brødsgaard’s minds about how they rate Tryg’s handling of the matter: 19 ��Management’s report Processes Processes TrygVesta’s ambition is to improve productivity and enhance identical in Denmark and Norway, and we introduced the quality by automating and centralising on an ongoing basis. former Norwegian model throughout the Group. Read about One of our strategic focus areas in 2004 was to adjust resources the results of the survey in the section Employees. and expand synergies in the Group. In this section, we focus on our Nordic integration and exploi- Our intranet gives all Norwegian employees access to detailed tation of synergies, and on our work processes, in particular in underwriting guidelines. The fast, electronic access makes it Best practice – Underwriting guidelines claims situations. Nordic integration easier to offer a customer the correct insurance and ensures that the price matches the customer’s risk. TrygVesta is in the process of transferring the experience gained to other busi- As an extension of our Nordic strategy, TrygVesta changed its ness areas as part of harmonising the Group’s operational risk organisational structure at the beginning of 2004 in order to management. build a stronger foundation for improved efﬁciency and proﬁt- able growth. TrygVesta now has shared staff functions, two lo- Nordic IT synergies cal, dedicated business areas for personal and commercial cus- We are also making targeted efforts to generate Nordic syner- tomers, one in Denmark and one in Norway, and one Nordic gies in the IT area. The outsourcing to CSC, which has handled business area dedicated to the corporate market in Denmark all the Group’s IT operations since 1 June 2004, has yielded the and Norway. Companies with more than 50 employees or planned, important beneﬁts on the cost side, but also in the paying more than DKK 500,000 in annual premiums as well quality of our IT operations in the form of increased accessibil- as guarantee insurance customers belong to the Corporate ity and speed. For example, in 2004 we migrated to the latest business area. version of the Windows operating system for all workplaces in Denmark, while reducing the total number of IT products We have launched initiatives to further reduce costs and reap signiﬁcantly. the beneﬁts from the next wave of Nordic synergies, such as investments in shared, modern IT systems. We have also focused Based on TrygVesta’s common IT strategy, we are aiming to sharply on making our in-house work processes more efﬁcient introduce common developments and common IT systems based on the best practice principle, which involves making where this is relevant. We introduced a shared intranet in the the best method in either Denmark or Norway the one to be autumn 2004 and prepared migrating to a common SAP used in both countries in the future. ﬁnancial management system in the summer of 2005. Best practice – Common employee survey We are already generating synergies from using a common As always, all TrygVesta’s employees participated in an annual software package for customer servicing in both Norway employee survey. For the ﬁrst time, the questionnaire was and Denmark. The systems support communications across 20 departments and functions, giving all employees, who serve In 2003, we introduced Tryg Reparation in Denmark, which in- customers in TrygVesta, direct access to updated information. volves that customers are offered to have their car repaired at The customer service systems also provide access to viewing one of the garages we cooperate with. In 2004, we launched the customer’s products and documents the dialogue with Tryg Bygning in Denmark. Under this service, customers with the customer. This provides a sound basis for a good dialogue drain or sewer claims are offered to have the repairs made by with and efﬁcient servicing of the customer. As planned in the one of the sewerage builders TrygVesta has a special collabora- implementation of the IT strategy, systems are gradually be- tion with – for the beneﬁt of the customer, TrygVesta and the coming more and more integrated, generating development sewerage builders. The service was extended in January 2005 synergy and helping to keep costs down: IT staff with identical to include plumbers. competencies work together on solving shared problems in Denmark and Norway, and experience from new solutions in In Norway, TrygVesta has worked with procurement in con- one country is transferred to the other. nection with motor claims since 2001. The concept is based Claims handling on agreements with selected authorised garages, which charge lower prices to TrygVesta for repairing the customers’ cars Surveys show greater satisfaction among customers who have than other garages. reported a claim than among customers who have not had any claims. Furthermore, it is in the claims situation that TrygVesta TrygVesta is in the process of developing a similar service for must truly prove its ability to supply peace of mind. As a result contents insurance in Norway. This service involves that a of many years’ focus on and the continued development of customer whose personal property has been damaged or lost good and competent claims handling, it is a natural part of will be offered to buy a new product through a selected supplier. TrygVesta’s employees’ professional approach to stay focused The beneﬁts are obvious: The products will be offered to the on the customer’s needs in a claims situation. This has triggered customers at favourable prices, the supplier will get more an increase in customer satisfaction with our claims handling customers, while TrygVesta offers good service at a good price. over the past few years, as witnessed by the BSC benchmarks in the section Strategy and goals. The new service was introduced in the autumn of 2004, initially Claims procurement with respect to travel claims involving the customer’s loss of a mobile phone, PC, camera or video camera. The service will In recent years, TrygVesta has focused on procurement in rela- later be extended to a much larger range of areas. Eventually, tion to claims, generating savings of more than DKK 100m in the service will be transferred to Denmark, and similarly, Tryg 2004 alone. Bygning will be implemented in Norway. 21 Management’s report Processes T R Y G V E S TA A L A R M 2 0 0 3 - 2 0 0 4 Number of calls 1,200 1,000 800 600 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2003 2004 The alarm centre handles an increasing number of calls. This is because customers make increased use of the alarm centre, and because psychological and health claims have been included in the alarm centre’s tasks over the past couple of years. Enhanced efﬁciency in customer servicing TrygVesta Alarm Customer servicing and enhanced efﬁciency are key words in TrygVesta has had a common alarm centre since 2002, which a new process to handle motor claims TrygVesta intends to is open round the clock for calls from Danish, Norwegian and introduce this process in Denmark in 2005. The process and Finnish travel insurance customers. In addition, TrygVesta the underlying IT system support the dialogue between the Alarm assists Danish customers requiring psychological crisis employee and the customer. IT tools guide the employee therapy or requesting to use their health insurance. On evenings, through a number of questions when a customer phones to nights and weekends, the alarm centre also functions as a report a motor claim. This leaves more room for the employee 24-hour claims service for Danish customers, who can call for to focus on the customer. In addition, the IT tool automatically assistance if their roof has been blown off in a storm or the handles all correspondence with the customer as well as with basement is ﬂooded. witnesses, the police and other insurance companies involved. The request for payment of the deductible and a concluding The disastrous consequences of the tsunami in Asia on 26 letter to the customer have also been automated. December 2004 gave the alarm centre a busy time. The centre Due to the system’s efﬁciency, we expect that 40% of all motor many calls were received during the days following the tsunami. claims can be ﬁnalised after the telephone conversation with the The staff worked 12-14 hours on end for several days, and Tryg- customer. In the longer term, the system holds potential for a Vesta’s crisis team of psychologists and doctors was deployed larger degree of self-service when customers report claims. to help survivors in the distressed areas. normally handles an average of 150 calls a day, but twice as Limiting business interruption for museum When a ﬁre broke out at the North Sea Museum at Hirtshals, and to achieve a fair number of visitors. The museum had about Denmark in December 2003, TrygVesta immediately sent staff 50% fewer visitors than normal in the summer of 2004 – despite to the site. TrygVesta had written the buildings, contents and reduced admission fees. Visitor volumes are expected to return business interruption policies, and it was vital to get an early to normal levels after the scheduled reopening of the museum’s over-view of the extent of the damage and do whatever could large Oceanarium in the summer of 2005. be done to limit further damage. Efforts to limit business interruption continued for all of 2004 DKK 100m, including DKK 20m in business interruption losses, and will last until September 2005. TrygVesta and the North Sea primarily due to the lower visitor volumes. Damage to buildings Museum together launched marketing activities, including totalled DKK 57m, damage to contents DKK 22m, and the cost of The ﬁre at the North Sea Museum cost TrygVesta approximately advertisements about the museum in newspapers and the local catching new ﬁsh was DKK 1m. community. The aim was for the museum to remain in focus 22 R E G I S T E R E D C L A I M S A F T E R T H E S T O R M I N D E N M A R K O N 8 J A N U A R Y 2 0 0 5 ( A C C U M U L AT E D ) Number ’000 60 600 DKKm 50 40 30 20 10 0 500 400 300 200 100 0 9 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 17 Jan 18 Jan 19 Jan Number Estimate of the extent of the claims*) *) Based on the first estimate of the extent of the claim after the initial contact with the customer 110,000 calls in one day The violent storm that hit Denmark on Saturday, 8 January The estimate is based on daily measurements of the number of 2005, also hit TrygVesta’s telephones. TrygVesta immediately claims entered in the IT system and the frequency with which deployed its emergency resources, increasing the number of they are received. We also look at the initial estimate of the extent staff handling telephone calls in Denmark many times over. On of the loss, which our experienced claims handlers typically make the Monday alone, TrygVesta received 110,000 telephone calls during their ﬁrst talk with the customer. The ﬁgure above shows – the total number for all of December 2004 being 120,000. some of these measurements. Finally, we compare these data with similar experience from previous storms and our experience Staff from all departments answered the calls, temporary staff with the claims handlers’ initial estimate of the claims expense was called in, and retired employees lent a hand. Our customer relative to the payment our customer ultimately received. service system and teamwork stood their test: Five days after the storm, 30,000 new claims had been entered in the system. Net of reinsurance, the storm is expected to entail expenses for There was no longer any queuing on the phones and no delay in TrygVesta of DKK 100m plus DKK 50-70m in reinsurance renewals. replying to e-mails. The ﬁgures are a long way from those of the December 1999 hurricane, when TrygVesta recorded a little more than 80,000 The consequences of the storm have not been ﬁnally calculated claims totalling DKK 2.1bn. yet, but we estimate that a total of 46.000 customers were hit. In January we estimated that the storm would entail claims pay- ments of between DKK 750m and DKK 1bn to our customers. We now expect claims to be in the lower range of this estimate. 23 Management’s report Employees Employees TrygVesta’s ambition is to be an attractive workplace, offering Our employees live our brands employees manoeuvring space and responsibility, and focusing The value process included an analysis of the position of Tryg- on learning and knowledge sharing. Our strategic focus area in Vesta’s brands, among other things to enhance our insight into 2004 with respect to our employees was to create a common the customers’ requirements and how they perceive insurance. identity and establish shared values. This focus area will remain unchanged for 2005, and the value process launched in 2004 The results showed that both Tryg and Vesta are strong brands will continue unabated. thoroughly founded in tradition. Customers meet the brands through our employees, and we are therefore now focusing This section describes our efforts to create a common identity our efforts to live by our new values and position the Tryg and and establish shared values, including the preliminary results Vesta brands even more strongly. This includes a comprehen- of the value process. We also describe how we intend to make sive sales and service training programme throughout the TrygVesta an attractive workplace in the year 2005. Group in 2005. Common identity and shared values Managers in a process of change In early 2004, TrygVesta changed its overall organisational In order to promote the change and integration process, members structure to be better able to act as one business. As a natural of TrygVesta’s senior management team were given the oppor- extension of the organisational, managerial and commercial tunity of sparring with a personal coach through all of 2004. integration, the Group launched a value process shortly The coaching enhanced managers’ decision-making abilities. afterwards. It is vital that managers themselves are clear about things in such a process in order for them to engage their employees. A team of 19 Danish and Norwegian employees were appointed as value scouts. Their task was to conduct interviews with a TrygVesta’s managers remain one of the primary drivers in for- total of 200 colleagues in Denmark, Norway and Finland in or- mulating and implementing solutions across the organisation. der to expose and document real examples of how values and Regular meetings of managers across Denmark and Norway rules of conduct are reﬂected in different companies, depart- have helped strengthen our in-house cooperation and know- ments and functions. The value scouts subsequently took part ledge sharing. Our management development programmes in the work of uniting Tryg’s and Vesta’s mission, vision, values also focus on values. The big challenge for TrygVesta’s managers and rules of conduct, and deﬁning a common basis for the Group. is to seek to achieve the necessary balance between good results and a good, albeit busy working environment. Stress manage- ment is also on TrygVesta’s agenda. 24 Furthermore, large-scale meetings have been organised for all their own role in the organisation is at a fair level, especially employees in both Denmark and Norway, at which the Group considering the relatively large organisational changes we Executive Management had an opportunity to meet all em- implemented early in the year. The survey also showed a ten- ployees in person and present the Group’s targets, ambitions dency to a fast work pace and a big work load. Like other or- and results. The direct contact between management and ganisations, we are facing a constant challenge of coping with employees is important in a big company with many commu- phenomena such as stress and strain in a time of great demands nication channels such as TrygVesta. In addition, the large-scale and rapid change. We aim to achieve a balance between work meetings were used as part of the value process to enhance the and family life, and urge the Group’s managers and employees visibility of TrygVesta’s stakeholders – customers, employees, to discuss the distribution of work regularly, handling peak owners, politicians, ﬁnancial analysts, partners and suppliers – workloads by means of good planning. all of whom relate to TrygVesta’s values. The rapid speed of change is here to stay. An attractive work- Common in-house media place needs to provide managers and employees with tools The launch of a shared intranet and a magazine for all employees and techniques to cope with change, among other things after the summer of 2004 made it even more clear to most by training and enhancing employees’ competencies on an Danish and Norwegian employees that we are now one united ongoing basis. We dedicate substantial funds each year to Group. The shared media are intended to enhance the frame- training, which we regard as an investment in the future. work for internal communication in TrygVesta. Both media are naturally focusing on the work involving our values, allowing all employees to monitor and participate in the process on an ongoing basis. High job satisfaction, fast pace – and room for the family Our working environment was scrutinised in the ﬁrst common employee satisfaction survey in TrygVesta, which was con- ducted in 2004. The survey showed that our employees are generally happy about working for the Group. Job satisfaction is high, and employees’ awareness of and expectations for 25 Management’s report Financial perspectives T E C H N I C A L R E S U LT I N T R Y G V E S TA 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 -2,000 DKKm 1,456 105 376 -288 -558 2000 2001 2002 2003 2004 Financial perspectives TrygVesta’s ambition is to build the most proﬁtable portfolio gement of the Group and as a basis for speciﬁc initiatives in in the Nordic region within the next three to ﬁve years. Proﬁt- relation to individual products and, thus, individual customers. ability remained our primary strategic focus area also in 2004. A key target was to reduce the combined ratio to 100 in 2004. Marked improvement of corporate business We achieved this target and set a new one of 94 for 2005. TrygVesta’s corporate business improved signiﬁcantly in 2003 and 2004. Since 2003, we have made targeted efforts to reas- This section focuses on customer proﬁtability, cost savings, sess the correlation between price and risk for each corporate the results of our strategic focus, and our credit ratings with customer. Premiums were increased for many customers in rating agencies. It also describes our strategic focus area of 2003, and at the same time TrygVesta required more safe- focusing on direct Nordic general insurance. guarding measures and higher deductibles. Despite the changes, most corporate customers kept their policies with Proﬁtability TrygVesta. Insurance companies have generated lower investment in- come due to the sharp fall in interest rates over the past ﬁve Large premium increases for workmen’s years, and the industry has been forced into a healthy process compensation insurance of refocusing on the proﬁtability of the core business. Tryg- An exception from the positive trend is the Norwegian corporate Vesta’s efforts over the past few years to improve proﬁtability and commercial customers’ workmen’s compensation and in- have been successful: our insurance operations have become dustrial diseases policies. Proﬁtability has not yet been restored proﬁtable. to these policies. The area is marked by an ever higher incidence of allergy-related diseases and lung diseases due to dust and In our efforts to deﬁne ﬁnancial targets for the business areas, poisonous substances in the working environment. we use calculations from our ﬁnancial Asset Liability Management model, which is described in the section Risk management. TrygVesta launched a ‘personal injury project’ in Norway in the The model permits us to take into account the different charac- summer of 2004 aimed at improving proﬁtability in the areas teristics of both the business areas and the products (such as of workmen’s compensation and industrial diseases. The project risks of major ﬂuctuations, reinsurance and distribution and is carried out across the business areas for corporate customers administrative expenses) when deﬁning ﬁnancial targets. In and commercial customers, and also draws on experience and this way, we ensure that relevant activities are implemented knowledge from Danish colleagues, who have previously made within the right product and customer areas. Our use of this a similar effort. model is an example of our increasing involvement of well-proven ﬁnancial models in our considerations, both in the overall mana- 26 WO R K M E N ’ S CO M P E N S AT I O N I NS U R A N C E W I T H T RYG V E S TA I N D E N M A R K Number 40 300 DKKm 35 30 25 20 15 10 5 0 275 250 225 200 175 150 125 100 1996 1997 1998 1999 2000 2001 2002 2003 2004 Claims per year per 1,000 persons Average claim (index 100=1996) Generally, we have increasingly focused on the workmen’s ordinary premium increases due to changes in the practice of compensation area in the past few years. It is difﬁcult to forecast the National Board of Industrial Injuries and court decisions. the cost of workmen’s compensation claims as claims may be The new index, called the ‘Social Inﬂation Index’, is published ﬁled long after a policy has expired, and old cases often develop by the Danish Insurance Association. It regulates premiums contrary to the insurance companies’ expectations due to new based on developments in private sector salaries, developments judgments and changes in practice. This is an unfortunate in the average occupational disability awarded by the National development with signiﬁcant ﬁnancial consequences for the Board of Industrial Injuries, and developments in the practice insurance industry as it is impossible to foresee changes with applied by the National Board of Industrial Injuries in awarding retroactive effect. Along with the rest of the insurance indus- occupational disability. As a result of the new method, premiums try, TrygVesta is therefore anxious to have progressive and will increase by 7.95% in 2005, as opposed to 3.34% that would forward-looking legislation. have resulted from the ordinary wage index. In order to make the area balance, TrygVesta has raised premiums TrygVesta will enhance efforts to prevent personal injury in 2005. for workmen’s compensation insurance considerably in both This will be done through a closer dialogue with commercial Denmark and Norway over the past few years. Some customers and corporate customers holding workmen’s compensation are astonished that premiums go up while claims numbers policies on how they safeguard their staff by working actively have fallen. The explanation is that premiums are required to in relation to the working environment, introducing a policy match claims expenses, not the number of claims, and claims for sickness and similar efforts. expenses have risen considerably because the average claim paid has doubled over the past ﬁve years. Focus on subrogation paying off This doubling was, in particular, attributable to the new Danish subrogation – among other things by hiring employees in Nor- act on workmen’s compensation, which came into effect on 1 way who exclusively work with subrogation. These efforts have In the past year, TrygVesta has enhanced its efforts in seeking January 2004. Under the new act, more claims are required to been successful ﬁnancially. be covered under workmen’s compensation policies. As a con- sequence, premiums for customers in the Danish market in- Subrogation means that TrygVesta will claim indemniﬁcation creased by more than 50% on average in 2004, solely because for its expenses from the party responsible for the damage. If, of the changed legislation. for example, a ﬁre in a thatched house, insured with TrygVesta, On 1 January 2005, TrygVesta and most other Danish insurance ker’s liability insurer or the worker himself must pay instead of companies began using a new index for adjusting prices for TrygVesta. In other words, our active efforts to seek subroga- workmen’s compensation insurance in Denmark. We have tion place the liability for a claim where it properly belongs. done this in order to avoid, to the extent possible, future extra- These efforts are preventive, and also improve proﬁtability. has been set off by a worker using open ﬁre nearby, the wor- 27 Management’s report Financial perspectives AV E R A G E M O T O R C L A I M F O R T R Y G V E S TA ’ S D A N I S H C U S T O M E R S 2 0 0 2 - 2 0 0 4 DKK Jan 2003 Apr 2003 Jul 2003 Oct 2003 Jan 2004 Apr 2004 Jul 2004 Oct 2004 15,000 14,500 14,000 13,500 13,000 12,500 12,000 Claims expenses reduced in Denmark So far, less than 1% of our customers have chosen to switch Recent years’ systematic efforts have enabled TrygVesta to sub- from the 5% to the 8% limit. stantially reduce the average claims expense for personal and commercial customers in Denmark without jeopardising quality. Costs Part of the credit for the lower average claim is due to Tryg savings and reduce costs. As a result, both staff functions and Reparation. Under this agreement, customers who make a business areas identiﬁed substantial savings. This has already claim under their motor insurance get special service at the ga- materialised in a 2.1 point reduction of TrygVesta’s expense rage, while TrygVesta pays less for the repairs. When introduc- ratio in 2004. The effect will be even stronger in the years ahead. In 2004, TrygVesta intensiﬁed the efforts to identify additional ing such new methods we follow the claims calculations closely, and during 2004 the average motor claim among our The fall in costs was also attributable to the ﬁrst wave of Nordic Danish customers fell from DKK 13,200 to DKK 12,900. Try- synergies, shared IT outsourcing and distribution efﬁciency gVesta’s annual motor claims expenses in Denmark amount to enhancements, including a reduction of the number of ofﬁces approximately DKK 1.2bn. in Denmark. Total costs were DKK 225m lower in 2004. In ad- dition, we reduced the number of employees by 29 by leaving Personal accident insurance in Denmark vacant positions unﬁlled and by focusing on redeploying em- TrygVesta’s personal accident business in Denmark has per- ployees. The Group’s divested activities reduced the total formed with a negative balance between premiums and claims number of employees by an additional 629. over several years. Accordingly, we notiﬁed Danish personal policyholders of average premium increases of around 25% on We are now reaping the beneﬁts of the second wave of Nordic their personal accident policies in the summer of 2004. However, synergies in the form of efﬁciency enhancements and savings, we gave each customer the opportunity to get a lower increase in particular in the staff functions. The savings should be seen by accepting reduced cover to the effect that the policy will as a means of strengthening and maintaining TrygVesta’s cover if the customer suffers 8% permanent disability, while it good business and ﬁnancial performance. At the same time, previously covered at 5%. we are advancing the third wave of Nordic synergies, which we are about to ride by investing part of the savings in increased However, to ensure customers the greatest degree of peace of selling power, as well as in employee development and IT. mind, we recommended that they keep the 5% limit, which means that they will also be compensated for minor injuries such as a sprained or broken knee, back or foot, or if they lose the tip of a ﬁnger. 