Tryg
Annual Report 2006

Plain-text annual report

ANNUAL REPORT 2006 Content ManageMent’s report Insight into peace of mind TrygVesta – 2006 in review Financial highlights and key ratios of TrygVesta TrygVesta’s financial performance in 2006 Strategy and focus areas for 2007 Financial forecast for 2007 TrygVesta and the external community our customers our processes our employess our business areas Private & Commercial Denmark Private & Commercial Norway Corporate Finnish general insurance Swedish general insurance Investment activities our investors TrygVesta shares Financial calendar Stock exchange announcements in 2006 Corporate governance Capitalisation 2006 risk management aCCounts 2006 Statement by the Supervisory Board and the Executive Management Internal audits’ report Independent auditors’ report Accounting policies Income statement and balance sheet for TrygVesta Income statement and balance sheet for TrygVesta (Parent company) Group overview Financial highlights and key ratios by geography Organisation chart Members of the Supervisory Board Members of the Group Executive Management 5 6 12 14 20 22 28 30 36 38 44 46 48 50 52 54 55 60 60 61 62 63 68 72 81 82 83 85 101 133 142 143 144 145 148 ManageMent’s report Mission our Mission is to secure a stable, high-quality supply of products and services offering peace of Mind to private households and businesses vision We Want to be perceived as the leading peace of Mind provider of the nordic region TrygVesta comprises Tryg, Denmark’s largest general insurer, and Vesta, Norway’s third largest general insurer. The Group has carried out insurance operations in Finland since 2002 and in Swe- den since 2006 and is the second-largest general insurance group in the Nordic region. TrygVesta has some 3,800 employees. Our insurance products provide peace of mind every day to more than 2 million private customers and more than 100,000 businesses in the Nordic region. The great majority of our products are distributed through our own strong distribution channels. We also have a strong strategic partnership with Nordea, one of the largest financial services providers in the Nordic region. Nordea sells our insurances through their branches throughout the Nordic region, and we sell Nordea’s life insurance and pension products. Mission Vision / TrygVesta Annual Report 2006 / Page 3 of 147 insight into peace of Mind We want to be perceived as the leading peace of mind provider of the Nordic region. Our vision and strategy have a strong commercial focus, and in 2006, we came a step closer to fulfilling our ambition. We launched a large number of initiatives, all of them based on our vision. In combination, these initiatives will help us continue the development of our business and our strong performance – for the benefit of our customers, shareholders and employees. The first building stone in our history was laid in 1731 with the formation of Kjøbenhavns Brand- forsikring, Denmark’s first insurance company. The year 2006 thus marked our 275th anniversary. Looking back, it is clear that our journey has been characterised by our ability for constant innova- tion and thinking around the customer. Reporting pre-tax profit of DKK 3.9bn including discontinued business and DKK 3.7bn excluding discontinued business, we outperformed the DKK 2.2bn we expected at the beginning of 2006 by a fair margin. The favourable performance was generated by improvemens in our insurance opera- tions and our investment result. Premiums fell short of our expectations a year ago, but this was due to an adjustment of our prices in Norway and Denmark, introduced to focus on our existing customers and, naturally, also with a view to sales to new customers. The price adjustments we introduced were based on changed risk and market conditions. Considering our satisfactory performance in 2006, our Supervisory Board recommends that the shareholders at the annual general meeting to be held on 28 March 2007 approve a dividend of DKK 33 per share, equivalent to DKK 2.2bn and a payout ratio of 70% of our profit for the year after tax. We know our that future depends on our ability to innovate and develop in markets that are chang- ing at an ever increasing pace and in which new demands arise rapidly. We therefore launched a number of initiatives in 2006 intended for future growth. For example, we began selling private insurance policies in Sweden and took the initial steps to selling insurance to commercial custom- ers in Finland. We also strengthened our Health Care & Pension business area and added customer benefits to our peace of mind offering, including extended travel cover and an extended warranty insurance, and introduced mileage as a major price parameter for our motor policies. This annual report deals with relevant aspects of 2006. It marks a point in time. It defines us now, but we move forward. In order to achieve our vision of being perceived as the leading peace of mind provider in the Nordic region, we need to have insight into and empathy with people’s feelings and concerns. We have invited seven different persons to share their views of the real world with us. We use their interpretations of peace of mind and concerns, for today, tomorrow and the years ahead, to supplement our financial data for 2006. We hope you will enjoy reading our annual report. Mikael Olufsen Chairman of the Supervisisory Board Stine Bosse Group CEO Insight into peace of mind / TrygVesta Annual Report 2006 / Page 5 of 147 Management’s report trygvesta – 2006 in revieW March TrygVesta became the first insurer in the Nordic region to introduce an extended travel policy covering evacuation and repatriation expenses, even in cases where there is no recommendation from the authorities. The extended coverage was initially introduced in Denmark, and later in the year also in Norway, Finland and Sweden. TrygVesta held its first annual general meeting as a listed company. Four new members were elected to the Supervisory Board. May The Group’s first-quarter pre-tax profit was an improvement of DKK 177m over the first quarter of 2005. June TrygVesta launched a new pan-Nordic brand platform in Denmark and Norway, based on peace of mind and concerns. TrygVesta started selling private insurance policies in Sweden, the largest insurance market in the Nordic region. Sales performed positively with some 26,500 policies sold in 2006. august In line with the Group’s strategic focus on the Nordic region TrygVesta divested Chevanstell Limited, the UK business in run-off. TrygVesta’s first-half pre-tax profit was an improvement of DKK 124m over the first six months of 2005. septeMber TrygVesta adjusted motor insurance premiums in Denmark to create a better match to individual customers’ requirements and risk profiles. TrygVesta – 2006 in review / TrygVesta Annual Report 2006 / Page 6 of 147 october Kjerstin Fyllingen was appointed as a new member of the Group Executive Management in charge of Private & Commercial Norway. Dansk Kaution extended its business area to the entire Nordic region. Outside Denmark, Dansk Kaution operates under the TrygVesta Garanti brand. noveMber TrygVesta launched an extended warranty insurance for Danish concept customers, covering defects in and sudden and unforeseen damage to electrical appliances and house contents. TrygVesta’s third-quarter pre-tax profit was an improvement of DKK 226m over the third quarter of 2005. TrygVesta made a number of changes to the Group Executive Management. Lars Bonde was appointed as a new member in charge of Corporate, Stig Ellkier-Pedersen became responsible for New Markets, and Peter Falkenham took over responsibility for Private & Commercial Denmark. deceMber TrygVesta got permission from the Norwegian finance ministry to convert Vesta Forsikring AS in Norway into a branch of Tryg Forsikring A/S. TrygVesta’s employees donated DKK 2m to Doctors Without Borders and SOS Children’s Villages. TrygVesta – 2006 in review / TrygVesta Annual Report 2006 / Page 7 of 147 peace of Mind – seven points of vieW It is not at all unlikely that the deepest anxiety of a 15-year-old school pupil poses no worry whatsoever to a retired mayor of 71. And vice versa. A painter, whose day-to-day work takes place in an abstract world without set limits and rules may regard insecurity as a source of in- spiration, while the majority of us regard insecurity as something uncomfortable – something that has a hampering effect on our lives. Why is this significant? Worries are as individual as people – and the same goes for the need for security and peace of mind. In order to achieve our vision of becoming the leading peace of mind provider of the Nordic region, we need to be a step ahead of everybody else when it comes to understanding people’s needs for secu- rity and peace of mind. We need a firm hold on reality and an insight into what people think and feel. What makes them feel safe? And unsafe? What are their worries at the moment and what about the future? – is there anything they fear or are looking forward to? We have asked seven very different people of different ages and with different backgrounds and occupations to give us an insight into their thoughts on security and peace of mind, inse- curity, innovation and the future. Their views are dotted around these annual report. I AM LOOKING FORWARD TO THE FUTURE I do understand that people who do not know Second Life think that a virtual world sounds quite frightening. When it comes down to it, there is probably nothing that can make people feel as insecure and unsafe as new technology. For me, security is about having control over my life. If, for instance, I am sitting in the back seat of a car and I don’t know the driver or trust him 100%, then I have lost control and I feel unsafe. If I could insure myself against anything in the future, I would quite clearly opt for insuring myself against losing control. Talking about the future, I do not worry whether I can keep up with the changing times. I do not worry about bird flu, volcanic eruption and things like that either – the only thing that concerns me at the moment is that it will be really, really boring doing my A Levels. It’s difficult to say what the world will look like when I’m older. Maybe we will all automatically start taking more care of what we’ve got instead of seeking new pastures – and maybe I’ll end up in a dead-end job as the boss of a sausage factory and refuse to sell my house … naturally I hope not. I hope that I will remain flexible and open to the changes that life will throw at me. I hope that I will remember to stop and take stock once in a while, asking myself questions such as: Do I really want to live my life like this? Is this really the town I want to live in? Is it okay to do a job that’s just okay? We should all do this from time to time. JOHAN BICHEL LINDEGAARD IS 15. BESIDES GOING TO SCHOOL, JOHAN MAKES MONEY FROM, AMONG OTHER THINGS, DESIGNING AND SELLING VIRTUAL OFFICE FURNITURE IN THE THREE-DIMENSIONAL ONLINE SOCIETY “SECOND LIFE”. Management’s report financial highlights and key ratios of trygvesta dkkm income statement Gross premiums earned Gross claims incurred Gross expenses Profit/loss on gross business ifrs danish gaap pro forma 2006 2005 2004 2004 2003 2002 16,021 15,705 15,266 16,308 16,702 15,792 -10,796 -11,304 -10,572 -11,020 -11,940 -12,334 -2,697 -2,662 -2,611 -3,462 -3,745 -3,732 2,528 1,739 2,083 1,826 1,017 -274 Profit/loss on ceded business -578 -9 -718 -814 -1,135 -871 Technical interest, net of reinsurance Change in equalisation provisions technical result Profit/loss on investments after transfer to insurance activities Other income Other expenses profit/loss for the year before tax Extraordinary items and minority interests Tax profit/loss for the year, continuing business Profit/loss on discontinued and divested business after tax profit/loss for the year 583 0 323 0 335 0 537 -93 2,533 2,053 1,700 1,456 1,207 118 -149 888 126 -154 378 121 -147 517 121 -147 595 -101 376 685 115 -131 3,709 2,913 2,052 1,947 1,045 832 -245 -558 -170 127 -173 -774 0 0 0 0 1 -1,256 -624 -788 -556 -485 3,085 2,125 1,496 1,462 126 -28 -75 -55 3,211 2,097 1,421 1,407 -87 959 -217 742 213 -1,817 -274 -2,091 Profit/loss on continuing business before tax 3,709 2,913 2,052 1,947 1,046 -2,030 Profit/loss on discontinued and divested business before tax 160 -27 -81 -65 -256 -304 profit/loss for the year incl. discontinued and divested business before tax Run-off gains/losses, net of reinsurance Relative run-off gains/losses balance sheet Total provisions for insurance contracts Total reinsurers’ share of provisions for insurance contracts Total shareholders’ equity Total assets key ratios 1) Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio Claims ratio net Expense ratio net Combined ratio net Operating ratio 3,869 2,886 1,971 1,882 790 -2,334 372 2.0 181 0.9 -161 -1.0 3 -516 -458 25,957 26,757 25,212 26,599 25,955 26,238 1,561 9,951 2,630 8,215 3,292 6,802 3,132 6,117 3,480 5,360 4,632 4,268 42,783 40,811 37,824 33,553 31,337 29,833 67.4 3.6 71.0 16.8 87.8 69,9 17,2 87,1 72.0 0.1 72.1 16.9 89.0 70,7 17,6 88,3 69.3 4.7 74.0 17.1 91.1 72,4 17,6 90,0 67.6 5.0 72.6 21.2 93.8 70,9 22,2 93,1 71.5 6.8 78.3 22.4 78.1 5.5 83.6 23.6 100.7 107.2 76,6 24,3 83,4 25,8 100,9 109,2 84.7 87.2 89.1 90.8 97.2 101.9 Financial highlights and key ratios of TrygVesta / TrygVesta Annual Report 2006 / Page 12 of 147 dkkm other information Return on equity before tax and discontinued and divested business Return on equity after tax and discontinued and divested business Earnings per share (continuing business) Net assets value per share Dividend per share Share price Quoted price/net asset value Price Earnings Average number of shares (1,000) Number of shares, year end (1,000) Solvency ifrs danish gaap pro forma 2006 2005 2004 2004 2003 2002 41 35 45.5 147 33 39 28 31.3 121 21 431.5 319.2 2.9 9.5 2.6 10.2 33 23 22.0 100 10 - - - 34 25 21.5 90 10 - - - 22 15 14.1 79 1 - - - -46 -47 -26.7 63 0 - - - 67,824 68,000 68,000 68,000 68,000 68,000 67,790 68,000 68,000 68,000 68,000 68,000 69 72 78 79 86 61 number of full-time employess, end of period Continuing business Discontinued and divested business 3,808 3,694 3,728 3,728 3,750 0 24 34 34 670 3,739 672 1) Calculated in accordance with “Recommendations & Financial Ratios 2005” issued by the Danish Society of Financial Analysts except for per share data, which is based on 68,000,000 shares as though such number of shares was outstanding during the periods presented. The 68,000,000 shares reflect the number of outstanding shares after giving effect to the four-to-one share split set forth in the company’s amended articles of association approved by the company’s shareholders on 21 September 2005. accounting policies From 1 January 2005, the accounting policies of TrygVesta follow the IFRS standards. The comparative figures for 2004 have been restated to IFRS, but in addition to IFRS restatements, the figures for 2004 are net of divested business, which is henceforth included in ‘’Profit/loss on discontinued and divested business’’. Income statement data for 2002 are pro forma figures as if Nordea AB´s activities were owned at 1 January 2002. See “Accounting policies”. Financial highlights and key ratios of TrygVesta / TrygVesta Annual Report 2006 / Page 13 of 147 Management’s report coMbined ratio 2005 and 2006 and forecast during 2006 94 92 90 88 86 84 2005 Q1 2006 Q2 2006 Q3 2006 2006 Negative Forecast Positive Actual technical result DKKm technical result by business areas DKKm (cid:21)(cid:38)(cid:33)(cid:38)(cid:40)(cid:45) (cid:38)(cid:33)(cid:37)(cid:39)(cid:40) (cid:46)(cid:42)(cid:43)(cid:21) (cid:44)(cid:39)(cid:39) (cid:38)(cid:33)(cid:42)(cid:37)(cid:37) (cid:38)(cid:33)(cid:39)(cid:37)(cid:37) (cid:46)(cid:37)(cid:37) (cid:43)(cid:37)(cid:37) (cid:40)(cid:37)(cid:37) (cid:37) (cid:38)(cid:33)(cid:37)(cid:37)(cid:37) (cid:21)(cid:46)(cid:45)(cid:46) (cid:38)(cid:33)(cid:40)(cid:43)(cid:43)(cid:21) (cid:21)(cid:38)(cid:33)(cid:39)(cid:41)(cid:39) (cid:44)(cid:42)(cid:43)(cid:21) (cid:42)(cid:39)(cid:41)(cid:21) (cid:44)(cid:42)(cid:37) (cid:42)(cid:37)(cid:37) (cid:39)(cid:42)(cid:37) (cid:37) (cid:45)(cid:40)(cid:38)(cid:21) (cid:21)(cid:45)(cid:44)(cid:41) (cid:21)(cid:44)(cid:44)(cid:38) (cid:21)(cid:45)(cid:42)(cid:40) (cid:21)(cid:41)(cid:43)(cid:41)(cid:21) (cid:40)(cid:46)(cid:37)(cid:21) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:69)(cid:27)(cid:56)(cid:21)(cid:57)(cid:64) (cid:69)(cid:27)(cid:56)(cid:21)(cid:67)(cid:68) (cid:56)(cid:100)(cid:103)(cid:101)(cid:100)(cid:103)(cid:86)(cid:105)(cid:90) (cid:57)(cid:64) (cid:67)(cid:68) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) gross earned preMiuMs 2006 gross earned preMiuMs by business areas 2006 (cid:21)(cid:38)(cid:46)(cid:26)(cid:21) (cid:59)(cid:94)(cid:103)(cid:90)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21)(cid:88)(cid:100)(cid:99)(cid:105)(cid:90)(cid:99)(cid:105)(cid:104)(cid:21) (cid:21) (cid:21) (cid:29)(cid:69)(cid:103)(cid:94)(cid:107)(cid:86)(cid:105)(cid:90)(cid:30)(cid:21) (cid:21)(cid:38)(cid:42)(cid:26)(cid:21) (cid:59)(cid:94)(cid:103)(cid:90)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21)(cid:88)(cid:100)(cid:99)(cid:105)(cid:90)(cid:99)(cid:105)(cid:104)(cid:21) (cid:21) (cid:29)(cid:56)(cid:100)(cid:98)(cid:98)(cid:90)(cid:103)(cid:88)(cid:94)(cid:86)(cid:97)(cid:30) (cid:21) (cid:21)(cid:38)(cid:41)(cid:26)(cid:21) (cid:69)(cid:90)(cid:103)(cid:104)(cid:100)(cid:99)(cid:86)(cid:97)(cid:21)(cid:86)(cid:88)(cid:88)(cid:94)(cid:89)(cid:90)(cid:99)(cid:105)(cid:21) (cid:21) (cid:21) (cid:86)(cid:99)(cid:89)(cid:21)(cid:93)(cid:90)(cid:86)(cid:97)(cid:105)(cid:93) (cid:21) (cid:44)(cid:26)(cid:21) (cid:76)(cid:100)(cid:103)(cid:96)(cid:90)(cid:103)(cid:104)(cid:188)(cid:21) (cid:21) (cid:21) (cid:88)(cid:100)(cid:98)(cid:101)(cid:90)(cid:99)(cid:104)(cid:86)(cid:105)(cid:94)(cid:100)(cid:99) (cid:21)(cid:38)(cid:38)(cid:26)(cid:21) (cid:68)(cid:105)(cid:93)(cid:90)(cid:103) (cid:21)(cid:40)(cid:41)(cid:26)(cid:21) (cid:66)(cid:100)(cid:105)(cid:100)(cid:103)(cid:21)(cid:105)(cid:93)(cid:94)(cid:103)(cid:89)(cid:34)(cid:101)(cid:86)(cid:103)(cid:105)(cid:110)(cid:21) (cid:21) (cid:97)(cid:94)(cid:86)(cid:87)(cid:94)(cid:97)(cid:94)(cid:105)(cid:110)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21) (cid:21) (cid:21) (cid:88)(cid:100)(cid:98)(cid:101)(cid:103)(cid:90)(cid:93)(cid:90)(cid:99)(cid:104)(cid:94)(cid:107)(cid:90) (cid:21) (cid:21)(cid:40)(cid:38)(cid:26)(cid:21) (cid:56)(cid:100)(cid:103)(cid:101)(cid:100)(cid:103)(cid:86)(cid:105)(cid:90) (cid:21) (cid:38)(cid:26)(cid:21) (cid:59)(cid:94)(cid:99)(cid:97)(cid:86)(cid:99)(cid:89) (cid:21) (cid:21)(cid:21)(cid:21) (cid:86)(cid:99)(cid:89)(cid:21)(cid:72)(cid:108)(cid:90)(cid:89)(cid:90)(cid:99) (cid:21)(cid:41)(cid:37)(cid:26)(cid:21) (cid:69)(cid:103)(cid:94)(cid:107)(cid:86)(cid:105)(cid:90)(cid:21)(cid:27) (cid:21) (cid:21) (cid:21) (cid:56)(cid:100)(cid:98)(cid:98)(cid:90)(cid:103)(cid:88)(cid:94)(cid:86)(cid:97) (cid:21) (cid:57)(cid:90)(cid:99)(cid:98)(cid:86)(cid:103)(cid:96) (cid:21)(cid:39)(cid:45)(cid:26)(cid:21) (cid:69)(cid:103)(cid:94)(cid:107)(cid:86)(cid:105)(cid:90)(cid:21)(cid:27) (cid:21) (cid:21) (cid:21) Commercial (cid:21) (cid:67)(cid:100)(cid:103)(cid:108)(cid:86)(cid:110) TrygVesta’s financial performance in 2006 / TrygVesta Annual Report 2006 / Page 14 of 147 trygvesta’s financial perforMance in 2006 Reporting pre-tax profit of DKK 3.9bn including discon- primary target group. Competition for motor policies tinued business and DKK 3.7bn excluding discontinued intensified in Denmark, and TrygVesta’s successful business and a return on equity of 35% after tax, introduction of the adjusted motor premium induced TrygVesta achieved its best full-year performance ever several competitors to offer similar terms. in 2006. The financial results improved by DKK 796m, a significant increase over 2005. The increase was The underlying development in the number of poli- primarily driven by improvements of DKK 480m of the cies and customers was positive in 2006. The growth technical result and DKK 319m of the return on invest- in gross earned premiums was adversely affected by ment activities. Compared with the guidance provided a number of bonus payments triggered by the good in the preliminary forecast of 9 January 2007, the technical performance because bonus is set off against performance was marginally above the expected range premiums. Total gross earned premiums thus increased of DKK 3.7-3.8bn. by 2.0% over 2005 to stand at DKK 16,021m for 2006. Adjusted for premium rebates, premiums grew at a rate sound balance in earned premiums of 2.3%. TrygVesta focuses on achieving a good balance in earned premiums, by geography as well as by business combined ratio of 87.8 areas, where the Group’s largest business area, Private Earnings from Danish and Norwegian general insur- & Commercial Denmark, accounts for 40% of the ance were well balanced in 2006, and the Group’s three business. Furthermore, the product portfolio is highly principal business areas, Private & Commercial Den- diversified with motor and fire/contents insurance as mark, Private & Commercial Norway, and Corporate, all the largest segments. This balance is a strong platform contributed a combined ratio below 88. for a further strengthening of TrygVesta’s market posi- tion and achievement of the Group’s targets. The combined ratio was 87.8 in 2006 against 89.0 in 2005. At the beginning of 2006, the combined ratio pro-active adjustment to the market was estimated in the range of 89-93 with an expecta- The overall performance of the Group’s gross earned tion of 91. The expectations were adjusted several premiums matched TrygVesta’s market strategies times during the year, and the actual combined ratio at but fell short of expectations at the beginning of the end of the year was lower than originally expected. 2006. Earned premiums were composed of growth in The run-off result had a favourable impact of 2.3 per- Corporate and Finland of 5.5% and 41.4%, respectively, centage points on the combined ratio and was the main and growth in Private & Commercial Denmark of 1.8% reason for the deviation from our expectations. (3% before premium discounts), while earned premiums in Private & Commercial Norway fell by 2.7% in DKK. significant improvement of claims level Earned premiums in Private & Commercial Denmark The gross claims ratio developed favourably in 2006 and Private & Commercial Norway were lower than and ended the year at 67.4 compared with 72.0 in 2005. expected. Looking ahead, these measures are expected to have a positive impact on customer inflow and cus- tomer retention. In the Norwegian market, we primarily adjusted premiums for customers with more than one product and good profitability. This is the Group’s TrygVesta’s financial performance in 2006 / TrygVesta Annual Report 2006 / Page 15 of 147 Management’s report dkkm 2006 2005 2004 normal year* Storm and weather, gross Storm and weather, net Large losses, gross Run-off result, gross -202 -202 -501 423 -911 -177 -416 263 -111 -111 -461 -17 -227 -180 -412 0 * See Financial forecast for 2007 for assumptions with respect to a normal year. At the same time, large losses in 2006 were substan- development, TrygVesta aims to increase the number of tially above the level of 2005 and the level of a normal cooperation agreements with craftsmen in Denmark as year. Most of the large losses in 2006 were incurred at well as in Norway. Danish corporate customers’ operations abroad. The largest loss amounted to a gross expense of DKK 190m. For several years, the average motor claim in Denmark has been favourably affected by our cooperation with Run-off gains in 2006 had a positive impact of gross a number of repair garages. The positive trend with 2.6 percentage points on the claims ratio. The positive fewer personal injuries has a favourable impact on the run-of performance was mainly driven by provisions for run-off result, and we monitor this trend closely. motor third-party liability. A sustained positive trend will have a favourable effect on the run-off results, all expense ratio of 16.8 other things being equal. However, motor third-party TrygVesta’s gross expense ratio of 16.8 in 2006 was an liability is subject to much uncertainty and therefore improvement of 0.1 percentage point relative to 2005. followed closely. Investments made in 2006 in new markets, that is, the start-up in Sweden and the start-up of commercial Over a longer perspective, the claims frequency has sales in Finland had a negative impact of 0.6 percent- developed favourably in motor and building. Although age points on the expense ratio. the claims frequencies for motor in Denmark and building in Norway increased in 2006, they remained Nominal costs were 1.3% higher than in 2005. In addi- low. The positive effect of the introduction of driver tion to the investments referred to above, nominal penalty points for certain traffic offences referred to costs include cumulative wage indexation of 4.4%, by the media was not reflected in our claims statistics, equivalent to DKK 81m. This emphasises the significant but the statistics did record fewer personal injuries and efficiency improvements in the Group. more minor claims under motor comprehensive poli- cies in 2006. Other factors that affect developments investment return include improved safety equipment in cars, an increas- The return on investment activities before other finan- ing number of cars per household and lower average cial income and expenses and transfer to insurance speeds due to more cars on the roads. activities totalled DKK 2,071m, which was 23% higher The average building claim was higher in both Denmark investment assets, which was satisfactory and in line and Norway in 2006, most notably in Norway, due to with expectations. TrygVesta’s investment perform- stronger demand for craftsmen. In response to this ance in 2006 was, in particular, lifted by a very positive than in 2005. The performance equals a 5.8% return on TrygVesta’s financial performance in 2006 / TrygVesta Annual Report 2006 / Page 16 of 147 accuMulated return ratio 2006 % balance sheet DKKm (cid:39)(cid:42) (cid:39)(cid:37) (cid:38)(cid:42) (cid:38)(cid:37) (cid:42) (cid:37) (cid:42)(cid:37)(cid:33)(cid:37)(cid:37)(cid:37) (cid:41)(cid:37)(cid:33)(cid:37)(cid:37)(cid:37) (cid:41)(cid:37)(cid:33)(cid:45)(cid:38)(cid:38)(cid:21) (cid:21)(cid:41)(cid:39)(cid:33)(cid:44)(cid:45)(cid:40) (cid:40)(cid:37)(cid:33)(cid:37)(cid:37)(cid:37) (cid:39)(cid:37)(cid:33)(cid:37)(cid:37)(cid:37) (cid:38)(cid:37)(cid:33)(cid:37)(cid:37)(cid:37) (cid:63)(cid:86)(cid:99) (cid:59)(cid:90)(cid:87) (cid:66)(cid:86)(cid:103) (cid:54)(cid:101)(cid:103) (cid:66)(cid:86)(cid:110) (cid:63)(cid:106)(cid:99) (cid:63)(cid:106)(cid:97) (cid:54)(cid:106)(cid:92) (cid:72)(cid:90)(cid:101) (cid:68)(cid:88)(cid:105) (cid:67)(cid:100)(cid:107) (cid:57)(cid:90)(cid:88) (cid:54)(cid:104)(cid:104)(cid:90)(cid:105)(cid:104) (cid:37) (cid:38)(cid:33)(cid:44)(cid:37)(cid:40)(cid:21) (cid:55)(cid:100)(cid:99)(cid:89)(cid:104) (cid:69)(cid:103)(cid:100)(cid:101)(cid:90)(cid:103)(cid:105)(cid:110) (cid:72)(cid:93)(cid:86)(cid:103)(cid:90)(cid:104) (cid:73)(cid:100)(cid:105)(cid:86)(cid:97) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:56)(cid:93)(cid:90)(cid:107)(cid:86)(cid:99)(cid:104)(cid:105)(cid:90)(cid:97)(cid:97) (cid:39)(cid:42)(cid:33)(cid:44)(cid:42)(cid:44)(cid:21) (cid:21)(cid:39)(cid:42)(cid:33)(cid:46)(cid:42)(cid:44) (cid:38)(cid:33)(cid:38)(cid:43)(cid:42)(cid:21) (cid:69)(cid:103)(cid:100)(cid:107)(cid:94)(cid:104)(cid:94)(cid:100)(cid:99)(cid:104) equity return of 20.3%. Both Danish and Norwegian the consolidated provisions in 2006. At 31 December equities outperformed the benchmark with returns of 2005, Chevanstell Limited had technical provisions of 25.7% and 34.9%, respectively. DKK 1.4bn. Following the sale of Chevanstell Limited, reinsurers’ shares of technical provisions fell from DKK lower effective tax rate 2.6bn in 2005 to DKK 1.6bn in 2006. Tax on the profit for the year amounted to DKK 624m against DKK 788m in 2005. The effective tax rate was TrygVesta generated a cash inflow from operating reduced from 27 in 2005 to 17 in 2006 due to the activities of DKK 3.2bn in 2006 compared with DKK year’s tax-free capital gains and a one-off adjustment 4.2bn in 2005. The lower cash inflow from operating of deferred tax to cover the risk that gains on shares activities was mainly attributable to larger tax pay- and real estate become taxable in the event of unprof- ments. Investments amounted to DKK 1,9bn in 2006, itable insurance operations. This provision for deferred and there was a cash outflow from financing activities tax is not required any longer because the positive of DKK 1,5bn mainly relating to dividends. technical results reported by Tryg Forsikring A/S have resulted in the establishment of tax balances. shareholders’ equity Shareholders’ equity stood at DKK 9,951m at 31 discontinued business December 2006. Shareholders’ equity increased by DKK TrygVesta reported a profit on discontinued business 1,736m, made up of the profit for the year less divi- of DKK 126m relating mainly to the winding up of Chev- dends paid with respect to the 2005 financial year, and anstell Limited, which reported a profit of DKK 157m including adjustments mainly for actuarial gains and comprising a gain on the sale of the shares in Chevan- losses on the pension provision under IAS 19 and other stell Limited, a gain from settlement of a reinsurance minor adjustments. These figures exclude the proposed contract with Chevanstell Limited and tax deductions. DKK 2,244m distribution of dividends for 2006. TrygVesta has previously announced that the Group expected a profit of DKK 80m from the sale. The higher events after the balance sheet date profit originated from higher communtation gains in No other material events have occurred in the period connection with Tryg Forsikring’s settlement of the from the balance sheet date until today which in the reinsurance treaty with Chevanstell Limited. opinion of management affect the assessment of the company’s financial position. balance sheet and cash flow Total assets increased from DKK 40,811m in 2005 to DKK 42,783m in 2006. Liabilities comprised mainly shareholders’ equity of DKK 9,951m and technical provisions of DKK 25,957m. The technical provisions were DKK 800m lower than in 2005, and the claims provision ratio was 124 in 2006 against 126 in 2005. The technical provisions and claims provision ratio were lower because provisions belonging to Chevanstell Limited were not included in TrygVesta’s financial performance in 2006 / TrygVesta Annual Report 2006 / Page 17 of 147 IT’S ALL ABOUT FEELING UNSAFE It’s essential to feel insecure and unsafe. Art must ask questions – not produce answers. That’s why I don’t seek the warm embrace of feeling secure and safe when I paint. Quite the contrary. I’ve always looked for extremes, and I’ve been able to do that, because I feel very secure and safe in my home life. So for me both states of mind are important. However, I suppose this interaction is also important to other people, such as researchers and scientists. I believe that in the future, it will become crucial to find new ways of extracting natural resources. That can only happen if new research is created and if researchers and scientists are allowed to research that which is conventionally considered unnecessary – that is, actively deselecting the safe choices. In this way, you could say that art and research have certain similarities. A couple of years ago, the artist Eduardo Kac created a project with a luminous rabbit, which he had geneti- cally modified. It gave rise to a great many questions – about what we are allowed to do and not allowed to do and about artistic licence ... in other words, various ethical questions, of which we will have many more in the future. Eduardo Kac made many people feel insecure and unsafe, and I found that really fascinating. The reason is that we were all forced to think about what was right and what was wrong – about the attitudes and beliefs that each of us held. I actually believe that this is an exercise that would generally benefit all people. MELOU VANGGAARD IS 39 AND AN ARTIST. SHE HAS HER OWN STUDIO AT ØSTERBRO IN COPENHAGEN, DENMARK. MELOU EXHIBITS WITH GALLERI CHRISTOFFER EGELUND, WHICH HAS STARTED COLLABORATING WITH TRYGVESTA ABOUT MANAGING AND DEVELOPING NEW YOUNG ART IN DENMARK. Management’s report turning Words into results We use the balanced scorecard (BSC) to implement our strategy and retain our strategic focus areas. selected bsc benchmarks for trygvesta ifrs 2006 ifrs 2005 ifrs 2004 2003 2002 2001 financial perspective Return on equity after tax Combined ratio – gross method Expense ratio, gross customer perspective, private customers (index) 35.4 87.8 16.8 27.9 89.0 16.9 23.1 91.1 17.1 15.4 100.7 22.4 -47.4 107.2 23.6 1.2 104.4 24.3 Renewal rate 1) Customer loyalty Proportion of customers with concept agreement 99 112 108 101 109 108 101 109 106 100 106 102 102 101 98 100 100 100 processes perspective (index) Portfolio (nominal prices) per full-time employee Customer satisfaction in claims handling 131 107 133 105 129 104 124 102 116 100 100 100 lerning perspective (index) Employee satisfaction 2) 102 105 105 102 101 100 1) The renewal rate is adversely affected by the short policy cancellation notice implemented in Denmark in the autumn of 2005 and in Norway at the beginning of 2006. 