28 Lower postal expenses in Norway Focus on Nordic business In 2004, TrygVesta reviewed the products and services which TrygVesta’s sale of its reinsurance company, TBi, its Polish the Group buys from the Norwegian postal service and subsidiary, Tryg Polska, and its Estonian subsidiary, Nordicum switched to sending some of its letters by bulk mail, thereby Kindlustus, in 2004 was consistent with the Group’s strategy saving several million kroner each year. Furthermore, the IT to focus on its core business, which is direct Nordic insurance. operating agreement with CSC involves that all Norwegian The three companies generated a loss on ordinary operations insurance contracts are now printed in Copenhagen, which before tax of DKK 172m from 2002-2004. The divestments generates additional savings. complete TrygVesta’s strategic adjustment and enable us to devote all our efforts to the Nordic marketplace. In the longer Combined competencies at central customer centres term, having a presence in Sweden would be natural for Tryg- As more and more personal and commercial customers prefer Vesta, and we are considering ways of positioning TrygVesta quick and efﬁcient service by telephone or via electronic media, in the Swedish market. we will combine our competencies in ﬁve central customer centres in Denmark and three in Norway, which will be supple- Ratings – more than two steps up mented by local ofﬁces. Some of the existing ofﬁces will be Good ratings are vital for TrygVesta. Brokers and corporate merged, bringing more employees together. Customers will customers expect us to be rated, and a rating gives us easier perceive us as being more accessible, as we will be less vulner- and less expensive access to capital. We were therefore en- able when staff is off due to sickness, training and holidays, couraged to see our ratings improve in 2004. Standard & Poor’s and more staff will be available to answer the telephones. (S&P) rated us two grades better. This was very satisfactory since the rating was based on S&P’s knowledge of unpublished We ﬁnalised combining local ofﬁces in Denmark in 2004 and material from the TrygVesta Group and therefore much better early in 2005. This ﬁnalised the implementation of the distri- founded than earlier ratings. bution strategy we launched in 2000 and which has contri- buted greatly to TrygVesta’s cost savings. In May 2004, S&P assigned A- ratings with stable outlook to both Tryg and Vesta. In June 2004, Moody’s Investors Service In early 2004, we implemented changes to the sales organisa- (Moody’s) assigned an A3 rating with stable outlook to Vesta tion in Norway. The new regional structure makes for better and conﬁrmed Tryg’s A3 rating with stable outlook. All of these distribution among the different Norwegian sales channels: are interactive ratings, based on the rating agencies having sales persons, franchise outlets, Nordea’s branches and car been able to assess TrygVesta’s ﬁnancial strength, risk manage- dealers. The change of the organisation has already yielded ment, senior management and prospects in a thorough results in the form of new customers. review. 29 Management’s report Financial perspectives In their evaluation, both rating agencies emphasised that the Ratings in TrygVesta Group continues to move forward: TrygVesta is more proﬁt- able, generates more earnings than before, has enhanced its risk management and strengthened it capital base through positive management decisions. S&P Moody’s Tryg Vesta Dansk Kaution A- A- A- A3 A3 Before the interactive ratings, both Tryg and Vesta were rated BBB(pi) by S&P, and Tryg was also rated A3 by Moody’s in 2003. These ratings were ‘pi-ratings’, which are based on publicly available information. Furthermore, TrygVesta’s guarantee insurance company, Dansk Kaution, was assigned an A- rating with stable outlook from S&P in May 2004. The rating was based primarily on Dansk Kaution’s strong market position, capitalisation and good operating results over a number of years. 30 Looking for shared values Lisbeth Sjursen and Bent Lundorf, Bergen and Lyngby Employees of TrygVesta TrygVesta’s values have been deﬁ ned after a comprehensive ‘The Group gets much better value for its money by allowing value process covering the entire Group. During 2004, 19 value us to utilise our skills and resources on complicated cases. At scouts have been looking for values and rules of conduct in the same time, we also ﬁ nd such assignments more exciting both Tryg and Vesta. The process made it clear that Tryg and and challenging. On the other hand, the number of assessors Vesta have similar trains of thought and action in many respects. has fallen. This may result in stress at times,’ says Bent Lundorf. Lisbeth Sjursen was one of the 19 value scouts. She works in Market Support in Bergen, Norway: Lisbeth Sjursen presented the value scouts’ report to manage- ‘I was positively surprised by the sincerity, honesty and com- ment in late 2004. mitment my colleagues put into the project – both by telling ‘We consider ourselves the employees’ mouthpiece. It’s im- very personal stories and in the form of well-founded pride and portant that the values are visible in the day-to-day manage- criticism,’ says Lisbeth Sjursen. ment, and the problems, such as stress, we have identiﬁ ed must be addressed,’ according to Lisbeth Sjursen. The value process also identiﬁ ed weaknesses and requirements for enhancement of the organisation. One such area is uncer- Lisbeth Sjursen and the other value scouts will be offered to tainty resulting from the growing requirements from our exter- become value coaches from 2005 onwards. Their task will be nal environment and the continuous need to become better to help embed the new values and more efﬁ cient. throughout the Group. Bent Lundorf is one TrygVesta employee, who has felt the in- creased work pressure. Bent Lundorf assesses claims under contents policies in Denmark. Over the past few years, damage control service providers have been charged with assessing small claims, leaving scope for TrygVesta’s own assessors to deal with large claims in depth. 31 ��BatsfjordVardoVadsoKirkenesLakselvHammerfestAltaTromsoHarstadNarvikBodoMo��Management’s report Financial forecast for 2005 Financial forecast for 2005 TrygVesta expects to report strong ﬁnancial results also for 2005, reaping the beneﬁts of the second wave of Nordic synergies with a projected low combined ratio and attractive returns on through efﬁciency enhancements and savings. At the same equity of around 25% before tax. The Group forecasts a proﬁt time, we intend to advance investments in customer-oriented on ordinary activities before tax of DKK 1,600m for the full initiatives that are part of the third wave of Nordic synergies. year 2005 compared with the full-year proﬁt for 2004 of DKK 1,947m. The forecast assumes an unchanged level of interest The investment result is the proﬁt on investment activities af- rates and stable equity markets from 31 December 2004. ter transfer of technical interest. The forecast investment re- sult assumes annual yields of 7.0% on shares, 2.9% on bonds TrygVesta estimates that the combined ratio, net of reinsurance, and 7.1% on real property. for 2005 will be at the level of 92-96 with an expectation of 94 compared with the 93.1 achieved for 2004. The forecast for As a consequence of the transition to new accounting policies 2005 assumes a normal claims performance for TrygVesta. as from 2005, interest rate changes will affect both the techni- The storm in Denmark on 8 January 2005 was within the limits Under the policies applied so far, such changes only affected cal result and the investment return – in opposite directions. of a year’s normal claims experience and is incorporated in the the investment result. forecast, although it increases the risk that total expenses in re- lation to storm claims may be greater in 2005 than in a normal In addition to provisions for claims and the asset portfolio, year. TrygVesta’s pension commitment in Norway is affected by interest rate ﬂuctuations. Changes in this commitment are The effect of TrygVesta’s strategic initiatives launched in 2003 recognised as an expense, and accordingly, an interest rate and 2004 was quicker and stronger than was expected at the increase of 1 percentage point would decrease the combined beginning of 2004. However, we maintain our programme for ratio, net of reinsurance, by 0.7 point. Financial forecast for 2005 DKKm Technical result Investment result Pre-tax operating proﬁt Actual Actual Forecast Favourable Negative 2003 2004 2005 scenario scenario 376 685 1,045 1,456 517 1,947 1,325 300 1,600 1,600 1,000 Combined ratio, net of reinsurance 100.9 93.1 94 92 96 32 T R YG V E S TA G R O S S E A R N E D P R E M I U M S F O R C O R E A C T I V I T I E S A N D A C T I V I T I E S D I V E S T E D I N 2 0 0 4 6 % 94 TrygVesta Divested activities, 2004 The continuing activities of TrygVesta reported gross earned premiums of DKK 15,281m in 2004. 115 110 105 100 95 90 AC T UA L A N D FO R EC A S T CO M B I N E D R AT I O, N E T O F R E I N S U R A N C E % 109.2 100.9 93.1 94 2002 2003 2004 2005 Actual Negative Forecast Favourable The section Risk management contains a more detailed descrip- • The second wave of Nordic cost synergies tion of the operational and ﬁnancial sensitivity in terms of risk • The improvement of the correlation between price and risk management. The section New accounting rules as from 2005 in the personal area within the Corporate business area describes the changed interest rate sensitivity. In the following, we describe the basis for our ﬁnancial forecast for 2005. Other things being equal, the divestment of the Polish and Esto- nian activities and TBi will reduce the combined ratio by 0.6 Details of ﬁnancial forecast for 2005 point relative to a normal level for 2002-2004, when the three The ﬁnancial forecast for 2005 is based, among other things, companies contributed a loss of DKK 172m to the consolidated on the Group’s portfolio model. The model uses historical data proﬁt before tax. Gross earned premiums in these companies to project developments in the claims ratio, including prob- amounted to DKK 1,035m in the 2004 ﬁnancial statements. able variation factors such as claims frequency in the personal market, average expense per claim, frequency of large losses The second wave of Nordic cost synergies will have a positive and the extent of catastrophe and storm events. impact on proﬁts in 2005 and 2006, while also facilitating a number of investments in customer-oriented initiatives. The Relative to a normal year, 2004 was affected by the following: overall effect is expected to be a reduction of approximately 1 • Large losses at normal level point in the Group’s expense ratio relative to 2004. In addition, • Storm and weather related claims at normal level following the adoption of IFRS standards in our ﬁnancial report- • Claims frequency in the mass market signiﬁcantly better ing, internal claims handling costs are to be included in the than normal level claims ratio and not in the expense ratio. This will further reduce • Above-normal performance for property and liability policies the expense ratio by approximately 3 points, but increase the in the Corporate business area claims ratio accordingly. • Poorer-than-normal performance for personal claims expenses In aggregate, these factors had a positive effect of 2 points on to further enhance proﬁtability within the personal accident areas the combined ratio, net of reinsurance, relative to a normal year. of Norwegian corporate business. These measures are expected A number of initiatives were introduced in the autumn of 2004 to have a positive effect on the Group’s combined ratio for 2005. The forecast combined ratio, net of reinsurance, of 94 for 2005 thus reﬂects stricter earnings requirements and incorporates a Combined ratio, net of reinsurance number of factors intended to improve the performance. – actual, forecast and sensitivity The following factors in particular contribute positively to the the ﬁgure above, and the overall probable ﬂuctuation of the forecast for 2005: combined ratio, net of reinsurance, is estimated to be in the The overall forecast and probable ﬂuctuations are illustrated in • The divestment of the Polish and Estonian subsidiaries and range of 92-96. the reinsurance company TBi 33 Management’s report Risk management Risk management Risk management is a natural and fundamental part of Tryg- TrygVesta’s targeted risk management efforts are based on Vesta’s business philosophy, and competency in this area is an our ambition to operate a proﬁtable insurance business while important success criterion. Risk management is very important, at the same time meeting our target of being the customers’ not only to TrygVesta, but also to the Group’s owner, the super- preferred supplier of products and services that offer peace of visory authorities and in particular to TrygVesta’s customers. mind. At the same time, the risk management efforts help Customers who choose to take out policies with TrygVesta prepare TrygVesta for the new and stricter requirements from do it because they trust that TrygVesta will be able to meet its our external environment as to how an insurance business obligations of any kind, be it claims in connection with a in- should be run. Supervisory authorities and international rating dustrial property burnt down or damage caused by storms. agencies, in particular, focus increasingly on risk management. Competent risk management is fundamental to this trust. This trend will continue in the years ahead, partly due to the work with the new EU solvency rules for insurance companies Risk management in an insurance company involves assessing (Solvency 2) and partly due to the insurance markets becom- a large number of risks affecting various parts of the company’s ing increasingly internationalised. Operating a successful in- activities (see fact box). In respect of ﬁnancial types of risk, surance business in the future will undoubtedly be even more TrygVesta is making targeted efforts to develop methods to dependent on the companies’ ability to plan, monitor and measure and manage such risk, in particular in the areas of manage their risk. provisions, investments and reinsurance. As far as operational types of risk are concerned, TrygVesta focuses on management through a coherent structure of policies, business procedures and guidelines. Risk types Financial risks Insurance risk Premium risk Provisions risk Operational risks Strategic risks IT breakdowns Crime Process errors Market conditions Legislative changes Investment risk Interest rate risk Market risk Currency risk Inﬂation risk Examples of types of risk within the three main areas ﬁnancial, operational and strategic risks 34 TrygVesta’s policies Risk type Insurance risk Investment risk Operational risk Strategic risk Policy Underwriting and acceptance policy Provisioning policy Reinsurance and Security policy Claims policy Investment policy Security policies Business strategy Risk management structure The commercial part of risk management is carried out daily in In 2004, an important part of implementing TrygVesta’s pan- each business area in connection with the writing of policies, Nordic organisation was to harmonise the different elements payment of claims and individual underwriting of large corporate of the Group’s risk management. customers. Such risks are primarily managed through tariffs, policies, business procedures and structured follow-up. The Group’s CFO is responsible for the overall ﬁnancial and operational risk management, comprising management of TrygVesta made targeted efforts in 2004 to deﬁne a risk man- risks relating to TrygVesta’s investment activities, manage- agement structure and implement it in the organisation. ment and monitoring of operational risk, analyses of tariffs, provisions, Asset Liability Management and reinsurance. The structure is based on a number of overall policies deﬁned Working together with the business areas, efforts are made to by the Supervisory Board. The policies lay down the framework ensure that risk management is developed, coordinated and for the circumstances in which TrygVesta will assume risks. harmonised throughout the Group. Policies have been laid down for the most important areas of TrygVesta’s business, covering various risk types. 35 Management’s report Risk management The overall policies are supplemented by detailed guidelines When the period of the insurance has expired, insurance risk and business procedures prepared by the individual business relates to the provisions for claims – also referred to as the re- and staff areas. A number of committees have been set up to serves – made to cover future payments on claims already in- ensure implementation of the overall policies in the business curred. A case in point is industrial injuries discovered many areas. These committees have been composed so as to ensure years after the policy was written. If TrygVesta’s provisions for coordination across the Group, and, where required, they ap- claims are inadequate and have to be increased, the company prove the implementation by the business areas of the rele- incurs a run-off loss. Long-tail business is especially exposed to vant overall policy. The committees report to the Group Exe- run-off losses, and history has shown that areas involving per- cutive Management and may also act as an advisory body for sonal injury are subject to considerable risk. This risk is enhanced the Executive Management in connection with questions by the fact that a change in the claims record several years after within the ﬁeld of each committee. the policy was written may be expected to affect all claims in A ‘Policy and Strategy Room’ describing each individual policy far behind. Maintaining provisions at the correct level and has been created on the Group’s intranet in order to ensure monitoring developments is therefore a vital element in ensuring the intervening period, with the result that premiums may lag that TrygVesta’s employees are familiar with the Group’s over- proﬁtable insurance operations. all policies. Furthermore, our intranet gives all Norwegian em- ployees access to detailed guidelines for writing individual TrygVesta’s provisioning policy deﬁnes the framework for man- products. TrygVesta is in the process of transferring the expe- aging insurance risk related to provisions for claims. According rience gained to other business areas as part of harmonising to the provisioning policy, TrygVesta makes provisions that en- the Group’s operational risk management. sure that the likelihood of run-off gains exceeds the likelihood Insurance risk of run-off losses at any time. The actual calculation and mo- nitoring is carried out by TrygVesta’s provisioning department, The most important risk factor for TrygVesta is the risk in- which is responsible for TrygVesta’s provisions in both Norway volved in the insurance operations. A key element in the ef- and Denmark. Provisions for claims are calculated by means of forts to manage insurance risk is analysing risk on the different a number of statistical methods as well as assessments based insurance types. on knowledge in the business areas. A reserve committee is responsible for coordinating across the organisation. The com- Insurance risk connected with writing insurance is generally mittee consists of representatives from claims handling and assessed by means of tariffs based on statistical analyses of the the provisioning department to allow early recording of any risk type. TrygVesta’s pan-Nordic analysis function is respon- changing circumstances. Close follow-up on claims permits sible for making tariff analyses. TrygVesta to take swift action as and when the risk situation changes, for example in the personal accident area. 36 A S S E T L I A B I L I T Y M A N A G E M E N T M O D E L Profit/loss Technical result Investment result Reinsurance Large claims Small claims Real property returns Bond returns Equity returns Schematic illustration of TrygVesta’s ALM model. The individual elements are subject to several thousand computer simulations, making it possible to measure the aggregate effect of, for example, changes in investment strategy, business mix or reinsurance. Asset Liability Management The ALM model is an important tool for TrygVesta’s internal In a ﬁnancial group such as TrygVesta, part of the ﬁnancial risk risk management, and it ensures that impact analyses are is related to the relationship between the Group’s liabilities made within a common calculation framework. and the assets available to cover these liabilities. Interest rate risk is a case in point, currently affecting almost exclusively the We will continue developing the ALM model in 2005 and intend value of investments in interest-bearing instruments such as to use it also for assessing the impact of longer-term strategic bonds. In connection with TrygVesta adopting IFRS standards decisions. effective from the 2005 ﬁnancial year, provisions for claims will also be affected more by interest rate ﬂuctuations due to in- Reinsurance creased discounting, and the interaction of assets and liabilities TrygVesta’s reinsurance department contributes to strength- will have a greater impact on the ﬁnancial statements. Manage- ening the analysis and model based support in connection ment of interest rate risk and other risks impacting both assets with purchasing reinsurance. and liabilities is referred to as ‘Asset Liability Management’ (ALM). In order to support this part of our risk management, TrygVesta TrygVesta’s synergies in placing the Group’s reinsurance. has for several years made targeted efforts to develop a ﬁnan- Accordingly, the reinsurance programme is as far as possible cial ALM model with which to calculate risk in the various parts organised in joint treaties comprising the entire Group, and of our activities and illustrate the consequences. the treaties are assessed and analysed at Group level. The reinsurance department is responsible for maximising Work with the ﬁnancial ALM model was given a more syste- The scope of the reinsurance department’s work is deﬁned matic structure in 2004. The model has been extended to once a year in TrygVesta’s ‘Reinsurance and Security policy’, cover the entire Group, and it describes risks affecting which is subject to approval by the Supervisory Board of TrygVesta’s investment assets as well as its insurance liabilities. TrygVesta. The practical aspects of TrygVesta’s reinsurance are handled in a close collaboration with the business areas. During the year, we used the ALM model for a number of im- See also the description of risk management in the Corporate portant aspects of planning and monitoring TrygVesta’s risks: Governance section. • risk based allocation of capital as a basis for proﬁtability assessments, tariff adjustments and budgeting • calculation of TrygVesta’s internal risk equalisation and a related calculation of a limit for TrygVesta’s retention in connection with reinsurance • assessment of the risk of TrygVesta’s rating being affected in connection with alternative investment strategies. 37 Management’s report Risk management S TA N D A R D & P O O R ’ S International credit rating agency Standard & Poor’s rates borrowers’ ability to honour their obligations. Ratings are awarded in accordance with the following scale: AAA AA A BBB BB B C Extremely strong Very strong Strong Good Marginal Weak Very weak BBB is the lowest rating that is considered ‘safe’. The scale is used to rate bonds issued by governments, banks and similar institutions as well as insurance and reinsurance companies. A + or – may be added to the letters for further grading. In rating insurance companies, Standard & Poor’s uses a publicly accessible rating model that measures the company’s capital relative to its risk profile. More joint treaties Personal accident and workmen’s compensation Over the past couple of years, an increasing number of Tryg Finally, TrygVesta has set up joint catastrophe reinsurance for its and Vesta’s reinsurance treaties have been combined into joint personal accident and workmen’s compensation policies. In early treaties, generating annual synergies in the range of DKK 40m. 2004, we reassessed the scenarios – the so-called Realistic Disas- In 2003, TrygVesta changed its reinsurance from proportional ter Scenarios – on which our cover is based to include terrorist to non-proportional cover. Thanks to a healthier gross busi- attacks. As a result of this work, TrygVesta increased its cover per ness, this change generated savings of DKK 30m in 2003 and event from DKK 350m to DKK 1,000m. TrygVesta’s retention additional savings of DKK 140m in 2004. was DKK 20m in 2004 and from 2005, it has been increased to Natural disasters DKK 50m. We have increased this cover to DKK 1,500m as from 2005, and we estimate that it will be difﬁcult to buy addi- TrygVesta has bought joint reinsurance for natural disasters, tional cover in the reinsurance market up to full terrorist cover. which also covers the part of Norwegian natural disasters that is not covered by the Norwegian Pool of Natural Perils. The Credit rating requirements cover is up to DKK 3.5bn with retentions of DKK 100m in Den- The placing of reinsurance exposes TrygVesta to a credit risk mark and NOK 70m in Norway. The cover has been determined from the reinsurers it contracts with. This risk is managed based on the risk to which the portfolio is exposed. The risk through TrygVesta’s Reinsurance and Security policy, which exposure has been analysed using market-based simulation deﬁnes minimum credit rating requirements that must be met models and has been determined on the assumption that a prior to signing a reinsurance treaty. The policy speciﬁes that loss of more than DKK 3.5bn occurs less often than once every reinsurers must have at least a Standard & Poor’s BBB or similar one hundred years. Should a terrorist event occur in Denmark rating in order for TrygVesta to cooperate with them on short- or Norway, the joint reinsurance cover for natural disasters and tail business up to 2.5 years. In the case of long-tail business terrorist events is up to DKK 1.5bn for buildings, contents and over 2.5 years, reinsurers are required to be rated at least A by business interuption policies (the so-called property policies) Standard & Poor’s or to have a similar rating. with a total insurance sum of up to DKK 370m. Investment risk Property The investment activities are managed by the Group Invest- TrygVesta has furthermore bought joint reinsurance in respect ments department, which is responsible for investments on of the industrial and commercial customers’ property policies. behalf of all companies in TrygVesta. The cover is up to DKK 800m with a retention of DKK 50m per event (DKK 100m for the ﬁrst event) and also comprises one-off Based on a general, overall investment strategy, Group Invest- events due to terrorist events. TrygVesta buys individual cover ments draws up investment policies for each company in the (facultative reinsurance) for risks exceeding DKK 800m. Group. This is done taking into consideration the characteristics of each company and the legislative framework for its operations. 38 E X C E S S C O R E C A P I TA L R E L AT I V E T O R E D - A N D Y E L L O W - L I G H T S C E N A R I O S DKKm 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Dec 03 Mar 04 Jun 04 Sep 04 Dec 04 Redlight Yellowlight The chart shows the excess core capital relative to the Danish Financial Supervisory Authority’s traffic light system. The amount of excess core capital increased throughout 2004 thanks to much of TrygVesta’s earnings being invested in low-risk investment assets. Based on the investment policies, Group Investments deﬁne As described under the heading Asset Liability Management, the operational framework for the asset mix, including limits an increase in interest rates will trigger a fall in the value of Tryg- on asset types and the duration, geographic distribution and Vesta’s bond portfolio, while the value of TrygVesta’s liabilities risk proﬁle of bonds, shares and real property, respectively. will only decrease to the extent they are discounted. At present, Most of TrygVesta’s investment portfolio is then managed by as only provisions for workmen’s compensation in Denmark external portfolio managers. and Norway are discounted, an increase in interest rates would The investment policy aims to maximise return, taking into in this annual report, the adoption of IFRS accounting standards account the composition and duration of liabilities and the will entail increased discounting of provisions for claims, reducing Group’s risk proﬁle, solvency and rating. Overall, TrygVesta’s the effect of interest rate changes on future ﬁnancial results. trigger an accounting loss for TrygVesta. As described elsewhere liabilities have a duration of about two years, which dictates an asset mix focused on a high degree of security and strong The Danish Supervisory Authority’s trafﬁc lights liquidity. Therefore, liquid listed bonds with low credit risk and As a guideline for assessing general insurance companies’ short duration will continue to constitute the major part of investment risk, including interest rate risk, the Danish Finan- the investment portfolio. cial Supervisory Authority introduced the so-called trafﬁc light The credit risk on TrygVesta’s bond investments is limited. ﬂect companies’ ability to endure a number of hypothetical Most of the portfolio consists of mortgage credit and govern- market scenarios, such as falling equity prices and interest system at 31 December 2003. The system is intended to re- ment bonds with AAA or equivalent ratings from leading rate changes. credit rating agencies. Only a small part of the portfolio is made up of corporate bonds. To be in the green scenario, the company’s core capital must TrygVesta is exposed to currency risk through its investments requirement, which is calculated in proportion to the insurance in securities outside Denmark and Norway. The Group gener- risk. TrygVesta was rated green at 31 December 2004 with an ally hedges this risk relating to investments in shares and excess of DKK 3bn relative to a yellow rating and DKK 3.6bn cover both the trafﬁc light scenario and the company’s solvency bonds denominated in foreign currency. Equity investments in relative to a red rating. subsidiaries outside Denmark have been hedged in 2004. The assets are marked-to-market on a current basis, and Tryg- its risk capacity. This means that the company can more than Vesta’s investment portfolio is therefore affected by ﬂuctua- double its investment risk without moving out of the green- Relative to the yellow-light scenario, TrygVesta uses 38% of tions in interest rates, equity prices, exchange rates and real light scenario. property prices. 39 Management’s report Risk management The excess of the capital base reﬂects the low risk involved in TrygVesta’s investment portfolio. It also shows that only a small proportion of the Group’s accumulated proﬁts is allo- cated to equity investments. TrygVesta’s management of risk limits is based on the Danish Red-light scenario An adverse, albeit realistic development would threaten the company’s solvency • Interest rate change of 0.7-1.0% • Equity price fall of 12% • Fall in property prices of 8% Financial Supervisory Authority’s realistic scenario (red-light • Foreign exchange and credit losses scenario). The table ‘Investment risk’ shows investment risk at 31 December 2004 calculated on this basis. If all the adverse impacts shown occurred simultaneously, the total effect on earnings would be DKK 1,004m or 16% of Tryg- Vesta’s shareholders’ equity at 31 December 2004. By com- parison, the effect would be equal to a 6.7 point deterioration of the combined ratio, net of reinsurance. Yellow-light scenario An unrealistic, albeit not inconceivable develop- ment would threaten the company’s solvency • Interest rate change of 1-1.5% • Equity price fall of 30% • Fall in property prices of 12% • Foreign exchange and credit losses Green scenario An unrealistic, but not inconceivable development would not threaten the company’s solvency Impact Earnings effect DKKm 0.7-1.0% rate increase 12% price fall 8% price fall Value at Risk Weighted loss 279 378 172 11 164 1,004 Investment risk Asset type Bonds Shares Real property Foreign exchange Credit risk Total 40 Natural for the bank to sell insurance Seija Korre and Taina Kujanen, Helsinki Customer with TrygVesta, Finland, and banking consultant with Nordea ‘For me, it’s a natural thing to discuss insurance with my bank- triggering a thunderstorm. Seija Korre’s house was hit by light- ing adviser because she knows me well and I feel safe about ning and caught ﬁ re. Her house, sauna and car were badly her handling it,’ says Seija Korre of Helsinki, Finland. damaged, but luckily nobody was hurt. A couple of years ago Seija Korre discovered she could be ‘I was very frightened and worried and did not know what to insured through her bank when she had a meeting with do. When I called TrygVesta’s Finnish branch, Nordea Vahinko- Taina Kujanen, her banking adviser. Seija Korre is happy she vakuutus, and told about the damage, they calmed me down accepted the offer of being insured with TrygVesta through and gave good advice.’ Nordea in Finland. ‘I’m pleased that Taina Kujanen looks after my insurances as well as my banking requirements. It’s easy that all vital matters are handled in one place. It also seems natural for the bank to sell insurance.’ The policies were needed as late as last summer, when Seija Korre stayed in her holiday cottage at Kirkkonummi – 50 km west of Helsinki. On a hot summer’s day a storm came on, 41 ��Management’s report Financial highlights and key ratios for TrygVesta Financial highlights and key ratios for TrygVesta DKKm Gross earned premiums Gross claims incurred Gross expenses Proﬁt/loss on gross business Q4 2004 3,954 -2,846 -829 279 Q4 2003 4,209 -3,178 -936 2004 2003 2002 2001 2000 16,308 -11,020 -3,462 16,702 -11,940 -3,745 15,792 -12,334 -3,732 95 1,826 1,017 -274 12,620 -9,782 -3,063 -225 11,152 -9,801 -2,891 -1,540 Proﬁt/loss on ceded business -133 -204 -814 -1,135 -871 -329 552 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 income Other ordinary expenses Proﬁt/loss on ordinary activities before tax Extraordinary items and minority interests Tax Proﬁt/loss for the period, continuing business Loss for the period, discontinued business Proﬁt/loss for the period Run-off gains/losses, net of reinsurance Balance sheet Technical provisions, net of reinsurance Total shareholders’ equity Total assets Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio. net of reinsurance Combined ratio. net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio. net of expenses to reinsurance Annualised return on equity Return on equity before tax Return on equity after tax and discontinued business 3,570 129 -2,661 -763 2 277 314 41 -48 584 0 -152 432 -17 415 74.5 21.4 95.9 72.0 3.4 75.4 21.0 96.4 192 31 -41 258 0 110 368 -84 284 79.5 23.5 103.0 75.4 4.9 80.3 22.2 102.5 3,672 143 -2,918 -863 42 14,525 537 -10,296 -3,217 -93 14,190 595 -10,866 -3,442 -101 12,497 832 -10,422 -3,220 -245 76 1,456 376 -558 517 121 -147 1,947 0 -485 1,462 -55 1,407 685 115 -131 1,045 1 -87 959 -217 742 -170 127 -173 -774 -1,256 213 -1,817 -274 -2,091 10,402 715 -8,327 -2,629 -56 105 4 121 -121 109 7 -43 73 -22 51 9,599 755 -8,014 -2,573 -55 -288 711 122 -122 423 0 -83 340 -7 333 3 -516 -458 -283 -457 23,467 6,117 33,553 22,475 5,360 31,337 21,606 4,268 29,833 17,673 4,564 24,032 15,826 4,305 23,575 70.9 22.2 93.1 67.6 5.0 72.6 21.2 93.8 33.9 24.5 76.6 24.3 100.9 71.5 6.8 78.3 22.4 83.4 25.8 109.2 78.1 5.5 83.6 23.6 80.1 25.3 105.4 77.5 2.6 80.1 24.3 83.5 26.8 110.3 87.9 -5.0 82.9 25.9 100.7 107.2 104.4 108.8 21.7 15.4 -46.0 -47.4 2.6 1.2 8.9 7.0 Number of full-time employees at the end of the period 3,762 4,420 4,411 4,316 4,264 42 T E C H N I C A L R E S U LT 2,000 1,500 1,000 500 0 -500 -1,000 105 376 -288 -558 DKKm 1,456 C O M B I N E D R AT I O , N E T O F R E I N S U R A N C E 110.3 109.2 105.4 115 110 105 100 95 90 % 100.9 93.1 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 Review of TrygVesta’s ﬁnancial performance TrygVesta improved its ﬁnancial results markedly in 2004, re- was included in the ordinary activities until the time of sale. porting a proﬁt on ordinary activities of DKK 1,947m before tax The divested companies contributed an ordinary loss totalling and a return on equity of 33.9% before tax and 24.5% after tax. DKK 172m during the period 2002-2004. The combined effect The strong proﬁt growth was primarily attributable to a signiﬁ- tivities totalling DKK 63m in 2004, while the restructuring and cant improvement of the operating proﬁt. Insurance operations run-off provision of DKK 179m remaining at 31 December of the divestments was recognised as proﬁt on insurance ac- reported an increase of DKK 1,080m relative to 2003 and DKK 2003 was applied in full. 2,014m relative to 2002 resulting from improved technical results in all of TrygVesta’s business areas. Higher net premiums in general and strong growth in Finland Growth in earned premiums in TrygVesta’s three primary busi- Through targeted efforts since the Group’s establishment in ness areas was 3.4%. This ﬁgure was composed of growth in 2002, TrygVesta has reduced its combined ratio by 16.1 points Personal & Commercial Denmark of 5.6%, growth in Personal from 109.2 in 2002 to 93.1 in 2004. & Commercial Norway of 2.1% and slightly weaker growth in the Corporate business area relative to 2003. It should be TrygVesta has established a sound balance in Group earnings, noted that growth in Personal & Commercial Norway was generating a technical result of DKK 790m from its Danish made up in the local currency. In addition, premium growth in operations and DKK 722m from its Norwegian operations. the Corporate business area was inﬂuenced by the transition to net prices in business served by brokers, which reduced pre- As in 2003, the largest part of TrygVesta’s earnings was gener- miums by approximately DKK 160m, corresponding to just ated by Personal & Commercial Denmark and Personal & Com- over 3% of the Corporate business area. mercial Norway reporting technical results of DKK 604m and DKK 662m, respectively. In addition, the Corporate business In addition, TrygVesta’s Finnish business recorded strong area continued the positive trend from 2003, recording a tech- growth in 2004 through an increase in gross earned premiums nical result of DKK 246m in 2004, despite large claims and a by approximately 60% to DKK 97m. Since venturing onto the considerable strengthening of reserves within personal accident Finnish market in 2001, TrygVesta has reached a market share insurance. of just over 1.5% of the personal insurance market in Finland at 31 December 2004. Nordea Bank Finland, which is TrygVesta’s In 2004, TrygVesta divested its activities in Poland and Estonia primary distribution channel in the Finnish market, has a share and its reinsurance activities, which were operated through of some 40% of the personal market, and the potential for con- Tryg-Baltica International (TBi). The proﬁt from these activities tinuing this growth rate is hence signiﬁcant. 43 Management’s report Review of TrygVesta’s financial performance P R E M I U M S , N E T O F R E I N S U R A N C E , D I S T R I B U T E D O N B U S I N E S S A R E A S I N 2 0 0 4 7 % 26 40 27 Personal & Commercial Denmark Corporate Personal & Commercial Norway Other Total earned premiums were furthermore affected by the In the corporate market, general price adjustments were im- divestment of TrygVesta’s reinsurance operations and the ac- plemented over the course of 2002 and 2003 within property tivities in Poland and Estonia in 2004, since earned premiums and personal accident insurance in particular, while adjust- from the divested activities were only included until the time ments during 2004 were fewer in number and of a more spe- of sale. Overall, gross premiums were adversely affected by ciﬁc nature. Initiatives to adjust prices and to provide more ac- the divestment of other activities in the amount of DKK 190m. tive risk advice to customers in the property area have been successful, hence restoring proﬁtability in this business area. Restructuring of the Group’s reinsurance programmes and the Results within personal accident insurance were affected by a establishment of pan-Nordic reinsurance procurement reduced doubling of average claims over the past ﬁve years, and despite the reinsurance premium from DKK 2,512m in 2003 to DKK a falling claims frequency, this area was still not proﬁtable in 1,783m in 2004, and we expect a further reduction of the re- 2004. The implementation of the so-called ‘Social Inﬂation insurance premium in 2005. Index’ in Denmark in 2005 will, however, contribute to also making this product area proﬁtable. Proﬁtability restored in the primary operations The technical result of DKK 1,456m in 2004 was to a large ex- In addition, the Group focused on costs during 2003 and 2004 tent attributable to recent years’ efforts to ensure a healthier and launched a number of targeted cost saving and efﬁciency correlation between risk and price. improving measures both in staff functions and in the individual In the mass market (Personal & Commercial Denmark and proﬁtability in 2004 and will continue to contribute to improve- business areas. This contributed signiﬁcantly to the improved Personal & Commercial Norway), general price adjustments ments during 2005 and 2006. were implemented during 2003, within contents and house insurance. In 2004, TrygVesta worked proactively to reduce Reduction in claims despite large provisions claims expenses and improve the overall customer package, TrygVesta’s claims ratio, net of reinsurance, was reduced sig- for example by entering into agreements with garages and niﬁcantly in 2004 as well, now totalling 70.9, down 5.7 points craftsmen. These efforts resulted in lower average claims and relative to 2003. The reduction can primarily be attributed to improved customer packages in the form of, for example, a recent years’ efforts to ensure a healthier correlation between replacement car during the repair period and a guarantee for risk and price, as described above. a high standard of workmanship in repairing building damage. 44 L A R G E C L A I M S 800 700 600 500 400 300 200 100 0 DKKm 170 567 199 428 123 194 108 304 62 210 250 200 150 100 50 0 G R O S S D I S A S T E R A N D W I N D S TO R M E X P E N S E S , I N C L U D I N G T H E N O R W E G I A N P O O L O F N AT U R A L P E R I L S DKKm 60 105 21 160 1 47 25 27 750 100 21 80 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 2005 Normal year Norway Blaze in Kolding Normal year Disasters and windstorms in Norway, pool of natural perils Denmark Disasters and windstorms in Denmark, excluding hurricane run-off 1999 Storm 8 January 2005 However, the claims performance was also adversely affected Improved expense ratio through efﬁciency in 2004 by events such as the blaze at a ﬁreworks factory in the improving measures and synergies Danish town of Kolding and by the tsunami disaster in Asia, Over the course of 2003 and 2004, TrygVesta made targeted which impacted TrygVesta’s claims by a total of DKK 128m, efforts to reduce costs in the short term as well as in the long term. net of reinsurance, thereby increasing the combined ratio by 0.9 point. The ﬂex job ruling by the Danish Supreme Court and In the short term, actual costs were reduced by DKK 225m the implementation of a broader deﬁnition of industrial disease relative to 2003. Likewise, the expense ratio was reduced from in Norway affected claims adversely by an aggregate of DKK 24.3 in 2003 to 22.2 in 2004. 265m. Finally, TrygVesta incurred large claims totalling DKK 412m in 2004 – an increase of DKK 140m over 2003. Staff-related expenses make up 66% of total costs, and all things being equal pay increases resulting from collective On the positive side, the general underlying improvement agreements would have increased costs by DKK 72m in 2004. which characterised 2003 and 2004 contributed favourably to TrygVesta’s performance in 2004. In the mass markets in par- Instead, TrygVesta reduced the cost level on a quarterly basis ticular, the 2004 claims performance was favourably affected over the past year, thereby achieving in a net reduction of total by a lower-than-average claims frequency, especially within costs of DKK 225m in 2004. house insurance in Norway and motor insurance in Denmark. The savings were achieved through the ﬁrst wave of pan-Nordic Improved risk selection, improved security and higher deductibles synergies. In particular, the integration of Group staff functions, combined with generally milder-than-average winters resulted including joint IT sourcing and outsourcing of IT operations, in a lower claims ratio in the mass markets. These markets have had a signiﬁcant impact. In addition, efﬁciency improvements generally been characterised by declining claims frequencies in the distribution network and increased focus on costs in recent years. The claims frequency for house insurance in throughout the organisation contributed to reducing the cost Norway declined from index 100 to index 77 during the period level. from 2000 to 2004, which bears witness to a particularly low claims frequency in 2004 as compared with a normal year. The cost reduction was implemented without any major staff retrenchment programmes. Claims incurred, net of reinsurance, totalled DKK 10,296m, corresponding to a decline of DKK 570m relative to 2003. 45 Management’s report Review of TrygVesta’s ﬁnancial performance A C T U A L Q U A R T E R LY E X P E N S E S DKKm 880 860 840 820 800 780 760 740 720 24 % 23.5 23 22.5 22 21.5 21 20.5 20 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Insurance operating expenses, net of reinsurance Expense ratio, net of reinsurance In the longer term, TrygVesta expects to further reduce its Transfer to technical interest totalled DKK 537m in 2004 against cost level. This will continue to be a focus area, and in 2004 DKK 595m in 2003. The decline in the amount transferred can TrygVesta laid the groundwork for additional efﬁciency im- be attributed to the generally lower level of interest rates in provements within our staff functions and continued focus 2004 as compared with 2003. on process improvements within the individual business areas. This will contribute to a continued reduction of the expense Tax ratio during 2005 and 2006, when the second wave of the Tax on the proﬁt for the year amounted to DKK 485m against Group’s Nordic synergies is launched. DKK 87m in 2003. The effective tax rate was 25 as compared Investments with 6 in 2003. This increase was due to the 2003 tax rate being affected by tax losses carried forward from prior years and off- Proﬁt on investments before transfer to insurance activities, set against the taxable income and by tax-exempt unrealised but after payment of costs, totalled DKK 1,192m, correspond- capital gains. ing to a reduction of DKK 226m relative to 2003. The tax expense included a current tax charge of DKK 289m This ﬁgure was positively affected by capital gains on shares and a reduction of DKK 174m of TrygVesta’s tax assets. and bonds, albeit to a much lesser extent than in 2003, whereas it was only mildly affected by the divestments of the Polish and Other ordinary income and expenses Estonian subsidiaries and by the divestment of Tryg-Baltica In- Other ordinary net income and expenses amounted to a loss ternational. The provision of DKK 179m to restructure the of DKK 26m against a loss of DKK 16m in 2003. This amount Group remaining at 31 December 2003 was applied in accord- primarily included holding expenses in TrygVesta and commission ance with the intentions, and the investment income was only income less related expenses in connection with the sale and affected by a net gain of DKK 63m from the divestment. provision of life and pension products on behalf of Nordea. The proﬁt corresponds to a return on investments before Discontinued activities divestment of subsidiaries of 4.7%, which was an increase of The loss on discontinued activities amounted to DKK 55m, 0.2 point over TrygVesta’s benchmark. In the fourth quarter of which was an improvement of DKK 162m over 2003, when the 2004, we saw very favourable developments within shares in activities in England were put into run-off. This improvement particular, which, overall, increased the return for the full year. was primarily due to accelerated run-off. 46 R E T U R N R AT I O 2 0 0 4 T R Y G V E S TA B A L A N C E S H E E T 18 16 14 12 10 8 6 4 2 0 % 40 35 30 25 20 15 10 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Assets Provisions Shareholders’ equity Shares Real property Total Bonds 2003 2004 DKKm Balance sheet TrygVesta’s total assets increased from DKK 31,337m in 2003 to DKK 33,553m in 2004. Liabilities included shareholders’ equity of DKK 6,117m and technical provisions in the amount of DKK 23,467m. Technical provisions increased by a total of DKK 992m relative to 2003, thereby bringing TrygVesta’s provisioning ratio to 106.9 as against 104.5 in 2003. The increase in total assets included increased holdings of shares and bonds. The return on equity was 33.9% before tax and discontinued activities against 21.7% in 2003. Shareholder information Tryg i Danmark smba is the sole shareholder of TrygVesta A/S. Distribution of proﬁt The proﬁt for the year was DKK 1,407m. It is proposed that a dividend of DKK 650m be declared and that the remaining amount of DKK 757m be carried forward to next year. Shareholders’ equity Shareholders’ equity stood at DKK 6,117m at 31 December 2004, an increase of DKK 757m, corresponding to the proﬁt for the year less dividends paid. 47 Management’s report Personal & Commercial Denmark Personal & Commercial Denmark DKKm Gross earned premiums Gross claims incurred Gross expenses Proﬁt/loss on gross business Proﬁt/loss on ceded business Technical interest, net of reinsurance Change in equalisation provisions Technical result Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio. net of reinsurance Combined ratio. net of reinsurance Gross key ratios Gross claims raito Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance Q4 2004 1,529 -1,245 -277 7 -22 42 66 93 82.7 18.3 101.0 81.4 1.4 82.8 18.1 100.9 Q4 2003 1,448 -1,060 -337 51 2004 2003 2002 2001 2000 5,977 -4,257 -1,235 485 5,660 -4,194 -1,287 179 5,191 -4,070 -1,194 -73 4,666 -3,843 -1,183 -360 4,487 -4,025 -1,241 -779 -39 -99 -167 -180 -10 198 41 -5 48 75.2 24.0 99.2 73.2 2.7 75.9 23.3 99.2 164 54 604 72.5 20.9 93.4 71.2 1.7 72.9 20.7 93.6 147 -39 120 76.3 23.5 99.8 74.1 3.0 77.1 22.7 99.8 219 19 -15 81.2 24.1 105.3 78.4 3.5 81.9 23.0 233 14 -123 82.7 25.6 108.3 82.4 0.2 82.6 25.4 274 15 -292 85.1 28.1 113.2 89.7 -4.4 85.3 27.7 104.9 108.0 113.0 The technical result generated by Personal & Commercial Den- claims situations, while reducing average claim expenses mark recorded strong growth over the course of 2004, and through claims procurement projects, such as Tryg Reparation despite events such as the ﬁreworks factory blaze in Kolding and Tryg Bygning. and the tsunami disaster in Asia, the technical result increased by DKK 484m to DKK 604m in 2004. In addition, TrygVesta made systematic efforts in this business area to reduce costs incurred in distribution and policy issuance Performance was positively affected by the general price ad- in particular. Likewise, TrygVesta launched initiatives expected justments within household insurance in 2003 and within per- to reduce administrative claims handling expenses in the com- sonal accident insurance in 2004. In 2004, TrygVesta suc- ing years. ceeded in improving quality as perceived by customers in 48 C O M B I N E D R AT I O , N E T O F R E I N S U R A N C E 113.2 % 108.3 105.3 99.8 93.4 2000 2001 2002 2003 2004 115 110 105 100 95 90 Retaining market shares Since 2000, the combined ratio, net of reinsurance, has been TrygVesta generated growth in gross earned premiums of 5.6% reduced from 113.2 to 93.4 through proactive efforts to re- relative to 2003, including index regulations totalling approx- duce our claims and expense ratios. imately 2.5%, which was satisfactory in a competitive market. It is particularly satisfactory that sales through Nordea’s branches The claims ratio was 72.5 in 2004, down 3.8 points relative Excellent improvement in claims ratio continued to generate signiﬁcant net growth in 2004. Likewise, to 2003. sales of group insurance were highly satisfactory. Over the course of 2004, TrygVesta was successful in increasing the volume of This improvement was achieved in spite of the proﬁt being ad- business with individual customers to the effect that custom- versely affected by claims related to the ﬁreworks factory blaze ers have increasingly pooled their insurance policies with one in Kolding in November 2004 totalling just over DKK 100m be- insurer. This is the result of dedicated efforts to meet the fore equalisation. In particular, house and contents insurance entire range of needs a customer may have with concepts were affected by these claims. The blaze affected the claims adapted to that speciﬁc customer’s stage in life. ratio by a total of approximately 1.5 points. Within personal insurance, TrygVesta launched a new product Claims related to the tsunami disaster in Asia in December 2004 in 2004, unemployment insurance, which was well-received by affected Personal & Commercial Denmark’s proﬁt adversely by the customers. DKK 15m. The amount was reduced through reinsurance con- tracts, and the impact on TrygVesta’s ﬁnancial results was A new Danish act on workmen’s compensation took effect on therefore around DKK 8m. 1 January 2004. This act widely expanded insurance coverage, thereby entailing increased claims expenses. Among other The reduction of the overall claims ratio in spite of these events things, the new act introduced damages for back injuries which was attributable, among other things, to the introduction of were not previously covered by workmen’s compensation in- Tryg Reparation and Tryg Bygning. surance. The legislative amendment resulted in substantial premium increases of 50% on average. In addition, Personal & Commercial Denmark experienced a Combined ratio, net of reinsurance, improved by 6.4 points for motor and house insurance from 2004. The claims frequency The strong growth in the technical result was reﬂected in a for house insurance increased signiﬁcantly in 2002, only to re- combined ratio, net of reinsurance, of 93.4 in 2004, corre- turn to a more normal level in 2004. The frequency for motor sponding to an improvement of 6.4 points relative to 2003. insurance has been declining in recent years and was lower continuation of the favourable trend in the claims frequency than expected in 2004. 