2) The 2004 figures are repeated in 2005 as there was no employee satisfaction survey in 2005. Strategy and focus areas for 2007 / TrygVesta Annual Report 2006 / Page 20 of 147 Management’s report strategy and focus areas for 2007 In early 2006, we launched a comprehensive strategic providing products and services analysis and review of our business towards 2010. This that offer peace of mind work has enabled us to develop a clear, shared percep- Our customers should be confirmed in their choice of tion of our future potential, and of the ways in which insurer on an ongoing basis. We therefore intend to we can create sustained value for customers, share- holders and employees. Supported by the strategy plan • introduce new concept and benefit programmes for 2007-2010 we stand well prepared to meet future • optimise our communication with customers, and challenges and opportunities. • focus on risk consultancy The strategy plan will focus on: self-service growth Based on the right balance between growth and We intend to meet customers on their own terms and improve efficiency and quality by earnings, we intend to • automating customer processes even more and add- ing perceived quality • increase the market positions in Finland and Sweden • focusing more on communicating with customers via significantly the Internet • strengthen our sales power to expand the market positions in Denmark and Norway, and learning • increase our product offering within health care We intend to focus on our employees and be an attractive workplace by • focusing on management and employee development • strengthening the dialogue across the organisation, and • using the creative potential of our employees Strategy and focus areas for 2007 / TrygVesta Annual Report 2006 / Page 21 of 147 Management’s report dkkm Premium growth Technical result Investment result Profit before tax Profit after tax Combined ratio (%) * in local currency actual 2006 forecast 2007 favourable scenario negative scenario 2.0% 2,533 1,207 3,709 3,211 87.8 3%* 2,050 500 2,500 1,850 91 2,200 1,900 1,950 90 1,750 92 large losses DKKm run-off gains and losses DKKm (cid:44)(cid:40)(cid:46) (cid:45)(cid:37)(cid:37) (cid:43)(cid:37)(cid:37) (cid:41)(cid:37)(cid:37) (cid:39)(cid:37)(cid:37) (cid:37) (cid:41)(cid:43)(cid:38) (cid:42)(cid:37)(cid:38) (cid:41)(cid:38)(cid:43) (cid:39)(cid:40)(cid:43) (cid:43)(cid:37)(cid:37) (cid:41)(cid:37)(cid:37) (cid:39)(cid:37)(cid:37) (cid:37) (cid:34)(cid:39)(cid:37)(cid:37) (cid:34)(cid:41)(cid:37)(cid:37) (cid:34)(cid:43)(cid:37)(cid:37) (cid:41)(cid:39)(cid:40)(cid:21) (cid:21)(cid:40)(cid:44)(cid:39) (cid:39)(cid:43)(cid:40)(cid:21) (cid:21)(cid:38)(cid:45)(cid:38) (cid:34)(cid:41)(cid:38)(cid:37)(cid:21)(cid:21)(cid:34)(cid:41)(cid:42)(cid:45) (cid:34)(cid:42)(cid:45)(cid:45)(cid:21)(cid:21)(cid:34)(cid:42)(cid:38)(cid:43) (cid:34)(cid:38)(cid:44)(cid:21)(cid:21)(cid:34)(cid:38)(cid:43)(cid:38) (cid:39)(cid:37)(cid:37)(cid:39) (cid:39)(cid:37)(cid:37)(cid:40) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:39)(cid:37)(cid:37)(cid:39) (cid:39)(cid:37)(cid:37)(cid:40) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:58)(cid:109)(cid:101)(cid:90)(cid:88)(cid:105)(cid:90)(cid:89)(cid:21)(cid:97)(cid:90)(cid:107)(cid:90)(cid:97)(cid:21)(cid:29)(cid:57)(cid:64)(cid:64)(cid:21)(cid:41)(cid:38)(cid:37)(cid:98)(cid:30) (cid:71)(cid:106)(cid:99)(cid:34)(cid:100)(cid:91)(cid:91)(cid:21)(cid:92)(cid:86)(cid:94)(cid:99)(cid:104)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21)(cid:97)(cid:100)(cid:104)(cid:104)(cid:90)(cid:104)(cid:33)(cid:21)(cid:92)(cid:103)(cid:100)(cid:104)(cid:104)(cid:21) (cid:71)(cid:106)(cid:99)(cid:34)(cid:100)(cid:91)(cid:91)(cid:21)(cid:92)(cid:86)(cid:94)(cid:99)(cid:104)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21)(cid:97)(cid:100)(cid:104)(cid:104)(cid:90)(cid:104)(cid:33)(cid:21)(cid:99)(cid:90)(cid:105) storM and Weather losses DKKm (cid:38)(cid:33)(cid:37)(cid:37)(cid:37) (cid:45)(cid:37)(cid:37) (cid:43)(cid:37)(cid:37) (cid:41)(cid:37)(cid:37) (cid:39)(cid:37)(cid:37) (cid:37) (cid:46)(cid:38)(cid:38) (cid:38)(cid:45)(cid:41) (cid:39)(cid:37)(cid:39) (cid:44)(cid:40) (cid:38)(cid:38)(cid:38) (cid:39)(cid:37)(cid:37)(cid:39) (cid:39)(cid:37)(cid:37)(cid:40) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:58)(cid:109)(cid:101)(cid:90)(cid:88)(cid:105)(cid:90)(cid:89)(cid:21)(cid:97)(cid:90)(cid:107)(cid:90)(cid:97)(cid:21)(cid:29)(cid:57)(cid:64)(cid:64)(cid:21)(cid:39)(cid:39)(cid:42)(cid:98)(cid:30) Financial forecast for 2007 / TrygVesta Annual Report 2006 / Page 22 of 147 financial forecast for 2007 financial forecasts TrygVesta is committed to providing the market with precise profit guidance. Within the Group, we therefore attach great importance to using the very extensive records of previous perform- ance which, together with TrygVesta’s size in our core markets, are very important when making financial forecasts. TrygVesta emphasises the importance of having a clear correlation between initiatives and the financial impact in all planning activities. TrygVesta’s financial forecast for 2007 is composed of the expected expense ratio for 2007 would be about 1 the main areas insurance activities, investment activi- percentage point lower. ties and tax. dividend For the full 2007 financial year TrygVesta expects a TrygVesta has clearly defined a dividend policy rest- profit on ordinary activities before tax of DKK 2,500m ing on the cornerstone that we do not retain a larger compared with DKK 3,709m for 2006. TrygVesta part of the profit than is appropriate to maintaining expects a return on equity of just over 26% before tax the minimum level of capital required to operate and and around 19% after tax based on the dividend policy. develop the company. This is achieved through active capital management and optimised capitalisation. Gross earned premiums are expected to increase by TrygVesta uses Standard & Poor’s capital model. A sim- some 3% in local currency, assuming no major changes plified version of this model is provided on our website in competitive conditions relative to 31 December for following the rating requirement for capital relative 2006. The Group aims to retain the strategy of gener- to actual accumulated capital. ating profitable growth. The combined ratio for 2007 is estimated to be at the Expectations for the combined ratio in the medium level of 90-92 with an expectation of 91 before run-off term are at the level of 91-93, corresponding to a compared with the 87.8 after run-off and 90.1 before targeted return on equity after tax of 19-21%. outlook for the medium term run-off achieved for 2006. TrygVesta expects to reduce the expense ratio slightly The forecast for the result for 2007 is based on in 2007 relative to the expense ratio of 16.8 achieved assumptions with respect to gross earned premiums, for 2006. The expectations include continued expan- gross claims incurred, gross expenses, result of busi- sion in Finland and Sweden. Excluding these activities, ness ceded and technical interest. assumptions for insurance activities Financial forecast for 2007 / TrygVesta Annual Report 2006 / Page 23 of 147 Management’s report Expectations regarding gross earned premiums are improve efficiency. The forecast further includes other based on TrygVesta’s portfolio at 31 December 2006 and costs such as expenses relating to IT operations and assumptions with respect to sales and loss of policies and our corporate headquarters, which are predominantly price adjustments of policies in force. Assumptions for based on agreements that are known to us. sales and loss of policies are based on historical levels, planned initiatives and the market situation. Assumptions The result of business ceded is based on contracts for price adjustments are primarily based on agreements made with reinsurers to cover claims events and events relating to adjustments of individual insurance policies. such as storms and large losses. The expected result The forecast is expressed in local currency. of business ceded is calculated on the basis of such contracts and historical data. TrygVesta generally bases expectations with respect to claims incurred on assumptions for the various products Technical interest is based on interest rate assumptions in the individual business areas and companies. Expect- as at 31 December 2006. ations regarding claims ratios are based on historical performance in the form of average claims ratios for the assumptions for investment activities past five years, with recent years’ trends generally being The forecast return on investment activities for 2007 weighted stronger than those of prior years. Trends in is based on the following assumptions with respect to the pricing of our insurance premiums, claims frequencies investment assets. Bonds are expected to account for and the discounting rate applied are the most important around 80% of total investment assets and to yield factors that may affect our overall performance. Assump- a return of 3.9%. Shares are expected to account for tions for storm and large losses are based on historical around 14% and to yield a return on 7.0%, while real experience for not less than ten years. In addition, we property is expected to account for 6% of assets and incorporate the effect of profitability initiatives and the yield a return of 6.8%. This should be viewed against cor- effect of any legislative measures and changes in case responding returns of 2.8%, 20.3% and 15.0% generated law in the anticipated claims level. on bonds, shares and property, respectively, in 2006. The expectations for 2007 assume weather related claims assumptions for tax of about DKK 225m and large claims of about DKK 410m. The tax rate is 28% in both Denmark and Norway. The effective tax rate is primarily attributable to gains or The forecast generally assumes no run-off gains or losses on shares which are tax-exempt or non-deductible. losses in 2007 on the provisions for claims established. TrygVesta assumes an effective tax rate of 26% for 2007 The positive run-off result had a gross impact of 2.6% based on the above assumptions for the return on shares. and a net impact of 2.3% on the combined ratio for 2006. The reinsurers’ share makes up the difference between At the beginning of February 2007, the Danish tax the gross and net run-off result. authorities submitted a bill amending Danish tax legisla- The forecast regarding gross expenses reflects the in Denmark. At the time of publication of this report, projected number of employees during 2007 and the neither the final form of the bill nor whether it would related costs. The projected number of employees be adopted were known, and it has therefore not been incorporates the effect of measures launched to incorporated in the forecast for 2007. tion that is expected to change the corporate tax level Financial forecast for 2007 / TrygVesta Annual Report 2006 / Page 24 of 147 disclaiMer Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Such statements may constitute forward-looking statements. These forward-looking statements (other than state- ments of historical fact) regarding our future results of operations, financial condition, cash flows, business strategy, plans and future objectives can generally be identified by terminology such as “targets,” “believes,” “expects,” “aims,” “intends,” “plans,” “seeks,” “will,” “may,” “anticipates,” “would,” “could,” “continues” or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. TrygVesta urges readers to refer to the section on risk management available on the Group’s web- site for a description of some of the factors that could affect the company’s future performance and the industry in which it operates. Should one or more of these risks or uncertainties materialise or should any underlying assumptions prove to be incorrect, TrygVesta’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. TrygVesta is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. Financial forecast for 2007 / TrygVesta Annual Report 2006 / Page 25 of 147 I’M STEEN... AND I’M ADDICTED TO CHANGE At Novozymes, we have experienced many changes over the years. Different people react very differently to change – ranging from truly thriving on change to feeling very insecure by having to eat in a new can- teen. I suppose one could say that people who do not like change are security addicts. But you can also be addicted to change – I believe that’s what I am to a certain extent. I am most at ease when I feel that I play a part in shaping my surroundings. It means a great deal being part of shaping the future, because if you take part in shaping it, you also have the chance to make an impact. The challenge is to balance the requirements for creating change and fostering a safe and secure work environment. In our organisation, it is essential that we create new ideas, so we need to nurture an envi- ronment, in which our employees will be creative. One way in which we are trying to do this is by mixing our employees across nationalities and departments and by encouraging them to work in groups. However, it is obviously also important that the brief is not reduced to: “Think up something”. The project needs to have at least some structure and a definite direction. Naturally, this way of working may cause a crisis once in a while, but in my view, a crisis is not necessarily a bad thing. It is not a bad thing when your purpose is to be innovative, as it is in our company, or when you have to move forward as an organisation. I often think about that the Chinese sign for crisis is double – on the one hand, it signifies danger and on the other, an opportunity! When I look ahead, it is quite clear that in our field as well as in many others, the development is incred- ibly strong in some countries, such as in India and China. In our part of the world, we may not have entirely recognised that our model is being challenged. In our search for security, we may have lulled ourselves into something that is not particularly positive seen in a greater perspective. As a consequence, I am a little sceptical and somewhat unsure as to what the future will bring. STEEN RIISGAARD IS 55. STEEN HAS BEEN PRESIDENT & CEO OF NOVOZYMES SINCE IT DEMERGED FROM NOVO NORDISK IN 2000. Management’s report trygvesta and the external coMMunity The Nordic insurance market is worth some DKK 150bn, The recurring question among equity analysts and the with the three pan-Nordic companies Codan, If and media in 2006 was whether we were about to see a TrygVesta together serving about 40% of the mar- deterioration in the insurance cycle and a downturn in ket. Over the past few years, the market has seen a earnings. When considering the trend in earnings over significantly improved earnings performance, with a longer perspective, the challenge as we entered this growth largely equalling the growth in GDP. However, millennium was to create a balance in insurance opera- price adjustments due to a favourable claims experi- tions. This was achieved by adjusting premiums for a ence triggered stronger price competition in 2006, in number of products, and was reflected in high growth particular for motor in Denmark and building in Norway. rates from 2002 through 2005. The market’s restored The personal accident business has seen a favour- profitability caused more companies to adjust their pre- able price development in recent years with a view to mium levels in 2006. Premium growth is now at a more adjusting pricing to claims expenses. Prices in Denmark normal level in a saturated market, and profitability are adjusted using a company-specific index called the has been restored. We believe the volatile returns on social index. investments and higher risk awareness will ensure that the industry continues to focus on a positive develop- The report the United Nations just released on climate ment of their technical operations. change is a cause of concern for everyone. We saw windstorms and floods in many places in 2006, and it New capital requirements were also a controversial seems such events will become more frequent in the issue in 2006, especially Solvency II, the new pan-Euro- years ahead. This may trigger adjustments in insur- pean regime scheduled for implementation in 2011, at ance services, covers and premiums to rising claims the earliest. Solvency II will change the rules governing expenses. companies’ capital requirements. The Danish Financial Supervisory Authority currently determines the capital Developments in the welfare systems of the Nordic requirement based on the existing solvency rules, countries have contributed to an increasing number of which establish a minimum capital requirement of 100% people wanting private insurance schemes that cover of the solvency requirement. The new capital require- health care, unemployment and other events that ments are generally expected to require an investment may have an impact on welfare. Being a provider of grade which in terms of Standard & Poor’s ratings peace of mind, TrygVesta wishes to play a pro-active would correspond to a rating of BBB-. By way of com- role in meeting people’s needs and requirements, and parison, the existing solvency rules establish a capital we believe the health area holds great potential for requirement of 16% of net premiums or, in practice, growth. Time is also a factor that people attach a great 32% as a minium, as companies of TrygVesta’s size gen- deal of importance to: high level of prosperity and erally have excess cover of double the requirement. the demand for simple solutions mean that they are prepared to pay extra if it saves them time they can The new Solvency II rules are not expected to change then spend with their families or on leisure activities, the capital requirement for TrygVesta and other work etc. A demand for openness and transparency insurers that currently meet the level of a Standard & places new requirements on insurance solutions, which Poor’s A rating, which is equivalent to 52-56% of net TrygVesta will seek to meet. premiums. In preparation for the Solvency II regime, the Danish Financial Supervisory Authority issued a new TrygVesta and the external community / TrygVesta Annual Report 2007 / Side 28 af 144 draft set of rules called “Individual Solvency Needs” in December 2006. The rules are expected to be intro- duced in the Danish Folketing in March 2007 and to come into effect on 1 July 2007. The bill is intended to ensure that companies implement a formal risk management environment comprising the risk elements required under Solvency II now rather than later. Details of the requirements for the companies’ risk manage- ment are not available at this time, but all other things being equal, the new rules will make much tougher demands on companies that do not already work with formal risk management and risk reporting. TrygVesta and the external community / TrygVesta Annual Report 2007 / Side 29 af 144 Management’s report our custoMers Insurance customers in the Nordic region are becoming much attributable to the changed price structure in increasingly focused on quality and reliability in the Norway, where we abolished introductory discounts to provision of services. new customers in May 2005. The high level of cus- tomer satisfaction was also reflected in the number of At TrygVesta, we fundamentally believe that our customer complaints, as we had the lowest proportion customers’ requirements are best covered if we provide of complaints among the major companies. solutions rather than mere financial compensation when a claim is reported. This applies when custom- Our customers in Finland remain some of the most loyal ers need a garage to repair damage to their car, when and satisfied customers in the market, and we rank their house or flat has been damaged by water, when a first or second in all categories. person needs help to return to the labour market after an accident, or when a business needs help to maintain Only three companies have a presence in more than or restore production after a claim. one market in the Nordic region. Our generel progress in all markets place us as the undisputed number one in We aim to enhance customer loyalty on an ongoing the Nordic market. basis. We can achieve this only by constantly spot- lighting customer satisfaction. As part of our active few customer complaints customer policy, we contact all private customers every The number of customer complaints and the ability to year when we send out policy renewals and policy handle customer complaints are major parameters for overviews. We also send all our concept customers at quality in the provision of service products. We regu- least one additional positive message each year. larly measure our claims quality in the Nordic countries customer surveys in 2006 We use the results for quality control as well as quality in order to improve the quality of our claims handling. Once again, we improved our ratings in this year’s EPSI improvement. surveys of customers in all markets. In Denmark, we came in second among the compa- among the four largest insurers in both in Norway and nies we usually consider our peers, and we recorded Finland, scoring 32% and 14%, respectively, below the progress in both customer satisfaction and customer average for the industry. In Denmark, we have the loyalty compared with 2005. The short policy cancella- second-lowest complaints ratio among our peer group. tion notice, which was introduced in 2006, resulted in We score 32% below the average for the total insur- We have the lowest ratio of customer complaints a higher rate of customer turnover, in particular among ance market in Denmark. young customers, while renewal rates and customer satisfaction among our concept customers were at a customer concepts high level. Our customer concepts (customer benefit programmes) are an important tool to enhancing customer loyalty. At In Norway, we scored second highest among Norwe- 31 December 2006, the proportion of private concept gian insurers for customer loyalty, while we recorded a customers was 65% in Denmark and about 64% in Nor- setback with respect to customer satisfaction relative way. We develop our customer concepts on an ongoing to 2005. The higher customer loyalty rating is very basis and add new benefits such as special insur- Our customers / TrygVesta Annual Report 2006 / Page 30 of 147 ance cover, additional advantages and discounts for customers who take out more than one product with TrygVesta. Surveys indicate that concept customers are characterised by greater customer loyalty. We launched several new customer benefits in 2006. In light of the changed travel habits of our customers and recent years’ natural disasters and terrorist attacks, we extended our travel insurance coverage. We are the only insurer in the Nordic region to offer a travel policy covering evacuation and repatriation expenses, even in cases where the authorities do not recommend evacuation. In addition, we launched a new policy on 1 November 2006, which we initially offer to our existing customers in Denmark. The policy covers all defects in and sudden and unforeseen damage to electrical appliances and house contents. We have seen great demand for the custoMers With a reason to coMplain in 2006 (cid:39)(cid:37)(cid:37) (cid:38)(cid:42)(cid:37) (cid:30) (cid:38) (cid:109) (cid:90) (cid:89) (cid:99) (cid:62) (cid:38)(cid:37)(cid:37) (cid:42)(cid:37) (cid:34)(cid:37) (cid:103) (cid:90) (cid:93) (cid:105) (cid:68) (cid:86) (cid:105) (cid:104) (cid:90) (cid:75) (cid:92) (cid:110) (cid:103) (cid:73) (cid:110) (cid:86) (cid:108) (cid:103) (cid:100) (cid:67) (cid:38) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:39) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:40) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:103) (cid:90) (cid:93) (cid:105) (cid:68) (cid:86) (cid:105) (cid:104) (cid:90) (cid:75) (cid:92) (cid:110) (cid:103) (cid:73) (cid:38) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:39) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:40) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) 1) Average for each country = 100. Source: EPSI Rating. (cid:89) (cid:99) (cid:86) (cid:99) (cid:59) (cid:94) (cid:97) (cid:103) (cid:90) (cid:93) (cid:105) (cid:68) (cid:86) (cid:105) (cid:104) (cid:90) (cid:75) (cid:92) (cid:110) (cid:103) (cid:73) (cid:38) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:39) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:40) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:41) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:42) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:43) (cid:21) (cid:103) (cid:100) (cid:105) (cid:94) (cid:105) (cid:90) (cid:101) (cid:98) (cid:100) (cid:56) (cid:96) (cid:103) (cid:86) (cid:98) (cid:99) (cid:90) (cid:57) insurance with an average of some 900 policies sold In Finland, we had some 102,000 hits on Nordea’s each week since its launch. TrygVesta pages in 2006 compared with around 88,000 increased on-line activity hits in 2005. Customers and companies are increasingly using the As a result of the Nordic expansion under the Internet to communicate with each other, and a strong TrygVesta Garanti brand, Dansk Kaution launched brand is of particular importance to get customer two additional websites in 2006, and now markets attention. For that reason, we measure the trend for itself at vestagaranti.se and trygvestagaranti.com our websites in all markets. as well as danskkaution.dk, trygvestagaranti.dk and trygvestagaranti.no. In 2006, our websites in Denmark and Norway (tryg.dk and vesta.no) had 3m visitors against 2.1m in 2005. Our Danish website had 1.9m visitors compared with 1.5m in 2005, while our Norwegian website had 1.1m visitors against 560,000 in 2005. Our Swedish website was launched in mid-June 2006. It had some 23,000 visitors in 2006 with visitor numbers increasing sharply each month. Our customers / TrygVesta Annual Report 2006 / Page 31 of 147 Management’s report Management’s report custuMer survey denMark 2006 satisfaction and loyalty - private custoMers 1) custoMer survey norWay 2006 satisfaction and loyalty - private custoMers 1) (cid:110) (cid:105) (cid:97) (cid:86) (cid:110) (cid:100) (cid:65) (cid:45)(cid:38) (cid:44)(cid:46) (cid:44)(cid:44) (cid:44)(cid:42) (cid:44)(cid:40) (cid:44)(cid:38) (cid:43)(cid:46) (cid:43)(cid:44) (cid:43)(cid:42) (cid:43)(cid:40) (cid:110) (cid:105) (cid:97) (cid:86) (cid:110) (cid:100) (cid:65) (cid:44)(cid:45) (cid:44)(cid:43) (cid:44)(cid:41) (cid:44)(cid:39) (cid:44)(cid:37) (cid:43)(cid:45) (cid:43)(cid:43) (cid:43)(cid:41) (cid:43)(cid:39) (cid:43)(cid:40) (cid:43)(cid:42) (cid:43)(cid:44) (cid:43)(cid:46) (cid:44)(cid:38) (cid:44)(cid:40) (cid:44)(cid:42) (cid:44)(cid:44) (cid:44)(cid:46) (cid:45)(cid:38) (cid:43)(cid:39) (cid:43)(cid:41) (cid:43)(cid:43) (cid:43)(cid:45) (cid:44)(cid:37) (cid:44)(cid:39) (cid:44)(cid:41) (cid:44)(cid:43) (cid:44)(cid:45) (cid:72)(cid:86)(cid:105)(cid:94)(cid:104)(cid:91)(cid:86)(cid:88)(cid:105)(cid:94)(cid:100)(cid:99) (cid:73)(cid:94)(cid:97)(cid:91)(cid:103)(cid:90)(cid:89)(cid:104)(cid:93)(cid:90)(cid:89) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:42) (cid:62)(cid:99)(cid:89)(cid:106)(cid:104)(cid:105)(cid:103)(cid:110)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:42) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:38) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:38) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:41) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:39) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:42) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:40) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:39) (cid:62)(cid:99)(cid:89)(cid:106)(cid:104)(cid:105)(cid:103)(cid:110)(cid:21) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:40) custoMer survey finland 2006 satisfaction and loyalty - private custoMers 1) custoMer survey nordic countries 2006 satisfaction and loyalty - private custoMers 1) 2) (cid:110) (cid:105) (cid:97) (cid:86) (cid:110) (cid:100) (cid:65) (cid:45)(cid:39) (cid:45)(cid:37) (cid:44)(cid:45) (cid:44)(cid:43) (cid:44)(cid:41) (cid:44)(cid:39) (cid:44)(cid:37) (cid:43)(cid:45) (cid:110) (cid:105) (cid:97) (cid:86) (cid:110) (cid:100) (cid:65) (cid:44)(cid:43) (cid:44)(cid:41) (cid:44)(cid:39) (cid:44)(cid:37) (cid:43)(cid:45) (cid:43)(cid:43) (cid:43)(cid:41) (cid:43)(cid:41) (cid:43)(cid:43) (cid:43)(cid:45) (cid:44)(cid:37) (cid:44)(cid:39) (cid:44)(cid:41) (cid:44)(cid:43) (cid:44)(cid:45) (cid:43)(cid:41) (cid:43)(cid:43) (cid:43)(cid:45) (cid:44)(cid:37) (cid:44)(cid:39) (cid:44)(cid:41) (cid:44)(cid:43) (cid:72)(cid:86)(cid:105)(cid:94)(cid:104)(cid:91)(cid:86)(cid:88)(cid:105)(cid:94)(cid:100)(cid:99) (cid:72)(cid:86)(cid:105)(cid:94)(cid:104)(cid:91)(cid:86)(cid:88)(cid:105)(cid:94)(cid:100)(cid:99) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:42) (cid:62)(cid:99)(cid:89)(cid:106)(cid:104)(cid:105)(cid:103)(cid:110)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:38) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:39) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:40) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:43) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:21)(cid:39)(cid:37)(cid:37)(cid:42) (cid:62)(cid:99)(cid:89)(cid:106)(cid:104)(cid:105)(cid:103)(cid:110) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:38) (cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:94)(cid:105)(cid:100)(cid:103)(cid:21)(cid:39) 1) Satisfaction and loyalty is measured on a scale from 1-100. Industry = average for all companies surveyed. Source: EPSI Rating (EPSI is an independent non-profit organisation for measuring customer satisfaction in the Nordic region). 2) The benchmarks in the Nordic comparison are simple averages of official EPSI country results for companies with a presence in more than one Nordic market. Our customers / TrygVesta Annual Report 2007 / Side 32 af 144 notes WE HAVE TO ENTER INTO A PARTNERSHIP WITH DANGER Via my work in public health, it has become increasingly clear to me that it is absolutely essential to all of us to feel that we have a certain amount of influence on our own lives. We all need to feel that we are free to do what we want, but at the same time, we all recognise that too much freedom can be somewhat frightening. In other words, too much freedom threatens the individual, while too many rules and conventions hamper the individual. In the Nordic societies such as Norway and Denmark, we have created a type of security for all that is entirely unique. We can feel safe and secure irrespective of what happens – also when we get old. I believe this is completely indispensable and worth remembering, not least in the current climate when we are noticing a tendency to forget the significance of this security. We have now reached some sort of turning point. We feel safe and secure, but now we also want recognition and self-realisation – the human race is looking for its own basic element and wants the opportunity to develop further. We are quite at odds with ourselves these days – for life cannot just be easy, secure, full of self-realisation and entirely free of risks. Seneca, who really ought to be a kind of house philosopher for TrygVesta, put it very well: There is only one route to quality of life and that is to accept that the account book of your life will have both good and bad entries. After all, zero risk is an impossibility. Thus, we have to enter into a partner- ship with at least the possibility of danger. We have achieved so much with regard to creating a society of security – securing good living conditions for all. That is one thing we must never forget. Things have improved and I don’t believe that the sum of worries is constant. Just think about what life was like a hundred years ago – there was so much more suffering, sor- row and anxiety. I hope that society also in the future will retain the will to secure fair living conditions for all – the entire com- munity. I also hope that we may retain the relatively high levels of security and trust that we currently enjoy in the Nordic region. In other countries, I have observed how fear can destroy the health of an entire society. PER FUGELLI IS 63 AND A PROFESSOR OF SOCIAL MEDICINE AT THE UNIVERSITY OF OSLO, NORWAY. FOR A NUMBER OF YEARS, PER HAS BEEN RESEARCHING, AMONG OTHER THINGS, HOW THE DISTRIBUTION OF VALUES SUCH AS SECURITY AND FREEDOM IN SOCIETY AFFECTS HUMAN HEALTH. Management’s report our processes We want to be perceived as the leading peace of mind thinking and to utilise the creative potential we have provider of the Nordic region. In order to achieve our within our Group. The employees submitted a total of vision we must commit ourselves to developing and 236 contributions to BusinessLab. innovating our business on an ongoing basis. In 2006, we dedicated ourselves to launching a number of initia- Further to the BusinessLab concept, some of our tives aimed at preparing us to meet future challenges. employees have attended an Entrepreneurial Leader- Our initiatives include: ship programme at the Technical University of Den- mark, which they completed in January 2007. In connec- greater focus on growth areas tion with their studies, the employees will establish a We changed our organisational structure in a number business plan for a new business area. of ways in the autumn of 2006, reflecting a wish to ensure that we extend maximum focus on, and that the new nordic business centre Group Executive Management is firmly committed to, As the welfare debate and our customers’ require- the areas designated as future major growth areas for ments and demand for welfare services increased the Group. We have merged the areas Finland, Sweden, again in 2006, we set up a Nordic business centre for Health Care & Pension, BusinessLab and Nordic Bankas- Health Care & Pension. By concentrating our develop- surance into one business area under the name New ment efforts in one place, we achieve a number of Markets. organisational and market advantages, and we expect that the business centre will help us capture an even In connection with starting up in Sweden we used the greater share of the rapidly growing market for health experience gained from our start-up in Finland. Among insurance. We experienced growth of more than 66% in other things, we launched a similar business platform 2006, and we are confident that the positive trend will with sales through Nordea and via the Internet, and continue in 2007. In 2007, we intend to focus strongly also set up our own call centre. Furthermore, we on developing welfare solutions with a broad appeal reaped the benefits of synergies from re-using the to customers and supplementing the Nordic welfare same IT system. system. innovative thinking and maturing ideas Again in 2006, we saw strong growth, of 36% over In the summer of 2006 we launched BusinessLab, a 2005, in our sales of Nordea’s pension plans. Corporate pan-Nordic space for innovative thinking and ideas. In pension plans were the prime driver of this growth. BusinessLab we work across the Group, capturing ideas However, it is by no means everybody who is covered and turning them into viable business solutions. In by a corporate pension plan or other pension schemes early 2007, BusinessLab will relocate to a new innova- provided for by collective agreements, in particular tion centre at Ballerup, an unconventional and multi- among self-employed persons. An amendment to the functional space with room to play with, think through Danish act on taxation of pension schemes provided and develop ideas. greater flexibility and made it more attractive for this target group to save for their retirement. Self- BusinessLab ran its first in-house idea competition in employed persons may now pay up to 30% of their the autumn of 2006. The competition was designed profits into a pension plan with an option to change to encourage all employees to develop their creative Our processes / TrygVesta Annual Report 2006 / Page 36 of 147 the amount in line with any variations in their profits. We intend to focus on this area in 2007. More pan-nordic business processes Based on good experience in Denmark, we will launch a new IT system in Norway in the coming years. The sys- tem automated production of agreements and policies, enabling our sales agents to finalise around 90% of all sales on the spot, improving the customer’s experience and enhancing the potential for added sales. Accord- ing to experience from Denmark, the IT system has reduced unnecessary duplication of work, improved efficiency and increased sales. We estimate that the implementation of all three phases of the IT system in Denmark has generated substantial cost savings. new pan-nordic brand platform In the summer of 2006, we introduced a new pan-Nor- dic brand platform in Denmark and Norway, signalling our behaviour and communications based on the concept of peace of mind and the needless concerns that may trouble our customers. In addition to a new graphic design we also introduced several new commercials in this context. The commercials got a very positive reception in both Denmark and Norway: external surveys indicated that 71% of viewers over 18 years took a positive view of the new commercials in Denmark, while the corresponding figure for Norway was 78%. Our processes / TrygVesta Annual Report 2006 / Page 37 of 147 Management’s report our eMployess our corporate values We provide peace of mind, because • we show people respect, openness and trust • we show initiative, share knowledge and take responsibility • we provide solutions characterised by quality and simplicity • we create sustainable results In order to implement the Group’s business strategy, Management development and management forum we rely on the competence and dedication of our We focused strongly on enhancing competence in employees. They are our most important asset and the 2006. Our management teams participated in several people through whom our customers in their everyday development programmes, and we intend to roll out lives experience our provision of products and services similar processes in the entire Group during 2007. We that offer peace of mind. We therefore depend on also focused on developing new management poten- our ability to continue to attract and retain the best tial. These people attended various training modules employees by being an attractive workplace offering for the purpose of preparing them for becoming our employees freedom to act, thrive and develop. managers in TrygVesta. 