49 Management’s report Personal & Commercial Denmark The claims performance in workmen’s compensation and per- This project was carefully planned, and we have therefore sonal accident insurance was not satisfactory in 2004, and it been successful in reducing our staff primarily through natural was therefore necessary to strengthen TrygVesta’s reserves. wastage, thereby achieving cost savings without resorting to The adverse developments led to a strengthening of reserves layoffs to any signiﬁcant extent. in the amount of DKK 175m in these two areas. The unsatis- factory trend in workmen’s compensation is due, among other During 2005, the DPI project will be followed by efﬁciency im- things, to run-off losses as a result of the ‘ﬂex job ruling’ by the provements within claims handling processes, starting with Supreme Court stipulating that no set-off can be made against motor claims – an area characterised by particularly heavy claims related to ﬂex jobs. case loads and substantial correspondence. In 2004, equalisation provisions were applied in connection with the ﬁreworks factory blaze in Kolding. Furthermore, TrygVesta allocated equalisation provisions as a result of favourable weather conditions. Fair improvement in expense ratio Expenses developed very satisfactorily with an expense ratio of 20.9, down 2.6 points relative to 2003. In particular, recent years’ focus on distribution costs proved successful. Moreover, TrygVesta laid the groundwork for fu- ture cost savings on claims handling in 2004. In recent years, Personal & Commercial Denmark has implemented a compre- hensive project entitled ‘Decentralised Policy Issuance’ (DPI) aimed at making substantial efﬁciency improvements within processes related to quotations and policy issuance processes, while improving the level of quality. 50 Explosions and ﬁ re blazes at Kolding Henning Holluf Nielsen, Svendborg, Claims assessor with TrygVesta, Denmark The explosions and blaze that hit ﬁ reworks plant N.P. Johnsens ‘My colleagues and I got an update on psychological crisis Fyrværkerifabrik in Kolding, Denmark, in November 2004 also therapy to prepare us to meet with the customers. We were hit around 275 of Tryg’s personal customers. Many lost their told that when we meet people who are in a bad state, they homes in the course of a few hours, and it will take long into may conceive things we say differently from what they nor- 2005 before all houses have been repaired or rebuilt. mally do. We were also taught how as colleagues we could help each other get our mind off things at the end of each Tryg set up an emergency team at the claims centre at Kolding working day.’ immediately after the blaze, which remained open until late in the evening and over the weekend. Tryg also had claims Some 550 claims were reported by Tryg customers as a result assessors at the school to which people had been evacuated, of the accident in Kolding, costing TrygVesta DKK 100m in providing advice and guidance to customers. All affected claims expenses. customers were offered psychological crisis therapy, and the deductible and bonus loss on their policies were suspended for claims related to the blaze. In the week that followed, more than 20 claims assessors from Funen and Jutland went from house to house to assess the extent of the damage. One of them was Henning Holluf Nielsen, who normally works in Svendborg, Funen. It was a challenge meeting so many customers in a crisis: 51 ��Management’s report Personal & Commercial Norway Personal & Commercial Norway DKKm Q4 2004 Q4 2003 2004 2003 2002 2001 2000 DKK/NOK rate, quartely/annual average 90.71 90.80 88.79 93.68 98.46 92.16 91.71 Gross earned premiums Gross claims incurred Gross expenses Proﬁt/loss on gross business Proﬁt/loss on ceded business Technical interest, net of reinsurance Change in equalisation provisions Technical result Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance 1,088 -641 -325 122 -20 33 -20 115 57.9 31.5 89.4 58.9 1.8 60.7 29.9 90.6 1,111 -682 -277 152 4,421 -2,615 -1,106 700 4,553 -3,275 -1,123 155 -16 45 -19 162 62.0 24.6 86.6 61.4 1.4 62.8 24.9 87.7 -86 140 -92 662 58.4 25.9 84.3 59.1 1.9 61.0 25.0 86.0 -93 204 -57 209 72.1 26.3 98.4 71.9 2.0 73.9 24.7 98.6 4,211 -3,032 -1,136 43 -228 263 -140 -62 77.4 27.9 105.3 72.0 5.4 77.4 27.0 104.4 3,103 -2,465 -810 -172 2,811 -2,012 -801 -2 240 197 -55 210 70.6 26.7 97.3 79.4 -7.7 71.7 26.1 97.8 125 198 -26 295 65.9 28.9 94.8 71.6 -4.4 67.2 28.5 95.7 The technical result of Personal & Commercial Norway im- In general, this business area has performed satisfactorily over proved by DKK 453m relative to 2003, reﬂecting a combined the past ﬁve years. The improvements achieved over the course ratio, net of reinsurance, of 84.3 and a particularly proﬁtable of 2003 and 2004 were highly encouraging and can be attrib- mass market in Norway. uted to price adjustments particularly within house and motor insurance in 2003, improved risk selection, improved claims procurement and an unusually low claims frequency for house insurance in Norway in 2004. 52 C O M B I N E D R AT I O , N E T O F R E I N S U R A N C E 105.3 98.3 97.3 94.8 115 110 105 100 95 90 85 80 % 84.3 2000 2001 2002 2003 2004 The Norwegian market is inﬂuenced by geographical and Combined ratio, net of reinsurance, improved by 14.1 points weather-related conditions, which caused in particular house The positive development of the technical result was reﬂected claims and weather-related claims to affect results very differ- in a combined ratio, net of reinsurance, of 84.3, which was a ently from year to year. The 2004 ﬁnancial year beneﬁted from strong improvement of 14.1 points relative to 2003. As men- a combination of highly favourable weather conditions and a tioned earlier, the improvement was inﬂuenced by the claims very limited number of large ﬁre claims within house insurance. frequency for house insurance which cannot be expected to continue unchanged in the years ahead. TrygVesta made substantial equalisation provisions in respect of the Pool of Natural Perils in Norway. The Pool of Natural Per- NOK depreciated relative to DKK in 2004. All things being equal, ils is primarily used to equalise expenses related to windstorms earnings in Norway will therefore show a falling trend when and ﬂooding. expressed in Danish kroner. Exchange differences had an adverse effect of approximately DKK 36m on the ﬁnancial results in In 2004, the technical result was affected by falling Norwegian 2004 as compared with 2003. interest rates as expressed by a technical interest, net of rein- surance, of DKK 140m relative to DKK 204m in 2003. Signiﬁcantly improved claims ratio The claims ratio, net of reinsurance, was 58.4 in 2004, an Moderate premium growth improvement of 13.7 points over 2003. Gross earned premiums were DKK 4,421m in 2004. Expressed in the local currency this was an increase of 2.1% relative to This signiﬁcant improvement was due to a generally good 2003, which was slightly below the earnings target. This reﬂects claims performance in the individual areas and a particularly a year in which the relationship between customer inﬂow and positive claims performance in motor and house insurance. customer outﬂow was unsatisfactory during the ﬁrst six months, Following considerable increases in the claims frequency for but improved during the last six months following the imple- motor insurance in 2002 and 2003, we experienced a drop in mentation of a restructured sales organisation. 2004, which had a positive effect on the claims ratio. Within house insurance, we have seen a trend in recent years towards The increase in gross premiums reﬂected recent years’ pre- a declining claims frequency, but the 2004 claims frequency mium increases, satisfactory sales growth but also larger than for house insurance was recorded at a mere index 77 as com- expected customer movements. This trend applies especially pared with index 100 in 2000. This unusually low ﬁgure can be to the personal customer segment and should be viewed in attributed to favourable weather conditions and signiﬁcantly conjunction with the highly satisfactory proﬁtability in a com- fewer house ﬁres than in a normal year. petitive market. 53 Management’s report Personal & Commercial Norway For Personal & Commercial Norway, the tsunami disaster in Asia in December 2004 resulted in claims of NOK 28m. Like in Denmark, the Norwegian claims were covered by reinsurance, and the share payable by Personal & Commercial Norway was around NOK 12m. In general, the performance in commercial customer opera- tions was satisfactory, composed of a slightly less than satis- factory performance within personal accident insurance and a very satisfactory performance in other areas. Expenses trending downwards The expense ratio, net of reinsurance, was 25.9 in 2004, up 0.4 point relative to 2003. Personal & Commercial Norway was positively affected by the ﬁrst wave of cost synergies prompting cost reductions relative to 2003 from staff functions in particular. In the fourth quarter of 2004, costs were adversely affected by a non-recurring impact from harmonisation of the Group’s depreciation policies. In the years ahead, the expense ratio in this business area will be positively affected by the second wave of Nordic synergies. Likewise, experience gained from the implementation in Norway of ‘Decentralised Policy Issuance’, which reduced distribution costs in Denmark substantially, will contribute to a reduction of the expense ratio. 54 Quick help when the tsunami hit Gunhild Horn, Tønsberg, Customer adviser with TrygVesta, Norway ‘The hotel was 200 metres from the beach, but we didn’t see the costs so we could go home as soon as possible. That was exactly waves coming even though the surroundings were ﬂ at. People what we needed the most. The travel agency was useless. We came rushing from all directions while we were having breakfast really learnt that a good travel insurance policy is invaluable!’ outdoors. The water rose one metre up the hotel wall, but it was stone-built to a height that prevented the water from getting ‘We were lucky despite the abrupt end to our holiday. We got into the hotel. So we escaped the disaster without a scratch.’ all our luggage, tickets and passports out, and we could return to Norway after a couple of days. It is still difﬁ cult to compre- Gunhild Horn from Vesta’s ofﬁ ce in Tønsberg, Norway was hend the scale of this disaster’. spending her Christmas holidays at Patong Beach, Phuket, Thailand. The party comprised two adults, two daughters A total of 277 Danish and Norwegian TrygVesta customers aged 13 and 18, and a friend aged 18. were affected by the disaster. Injuries suffered by Danish and Norwegian tourists and damage to their luggage as a result of ‘The earthquake woke us, but we did not give it much thought. the tsunami in Asia will cost TrygVesta DKK 28m after taking Somebody said a bomb had gone off on the beach. Later we into account the reinsurers’ share. heard about a giant wave. There were very different reactions at the hotel. Some people bathing in a pool that was not affected The TrygFonden donated DKK 500,000 to the victims of the continued as if nothing had happened. Others helped them- disaster in early January 2005. Furthermore, TrygVesta’s staff selves in the bar when the frightened staff disappeared.’ collected more than DKK 40,000. ‘We were among the ﬁ rst to be evacuated to the mountains in trucks. Danish Red Cross. The money was donated to the The locals brought us food and water, and they offered us shelter for the night. Luckily I had my mobile phone. I called TrygVesta Alarm, who updated me on the latest news and reassured that they would take care of all the practical matters and cover the 55 BatsfjordVardoVadsoKirkenesLakselvHammerfestAltaTromsoHarstadNarvikBodoMo��Management’s report Corporate Corporate DKKm Q4 2004 Q4 2003 2004 2003 2002 2001 2000 DKK/NOK rate, quartely/annual average 90.71 90.80 88.79 93.68 98.46 92.16 91.71 Gross earned premiums Gross claims incurred Gross expenses Proﬁt/loss on gross business 1,212 -859 -165 188 1,290 -1,077 -215 -2 4,786 -3,417 -689 680 5,190 -3,555 -873 762 5,120 -4,368 -846 -94 3,832 -2,810 -681 341 3,069 -3,125 -573 -629 Proﬁt/loss on ceded business -102 -128 -570 -801 -363 -495 201 Technical interest, net of reinsurance Change in equalisation provisions Technical result Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio. net of expenses to reinsurance 46 -44 88 78.8 12.5 91.3 70.9 8.4 79.3 13.6 92.9 40 52 -38 96.5 17.3 113.8 83.5 9.9 93.4 16.7 110.1 190 -54 246 81.9 15.2 97.1 71.4 11.9 83.3 14.4 97.7 209 -15 155 82.5 18.6 101.1 68.5 15.4 83.9 16.8 314 -119 -262 96.2 18.2 114.4 85.3 7.1 92.4 16.5 251 -31 66 88.0 17.8 105.8 73.3 12.9 86.2 17.8 100.7 108.9 104.0 251 -23 -200 100.0 19.0 119.0 101.8 -6.5 95.3 18.7 114.0 The Nordic business area Corporate continued on the growth The performance is satisfactory and to a large extent due to track from 2003, improving the 2004 technical result by DKK the substantial general price adjustments implemented in 91m to DKK 246m in spite of increased expenses related to 2002 and 2003. These adjustments were necessary to ensure large claims totalling DKK 140m and considerable expenses in- proﬁtability in this market, which showed a highly unsatisfac- curred within personal accident insurance as a result of a Dan- tory underlying proﬁtability in 2000 and 2001. The adjust- ish Supreme Court ruling and the implementation of a broader ments enabled TrygVesta to allocate increased resources to deﬁnition of industrial disease in Norway. dialogue with individual customers concerning risk preventive measures – an area which will also be in focus in 2005. 56 C O M B I N E D R AT I O , N E T O F R E I N S U R A N C E 119.0 114.4 105.8 125 120 115 110 105 100 95 90 % 101.1 97.1 2000 2001 2002 2003 2004 There is still a need to make minor price adjustments within As mentioned earlier, workmen’s compensation premiums in Norwegian personal accident insurance in order for the Cor- Denmark alone increased by 50% in 2004 as a result of new porate business area to meet TrygVesta’s internal targets. However, legislation. the Norwegian Corporate business area showed rapid improve- ments over the course of the last six months of 2004 in par- Overall, the Corporate business area has become much more ticular and now contributes positively to the technical result. proﬁtable, although earnings in this area have yet to reach the level of earnings generated by the mass markets in Denmark Relative to 2003, the ﬁnancial results were affected by falling and Norway. interest rates in Denmark and Norway as expressed by a tech- nical interest, net of reinsurance, of DKK 190m in 2004 as Combined ratio, net of reinsurance, improved by 4.0 point compared with DKK 209m in 2003. The positive development of the technical result was reﬂected in a combined ratio, net of reinsurance, of 97.1, which was an Lower earned premiums, unproﬁtable customers phased out improvement of 4.0 points relative to 2003. The Corporate Gross earned premiums stood at DKK 4,786m in 2004, down business area was furthermore affected by large ﬂuctuations 7.8% relative to 2003, with exchange rate developments con- in year-on-year ﬁnancial results. This is quite natural in a mar- tributing negatively by DKK 120m, which corresponds to ket where single, large claims may have a substantial impact approximately 2.5 percentage points. on the ﬁnancial results in a given year. The underlying business The adverse impact on gross premiums was related, among ance in 2002 was attributable to substantial large claims oc- has improved since 2002. The less than satisfactory perform- other things, to the introduction by TrygVesta of net pricing to curring that year. customers served by brokers, which reduced earned premiums by some DKK 160m. Adjusted for the exchange rate impact Claims ratio in line with 2003 and the introduction of net pricing to customers served by The claims ratio, net of reinsurance, was 81.9, an improve- brokers, gross earned premiums fell by just over DKK 120m, ment of 0.6 point over 2003. which was largely attributable to the strategic phase-out of unproﬁtable customers in the Norwegian part of the business. The claims ratio was composed of a generally good claims Moreover, a limited number of customers, especially within performance in traditional corporate insurance – property, the group of customers served by brokers, left TrygVesta. liability, motor, cargo, etc. On the other hand, the claims performance in the marine and personal accident businesses remained unsatisfactory. 57 Management’s report Corporate 2004 was characterised by an above-average number of large Reduced expenses through change in settlement to brokers marine claims. We do not see this as a reﬂection of a general The expense ratio, net of reinsurance, was 15.2, an improve- trend but rather as individual claims events. In particular two ment of 3.4 points over 2003. large claims, which in aggregate represented claims totalling some DKK 100m, had a negative impact on the ﬁnancial The positive trend in the expense ratio was primarily due to results: the tanker Panam Serena, which exploded in January lower absolute costs in 2004 compared with 2003, as a result, 2004 near Sardinia, and the suction dredger Thor, which sank among other things, of changed principles for settlement to in September 2004 after a collision. brokers and general cost constraint. Moreover, the corporate As in 2003, provisions for claims in respect of prior years were costs than in the business areas catering to the mass markets. business was characterised by a signiﬁcantly lower level of strengthened signiﬁcantly. In particular the ﬂex job ruling in Denmark and the implementation of a broader deﬁnition of industrial disease in Norway resulted in a DKK 265m increase of reserves. Moreover, developments within the personal acci- dent business were generally not satisfactory. TrygVesta also recorded a large claim within property insurance – a ﬁre at a Danish laminated wood factory amounting to DKK 100m. The combined ratio was affected by the full amount of this claim. However, it did not impact the technical result to any noteworthy extent, as part of the claim was covered though equalisation provisions. 58 Long wait in telephone queue when ﬂ ames consumed everything The Stokke family, Oslo Customers with TrygVesta, Norway The Stokke’s home burnt down on 1 April 2004. It was an ex- ‘The house was my childhood home, it was built in 1947 and plosive ﬁ re, and the family had to get out in a hurry. The house it had our family’s soul embedded in its walls,’ says Kjell Torgeir was so damaged by ﬁ re, smoke, soot and water that it could Stokke. ‘It was very difﬁ cult to walk through 12 ruined rooms. not be saved. It was just before Easter, and the family initially Thanks to excellent work on the part of damage control service took refuge in their cottage in the Norwegian mountains. The provider Polygon, which Vesta hired, a few of our treasures can family’s members took comfort in the fact that ‘we may have luckily be saved.’ a much poorer home, but we’re all here.’ They now live in a temporary home in Oslo, not far from the site of the ﬁ re. ‘The claims statement as such is only the tip of an iceberg. Below the surface lurks a lot of worry and concern, you’re unhappy ‘On the ﬁ rst day after the ﬁ re we did not think highly of Vesta. about all the things you’ve lost and concerned about the future. We only had the clothes on our backs, and when we called We were therefore relieved to ﬁ nd that Vesta did not come for- Vesta from the mobile phone to report the ﬁ re and ask for help, ward as our adversary, but as a partner with the same cause, we were told we were number 14 in line. We left a message, just as interested in ﬁ nding good solutions as we were.’ but they didn’t call us back. When we ﬁ nally got through, we were told that the staff had gone to lunch,’ says Kjell Torgeir ‘We had to listen to a lot of horror stories about difﬁ cult insurers, Stokke from Norway. and this was one of the reasons we chose to engage a lawyer. But the process we expected to be a long ﬁ ght against a hostile The relationship improved after the unfortunate start. Kjell insurer turned out for the best,’ says Kjell Torgeir Stokke. Torgeir Stokke ended up by sending a letter to Vesta, thanking them for ‘exemplary’ treatment after having met ‘under- standing and calm, commendable customer handling.’ 59 BatsfjordVardoVadsoKirkenesLakselvHammerfestAltaTromsoHarstadNarvikBodoMo��Management’s report Finnish general insurance Finnish general insurance DKKm Q4 2004 Q4 2003 2004 2003 2002 2001 2000 DKK/EUR rate, quartely/annual average 743.43 743.30 743.99 742.92 743.08 745.74 Gross earned premiums Gross claims incurred Gross expenses Proﬁt/loss on gross business Proﬁt/loss on ceded business Technical interest, net of reinsurance Change in equalisation provisions Technical result Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio. net of reinsurance Combined ratio. net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio 28 -17 -21 -10 1 1 0 -8 63.2 71.0 134.2 63.1 0.2 63.3 70.9 19 -13 -16 -10 1 0 0 -9 97 -66 -78 -47 0 2 0 61 -47 -63 -49 0 1 0 21 -18 -66 -63 -4 1 0 2 -1 -29 -28 -1 0 0 -45 -48 -66 -29 70.4 81.0 68.6 80.0 151.4 148.6 69.9 0.8 70.7 80.3 68.5 0.2 68.7 79.8 78.2 103.8 182.0 77.5 1.0 78.5 102.8 181.3 104.3 389.2 493.5 84.8 18.7 103.5 316.3 419.8 91.1 1,795.1 1,886.2 91.1 0.0 91.1 1,795.1 1,886.2 Combined ratio. net of expenses to reinsurance 134.2 151.0 148.5 60 - - - - - - - - - - - - - - - - - Strong growth and proﬁt in line with expectations Banking customers are good insurance customers TrygVesta’s Finnish business, Nordea Vahinkovakuutus, gener- The claims ratio, net of reinsurance, was 68.6, a highly satis- ated growth in gross earned premiums of almost 60% in 2004, factory improvement of 9.6 points over 2003. This is remark- corresponding to earned premiums of DKK 97m as compared able considering the size and age of the portfolio. And it sup- with earned premiums of just DKK 2m in 2001. ports the assertion that a banking customer who buys The increase was primarily due to a strengthening of the part- nership with Nordea, which handles the sale of insurance Markedly improved expense ratio through its branches and its Internet portal, Solo Market. The expense ratio, net of reinsurance, was 80.0, down 23.8 insurance typically has a satisfactory claims performance. points relative to 2003. The positive trend was primarily due to Sales of new insurance business developed satisfactorily in the increase in earned premiums. 2004. A total of 64,500 insurance policies were sold in 2004, an increase of 30% over 2003. Nordea has a share of some 40% Absolute costs increased by approximately 20% relative to 2003. of the Finnish market for banking services. Accordingly, there This increase was mainly attributable to a rise in commissions is still a large sales potential in this area. in step with increased sales and costs related to further develop- ment of IT systems supporting the development of the business. The technical result amounted to a loss of DKK 45m, which was The increase in expenses was furthermore related to the fact in line with expectations, and the results returned by the Finnish that the Finnish business is still in the start-up phase with con- business should be viewed as an investment. It is therefore ex- siderable depreciation of previous investments in an insurance- tremely encouraging that growth in the volume of business technical IT system. Depreciation amounted to 26% of costs. during the company’s short existence has been as planned. The share of the Finnish personal market totals over 1.5%. The combined ratio, net of reinsurance, improved by 33.4 points relative to 2003. 61 Management’s report Other business Other business Business in run-off Divested activities TrygVesta’s business in run-off primarily comprises the In line with TrygVesta’s focused Nordic strategy, the Group di- Group’s wholly-owned UK subsidiary, Chevanstell Ltd. vested the activities of the reinsurer Tryg-Baltica International (TBi) and of the general insurers Tryg Polska in Poland and Nor- Business in run-off generated a technical loss of DKK 54m dicum Kindlustus in Estonia in the autumn of 2004. compared with a loss of DKK 246m in 2003. The divested operations reported a total technical loss of DKK As was expected, gross earned premiums in respect of business 11m against a loss of DKK 60m in 2003. in run-off fell to DKK 30m from DKK 631m in 2003. The run-off process has progressed as expected in 2004, but tember 2004 against a loss of DKK 10m for 2003. The Polish is still subject to some uncertainty. The parent company has company is included at a loss of DKK 26m until 30 November provided a total amount of DKK 346m in this respect. The 2004 against a loss of DKK 49m for 2003, while the Estonian provision amounted to DKK 383m in 2003. company is included at a loss of DKK 2m until 17 December The result includes a proﬁt of DKK 17m for TBi until 30 Sep- TrygVesta is endeavouring to implement a solvent scheme of arrangement for Chevanstell Ltd. in late 2005, which would ac- Reference is made to the section Financial highlights and key celerate the ﬁnal winding up of the business in Chevanstell Ltd. ratios by geographical area for data in respect of the activities This socalled commutation is based on an agreement between in TBi, Poland and Estonia. 2004 against a loss of DKK 1m for 2003. Chevanstell Ltd. and its creditors, but is subject to UK court approval. 62 Financial communication to the level of listed companies Per Grønborg, København Equity analyst with Alfred Berg ABN AMRO Even if you are not a listed company, nothing prevents you It should be borne in mind that competition in the market from acting like one. At any rate not as regards the quality of has diminished because several foreign competitors have your ﬁ nancial communication. Equity analyst Per Grønborg of withdrawn from the Nordic market. And we have seen a investment bank Alfred Berg ABN AMRO is satisﬁ ed with Tryg- couple of years with unusually favourable weather. Vesta’s communications to the ﬁ nancial market: ‘If TrygVesta were a listed company, its ﬁ nancial market will be key to TrygVesta in the future: maintaining the communications would rank high among its peers,’ says operational improve ments achieved and clarifying the Per Grønborg. ownership structure. Per Grønborg believes that two challenges, in particular, ‘Strangely enough, the company actually communicates at a ‘Should the company decide to retain the mutually-based higher level today than when it was part of a listed company. ownership structure, or should it prepare for an IPO? Unlike Analysts always require more and more detailed information. some years ago, the issue of procuring capital is no longer But I’m actually quite content with TrygVesta. It’s especially a the main factor when considering a possible listing,’ says big advantage that TrygVesta discloses segmented and coun- Per Grønborg. try-speciﬁ c ﬁ nancial information. Many of its competitors tend to go the opposite direction.’ Per Grønborg has respect for TrygVesta’s strong ﬁ nancial performance: ‘First and foremost, TrygVesta has been extremely competent in streamlining the organisation and becoming more efﬁ cient. 63 ��Management’s report Investment activities Investment activities TrygVesta’s investments yielded a total return in 2004 before transfer to technical interest and other ﬁnancial income and expenses of DKK 1,244m, equivalent to 4.7%. The return was affected by positive returns on bonds, shares and real property. DKKm Denmark Norway Tryg-Baltica International Poland Estonia TrygVesta A/S Total Other ﬁnancial income and expenses Total investments Transferred to technical interest Investment income Discontinued activities 64 Proﬁt/loss Assets (year-end) 2004 2003 2004 2003 797 396 23 24 0 4 902 677 28 18 1 0 16,248 12,563 12,492 10,497 0 0 0 109 581 369 30 150 1,244 1,626 28,920 24,119 -52 1,192 -675 517 -11 -208 1,418 -733 685 -10 745 878 Asset allocation Throughout 2004, TrygVesta maintained a high proportion of Net investments amounted to approximately DKK 5.6bn in highly liquid bonds in its portfolio for security and rating con- 2004. Seen in isolation, the divested activities Tryg-Baltica In- siderations. The share portfolio increased by DKK 820m in 2004 ternational and Tryg Polska reduce the balance sheet by ap- resulting from net investments, divestments and rising share proximately DKK 900m. prices. This did not give rise to major changes in the asset location. Asset allocation Shares Bonds etc. Real property Total 2004 DKKm 3,161 23,759 2,000 28,920 Investment activities, 31 December 2004 DKKm Shares Bonds etc. property Total Real 1,318 682 0 0 0 2,000 16,248 12,563 0 0 109 28,920 Denmark Norway Tryg-Baltica International Poland TrygVesta A/S Total Other ﬁnancial income and expenses Total Discontinued activities Return (nom.) Return (%) 2,557 590 0 0 14 3,161 0 406 15.9 12,373 11,291 0 0 95 23,759 745 692 3.2 2003 DKKm 2,341 19,769 2,009 24,119 % 9.7 82.0 8.3 100.0 Return Investments (%) 5.7 3.5 3.3 6.4 4.7 (net) 3,520 1,836 206 51 -40 5,573 % 10.9 82.2 6.9 100.0 Return (nom.) 797 396 23 24 4 1,244 -52 1,192 0 745 27 3.4 -110 146 7.8 1,244 4.7 65 Management’s report Investment activities Bond portfolio Danish bonds Norwegian bonds and money market Other bonds Total 2004 DKKm 11,886 10,371 1,502 2003 % DKKm % 50.0% 43.7% 6.3% 9,762 8,473 1,534 49.4% 42.8% 7.8% 23,759 100.0% 19,769 100.0% Bonds Real property The return on the overall bond portfolio in TrygVesta including The investment return on real property was DKK 146m, equi- cash and cash equivalents was DKK 692m, equal to 3.2% for valent to a total return of 7.8%. The Group sold investment pro- the full year 2004, while bonds in the Danish companies and in perties worth DKK 50m in 2004. At 31 December 2004, the Vesta yielded returns of 3.5% and 2.6%, respectively. By com- occupancy rate was 95.6% against 95.5% at 31 December 2003. parison, a Danish government bond index with a term to maturity of 1-3 years yielded 3.2% in 2004. The portfolio is well-diversiﬁed and consists of quality property, 96% of TrygVesta’s bond portfolio – equivalent to DKK 22.9bn Norway. The portfolio mainly comprises ofﬁce premises, but – comprises Danish mortgage bonds, placements in the Nor- also a small proportion of other commercial property and resi- wegian money market and government bonds. The remaining dential property. typically in prime locations in major cities in Denmark and part is invested in other corporate bonds, primarily of invest- ment grade credit quality. High yielding and emerging market bonds account for less than 1% of the overall portfolio. The option-adjusted duration, including cash and cash equi- valents, of the entire Group’s bond portfolio was 1.3 years at 31 December 2004 against 1.8 years at 31 December 2003. The short duration was, among other factors, attributable to Vesta’s strong focus on the money market and expectations that interest rates would increase during the year. 66 Geographical spread, shares Denmark Norway Other european North America Other Total Shares 2004 DKKm 419 200 1,223 1,197 122 2003 % DKKm % 13.3% 6.3% 38.7% 37.8% 3.9% 418 162 831 877 53 17.9% 6.9% 35.5% 37.5% 2.2% 3,161 100.0% 2,341 100.0% TrygVesta’s portfolio of listed shares is highly diversiﬁed. For the ﬁnancial year, the return on investments was DKK Firstly, the portfolio includes a very low proportion of listed 406m, equivalent to 15.9%. The healthy performance was Danish and Norwegian shares, accounting for approximately driven by fair returns in the big international equity markets 15% of the portfolio of listed shares at 31 December 2004. and extraordinarily high returns in the Danish and Norwegian Secondly, international equity mandates are placed in low equity markets. Danish shares yielded 22.5%, while Norwegian tracking error portfolios, that is, the portfolio return is expected shares yielded no less than 39.2% compared with 23.2% for the to more or less match the benchmark return. TrygVesta intends Danish KBX index and 38.5% for the Norwegian OSEBX index. to maintain a diversiﬁed international equity portfolio in order Other international shares yielded 14.3% compared with12.2% to minimise risk relating to any single market or any single and 10.1% for MSCI Europe and MSCI US, respectively. Unlisted company. In both Denmark and Norway, the ﬁve largest com- shares amounted to a total of DKK 159m at 31 December 2004. panies account for some 55% of the index, while the ﬁve larg- Continuous efforts will be made to reduce this portfolio. est components of TrygVesta’s total equity portfolio account for 9.3%. 67 68 4 0 0 2 s t n u o c c a Accounts Statement by the Supervisory Board and the Executive Management Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Management have today considered and the Supervisory Board has adopted the annual report for 2004 of TrygVesta A/S and the TrygVesta Group. The annual report has been presented in accordance with the Danish Insurance Business Act and the Danish Financial Supervisory Authority’s executive orders. We consider the accounting policies adopted to be appropriate to the effect that the annual report gives a true and fair view of the Group’s and the parent company’s assets and liabilities, ﬁnancial position, results of operations and cash ﬂows. We recommend that the annual report be adopted by the shareholders at the annual general meeting. Ballerup, 1 March 2005 Executive Management Stine Bosse Morten Hübbe Erik Gjellestad Supervisory Board Mikael Olufsen chairman Mogens Jacobsen deputy chairman Per Skov deputy chairman Jørn Wendel Andersen John R. Frederiksen Jørn Hesselholt Håkon J. Huseklepp Jens Lyngbo (employee representative) Peter Wagner Mollerup (employee representative) Birthe Petersen Niels Erik Schultz-Petersen (employee representative) 70 Accounts Internal auditors’ report Internal auditors’ report We have audited the annual report of TrygVesta A/S for the Opinion ﬁnancial year 2004. The annual report is presented in accord- In our opinion, the annual report gives a true and fair view of ance with the Danish Insurance Business Act. the Group’s and the parent company’s assets, liabilities and equity and ﬁnancial position at 31 December 2004 and of the The annual report is the responsibility of the company’s results of the Group’s and the parent company’s operations Management. Our responsibility is to express an opinion on and of the Group’s cash ﬂows for the ﬁnancial year 2004 in the annual report based on our audit. accordance with the Danish Insurance Business Act. Basis of opinion Emphasis of matter We conducted our audit on the basis of the Danish Financial As described in Accounting policies on page 73, the annual Supervisory Authority’s executive order on the presentation report contains pro forma ﬁnancial ﬁgures for the Group of consolidated ﬁnancial statements by ﬁnancial enterprises for the 2000, 2001 and 2002 ﬁnancial years. The TrygVesta and ﬁnancial groups and in accordance with Danish Auditing Group was established on 28 June 2002 by a non-cash contri- Standards. Based on an evaluation of materiality and risk, we bution of the Nordea AB Group’s general insurance activities examined the business procedures, the accounting policies to TrygVesta A/S. applied and the estimates made and veriﬁed the basis for the amounts and other disclosures in the annual report. We be- Therefore, the pro forma ﬁgures represent a period during lieve that our audit provides a reasonable basis for our opinion. which the Group did not exist as a legal entity. Reference is made to Management’s description of the basis for stating the The audit has not resulted in any qualiﬁcations. pro forma ﬁgures. We agree with Management’s comments on the pro forma ﬁgures, including the view that the ﬁgures make the annual report more informative with respect to the technical opera- tions. Ballerup, 1 March 2005 Gert Stubkjær Chief Internal Auditor 71 Accounts Auditors’ report Auditors’ report To the shareholder of TrygVesta A/S Opinion We have audited the annual report of TrygVesta A/S for the In our opinion, the annual report gives a true and fair view of ﬁnancial year 2004. The annual report is presented in accord- the Group’s and the parent company’s assets, liabilities and ance with the Danish Insurance Business Act. equity and ﬁnancial position at 31 December 2004 and of the results of the Group’s and the parent company’s operations The annual report is the responsibility of the company’s and of the Group’s cash ﬂows for the ﬁnancial year 2004 in Management. Our responsibility is to express an opinion on accordance with the Danish Insurance Business Act. the annual report based on our audit. Emphasis of matter Basis of opinion As described in Accounting policies on page 73, the annual We conducted our audit in accordance with Danish Auditing report contains pro forma ﬁnancial ﬁgures for the Group for Standards. These standards require that we plan and perform the 2000, 2001 and 2002 ﬁnancial years. The TrygVesta Group the audit to obtain reasonable assurance that the annual was established on 28 June 2002 by a non-cash contribution of report is free of material misstatement. An audit includes the Nordea AB Group’s general insurance activities to examining, on a test basis, evidence supporting the amounts TrygVesta A/S. and disclosures in the annual report. An audit also includes assessing the accounting policies used and signiﬁcant esti- Therefore, the pro forma ﬁgures represent a period during mates made by Management, as well as evaluating the overall which the Group did not exist as a legal entity. Reference is annual report presentation. We believe that our audit provides made to Management’s description of the basis for stating the a reasonable basis for our opinion. pro forma ﬁgures. Our audit has not resulted in any qualiﬁcations. We agree with Management’s comments on the pro forma ﬁgures, including the view that the ﬁgures make the annual report more informative with respect to the technical operations. Copenhagen, 1 March 2005 Deloitte Grant Thornton Statsautoriseret Revisionsaktieselskab Statsautoriseret Revisionsaktieselskab Lone Møller Olsen Christian Fløistrup State authorised public accountant State authorised public accountant Thomas Elsborg Jensen State authorised public accountant 72 Accounts Accounting policies Accounting policies Basis of preparation Pro forma comparative ﬁgures The consolidated ﬁnancial statements and the annual report Management’s review and the ﬁnancial highlights and key of TrygVesta A/S have been prepared in accordance with the ratios present pro forma comparative ﬁgures for 2000, 2001 Danish Insurance Business Act and the Danish Financial Super- and 2002 prior to the formation of TrygVesta A/S as at 28 visory Authority’s executive orders on the presentation of January 2002 and the company’s subsequent acquisition of consolidated ﬁnancial statements by insurance companies and the general insurance activities of Nordea AB as at 28 June 2002. ﬁnancial statements by general insurance companies. These sections of the annual report specify where pro forma In principle, the parent company, TrygVesta A/S, is subject to comparative ﬁgures are included. Pro forma comparative ﬁg- the provisions of the Danish Financial Statements Act. As the ures have been included in the annual report in order to provide object of the parent company is to own subsidiary undertak- more information in the annual report with respect to the ings whose activities are primarily focused on insurance technical operations of the general insurance companies form- business, the parent company ﬁnancial statements have been ing part of TrygVesta irrespective of the former ownership of presented in accordance with the Danish Insurance Business these companies. Act to which the consolidated ﬁnancial statements are subject. Apart from the changes described below, the accounting consolidation of the companies forming part of the Group as policies are unchanged from last year. at 31 December 2003. The pro forma comparative ﬁgures are stated on the basis of a TrygVesta has adopted IFRS 5 for presentation of discontinu- The following should be taken into account when evaluating ing operations in the annual report 2004. The key provisions of the pro forma comparative ﬁgures: IFRS 5 are that discontinued activities shall be consolidated in one line in the income statement and supplemented with Tryg Forsikring A/S and Vesta Forsikring AS are stated net of disclosure of the discontinued activities in a note to the ﬁnan- their life and pension insurance activities, which were cial statements. Recognition of the balance sheet items in re- operated by wholly-owned subsidiaries. spect of the discontinued activities is unchanged in the re- spective items. The comparative ﬁgures, including ﬁnancial Insurance portfolios acquired from other companies, such as highlights and key ratios, have been restated accordingly. Zurich’s Danish and Norwegian general insurance portfolio, are included from the date of acquisition of the relevant port- Discontinued activities in the income statement include the folio. post-tax proﬁt of TrygVesta’s business in run-off. Business in run-off comprises the wholly-owned subsidiary Chevanstell Tryg Ejendomme I A/S, which was divested on 31 December Ltd. UK and business in run-off in Tryg Forsikring A/S. 2003, is included in the pro forma ﬁgures for the full period. The above change in accounting policies does not affect the Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S is results for the year or shareholders’ equity. The combined included in the pro forma ﬁgures until the date of divestment, ratio, net of reinsurance, for 2004 and 2003 improved by 0.6 6 October 2004. and 1.9 points, respectively. A few items in the income statement and balance sheet have from the date the companies were acquired by Tryg Forsikring been reclassiﬁed relative to last year. The reclassiﬁcations do A/S and the Nordea Group, respectively, until the date they not affect the results or shareholders’ equity. were divested, these being 1 December and 17 December Tryg Polska SA and Nordicum Kindlustuse Eesti AS are included 2004, respectively. 73 Accounts Accounting policies Where the accounting policies have been changed during the Goodwill arising on acquisition represents the difference at the period, the comparative ﬁgures of each company have to the time of acquisition between the acquisition price and the pro- extent possible been adjusted on consolidation to comply with portionate share of shareholders’ equity of the acquired under- the current accounting policies. Such adjustments only have a taking made up in accordance with the accounting policies ap- minor impact on the pro forma ﬁgures. plied by TrygVesta A/S. Any difference (goodwill) is recognised in the item ‘Intangible assets’ and amortised on a straight-line Consolidated ﬁnancial statements basis over the expected useful life. The consolidated ﬁnancial statements comprise the ﬁnancial statements of TrygVesta A/S (the parent company) and under- Newly acquired or divested subsidiary undertakings are con- takings (subsidiary undertakings) controlled by the parent solidated at the results for the period subsequent to acquisi- company. See the section Group overview. Control is achieved tion or prior to divestment, respectively. where the parent company directly or indirectly holds more than 50% of the voting rights or is otherwise able to exercise or Any gains or losses arising on divestment of subsidiary actually exercises a controlling inﬂuence. undertakings are included in the income statement under ‘Investment gains or losses’. Minority interests The proportionate share of the proﬁt and shareholders’ equity Currency translation of subsidiaries attributable to minority interests is stated sepa- The results of foreign subsidiary undertakings are based on rately in the statement of the consolidated proﬁt and consoli- translation of the items in the income statement at quarterly dated shareholders’ equity. average exchange rates. Income and expenses in domestic undertakings denominated in foreign currency are translated Basis of consolidation at the exchange rate ruling on the date of the transaction. The consolidated ﬁnancial statements are prepared on the Assets and liabilities denominated in foreign currency are basis of the ﬁnancial statements of the parent company and its translated at the exchange rate at year-end. subsidiary undertakings by adding items of a uniform nature. All currency translation gains and losses are included in the The ﬁnancial statements of undertakings that present ﬁnancial income statement under the item ‘Exchange rate adjustment’. statements under other legislative rules are restated to the accounting policies applied by the Group unless the result of Intragroup transactions such restatement is immaterial to the true and fair view. Intragroup services are settled on a cost-covering basis or on On consolidation, intragroup income and expenses, intragroup market terms. accounts and dividends, and gains and losses arising on trans- Intragroup transactions in securities and other investment actions between the consolidated undertakings are eliminated. assets are settled at market value. Equity investments in subsidiary undertakings are eliminated by the parent company’s proportionate share of the undertak- ings’ shareholders’ equity at 31 December. 74 Income statement Depreciation is charged on a straight-line basis over three to Earned premiums and claims incurred represent general ﬁve years. Minor acquisitions costing less than DKK 100,000 insurance and simple types of death cover (Group Life in are recognised as an expense in the year of acquisition, except Norway) related to general insurance policies written by for assets acquired as part of a speciﬁc project. Computer general insurance companies. equipment held under ﬁnance leases is recognised and depreciated as if purchased by the company. Premiums Earned premiums represent gross premiums during the year, Costs are based on estimated time consumed or the estimated net of outward reinsurance premiums and changes in un- cost charge and are distributed in the statement by line of in- earned premium provisions, corresponding to an accrual of surance and between acquisition and administrative expenses. premiums to the risk period of the policies. Reinsurance accepted Technical interest Premiums, claims and commissions relating to reinsurance Technical interest represents a calculated return on the accepted included in the income statement are generally average technical provisions. The interest rate applied is the stated on an estimated and assessed basis and accrued year’s average pre-tax yield to maturity on all bonds with a relative to expiry of the contracts. Commissions relating to term to maturity of less than three years. unearned premium provisions are recognised under ‘Prepay- ments and accrued income’. Claims incurred Claims incurred represent claims paid during the year adjusted Investment activities for changes in provisions for claims less the reinsurers’ share. Proﬁt from group undertakings includes the parent company’s Amounts to cover expenses incurred to combat and contain share of the proﬁt on ordinary activities of the subsidiary losses and to survey and assess claims are included in the item. undertakings before tax. Tax relating to group undertakings is In addition, the item includes run-off results regarding included in the item ‘Tax’. Exchange differences arising on the previous years. The part of the increase in technical provisions translation of the net asset value of foreign subsidiary under- which can be ascribed to discounting is transferred to techni- takings at the beginning of the year are included under the cal interest. item ‘Currency translation adjustment’. Bonus and premium rebates Income from associated undertakings includes the parent Bonus and premium rebates represent anticipated and reim- company’s share of the proﬁt on ordinary activities of the bursed premiums where the amount reimbursed depends on associated undertakings. the claims record, and for which the criteria for payment have been laid down prior to the ﬁnancial year or when the business Income from land and buildings before value adjustment was written. represents the proﬁt from property operations less property Insurance operating expenses Insurance operating expenses represent acquisition costs and Interest, dividends etc. represent interest earned, dividends administrative expenses less reinsurance commissions re- received etc. during the ﬁnancial year. In addition, the item ceived. Expenses relating to acquiring and renewing the includes gains and losses on bonds drawn for redemption. management expenses. insurance portfolio are recognised at the time of writing the business. Administrative expenses are accrued to match the ﬁnancial year. 75 Accounts Accounting policies Realised and unrealised investment gains and losses, including Discontinued activities value adjustment of land and buildings, are recognised in the Discontinued activities represent the parent company’s share income statement. of the post-tax proﬁt of TrygVesta’s business in run-off. Business in run-off comprises the results of the wholly-owned Realised and unrealised gains and losses on derivative ﬁnancial subsidiary Chevanstell Ltd. UK and business in run-off in instruments are also recognised in the income statement. Tryg Forsikring A/S. Investment administrative expenses represent expenses Balance sheet relating to the management of investments. Brokerage and Intangible assets commission is included in the purchase and selling price of Development costs and capitalised software are measured at investment assets. Other ordinary items cost less amortisation. The assets are amortised on a straight- line basis over four years from the date they are taken into use. Other items include the parent company’s administrative Goodwill acquired after 1 January 2003 is measured as the expenses and income and expenses related to the sale of difference at the time of acquisition between the cost and the products for Nordea Liv og Pension. proportionate share of the acquired undertaking’s share- Extraordinary items holders’ equity made up in accordance with the accounting policies applied by TrygVesta A/S. Goodwill is amortised on a Extraordinary items include amounts which by their nature are straight-line basis over the expected useful life. unusual for the company and which are clearly different from the ordinary operations. Investment assets Land and buildings Tax Land and buildings are measured at market value in accord- The item ‘Tax’ represents estimated Danish and foreign corpo- ance with the guidelines issued by the Danish Financial Super- ration taxes for the year and movements in deferred tax or tax visory Authority. The guidelines provide for the market value assets. Tax on the proﬁt for the year is calculated based on the of the Group’s land and buildings to be determined based on pre-tax proﬁt for the year adjusted for non-taxable income and a systematic annual assessment of each individual property expenses. Tax relating to discontinued activities is included in taking into account the expected future operating returns the item ‘Discontinued activities’. and a return requirement for each property. TrygVesta A/S is jointly taxed with Tryg i Danmark smba and New developments and property under construction are the majority of its subsidiary undertakings. Tax relating to the measured at cost. jointly taxed income is recognised in the jointly taxed Danish companies in proportion to their proﬁt. Changes in deferred Equity investments in group undertakings taxes or deferred tax assets are recognised in the companies Equity investments in group undertakings are measured at the having the liability or the claim. parent company’s proportionate share of the subsidiary under- takings’ shareholders’ equity at 31 December made up in ac- cordance with the Group’s accounting policies. Equity investments in associated undertakings Equity investments in associated undertakings are measured at the parent company’s proportionate share of the share- holders’ equity of the undertakings at 31 December. 