2006 was a year very much characterised by the As a new initiative we launched a management forum continued implementation of our values throughout in the spring of 2006. The object is to inspire TrygVesta the Group. Three times during the year we worked managers professionally and prepare them to meet the with themes of topical interest on a Group-wide basis. challenges which managers may have to face. At the For example, we considered the customers of each same time, we intend the management forum to be department and described how we can use our values an arena in which managers get together for reflec- pro-actively in our contact with customers. The theme tion and dialogue across business areas and levels of packages provided us with very satisfactory experience the organisation. The first two themes, “Managing and helped enhance awareness of the importance of modern organisations” and “Corporate Branding”, were our corporate values. The 2007 theme packages will reviewed by external as well as in-house consultants. focus on subjects such as values and dilemmas, well- Stress prevention will be a key theme in the coming being and stress, and ethics. year. An employee survey conducted in 2006 showed good new pan-nordic learning portal and e-learning results, which we intend to use in local development e-learning is among the important tools used in con- efforts. In 2007, we will therefore focus on following nection with competence building. Our Norwegian up on the individual departments’ action plans in order employees have already worked with the e-learning to improve results. concept for a few years, and we are drawing on this experience in our efforts in the other Nordic countries. Our employess / TrygVesta Annual Report 2006 / Page 38 of 147 geographical distribution of full-tiMe eMployees age and gender breakdoWn in trygvesta 2006 (cid:21)(cid:39)(cid:33)(cid:39)(cid:40)(cid:38) (cid:57)(cid:90)(cid:99)(cid:98)(cid:86)(cid:103)(cid:96) (cid:21) (cid:44)(cid:44)(cid:21) (cid:59)(cid:94)(cid:99)(cid:97)(cid:86)(cid:99)(cid:89) (cid:38)(cid:33)(cid:41)(cid:43)(cid:37)(cid:21)(cid:67)(cid:100)(cid:103)(cid:108)(cid:86)(cid:110)* (cid:40)(cid:37)(cid:37) (cid:39)(cid:41)(cid:37) (cid:38)(cid:45)(cid:37) (cid:38)(cid:39)(cid:37) (cid:43)(cid:37) (cid:37) (cid:21) (cid:41)(cid:37)(cid:21) (cid:72)(cid:108)(cid:90)(cid:89)(cid:90)(cid:99) (cid:59)(cid:90)(cid:98)(cid:86)(cid:97)(cid:90) (cid:66)(cid:86)(cid:97)(cid:90) (cid:38)(cid:45)(cid:34)(cid:39)(cid:46) (cid:40)(cid:37)(cid:34)(cid:40)(cid:41) (cid:40)(cid:42)(cid:34)(cid:40)(cid:46) (cid:41)(cid:37)(cid:34)(cid:41)(cid:41) (cid:41)(cid:42)(cid:34)(cid:41)(cid:46) (cid:42)(cid:37)(cid:34)(cid:42)(cid:41) (cid:42)(cid:42)(cid:34)(cid:42)(cid:46) (cid:43)(cid:37)(cid:34)(cid:43)(cid:45) * Excluding franchise office staff. We launched a new pan-Nordic learning portal in Sep- pleted an IT trainee programme for engineers with an tember, which will be used, among other things, for e- ethnic background who had been unemployed for more learning. In late 2006 we also implemented a pan-Nor- than a year. During the past three years, the number dic introduction programme for new employees based of employees with a foreign ethnic background has on e-learning. The learning portal will be expanded in doubled. Our current organisation stands well prepared 2007 to include our Finnish employees, thus creating for the new labour market in which the ability to inte- a shared Nordic portal for course development and grate and diversity thinking give a strong competitive competence building. Courses include e-learning as well advantage. as various forms of instructor-based learning. We also believe the knowledge sharing that takes place every changed smoking policy day in the individual departments is extremely impor- As part of our efforts to create a healthy workplace tant and intend to make increased use of multimedia we revised the Group’s smoking policy, introduc- resources and other tools that support cooperation and ing a complete ban on smoking indoors from 1 May learning in 2007. 2006. We offered all smokers among our employees a stop-smoking course. Around 100 Norwegian and 270 training for risk consultants Danish employees accepted the offer, and about half of An increasing number of our corporate customers call them successfully quit smoking. for advice, service and an overview of their risks. To accommodate their requirements, we launched a major employee bonus training programme for 250 Norwegian and Danish It is important that all employees see their own efforts employees in our Corporate business area in 2006. We relative to the Group’s overall target, and we use an anticipate that all employees will have completed the employee bonus programme as a natural tool in this programme by the end of 2008. connection. Employee bonus benchmarks were com- bined ratio and growth in 2006, and our performance pan-nordic trainee programme triggered a bonus of DKK 5,000 to each employee, The first pan-Nordic trainees joined TrygVesta in mostly in the form of shares. The Supervisory Board February 2006. The 18-month trainee programme is has in addition launched a stock option scheme for intended to cater to the Group’s long-term require- management and senior management employees, ment for highly qualified employees and management which is described in the section on Corporate govern- candidates. The trainees are also expected to make an ance elsewhere in this annual report. important contribution in our efforts to develop proc- esses across national borders and business areas. successful diversity projects We have drawn up a policy designed to promote diversity and equality within the Group, and we have completed several successful integration projects. In 2005, we concluded a project in our Private sales department training customer advisers with an ethnic background other than Danish, and in 2006 we com- Our employess / TrygVesta Annual Report 2006 / Page 39 of 147 Management’s report key figures Number of employees Seniority Staff turnover Sickness absence 2006 3,808 12.8 7.15 4.31 2005 3,718 13.1 6.14 4.18 2004 3,762 13.1 4.15 4.24 distribution of Managers in denMark distribution of Managers in norWay (cid:43)(cid:37)(cid:26)(cid:21)(cid:21)(cid:66)(cid:86)(cid:97)(cid:90) (cid:41)(cid:37)(cid:26)(cid:21)(cid:21)(cid:59)(cid:90)(cid:98)(cid:86)(cid:97)(cid:90) (cid:43)(cid:46)(cid:26)(cid:21)(cid:21)(cid:66)(cid:86)(cid:97)(cid:90) (cid:40)(cid:38)(cid:26)(cid:21)(cid:21)(cid:59)(cid:90)(cid:98)(cid:86)(cid:97)(cid:90) Male and feMale eMployees in denMark Male and feMale eMployees in norWay (cid:42)(cid:37)(cid:26)(cid:21)(cid:21)(cid:66)(cid:86)(cid:97)(cid:90) (cid:42)(cid:37)(cid:26)(cid:21)(cid:21)(cid:66)(cid:86)(cid:97)(cid:90) (cid:42)(cid:37)(cid:26)(cid:21)(cid:21)(cid:59)(cid:90)(cid:98)(cid:86)(cid:97)(cid:90) (cid:42)(cid:37)(cid:26)(cid:21)(cid:21)(cid:59)(cid:90)(cid:98)(cid:86)(cid:97)(cid:90) Our employess / TrygVesta Annual Report 2006 / Page 40 of 147 notes TODAY IS THE 85TH CONSECUTIVE DAY OF RAIN IN BERGEN THAT IS NOT A GOOD SIGN You also need to go quite far into the country in order to find snow on the mountains. That is another thing that’s not normally like that this time of year. We humans find it difficult to relate to anything before it becomes somehow tangible and affects us personally, for instance when our own health is affected. Un- fortunately, we are now facing this with our climate. Only in recent years when Asia and the USA have been ravaged by several tsunamis, when the storms in Europe have intensified considerably and the temperature in the Nordic region has increased, have people started taking seriously the entire issue of climate change. In my view, climate change will become our greatest challenge in the future – and in our organisation, we have been discussing ways of dealing with the issue for quite some time. Naturally, one major task will be to develop products and services meeting the new needs for security and peace of mind that will arise as a consequence of climate change. It is essential that we as an organisation constantly follow the development of the world, in which we live – naturally, that also applies to the climate. Within the private sphere, I am in no doubt that climate and health will attract major attention in the future. Within the world of business, I believe that coming to the fore will be companies that support these areas with regard to both products and services. Technology will also play a central role in the future, both in the home and at work. For my own part, if I could take out whatever insurance I wanted, I would probably choose a two-month policy against bad weather. A sort of sun guarantee insurance… JESSICA VOGT IS 37 AND EMPLOYED AS AN INNOVATOR WITH TRYGVESTA’S BUSINESSLAB IN BERGEN, NORWAY. BUSINESSLAB IS THE GROUP’S NEW ENVIRONMENT FOR INNOVATION. THE GOAL IS TO CREATE INNOVATIVE SOLUTIONS FOR OUR CUSTOMERS. Management’s report our business areas private & coMMercial denMark Provides general insurance products for private households and small and medium-sized enterprises in Denmark under the brand name Tryg. The Group’s products in Denmark are distributed principally through our proprietary distribution network consisting of five regional customer centres and 16 local service centres staffed by our own customer advisors and sales agents. Products are also dis- tributed through other channels, including affinity groups and Nordea’s 340 bank branches. Private & Commercial Denmark has around 1,400 employees. private & coMMercial norWay Provides general insurance products for private households and small and medium-sized enterprises in Norway under the brand names Vesta and Enter. The Group’s products in Norway are distributed through 85 franchise offices which are licensed to use our brand and exclusively sell our products and Nordea’s products. The Group’s products are also sold through our own sales agents, three regional customer centres, 35 local service centres, car dealers and Nordea’s 140 branches. Private & Com- mercial Norway has around 1,100 employees excluding franchise office staff. corporate Is a Nordic business area which provides general insurance products to large corporate customers under the TrygVesta brand. The Corporate business area services corporate customers with our own sales force and through brokers. Corporate customers are defined as customers paying annual pre- miums of more than DKK 500,000 or having more than 50 employees. The Corporate business area has some 10,000 customers. The number would be around 50 customers by international standards, which define corporate customers as customers paying annual premiums of more than DKK 10m. The Corporate business area has some 500 employees. dansk kaution Is included in Corporate and is the leading supplier of guarantee insurance in the Nordic region. Dansk Kaution guarantees its customers’ performance under contracts signed. Its primary customers are contractors and contract manufacturers. Dansk Kaution is marketed as TrygVesta Garanti outside Denmark. enter forsikring Is included in Private & Commercial Norway and is a subsidiary of Vesta in Norway. Enter Forsikring sells motor and other products under the Enter brand and as brand policies. The primary distribu- tors are car dealers and car importers. Enter has some 110 employees. Our business areas / TrygVesta Annual Report 2006 / Page 44 of 147 Tryg Forsikring A/S (Denmark) Vesta Forsikring AS (Norway) Enter Forsikring AS (Norway) (Finnish branch) Dansk Kautions- forsikrings-Aktieselskab (Swedish branch) TrygVesta A/S finnish general insurance In Finland we sell general insurance products to private household customers under the brand name Nordea Vahinkovakuutus. In February 2007, we will start selling commercial products to small and medium-sized enterprises. The Group’s products in Finland are primarily distributed through the 440 branches of Nordea. Products are also sold through our own call centre, through car dealers and via the Internet. The Finnish business has 77 employees. sWedish general insurance In Sweden, we sell general insurance products to private household customers under the brand name Vesta Skadeförsäkring, which we launched in the summer of 2006, primarily through Nordea’s some 260 branches, through our own call centre and via the Internet. At 31 December 2006, 39 employees were based in Malmoe, Sweden but the number of employees is expected to rise steeply over the coming year as the establishment of the Swedish business continues. Our business areas / TrygVesta Annual Report 2006 / Page 45 of 147 Management’s report private & 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 technical result key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 2006 6,390 -4,306 -1,109 975 -201 215 989 67.4 3.1 70.5 17.4 87.9 2005 6,276 -4,987 -1,113 176 467 113 756 79.5 -7.4 72.1 17.7 89.8 2004 5,942 -4,376 -1,057 509 -101 116 524 73.7 1.7 75.4 17.8 93.2 Private & Commercial Denmark generated a technical reduced premiums for certain motor insurance result of DKK 989m in 2006, which was an improve- segments. Overall, the reduction impacted premium ment of DKK 233m over 2005. The improvement was growth negatively by about 1 percentage point. driven by a positive development in claims expenses and the introduction of activities that enabled us to the effect of short policy cancellation notice maintain a flat development in nominal costs. In 2006, the short policy cancellation notice resulted in a premium growth of 1.8% lower retention rate. The rate of customer turnover Gross earned premiums were 1.8% higher, and the number increased, in particular, among young customers who of policies and customers developed favourably through- typically have only one product, while concept customers out 2006. Due to the positive technical performance, continued to record a high renewal rate. The renewal rate growth in premiums was impacted by bonus payments for the commercial segment also remained at a high level. higher rate of customer turnover, as reflected in a slightly on a number of agreements with affinity groups, which are set-off against gross premiums, totalling DKK 150m in In October 2006, Private & Commercial Denmark 2006 compared with DKK 77m in 2005. Before bonus pay- introduced an extended warranty insurance covering ments, the rate of premium growth was 3% in 2006. malfunction of and sudden and unforeseen damage to electrical appliances and house contents. The policy In late 2005 Private & Commercial Denmark introduced, was initially offered to concept customers and met with among other things, mileage as a price parameter for a very positive reception. With more than 8,000 policies motor insurances, which provided for a better risk sold by 31 December 2006, the new policy is expected selection and thus also a fairer price to customers. to have a favourable impact on customer retention. In the autumn of 2006 Privat & Commercial Denmark Private & Commercial Denmark / TrygVesta Annual Report 2006 / Page 46 of 147 claiMs frequencies denMark average claiMs (cid:37) (cid:37) (cid:38) (cid:21) (cid:50) (cid:21) (cid:39) (cid:37) (cid:37) (cid:39) (cid:21) (cid:103) (cid:86) (cid:90) (cid:78) (cid:21) (cid:47) (cid:109) (cid:90) (cid:89) (cid:99) (cid:62) (cid:38)(cid:37)(cid:37) (cid:46)(cid:42) (cid:46)(cid:37) (cid:45)(cid:42) (cid:45)(cid:37) (cid:37) (cid:37) (cid:38) (cid:21) (cid:50) (cid:21) (cid:39) (cid:37) (cid:37) (cid:39) (cid:21) (cid:103) (cid:86) (cid:90) (cid:78) (cid:21) (cid:47) (cid:109) (cid:90) (cid:89) (cid:99) (cid:62) (cid:38)(cid:39)(cid:37) (cid:38)(cid:38)(cid:37) (cid:38)(cid:37)(cid:37) (cid:46)(cid:37) (cid:45)(cid:37) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:66)(cid:100)(cid:105)(cid:100)(cid:103) (cid:55)(cid:106)(cid:94)(cid:97)(cid:89)(cid:94)(cid:99)(cid:92) (cid:66)(cid:100)(cid:105)(cid:100)(cid:103) (cid:55)(cid:106)(cid:94)(cid:97)(cid:89)(cid:94)(cid:99)(cid:92) dkkm 2006 2005 2004 normal year Storm and weather, gross Storm and weather, net Large losses, gross Run-off result, gross -109 -109 -25 120 -739 -115 -23 -2 -74 -74 -10 -138 -109 -69 -21 0 combined ratio improvement of for savings because only a small part of claims are han- 1.9 percentage points dled under this arrangement, and the average saving per The combined ratio for 2006 was 87.9, which was 1.9 claim is much greater for building than for motor claims. percentage points lower than in 2005. The positive development was due to sustained improvement in the The claims frequency for, in particular, building insurance claims expenses and an improved run-off result. continued at a low level in 2006 and was considerably claims ratio impacted by cloudbursts insurance, on the other hand, saw an upward trend in The gross claims ratio fell from 79.5 in 2005 to 67.4 in 2006, but continued to be at a relatively low level. lower than in a normal year. The frequency for motor 2006. While 2005 was strongly impacted by the storm in January, 2006 was affected only by a cloudburst in low expense ratio August and a few minor cloudbursts in November, total- The gross expense ratio fell to 17.4 in 2006, which was ling DKK 109m. The cloudbursts impacted the claims 0.3 percentage point lower than in 2005. In particular, ratio in 2006 by 1.7 percentage points. The correspond- changes in the sales process to include more team- ing impact from storms and weather-related claims based customer servicing had a favourable impact on was 11.8 percentage points in 2005. The level of large the expense ratio. losses, defined as losses exceeding DKK 10m, was at the same level as in 2005. focus areas in 2007 The Group has defined as an overall target to expand Gross run-off gains amounted to DKK 120m in 2006, the provision of products and services that offer peace while the net amount was DKK 55m. This had a positive of mind and to set the agenda in the peace of mind impact of 1.9 percentage points on the claims ratio. universe. We aim to achieve this, among other things, Tryg Reparation for cars, which was introduced in 2003, needs and through enhanced focus on product devel- and Tryg Bygning from 2004 continued to have a posi- opment. A long-term goal is to increase the group’s tive effect on claims expenses. The proportion of cars market share in Denmark. In order to meet these repaired by garages under the Tryg repair arrangement targets, the Private & Commercial Denmark business increased from 40% to around 50% in 2006. area will launch additional new customer benefits in by greater insight into customer requirements and the coming year, designed to ease the everyday lives of The average building claim increased in 2006 due to the customers and provide added peace of mind. In addi- strong demand for craftsmen, but demand subsided tion, Private & Commercial Denmark intends to focus during the year, slowing the rate of increase. The Tryg on distribution through multiple channels and enhanc- Bygning arrangement still offers considerable potential ing the efficiency of sales and customer contact. Private & Commercial Denmark / TrygVesta Annual Report 2006 / Page 47 of 147 Management’s report Management’s report private & coMMercial norWay dkkm DKK/NOK, rate, annual average Gross earned premiums Gross claims incurred Gross expenses profit/loss on gross business profit/loss on ceded business Technical interest, net of reinsurance Technical result key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 2006 93.04 4,509 -2,892 -922 695 -76 152 771 64.1 1.7 65.8 20.4 86.2 2005 92.85 4,632 -2,844 -945 843 -62 93 874 61.4 1.3 62.7 20.4 83.1 2004 88.79 4,435 -2,696 -922 817 -73 87 831 60.8 1.6 62.4 20.8 83.2 The Private & Commercial Norway business area loyalty very positively. Measured in terms of renewal reported a technical result of DKK 771m for 2006. As rates, customer loyalty increased considerably in 2006. expected, this was lower than the DKK 874m reported in 2005 due to an exceptionally high run-off result and low sales through nordea up by 42% claims expenses. new price structure impacts premium performance Sales through Nordea were 42% higher than in 2005. One factor contributing to the strong increase was that Nordea’s customer advisers attended training in 2006 to strengthen their insurance competencies Gross earned premiums were 2.7% lower than in 2005. with a subsequent requirement to increase sales. In local currency, the fall in gross earned premiums was TrygVesta’s insurances were also included in Nordea’s 2.9%. The deterioration was partly attributable to the benefit programme, becoming an integral part of a changed price structure introduced in May 2005 and home loan campaign in the autumn of 2006, which partly to a new customer benefit programme launched boosted sales further. in 2006, under which the discount offered to custom- ers who buy more than one product increased. While combined ratio at a low level the changed price structure had an adverse effect on The combined ratio continued at a low level in 2006 sales of new policies in the first half of 2006, the over- at 86.2 compared with 83.1 in 2005. While 2005 was all effect of the new price structure and the customer characterised by unusually low claims expenses, 2006 benefit programme was to lift sales in the second half saw a more normal claims experience. of 2006. These measures also impacted customer Private & Commercial Norway / TrygVesta Annual Report 2006 / Page 48 of 147 claiMs frequencies norWay average claiMs (cid:37) (cid:37) (cid:38) (cid:21) (cid:50) (cid:21) (cid:39) (cid:37) (cid:37) (cid:39) (cid:21) (cid:103) (cid:86) (cid:90) (cid:78) (cid:21) (cid:47) (cid:109) (cid:90) (cid:89) (cid:99) (cid:62) (cid:38)(cid:38)(cid:37) (cid:38)(cid:37)(cid:37) (cid:46)(cid:37) (cid:45)(cid:37) (cid:44)(cid:37) (cid:43)(cid:37) (cid:38)(cid:41)(cid:37) (cid:37) (cid:37) (cid:38) (cid:21) (cid:50) (cid:21) (cid:39) (cid:37) (cid:37) (cid:39) (cid:21) (cid:103) (cid:86) (cid:90) (cid:78) (cid:21) (cid:47) (cid:109) (cid:90) (cid:89) (cid:99) (cid:62) (cid:38)(cid:40)(cid:37) (cid:38)(cid:39)(cid:37) (cid:38)(cid:38)(cid:37) (cid:38)(cid:37)(cid:37) (cid:46)(cid:37) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) (cid:66)(cid:100)(cid:105)(cid:100)(cid:103) (cid:55)(cid:106)(cid:94)(cid:97)(cid:89)(cid:94)(cid:99)(cid:92) (cid:66)(cid:100)(cid:105)(cid:100)(cid:103) (cid:55)(cid:106)(cid:94)(cid:97)(cid:89)(cid:94)(cid:99)(cid:92) dkkm 2006 2005 2004 normal year Storm and weather, gross Storm and weather, net Large losses, gross Run-off result, gross -42 -42 -20 87 -35 -32 -37 164 -15 -15 -24 91 -70 -70 -19 0 claims ratio at a satisfactorily low level Converting Vesta into a branch will enable TrygVesta The gross claims ratio was 2.7 percentage points up on to create a more uniform Group structure because the 2005, but it remained at a low level compared with prior insurance activities in Finland and Sweden are already years. The effect of run-off gains on the claims ratio in established as branches. The business will continue 2006 was DKK 87m or 1.9 percentage points, while the to operate under the name of Vesta, and the change corresponding figure for 2005 was DKK 164m or 3.6 will have no practical implications for customers and percentage points. Motor continued to see a positive employees in Norway. trend in the claims frequency in 2006, while building recorded a slightly higher claims frequency. The aver- focus areas in 2007 age motor claim increased, mainly due to higher repair In 2007, Private & Commercial Norway will implement the costs. The average building claim also increased, mainly first phase of a new IT support of sales processes which because of the higher cost of craftsmen. Private & will improve productivity and enhance customer experi- Commercial Norway launched a pilot project similar to ence. As in Denmark, Private & Commercial Norway will Tryg Bygning in Denmark involving cooperation agree- also focus on expanding the product range and peace of ments with selected craftsmen. Looking ahead, this mind offering within the health area. In addition, Private initiative is expected to have a favourable impact on the & Commercial Norway will expand the market position in average claim. the coming year among small and medium-sized enter- prises, primarily through franchise offices, with a particu- fall in nominal amount of expenses lar focus on under-represented geographical areas. The gross expense ratio was 20.4 in 2006, in line with the 2005 figure. Private & Commercial Norway invested heavily in customer-oriented IT systems for the purpose of making workflows and processes more efficient and improving productivity. other events in 2006 peace-of-Mind revieW Private & Commercial Norway launched a new concept in Norway on 1 November 2006 called Tryghedsgennemgang Privat - a peace-of-mind review for private customers. The concept is Kjerstin Fyllingen was appointed as a new member of intended as a measure to prevent claims by the Group Executive Management in charge of Private making the customer aware of risks in the & Commercial Norway effective 1 October 2006. Kjers- tin is 48 years old and comes from a position as division manager with Vital Forsikring. In late 2006, the Norwegian finance ministry approved a conversion of Vesta in Norway into a branch of Tryg. home. Customers are given a 5% discount on their building insurance if the criteria in the peace-of-mind review are met. The peace-of- mind review has already become an important element in the dialogue with customers. Private & Commercial Norway / TrygVesta Annual Report 2006 / Page 49 of 147 Management’s report corporate dkkm DKK/NOK, rate, annual average Gross earned premiums Gross expenses Gross expenses profit/loss on gross business profit/loss on ceded business Technical interest, net of reinsurance technical result key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 2006 93.04 4,921 -3,437 -539 945 -302 210 853 69.8 6.1 75.9 11.0 86.9 2005 92.85 4,666 -3,361 -534 771 -421 114 464 72.0 9.0 81.0 11.4 92.4 2004 88.79 4,801 -3,431 -561 809 -549 130 390 71.5 11.4 82.9 11.7 94.6 The Corporate business area recorded a technical result the customer to identify risks and prepare a risk of DKK 853m in 2006, which was an improvement of report describing the customer’s overall risk scenario. DKK 389m over 2005. The improvement was driven by Together with the customer, the team then finds a both the Danish and the Norwegian part of the busi- solution that covers the customer’s requirements. ness, but also by a favourable development in costs. from insurance provider to risk consultant rate launched a three-module risk consultancy training Gross earned premiums were 5.5%, or DKK 255m, programme on a pan-Nordic basis in 2006. Many of the higher than in 2005. The favourable development was Danish and Norwegian employees completed the first driven by a positive trend in the number of policies sold module in 2006, and some 250 employees are expected and in the proportion of customers who renewed their to complete the full programme by the end of 2008. In connection with the risk consultancy project, Corpo- policies, which exceeded expectations by a substantial margin. Around nine out of ten corporate customers primary growth areas chose to continue their relationship with the Group in The strongest growth in 2006 was generated by 2006, and the risk consultancy project was the main the Danish part of the Corporate business, but the contributor to this positive trend. The risk consultancy advance in the Norwegian part was also substantial. In project is a new team-based way of working, in which particular, the workers’ compensation business saw a sales, underwriting, claims and other staff work with positive development in premiums. While this was, in Corporate / TrygVesta Annual Report 2006 / Page 50 of 147 dkkm 2006 2005 2004 normal year Storm and weather, gross Storm and weather, net Large losses, gross Run-off result, gross -51 -51 -456 216 -136 -29 -356 100 -23 -23 -427 24 -48 -41 -372 0 part, driven by the social index, a very positive volume in 2005. In terms of claims expenses, most of the large of new workers’ compensation policies was also sold. losses were incurred by Danish corporate customers’ As profitability in workers’ compensation insurance has operations abroad. improved relative to previous years, the Group wishes to expand the market share in this area. The claims ratio was also favourably impacted by run- off gains of DKK 216m, equivalent to 4.4 percentage strong combined ratio improvement points. In particular, property and motor contributed The combined ratio improved from 92.4 in 2005 to 86.9 run-off gains, while workers’ compensation and liability in 2006. The improvement was driven, in particular, by reported run-off losses. Thus, the underlying claims the Norwegian part of the Corporate business, which performance was very positive in 2006. ended the year with a combined ratio of 84.1, while it was 91.7 for the Danish part of the Corporate business. flat trend in expenses The improvement was driven by sustained favourable The gross expense ratio fell from 11.4 in 2005 to developments in the expense ratio and the claims ratio. 