76 Listed shares, unit trust units, bonds etc. Accruals and deferred income Listed shares, unit trust units, bonds etc. are measured at the Other accruals and deferred income comprise prepaid prices quoted at the end of the year. Unlisted shares, ﬁxed- expenses. Prepaid acquisition costs mainly comprise the part interest loans etc. are measured at a conservatively estimated of commission expenses to other insurance companies etc. market value at the end of the year based on the companies’ relating to unearned premium provisions. most recent ﬁnancial statements available. Dividend Derivative ﬁnancial instruments Proposed dividends are recognised as a liability when adopted Derivative ﬁnancial instruments are measured at market value by the shareholders at the general meeting. Dividends ex- at the end of the year. Derivative ﬁnancial instruments are pected to be declared for the year are shown in the proﬁt used to the extent they enable the Group to manage its assets allocation. and liabilities more efﬁciently, thereby reducing risk or causing only a small increase in risk. Technical provisions Reinsurance deposits, receivable premiums and reinsurance premiums collected which relates Deposits comprise amounts owed to the company in respect to subsequent ﬁnancial years. of reinsurance business accepted, and retained by ceding undertakings pursuant to reinsurance contracts. Provisions for claims represent amounts to cover claims Unearned premium provisions represent the proportion of Amounts owing incurred before the balance sheet date, whether reported or not. Provisions for claims are calculated on the basis of Amounts owing are measured at nominal value less a provi- information available concerning the extent of the losses plus sion for any losses. Other assets Operating equipment an amount based on past experience to cover claims incurred but not reported. The provisions include direct costs of com- bating, containing, inspecting and assessing claims. Long-tail provisions calculated using statistical methods are discounted. Operating equipment is measured at cost less accumulated depreciation. Operating equipment is depreciated on a Provisions for annuities relate to compulsory workmen’s com- straight-line basis over the estimated useful economic lives of pensation insurance in Denmark, which is settled by payment the assets, which are three to ﬁve years. of annuities. The provisions are calculated using the ﬁxed-rate method at the present value by discounting expected future Computer equipment held under ﬁnance leases is treated as if payments. purchased by the company. The lease debt is included in ‘Other debt’. Tax asset Provisions for bonus and premium rebates represent amounts expected to be paid to policyholders in view of the claims experience during the ﬁnancial year. The tax asset comprises deferred net tax assets calculated as 30% of the present value of net positive timing differences Equalisation provisions represent amounts included to between accounting and taxable values, plus tax losses to the equalise future claims, net of reinsurance, in areas where extent they are expected to be offset against future taxable experience has shown that claims vary. income. 77 Accounts Accounting policies Equalisation provisions in credit and guarantee insurance are Deferred tax is not provided on untaxed contingency reserves. calculated in accordance with rules laid down by the Danish It is not expected that future movements in technical provi- Financial Supervisory Authority. For workmen’s compensation sions will result in a crystallisation of tax on the contingency insurance in Denmark, equalisation provisions are calculated reserve. The untaxed contingency reserves etc. are disclosed as the difference between the technical provisions made up at in a note to the ﬁnancial statements under shareholders’ basic interest rates of 2.00% and 2.75%, respectively. In addi- equity. tion, equalisation provisions comprise the compulsory Nor- wegian Pool of Natural Perils in Vesta Forsikring AS, Norway. Deposits with ceding companies, payable The rules governing the setting up and application of equalisa- Deposits comprise amounts due in respect of reinsurance tion provisions are laid down by the regulatory authorities of business accepted and retained pursuant to the reinsurance the relevant countries. contracts. Other technical provisions represent provisions for risk not yet Debt run off. The provisions represent the amounts deemed neces- Debt is generally measured at nominal value. sary, in addition to unearned premium provisions and future premium rates, to cover future, anticipated expenses and Cash ﬂow statement settlement of claims not yet incurred within the period of The cash ﬂow statement is presented in accordance with the cover of the policies. direct method based on premiums. Provisions for other risks and charges The cash ﬂow statement shows the actual inﬂow and outﬂow Provisions for other risks and charges comprise amounts in- of payments for the year divided into cash inﬂow from opera- tended to cover liabilities or expenses attributable to the past tions, and changes in cash and cash equivalents resulting from ﬁnancial year or prior ﬁnancial years, and which on the balance the purchase or sale of investment assets as well as funding sheet date are likely or certain, but uncertain in respect of size activities. The item ‘Cash and cash equivalents’ comprises or time of payment. cash at bank and in hand and demand deposits. The commitment relating to the pension scheme in Vesta Forsikring AS, which is a deﬁned beneﬁt plan, is stated at an estimated market value using Norwegian assumptions relating to long-term economic developments, pension and mortality. Provisions for tax comprise deferred net tax amounts calcu- lated as 30% of the present value of net positive timing differ- ences between accounting and taxable values less tax losses to the extent that they are expected to be offset against future positive taxable income. 78 Accounts New accounting rules as from 2005 New accounting rules as from 2005 In 2004, TrygVesta conducted a process with a view to adopt- Some of the rules are still in a draft version and subject ing international ﬁnancial reporting standards (IFRS) begin- to change until 31 December 2005. Furthermore, some ning 1 January 2005. standards already published are still subject to interpretation. Effective from the 2005 ﬁnancial year, all listed companies in TrygVesta has decided to provide the additional information the EU are required to present consolidated ﬁnancial reporting required by IFRS, enhancing the level of detail for certain in accordance with the IFRS standards (IAS standards). Up till items. now, the ﬁnancial sector in Denmark has been required to prepare their ﬁnancial statements in accordance with rules The principal aspects that are IFRS inconsistent relate to the published by the Danish Financial Supervisory Authority. presentation of the income statement and balance sheet. For the time being, TrygVesta will comply with the Danish Finan- TrygVesta intends to adopt IFRS because we wish to contribute cial Supervisory Authority’s executive order in this respect. to greater transparency in the market, as most of TrygVesta’s competitors are listed companies and therefore required to On transition to IFRS, the present accounting policies will be adopt IFRS standards. TrygVesta furthermore wishes that changed in a number of respects, partly with respect to recog- rating agencies, banks and other stakeholder groups treat the nition and measurement, partly with respect to the presenta- Group on an equal footing with other international ﬁnancial tion in annual and interim reports. companies. In order to prepare for the introduction of the EU require- Below is a statement of opening equity at 1 January 2005 ments for the presentation of ﬁnancial statements by listed made up in accordance with IFRS standards adopted at companies, the Danish Financial Supervisory Authority issued 31 December 2004. Equity reconciliation new accounting rules for ﬁnancial companies in Denmark in 2004, which are consistent with IFRS. The rules issued by the Danish Financial Supervisory Authority Equalisation provisions including Pool of Natural Perils Equity at 31 December 2004 limits some of the options available under IFRS. Furthermore, Provisions for claims the disclosure requirements are less comprehensive, and in a Discounting few respects, the rules are inconsistent with IFRS. On the other Claims handling costs hand, the statutory order is more farreaching than the present Pension liabilities IFRS stage 1 in a few respects. Dividend Other items, including employee beneﬁts Tax on IFRS changes including contingency fund provisions Equity at 1 January 2005 DKKbn 6.1 1.4 0.7 -0.4 -0.3 0.7 -0.2 - 1.1 6.9 79 Accounts New accounting rules as from 2005 Comments on the equity reconciliation: Claims handling costs Equalisation provisions In future, provisions for claims are required to include a provi- sion to cover direct and indirect costs in connection with run- Equalisation provisions have so far represented amounts in- off on the provision for claims. Such costs were previously cluded to equalise future claims, net of reinsurance, in areas expensed as incurred. where experience has shown that claims vary. Equalisation provisions in TrygVesta comprise Pension liabilities • the Norwegian Pool of Natural Perils in Norway TrygVesta has previously recognised a commitment in respect • equalisation provisions in credit and guarantee insurance of the pension scheme in Vesta Forsikring AS. The scheme is a calculated in accordance with rules laid down by the Danish deﬁned beneﬁt plan, which was previously measured at an Financial Supervisory Authority estimated market value using assumptions relating to long- • the difference between technical provisions in workmen’s term economic developments. IFRS requires the liability to be compensation in Denmark made up at basic interest rates stated at market value based on the economic factors ruling of 2.00% and 2.75%, respectively on the balance sheet date. • equalisation of storm and large losses. Dividend IFRS prohibits recognition as a liability of equalisation provi- Under IFRS, dividend will not reduce equity until the time of sions, and the existing equalisation provisions will therefore be payment. dissolved. Equalisation provisions relating to the difference between differences in the basic rate will be transferred to Employee beneﬁts provisions for claims, while equalisation provisions in respect IFRS requires provisions to be established for long-term of the Pool of Natural Perils, credit and guarantee, and storm employee beneﬁts such as anniversary awards and pension and large loss equalisation will be transferred to equity after beneﬁts. Such costs were previously expensed as incurred. deduction of deferred tax. Provisions for claims Discounting Deferred tax The TrygVesta Group recognises untaxed contingency fund provisions in Norway and to a lesser extent untaxed contin- IFRS requires discounting of provisions for claims, net of rein- gency fund provisions in Denmark. Previously, no deferred tax surance, if such discounting is sizeable. This requirement will was provided in respect of such provisions. reduce the provisions for claims. TrygVesta already applies discounting of provisions relating to fund provisions if all or part of the insurance portfolio is trans- A tax liability will only materialise in respect of contingency compulsory workmen’s compensation insurance, but has ferred or sold. decided to discount all provisions for claims. Discounting will affect the motor liability, professional liability and personal accident classes, in particular. 80 Whether deferred tax must be provided in respect of such provisions is subject to uncertainty. TrygVesta has, however, decided to provide for deferred tax on contingency fund provisions in both Norway and Denmark. IFRS prohibits the recognition of provisions for deferred tax and tax assets on a discounted basis. Under the previous accounting rules, TrygVesta’s tax asset was recognised on a discounted basis. On transition to IFRS, the tax asset will be adjusted for the recognised effect of discounting. Direct and indirect claims handling costs to be recognised in claims incurred Claims incurred will in future include direct and indirect claims handling costs – contrary to the previous practice, under which only the costs of claims assessors were included in this item. Estimated rent of own properties It is no longer required to determine the estimated rent of own properties used in the company’s operations. TrygVesta owns a few headquarter properties in Denmark relating to the decentralised organisation as well as the headquarter property in Norway, and the future expense ratio will be reduced by the estimated rent. 81 Accounts Financial highlights and key ratios by geographical area Financial highlights and key ratios by geographical area DKKm The Group Gross earned premiums Technical result Proﬁt/loss on investments Other ordinary income Other ordinary expenses Proﬁt/loss on ordinary activities before tax Key ratios. net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance Q4 2004 Q4 2003 2004 2003 2002 2001 2000 3,954 277 314 41 -48 584 74.5 21.4 95.9 72.0 3.4 75.4 21.0 96.4 4,209 76 192 31 -41 258 79.5 23.5 103.0 75.4 4.9 80.3 22.2 102.5 16,308 1,456 517 121 -147 1,947 70.9 22.2 93.1 67.6 5.0 72.6 21.2 93.8 16,702 376 685 115 -131 1,045 76.6 24.3 100.9 71.5 6.8 78.3 22.4 15,792 -558 -170 127 -173 -774 83.4 25.8 109.2 78.1 5.5 83.6 23.6 12,620 105 4 121 -121 109 80.1 25.3 105.4 77.5 2.6 80.1 24.3 11,152 -288 711 122 -122 423 83.5 26.8 110.3 87.9 -5.0 82.9 25.9 100.7 107.2 104.4 108.8 Number of full-time employees at the end of the period 3,762 4,420 4,411 4,316 4,264 Danish general insurance Gross earned premiums Technical result Proﬁt/loss on investments Other ordinary income Other ordinary expenses Proﬁt/loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance 2,128 69 264 26 -23 336 84.1 17.1 101.2 81.7 2.0 83.7 17.4 101.1 2,104 134 147 17 -16 282 77.4 21.4 98.8 73.2 4.7 77.9 21.0 98.9 8,570 790 450 76 -71 1,245 74.3 19.4 93.7 71.6 3.5 75.1 19.0 94.1 8,242 443 393 71 -68 839 75.4 21.2 96.6 70.4 6.1 76.5 20.4 96.9 7,411 -61 -128 78 -74 -185 83.3 22.2 105.5 82.0 1.6 83.6 21.1 6,467 -49 49 92 -92 0 82.6 24.2 106.8 80.5 1.6 82.1 23.9 6,197 -200 607 95 -95 407 83.9 26.6 110.5 89.6 -5.7 83.9 25.8 104.7 106.0 109.7 Number of full-time employees at the end of the period 2,223 2,248 2,330 2,458 2,552 82 DKKm Norwegian general insurance Gross earned premiums Technical result Proﬁt/loss on investments Other ordinary income Other ordinary expenses Proﬁt/loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio. net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance Q4 2004 Q4 2003 2004 2003 2002 2001 2000 1,701 227 59 15 -15 286 61.3 25.0 86.3 59.1 6.0 65.1 23.4 88.5 1,745 38 68 14 -13 107 76.9 23.5 100.4 73.1 5.1 78.2 22.1 100.3 6,614 722 94 45 -44 817 66.1 22.9 89.0 62.7 6.9 69.6 21.2 90.8 7,161 41 316 44 -42 359 78.7 25.2 103.9 72.9 7.8 80.7 22.4 7,111 -278 -55 49 -47 -331 85.3 25.3 110.6 75.8 9.2 85.0 22.6 5,134 202 -42 29 -29 160 78.5 23.1 101.6 76.1 3.1 79.2 22.0 4,170 3 78 27 -27 81 83.7 25.1 108.8 86.6 -4.1 82.5 24.4 103.1 107.6 101.2 106.9 Number of full-time employees at the end of the period 1,454 1,460 1,374 1,272 1,141 Finnish general insurance Gross earned premiums Technical result Loss on investments Loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio. net of reinsurance Combined ratio. net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio. net of ceded business Gross expense ratio 28 -8 -1 -9 63.2 71.0 134.2 63.1 0.2 63.3 70.9 19 -9 0 -9 70.4 81.0 151.4 69.9 0.8 70.7 80.3 97 -45 -2 -47 68.6 80.0 148.6 68.5 0.2 68.7 79.8 Combined ratio. net of expenses to reinsurance 134.2 151.0 148.5 61 -48 -1 -49 78.2 103.8 182.0 77.5 1.0 78.5 102.8 181.3 21 -66 -1 -67 104.3 389.2 493.5 84.8 18.7 103.5 316.3 419.8 2 -29 0 -29 91.1 1,795.1 1,886.2 91.1 0.0 91.1 1,795.1 1,886.2 Number of full-time employees at the end of the period 51 42 35 14 - - - - - - - - - - - - - 83 Accounts Financial highlights and key ratios by geographical area DKKm TBi Gross earned premiums Technical result Proﬁt/loss on investments Proﬁt/loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio. net of ceded business Gross expense ratio Combined ratio, net of expenses to reinsurance Q4 2004 Q4 2003 2004 2003 2002 2001 2000 - - - - - - - - - - - - 218 -61 -8 -69 116.8 22.8 139.6 115.0 0.8 115.8 21.3 137.1 526 17 7 24 69.3 30.4 99.7 60.6 9.0 69.6 30.1 99.7 716 -10 10 0 75.6 30.2 105.8 72.9 4.9 77.8 27.5 722 -112 2 -110 78.3 42.0 120.3 70.7 9.8 80.5 37.6 552 -12 -1 -13 72.2 38.0 110.2 71.0 5.8 76.8 26.8 426 -55 0 -55 81.0 34.5 115.5 90.1 -7.5 82.6 31.1 105.3 118.1 103.6 113.7 Number of full-time employees at the end of the period 0 30 32 28 28 Polish general insurance Gross earned premiums Technical result Proﬁt/loss on investments Proﬁt/loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio 98 -9 0 -9 75.0 41.9 116.9 85.1 -9.2 75.9 39.6 118 -26 -8 -34 82.2 58.7 140.9 75.3 17.6 92.9 36.0 473 -26 -3 -29 70.4 42.2 112.6 69.8 1.9 71.7 38.8 491 -49 4 -45 69.7 49.5 119.2 65.2 9.3 74.5 38.3 496 -28 32 4 64.0 47.7 111.7 61.2 6.5 67.7 39.8 462 -7 -2 -9 62.8 43.5 106.3 59.4 7.7 67.1 36.9 361 -36 26 -10 73.8 46.7 120.5 70.7 1.4 72.1 39.9 Combined ratio, net of expenses to reinsurance 115.5 128.9 110.5 112.8 107.5 104.0 112.0 Number of full-time employees at the end of the period 0 523 495 489 494 84 Q4 2004 Q4 2003 2004 2003 2002 2001 2000 DKKm Estonian general insurance Gross earned premiums Technical result Proﬁt/loss on investments Loss on ordinary activities before tax Key ratios, net of reinsurance Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Gross key ratios Gross claims ratio Ceded business as percentage of gross premiums Gross claims ratio, net of ceded business Gross expense ratio 7 -2 0 -2 71.7 74.7 146.4 67.3 13.0 80.3 45.9 10 0 0 0 78.1 40.6 118.7 79.7 -1.0 78.7 37.3 36 -2 0 -2 56.5 49.2 105.7 54.0 12.6 66.6 37,0 39 -1 0 -1 67.2 38.9 106.1 73.2 -4.2 69.0 36.4 41 -13 0 -13 81.4 55.1 136.5 90.8 -8.7 82.1 51.3 Combined ratio, net of expenses to reinsurance 126.2 116.0 103.6 105.4 133.4 Number of full-time employees at the end of the period 0 76 82 TrygVesta A/S (parent company) Proﬁt/loss on investments (excluding subsidiaries) Other ordinary expenses Loss on ordinary activities before tax Business in run-off Gross earned premiums Techical result Proﬁt/loss on investments Loss on ordinary activities before tax Number of full-time employees at the end of the period -8 -10 -18 -19 5 -17 -12 -7 -12 -19 125 -107 -9 -116 -29 -32 -61 30 -54 -11 -65 34 -37 -22 -59 631 -246 -10 -256 -20 -52 -72 1,211 -299 -5 -304 41 63 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 921 -17 -4 -21 55 552 -27 15 -12 49 85 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Income statement, balance sheet and cash ﬂow statement for TrygVesta 2004 2003 16,274 -1,697 185 -86 14,676 537 -9,493 929 -1,502 -205 -10,271 -25 -151 -1,701 -1,761 -3,462 245 -3,217 -93 1,456 16,613 -2,375 145 -137 14,246 595 -10,531 1,716 -1,424 -642 -10,881 15 -56 -1,936 -1,809 -3,745 303 -3,442 -101 376 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 Earned premiums, net of reinsurance 2 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 86 Income statement DKKm Note 12 Investment activities Income from investment assets Income from associated undertakings Income from land and buildings Interest and dividends, etc. 6 7 Realised gains on investment assets 2004 2003 0 115 828 143 0 193 822 176 Total income from investment assets 1,086 1,191 7 Unrealised gains on investment assets Charges relating to investment assets Investment management charges Interest expenses Total charges relating to 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 before tax 8 Tax Proﬁt on continuing business 9 Loss on discontinued business Proﬁt for the year The minority interests’ share of the proﬁt TrygVesta’s share of the proﬁt for the year 240 -52 -74 -126 -8 1,192 -675 517 -26 1,947 -485 1,462 -55 1,407 0 1,407 489 -53 -70 -123 -139 1,418 -733 685 -16 1,045 -87 958 -217 741 1 742 87 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Balance sheet as at 31 December DKKm Note Assets 10 Intangible assets 11 12 Investment assets Land and buildings Investments in associated undertakings Equity investments in associated undertakings Total investments in associated undertakings Other ﬁnancial investment assets 13 Capital participation Unit trust units Bonds Other loans Deposits in credit institutions 14 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 Other amounts owing Total amounts owing Other assets Furniture, equipment, computer hardware, motor vehicles, etc. Cash in hand and at bank 15 Tax assets Other 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 88 2004 112 2003 119 2,000 2,009 28 28 3,104 246 23,951 0 116 27,417 28 29,473 817 119 936 960 0 708 2,604 173 490 251 9 923 383 0 58 441 14 14 2,309 18 19,968 70 415 22,780 142 24,945 931 350 1,281 1,474 51 1,788 4,594 312 558 425 9 1,304 262 41 72 375 33,553 31,337 Balance sheet as at 31 December DKKm Note 16 Liabilities 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 Reinsurers’ share Provisions for unearned premiums, net of reinsurance Provisions for claims 17 Gross provisions Reinsurers’ share Provisions for claims, net of reinsurance Provisions for annuities by workmen’s compensation Gross provisions 18 Provisions for annuities, net of reinsurance Provisions for bonuses and premium rebates, net of reinsurance Equalisation provisions 19 20 Other insurance provisions, net of reinsurance 2004 2003 1,700 0 4,417 6,117 0 700 4,989 -212 4,777 18,611 -2,920 15,691 1,267 1,267 153 1,530 49 1,700 2,968 692 5,360 4 700 5,239 -393 4,846 17,975 -3,087 14,888 1,159 1,159 76 1,424 82 Total technical provisions, net of reinsurance 23,467 22,475 Provisions for other risks and charges Provisions for pensions and similar obligations 21 Other provisions Total provisions for other risks and charges Debt Debt related to direct insurance Debt related to reinsurance Debt to credit institutions Debt to subsidiary undertakings Corporation tax Other debt Dividend for the ﬁnancial year 22 Total debt Accruals and deferred income Total liabilities Forward transactions, etc. 23 Capital adequacy 24 25 Contingent liabilities 26 Intragroup transactions 169 0 169 367 485 609 37 95 607 650 2,850 250 33,553 141 179 320 391 520 656 0 0 647 50 2,264 214 31,337 89 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta 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 operations Interest and dividends Taxes Other ordinary items 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 loans (net) Purchase/sale of operating equipment (net) Acquisition of subsidiaries Purchase/sale of associated undertakings Total investments Funding Capital increase Subordinate loan capital Dividend paid Change in debt to credit institutions Total funding Change in cash and cash equivalents, net Price adjustment of cash equivalents, beginning-of-year Additions relating to sale of subsidiaries Changes in cash and cash equivalents, gross Cash and cash equivalents, beginning-of-year Cash and cash equivalents, year-end Discontinued business Total cash generated from operations Total investments Total funding Change in cash and cash equivalents, net Price adjustment of cash equivalents, beginning-of-year 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. 