11.0 in 2006. However, the underlying nominal costs Business ceded as a percentage of gross premiums remained at the level from 2005. The very positive was 2.9 percentage points lower compared with 2005 trend in expenses was very much attributable to primarily because the nature and magnitude of large focused efforts throughout the organisation. losses in 2006 triggered several contributions from reinsurers. focus areas in 2007 satisfactory claims level despite expanding the provision of products and services that high level of large losses offer peace of mind and on gaining greater insight into The gross claims ratio for the year was 69.8 compared customers’ needs by increasing the offer of self-service with 72 in 2005. This was, in particular, attributable to facilities and streamlining the product structure. In 2007, the Corporate business area will focus on a favourable claims performance in the Norwegian part of the Corporate business. The Corporate business area had 11 large losses exceeding DKK 10m in 2006, and the aggregate cost of large losses was significantly higher than in 2005. The large losses had an adverse impact of 9.3 percentage points on the claims ratio against 7.6 percentage points Corporate / TrygVesta Annual Report 2006 / Page 51 of 147 Management’s report finnish general insurance dkkm 2006 2005 2004 DKK/EUR, rate, annual average 745.94 745.07 743.99 Gross earned premiums Gross claims incurred Gross expenses profit/loss on gross business profit/loss on ceded business Technical interest, net of reinsurance technical result key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 198 -155 -83 -40 0 6 -34 78.1 0.2 78.3 41.7 120.0 140 -113 -70 -43 -1 3 -41 80.9 0.2 81.1 50.2 131.3 97 -73 -71 -47 0 2 -45 75.3 0.2 75.5 73.0 148.5 Nordea Vahinkovakuutus, TrygVesta’s Finnish business, improved claims ratio continued the positive performance in 2006. In the The claims ratio improved by 2.8 percentage points third quarter of the year, the branch reported its first relative to 2005. The improvement was attributable ever break-even result on the technical account. For to the underlying customer selection, which is based the full year, the technical result was a loss of DKK 34m on Nordea’s segmentation of customers. Nordea compared with a loss of DKK 41m in 2005. accounted for around two thirds of sales in 2006. The sustained strong growth and performance improvement Group also established its own distribution channels and set up agreements with car dealers in 2006. Gross earned premiums amounted to DKK 198m in significant improvement of expense ratio 2006 against DKK 140m in 2005, equivalent to growth The expense ratio was 41.7 in 2006, which was 8.5 of 41.4%. Growth was driven by higher sales through percentage points lower than in 2005. The favourable Nordea and our own sales channels and by strength- performance was mainly due to absolute costs being ened cooperation with the car dealers. almost unchanged from 2005 as a result of efficient The number of policies sold developed very favourably However, the expense ratio was strongly affected by through the year with some 80,000 policies sold in costs in connection with the start-up of commercial 2006, some 10% more than in 2005. sales in 2006. Excluding the costs of starting up com- processes and steeply increasing premium income. mercial sales, the expense ratio was 32. Finnish general insurance / TrygVesta Annual Report 2006 / Page 52 of 147 focus areas in 2007 gross preMiuMs finland DKKm In 2007, Nordea Vahinkovakuutus intends to expand its position in the private market in Finland. In Febru- ary 2007, sales of insurance services to new and small businesses will be launched, primarily through Nordea. The branch has employed another 20 persons to sell from Nordea’s largest branches in order to stimulate sales in this segment. In addition, the sales force is supplemented by salespersons paid on a commission basis, and sales through our call centre will also be strengthened. (cid:39)(cid:37)(cid:37) (cid:38)(cid:42)(cid:37) (cid:38)(cid:37)(cid:37) (cid:42)(cid:37) (cid:37) (cid:39)(cid:37)(cid:37)(cid:38) (cid:39)(cid:37)(cid:37)(cid:39) (cid:39)(cid:37)(cid:37)(cid:40) (cid:39)(cid:37)(cid:37)(cid:41) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:43) Finnish general insurance / TrygVesta Annual Report 2006 / Page 53 of 147 Management’s report sWedish general insurance dkkm DKK/SEK, rate, annual average Gross earned premiums Gross claims incurred Gross expenses Profit/loss on gross business profit/loss on ceded business Technical interest, net of reinsurance technical result 2006 80.37 4 -6 -39 -41 0 0 -41 Vesta Skadeförsäkring, TrygVesta’s Swedish busi- works closely with the head office in Ballerup, Denmark ness, began selling private insurance in June 2006. and is supported by corporate functions such as Group The branch met with a positive reception and had sold Finance, HR, Legal and IT. almost 26,500 policies to some 13,000 customers by 31 December 2006. The portfolio exceeded SEK 50m Most of Nordea’s Swedish customer advisers completed with an average premium per product of SEK 2,436 at an e-learning sales training programme in 2006, pre- 31 December 2006. paring them to sell our insurances. satisfactory start-up with great potential focus areas in 2007 Insurances in Sweden are sold in a close partnership In Sweden, Vesta Skadeförsäkring intends to expand its with Nordea, which handles much of the sales through market position through the established sales channels its branch network, call centres and website. in 2007. The branch also intends to ensure a superior level of customer focus and customer satisfaction and The initial target group is Nordea’s ‘gold customers’, to trim and improve key processes such as customer that is, customers with more than five products and a renewal and claims handling. New products and sales total commitment of a certain size. Some 30% of Nor- channels will be introduced as and when required by dea’s customers in Sweden are gold customers, and we developments in the business. see significant potential for selling policies to Nordea’s customers. The base in Malmoe and additional staff in Stockholm and Gothenburg provides a good basis for provid- ing service and advice to customers and to Nordea’s employees throughout Sweden. The Swedish business Swedish general insurance / TrygVesta Annual Report 2006 / Page 54 of 147 investMent activities dkkm Bonds etc. Shares Real property total Other financial income and expenses*) total Transferred to technical interest Return on investment activities 2006 788 966 317 return 2005 687 819 175 647 410 146 2,071 1,681 1,203 167 2,238 -1,031 1,207 -86 1,595 -707 888 -187 1,016 -638 378 change investment assets 2004 2005/2006 31.12.06 31.12.05 28,663 5,384 2,453 27,572 4,783 2,055 36,500 34,410 101 148 142 390 253 643 -324 319 *) The item comprises gains and losses as a result of a changed discount rate, interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insurance items and costs of investment activities. In 2006 the return on investment activities before lifting the proportion of equities in the portfolio from other financial income and expenses and transfer to 13.9% to 14.7%. The proportion of bonds was 78.5% at insurance activities totalled DKK 2,071m, which was 31 December 2006 compared with 80.1% a year earlier. DKK 390m higher than in 2005. The performance The value of the portfolio of real property increased by equals a 5.8% return on investment assets, which was DKK 398m in 2006, lifting its proportion from 6.0% to satisfactory and in line with expectations. TrygVesta’s 6.7% of total investment assets. investment performance in 2006 was, in particular, lifted by a very positive equity return of 20.3% with Net investments amounted to about DKK 1.7bn in Danish and Norwegian equities generating returns of 2006, of which DKK 1.4bn was invested in bonds and 25.7% and 34.9%, respectively. DKK 0.2bn in real property. Technical interest transferred to insurance activities bonds was DKK 324m higher. The total return on investment The overall bond portfolio including cash yielded a activities was increased by DKK 319m over 2005 to return of 2.8% or DKK 788m in 2006. Short-term bond stand at DKK 1,207m in 2006. Other financial income yields rose 1.2-1.5 percentage points in Denmark and and expenses improved from a net expense of DKK Norway during 2006, which had an adverse impact on 86m to a net income of DKK 167m, among other things value adjustments and a positive impact on the current because higher interest rates lifted the discounting return. 97.2% of the bond portfolio consisted of Danish effect of technical provisions from DKK 43m in 2005 to mortgage bonds, placements in the Norwegian money DKK 347m in 2006. asset allocation market and bonds issued by Western European and North American governments, regional authorities and credit institutions. As shown in the pie chart, 75% of The value of the equity portfolio increased by DKK the portfolio consisted of bonds rated AAA or AA. 601m in 2006, primarily due to higher equity prices, Investment activities / TrygVesta Annual Report 2006 / Page 55 of 147 Management’s report return by asset group, % bonds by geography (cid:39)(cid:42) (cid:39)(cid:37) (cid:38)(cid:42) (cid:38)(cid:37) (cid:42) (cid:37) (cid:39)(cid:39)(cid:35)(cid:40) (cid:39)(cid:37)(cid:35)(cid:40)(cid:21) (cid:21)(cid:38)(cid:43)(cid:35)(cid:38) (cid:38)(cid:42)(cid:35)(cid:37)(cid:21) (cid:21)(cid:46)(cid:35)(cid:41) (cid:21)(cid:44)(cid:35)(cid:45) (cid:42)(cid:35)(cid:42) (cid:42)(cid:35)(cid:45)(cid:21) (cid:21)(cid:41)(cid:35)(cid:43) (cid:39)(cid:35)(cid:44) (cid:21)(cid:40)(cid:35)(cid:38) (cid:39)(cid:35)(cid:45)(cid:21) (cid:55)(cid:100)(cid:99)(cid:89)(cid:104) (cid:72)(cid:93)(cid:86)(cid:103)(cid:90)(cid:104) (cid:71)(cid:90)(cid:86)(cid:97)(cid:21)(cid:101)(cid:103)(cid:100)(cid:101)(cid:90)(cid:103)(cid:105)(cid:110) (cid:73)(cid:100)(cid:105)(cid:86)(cid:97) (cid:39)(cid:37)(cid:37)(cid:43) (cid:39)(cid:37)(cid:37)(cid:42) (cid:39)(cid:37)(cid:37)(cid:41) (cid:38)(cid:42)(cid:35)(cid:43)(cid:26)(cid:21)(cid:68)(cid:105)(cid:93)(cid:90)(cid:103) (cid:42)(cid:41)(cid:35)(cid:40)(cid:26)(cid:21) (cid:57)(cid:86)(cid:99)(cid:94)(cid:104)(cid:93)(cid:21)(cid:87)(cid:100)(cid:99)(cid:89)(cid:104) (cid:40)(cid:37)(cid:35)(cid:38)(cid:26)(cid:21) (cid:67)(cid:100)(cid:103)(cid:108)(cid:90)(cid:92)(cid:94)(cid:86)(cid:99)(cid:21)(cid:87)(cid:100)(cid:99)(cid:89)(cid:104) (cid:86)(cid:99)(cid:89)(cid:21)(cid:98)(cid:100)(cid:99)(cid:90)(cid:110)(cid:21)(cid:98)(cid:86)(cid:103)(cid:96)(cid:90)(cid:105) The bond portfolio had a duration of 1.3 years at 31 MSCI Europe and MSCI USA, respectively. Currency risks December 2006 compared with 1.6 years at 31 December relating to international equities were hedged during 2005. Part of the provisions for claims is made up on a the year. Unlisted shares accounted for DKK 209m at discounted basis and thus subject to interest rate risk. 31 December 2006. The interest rate sensitivity in DKK on the bond portfolio is managed on an ongoing basis to minimise the gap to TrygVesta’s portfolio of listed shares is highly diversi- the interest rate sensitivity in DKK affecting provisions for fied. The largest position, Royal Bank of Scotland, claims. Interest rate sensitivity is measured as changes in accounted for only 2.2% of total listed shares and 0.3% the value of the bond portfolio and the discounted provi- of total investment assets. Danish and Norwegian sions for claims, respectively, at an interest rate increase listed shares accounted for 20.7% of the total listed of 1%. If the gap is too large, changes in interest rates portfolio, and the international share mandates are may have an adverse impact on the income statement. placed in portfolios that are highly diversified with The sensitivity gap was DKK 61m at 31 December 2006. regard to geography and industry and with a low track- See also the section on Risk management. ing error, meaning that the portfolio return is expected shares to be very close to the benchmark return. TrygVesta maintains a broadly diversified international equity The total return on the equity portfolio for 2006 was portfolio in accordance with the investment policy. DKK 966m, equivalent to 20.3%. The return on Danish shares was 25.7%, while Norwegian shares generated real property a return of 34.9% compared with 25.3% for the Danish The investment return on real property was DKK 317m, OMX Copenhagen Capped index and 32.4% for the Nor- equivalent to a total return of 15.0%. The high return wegian OSEBX index. The return on other international was mainly attributable to revaluation due to higher shares was 17.6% compared with 19.1% and 14.7% for market values totalling DKK 184m based on a prudent Investment activities / TrygVesta Annual Report 2006 / Page 56 of 147 bonds by rating 31 deceMber 2006 listed shares by geography 31 deceMber 2006 (cid:21) (cid:37)(cid:33)(cid:41)(cid:26)(cid:21) (cid:55)(cid:55)(cid:55)(cid:36)(cid:55)(cid:86)(cid:86) (cid:21)(cid:38)(cid:46)(cid:33)(cid:39)(cid:26)(cid:21) (cid:67)(cid:71) (cid:21)(cid:43)(cid:42)(cid:33)(cid:45)(cid:26)(cid:21) (cid:54)(cid:54)(cid:54)(cid:36)(cid:54)(cid:86)(cid:86) (cid:21) (cid:46)(cid:33)(cid:38)(cid:26)(cid:21) (cid:54)(cid:54)(cid:36)(cid:54)(cid:86) (cid:21) (cid:42)(cid:33)(cid:42)(cid:26)(cid:21) (cid:54)(cid:36)(cid:54) (cid:21)(cid:39)(cid:41)(cid:35)(cid:38)(cid:26)(cid:21) (cid:74)(cid:72)(cid:54) (cid:21) (cid:43)(cid:35)(cid:45)(cid:26)(cid:21) (cid:63)(cid:86)(cid:101)(cid:86)(cid:99) (cid:21) (cid:38)(cid:35)(cid:39)(cid:26)(cid:21) (cid:68)(cid:105)(cid:93)(cid:90)(cid:103) (cid:21)(cid:38)(cid:40)(cid:35)(cid:44)(cid:26)(cid:21)(cid:21) (cid:57)(cid:90)(cid:99)(cid:98)(cid:86)(cid:103)(cid:96) (cid:21) (cid:44)(cid:26)(cid:21) (cid:67)(cid:100)(cid:103)(cid:108)(cid:86)(cid:110) (cid:21)(cid:38)(cid:43)(cid:35)(cid:46)(cid:26)(cid:21) (cid:74)(cid:64) (cid:21)(cid:40)(cid:37)(cid:35)(cid:40)(cid:26)(cid:21) (cid:71)(cid:90)(cid:104)(cid:105)(cid:21)(cid:100)(cid:91)(cid:21)(cid:58)(cid:106)(cid:103)(cid:100)(cid:101)(cid:90) practice for assessment and valuation of real property. The occupancy rate was 94.9 at 31 December 2006 compared with 94.4 a year earlier. The portfolio of real property is well-diversified and consists of quality property, typically in prime locations in major cities in Denmark and Norway. The portfolio mainly comprises office premises, but also includes a small proportion of other commercial property and residential property. Investment activities / TrygVesta Annual Report 2006 / Page 57 of 147 INSECURITY IS MORE OR LESS A MEDIA-DRIVEN TREND Seen from my chair, I find it interesting to consider the development that the insurance market has under- gone during the last few years. Following the tough years around the Millennium, many companies have realised the importance of focusing on profitable core products rather than on their financial investments. Companies had quite simply forgotten to “insure themselves” and pay sufficient attention to the risk inher- ent in such investments, and at the time several companies were in danger of winding up. These days, things are in quite a different place than they were 5–6 years ago. The industry has been through a minor revolu- tion. Many companies have consolidated; we have witnessed a number of acquisitions and there is practically a new generation in the management teams of the various European insurance players. Therefore, the situa- tion is better than it’s been for a long time. When a company – as is the case with TrygVesta – is a relatively new listed company, there are a number of contrary issues at play: naturally, the return to the shareholders must be good; it’s also important to have an excellent strategy that can be executed; and to a very wide extent, the company is recommended to stick to its core business. The last point is particularly significant, in my view. This is the way to generate trust within the market. Seen from an investment point-of-view, I would say that there is every reason to be optimistic about the fu- ture. If a company is able to continue performing strongly within its core business and, for instance, improve its combined ratio, I believe there is every reason to be optimistic. There is currently a largely media-gener- ated tendency to focus on a lack of security and safety, and that in particular hits many politicians. Instead, we ought to focus on the new opportunities that globalisation continuously provides, and that many of the European economies are generally doing better and better. Provided both the management and staff of companies take these challenges seriously and are ready for change, I can only see positive scenarios for the future. PAUL DOYLE IS AN EXECUTIVE DIRECTOR AT THREADNEEDLE, OF WHICH HE WAS ONE OF THE FOUNDERS SOME TWENTY YEARS AGO. PAUL IS ONE OF THE INVESTORS IN LONDON, WHO HAS THE GREATEST KNOWLEDGE ABOUT THE INSURANCE INDUSTRY IN THE NORDIC REGION SEEN FROM AN INVESTMENT PERSPECTIVE Management’s report our investors Openness, transparency and a fundamental understand- advisers and customers, and three to five of these ing of investor information requirements are key to analysts should be based in London. creating and maintaining good relations with sharehold- ers and other financial stakeholders. The Investor Relations pages at www.trygvesta.com are an important vehicle for providing information on We strive to maintain a high level of information and TrygVesta’s performance to prospective investors and understanding of our business among analysts and others. Information provided on our website includes investors by updated schedules for investor presentations and the • being available for queries and providing a high level names of the equity analysts who follow the TrygVesta of relevant information share. Stock exchange announcements, investor pres- • preparing plain and relevant written communication entations and annual reports are also available on the • being proactive in our dealings with investors. website. Investor Relations focus strongly on making We make information that may influence the pricing accessible to investors and urge all interested parties updated and relevant information available and easily of our shares available to all stakeholders through the to use the website. OMX Copenhagen Stock Exchange. Similar information is distributed to the London Stock Exchange, the press, In accordance with the recommendations issued by equity analysts, investors and other stakeholders. the OMX Copenhagen Stock Exchange, we refrain from shareholder structure commenting on matters relating to our financial per- formance or forecasts during a period of three weeks TrygVesta has a single class of shares, and all shares prior to the release of financial reports. rank pari passu. Tryg i Danmark smba holds 60% of the shares and is the only shareholder holding more trygvesta shares than 5%. At 31 December 2006, the remaining 40% of Trading in TrygVesta shares on the OMX Copenhagen the shares (free float) was held by 25,691 registered Stock Exchange commenced on 14 October 2005 shareholders. Some 25% of the free float shares was with an opening price of DKK 230. About two months held by international investors, some 50% by large Dan- later, the TrygVesta share became a component of the ish investors, and 25% by Danish investors holding less OMXC20 index comprising the 20 most traded shares than 500 shares. The 200 largest shareholders held on the OMX Copenhagen Stock Exchange. 84% of the shares in aggregate at 31 December 2006. dialogue with investors Turnover of TrygVesta shares in 2006 totalled DKK 47.9bn on the OMX Copenhagen Stock Exchange. The The Group Executive Management and Investor Relations most active traders were: Department hold meetings with investors and equity Danske Bank analysts in Copenhagen and London on a quarterly basis Morgan Stanley and visit other cities in Europe and the USA during the SEB Enskilda year. The target is 250-300 investor meetings each year. Nordea Bank In 2006, 265 investor meetings were held. Our aim is that ABG Sundal Collier 10-15 equity analysts actively follow TrygVesta’s perform- Jyske Bank ance and communicate their assessments to investment Fisher Partners Fondskommission 23% 9% 9% 8% 4% 3% 3% Our investors / TrygVesta Annual Report 2006 / Page 60 of 147 shareholders, 31 deceMber 2006 free float, 31 deceMber 2006 (cid:38)(cid:37)(cid:26)(cid:21)(cid:21) (cid:66)(cid:86)(cid:95)(cid:100)(cid:103)(cid:21)(cid:94)(cid:99)(cid:105)(cid:90)(cid:103)(cid:99)(cid:86)(cid:105)(cid:94)(cid:100)(cid:99)(cid:86)(cid:97) (cid:21) (cid:21) (cid:94)(cid:99)(cid:107)(cid:90)(cid:104)(cid:105)(cid:100)(cid:103)(cid:104)* (cid:38)(cid:43)(cid:26)(cid:21)(cid:21) (cid:72)(cid:98)(cid:86)(cid:97)(cid:97)(cid:21)(cid:86)(cid:99)(cid:89)(cid:21)(cid:106)(cid:99)(cid:103)(cid:90)(cid:92)(cid:94)(cid:104)(cid:105)(cid:90)(cid:103)(cid:90)(cid:89)(cid:21) (cid:21) (cid:21) (cid:104)(cid:93)(cid:86)(cid:103)(cid:90)(cid:93)(cid:100)(cid:97)(cid:89)(cid:90)(cid:103)(cid:104)(cid:21) (cid:21) (cid:43)(cid:26)(cid:21) (cid:74)(cid:72)(cid:54) (cid:21) (cid:40)(cid:26)(cid:21) (cid:73)(cid:93)(cid:90)(cid:21)(cid:67)(cid:100)(cid:103)(cid:89)(cid:94)(cid:88)(cid:21)(cid:103)(cid:90)(cid:92)(cid:94)(cid:100)(cid:99) (cid:21) (cid:42)(cid:26)(cid:21) (cid:68)(cid:105)(cid:93)(cid:90)(cid:103) (cid:21)(cid:43)(cid:37)(cid:26)(cid:21) (cid:73)(cid:103)(cid:110)(cid:92)(cid:21)(cid:94)(cid:21)(cid:57)(cid:86)(cid:99)(cid:98)(cid:86)(cid:103)(cid:96) (cid:21)(cid:38)(cid:41)(cid:26)(cid:21) (cid:66)(cid:86)(cid:95)(cid:100)(cid:103)(cid:21)(cid:57)(cid:86)(cid:99)(cid:94)(cid:104)(cid:93) (cid:21) (cid:94)(cid:99)(cid:107)(cid:90)(cid:104)(cid:105)(cid:100)(cid:103)(cid:104)* (cid:21) * Holding more than 10,000 shares. Total dividend (DKKbn) Dividend per share (DKK) Payout ratio The dividend for the year will be paid automatically four weekdays after our annual general meeting. The ex-dividend date will be 29 March 2007. (cid:21)(cid:44)(cid:37)(cid:26)(cid:21) (cid:57)(cid:90)(cid:99)(cid:98)(cid:86)(cid:103)(cid:96) (cid:21)(cid:38)(cid:43)(cid:26)(cid:21) (cid:74)(cid:64) 2006 2005 2,244 1,428 33 70 21 68 financial calendar 28 March Annual general meeting 2007 9 May 21 Juni Financial results for the three months ending 31 March 2007 Capital markets day 16 August Financial results for the six months ending 30 June 2007 22 November Financial results for the nine months ending 30 September 2007 Our investors / TrygVesta Annual Report 2006 / Page 61 of 147 Management’s report annual general meeting The annual general meeting of TrygVesta will be held on 28 March 2007 at 14.00 CET at Øksnehallen, Halmtorvet 11, DK-1700 Copenhagen V, Denmark. The notice of the annual general meeting will be sent by post to all registered shareholders. Invitations to subsequent general meetings will be sent by e-mail. Notice of the annual general meeting will also be posted on our website and inserted in the press. Any queries relating to the annual general meeting may be addressed to Bjarne Lau Pedersen, Chief Group Legal Adviser, on +45 4420 3065, bjarne.lau@tryg.dk, or to Ole Søeberg, IRO, on +45 4420 4520, ole.soeberg@tryg.dk. trygvesta a/s - stock exchange announceMents in 2006 15.12.2006 No. 14 TrygVesta – Vesta in Norway approved as branch of Tryg 09.11.2006 No. 13 TrygVesta’s third quarter 2006 report 17.08.2006 No. 12 TrygVesta’s half-year 2006 report 04.07.2006 No. 11 Change in TrygVesta’s Supervisory Board 27.06.2006 No. 10 TrygVesta – New Group Executive 11.05.2006 No. 09 TrygVesta’s first quarter 2006 report 30.03.2006 No. 08 New deputy chairman of the Supervisory Board 30.03.2006 No. 07 Articles of association of TrygVesta A/S 30.03.2006 No. 06 TrygVesta – Financial calendar 2006 revised 30.03.2006 No. 05 TrygVesta – Resolutions from the annual general meeting 24.03.2006 No. 04 TrygVesta – Changes in management in Norway 09.03.2006 No. 03 Notice of the annual general meeting of TrygVesta A/S 28.02.2006 No. 02 TrygVesta introduces share-based payments 28.02.2006 No. 01 TrygVesta – Annual report 2005 Our investors / TrygVesta Annual Report 2006 / Page 62 of 147 corporate governance TrygVesta focuses strongly on good corporate govern- • Adoption of a resolution as to the distribution of ance and the Supervisory Board deems that, with a few profit or covering of loss, as the case may be, accord- exceptions, TrygVesta complies with the recommenda- ing to the annual report as approved tions published by the Copenhagen Stock Exchange • Any proposals from the Supervisory Board or from Committee on Corporate Governance in October 2005. shareholders • Election of members to the Supervisory Board shareholders • Appointment of auditors TrygVesta emphasises open and honest communication • Any other business with shareholders. News items, quarterly, half-year and annual results are announced in order to best enable All shareholders are urged to attend the annual general shareholders to form an adequate impression of the meeting. Shareholders may vote by proxy given to the business. TrygVesta also arranges investor presentations, Supervisory Board or to a third party. A proxy form to the teleconferences and webcasts. Such material is available Supervisory Board is made available, which allows share- on the Group’s website, which is continuously developed holders to decide on the individual items of the agenda. in terms of user-friendliness and content. We also follow A proxy form will be available at our website from 9 the development of new technology in this area closely. March 2007. The Supervisory Board regularly considers the adequacy stakeholders of the capital structure relative to the interests of the TrygVesta believes good stakeholder relations are company and shareholders, ensuring that our capi- key to our future performance and potential, and we talisation is optimised on an ongoing basis while duly strive to develop and maintain good relations to all safeguarding shareholders’ interests and leaving the stakeholders. TrygVesta therefore gives high priority to Group sufficient scope in which to develop and grow. being available and accessible and endeavours to reply to all enquiries in an accommodating manner. general meetings TrygVesta’s annual general meeting is held every year In order to ensure that information is provided to in Greater Copenhagen before the end of April. The stakeholders in a correct and adequate manner, Supervisory Board convenes general meetings giving TrygVesta has defined a number of policies, including not less than eight days’ notice. The notice includes the internal and external communications policies, distribu- time and place of the meeting and sets out the agenda, tion, customer and service policies, investor relations which comprises: policies, key persons policies, HR policies and a policy defining a code of conduct for behaviour with respect • Report of the Supervisory Board on the activities of to competition law. the company during the past financial year • Presentation of the annual report for approval, including Press announcements and stock exchange announce- determination of the Supervisory Board’s remuneration, ments are published simultaneously in Danish and and discharge of the Supervisory Board and the Execu- English and distributed to stakeholders immediately tive Management after publication, if requested. Corporate governance / TrygVesta Annual Report 2006 / Page 63 of 147 Management’s report the composition of the supervisory board • four representatives are elected among the employees, The Supervisory Board has 12 members, including eight who according to agreement with the Danish members elected by the shareholders for a term of one employee associations include two representatives of year. Four of the eight members are non-affiliated with the Danish employees and two representatives of the Tryg i Danmark. The Supervisory Board’s composition Norwegian employees follows the following principles: • four members are elected among the members of the bers elected by the shareholders may hold office for a Supervisory Board of Tryg i Danmark smba maximum of nine years. Furthermore, members of the • four members are elected among candidates without Supervisory Board must retire at the first annual gen- any affiliation with Tryg i Danmark smba, and eral meeting following the year of their 70th birthday. To ensure replacement on the Supervisory Board, mem- the tasks and responsibilities of the supervisory board The Supervisory Board is responsible for the overall management and financial and managerial control of TrygVesta A/S. To perform its tasks, the Supervisory Board uses targets and framework management based on regular and systematic consideration of strategies, capital resources, poli- cies and risks. The Executive Management reports regularly to the Supervisory Board on strategies and action plans, market developments and the Group’s performance, funding issues, capital resources and special risks. The Supervisory Board cooperates with the Executive Management on a regular basis to ensure development of and follow up on the strategy. The Supervisory Board holds at least six annual meetings as scheduled in a pre-defined meeting and working plan. In addition, the Supervisory Board holds an annual strategy seminar to assess progress and define goals and strategies for the years ahead. The Supervisory Board carries out an annual evaluation of the work and results of the Executive Management and of the cooperation between the Supervisory Board and the Executive Manage- ment. The Supervisory Board also carries out a self-assessment of the work and results of the Supervisory Board. The assessment takes the form of an annual talk between the chairman of the Supervisory Board and each of the Board members with a view to developing the Board’s work. the chairMan and deputy chairMan of the supervisory board The chairman and the deputy chairman are in charge of the Supervisory Board’s work. Their duties include preparing Board meetings and performing evaluations. Corporate governance / TrygVesta Annual Report 2006 / Page 64 of 147 Prior to the election of new Supervisory Board mem- of the preceding year’s work to assess if any changes bers, the Supervisory Board encloses a description should be made to its areas of responsibility. of the candidates’ background with the notice of the general meeting. The description states the recruit- Members of the audit committee receive an annual fee ment criteria established, including requirements with of DKK 100,000 and the chairman of the committee respect to the candidates’ professional qualifications receives DKK 150,000. For 2006, fees were paid for the and international experience. period beginning on 1 April. Information on Board members profiles and sharehold- nomination committee ings is set out in Members of the Supervisory Board in The Supervisory Board set up a provisional nomination this annual report. audit committee committee in the first quarter of 2006. The nomina- tion committee was responsible for selecting suitable candidates for the Supervisory Board. The provisional The Supervisory Board set up an audit committee in nomination committee comprised Mikael Olufsen (chair- 2006. The three-member audit committee is chaired by a man), John Frederiksen and Per Skov. member of the Supervisory Board who is not a member Each member received a fee of DKK 75,000. of the Supervisory Board of Tryg i Danmark smba. The audit committee will hold at least four annual meetings. At the end of 2006, the chairman and deputy chairman of the Supervisory Board handled the nomination work In 2006, members of the audit committee were: without receiving any special fee. • Bodil Nyboe Andersen (chairman) • Per Skov • Håkon J. Huseklepp remuneration of the supervisory board The members of the Supervisory Board receive a fixed annual remuneration of DKK 250,000. However, the The audit committee supports the Supervisory Board’s deputy chairman receives DKK 500,000 and the chair- supervision of man receives DKK 750,000. Members of the Super- • the annual financial statements visory Board receive no bonus and do not participate • internal control and risk management in any options programmes or severance plans. • internal and external audit compensation of the group The audit committee works with historical data, and it executive Management is not involved in forward-looking events such as out- The Group Executive Management comprises six mem- look and budgets. In addition to the above, the audit bers. The compensation paid to the Executive Man- committee shall to a reasonable extent discuss and agement reflects a wish to secure a good and stable review with management significant financial informa- performance for the company in the short term as well tion in interim reports etc. as in the longer term. The compensation includes an The audit committee reports to the Supervisory Board bonus plan entitling them to up to three months’ addi- on a regular basis, and it makes an annual assessment tional salary. The bonus is directly linked to performance element of performance-related bonus and comprises a within the four perspectives of the balanced scorecard. Corporate governance / TrygVesta Annual Report 2006 / Page 65 of 147 Management’s report compensation of the group executive Management 2006 dkk /*nok fixed salary bonus discretionary shares at pension car total com- Christine Bosse Morten Hübbe Peter Falkenham Stig Ellkier-Pedersen Kjerstin Fyllingen Lars Bonde 4,500,000 2,700,000 2,409,000 2,300,000 *2,200,000 2,000,000 750,000 450,000 402,000 196,000 *176,000 167,000 750,000 200,000 a discount 375,000 1,125,000 225,000 200,750 192,000 *176,000 167,000 675,000 602,250 552,000 *570,520 500,000 146,000 156,000 136,445 110,000 *128,000 121,000 pensation 7,646,000 4,406,000 3,750,445 3,350,000 *3,250,520 2,955,000 Kjerstin Fyllingen and Lars Bonde joined the Group Executive Management in the autumn of 2006. Lars Bonde’s stock options in 2006 relate to his position before he became a member of the Group Executive Management. Peter Falkenham received DKK 250,000 for being in charge of Private & Commercial Norway prior to Kjerstin Fyllingen’s appointment. A stock option programme provides incentives to focus (“all trades”) on the OMX Copenhagen Stock Exchange on share performance. Members of the Group Executive on 27 February 2006. The options were granted on 28 Management are also entitled to company cars. February 2006. A contribution of 25% of the fixed salary of the Group In 2006, members of the Group Executive Management Executive Management is paid into a pension scheme. were granted options as follows: Kjerstin Fyllingen has a defined benefit plan in accord- ance with the Norwegian pension rules, as described in 20,960 optioner til Christine Bosse the notes to the financial statements. 7,860 optioner til Morten Hübbe 6,550 optioner til Peter Falkenham Members of the Group Executive Management are 6,550 optioner til Stig Ellkier-Pedersen entitled to 12 months’ notice of termination and to 2,650 optioner til Lars Bonde 12 months’ severance pay. However, the Group CEO is entitled to 12 months’ notice of termination and to 18 Each option entitles the holder to acquire one share at months’ severance pay plus pension contributions. the exercise price. Options cannot be exercised earlier than three years after the date of grant and not later stock options than five years after the date of grant. The Supervisory Board makes an annual grant of stock options to members of the Group Executive Manage- In 2007, the Supervisory Board has determined a ment and certain senior management employees as a stock option programme with the same time horizon forward-looking incentive. In 2006, TrygVesta granted as above and an exercise price 10% above the market a total of 186,020 stock options, including 44,540 price on the date they are granted. stock options to members of the Executive Manage- ment and 141,480 stock options to 53 senior manage- The Supervisory Board also grants stock options to ment employees. Options granted in 2006 entitled the employees to reward outstanding performance. All holders to acquire shares at the average share price Corporate governance / TrygVesta Annual Report 2006 / Page 66 of 147 stock options will be granted immediately prior to audit release of the financial statements. Ensuring a competent and independent audit is an employee bonus essential part of the Supervisory Board’s work. The annual general meeting each year appoints auditors It is important to TrygVesta that all employees see their recommended by the Supervisory Board. The Super- own efforts relative to the company’s overall targets, visory Board, the audit committee and the Executive and for this purpose we have an employee bonus pro- Management make a critical assessment of the audi- gramme. Employee bonus benchmarks were combined tors’ independence and competence. ratio and growth in 2006, and our performance trig- gered DKK 10,000 worth of shares at a discount to the We are subject to the rules of the Danish Financial Super- market price to each employee in Denmark. Employees visory Authority governing financial businesses. These in Norway, Finland and Sweden may choose between rules provide that internal auditors review the quality of shares or payment in cash. our internal control systems and business procedures on a regular basis and are responsible for planning, performing shares at a discount to the market price and reporting this audit work to the Supervisory Board. Following release of our 2006 annual report, members of the Executive Management and senior management The internal and external auditors’ long-form reports employees will be offered to use part of any bonus are reviewed by the Supervisory Board. payment up to three months’ salary to acquire shares at a discount to the market price. Shares at a discount to the market price will be offered at par value. risk management TrygVesta is an insurance group subject to public super- vision, and the company’s risk management is organised and monitored by the Group Executive Management and Supervisory Board. Risk related to investment, reinsur- ance, underwriting and acceptance policies, IT security, IT resources and own insurance matters is managed through policies defined by the Executive Management and approved by the Supervisory Board. Risk is meas- ured and managed centrally at Group level for all the Group’s companies and branches. A detailed review of TrygVesta’s risk management principles is set out in Risk management in this annual report and on our website. Corporate governance / TrygVesta Annual Report 2006 / Page 67 of 147 Management’s report capitalisation 2006 TrygVesta must have the capital required to operate and our website. The proposed dividend for the year is develop the Group. This is referred to as the Group’s determined by comparing capital in the model with capital requirement. The aim is to secure a rating of the targeted rating of A-. Any capital in excess of this A- from Standard & Poor’s, comply with relevant regula- requirement is returned to the shareholders in the form tory requirements and optimise the capital structure of dividend. Besides the listing on the OMX Copen- relative to the company’s shareholders. Given the current hagen Stock Exchange, TrygVesta has the following structure of the business and the investment profile, capital resources: a rating of A- reflects a ratio of capital to net premiums of 52-56%. subordinate loan capital Tryg Forsikring A/S has raised a 20-year bond loan in Given the proposed dividend distribution for 2006, the amount of EUR 150m, which is listed on the London TrygVesta’s capital is 128% relative to Standard & Poor’s Stock Exchange. The loan, which carries a coupon of capital model and 57.6% relative to premiums. 4.5%, is included in the capital base for rating purposes and to a limited extent in the regulatory capital base. At 31 December 2006, the capital after dividend distribu- Subordinate loan capital accounts for 10% of the capital tion was above the target level relative to premiums. This for credit purposes, with the present limit being 15%. was attributable to a temporary deviation in the invest- ment profile created by market value increases of shares credit facility and real property due to the favourable capital markets TrygVesta has a five-year revolving credit facility of in 2006. In addition, the capital is adjusted for discount- DKK 2,000m subscribed with ten Danish and interna- ing of provisions for claims using a standard calculation tional banks. At 31 December 2006, DKK 600m had method. The target of having capital of 52-56% relative been utilised under the facility. Total interest expenses to premiums is expected to be continued in 2007. incurred on loan capital were DKK 94m in 2006, which TrygVesta uses Standard & Poor’s capital model, a 42 times by earnings. The total debt ratio was 15.1 at simplified version of which is posted quarterly on 31 December 2006. means that TrygVesta’s interest expenses are covered Capitalisation 2006 / TrygVesta Annual Report 2006 / Page 68 of 147 We had the following ratings at 31 december 2006 standard & poor’s Moody’s Tryg Forsikring Vesta Forsikring Dansk Kaution Target (minimum) changes in capitalisation Shareholders’ equily Subordinate loan capital Dividend for the year capitalisation net premiums Ratio of capital to premiums A-/stable A-/stable A-/stable A- A3/positive A3/positive - A3 2006 9,951 1,099 -2,244 8,806 2005 8,215 1,098 -1,428 7,885 15,293 14,900 57.6% 52.9% Capitalisation 2006 / TrygVesta Annual Report 2006 / Page 69 of 147 DO WE FEEL MORE SAFE AND SECURE BY BEING DISTURBED ALL THE TIME? Our definition of what makes us feel safe and secure depends strongly on the stage we’re at in our lives. At 71, I think predominantly on the security of the life that we have created for ourselves, principally in relation to my family, my children and grandchildren. Fortunately, elderly people these days tend to be in better health. People do not get worn-out, as they did in the past. When you are in better health, you get a better transition to the last stage of your life. Indeed, many elderly people take an active part in a great variety of association activities within their local areas. Playing more of an active part in one’s local community may indicate that the elderly feel more safe and secure. One of the reasons why I believe that Denmark will continue to be a rich country is that we have the ability to adapt to change. I was born in the country and then moved into town more or less at the time when the agri- cultural society became industrialised, and now we live in a type of service society. In fact, this readjustment happened incredibly fast, and is there any reason to believe that the development within our part of the world will not continue as a series of shifts and readjustments? However, I am not personally interested in taking up everything new. I haven’t got a mobile, for example. If we are not available, we have an answering machine at home and we also have e-mail, which I check at least twice a week! But I have noticed in others that they rather like being disturbed – like knowing that there is somebody who wants to get in touch with them. Perhaps there is a sense of security in knowing that one can be of help – that one is in demand. PETER KALKO IS 71. HE IS RETIRED AND LIVES IN MÅRUM, DENMARK. BEFORE PETER RETIRED, HE WAS, AMONG OTHER THINGS, THE MAYOR OF BIRKERØD AND MANAGING DIRECTOR OF AN IT COMPANY. Management’s report risk ManageMent Risk management is a fundamental part of TrygVesta’s TrygVesta’s risk management structure is based on business philosophy. When a customer takes out a a number of policies that are reviewed and approved policy with us or investors buy our shares, they do so annually by the Supervisory Board. TrygVesta has set because they are confident that TrygVesta has risk up a number of committees to monitor and follow up management procedures in place that ensure on the policies governing the major risk management TrygVesta is able to meet its obligations with respect areas, such as underwriting, provisions, investments to paying claims for insurance events and to creating and security. TrygVesta is working on an ongoing basis value for shareholders. Structured and competent risk to develop and improve risk management policies and management is fundamental to such confidence. processes and expects in 2007 to make the processes even more harmonised. TrygVesta divides risk into the following general categories for risk management purposes financial risk insurance risk The risk relating to pricing insurance products and the related insurance liabilities if a claim is made Market risk The risk that volatility of financial markets impacts our results credit risk The risk that a counterparty fails to live up to financial obligations towards us strategic risk The risk that the conditions under which we operate change operational risk The risk of errors or failures in internal procedures, systems and processes, and risks that are not covered by the financial risks and strategic risks Risk management / TrygVesta Annual Report 2006 / Page 72 of 147 capital and risk After the period of the policy’s cover has expired, insur- TrygVesta relies on its capital base to assume risks ance risk relates to the provisions for claims made to from customers and for customers to be confident that cover future payments on claims already incurred. TrygVesta is able to meet its obligations if they report a The size of the provisions for claims is determined claim. TrygVesta’s target is to maintain adequate capi- both through individual assessments of each claim and tal to absorb the risks arising as part of the operations. actuarial calculations. TrygVesta has no interest in accumulating capital in excess of what is required for operations and for natu- reinsurance ral growth, because that would be an inefficient way of An important part of TrygVesta’s risk management is hedging risk. Instead, TrygVesta aims to strike the right the use of reinsurance, which is assessed and struc- balance between the risk assumed and the capital base tured on a Group-wide basis. The structured approach by using structured risk management procedures. to reinsurance is supported by the ALM model, which we use for assessing the impact of different reinsur- The overall aim for our capital resources is based on ance alternatives. relevant regulatory requirements and our wish to maintain a rating of A- from Standard & Poor’s. In addi- In order to have protection against natural disaster tion to assessing the size of the required capital in the risks, we maintain cover in 2007 of up to DKK 4.5bn simplified version of Standard & Poor’s capital model, with retentions of DKK 100m in Denmark and NOK we also assess capital and risk in an internal ALM 100m in Norway. The level of cover was determined model. This is a model for simulating results of invest- based on the risk exposure of our portfolio, using ments, insurance operations and reinsurance. The ALM simulation models. These models suggest that a loss in model is used to evaluate investment strategies and excess of DKK 4.5bn occurs less often than once every purchases of reinsurance and to determine risk-based 250 years. return requirements for the individual business areas. Assessment of the required capital level is also a focal limited through TrygVesta’s mandatory participation in point for the EU in its work to draft new Solvency the Norwegian Pool of Natural Perils. Exposure to natural disasters in Norway is furthermore II rules. In 2006 we were involved, for example, in drafting two responses relating to the development TrygVesta’s catastrophe reinsurance programme also of a risk-based calculation model. In connection with covers other catastrophe events, including terror- the ALM model TrygVesta is already preparing for the ist-related events, for up to DKK 2.0bn, with terrorist implementation of Solvency II. events being covered for buildings, building contents and consequential loss for risks with a total insured insurance risk value of up to DKK 500m. Insurance risk is the risk relating to the insurance operations. It is the most important risk that our insur- We have bought catastrophe reinsurance up to DKK ance operations are exposed to. 1.5bn for our personal accident and workers’ compen- sation policies with a retention of DKK 50m, covering We assess insurance risk based on statistical risk type the risk of multiple injuries from the same cause, analyses which we incorporate in our tariffs. including terror. Risk management / TrygVesta Annual Report 2006 / Page 73 of 147 Management’s report In addition to reinsuring catastrophe events, TrygVesta real rate of interest of 1% and therefore not directly also buys protection for certain lines where experience affected by market fluctuations. has shown that claims vary considerably. The corporate The portfolio of fixed-interest securities stood at DKK portfolio includes a number of very large property risks 31.5bn at 31 December 2006, while the provisions for in both Denmark and Norway. TrygVesta has bought claims discounted using a market rate amounted to reinsurance in the Danish and Norwegian markets for DKK 18.5bn, net of reinsurance. The respective dura- these policies with a retention on a single claim of DKK/ tions were 1.3 and 2.7 years. The variation in duration NOK 50m and with cover up to a maximum of DKK/NOK is attributable to the bond portfolio being significantly 900m. For property risks exceeding the upper level, larger than the discounted provisions. A parallel shift of we buy facultative reinsurance. Other lines covered interest rates of 1% would reduce the market value of by reinsurance include liability and motor, marine, fish the securities by DKK 428m, while the opposite impact farms and guarantee insurance. on provisions would be DKK 367m, triggering a net impact of DKK 61m. Market risk Market risk is the risk that volatility in the financial Where a change in interest rates triggered a change in markets will impact TrygVesta’s results of operations the discount rate applied to the provisions for annui- and financial position. ties in Danish workers’ compensation insurance, a rate change from 1% to 2% would lift profit by DKK 145m. Based on TrygVesta’s investment policies, we define In addition to the provisions for claims, the provi- the appropriate asset mix, including limits on types of sion for pension obligations in Norway is affected assets and the geographic distribution and risk profile by changes in interest rates. A 1% increase in the of bonds, shares and real property for each company in discounting rate would cause the pension obligation the Group. The asset mix and investment activities focus to drop by DKK 163m. However, such changes do not strongly on interest rate risk, security and liquidity. affect results, as they are recognised in equity. interest rate risk Both the investment assets and provisions for claims are exposed to fluctuating interest rates. Thus, if inter- est rates fall, the value of the bond portfolio would rise, while a lower discounting rate would at the same time cause the value of the provisions for claims to rise. Fluctuating interest rates thus impact the financial results in two opposite directions, and the risk of profit variations depends on the degree to which these two movements offset each other. Most of the provisions for claims are discounted using an interest rate curve based on market rates except for provisions for annuities in Danish workers’ compensa- tion insurance, which are discounted using a fixed Risk management / TrygVesta Annual Report 2006 / Page 74 of 147 iMpact on securities and claMs provisions perforMance of trygvesta’s share portfolio relative to Weighted index (cid:104) (cid:90) (cid:94) (cid:105) (cid:94) (cid:97) (cid:94) (cid:87) (cid:86) (cid:65) (cid:94) (cid:34)(cid:40)(cid:37)(cid:37) (cid:54)(cid:104)(cid:104)(cid:90)(cid:105)(cid:104) (cid:40)(cid:37)(cid:37) (cid:39)(cid:37)(cid:37) (cid:38)(cid:37)(cid:37) (cid:34)(cid:39)(cid:37)(cid:37) (cid:34)(cid:38)(cid:37)(cid:37) (cid:38)(cid:37)(cid:37) (cid:39)(cid:37)(cid:37) (cid:40)(cid:37)(cid:37) (cid:34)(cid:38)(cid:37)(cid:37) (cid:34)(cid:39)(cid:37)(cid:37) (cid:34)(cid:40)(cid:37)(cid:37) (cid:38)(cid:44)(cid:42) (cid:38)(cid:43)(cid:42) (cid:38)(cid:42)(cid:42) (cid:38)(cid:41)(cid:42) (cid:38)(cid:40)(cid:42) (cid:38)(cid:39)(cid:42) (cid:38)(cid:38)(cid:42) (cid:38)(cid:37)(cid:42) (cid:46)(cid:42) (cid:40) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:38) (cid:34) (cid:38) (cid:40) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:37) (cid:34) (cid:46) (cid:39) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:41) (cid:37) (cid:34) (cid:37) (cid:40) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:43) (cid:37) (cid:34) (cid:37) (cid:40) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:45) (cid:37) (cid:34) (cid:38) (cid:40) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:37) (cid:38) (cid:34) (cid:38) (cid:40) (cid:41) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:38) (cid:34) (cid:38) (cid:40) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:37) (cid:34) (cid:45) (cid:39) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:41) (cid:37) (cid:34) (cid:37) (cid:40) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:43) (cid:37) (cid:34) (cid:37) (cid:40) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:45) (cid:37) (cid:34) (cid:38) (cid:40) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:37) (cid:38) (cid:34) (cid:38) (cid:40) (cid:42) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:38) (cid:34) (cid:38) (cid:40) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:37) (cid:34) (cid:45) (cid:39) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:41) (cid:37) (cid:34) (cid:37) (cid:40) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:43) (cid:37) (cid:34) (cid:37) (cid:40) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:45) (cid:37) (cid:34) (cid:38) (cid:40) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:37) (cid:38) (cid:34) (cid:38) (cid:40) (cid:43) (cid:37) (cid:37) (cid:39) (cid:34) (cid:39) (cid:38) (cid:34) (cid:38) (cid:40) (cid:73)(cid:103)(cid:110)(cid:92)(cid:75)(cid:90)(cid:104)(cid:105)(cid:86)(cid:188)(cid:104)(cid:21)(cid:104)(cid:93)(cid:86)(cid:103)(cid:90)(cid:21)(cid:101)(cid:100)(cid:103)(cid:105)(cid:91)(cid:100)(cid:97)(cid:94)(cid:100) (cid:76)(cid:90)(cid:94)(cid:92)(cid:93)(cid:105)(cid:90)(cid:89)(cid:21)(cid:94)(cid:99)(cid:89)(cid:90)(cid:109) The left-hand figure illustrates the impact on the fixed-rate securities and discounted provisions for claims (the calculation of the impact on TrygVesta’s liabilities excludes provisions for annuities in workers’ compensation, the provision for pension obligations and Finland) in different interest rate scenarios determined by combinations of 0.5% and 1.0% changes in four key rates (1 year, 3 years, 5 years and 10 years). The line shows scenarios in which the impacts of interest rate changes on assets and liabilities are mutually offsetting. The greatest negative net impact (DKK 157m) is in a scenario with shifts of +1.0, -0.5, +1.0 and +1.0%, respectively, while the greatest positive impact (DKK 128m) is in the scenario where the key rates shift -1.0, +1.0, -1.0 and -0.5%, respectively. The scenarios are scattered around a line sloping slightly less than that indicated. This is partly because the portfolio of interest-bearing assets exceeds the provisions, and partly because the figures exclude provisions for annuities in Danish workers’ compensation as well as the Norwegian pension obligation, which are discounted using a fixed rate of interest. Therefore, an interest rate change would have no direct impact on profits. Furthermore, due to the long-tail nature of these provisions, their inclusion would increase the impact on liabilities and the slope of the scenarios. For example, an increase in the discounting rate for provisions for annuities in Danish workers’ compensation from 1% to 2% would cause the provision to drop by DKK 145m. The right-hand figure shows a co-weighting of MSCI World, KAX Capped (Denmark) and OSEBX (Norway) reflecting the geographical allocation of TrygVesta’s share portfolio. Risk management / TrygVesta Annual Report 2006 / Page 75 of 147 Management’s report effect on equity of market changes at 31 december 2006 interest rate market — increase in interest rates of 100 bps Impact on fixed interest securities 1) Higher discounting of provisions for claims 2) Impact on Norwegian pension obligation equity market Decrease of equity markets of 15% Impact arising from derivatives real property market Decrease of real property markets of 15% currency market Decrease of exposed currencies versus Danish kroner of 15% Impact arising from derivatives dkkm -428 367 163 -808 0 -368 -1,065 -934 1) The impact is calculated on the basis of the option adjusted duration without correction for convexity. 2) Excluding impact on provisions in Finland and provisions for annuities for workers’ compensation. The provisions for annuities are discounted using a fixed rate of 1%, which is changed only in case of anticipated long-term changes in interest rates. The provision would decrease by some DKK 145m if the discounting rate increased to 2% other market risk Currency risk is generally managed by matching an The equity and real property portfolios are exposed asset in a given currency with a liability in the same to changes equity markets and real property markets, currency, if such a liability exists. The difference respectively. Such risk is managed through investment between an asset and a liability in the same cur- limits for various asset classes. The equity portfolio rency exposes us to a currency risk, which is generally primarily focuses on the large, liquid equity markets hedged through forward currency contracts. The total in Europe, the USA and Japan. TrygVesta has defined amount is hedged if no liabilities exist in a specific a strategy with relatively little exposure in the local currency. In certain circumstances, we also use interest markets in Denmark and Norway (around 20% at 31 rate and equity derivatives to manage investment risk. December 2006) in order to reduce company risk, because a few companies account for large parts of the credit risk markets in the two countries. Furthermore, each equity Credit risk arises every time TrygVesta has a receiv- mandate is tied to a recognised benchmark, which is able from a counterparty. In the case of the insurance monitored closely. The figure shows the performance operations, counterparties may be customers, suppliers of the equity portfolio return relative to a weighted or reinsurers, while in connection with the investment benchmark. The portfolio tracks the benchmark fairly activities, our primary counterparties are issuers of closely, even outperforming it over time. The 25 largest bonds. equities in our portfolio account for some 34% of the total listed equity portfolio. TrygVesta regularly has amounts outstanding from customers. At 31 December 2006, customers owed Risk management / TrygVesta Annual Report 2006 / Page 76 of 147 breakdoWn of preMiuMs ceded by reinsurer’s rating breadoWn of balances With reinsurers by reinsurer’s rating (cid:21)(cid:38)(cid:38)(cid:26)(cid:21) (cid:55)(cid:55)(cid:55) (cid:21) (cid:39)(cid:26)(cid:21) (cid:54)(cid:54)(cid:54) (cid:21)(cid:40)(cid:46)(cid:26)(cid:21) (cid:54) (cid:21)(cid:41)(cid:45)(cid:26)(cid:21) (cid:54)(cid:54) (cid:21)(cid:39)(cid:41)(cid:26)(cid:21) (cid:67)(cid:100)(cid:105)(cid:21)(cid:103)(cid:86)(cid:105)(cid:90)(cid:89) (cid:21) (cid:38)(cid:26)(cid:21) (cid:54)(cid:54)(cid:54) (cid:21)(cid:39)(cid:38)(cid:26)(cid:21) (cid:54) (cid:21)(cid:42)(cid:37)(cid:26)(cid:21) (cid:54)(cid:54) (cid:21) (cid:45)(cid:26)(cid:21) (cid:55)(cid:55)(cid:55) The left-hand figure shows the distribution on ratings of premiums ceded under the reinsurance programmes in 2006. As can be seen, premiums are generally ceded to reinsurers rated A or above. Around 12% of total premiums ceded are received by the largest reinsurer. The right-hand figure shows the distribution of receivables from reinsurers, in aggregate DKK 1,561m. Of these, 72% are held by companies rated better than A. Provisions are made for any losses we anticipate may occur in connection with a receivable. A total of DKK 30.6m had been provided against reinsurance losses at 31 December 2006. DKK 840m or 5.2% of gross premiums. The risk related strategic risk to receivables from customers is limited because the Strategic risk is managed through a strategic planning insurance cover lapses if they fail to pay. process. The Supervisory Board defines the overall operational risk strategy in the middle of the year within the frame- work of the corporate vision, and the Group Executive As operational risks are mainly internal, TrygVesta Management uses this as the basis for further strategy focuses on establishing a satisfactory controlling work. The balanced scorecard is used as a tool in this environment in its operations. In practice, this work is work to ensure current follow up on the strategy and organised through a structure of policies, procedures the initiatives launched in the business areas. During and guidelines that cover different aspects of the year, the strategy is managed in Executive Man- TrygVesta’s operations. agement meetings and meetings to follow up on the balanced scorecard performance by business areas and TrygVesta launched a number of initiatives in 2006 staff functions. in order to strengthen operational risk management, In addition, the market is monitored continuously to ensure including the systematic registration of risks in a data that we have an up-to-date basis for assessing external base maintained by the corporate security department conditions, be it competitors’ market initiatives, new legis- and reported to the Supervisory Board once a year. lation or other external factors that may impact TrygVesta. Risk management / TrygVesta Annual Report 2006 / Page 77 of 147 notes accountS 2006 StatEMEnt by thE SupErviSory board and thE ExEcutivE ManagEMEnt The Supervisory Board and the Executive Management In our opinion, the accounting policies applied are have today considered and adopted the annual report appropriate, and the annual report gives a true and for 2006 of TrygVesta A/S and the TrygVesta Group. fair view of the Group’s and the parent company’s assets, liabilities, and financial position at 31 December The consolidated financial statements have been prepared 2006 and of the results of the Group’s and the parent in accordance with the International Financial Reporting company’s operations and the cash flow of the Group Standards as adopted by the EU, and the financial state- for the financial year ended 31 December 2006. ments of the parent company have been prepared in accordance with the Danish Financial Business Act. In We recommend that the annual report be adopted by addition, the annual report has been presented in accord- the shareholders at the annual general meeting. ance with additional Danish disclosure requirements for the annual reports of listed financial enterprises. Ballerup, 28 February 2007 ExEcutivE ManagEMEnt Christine Bosse Morten Hübbe SupErviSory board Mikael Olufsen Bodil Nyboe Andersen Paul Bergqvist Per Skov Chairman Deputy Chairman Jørn Wendel Andersen Niels Bjørn Christiansen John R. Frederiksen Håkon J. Huseklepp Trond Christiansen Peter Wagner Mollerup Birthe Petersen Statement by the Supervisory Board and the Executive Management / TrygVesta Annual Report 2006 / Page 81 of 147 Accounts intErnal auditS’ rEport We have audited the annual report of TrygVesta A/S for used, and the reasonableness of accounting estimates the financial year 2006. The consolidated financial state- made by management as well as evaluation the overall ments have been prepared in accordance with Interna- presentation of the annual report. tional Financial Reporting Standards as adopted by the EU, and the parent financial statements have been prepared We believe that the audit evidence we have obtained in accordance with the Danish Financial Business Act. In is sufficient and appropriate to provide a basis for our addition, the annual report has been presented in accord- audit opinion. ance with additional Danish disclosure requirements for the annual reports of listed financial enterprises. Our audit did not result in any qualification. basis of opinion opinion We conducted our audit on the basis of the Danish In our opinion, the business procedures and internal Financial Supervisory Authority’s executive order on control procedures, including the risk management auditing financial enterprises etc. and financial groups implemented by the management, aimed at the Group’s and in accordance with Danish Standards on Auditing. and the parent company’s reporting processes and These Standards require that we plan and perform the major business risks, work satisfactorily. audit to obtain reasonable assurance that the annual report is free of material misstatement. Furthermore, we believe that the annual report gives a true and fair view of the Group’s and the parent The audit was conducted in accordance with the divi- company’s assets, liabilities and financial position at sion of duties agreed with the external auditors, and 31 December 2006 and of the results of the Group’s has included assessment of the business and internal and parent company’s operations and the Group’s cash control procedures, including the risk management flows for the year in accordance with International implemented by the management aimed at the report- Financial Reporting Standards as adopted by the EU ing processes and major business risks. Based on an in respect of the consolidated financial statements, in evaluation of materiality and risk, we have tested the accordance with the Danish Financial Business Act in basis for the amounts and other disclosures in the respect of the parent company’s financial statements and annual report, iincluding evidence supporting disclo- in accordance with additional Danish disclosure require- sures in the annual report. Our audit also includes ments for annual reports of listed financial enterprises. evaluating the appropriateness of accounting policies Ballerup, 28 February 2007 Jens Galsgaard Chief Internal Auditor Internal audits’ report / TrygVesta Annual Report 2006 / Page 82 of 147 indEpEndEnt auditorS’ rEport to the shareholder of trygvesta a/S annual report that is free from material misstatement, We have audited the annual report of TrygVesta A/S whether due to fraud or error; selecting and applying for the financial year starting on 1 January and ending appropriate accounting policies; and making accounting on 31 December, 2006, which comprises the manage- estimates that are reasonable in the circumstances. ment’s report, the statement by management, account- ing policies, income statement, balance sheet, capital auditors’ responsibility and basis of opinion and notes for the Group as well as the parent company Our responsibility is to express an opinion on the and the cash flow statement for the Group. The con- annual report based on our audit. We conducted our solidated financial statements have been prepared in audit in accordance with Danish and International accordance with International Financial Reporting Stand- Standards on Auditing. Those Standards require that we ards as adopted by the EU, and the parent company’s comply with ethical requirements and plan and perform financial statements have been prepared in accordance the audit to obtain reasonable assurance whether the with the Danish Financial Business Act. In addition, annual report is free from materiel misstatement. the annual report has been presented in accordance with additional Danish disclosure requirements for the An audit involves performing procedures to obtain audit annual reports of listed financial enterprises. evidence