90 2004 2003 17,076 -9,513 -708 -3,121 1,518 5,252 792 -611 -26 5,407 69 -710 -5,276 70 -81 517 -14 -5,425 0 0 -50 91 41 23 -11 -5 7 558 565 -257 87 95 -75 0 -75 0 -75 16,804 -10,423 -582 -3,223 -320 2,256 1,346 -256 -16 3,330 22 -394 -3,672 210 -56 -6 0 -3,896 400 700 0 -703 397 -169 -54 0 -223 735 512 -148 208 -14 46 0 46 0 46 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 Technical interest, net of reinsurance Transferred from investment activities Discounting Technical interest in respect of discontinued activities 3 Claims incurred, net of reinsurance Direct business Indirect business Reinsurance recoveries Run-off gains/losses previous years, net of reinsurance Run-off previous years, gross Run-off previous years, reinsurers’ share 2004 2003 15,887 572 16,459 -1,783 14,676 8,546 659 6,682 15,887 675 -128 547 -10 537 -10,636 -359 -10,995 724 -10,271 169 -166 3 15,992 766 16,758 -2,512 14,246 8,110 115 7,767 15,992 733 -132 601 -6 595 -11,390 -565 -11,955 1,074 -10,881 -589 73 -516 91 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta 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 Gross insurance operating expenses, including the following staff expenditure: Salaries and wages Commission Pensions Other expenses to social security Payroll tax, etc. The item Pensions includes adjustment of corridor in Vesta Forsikring AS. 2004 2003 -360 -1,341 -1,701 -1,761 -3,462 245 -3,217 -1,634 -10 -277 -119 -92 -2,132 -543 -1,393 -1,936 -1,809 -3,745 303 -3,442 -1,626 -9 -330 -117 -97 -2,179 Average number of full-time employees during the year 4,396 4,438 Administrative expenses include fee to the auditors appointed by the Annual General Meeting Deloitte Grant Thornton Of which services other than audit Deloitte Beyond this, other ordinary expenses are defrayed to the Group’s Internal Audit Department. Other ordinary items Other ordinary income Other ordinary expenses -12.2 -0.9 -13.1 -7.4 -7.4 121 -147 -26 Other ordinary items include holding expenses and income and expenses related to the sale of products for Nordea Life and Pension. Remuneration for the Executive Management is paid by Tryg Forsikring A/S and Vesta Forsikring AS and is charged to TrygVesta A/S via the cost allocation. Remuneration for the Executive Management Remuneration for the Supervisory Board 10 3 No share-based incentive schemes have been made with the Executive Management. -11.6 -1.0 -12.6 -4.3 -4.3 115 -131 -16 7 2 92 Notes DKKm 5 Balance on the technical account, net of reinsurance, by line of business Accident & health 2004 2003 Marine, workmen’s compensation 2003 2004 Motor TPL 2004 2003 Motor comprehensive 2003 2004 Aviation & cargo 2004 2003 Gross premiums written 1,949 1,936 961 806 2,546 2,597 3,043 3,079 556 610 Gross earned premiums Gross claims Change in other insurance provisions Bonuses and premium rebates Gross operating expenses Proﬁt/loss on business ceded Change in equalisation provisions Technical interest, net of reinsurance 1,989 -1,901 1,946 -2,036 963 -1,219 6 -6 -403 5 0 104 -2 -3 -477 -2 0 109 -1 0 -121 13 -25 1 789 -897 0 0 -109 -30 -15 12 2,601 -2,240 2,679 -2,477 3,112 -1,649 3,081 -1,798 -30 -9 -568 -22 7 149 10 -2 -514 -35 -1 152 0 -65 -592 -6 5 50 0 -38 -608 -8 -1 62 576 -333 0 -11 -109 -53 4 39 643 -355 0 -3 -127 -118 -1 14 Balance on the technical account -206 -465 -389 -250 -112 -188 855 690 113 53 Fire & contents pers. lines Fire & contents commercial Liability Credit & guarantee insurance Other insurance 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Gross premiums written 2,928 2,833 2,386 2,675 707 764 135 130 1,063 1,182 Gross earned premiums Gross claims Change in other insurance provisions Bonuses and premium rebates Gross operating expenses Proﬁt/loss on business ceded Change in equalisation provisions Technical interest, net of reinsurance 2,925 -1,701 2,768 -1,940 2,507 -1,200 2,728 -1,260 0 -22 -643 -53 74 66 0 -8 -664 -71 8 78 0 3 -586 -425 -8 54 0 -2 -634 -579 -3 74 736 -362 0 -40 -166 -82 -17 40 802 -593 0 0 -179 -97 -20 45 Balance on the technical account 646 171 345 324 109 -42 134 -2 0 0 -37 -26 0 6 75 132 10 7 0 -40 -36 0 7 80 916 -388 1,190 -609 0 -1 -237 -165 -133 28 0 0 -393 -159 -68 42 20 3 93 Notes Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Notes DKKm Gross premiums written 16,274 16,612 754 642 Total Norwegian group life 1) One-year policies 2004 2003 2004 2003 Gross earned premiums Gross claims Change in other insurance provisions Bonuses and premium rebates Gross operating expenses Proﬁt/loss on business ceded Change in equalisation provisions Technical interest, net of reinsurance 16,459 -10,995 -25 -151 -3,462 -814 -93 537 16,758 -11,955 15 -56 -3,745 -1,135 -101 595 728 -660 0 0 -160 -1 0 0 618 -508 0 0 -140 -10 0 0 Balance on the technical account 1,456 376 -93 -40 1) Personal accident and health insurance includes one-year group life policies of Vesta Forsikring AS, see above. 94 Notes Notes DKKm 6 Interest and dividends, etc. Dividends on capital participation Interest on securities, etc. Capital gains by drawing and servicing of securities, etc. 7 Realised and unrealised gains/losses on investment assets Land and buildings Other capital participation Bonds listed on the stock exchange exclusive of index-linked bonds Mortgage loans Divestment of subsidiaries Allocated to the following items Net realised gains/losses on investment assets Net unrealised gains/losses on investment assets 8 Tax Tax regarding previous years Current tax Dividend tax foreign equities Change in deferred tax assets Tax prepaid 9 Loss on discountinued activities Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Total insurance operating expenses, net of reinsurance Change in the equalisation provisions Technical result Return on investment activities Proﬁt from ordinary activities before tax Tax Insurance provisions, net of reinsurance 2004 2003 85 791 -48 828 31 329 -40 0 63 383 143 240 383 -24 -233 -6 -222 -485 410 25 37 -79 -43 6 -54 -11 -65 10 -55 929 52 856 -86 822 21 252 385 7 0 665 176 489 665 13 -29 -3 -68 -87 250 376 46 -479 -189 0 -246 -10 -256 39 -217 1,211 95 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Notes DKKm 10 Intangible assets Acquisition sum Balance 1 January Foreign exchange adjustment 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 Foreign exchange adjustment, beginning-of-year Additions during the year Disposals during the year Balance 31 December Write-ups Balance 1 January Write-ups during the year Reversal of revaluation Revaluation, real property disposed of Balance 31 December Depreciation and write-downs Balance 1 January 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 Residential property Of which property used by the companies for their operation Public land assessment Non-assessed property 96 2004 2003 142 1 14 157 -23 -22 -45 112 1,871 14 39 -75 1,849 192 38 -16 -11 203 -54 0 2 0 -52 99 0 43 142 -19 -4 -23 119 3,091 -100 289 -1.409 1,871 357 77 -19 -223 192 -77 -48 5 66 -54 2,000 2,009 120 1,677 203 2,000 263 1,170 7 121 1,694 194 2,009 358 1,140 6 Notes DKKm In establishing the market value of the properties, the following return percentages were used for each property category Business property Ofﬁce property Residential property All properties 12 Equity investments in associated undertakings Acquisition sum Balance 1 January Additions during the year Balance 31 December Write-ups Balance 1 January Write-ups during the year Balance 31 December Book value 31 December 2004 2003 Lowest % 2004 Average % 2004 Highest % 2004 Tryg / Vesta 8.00 / Tryg / Vesta 8.00 / 7.00 / -10.01 7.63 / 9.57 6.08 / 5.50 / Tryg / Vesta 8.00 / 8.50 / 45.19 6.50 / 7.00 / -10.01 7.61 / 9.57 8.50 / 45.19 0 14 14 14 0 14 28 0 0 0 14 0 14 14 In the year, equity investments in associated undertakings have been transferred from unlisted shares Shares in associated undertakings according to annual accounts Shareholders’ equity 2004 Ownership share % 2004 Nordisk Flyforsikring A/S, Copenhagen, Insurance The company was established at the end of 2004. Bilskadeinstituttet, Oslo, property Eidsvåg Fabrikker, Bergen, property 13 Capital participation Book value Acquisition value 50 4 31 3,104 2,884 28 30 28 2,309 2,218 Shareholding of more than 5% of the company share capital according to the latest annual reports The company shareholders’ equity 2004 Ownership share 2004 Account Data A/S, Frederiksberg Forsikringsakademiet A/S, Hørsholm Kommune A/S Forsikringens Hus, København Finansnærings huset, Oslo Privathospitalet Hamlet af 1994 A/S, Frederiksberg Lofoten Trålerrederi, Stamsund Riksheim Henningsvær, Henningsvær Minox Technology, Notodden Høyteknologisenteret, Bergen 1 32 42 36 24 45 -1 -4 94 14 12 12 15 6 10 10 8 8 97 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Notes DKKm 14 Other ﬁnancial investment assets Book value Capital participation Unit trust units Bonds Other loans Deposits in credit institutions Acquisition value Capital participation Unit trust units Bonds Other loans Deposits in credit institutions 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 16 Shareholders’ equity Share capital Balance 1 January 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 Transferred to Retained proﬁts Balance 31 December Retained proﬁts Balance 1 January Transferred from Share premium account Transferred in accordance with Distribution of proﬁt Balance 31 December Total shareholders’ equity Vesta Forsikring AS and Dansk Kautionsforsikrings-Aktieselskab have untaxed provisions for contingency funds of NOK 2,104m and DKK 139m, respectively, which are included in shareholders’ equity. 98 2004 2003 3,104 246 23,951 0 116 27,417 2,884 225 23,856 0 0 26,965 43 -20 141 9 78 0 251 1,700 0 1,700 2,968 -2,968 0 692 2,968 757 4,417 6,117 2,309 18 19,968 70 415 22,780 2,218 25 18,987 70 100 21,400 63 -59 227 36 23 135 425 1,300 400 1,700 2,968 0 2,968 0 0 692 692 5,360 Notes DKKm 17 Gross provisions (provisions for claims) Including provisions calculated with regard for discounting: Workmen’s compensation (Denmark) Reduction from discounting Settlement period Discounting interest rate Inﬂation Workmen’s compensation (Norway) Reduction from discounting Settlement period Discounting interest rate Inﬂation 18 Provisions for annuities Workmen’s compensation Settlement period Discounting interest rate Inﬂation 19 Equalisation provisions Financial guarantee insurance Workmen’s compensation Windstorm and large perils Equalisation provisions for Norwegian general insurance Other insurance 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 DKK 179m of the provision was applied in the year in connection with the sale of the subsidiaries Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S and Nordicum Kindlustuse Eesti AS. 22 Debt Of which debt falling due after more than 5 years 2004 18,611 1,146 107 4.1 years 2.2% 2.2% 2,586 366 4.4 years 3.0% 4.0% 2003 17,975 793 54 4.3 years 3.2% 3.2% 2,393 399 4.2 years 3.5% 4.0% 1,267 1,159 11.3 years 2.75% 0% 11.5 years 2.75% 0% 270 119 120 1,021 0 1,530 0 1 48 49 0 0 2,850 0 270 94 185 869 6 1,424 1 0 81 82 179 179 2,264 0 99 Accounts Income statement, balance sheet and cash ﬂow statement for TrygVesta Notes DKKm 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 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 2004 2003 6,117 -3 -2,447 700 4,367 5,545 79% 2,583 0 9 6,959 1,322 2,590 0 9 6,974 1,322 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 25 Contingent liabilities Surety, guarantee and lease agreements, etc. beyond insurance obligations do not exceed 325 425 Additional circumstances Tryg Forsikring A/S and Vesta Forsikring AS have signed an operating agreement with CSC for an amount of DKK 634m for a period of 4-5 years. Tryg Forsikring A/S has an annual obligation to Danica Pension with respect to the lease of the head ofﬁce in Ballerup. The annual rent, taxes etc. currently amount to DKK 79m. The remaining lease period is 21 years. Tryg Ejendomme A/S is jointly and severally liable with the demerged company Nordea Pension Danmark, ejendomsselskab IV A/S for the liabilities existing at the time of publication of the demerger, up to a maximum of the reversed value of DKK 382m. Most of the companies of the TrygVesta Group are jointly taxed and jointly and severally liable for payment of imposed corporation tax. Most of the Danish companies within the TrygVesta 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. 100 Notes DKKm 26 Intragroup transactions The management fee is ﬁxed on a cost-covering basis. The companies of TrygVesta have concluded reinsurance treaties and agreements about interest payment on current accounts based on market terms. An amount of DKK 8m has been recognised in the item Gross claims paid in 2004, which is attributable to the fact that Tryg i Danmark smba (the owner of TrygVesta A/S, which is the parent company of Tryg Forsikring A/S) has guaranteed and thus committed itself to paying to Tryg Forsikring A/S the amount of any loss suffered by Tryg Forsikring in relation to one speciﬁc court case, the AON 77. The corresponding amount in 2003 was DKK 50m. The AON 77 is hereby concluded. 101 Accounts Income statement and balance sheet for Tryg Vesta A/S (parent company) Income statement and balance sheet for TrygVesta A/S (parent company) 2004 2003 2,009 38 2,047 -3 -64 -67 -1 0 1,979 -32 1,947 -485 1,462 -55 1,407 1,104 43 1,147 -10 -57 -67 0 -12 1,068 -22 1,046 -87 959 -217 742 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 Unrealised gains on investment assets Exchange rate adjustment Total return on investment activities 3 Other ordinary expenses Proﬁt before tax 4 Tax Proﬁt before tax on continuing activities 5 Loss on discontinued activities after tax Proﬁt for the year 102 Balance sheet as at 31 December DKKm Note Assets Investments in group and associated undertakings 6 Capital participation in subsidiary undertakings 6 6 7 Equity investments in group undertakings in respect of discontinued activities Loans to subsidiary undertakings Investments in associated undertakings Total investments in group and associated undertakings Other ﬁnancial investment assets Bonds Deposits in credit institutions 8 Total other ﬁnancial investment assets Total investment assets Amounts owing Amounts owing from subsidiary undertakings Total amounts owing Other assets Cash in hand and at bank 9 Deferred tax assets Total other assets Prepayments and accrued income Accrued interest and rent earned Total prepayments and accrued income Total assets Liabilities 10 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 11 Capital adequacy 12 Contingent liabilities 13 Intragroup transactions 2004 2003 6,625 125 600 14 7,364 92 0 92 7,456 617 617 1 3 4 2 2 5,771 158 600 0 6,529 0 100 100 6,629 48 48 50 5 55 0 0 8,079 6,732 1,700 0 4,417 6,117 700 601 11 650 1,262 8,079 1,700 2,968 692 5,360 700 601 21 50 672 6,732 103 Accounts Income statement and balance sheet for Tryg Vesta A/S (parent company) Notes DKKm Note 1 Income from subsidiary undertakings Tryg Forsikring A/S Proﬁt before tax on continuing activities Tax in subsidiary undertakings Loss on discontinued activities after tax 2 Interest and dividends, etc. Interest on securities, etc. 3 Other ordinary expenses Administrative expenses 2004 2003 2,009 2,009 483 -55 1,471 38 38 -32 -32 1,104 1,104 -92 -217 795 43 43 -22 -22 Remuneration for the Executive Management is paid by Tryg Forsikring AS and Vesta Group AS and is charged to TrygVesta 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 Of which services other than audit: Deloitte Beyond this expenses are defrayed to the Group’s Internal Audit Department. 4 Tax Change in deferred tax asset Tax in subsidiary undertakings 5 Loss on discountinued activities Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Total insurance operating expenses, net of reinsurance Change in the equalisation provisions Technical result Return on investment activities Proﬁt from ordinary activities before tax Tax 104 0 8 3 -3.3 -0.2 -3.5 -2.7 -2.7 -2 -483 -485 25 37 -79 -43 6 -54 -11 -65 10 -55 0 5 2 -2.1 -0.3 -2.4 -1.0 -1.0 5 -92 -87 376 46 -479 -189 0 -246 -10 -256 39 -217 Notes DKKm Note 6 Capital participation in subsidiary undertakings Acquisition sum Balance at 1 January Additions by non-cash contributions Divestments during the year Capital increase during the period Balance at 31 December Write-downs Balance 1 January Proﬁt 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. 7 Shares in associated undertakings Acquisition sum Balance at 1 January Divestments during the year Balance at 31 December Book value 31 December 2004 2003 6,809 0 0 0 6,809 -880 1,471 0 -650 -59 6,750 6,190 2,546 -2,527 600 6,809 -1,606 795 -19 -50 -880 5,929 Ownership interest % Proﬁt for the year Share- holders’ equity 100 1,471 6,750 0 14 14 14 0 0 0 0 Shares in associated undertakings according to latest annual accounts Shareholders’ equity 2004 Ownership share in % 2004 Nordisk Flyforsikring A/S, Copenhagen, Insurance The company was established at the end of 2004. 8 Other ﬁnancial investment assets Book value Bonds Acquisition value Bonds 9 Tax asset Operating equipment and provision etc. 50 92 92 94 94 3 3 28 0 0 0 0 5 5 105 Accounts Income statement and balance sheet for Tryg Vesta A/S (parent company) Notes DKKm Note 10 Shareholders’ equity Share capital Balance 1 January Capital increase Balance 31 December The share capital is distributed in shares of DKK 100 or multiples thereof Share premium account Balance 1 January 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 2,104m and DKK 139m, respectively. 11 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 12 Contingent liabilities 2004 2003 1,700 0 1,700 2,968 -2,968 0 692 2,968 757 4,417 6,117 6,117 -3 -2,447 700 4,367 5,545 79% 1,300 400 1,700 2,968 0 2,968 0 0 692 692 5,360 5,360 -6 -2,610 700 3,444 3,999 86% The company is jointly taxed together with most companies of the TrygVesta Group, and they are jointly and severally liable for payment of imposed tax. The company is jointly registered for VAT and payroll tax purposes with Tryg i Danmark smba and most of its Danish subsidiaries, and is jointly and severally liable with these companies for the payment of such taxes. The company is part of some disputes the outcome of which is not estimated to affect the ﬁnancial position of the company. 13 Intragroup transactions The management fee is ﬁxed on a cost-covering basis. The companies of the TrygVesta Group have concluded reinsurance treaties and agreements about interest payment on current accounts based on market terms. 106 Accounts Group overview Group overview TrygVesta A/S has the following subsidiaries Proﬁt/loss DKKm Tryg Forsikring A/S Vesta Forsikring AS Enter Forsikring AS Slettebakksveien AS Respons Inkasso AS Thunes Vei 2 AS Dansk Kautionsforsikrings-Aktieselskab ApS SMBK nr. 98 Chevanstell Ltd. ApS KBIL 9 nr. 2032 Tryg Ejendomme A/S TrygVesta IT A/S Registered ofﬁce Ballerup Bergen Bergen Bergen Bergen Bergen Ballerup Ballerup London Ballerup Ballerup Ballerup Country 2004 Denmark Norway Norway Norway Norway Norway Denmark Denmark UK Denmark Denmark Denmark 1,471 624 53 0 2 5 73 0 -32 0 22 0 for Ownership Share Shareholders’ equity capital share, % 31.12.2004 31.12.2004 100 100 100 100 100 100 100 100 100 100 100 100 1,100 779 50 7 0 52 193 0 619 0 1 1 6,750 3,074 169 29 1 55 408 0 125 0 460 1 Mergers Tryg Forsikring II A/S and Tryg Forsikring, Rejse og Sundhed A/S merged into Tryg Forsikring A/S as at 1 January 2004. Companies divested in 2004 Tryg-Baltica Forsikring, internationalt forsikringsselskab A/S (divested as at 30 September 2004) Tryg Polska Towarzystno Ubezpieczenia S.A. (divested as at 1 December 2004) Nordicum Kindlustuse Eesti AS (divested as at 17 December 2004) Ballerup Denmark Radom Tallinn Poland Estonia 17 -28 0 100 100 100 0 0 0 0 0 0 Financial calendar Financial results for the three months ending 31 March 2005: Financial results for the six months ending 30 June 2005: Financial results for the nine months ending 30 September 2005: 18 May 2005 25 August 2005 16 November 2005 107 Accounts Vesta Forsikring AS Vesta Forsikring AS NOKm Gross written premiums Earned premiums, net of reinsurance Net ﬁnancial income Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Operating proﬁt/loss Contingency provisions etc.*) Proﬁt/loss on ordinary activities before tax Balance sheet Technical provisions Total shareholders’ equity Total assets Key ratios Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Q4 2004 Q4 2003 2004 2003 1,472 1,553 7,422 7,681 1,578 127 -981 -371 353 -37 316 1,575 144 -1,346 -382 -9 -34 -43 6,157 419 -4,133 -1,336 1,107 -231 876 6,001 713 -4,892 -1,377 445 -249 196 13,203 1,383 16,029 12,470 936 14,431 62.2 23.5 85.7 85.5 24.2 109.7 67.1 21.7 88.8 81.5 22.9 104.4 *) The amount comprises provisions for security, reinsurance and administration as well as funds for natural disasters and guarantees. The tabel presents the result and selected balance sheet items together with key ratios for the Vesta Forsikring AS Group. The information is presented in accordance with generally accepted accounting principles in Norway, which correspond to the policies described in the annual report of Vesta Forsikring AS for 2004. 108 Facts about TrygVesta Facts about TrygVesta Facts about TrygVesta TrygVesta is the second-largest general insurer in the Nordic region. The Group comprises Tryg, Denmark’s largest general insurer with a market share of just over 22%, Vesta, Norway’s third largest insurer with a market share of around 19%, guarantee insurer Dansk Kaution and a rapidly growing branch in Finland. TrygVesta has a strong strategic partnership with Nordea. The bank sells TrygVesta’s general insurance products, while TrygVesta sells Nordea’s life and pension products. Moreover, Nordea Asset Management is TrygVesta’s portfolio manager. TrygVesta furthermore has a partnership with CSC, which handles the Group’s IT operations. TrygVesta’s distribution strategy is based on marketing one brand in each country, offering the same product, price and quality through all sales channels. TrygVesta pursues a multi- ple channel distribution strategy. The most important chan- nels are large customer centres, service centres or franchisees, TrygVesta’s own insurance agents and sales through real estate agents, car dealers and Nordea’s branches. In addition, TrygVesta has signed agreements with a number of trade unions and professional groups to offer their members personal insurance. Likewise, TrygVesta has industry agreements and agreements with insurance brokers in the commercial market. TrygVesta’s some 3,800 employees represent quality, advice and service, both to the individual personal customer and to the large industrial enterprise with several thousand employ- ees. TrygVesta has about two million customers. The Group generates premiums of DKK 16.3bn annually. Its employees processed 500,000 claims and paid claims in the amount of DKK 11bn in 2004. G R O S S P R E M I U M S , N E T O F R E I N S U R A N C E , D I S T R I B U T E D O N B U S I N E S S A R E A S I N 2 0 0 4 7 % 29 37 27 Personal & Commercial Denmark Corporate Personal & Commercial Norway Other G R O S S P R E M I U M S D I S T R I B U T E D O N P R O D U C T S I N 2 0 0 4 % 6 18 12 18 3 15 16 12 Motor TPL Marine, transport, etc. Fire, etc. (commercial) Accident Motor comprehensive Fire, etc. (personal) Workmen’s compensation Other 109 Facts about TrygVesta TrygVesta’s history TrygVesta’s history TrygVesta owes its history to a number of mergers and In 1991, Vesta established a subsidiary by the name of Dial, acquisitions. The oldest component is the Danish insurance which name was changed to Enter in 2000. Enter is a wholly- company Kjøbenhavns Brand which was established by Royal owned subsidiary of Vesta and sells insurance through se- Decree of 1731 after the great Copenhagen ﬁre of 1728. The lected business partners, including car dealers. name Tryg ﬁrst emerged in 1911. Vesta was established in 1880, and the name Vesta is derived Nordea. One year later, Tryg set up a branch in Finland to sell from Roman Mythology. Vesta is the goddess of hearth, home insurance to Nordea’s Finnish banking customers. In 2000, Unibank and Tryg contributed to the formation of and family. In 1994, Tryg acquired the Danish insurance operations of Estonian Nordicum Kindlustus, which was established in 1990. In 2002, Tryg acquired the general insurance activities of Winterthur. In 1995, Tryg and Baltica merged to become Tryg-Baltica, insurance activities of Nordea, thereby forming TrygVesta. which name was changed to Tryg in 2001. At the same time, the Group acquired the Danish and Later that year, Tryg i Danmark smba acquired the general Norwegian general insurance activities of Zurich. Dansk Kaution, which was established in 1895, became a part of Tryg in 1998. In that same year, Tryg entered the Polish In 2004, TrygVesta divested the reinsurance company TBi, insurance market, acquiring a strategic stake in the company the Polish subsidiary Tryg Polska and the Estonian subsidiary Energo-Asekuracja, which was established in 1994. Tryg Nordicum Kindlustus. These three divestments are in line gained controlling inﬂuence in 2000, and in 2002 the name with TrygVesta’s strategy to focus on direct Nordic general of the company was changed to Tryg Polska. insurance. In 1999, Tryg merged with Denmark’s second-largest banking group, Unidanmark, and the general insurance activities of Unibank were integrated into Tryg. In that same year, Tryg acquired the English company Colonia Baltica, which was integrated into Tryg’s reinsurance company Tryg-Baltica International to form TBi. At the end of 1999, Vesta, which had formed part of Skandia since 1989, became part of the family. Vesta’s history also in- cludes a merger between Æolus and Bergens Brand in 1962, the acquisition of Cornhill’s Norwegian activities in 1997 and the acquisition of Aktiv Forsikring in 1998. In 2001, Vesta took over the Norwegian company Allianz. 110 Facts about TrygVesta Organisation O R G A N I S AT I O N Organisation Tryg i Danmark smba TrygVesta A/S Tryg Forsikring A/S Vesta Forsikring AS Subsidiaries including Enter Forsikring AS Nordea Vahinkovakuutus Dansk Kautionsforsikrings- Aktieselskab Overview of the TrygVesta Group, simplified legal structure. Tryg Forsikring A/S’ subsidiaries TrygVesta IT A/S, Tryg Ejendomme A/S and Chevanstell Ltd. in run-off have been left out. Tryg Divestments in 2004: Tryg is Denmark’s largest general insurer. Tryg has some 2,230 employees and sells insurance through in-house service cen- Tryg-Baltica International (TBi) tres, insurance brokers in the industrial and upper commercial In October 2004, TrygVesta sold its reinsurance company to markets, and through Nordea’s branch network. In addition, Sirius International, a member of the White Mountains Insur- Tryg sells Nordea’s pension products. ance Group, Ltd. The transfer is expected to be ﬁnalised by 1 Read more at www.tryg.dk. August 2005 at the latest. Vesta Tryg Polska Vesta is Norway’s third-largest general insurer. Vesta has some TrygVesta’s Polish subsidiary was sold to HDI International, a 1,450 employees and sells insurance through in-house ofﬁces, member of the Talanx Group, in December 2004. The agree- an extensive franchise network, insurance brokers in the in- ment is subject to the usual regulatory approvals, which are dustrial and upper commercial markets, and through Nordea’s expected to be in place by the end of the ﬁrst quarter of 2005. branch network. In addition, Vesta sells Nordea’s pension products. Read more at www.vesta.no. Nordicum Kindlustus TrygVesta’s Estonian subsidiary was sold to the Australian insurance group QBE International in December 2004. The Nordea Vahinkovakuutus agreement is subject to the usual regulatory approvals, which The sole business of TrygVesta’s branch in Finland is to sell are expected to be in place by the end of the ﬁrst quarter of insurance to personal customers through Nordea’s Finnish 2005. branches. Read more at www.nordea.ﬁ. Dansk Kaution Dansk Kaution specialises in guarantee insurance for Danish enterprises concluding major agreements, especially within the construction and contract manufacturing industries. Read more at www.danskkaution.dk. Enter Enter is a wholly-owned subsidiary of Vesta and sells insurance through selected business partners, including car dealers. Read more at www.enter-forsikring.no. 111 Facts about TrygVesta Corporate Governance Corporate Governance Ownership structure Management structure of TrygVesta TrygVesta A/S and thus the TrygVesta Group is owned by Tryg i In January 2004, the Supervisory Board of Tryg i Danmark re- Danmark smba, which is referred to as Tryg i Danmark in the solved to simplify the overall management structure and en- following. sure an effective interaction between the supervisory boards and executive managements of the Group’s companies. This The principal objects of Tryg i Danmark are to hold shares in was done by arranging total duality of membership on the companies that carry on insurance business and any other Supervisory Board of Tryg i Danmark and on the Supervisory business permitted under Danish legislation governing ﬁnan- Board of TrygVesta A/S with respect to members elected at cial business. Another object of Tryg i Danmark is to support the general meeting. Furthermore, the same persons act as activities and services that beneﬁt Danish insurance chairman and deputy chairman of the supervisory boards. At customers. This activity is carried out under the name of present, the General Meeting has elected eight members to TrygFonden. the Supervisory Board of TrygVesta A/S. In addition, the Supervisory Board comprises three representatives of the Tryg i Danmark is a company with limited liability registered insurance company’s employees. with the Danish Commerce and Companies Agency. Members of the company are Danish policyholders from time to time in The TrygVesta Group was formed in 2002 when Tryg i Dan- Tryg Forsikring A/S and some of Nordea Pension Danmark’s mark bought Nordea’s general insurance operations. During (formerly Tryg’s) life insurance companies. TrygVesta’s ﬁrst year, the Supervisory Board devoted many management resources to deﬁning and implementing The Board of Representatives is the supreme authority of the TrygVesta’s business strategy. company, and the Supervisory Board of Tryg i Danmark is elected by and among the representatives. The Supervisory In 2004, the Supervisory Board also focused on corporate gov- Board is responsible for the overall management of Tryg i Dan- ernance issues and held a two-day seminar to review the mark’s operations, including for exercising the voting rights on ‘Report on Corporate Governance in Denmark’, which had the company’ shareholdings. However, matters of material been published in December 2003 by the Copenhagen Stock strategic importance for TrygVesta are submitted to the Board Exchange Committee on Corporate Governance. of Representatives before the Supervisory Board exercises the voting right on the shares in TrygVesta A/S. Likewise, the an- The Supervisory Board considered each of the Committee’s nual report of TrygVesta is reviewed by the Board of Repre- recommendations and assessed their relevance to TrygVesta. sentatives prior to the Supervisory Board’s decision to adopt the annual report at the general meeting of TrygVesta A/S. The Committee’s recommendations include the following eight main areas: Being the owner of TrygVesta, Tryg i Danmark has a special 1. The role of the shareholders and their interaction with the interest in promoting the development of the insurance management of the company business. Tryg i Danmark does not carry out insurance 2. The role of the stakeholders and their importance to the operations itself, but supports TrygVesta by making capital company resources available to and being represented on the 3. Openness and transparency Supervisory Board of TrygVesta. 4. The tasks and responsibilities of the Supervisory Board 5. The composition of the Supervisory Board 6. Remuneration to the members of the Supervisory Board and the Executive Management 7. Risk management 8. Audit 112 The Supervisory Board generally agrees with the Committee’s stakeholders in TrygVesta’s corporate values, strategic basis recommendations for good corporate governance as reﬂected, and monitoring of the Group’s balanced scorecard, including among other things, by the disclosures in this annual report. reviewing the TrygVesta Group’s benchmarks for customers, processes, employees and ﬁnancial position. Where relevant, TrygVesta already complies with certain of the recommen- the Supervisory Board has adopted policies and drafted guide- dations, while in certain areas, discussions are ongoing and lines for the Group’s activities in each dimension, such as the initiatives have been launched with a view to implementing traditional risk areas. In addition, the Group has drawn up poli- the recommendations. cies for claims handling, customer servicing, procurement, HR Finally, the Supervisory Board ﬁnds it appropriate to deviate from and other areas. the recommendations in one respect due to TrygVesta’s circum- During the year, TrygVesta has drawn up a compliance policy stances. This deviation relates to the size of the Supervisory in relation to competition law. New, relevant policy areas are Board, where the number of members elected by the shareholders being considered on an ongoing basis, and applicable policies reﬂects that Tryg i Danmark is the sole owner and the wish to are followed up by such means as systematic customer and have a total duality of membership on the supervisory boards. employee surveys, which are also included in the Group’s It should furthermore be noted that the Supervisory Board has balanced scorecard. considered setting up an audit committee. However, the TrygVesta’s reporting on the interaction with stakeholders Supervisory Board ﬁnds that such a committee should not be includes the Group’s annual report and the ongoing external set up at present as the Supervisory Board is comfortable with and internal dialogue. the internal and external auditors’ review and discussion with the entire Supervisory Board. 3. Openness and transparency The Supervisory Board has the following comments on each of structured to the level of the requirements applicable to a TrygVesta’s external and internal ﬁnancial communication is the main areas: listed company, and its interim reporting complies with the rules of the Copenhagen Stock Exchange. It contains ﬁnancial 1. The role of the shareholders and their interaction with the reporting for material business areas and geographical seg- management of the company ments and follows up on the Group’s strategic focus areas. The Tryg i Danmark is the sole shareholder of TrygVesta A/S. interim reports are published in Danish and English, and the annual report is also available in Norwegian. Furthermore, the Being a large ﬁnancial group, TrygVesta has large corporate Group Executive Management meets regularly with analysts social responsibility and has therefore adopted an open com- and other interest parties. munications policy. TrygVesta’s communications generally comply with the requirements for listed companies and make As required for listed companies, TrygVesta will also be extensive use of the Group’s web site. adopting IFRS standards in its ﬁnancial reporting beginning TrygVesta’s articles of association do not contain provisions on in 2005. voting rights differentiation or other special rules. 4. The tasks and responsibilities of the Supervisory Board 2. The role of the stakeholders and their management and the ﬁnancial and managerial control of the importance to the company TrygVesta Group. To perform this task, the Supervisory Board The Supervisory Board implements the consideration for uses management of targets and limits based, among other The Supervisory Board is responsible for the overall strategic 113 Facts about TrygVesta Corporate Governance things, on regular and systematic discussions of the company’s The Supervisory Board has not set up any permanent subcom- policies for the relevant main areas with subsequent follow-up. mittees or committees. See also the description in this annual report of the company’s The Supervisory Board carries out an annual self-assessment operational management and follow-up. of the work of the Supervisory Board and the Executive Man- agement and an evaluation of the work and the efﬁciency of The duties of the Supervisory Board are laid down in rules of the cooperation between the Supervisory Board and the procedure, which speciﬁcally describe the duties and the spe- Executive Management. cial tasks of the chairman and of the chairman and the deputy chairman acting together. 6. Remuneration to the members of the Supervisory Board The Supervisory Board of TrygVesta A/S held nine meetings Reference is made to the description in this annual report. and a two-day seminar in 2004. The agenda of the Board TrygVesta is an unlisted company with only one shareholder, meetings follows events and themes of current interest to and members of the Supervisory Board and the Executive TrygVesta, thus ensuring that the Supervisory Board deals Management do not receive share-driven remuneration. and the Executive Management with all relevant issues over the year. The Supervisory Board has scheduled six ordinary meetings for 2005 and will further- 7. Risk management more meet as and when required. Being an insurance group subject to public supervision and continuously monitored by rating agencies, TrygVesta’s risk 5. The composition of the Supervisory Board management is organised professionally and monitored in all The Supervisory Board currently comprises eight members relevant dimensions. elected by the General Meeting. All these members also sit on the Supervisory Board of Tryg i Danmark. In addition, the In areas such as investment, reinsurance, underwriting and Supervisory Board comprises three members representing acceptance policies, IT security, IT resources and own the company’s employees. insurance matters, risk is managed by way of regular discussions of policies with subsequent follow-up. In the current situation with Tryg i Danmark being the sole shareholder of TrygVesta, Tryg i Danmark and TrygVesta have Risk is measured and managed centrally at group level for all coinciding interests, and the Supervisory Board therefore con- the Group’s companies. siders the duality of membership appropriate. Similarly, the number of Board members reﬂects the aggregate competence 8. Audit requirements of the supervisory boards of the two legal entities. Being a ﬁnancial holding company, TrygVesta is subject to the rules of the Danish Financial Supervisory Authority. TrygVesta The employee representation on the Supervisory Board of therefore also has an internal audit covering the company as TrygVesta comprises two Danish and one Norwegian well as the insurance operations and Tryg i Danmark. employee. TrygVesta is a company registered in Denmark, but as the Group also has substantial operations in Norway it has The Supervisory Board regularly receives and considers de- agreed with the employee organisations to ensure employee tailed audit reports from the appointed auditors and the representation from both countries. internal auditors. The members of TrygVesta’s Supervisory Board are up for election each year. They are eligible for re-election. 114 Facts about TrygVesta Supervisory Board and Executive Management Supervisory Board and Executive Management The Supervisory Board of TrygVesta A/S consists of eight Remuneration to the Executive Management members elected by the General Meeting and three employee and the Supervisory Board representatives. TrygVesta’s Group Executive Management The remuneration to the ﬁve members of the Executive Ma- consists of ﬁve members, of whom three are members of the nagement of TrygVesta consists of a ﬁxed salary and a variable Executive Management of the holding company TrygVesta A/S. salary, which cannot exceed three months’ salary, and which All ﬁve are members of the Executive Management of the depends directly on the Group’s ﬁnancial performance. The operating company Tryg Forsikring A/S. variable salary of the CFO is much less dependent on ﬁnancial results than the salaries of the other members of the Executive The Supervisory Board of TrygVesta A/S held nine meetings Management, but is based more on the Group’s investment and a two-day seminar in 2004. The agenda of the Board returns and the completion of ongoing projects. In addition, meetings follow events and themes of current interest to the members of the Executive Management have pension TrygVesta, thus ensuring that the Supervisory Board deals schemes providing a contribution by TrygVesta of 25% of their with all relevant issues over the year. The Supervisory Board respective salaries. Moreover, the members of the Executive has scheduled six ordinary meetings for 2005 and will further- Management have company cars. Members of the Executive more meet as and when required. Management are subject to 12 months’ notice and are entitled to severance pay corresponding to 12 months’ salary. How- Board members elected by the employees ever, the Group CEO is subject to 18 months’ notice and is en- Danish and Norwegian companies have a 30-year tradition for titled to severance pay corresponding to 12 months’ salary. having board members elected by employees. This tradition is reﬂected by provisions in the Danish Public Companies Act The 11 members of the Supervisory Board of TrygVesta A/S and the Norwegian Insurance Company Act, respectively, receive a ﬁxed annual remuneration. Ordinary members re- which aim to improve employee inﬂuence on and insight into ceive the same amount, whereas the two Deputy Chairmen how a company is managed. and the Chairman receive 75% and 150% more, respectively. The remuneration to the Supervisory Board does not include Norwegian legislation prescribes that one-third of the board variable salaries, company car schemes or severance plans. members, including alternates, must be elected by and among a company’s employees, whereas Danish legislation provides that 50% of the remaining board members, but not less than two, and a corresponding number of alternates must be elected from among the employees. The three employee representatives on the Board of TrygVesta A/S consist of two employees of Tryg Forsikring A/S and one employee of Vesta Forsikring AS. This composition is based on an agreement with TrygVesta’s staff associations that the two employee-elected Board members representing Tryg For- sikring A/S and the one employee-elected Board member representing Vesta Forsikring AS are entitled to be appointed as members of the Supervisory Board of TrygVesta A/S. 115 Facts about TrygVesta Supervisory Board and the Executive Management Members of the Supervisory Board This overview shows the directorships held by the members of TrygVesta A/S’ Supervisory Board. Mikael Olufsen, Chairman, born 1943 Chairman of the Supervisory Board of - Tryg i Danmark smba - Tryg Forsikring A/S Chairman of the Board of Directors of - Malaplast Co. Ltd. Bangkok Deputy Chairman of the Per Skov, Deputy Chairman, born 1941 Chairman of the Board of Directors of - Utility Development A/S Deputy Chairman of the Supervisory Board of - Tryg i Danmark smba - Tryg Forsikring A/S Board member of - Dagrofa A/S - Denerco Oil A/S - Executive Committee of the Danish Rheumatism Association - Denerco Petroleum A/S Vice Chairman of the Board of - Trustees of the Egmont Foundation - Egmont International Holding A/S Board member of - Britisk Import Union - Danmark-Amerika Fondet - Toptex PLC Borino, Bulgaria - BHJ GARANT s.r.o., The Czech Republic - BHJ FARUTEX Sp.Zo.o., Poland Member of the Presiding Committee of - DSV, De Sammensluttede Vognmænd af 13.7.1976 A/S - Kemp & Lauritzen A/S - Nordlux A/S - Privathospitalet Hamlet A/S - Superfos A/S - Superfos Industries A/S Member of the Board of Representatives of - Tryg i Danmark smba Member of the - WWF in Denmark - liquidation committee DAC Smba Member of Board of Representatives of - Tryg i Danmark smba - the Danish Rheumatism Association Jørn Wendel Andersen, born 1951 Chairman of the Supervisory Board of - Arla Foods AB Mogens Jacobsen, Deputy Chairman, born 1944 - Arla Foods Finance A/S Chairman of the Board of Directors of - Rodskovgård Aps Deputy Chairman of the Supervisory Board of - Tryg i Danmark smba - Tryg Forsikring A/S Board member of Board member of - Tryg i Danmark smba - Tryg Forsikring A/S Board member and manager of - AF A/S Board member and CEO of - Nordea Pension Danmark, livsforsikringsselskab A/S - Arla Foods Holding A/S Manager of CEO of - Rodskov Svineproduktion Aps - Arla Foods International A/S Member of the Board of Representatives of - Arla Foods amba - Tryg i Danmark smba Member of the Board of Representatives of - Tryg i Danmark smba 116 John R. Frederiksen, born 1948 Chairman of the Board of Directors of - A/S Kollektivhuset Hellebo - Ejendomsselskabet Storken A/S - Ejendomsselskabet Uglen A/S - Jacob Holm & Sønner A/S - Jacob Holm Industriinvest A/S - RenHold A/S - SBS Rådgivning A/S - SBS Byfornyelse Smba - Sjælsø Enterprise A/S - Sjælsø Gruppen A/S Board member of - Tryg i Danmark smba - Tryg Forsikring A/S - Danarota Technic A/S - Dønnerup A/S - Fortunen A/S Jørn Hesselholt, born 1944 Board member of - Tryg i Danmark smba - Tryg Forsikring A/S CEO of - Hesselholt Fisk Eksport A/S Member of the Board of Representatives of - Tryg i Danmark smba Håkon J. Huseklepp, employee representative, born 1955 Board member of - Tryg Forsikring A/S - Vesta Forsikring AS - The Finance Sector Union of Vesta - The Finance Sector Union of Norway Chairman of the Board of Representatives of - Sogn og Fjordane Bustadbyggelag - Freja Ejendomme A/S (Statens Ejendomssalg A/S) Jens Lyngbo, born 1943 - Højgård Ejendomme A/S - Holdingselskabet Allindemaglegård A/S - Holdingselskabet Dønnerup Agri A/S - Oak Property Invest A/S - Renholdningsselskabet af 1898 Board member of - Tryg i Danmark smba - Tryg Forsikring A/S - Nordea Pension Danmark, livsforsikringsselskab A/S - NMI Marketing International Aps - Råstof og Genanvendelse Selskabet af 1990 A/S - K/S Dania Trans, Norway - RENOFLEX-GRUPPEN A/S - C.W. Obel Ejendomme A/S - C.W. Obel Projekt A/S Managing director of - D.D.P. Fællesindkøbs-Forening Manager - Ejendomsaktieselskabet Helleholm - NMI Marketing International Aps - Insight Foundation Property Trust Limited, (Guernsey) Member of the Board of Representatives of - Insight Foundation Property Limited, (Guernsey) - Tryg i Danmark smba CEO of - Fortunen A/S - Oak Property Invest A/S Member of the Board of Representatives of - Tryg i Danmark smba Chairman of - Ejendomsforeningen Danmark 117 Facts about TrygVesta Supervisory Board and the Executive Management Peter Wagner Mollerup, employee representative, born 1966 Chairman of the - Association of Danish Certiﬁcated Insurers Board member of - Tryg Forsikring A/S Member of the - Executive Committee of the Danish Financial Services Union Board member of - W&P Aps Manager of - W&P Aps Birthe Petersen, employee representative, born 1949 Board member of - Tryg Forsikring A/S Member of the - Executive Committee of the Organisation of Danish Insurance Employees Niels Erik Schultz-Petersen, born 1941 Board member of - Tryg i Danmark smba - Tryg Forsikring A/S Member of the Board of Representatives of - Tryg i Danmark smba 118 Members of the Executive Management The Group Executive Management of TrygVesta comprises Erik Gjellestad, Member of the Group Ms Stine Bosse, CEO of Tryg and Group CEO of the Tryg Vesta Executive Management, born 1953 Group, Mr Morten Hübbe, Group CFO, Mr Erik Gjellestad, CEO of CEO of Vesta, Mr Stig Ellkier-Pedersen and Mr Peter Falkenham. - Vesta Forsikring AS Member of the Executive Management of Changes in the Group Executive Management - TrygVesta A/S TrygVesta’s Group Executive Management was reduced from - Tryg Forsikring A/S six members to ﬁve in January 2005. In that connection, Board member of Mr Bjørn Thømt retired from his position with the Group. The - Høyteknologisenteret AS position as Deputy CEO of Vesta was eliminated, and Mr - Teknoholmen AS Thømt therefore also left his position with Vesta. - Fjord Line AS Stine Bosse, Group CEO, born 1960 CEO of - Tryg i Danmark smba - TrygVesta A/S - Tryg Forsikring A/S -Finansnæringens Hovedorganisasjon Member of the Board of - Representatives of Nordea Liv AS Stig Ellkier-Pedersen, Member of the Group Executive Management, born 1947 Chairman of the Supervisory Board of Member of the Executive Management of - Vesta Forsikring AS - ApS KBIL 9 NR. 2032 - Tryg Ejendomme A/S - TrygVesta IT A/S Board member of - Flügger A/S - TDC A/S - Forsikring og Pension Member of the - Danish Welfare Commission - Tryg Forsikring A/S Board member of - Forsikringshøjskolen Rungstedgård A/S - Danish Employers’ Association for the Financial Sector Peter Falkenham, Member of the Group Executive Management, born 1958 Member of the Executive Management of - Tryg Forsikring A/S Chairman of the Board of Directors of - Dansk Kautionsforsikrings-Aktieselskab Morten Hübbe, Group CFO, born 1972 - SafeExIT A/S Member of the Executive Management of Chairman of the Supervisory Board of - Tryg i Danmark smba - TrygVesta A/S - Tryg Forsikring A/S Deputy Chairman of the Supervisory Board of - TrygVesta IT A/S - Tryg Polska Towarzystwo Ubezpieczen SA - Nordicum Kindlustuse Eesti AS Board member of - Tryg Ejendomme A/S - ApS KBIL 9 NR. 2032 - Tryg Polska Towarzystwo Ubezpieczen SA - Nordisk Flyforsikring A/S Board member of - Dansk Kautionsforsikrings-Aktieselskab A/S - Vesta Forsikring AS - Solar Holding A/S - Tryg Ejendomme A/S - Vesta Forsikring AS - Nordicum Kindlustuse Eesti AS - Aktieselskabet Nordisk Solar Compagni A/S - Glunz & Jensen A/S 119 Glossary of technical terms The ﬁnancial highlights and key ratios of TrygVesta have been Provisions ratio prepared in accordance with the Danish Financial Supervisory is the ratio of provisions for claims, net of reinsurance, to Authority’s executive order on the presentation of ﬁnancial earned premiums, net of reinsurance. statements by general insurance companies. The section ‘Accounting policies’ describes the income statement and Return on equity in per cent balance sheet items in more detail. is the ratio of the proﬁt for the year to the average share- Gross earned premiums include gross premiums adjusted for reserves (earned premi- ums) reduced by bonus and premium rebates. holders’ equity in the year. Proﬁt for the year x 100 Average shareholders’ equity Gross key ratios Net of reinsurance refer to the fact that the key ratios in TrygVesta’s annual report means that the amount is stated net of reinsurers’ share. are calculated in accordance with the rules stipulated by the Claims ratio, net of reinsurance the combined ratio, net of reinsurance, is stated as the sum expresses the ratio of claims incurred, net of reinsurance, to of the claims ratio, net of reinsurance, and the expense ratio, earned premiums, net of reinsurance. net of reinsurance, but that the key ratios may also be stated Danish Financial Supervisory Authority, according to which Claims incurred, net of reinsurance x 100 Earned premiums, net of reinsurance on a gross basis. According to the gross method, the com- bined ratio is calculated as the sum of the gross claims ratio, the gross expense ratio and the result of business ceded as a percentage of gross premiums. This method makes the actual Expense ratio, net of reinsurance cost of reinsurance more transparent. expresses the ratio of insurance operating expenses, net of reinsurance, to earned premiums, net of reinsurance. Danish general insurance Insurance operating expenses, net of reinsurance x 100 Earned premiums, net of reinsurance comprises the legal entities Tryg Forsikring A/S (excluding the Finnish branch) and Dansk Kaution. Combined ratio, net of reinsurance comprises Vesta Forsikring AS including its subsidiaries. Norwegian general insurance is the sum of the claims ratio, net of reinsurance, and the expense ratio, net of reinsurance. The English text in this document is a translation of the Danish original. In the event of any inconsistencies the Danish version shall apply. 120

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