about the amounts and disclosures in the annual report. The procedures selected depend on the Management’s responsibility for the annual report auditor’s judgment, including the assessment of the risks Management is responsible for preparation and fair of material misstatement of the annual report, whether presentation of an annual report in accordance with the due to fraud or error. In making those risk assessments, International Financial Reporting Standards as adopted the auditor considers internal controls relevant to the by the EU in respect of the consolidated financial preparation and fair presentation of the annual report in statements and in accordance with the Danish Finan- order to design audit procedures that are appropriate in cial Business Act in respect of the parent company’s the circumstances, but not for the purpose of express- financial statements and in accordance with additional ing an opinion on the effectiveness of internal control. Danish disclosure requirements for annual reports of An audit also includes evaluating the appropriateness listed financial enterprises. This responsibility includes; of accounting policies used and the reasonableness of designing, implementing and maintaining internal control accounting estimates made by management, as well as relevant to the preparation and fair presentation of an evaluating the overall presentation of the annual report. Independent auditors’ report / TrygVesta Annual Report 2006 / Page 83 of 147 Accounts We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit did not result in any qualification. opinion In our opinion, the annual report gives a true and fair view of the Group’s assets, liabilities and financial position at 31 December 2006, and of the results of the Group’s operations and the Group’s cash flows for the financial year starting on 1 January and ending on 31 December 2006 in accordance with International Financial Reporting Standards as adopted by the EU and in accordance with additional Danish disclosure require- ments for annual reports of listed financial enterprises. Furthermore in our opinion, the annual report gives a true and fair view of the parent company’s assets, liabilities and financial position at 31 December 2006, and of the results of the parent company’s operations for the financial year starting on 1 January and ending on 31 December 2006 in accordance with the Danish Financial Business Act and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises. Ballerup, 28 February 2007 Deloitte Statsautoriseret Revisionsaktieselskab Lone Møller Olsen State Authorised Public Accountant Thomas Elsborg Jensen State Authorised Public Accountant Independent auditors’ report / TrygVesta Annual Report 2006 / Page 84 of 147 accounting policiES a. gEnEral inforMation • Investments in subsidiaries and associates are valued accounting policies applied for the consolidated according to the equity method, whereas under the financial statements IFRS valuation is made cost or fair value. Furthermore The consolidated financial statements are prepared in the requirements regarding presentation and disclo- accordance with the International Financial Reporting sure are less comprehensive than under IFRS. Standards (IFRS) as adopted by the EU on 31 December 2006 and in accordance with the Danish Statutory Order The parent company’s investments in subsidiaries on Adoption of IFRS. and associates are recognised and measured under the equity method. The parent company’s share of The principal accounting policies applied in the prepara- the enterprises’ profits or losses after elimination of tion of these consolidated financial statements are set unrealised intra-group profits and losses is recog- out in part D below. parent company nised in the income statement. In the balance sheet, investments are measured at the pro rata share of the enterprises’ equity. The financial statements of the parent company are presented in accordance with the executive order Subsidiaries and associates with a negative net asset issued by the Danish Financial Supervisory Authority on value are measured at zero value. Any receivables from financial reports presented by insurance companies and these enterprises are written down by the parent com- profession-specific pension funds. The executive order pany’s share of such negative net asset value where has been prepared with a view to making the account- the receivables are deemed irrecoverable. If the nega- ing rules as consistent with the international account- tive net asset value exceeds the amount receivable, ing standards as possible. The Copenhagen Stock the remaining amount is recognised under provisions if Exchange has announced that, as a result of the above, the parent company has a legal or constructive obliga- listed financial enterprises are not required to comply tion to cover the liabilities of the relevant enterprise. with the existing Danish accounting standards issued by the Institute of State-Authorised Public Accountants Net revaluation of investments in subsidiaries and in Denmark. Accordingly, the financial statements of associates is taken to reserve for net revaluation the parent company have not been prepared in accord- under equity if the carrying amount exceeds cost. ance with the Danish accounting standards. The accounting policies applied for the parent company not allow for actuarial gains and losses arising from are in accordance with the executive order issued by experience adjustments and changes in actuarial the Danish Financial Supervisory Authority on financial assumptions to be taken to equity. Actuarial gains reports presented of by insurance companies and and losses will therefore be recognised in the parent profession-specific pension funds dated 13 December company’s income statement. • Unlike IAS 19, the Danish FSA’s executive order does 2005 (the Danish FSA’s executive order), which is largely identical to IFRS. The deviations from the recog- • The Danish FSA’s executive order does not allow provi- nition and measurement requirements of IFRS are: sions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the equity of the parent company have been adjusted accordingly. Accounting policies / TrygVesta Annual Report 2006 / Page 85 of 147 Accounts The executive order on application of international financial reporting standards for companies subject to the Danish Financial Business Act issued by the Danish Financial Supervisory Authority requires disclosure of differences between the format of the annual report under international financial reporting standards and the rules issued by the Danish Financial Supervisory Authority. The following is a reconciliation of differences in the profit for the year and shareholders’ equity. dKKm profit reconciliation Profit for the year ended 31 December – IFRS Current-year effect of actuarial gains and losses on pension obligation after tax Change in deferred tax relating to contingency funds profit for the year ended 31 december - danish fSa executive order Equity reconciliation Shareholders’ equity at 31 December – IFRS Deferred tax provisions for contingency funds Change in deferred tax relating to contingency funds Equity at 31 december - danish fSa executive order 2006 2005 3.211 2.097 84 -4 -86 -2 3.291 2.009 9.951 8.215 27 -4 29 -2 9.974 8.242 b. changES in accounting policiES of market value adjustments, which now includes Implementation of new standards (IFRS) a specification of exchange rate adjustments. No The Group has adopted the following standards in 2006: changes are made to recognition and measurement. • IFRS 7 regulates financial instruments and is manda- The International Accounting Standards Board (IASB) tory from 1 January 2007. Implementation of the has issued a number of revised international account- standard will only change the presentation of finan- ing standards, and the International Financial Report- cial instruments and will not affect the recognition ing Interpretations Committee (IFRIC) has issued a and measurement of financial instruments. number of interpretations that have not yet come into • IAS 19 (Amendment) regulates employee benefits. force. The section below describes the standards and The standard is mandatory from 1 January 2007, interpretations that may be relevant to the financial but TrygVesta A/S opted for early adoption of the reporting of the Group. standard as at 1 January 2005. The standard allows for recognising actuarial gains and losses directly in • IFRS 8 Operating segments. Replacing IAS 14, the equity. Moreover, the standard prescribes more strict standard will enter into force on 1 January 2009. Imple- requirements on the disclosure of employee benefits. mentation of the standard will entail a change in the • IAS 21 regulates the effect of changes in foreign identification of segments from primary and secondary exchange rates. The amendment took effect on segments to operating segments. Additional informa- 1 January 2006. The implementation of the amend- tion will be required in respect of the factors, organi- ments to this standard only affects the presentation sation, etc. that provide the basis of the segments. Accounting policies / TrygVesta Annual Report 2006 / Page 86 of 147 • Amendment to IAS 1 concerning “Presentation of In this connection TrygVesta A/S has decided to change Financial Statements – Capital Disclosures”. In August its wage increase assumption from 4% to 4.5%, as this 2005, an amendment to IAS 1 was issued for imple- is considered to be a more correct estimate of the pen- mentation in the consolidated financial statements sion obligations. This change resulted in an increase in for 2007. The amendment contains an adjustment to pension obligations of DKK 103m. the type of information disclosed about the capital base. The implementation is not expected to affect d. baSiS of prESEntation disclosures in the annual report. The annual report has been prepared under the histori- • IFRIC 8 Scope of IFRS 2 comes into force for financial cal cost convention, as modified by the revaluation of years commencing on or after 1 May 2007. TrygVesta owner-occupied properties, where increases are cred- A/S recognises all share-based payment plans accord- ited to equity and revaluation of investment property, ing to IFRS 2 and does not expect IFRIC 8 to have any financial assets held for trading and financial assets influence on its financial reporting (IFRIC 8 remains to and financial liabilities (including derivative instru- be approved by the EU). ments) at fair value through the income statement. • IFRIC 10 concerning “Interim Financial Reporting and Impairment” was issued in July 2006. The interpreta- The preparation of financial statements under IFRS tion prohibits the reversal of impairment losses in requires the use of certain critical accounting estimates interim financial statements on goodwill and finan- and requires management to exercise its judgment in cial assets carried at cost. The implementation is the process of applying the company’s accounting poli- not expected to have any financial effect (IFRIC 10 cies. The areas involving a higher degree of judgment remains to be adopted by the EU). or complexity, or areas where assumptions and • IFRIC 11 concerning “Group and Treasury Share estimates are significant to the consolidated financial Transactions” was issued in November 2006. The statements, are disclosed in a separate section of interpretation specifies that the accounting treatment these financial statements. of share-based payment does not rely on the way in which the shares are acquired by the company at the All amounts in the notes are shown in millions of DKK, exercise date. The interpretation does not change the unless otherwise stated. existing accounting treatment (IFRIC 11 remains to be adopted by the EU). recognition and measurement c. changES in accounting EStiMatES is probable that future economic benefits will flow to The calculation of the carrying amounts of certain the group and the value of the asset can be reliably Assets are recognised in the balance sheet when it assets and liabilities relies on assessments, estimates measured. and assumptions about future events. A more detailed description of primary assumptions and primary Liabilities are recognised in the balance sheet when the sources of estimation uncertainty are given in the risk group has a legal or constructive obligation as a result management section in the management’s report. of a prior event, and it is probable that future economic benefits will flow out of the group, and the value of the • Norway has issued a consultation paper on assump- liabilities can be measured reliably. tions about defined benefit pension plans under IAS 19. Accounting policies / TrygVesta Annual Report 2006 / Page 87 of 147 Accounts On initial recognition, assets and liabilities are measured of income and expenses and assets and liabilities are at cost, with the exception of financial assets, which presented on a line by line basis in the consolidated are recognised at fair value. Measurement subsequent financial statements. to initial recognition is effected as described below for each financial statement item. On consolidation, intragroup income and expenses, Anticipated risks and losses that arise before the time gains and losses arising on transactions between the of presentation of the annual report and that confirm consolidated enterprises are eliminated. or invalidate affairs and conditions existing at the balance sheet date are considered at recognition and Newly acquired or divested subsidiaries are consolidated measurement. at the results for the period subsequent to achieving or shareholdings, intragroup accounts and dividends, and Income is recognised in the income statement as earned, whereas costs are recognised by the amounts Profit and loss in divested subsidiaries and profit attributable to this financial year. Value adjustments and loss on discontinued activities are included of financial assets and liabilities are recorded in the under discontinued and divested business in the income statement unless otherwise described below. income statement. surrendering control, respectively. consolidation Unrealised gains on transactions between the group The consolidated financial statements comprise the and its subsidiaries and associates are eliminated to financial statements of TrygVesta A/S (the parent the extent of the group’s interest in the companies. company) and enterprises (subsidiaries) controlled by Unrealised losses are eliminated in the same way as the parent company. Control is achieved where the par- unrealised gains unless impairment has occurred. ent company directly or indirectly holds more than 50% of the voting rights or is otherwise able to exercise or On consolidation, the assets and liabilities of the group’s actually exercises a controlling influence. foreign operations are translated at exchange rates of The consolidated financial statements are prepared translated at the average exchange rates for the period. on the basis of the financial statements of the parent Exchange differences arising on translation are classi- company and its subsidiaries by adding items of a fied as equity and transferred to the group’s translation the balance sheet date. Income and expense items are uniform nature. reserve. Such translation differences are recognised as income or as expenses in the period in which the opera- The financial statements of subsidiaries that present tion is disposed of. All other currency translation gains financial statements under other legislative rules are and losses are recognised in the income statement. restated to the accounting policies applied by the group. Investments in joint ventures are recognised using the apply IFRS 3 retrospectively to past business combina- pro rata consolidation method. Using pro rata consoli- tions (business combinations that occurred before the In accordance with IFRS 1 TrygVesta has elected not to dation, the Group’s share of joint venture assets and date of transition to IFRS). liabilities is recognised in the balance sheet. The share Accounting policies / TrygVesta Annual Report 2006 / Page 88 of 147 incentive programmes ject to risks and returns that are different from those of The TrygVesta group’s incentive programmes comprise other business segments. a share option programme and employee shares. Share based incentive programmes were introduced in the Personal & Commercial (Denmark) segment, the the spring of 2006 for management and employees of Personal & Commercial (Norway) segment, the Corpo- the TrygVesta group. rate segment and the General Insurance (Finland and Main business segments in the TrygVesta group are Sweden) segment. Share option programme The value of services received as consideration for options The secondary business segment is geographical, i.e. granted is measured at the fair value of the options. business segments operating in a particular economic environment. In the TrygVesta group, these areas are Equity-settled share options are measured at the fair Denmark, Norway, Finland and Sweden. value at the grant date and recognised under staff costs over the period from the grant date until vesting. currency translation The balancing item is recognised directly in equity. The results of foreign subsidiaries are based on translation of the items in the income statement at average exchange On initial recognition of the share options, the number rates for the period. Income and expenses in domestic of options expected to vest is estimated. Subsequently, enterprises denominated in foreign currency are translated adjustment is made for changes in the estimated at the exchange rate ruling on the date of the transaction. number of vested options to the effect that the total amount recognised is based on the actual number of Assets and liabilities denominated in foreign currency vested options. are translated at the exchange rates at the balance The fair value of the options granted is estimated using the Black-Scholes option model. The calculation takes incoME StatEMEnt into account the terms and conditions of the share premiums sheet date. options granted. Employee shares Earned premiums represent gross premiums earned during the year, net of outward reinsurance premiums and adjusted for changes in the provision for unearned When employees are given the opportunity to subscribe premiums, corresponding to an accrual of premiums shares at a price below the market price, the discount is to the risk period of the policies, and in the reinsurers´ recognised as an expense in staff costs. The balancing share of the provision for unearned premiums. item is recognised directly in equity. The discount is cal- culated at the grant date as the difference between fair Premiums are recognised as earned premiums accord- value and the subscription price of the subscribed shares. ing to the exposure of risk over the period of coverage, Segment reporting computed separately for each insurance contract using the pro rata method, and adjusted if necessary to reflect A business segment is a group of assets and operations any variation in the incidence of risk during the period engaged in providing products or services that are sub- covered by the contract. Accounting policies / TrygVesta Annual Report 2006 / Page 89 of 147 Accounts The portion of premiums received on contracts that bonus and premium rebates relate to unexpired risks at the balance sheet date is Bonus and premium rebates represent anticipated and reported under provisions for unearned premiums. reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria The portion of premiums paid to reinsurers that relates for payment have been defined prior to the financial to unexpired risks at the balance sheet date is reported year or when the business was written. as the reinsurers’ share of provisions for unearned premiums. technical interest insurance operating expenses net Insurance operating expenses represent acquisition costs and administrative expenses less reinsurance According to the Danish FSA’s executive order, technical commissions received. Expenses relating to acquiring interest is presented as a calculated return on the year’s and renewing the insurance portfolio are recognised average insurance liability provisions, net of reinsurance. at the time of writing the business. Administrative The calculated interest return for grouped classes of expenses are accrued to match the financial year. risks is calculated as the monthly average provision plus a co-weighted interest from the present yield investment activities curve for each individual group of risks. The interest is Income from associates includes the group’s share of weighted according to the expected run-off pattern of the associates’ net profit. the provisions. Technical interest is reduced by the portion of the adjustment represents the profit from property opera- increase in net provisions that relates to unwinding. tions less property management expenses. Income from investment properties before fair value claims incurred Interest, dividends, etc. represent interest earned, Claims incurred represent claims paid during the year dividends received, etc. during the financial year. In and adjusted for changes in provisions for unpaid claims addition, the item includes gains and losses on bonds less the reinsurers’ share. In addition, the item includes drawn for redemption. run-off results regarding previous years. The portion of the increase in provisions which can be ascribed to Realised and unrealised investment gains and losses, unwinding is transferred to technical interest. including gains and losses on derivative financial instruments, value adjustment of land and buildings, Claims are shown inclusive of direct and indirect claims exchange rate adjustments and the effect of movements handling costs, including costs of inspecting and in the yield curve used for discounting, are recognised assessing claims, costs to combat and contain claims as market value adjustments. incurred and other direct and indirect costs associated with the handling of claims incurred. Investment management charges represent expenses Changes in claims incurred due to changes in the yield curve and exchange rates are recognised as a market other income and expenses value adjustment. Other income and expenses includes income and relating to the management of investments. Accounting policies / TrygVesta Annual Report 2006 / Page 90 of 147 expenses which cannot be ascribed to TrygVesta’s development team’s employee costs and an appropriate insurance portfolio or investment assets, including the portion of relevant overheads. All other costs associated sale of products for Nordea Liv og Pension. with developing or maintaining computer software are discontinued and divested business Discontinued and divested activities are consolidated in After completion of the development the asset is depreci- one line item in the income statement and supplemented ated on a straight-line basis over the expected useful life, with disclosure of the discontinued and divested however with a maximum period of 4 years. The basis of activities in a note to the financial statements. depreciation is reduced by any impairment writedowns. recognised as an expense as incurred. Recognition of the balance sheet items in respect of owner-occupied property and the discontinued activities remains unchanged in the operating equipment respective items whereas assets and liabilities from Owner-occupied properties are measured in the bal- divested activities are consolidated in one line as ance sheet at their revalued amounts, being the fair “assets concerning divested business” and “liabilities value at the date of revaluation, less any subsequent concerning divested business”, respectively. accumulated depreciation and subsequent accumulated The comparative figures, including financial high- regularly to avoid the carrying amount differing materi- lights and key ratios, have been restated to reflect ally from the owner-occupied property’s fair value at impairment writedowns. Revaluations are performed discontinued business. Discontinued and divested the balance sheet date. activities in the income statement include the post- tax profit of TrygVesta’s business in run-off as well as Increases in the revalued carrying amount of owner- divested enterprises. Business in run-off comprises occupied properties are credited to the properties’ the results of the business in run-off in Tryg Forsikring revaluation reserve in equity. Decreases that offset pre- A/S. Divested subsidiaries comprise the activities in vious increases of the same asset are charged against Chevanstell Ltd. UK, Poland, Estonia and Tryg Baltica the properties’ revaluation reserves directly in equity, all International A/S. balancE ShEEt other decreases are charged to the income statement. Subsequent costs are included in the asset’s carrying intangible assets – software amount or recognised as a separate asset, as appropriate, Acquired computer software licences are capitalised on when it is probable that future economic benefits associ- the basis of the costs incurred to acquire and bring to ated with the item will flow to the group, and the cost of use the specific software. These costs are amortised the item can be reliably measured. Ordinary repair and on the basis of the expected useful life (four years). maintenance costs are charged to the income statement Costs that are directly associated with the production of identifiable and unique software products, for which Fixtures and operating equipment are measured at cost there is sufficient certainty that future earnings will less accumulated depreciation and any accumulated exceed costs for more than one year, are recognised impairment losses. Cost encompasses the purchase as intangible assets. Direct costs include the software price and costs directly attributable to the acquisition during the financial period in which they are incurred. Accounting policies / TrygVesta Annual Report 2006 / Page 91 of 147 Accounts of the relevant assets until the time when the assets property are tested at least once a year for impairment are ready to be brought into use. in the cash-generating unit to which the asset belongs, Depreciation on property, plant and equipment is through the income statement if the carrying amount is calculated using the straight-line method over their higher. The recoverable amount is generally calculated as estimated useful lives, as follows: the present value of the future cash flows expected to • Owner-occupied properties, 50 years be derived from the activity to which the asset belongs. and the asset is written down to the recoverable amount • Vehicles, 3-5 years • Furniture, fittings and equipment, 3-5 years investments in subsidiaries Land is not depreciated. The parent company’s investments in subsidiaries are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits The assets’ residual values and useful lives are reviewed or losses after elimination of unrealised intra-group at each balance sheet date and adjusted if appropriate. profits and losses is recognised in the income state- Gains and losses on disposals and retirements are deter- at the pro rata share of the enterprises’ equity. mined by comparing proceeds with carrying amount. Gains and losses are recognised in the income statement. When Subsidiaries with a negative net asset value are meas- revalued assets are sold, the amounts included in the ured at zero value. Any receivables from these enter- revaluation reserve are transferred to retained earnings. prises are written down by the parent company’s share ment. In the balance sheet, investments are measured investment property of such negative net asset value where the receivables are deemed irrecoverable. If the negative net asset Properties held for renting yields that are not occupied value exceeds the amount receivable, the remaining by the group are classified as investment properties. amount is recognised under provisions if the parent Investment property is carried at fair value. Fair value is the liabilities of the relevant enterprise. based on market prices, adjusted for any difference in the nature, location or condition of the specific asset. If Net revaluation of investments in subsidiaries is taken this information is not available, the group uses alter- to reserve for net revaluation under the equity method native valuation methods such as discounted cash flow if the carrying amount exceeds cost. company has a legal or constructive obligation to cover projections and recent prices on less active markets. investments in associates Changes in fair values are recorded in the income Associates are enterprises over which the group has statement. significant influence but not control, generally accom- panying a shareholding of between 20% and 50% of impairment of intangible assets, equipment, the voting rights. Investments in associates are meas- owner-occupied properties and investment ured according to the equity method of accounting so property that the carrying amount of the investment represents The carrying amount of intangible assets, operating the group’s proportionate share of the enterprises’ equipment, owner-occupied property and investment net assets. Accounting policies / TrygVesta Annual Report 2006 / Page 92 of 147 Income after taxes from investments in associates is Realised and unrealised gains and losses arising from included as a separate line in the income statement. changes in the fair value of the financial assets at fair value through income are included in the income state- Associates with a negative equity value are measured ment in the period in which they arise. at zero value. If the group has a legal or constructive obligation to cover the associate’s negative balance, The fair values of quoted investments are based on such obligation is recognised under liabilities. stock exchange prices at the balance sheet date. For investments securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that Investments include financial assets at fair value reflects the fair value of the instrument, the fair value through the income statement. The classification is determined using valuation techniques. These include depends on the purpose for which the investments the use of similar recent arm’s length transactions, were acquired. Management determines the clas- reference to other instruments that are substantially sification of its investments at initial recognition and the same and a discounted cash flow analysis. re-evaluates this at every reporting date. derivative financial instruments Financial assets measured at fair value with recognition and hedge accounting of value adjustments in the income statement comprise The group’s activities expose it primarily to the financial assets that form part of a trading portfolio. risks of changes in foreign currency exchange rates financial assets at fair value through income instruments to hedge its risks associated with foreign A financial asset is classified as a financial asset available currency fluctuations relating to investments in foreign and interest rates. The group uses derivative financial for sale at inception if acquired principally for the purpose operations. of selling in the short term, or if it forms part of a portfolio of financial assets in which there is evidence Derivatives are initially recognised at fair value on the of short-term profit-taking, or if so designated by date on which a derivative contract is entered into and management. Derivatives are also classified as financial are subsequently measured at their fair value. assets available for trading unless they are designated as hedges. Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging Financial assets are derecognised when the rights instrument and, if so, the nature of the item being to receive cash flows from the financial asset have hedged. The group designates certain derivatives as expired, or if they have been transferred, and the hedges of investments in foreign operations. group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised For all hedges, the derivative financial instruments are and derecognised on a trade date basis – the date on included in other receivables or other debt. which the group commits to purchase or sell the asset. Financial assets are recognised at fair value at the derivatives that are designated and qualify as net transaction date. investment hedges are recognised directly in equity. The effective portion of changes in the fair value of Accounting policies / TrygVesta Annual Report 2006 / Page 93 of 147 Accounts Changes in the fair value relating to the ineffective por- receivables tion are recognised in the income statement. Exchange Receivables are non-derivative financial assets with differences arising from changes in exchange rates fixed or determinable payments that are not quoted in regarding hedging of foreign subsidiaries are classified an active market other than receivables that the group as equity and transferred to the group’s translation intends to sell in the short term. Receivables arising reserve. Gains and losses accumulated in equity are from insurance contracts are classified in this category included in the income statement on disposal of the and are reviewed for impairment as part of the impair- foreign operation. ment review of receivables. reinsurers’ share of provision On initial recognition, receivables are measured at for insurance contracts fair value, and they are subsequently measured at Contracts entered into by the group with reinsurers amortised cost. Appropriate allowances for estimated under which the group is compensated for losses on one irrecoverable amounts are recognised in the income or more contracts issued by the group and that meet statement when there is objective evidence that the the classification requirements for insurance contracts asset is impaired. The allowance recognised is measured are classified as reinsurers share of provisions for insur- at the difference between the asset’s carrying amount ance contracts. Contracts that do not meet these clas- and the present value of estimated future cash flows. sification requirements are classified as financial assets. The benefits to which the group is entitled under its Prepayments and accrued income comprise cost paid reinsurance contracts held are recognised as assets relating to the following financial year. prepayments and accrued income and reported as reinsurers’ share of provisions for insurance contracts. Share capital Amounts recoverable from reinsurers are measured tion to transfer cash or other assets. Incremental costs consistently with the amounts associated with the directly attributable to the issue of equity instruments reinsured insurance contracts and in accordance with are shown in equity as a deduction from the proceeds, the terms of each reinsurance contract. net of tax. Shares are classified as equity when there is no obliga- Changes due to unwinding are recognised in technical Exchange adjustment reserve interest. Changes due to changes in the yield curve Assets and liabilities of foreign entities are recognised at or foreign currency exchange rates are recognised as the exchange rate at the balance sheet date. Income and value adjustments. expense items are recognised at the average exchange rates for the period. Any resulting exchange rate differ- The group assesses continuously its reinsurance assets ences are taken to equity. When an entity is wound up, for impairment. If there is objective evidence that the the balance is transferred to the income statement. reinsurance asset is impaired, the group reduces the carrying amount of the reinsurance asset to its recov- contingency fund reserves erable amount. Impairment write-downs are recognised Contingency fund reserves are recognised as part of in the income statement. retained earnings under equity. The funds may only be Accounting policies / TrygVesta Annual Report 2006 / Page 94 of 147 used when so permitted by the Danish FSA and when it until the next payment date. Adjustments are made is to the benefit of the policyholders. to reflect any variations in the incidence of risk. This applies to gross as well as ceded business. dividend distribution Proposed dividend is recognised as a liability at the Claims and claims handling costs are charged to time of adoption by the shareholders at the annual income as incurred based on the estimated liability general meeting (the date of declaration). Dividends for compensation owed to contract holders or third expected to be paid in respect of the year are stated parties damaged by the contract holders. They include as a separate line item under equity. direct and indirect claims handling costs and arise from treasury shares events that have occurred up to the balance sheet date even if they have not yet been reported to the group. The purchase and sale sums of treasury shares and Provisions for claims are estimated using the input of dividends thereon are taken directly to retained earnings assessments for individual cases reported to the group under equity. and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more com- Proceeds from the sale of treasury shares in connection plex claims that may be affected by external factors with the exercise of share options or employee shares (such as court decisions). The provisions include claims are taken directly to equity. handling costs. Subordinate loan capital Provisions for claims are discounted. Discounting is Subordinate loan capital is recognised initially at fair based on a yield curve reflecting duration applied to value, net of transaction costs incurred. Subordinate the expected future payments from the provision. loan capital is subsequently stated at amortised cost, Discounting affects the motor liability, professional any difference between the proceeds (net of transac- liability, workers’ compensation and personal accident tion costs) and the redemption value is recognised in classes, in particular. the income statement over the period of the borrowings using the effective interest method. Provisions for annuities relate to compulsory workers’ compensation insurance in Denmark, which is settled provision for insurance contracts by payment of annuities. The provisions are calculated Premiums are recognised in the income statement using the fixed-rate method at the present value by (premium income) proportionally over the period of discounting expected future payments. coverage and, where necessary, adjusted to reflect any variation in the incidence of risk. The portion of Provisions for bonus and premium rebates represent premium received on in-force contracts that relates to amounts expected to be paid to policyholders in view unexpired risks at the balance sheet date is reported as of the claims experience during the financial year. provisions for unearned premiums. Unearned premium provisions are generally calculated according to a best Provisions for claims are determined for each prod- estimate of expected payments throughout the agreed uct line based on actuarial methods. In cases where risk period. However, as a minimum to the part of the product lines encompass more than one business unit, premium calculated using the pro rata temporis principle the claims reserves are distributed, as a main rule, Accounting policies / TrygVesta Annual Report 2006 / Page 95 of 147 Accounts based on reported number of claims in Denmark and In some instances, the historic data used in the actu- individual claims in Norway. The models currently used arial models is not necessarily predictive of the future are Chain-Ladder, Bornhuetter-Ferguson, the Loss development of claims. Specifically, this is the case Ratio method, De Vylder’s credibility method and a with legislative changes where in each specific case an proprietary collective reserve model for use in private estimate used for premium increases related to the rel- business lines in Denmark. Chain-Ladder techniques are evant risk increase is derived. For legislative changes this used for business lines with a stable run-off pattern. estimate is used also in determining the level of claims The Bornhuetter-Ferguson method, and sometimes the – and hence reserves. Subsequently, this estimate is Loss Ratio method, are used for claims years in which updated when new loss history materialises. the previous run-off provides insufficient information about the future run-off performance. De Vylder’s Several assumptions and estimates underlying the credibility method is used for areas that are somewhere calculation of the provisions for claims are mutually in between the Chain-Ladder and Bornhuetter-Ferguson/ dependent. Most importantly, this can be expected to Loss Ratio methods, and may also be used in situations be the case for interest rate and inflation assumptions. that call for the use of exposure targets, for example the number of insured, other than premium volume. For workers’ compensation, future claims are discounted at a real rate of interest and it can be assumed that The proprietary collective model is based exclusively on the correlation between interest rate and inflation at actual payments and is therefore only used for provi- least in the near term does not give rise to significant sions for small claims, below DKK 200,000 for motor, or fluctuation in the real rate of interest. For workers’ DKK 100,000 for other. The model is so dynamic that, compensation, the adjustment percentage published in to the greatest extent possible, it captures changes in 2005 with a premium of 2 percentage points is used as the run-off pattern. It consists of two modules, with the expected future inflation rate. the first module estimating on a daily basis with due consideration to days off and special high-frequency For other lines of business, the inflation assumptions, days such as New Year’s Eve or days with slippery because present only implicitly in the actuarial models, roads. The model also takes the season into considera- will cause a certain lag in predicting the level of future tion, both in terms of claims performance and in claims losses when a shift in inflation occurs. On the other handling intensity. In the second module, estimates hand, the effect of discounting will show immediately are on a more aggregate level, and the calculations are as a consequence of inflation changes to the extent based on a generalised hierarchic De Vylder model. that this change affects the interest rate. Special areas: Other correlations are not significant. • The provision for annuities in workmen’s compen- sation insurance is calculated on the basis of a liability adequacy test mortality corresponding to the G82 calculation basis Tests are continuously performed to ensure the (government-estimated mortality table), with a net adequacy of the technical provisions. In performing discount rate of 1%. The calculation is based on the these tests, current best estimates (without margins current benefit, implying that the discounting applies for adverse deviation) of future cash flows of claims, corresponds to a real interest rate of 1%. gains and direct and indirect claims handling costs are Accounting policies / TrygVesta Annual Report 2006 / Page 96 of 147 used. Any deficiency is charged to the income state- In special instances the employee can enter a contract ment by raising the relevant provision. with the group to receive compensation for loss in pen- Employee benefits pension obligations sion benefits caused by the reduced working hours. The group recognises this liability based on statistical models. The group operates various pension schemes. The income tax and deferred tax schemes are funded through payments to insurance The group provides current tax expense according to companies or trustee-administered funds. In Norway, the tax law of each jurisdiction in which it operates. the group operates a defined benefit plan. A defined Current tax liabilities and current tax receivables are benefit plan is a pension plan that defines an amount recognised in the balance sheet as estimated tax on the of pension benefit that an employee will receive on taxable income for the year, adjusted for adjustments retirement, dependent on age, years of service and com- on tax on prior years’ taxable income and for tax paid pensation. In Denmark, the group operates a defined under the on–account tax scheme. contribution plan. A defined contribution plan is a pen- sion plan under which the group pays fixed contributions Deferred tax is measured according to the balance into a separate entity (a fund) and will have no legal or sheet liability method on all timing differences between constructive obligation to pay further contributions. the tax and accounting value of assets and liabilities. The liability recognised in the balance sheet in respect rates that apply in the relevant countries by the balance of defined benefit pension plans is the present value sheet date when the deferred tax asset is realised or of the defined benefit obligation at the balance sheet the deferred income tax liability is settled. Deferred income tax is measured using tax rules and tax date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses Deferred income tax assets, including the tax value of tax and past service costs. The defined benefit obliga- losses carried forward, are recognised to the extent that tion is calculated by actuaries using the projected unit it is probable that future taxable profit will be available credit method. The present value of the defined benefit against which the temporary differences can be utilised. obligation is determined by discounting the estimated future cash outflows by a duration that matches the Deferred income tax is provided on temporary differ- conditions of the underlying pension obligation. ences arising on investments in subsidiaries and associ- ates, except where TrygVesta controls the timing of the The actuarial gains and losses arising from experience reversal of the temporary difference, and it is probable adjustments and changes in actuarial estimates is that the temporary difference will not reverse in the charged or credited to equity. foreseeable future. other employee benefits provisions Employees of the group are entitled to a fixed pay- Provisions are recognised when, as a consequence of ment, when they reach retirement and when they have an event that has occurred before or on the balance been employed with the group for 25 and for 40 years. sheet date, the group has a legal or constructive obli- The group recognises this liability as soon as the gation, and it is likely that an outflow of resources will employment begins. be required to settle the obligation. Accounting policies / TrygVesta Annual Report 2006 / Page 97 of 147 Accounts Provisions are measured as the management’s best of intangible assets, property, plant and equipment as estimate of the amount with which the liability is well as fixed asset investments. expected to be settled. financial liabilities Cash flows from financing activities comprise changes in the size or composition of the group’s share capital and Bond loans, debt to credit institutions, etc. are recog- related costs as well as the raising of loans, instalments nised at the raising of the loan as the proceeds received on interest-bearing debt, and payment of dividends. less transaction costs. In the subsequent periods, finan- cial liabilities are measured at amortised cost, applying Cash and cash equivalents comprise cash and demand the “effective interest rate method”, to the effect that deposits. the difference between the proceeds and the nominal value is recognised in the income statement under pro forma comparative figures financial expenses over the term of the loan. The financial accounts for 2002 present pro forma com- parative figures prior to the formation of TrygVesta A/S Other liabilities are measured at net realisable value. as at 28 January 2002 and the company’s subsequent acquisition of the general insurance activities of Nordea cash flow statement AB as at 28 June 2002. The cash flow statement of the group is presented using the direct method and shows cash flows from Pro forma comparative figures have been included in operating, investing and financing activities as well as order to provide more information in the annual report the group’s cash and cash equivalents at the begin- with respect to the technical operations of the general ning and the end of the financial year. No separate insurance companies forming part of TrygVest irrespec- cash flow statement has been prepared for the parent tive of the former ownership of these companies. company because it is included in the consolidated cash flow statement. The pro forma comparative figures are stated on the basis of a consolidation of the companies forming part Cash flows from acquisition and divestment of enter- of the group as at 31 December 2003. prises are shown separately under cash flows from investing activities. Cash flows from acquired enterprises The following should be taken into account when evalu- are recognised in the cash flow statement from the ating the pro forma comparative figures: time of their acquisition, and cash flows from divested enterprises are recognised up to the time of sale. Tryg Forsikring A/S and Vesta Forsikring AS are stated net of their life and pension insurance activities, which Cash flows from operating activities are calculated were operated by wholly-owned subsidiaries. whereby major classes of gross cash receipts and gross cash payments are disclosed. Where the accounting policies have been changes during the period, the comparative figures of each company have Cash flows from investing activities comprise pay- to the extent possible been adjusted on consolidation to ments in connection with acquisition and divestment of comply with the current accounting policies. Such adjust- enterprises and activities as well as purchase and sale ments only have a minor impact on the pro forma figures. Accounting policies / TrygVesta Annual Report 2006 / Page 98 of 147 incoME StatEMEnt and balancE ShEEt for trygvESta incoME StatEMEnt dKKm Notes general insurance Gross premiums written Ceded insurance premiums Change in provisions for unearned premiums Change in reinsurers’ share of provisions for unearned premiums 1 Earned premiums, net of reinsurance 2 technical interest, net of reinsurance Claims paid Reinsurance recoveries Change in provisions for claims Change in the reinsurers’ share of provisions for claims 3 claims incurred, net of reinsurance bonus and premium rebates Acquisition costs Administrative expenses Acquisition costs and administrative expenses Commission and profit commission from the reinsurers total insurance operating expenses, net of reinsurance 4 5 technical result investment activities 14 Income from associates Income from investment properties Interest income and dividends, etc. Value adjustment Interest expenses 6 7 6 Investment management charges total return on investment activities 2 Interest on insurance provisions total return on investment activities after technical interest Other income Other expenses profit/loss before tax 8 Tax profit/loss on continuing business 9 Profit/loss on discontinued and divested business profit/loss for the year Specification Profit/loss on continuing business before tax Profit/loss on discontinued and divested business before tax profit/loss for the year incl. discontinued and divested business before tax Tax profit for the year 27 Earnings per share – continuing business of DKK 25 Earnings per share of DKK 25 2006 2005 16,296 -945 -61 3 15,293 583 -10,064 550 -732 -288 -10,534 -214 -1,719 -978 -2,697 102 -2,595 2,533 6 101 1,105 1,205 -94 -85 2,238 -1,031 1,207 118 -149 3,709 -624 3,085 126 3,211 3,709 160 3,869 -658 3,211 45,5 47,3 15,444 -892 422 -74 14,900 323 -10,256 1,373 -1,048 -487 -10,418 -161 -1,644 -1,018 -2,662 71 -2,591 2,053 2 101 1,035 588 -68 -63 1,595 -707 888 126 -154 2,913 -788 2,125 -28 2,097 2,913 -27 2,886 -789 2,097 31,3 30,8 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 99 of 147 Accounts balancE ShEEEt dKKm Notes assets 10 intangible assets 11 Operating equipment 12 Owner-occupied property total property, plant and equipment 2006 2005 220 98 326 424 135 109 329 438 13 investment property 2,127 1,726 14 Investments in associates total investments in associates Equity investments Unit trust units Bonds Deposits in credit institutions Cash in hand and at bank 15 total other financial investment assets 18 18 5,308 306 30,100 0 338 36,052 30 30 4,707 280 27,763 120 543 33,413 deposits with ceding undertakings, receivable 18 27 total investment assets 38,215 35,196 Reinsurers’ share of provisions for unearned premiums Reinsurers’ share of provisions for claims total reinsurers’ share of provisions for insurance contracts 21 16 Receivables from policyholders Receivables from insurance brokers Total receivables in relation to direct insurance contracts Receivables from insurance enterprises Receivables from subsidiaries Other receivables 17 total receivables Temporarily acquired assets Current tax assets Other total other assets Accrued interest and rent earned Other prepayments and accrued income total prepayments and accrued income 185 1,376 1,561 840 0 840 647 27 262 146 2,484 2,630 819 85 904 722 44 145 1,776 1,815 6 43 7 56 474 57 531 9 106 8 123 423 51 474 total assets 42,783 40,811 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 100 of 147 balancE ShEEEt dKKm Notes liabilities 18 Shareholders’ equity 19 Subordinated loan capital 20 Provisions for unearned premiums 21 Provisions for claims Provisions for bonuses and premium rebates total provisions for insurance contracts 22 Pensions and similar obligations 23 Deferred tax liability Other provisions total provisions Debt related to direct insurance Debt related to reinsurance 24 Debt to credit institutions Current tax liabilities 25 Other debt total debt accruals and deferred income total liabilities and equity 26 capital adequacy, etc. 27 Earnings per share 28 contractual obligations, contingent liabilities and collateral 29 related parties 2006 2005 9,951 1,099 5,173 20,410 374 25,957 503 959 50 1,512 358 214 665 229 2,689 4,155 109 8,215 1,098 5,183 21,261 313 26,757 669 939 41 1,649 342 143 786 385 1,186 2,842 250 42,783 40,811 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 101 of 147 Accounts StatEMEnt of changES in Equity dKKm Shareholders’ equity at 1 January 2005 Equity entries in 2005 Profit for the year Change in equalisation provision reserve revalua- for Equali- Share tion exchange sation other retained proposed capital reserves rate adj. reserve reserve earnings dividends total 1,700 189 736 3,527 650 6,802 Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Actuarial gains and losses on pension obligation Tax on equity entries Total comprehensive income Dividend paid total equity entries in 2005 0 Shareholders’ equity at 31 december 2005 Shareholders’ equity at 1 January 2006 1,700 1,700 Equity entries in 2006 Profit for the year Change in equalisation provision Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Actuarial gains and losses on pension obligation Tax on equity entries Total comprehensive income 0 Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options total equity entries in 2006 0 Shareholders’ equity at 31 december 2006 1,700 -126 64 605 126 132 -119 33 46 -126 64 -118 33 646 46 -126 64 646 1,428 2,097 0 7 132 -119 -118 64 1,428 2,063 -650 778 -650 1,413 46 63 800 4,173 1,428 8,215 46 63 800 4,173 1,428 8,215 -5 967 5 116 -32 2,244 3,211 0 3 -143 107 116 -63 -5 0 1,056 2,244 3,231 -143 107 -30 -66 5 -88 13 3 989 -1,428 -1,428 5 -88 13 3 816 1,736 -66 -5 0 -20 58 800 5,162 2,244 9,951 7 -2 5 5 5 5 3 -1 2 2 7 Vesta Forsikring AS has in its consolidated financial statements included provisions for contingency funds of NOK 2,251m under provisions for insurance contracts. In the consolidation, these provisions, due to their nature as ad- ditional provisions, are included in shareholder’ equity (retained earnings), net of deferred tax. When assessing Vesta Forsikring AS’ option to pay dividend to the parent company Tryg Forsikring this amount should be considered. Tryg Forsikring’s option to pay dividend to TrygVesta is influenced by this amount. The dividend payment is also af- fected by a contingency fund provision of DKK 670m, which is included in shareholders’ equity in Tryg Forsikring A/S’ financial statements. Dansk Kaution has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 102 of 147 StatEMEnt of rEcogniSEd incoME and ExpEnSES dKKm 2006 2005 Revaluation of owner-occupied properties for the year Exchange rate adjustment of foreign entities for the year Hedging of currency exposure in foreign entities for the year Actuarial gains/losses on defined benefit pension plans Tax on entries recognised directly in equity net income/expense taken directly to equity Profit for the year total recognised income and expenses 3 -143 107 116 -63 20 3.211 3.231 7 132 -119 -118 64 -34 2.097 2.063 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 103 of 147 Accounts caSh flow StatEMEnt - trygvESta group dKKm 2006 2005 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 items cash generated from operations, continuing business Cash generated from operations, discontinuing and divested business total cash generated from operations investments Acquisition of real property (net) Sale of real property (net) Acquisition of equity investment and unit trust units (net) Purchase/Sale of bonds (net) Purchase of operating equipment Sale of operating equipment Sale of subsidiaries, cf. note 9 Acquisition of associated, cf. specification Sale of associated investments, continuing business Investments, discontinuing and divested business total investments funding Purchase of own shares Share options Subordinate loan paid Dividend paid Foreign currence hedging Change in debt to credit institutions funding, continuing business Funding, discontinuing and divested business total funding change in cash and cash equivalents, net Price adjustment of cash and cash equivalents, beginning of year Additions relating to sale of subsidiaries changes in cash and cash equivalents, gross Cash and cash equivalents, begining of year cash and cash equivalents, year-end acquisition/sale of subsidiaries In 2006, TrygVesta acquired 50 % of the shares in Ejendomsselskabet af 1. marts 2006 P/S (pro rata consolidated), which at the time of acquisition had the following assets and liabillities: Cash and cash equivalents Total Cost cash at purchase (net) Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 104 of 147 15.915 -10.017 451 -2.944 95 3.500 965 -139 -28 4.298 -146 4.152 -29 45 -709 -3.367 -124 133 0 0 0 -4.051 145 -3.906 0 0 395 -650 -119 177 -197 -10 -207 39 14 0 53 490 543 15.935 -9.902 -154 -2.688 4 3.195 879 -718 -31 3.325 -139 3.186 -240 10 41 -1.743 -187 82 142 0 14 -1.881 0 -1.881 -83 16 0 -1.428 107 -121 -1.509 0 -1.509 -204 -2 1 -205 543 338 201 201 0 notES dKKm 1 Earned premiums, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance direct insurance, by location of risk Denmark Other EU countries Other countries 2 technical interest Interest on insurance provisions Transferred from provisions for claims concerning discounting Return on discontinued business 3 claims incurred, net of insurance Claims incurred Run-off previous years, gross Reinsurance recoveries Run-off previous years, reinsurers’ share 4 insurance operating expenses, net of reinsurance Commission regarding direct business Other acquisition costs Total acquisition costs Administrative expenses Insurance operating expenses, gross Commission, etc. from reinsurers Administative expenses include fee to the auditors appointed by the Annual General Meeting: Deloitte Grant Thornton Of which services other than audit: Deloitte In adddition, expenses have been incurred for the Group´s Internal Audit Department. 2006 2005 16,102 88 16,190 45 16,235 -890 -52 15,293 15,833 33 15,866 0 15,866 -974 8 14,900 2006 2005 ceded gross ceded gross 9,115 269 6,718 -480 -15 -395 8,816 177 6,840 16,102 -890 15,833 1,031 -457 9 583 -11,219 423 -10,796 313 -51 -542 -11 -421 -974 707 -378 -6 323 -11,567 263 -11,304 968 -82 -10,534 -10,418 -339 -1,380 -1,719 -978 -2,697 102 -2,595 -8 0 -8 -2 -2 -270 -1,374 -1,644 -1,018 -2,662 71 -2,591 -10 -1 -11 -4 -4 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 105 of 147 Accounts dKKm 2006 2005 4 insurance operating expenses, gross, classified by type Commision Staff expenses Other staff expenses Office expenses and fees, headquarter expenses etc. Operating and maintenance costs, IT, software expenses etc. Depreciation, amortisation and impairment writedowns Other income Total expenses for lease amounts to DKK 101m (2005 DKK 91m). Insurance operating expenses and claims include the following staff expenditure: Salaries and wages Commision Allocated share options Pensions Other social security costs Payroll tax, etc. Specification of remuneration, etc. Supervisory Board Group Executive Management Remuneration, etc. includes pension contributions: Supervisory Board Group Executive Management -341 -1,581 -174 -402 -271 -76 148 -273 -1,580 -193 -442 -266 -138 230 -2,697 -2,662 -1,776 -1,561 -25 -3 -208 -138 -217 -26 0 -242 -132 -220 -2,367 -2,181 -4 -26 -30 0 -3 -3 -3 -18 -21 0 -3 -3 Members of the Supervisory Board of TrygVesta A/S do not receive bonuses and are not participants in any severance plans. The Group Executive Management has a bonus scheme for up to 3 months’ salary and participate ind the share option programme as mentioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Group Executive Management. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 106 of 147 4 Share option programmes In 2006, TrygVesta awarded share options to the Group Executive Management (5 persons) and other senior employees (52 persons). At 31 December 2006, the share option plan comprised 186,020 share options. These expenses amount to DKK 11,8m, which is higher than the DKK 7,9m stated in the annual report 2005. Each share option entitles the holder to acquire one existing share of DKK 25 nominal value in the company. The share option plan entitles the holders to buy 0.27 % of the share capital if all share options are exercised. The options are issued at an exercise price that corresponds to the market price of the company’s shares at the time of allocation. No other vesting conditions apply. Special provisions are in place concerning sickness and death and in case of change to the company’s capital position, etc. The share options can not be exercised before in 2009 at the ealiest. The share option agreement stipulates that the employees is entitled to the options unless the employee terminates the employment or the employ- ment is terminated due to breach of the employment contract. If the employee is terminated due to restruc- turing or if the employee retire the employee will still be able to exercise the options. The share options are exercisable exclusively during a two-week period following the publication of full-year or half-year reports and in accordance with TrygVesta’s in-house rules on trading in the company’s shares. The options are settled in shares. A part of the company’s holding of treasury shares is reserved for settlement of the options granted. Share option programmes Number of options exercisable 1 january 2006 Allocation of options concerning 2005 Exercise of share options Cancelled Expired outstanding 31 december 2006 number of options group Executive other senior value per total fair value per total fair option at value at option 31 value 31 Management employees total grant date grant date december december number number number dKK dKK dKK dKK fair fair 0 0 0 0.00 0.00 0.00 0.00 44,540 141,480 186,020 63.62 11.83 0 0 0 0 0 0 0 0 0 0.00 0.00 0.00 0.00 0.00 0.00 149.96 0.00 0.00 0.00 27.90 0.00 0.00 0.00 44,540 141,480 186,020 63.62 11.83 149.96 27.90 exercisable end of 2007 0 0 0 0.00 0.00 0.00 0.00 In 2006, the fair value of share options in the income statement for the Group amounted to DKK 3.2m. Fair values at the time of allocation are based on the Black & Scholes option pricing formula. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 107 of 147 Accounts 2006 355.83 0 17.90 % 4 år 5.40 % 3.30 % The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: Average share price (DKK) at the time of grant date Exercise price (DKK) Expected volatility Expected maturity Expected dividend per share Risk-free interest rate The expected volatility is based on the average volatility of comparable shares in 2005. The expected maturity is 4 years, corresponding to the average of the exercise period of 3 to 5 years. Expected dividend is based on long-term financial targets based on the average invested capital. The risk-free interest rate is based on a bullet loan with the same maturity as the expected maturity for the options at the time of allocation. The assumptions for calculating the market value at the end of the period are based on the same principles as for the market value at the time of allocation. For outstanding options at 31 December 2006, the average term to maturity is 3.2 years. There are no comparative figures for 2005, as the agreement on share options was reached in 2006. No share options were settled in 2006. Employee shares In order to reward and increase employee affiliation with the company, in March 2006 TrygVesta offered em- ployee shares to employees at all levels of the parent company and Danish subsidiaries. Employees of non-Dan- ish branches and subsidiaries were offered employee shares or an alternative cash consideration. Each employee was offered 18 free shares, a total of 37,441 shares equivalent to DKK 13m, corresponding to 0.06% of the share capital. The expense was provided in 2005 and does not influence the result of 2006. In accordance with Danish law, the shares are held in restricted accounts until expiry of the seventh calendar year after they were subscribed. Employees cannot sell or otherwise dispose of the shares during the period they are subject to selling restrictions, but the shares will be released in case of the employee shareholder’s death or disability. average number of full-time employees during the year (continuing business) 2006 3,740 2005 3,702 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 108 of 147 dKKm 5 technical result, net of reinsurance, by line of business accident and health 1) 2005 2006 workers’ Motor compensation Motor tpl comprehensive 2006 2005 2006 2005 2006 2005 gross premiums written Gross premiums earned Gross claims Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance 2,298 2,260 2,154 2,197 1.207 1,181 1,014 1,034 2.381 2,419 2,312 2,396 3.070 3,084 2,989 3,084 -1,761 -1,955 -1,110 -995 -1,734 -1,975 -1,819 -1,629 -11 -343 -17 127 -6 -349 -24 78 0 0 -133 -135 0 85 -29 51 -14 -366 -23 118 -7 -362 -15 88 -133 -423 -3 55 -77 -422 23 35 technical result 255 -59 23 -74 400 125 761 1,014 Frequency Average Total 8.1% 6.5% 21.0% 14.7% 6.8% 7.0% 21.0% 22,385 25,977 72,191 98,816 24,260 24,829 10,159 20.7% 9,978 81,393 72,608 13,492 9,371 78,586 82,078 176,489 171,648 Marine, aviation fire & contents fire & contents and cargo (private) (commercial) liability 2006 2005 2006 2005 2006 2005 2006 2005 gross premiums written Gross premiums earned Gross claims Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance 635 628 -471 -14 -92 -63 24 553 561 3,158 3,115 3,011 3,072 2,373 2,368 2,327 2,399 -329 -2,098 -2,196 -1,285 -1,742 -8 -85 -70 1 -31 -724 -74 73 -18 -681 196 38 -1 -426 -283 43 2 -453 91 26 702 709 -467 -9 -140 6 23 676 699 -365 -47 -130 -123 19 technical result 12 70 261 411 416 323 122 53 Frequency Average Total 11.6% 11.0% 11.6% 14.3% 19.6% 28.9% 10.9% 12.6% 62,172 49,957 10,519 10,161 44,140 36,885 49,227 42,168 7,393 6,917 178,990 206,573 33,934 50,416 8,608 9,567 credit & guarantee insurance 2005 2006 other insurance 2005 2006 2006 norwegian group life 1) total one-year policies 2005 2006 2005 gross premiums written Gross premiums earned Gross claims Bonuses and premium rebates Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance 138 140 25 0 -42 -36 4 132 133 -12 0 -32 -18 2 335 331 -76 -1 -8 -85 31 284 16,296 15,444 15,866 299 -11,304 -107 -161 0 -2,662 -13 -9 -47 323 -15 16,235 -10,796 -214 -2,697 -578 583 613 592 -483 0 -70 -3 32 628 612 -464 0 -147 -7 0 technical result 91 73 192 117 2,533 2,053 68 -6 Frequency Average Total 1.1% 1.3% 16.6% 6.2% 900,823 2,698,827 14,525 22,631 26 26 15,654 10,305 1) Personal accident and health insurance includes one-year group life policies of Vesta Forsikring AS. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 109 of 147 Accounts dKKm 5 Segments primary segments 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 private and commercial denmark private and commercial finnish general Swedish norway corporate insurance general insurance unallocated Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of insurance Technical result 6,390 -4,306 -1,109 -201 215 989 6,276 -4,987 -1,113 467 113 756 4,509 4,632 4,921 4,666 -2,892 -2,844 -3,437 -3,361 -922 -945 -76 152 771 -62 93 874 -539 -302 210 853 -534 -421 114 464 198 -155 -83 0 6 -34 140 -113 -70 -1 3 -41 Total return on investment activities after technical interest Other income and expenses Profit before tax Tax Profit on continued business Loss on discontinued and divested business profit for the year Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims 0 -35 -11 124 0 238 1 185 156 320 1,173 1,260 0 0 Other assets total assets Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 2,416 7,354 256 2,361 6,988 191 1,520 3,287 0 1,755 3,334 0 1,182 9,507 118 1,030 9,338 122 43 132 0 0 0 37 88 0 Provisions Debt Accruals and deferred income total liabilities Secondary segments Gross premiums earned Technical result Return on investment activities Other income Other expenses Profit/Loss for the period before tax Total assets danish general norwegian general finnish general insurance insurance insurance 2006 2005 2006 2005 2006 2005 9,084 1,366 792 65 -63 2,160 25,613 8,764 956 567 77 -70 1,530 23,609 6,738 1,242 455 53 -50 1,700 17,198 6,810 1,138 354 49 -47 1,494 17,142 198 -34 -4 0 0 -38 27 140 -41 -2 0 0 -43 25 Swedish insurance other 2006 2005 2006 2005 2006 total 2005 2,053 888 126 -154 2,913 16,021 15,705 -3 0 -36 0 -36 -72 -69 -9 0 -31 -37 -68 35 2,533 1,207 118 -149 3,709 42,783 40,811 description of segments Please refer to ‘Our business areas’ for a description of our primary segments Other assets and liabilities are not directly attributable, and it is not possible to allocate these items so that they present a true and fair view. Accordingly, the amount are recognised in a single line item ‘Unallocated investments activities’. Nor ca the purchase of assets fairly be assigned to separate segments Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. The secondary, geographic segments relates to Denmark, Norway, Finland and Sweeden. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 110 of 147 -1 0 -5 1 0 -5 0 0 0 0 total 2005 -9 16,021 15,705 1 0 8 0 0 -10,796 -11,304 -2,697 -2,662 -578 583 -9 323 2,533 2,053 1,207 -31 3,709 -624 3,085 126 888 -28 2,913 -788 2,125 -28 3,211 2,097 42,783 40,811 5,173 5,183 374 1,512 4,155 109 313 1,649 2,842 250 31,733 31,498 0 780 185 1,376 146 2,484 41,222 38,181 41,222 38,181 126 1,513 20,410 21,261 0 0 1,512 4,155 109 1,649 2,842 250 4 -6 -39 0 0 -41 0 0 12 4 0 -41 4 0 0 0 -41 14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 dKKm 5 Segments primary segments 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 private and commercial denmark private and commercial norway corporate insurance general insurance unallocated finnish general Swedish total 2005 Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of insurance Technical result 6,390 -4,306 -1,109 -201 215 989 6,276 -4,987 -1,113 467 113 756 4,509 4,632 4,921 4,666 -2,892 -2,844 -3,437 -3,361 -922 -945 -76 152 771 -62 93 874 -539 -302 210 853 -534 -421 114 464 198 -155 -83 0 6 -34 140 -113 -70 -1 3 -41 Total return on investment activities after technical interest Other income and expenses Profit before tax Tax Profit on continued business Loss on discontinued and divested business profit for the year Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims 0 -35 -11 124 0 238 1 185 156 320 1,173 1,260 0 0 Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 2,416 7,354 256 2,361 6,988 191 1,520 3,287 0 1,755 3,334 0 1,182 9,507 118 1,030 9,338 122 43 132 0 0 0 37 88 0 Other assets total assets Provisions Debt Accruals and deferred income total liabilities Secondary segments Gross premiums earned Technical result Return on investment activities Other income Other expenses Total assets Profit/Loss for the period before tax danish general norwegian general finnish general insurance insurance insurance 2006 2005 2006 2005 2006 2005 9,084 1,366 792 65 -63 8,764 956 567 77 -70 6,738 1,242 455 53 -50 6,810 1,138 354 49 -47 2,160 1,530 1,700 1,494 25,613 23,609 17,198 17,142 198 -34 -4 0 0 -38 27 140 -41 -2 0 0 -43 25 4 -6 -39 0 0 -41 0 0 12 4 0 0 0 0 0 0 0 0 0 0 0 0 -1 0 -5 1 0 -5 -9 16,021 15,705 1 0 8 0 0 -10,796 -11,304 -2,697 -2,662 -578 583 -9 323 2,533 2,053 1,207 -31 3,709 -624 3,085 126 888 -28 2,913 -788 2,125 -28 3,211 2,097 0 0 0 780 185 1,376 146 2,484 41,222 38,181 41,222 38,181 42,783 40,811 0 0 5,173 5,183 126 1,513 20,410 21,261 0 1,512 4,155 109 0 1,649 2,842 250 374 1,512 4,155 109 313 1,649 2,842 250 31,733 31,498 Swedish insurance other 2006 2005 2006 2005 2006 4 -41 0 0 0 -41 14 0 0 0 0 0 0 0 -3 0 -36 0 -36 -72 -69 -9 0 -31 -37 -68 35 16,021 2,533 1,207 118 -149 3,709 42,783 total 2005 15,705 2,053 888 126 -154 2,913 40,811 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 111 of 147 Accounts dKKm 2006 2005 6 interest and dividends, etc. Interest and dividend concerning financial assets at fair value with value adjustment in the income statement: Dividends Interest expenses Interest income 7 Market value adjustment Market value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement: Equity investments Unit trust units Share derivatives Bonds Interest derivatives Other loans Market value adjustments concerning assets and liabilities that cannot be attributed to IAS 39: Investment property Discounting Other balance sheet items Market value gains Market value losses Market value adjustment, net Exchange rate adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement amount to DKK 16m. 8 reconciliation of tax expenses Tax on profit for the year Prior-year tax adjustment Utilised joint taxation loss in non-consolidated undertaking/non-capitalised loss Tax on non-taxable income and expenses Change in valuation of tax assets Tax of ledger account Effective tax rate Tax on profit for the year Prior-year tax adjustment Utilised joint taxation loss in non-consolidated undertaking/non-capitalised loss Tax on non-taxable income and expenses Change in valuation of tax assets Tax of ledger account Please refer to “TrygVesta Financial performance 2006” 183 -94 922 1,011 764 26 0 -115 5 0 680 190 347 -12 1,205 1,736 -531 1,205 -1,037 28 - 226 -22 181 -624 % 28 -1 - -6 1 -5 17 126 -68 909 967 682 34 -10 -204 -7 -7 488 43 43 14 588 1,356 -768 588 -816 45 -11 -6 - - -788 % 28 -1 0 0 - - 27 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 112 of 147 dKKm 2006 2005 9 profit/loss on discontinued and divested business Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Technical result Return on investment activities after technical interest Profit/loss before tax Tax 4 -1 119 -25 97 63 160 -34 126 -27 28 23 -45 -21 -6 -27 -1 -28 Claims incurred includes a DKK 139m gain in connection with the commutation of the reinsurance agreement with Chevanstell Limited. Sale of chevanstell The accounting value of assests and liabilities at the time of divestment: Bonds Deposits in credit institutions Reinsurers’ share of provisions for insurance contracts Receivables Provisions for insurance contracts Debt Accruals and deferred income Gain from sale Reversal of impairment Exchangerate adjustment net cash from sale Costs incurred in connection with the sale amounted to DKK 3m. 465 78 802 109 -1,176 -116 -43 119 63 -42 2 142 At 31 December 2005, Chevanstell had total assets amounting to DKK 1.7bn, which were recognised in Tryg Forsikring’s total assets. the technical result of discontinued and divested business specified by line of business gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance technical result accident Marine, aviation and health and cargo 2006 2005 2006 2005 other insurance 1) 2005 2006 2006 total 2005 0 0 7 -1 -7 0 -1 -3 -3 -8 -1 4 0 -8 1 -4 2 -25 3 -32 1 15 -2 -14 3 -4 0 -19 27 9 2 232 -21 -113 -5 -25 -25 -29 34 19 3 254 -24 -134 -2 -32 -33 -49 65 28 3 13 95 -26 97 -21 1) The line of business “Other insurance” includes indirect insurance. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 113 of 147 Accounts dKKm 10 intangible assets cost Balance 1 January Exchange rate adjustment Transferred from operating equipment Additions during the year Disposals during the year Balance 31 December amortisation and writedowns Balance 1 January Exchange rate adjustment Amortisation for the year Reversed amortisation Balance 31 December carrying amount 31 december Additions for internally developed expenses amount to DKK 5m (in 2005 DKK 11m). Amortisation is recognised in the income statement under insurance operating expenses. 11 operating equipment cost Balance 1 January Exchange rate adjustment Transferred to intangible assets Additions during the year Disposals during the year Balance 31 December depreciation and impairment writedowns Balance 1 January Exchange rate adjustment Depreciation for the year Reversed depreciation Balance 31 December carrying amount 31 december Amortisation is recognised in the income statement under insurance operating expenses. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 114 of 147 2006 2005 238 -4 0 139 0 373 -103 3 -53 0 -153 220 303 -1 0 49 -108 243 -194 1 -43 91 -145 98 159 4 14 65 -4 238 -47 -1 -58 3 -103 135 582 9 -14 62 -336 303 -409 -8 -69 292 -194 109 dKKm 2006 2005 12 owner-occupied property cost Balance 1 January Adjustment, beginning of the year Exchange rate adjustment Additions during the year Disposals during the year Balance 31 December accumulated value adjustments Balance 1 January Value adjustment for the year at revalued amount Balance 31 December accumulated depreciation Balance 1 January Depreciation for the year Balance 31 December 322 0 -9 4 0 317 8 4 12 -1 -2 -3 273 50 11 16 -28 322 0 8 8 0 -1 -1 balance at revalued amount at 31 december 326 329 Depreciation is recognised in the income statement under insurance operating expenses. Owner-occupied property is measured at the revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment writedowns. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the upcoming year. The resulting operating income is divided by the percentage return requirement of the property, which has been adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. External experts were not involved in valuing owner-occupied property. In establishing the market value of the properties, the following return percentages were used for each property category. lowest % average % highest % 2006 2005 2006 2005 2006 2005 Office property 7.0 7.4 7.2 7.4 7.2 7.4 13 investment property Fair value at the end of the previous financial year Adjustment, beginning of year Exchange rate adjustment Additions during the year Disposals during the year Value adjustment for the year fair value at the balance sheet date 1,726 0 -13 235 -5 184 2,127 1,727 -50 14 13 -8 30 1,726 Total rental income for 2006 is DKK 145m (in 2005 it was DKK 140m). Total expenses for 2006 were DKK 44m (in 2005 DKK 38m). Of this amount, unlet property represented is DKK 2m. (in 2005 DKK 2m), so the total expenses at the income leading investment property were DKK 42m (in 2005 DKK 36m). Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 115 of 147 Accounts Investment property is measured at fair value. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the upcoming year. The resulting operating income is divided by the percentage return requirement of the property, which has been adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted by the value in use of the return on prepayments and deposits and adjustment for specific property issues, such as vacant premises or special tenant terms and conditions. External experts were not involved in valuing investment property. In establishing the market value of the properties, the following return percentages were used for each property category. lowest average highest 2006 2005 2006 2005 2006 2005 Business property Office property Residential property 7.00 3.80 3.50 7.50 6.06 5.50 7.30 6.50 4.80 7.76 7.34 6.16 7.50 7.50 6.00 8.00 8.25 6.50 dKKm 14 investments in associates cost Balance 1 January Additions during the year Balance 31 December revaluations at net asset value Balance 1 January Revaluations during the year Balance 31 December carrying amount 31 december 2006 2005 14 -14 0 16 2 18 18 14 0 14 14 2 16 30 Shares in associates according to the latest financial statements: name and registered office assets liabilities Equity revenue of the year share in % Komplementarselskabet af 1 March 2006 ApS, DK Bilskadeinstituttet AS, Norway Edsvåg Fabrikker AS, Norway 0 5 34 0 0 3 0 4 31 0 1 14 0 0 3 50 30 28 Shareholders’ profit/loss ownership Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 116 of 147 dKKm 2006 2005 15 financial investment assets Financial assets at fair value with value adjustment in the income statement Receivables and deposits with ceding undertakings at amortized costs other financial investment assets Bonds Contains of: Cash allocated to portfolioamanagement Unsettled securities trading Repo debt Other investment assets incl. discontinued activities Shares Equity investments incl. associates, unit trust units and bonds in accordance with the balance sheet The bond and share portfolio includes unit trusts in which the underlying assets are bonds and shares. In addition, the amounts include liquid assets allocated to the portfolio manager, money market deposits and debt and recievables from unsettled investment transactions. bonds carrying amount Danish bonds Norwegian bonds and money market instruments Other bonds Effective interest rate Danish bonds Norwegian bonds and money market instruments Other bonds bond portfolio by maturity Due in 1 year or less Due after 1 years through 5 years Due after 5 years through 10 years Due after 10 years through 20 years Due after more than 20 years adjusted duration of bond portfolio Due in 1 year or less Due after 1 years through 5 years Due after 5 years through 10 years Due after 10 years through 20 years Due after more than 20 years 36,052 1,794 37,846 28,663 -228 1,158 749 30,342 6 5,384 33,413 1,842 35,255 27,572 -425 350 0 27,497 500 4,783 35,732 32,780 15,572 8,630 4,461 28,663 % 4.6 3.3 4.2 4.2 9,321 13,882 699 1,042 5,398 30,342 19,220 9,698 1,291 133 0 30,342 14,249 9,402 3,921 27,572 % 4.2 2.6 3.5 3.6 9,165 9,331 822 1,408 6,771 27,497 15,594 9,954 1,922 27 0 27,497 The bond portfolio includes unit trusts in which the underlying assets are bonds. The option adjusted duration is used to measure duration. The option adjustment relates primarily to Danish mortgage bonds and reflects the expected duration-shortening effect of the borrower’s option to cause the bond to be redeemed through the mortgage institution at any point in time. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 117 of 147 Accounts dKKm 2006 2005 listed shares United States United Kingdom Denmark Norway Rest of Europe Japan Other The portfolio of unlisted shares totals Unlisted Equity investments is measured on a carefully estimated fair value, cf accounting policies. the company’s ten largest investments in listed shares issued by Royal Bank of Scotland (UK) Royal Dutch Shell (UK) BP Plc. (UK) HBOS Plc. (UK) ING Group N.V. (Holland) Novo Nordisk (Danmark) ABN Amro Holding (Holland) Lloyds TSB Group Plc. (UK) General Electric Co. (USA) Barclays Plc. (UK) Exposure to exchange rate risk 2006 properties dKKm 114 109 93 91 91 89 78 78 77 77 bonds 1,217 1,987 537 8,947 0 0 0 0 0 Shares insurance, etc. 1,245 1,443 873 432 102 91 354 37 27 -184 -913 103 -5,230 1 57 -1 0 -4 0 0 0 724 0 0 0 0 0 1,245 874 707 363 1,567 354 65 5,175 209 1,271 836 480 283 1,479 148 61 4,558 225 % of unlisted shares % of total investment 2.2 2.1 1.8 1.8 1.8 1.7 1.5 1.5 1.5 1.5 hedge -2,080 -2,214 -1,432 -4,449 -96 -118 -321 -34 -26 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Exposure 199 303 82 424 6 30 32 3 -2 724 12,688 4,604 -6,171 -10,770 1,081 properties 0 0 0 707 0 0 0 0 0 bonds 931 2,426 844 9,272 0 0 0 75 0 Shares insurance, etc. -202 -926 -482 -5,903 1 -1 0 1,272 1,363 819 357 116 71 148 35 23 -98 0 hedge -1,890 -2,865 -1,107 -4,170 -138 -69 -126 -33 -23 707 13,548 4,204 -7,611 -10,421 Exposure 111 -2 74 263 -21 1 22 -21 0 515 USD EUR GBP NOK CHF SEK JPY CAD Other Exposure to exchange rate risk 2005 USD EUR GBP NOK CHF SEK JPY CAD Other Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 118 of 147 dKKm 2006 2005 15 Sensitivity information Interest rate increase of 0.7-1.0 pct. point Interest rate fall of 0.7-1.0 pct. point Equity price fall of 12% Fall in property prices of 8% Exchange rate risk (VaR 99.5) Loss on counterparties of 8% -46 164 646 201 17 220 -4 54 572 166 12 175 Please refer to the part ‘Risk management’ and “Investment activities” for an elaboration of risk management and risk exposure. derivative financial instruments Derivatives with value adjustment in the income statement according to IAS 39: Interest derivatives Exchange rate derivatives 2006 2005 Gross 15,903 11,201 Net 0 Gross 6,104 114 10,473 Net -4 -84 Forward exchange transactions and currency swaps are used for forward currency hedging of holdings of shares, bonds, investments in subsidiaries and insurance balance sheet items. Interest derivatives in the form of forward transactions, repos, swaps and forward rate agreements are used to control cash flows and interest in connection with holdings of bonds. Share derivatives are sometimes used to adjust share exposure. Derivative financial instruments are measured at fair value. The valuation is performed in securities systems whose functionality is subject to auditors’ declarations and with data usually provided by Nordea. Derivatives which include expected future cash flows are discounted on the basis of market rates of interest. Derivative financial instruments used in connection with hedging of foreign subsidiaries. gains and losses on foreign exchange hedges charged to equity Gains and losses on hedges charged to equity at 1 January 2006 Reversed hedges in connection with sale of Chevanstell Gains and losses on hedges charged to equity in the period gains and losses on hedges charged to equity at 31 december 2006 gains losses 0 6 101 107 -119 0 0 -119 net -119 6 101 -12 The exchange rate adjustment for the period for foreign entries and the hedging of currency risk will be Handled according to the rules of hedge accounting and will be an entry on shareholder’s equity. The net asset value of investments in the subsidiaries Vesta Forsikring AS is estimated on a current basis and is hedged 90-100% by entering into short-term forward exchange transactions in NOK. Reversed exchange rate adjustments in connection with the sale of Chevanstell totalled DKK 4m. 16 reinsurer’s share Reinsurer’s share Writedowns after impairment test 2006 1,592 -31 1,561 2005 2,666 -36 2,630 TrygVesta Annual Report 2006 / Page 119 of 147 Accounts dKKm 17 receivables Total receivables related to insurance Receivables from subsidiaries Exchange rate derivatives Other receivables 2006 2005 1,487 27 73 189 1,776 1,626 44 0 145 1,815 Receivables were written down in connection with direct insurance contracts, totalling DKK 129m (in 2005 DKK 148m). There is no further depreciation of liabilities beyond this. 18 Shareholders’ equity Share capital issued shares Balance at 1 January Bought during the year Sold during the year treasury shares Balance at 1 January Bought during the year Sold during the year Used in connection with issue of employee shares Balance at 31 December No. of shares (thousands) Nominal value (DKK’000) 68,000 -247 37 68,000 67,753 67,790 1,700,000 -6,186 936 1,700,000 1,693,814 1,694,750 No. of shares Nominal value (DKK’000) % of share capital 0 247,440 0 -37,441 209,999 0 6,186 0 -936 5,250 0 0.36 0 -0.06 0.30 Pursuant to the authorisation granted by the shareholders in general meeting, TrygVesta may acquire up to a maximum of nom. DKK 170m worth of treasury shares, corresponding to 10.0% of the share capital in the period until the next annual general meeting in 2007. In 2006, Tryg Vesta acquired treasury shares worth nom. DKK 6,186k, corresponding to 247,440 shares at a total cost of DKK 88,273k. Treasury shares are acquired for use in the Group’s incentive programme. 19 Subordinated loan capital In december 2005, Tryg Forsikring A/S raised a subordinate bond loan for EUR 150m at the price of 99,017. The loan carries a fixed rate og interst at 4,5 % p.a. untill 2005, where it can be repaid. After that time, it will carry interest at 2.1% above EURIBOR untill it expires in 2025. The loan is measured at amortised cost, and when the loan was raised capital losses and costs were deducted with DKK 19m at the balance sheet date. The fair value of the loan at the balance sheet date is DKK 1,071m, based on a price of 95,79. The price is sourced from Bloomberg, which applies a group of market players as its data sources. The loan is an interest-only loan, and the lender has no option to call the loan or otherwise terminate the loan agreement with Tryg Forsikring A/S. The loan is automatically accelerated upon the liquidation or bankruptcy of Tryg Forsikring A/S. 20 provisions for unearned premiums carrying amount Expected cash flow Total 0-1 year 1-2 years 2-3 years > 3 years Provisions for unearned premiums, gross Provisions for unearned premiums, ceded 5,116 -184 4,878 -184 54 0 36 0 147 0 The table contains amounts from Tryg Forsikring A/S and Vesta Forsikring AS TrygVesta Annual Report 2006 / Page 120 of 147 dKKm 2006 2005 2004 2003 2002 2001 2000 Sum 21 provisions for claims gross Estimated accumulated claims 11,378 11,585 10,851 10,508 11,070 11,482 10,863 10,614 11,408 10,723 10,287 11,412 10,283 11,468 11,461 0 1 2 3 4 5 6 9,028 9,260 9,450 9,560 9,494 9,484 8,417 8,740 8,947 9,150 9,237 9,365 9,117 Cumulative payments to date -5,030 -7,603 -7,783 -8,160 -9,525 -8,462 -8,358 -54,921 Discounting -534 -391 -281 -223 -216 -109 -85 -1,839 11,378 11,482 10,723 10,283 11,461 9,484 9,117 73,928 Reserves from 1999 and prior years Other reserves Gross provisions for claims, end of year ceded business Estimated accumulated claims Cumulative payments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, end of year net of reinsurance Estimated accumulated claims 2,900 342 20,410 0 1 2 3 4 5 6 0 1 2 3 4 5 6 290 939 833 838 852 892 913 876 872 930 1,996 2,098 1,985 1,978 1,977 1,411 1,426 1,432 1,446 1,421 1,407 1,405 1,516 1,483 1,507 1,540 1,535 1,531 206 -107 -9 833 -700 -16 892 -678 -38 930 -730 -29 1,977 1,407 1,531 7,860 -1,658 -1,294 -1,463 -6,630 -38 -20 -11 -161 243 64 1,376 11,088 10,646 10,013 10,649 10,011 9,831 9,595 9,738 9,415 9,353 9,074 9,310 9,427 9,490 9,484 7,617 7,834 8,018 8,114 8,073 8,077 7,012 7,224 7,464 7,643 7,697 7,830 7,586 Cumulative payments to date -4,923 -6,903 -7,105 -7,430 -7,867 -7,168 -6,895 -48,291 11,088 10,649 9,831 9,353 9,484 8,077 7,586 66,068 -525 -375 -243 -194 -178 -89 -74 -1,678 Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year 2,657 278 19,034 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 121 of 147 Accounts The table consists of figures for Tryg Forsikring A/S and Vesta Forsikring AS. Other group companies are included in the item “Other”, which comprises the provisions for claims for Dansk Kaution, travel and health insurance and the Finnish and Swedish business unit. In 2005 provisons for claims regarding Chevanstell was recognised in the balance sheet with DKK 1,2bn. after elimination. In the table, amounts in NOK are translated into DKK using the exchange rate as of 31 December 2006 in order to avoid impact from currency fluctuations. The accident-year 2000 is influenced by Chevanstell, which at that time operated under the name TBi UK in the London market. The impact derives from the stop-loss agreement between Tryg Forsikring A/S and Chevanstell Ltd. in 2000 to cover business written before 2000, and which was terminated after the divestment of Chevanstell. Until 2005, there was an increase in claims incurred, and in 2006 the divestment had a positive impact. The inclusion of the Zurich portfolio acquired in 2002 and, to a minor extent, the Allianz portfolio acquired in 2001, has an impact on the figures. When the liabilities of these portfolios appear in the triangulation the ultimate liability for the preceding accident years is increased with effect from the financial year in question, whereas already existing liabilities concerning previous financial years remain unchanged. The combined impact of the two acquisitions amounts to DKK 210m gross and DKK 200m net of reinsurance. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 122 of 147 dKKm 21 provisions for claims Total, beginning of period Market value adjustment of provisions, beginning of period Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years Discounting 3) Provisions for claims, end of year 1) Other 2) Total, beginning of period Market value adjustment of provisions, beginning of period Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years Discounting 3) Provisions for claims, end of year 1) Other 2) gross 19,788 -266 19,522 -5,030 -4,895 -9,925 10,834 -453 10,381 90 20,068 -342 20,410 gross 18,157 290 18,447 -5,325 -4,811 -10,136 11,329 -203 11,126 351 19,788 1,473 21,261 2006 ceded 1,644 -42 1,602 -107 -421 -528 283 -41 242 -4 1,312 64 1,376 2005 ceded 2,096 67 2,163 -562 -805 -1,367 925 -66 859 -11 1,644 840 2,484 net 18,144 -224 17,920 -4,923 -4,474 -9,397 10,551 -412 10,139 94 18,756 278 19,034 net 16,061 223 16,284 -4,763 -4,006 -8,769 10,404 -137 10,267 362 18,144 633 18,777 1) The table consist of figures for Tryg Forsikring A/S and Vesta Forsikring AS. Other companies in the group are included in “Other” 2) Comprises provisions for claims for Dansk Kaution, travel and health, and our Finnish and Swedish business unit. In 2005 provisions for claims regarding Chevanstell was recognised in the balance sheet with DKK 1,2 bn. after elimination. 3) Discounting also includes exchange rate adjustments. carrying amount Expected cash flow Total 0-1 year 1-2 years 2-3 years > 3 years Provisions for claims, gross Provisions for claims, ceded 18,509 -1,312 7,075 -525 3,705 -167 2,312 -125 5,417 -495 The table consists of figures for Tryg Forsikring A/S and Vesta Forsikring AS, however exclusive of provisions for annuities in workers’ compensation in Tryg Forsikring A/S. At 31 December, these provisions totalled DKK 1,559m. Please refer to the part “Risk management” for an elaboration of risk management and risk exposure. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 123 of 147 Accounts dKKm 2006 2005 22 pensions and similar obligations Other benefits Defined benefit pension plans: Present value of pension obligations funded through operations Present value of pension obligations funded through establishment of funds Gross pension obligation Fair value of plan assets net pension obligation Specification of change in recognised pension obligations: Recognised pension obligation, beginning of year Exchange rate adjustment Present value of amounts accumulated during the year Capital costs of previously accumulated pensions Actuarial gains/losses Paid during the period Change in recognised employers’ nat. ins. contribution recognised pension obligation, end of year Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year Exchange rate adjustment Investments in 2006 Estimated return on pension funds Actuarial gains/losses Paid during the period carrying amount of plan assets, end of year total pensions and similar obligations, end of year total recognised obligation, end of year Pension cost recognised in the income statement: Pension costs concerning current financial year Calculated interest concerning obligation Expected return on plan assets Pension costs concerning previous financial years Total amount recognised 30 30 123 1,175 1,298 825 473 34 34 92 1,270 1,362 727 635 1,362 1,119 -41 65 49 -91 -44 -2 41 67 50 136 -49 -2 1,298 1,362 727 -22 92 33 26 -31 825 473 503 67 51 -34 11 95 606 21 68 45 18 -31 727 635 669 68 51 -45 10 84 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 124 of 147 dKKm The premium for the following financial year is estimated at Estimated distribution of plan assets: Shares Bonds Property Average return on plan assets Assumptions used Discount rate Estimated return on pension funds Salary adjustment Pension adjustment G Adjustment Turnover Employers’ nat. ins. contribution Take up of the AFP Early Retirement PlanMortality Pension obligation Plan assets Surplus/deficit Actuarial gains/losses associated with the pension obligation Actuarial gains/losses associated with pension assets 2006 103 % 20 64 16 7,6 % 4.7 5.8 4.5 4.3 4.3 8.0 14.1 20.0 2006 1,298 825 473 2005 1,362 727 635 90 26 -136 18 2005 103 % 18 65 17 8,2 % 4.2 5.2 4.0 3.5 3.5 6.0 14.1 20.0 2004 1,122 608 514 -84 -27 The group’s Swedish branch complies with the industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa – FPK. Under the terms of the agreement, the group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules. The FTP plan is primarily a defined benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the group to use defined benefit accounting. For this reason, the group has accounted for the plan as if it were a defined contribution plan in accordance with IAS 19.30. The premium paid to FPK in 2006 amounted to DKK 0.5m, which is less than 1% of the annual premium in FPK (2005). FPK writes in its half-year report for 2006 that it had a collective consolidation ratio of 118 at 30 June 2006 (107 at year-end 2005). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations. Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 125 of 147 2006 2005 13 104 122 9 248 124 945 99 39 1,207 959 102 939 53 -33 959 72 84 41 3 175 187 56 421 53 934 355 18 1,360 939 0 792 160 -13 939 72 50 - Accounts dKKm 23 deferred tax tax asset Land and buildings Operating equipment Debt and provisions Bonds and loans secured by mortgages tax liability Land and buildings Contingency funds Shares Intellectual property rights deferred tax, end of year Unaccrued defered tax of shares reconciliation of deferred tax, beginning of year Deferred tax, beginning of year Change in deferred tax taken to the income statement Change in deferred tax taken to equity non-capitalised tax loss TrygVesta A/S Nordea Vahinkovakuutus (Finland) Vesta Skadesforsikring (Sverige) The loss in TrygVesta A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Under Finnish and Swedish rules, losses may be carried forward for ten years. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to utilise the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the balance sheet in the amount of DKK 35m (in 2005 DKK 64m). No deferred tax is associated with investments in subsidiaries (in 2005 DKK 1,3 bn). Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 126 of 147 dKKm 24 debt to credit institutions Bank loans Bank overdrafts Debt falling due within one year Debt falling due after more than five years 2006 2005 596 69 665 69 0 In 2005, a consortium of banks granted TrygVesta A/S a loan facility for DKK 2,000m, of which DKK 600m has been utilised at 31 December 2006. In 2006, the loan carried interest at CIBOR plus a margin, totalling approximately 3.2% p.a. The unutilised part of the loan facility is measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement.The costs are amortised until the loan facility expires in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 600m. 25 other debt Unsettled transactions Interest derivatives Exchange rate derivatives Repo debt Other debt 1,160 5 0 750 774 2,689 Tryg Forsikring A/S has entered into a repo contract expiring on 26 January 2007 for a German 3.5% government bond. The asset, for which Tryg Forsikring A/S carries the risk and the return requirement at the balance sheet date, is recognised in the bond portfolio at a fair value DKK 749m and under ‘Other debt’ in the amount of DKK 750m. 26 capital adequacy, etc. Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capitalised tax assets capital base weighted assets Solvency 27 Earnings per share Basic earnings per share is calculated by dividing the profit for the year and the profit/loss from discontinued and divested business by the total average number of shares. The company has not issued warrants, convertible debt instruments or the like. The issued share options will not be exer- cised before at least in 2009, therefore, there is no difference between basic EPS and diluted EPS. Profit/loss for the period from continuing business (DKKm) Average number of shares Basic earnings per share of DKK 25 Profit/loss for the period from discontinued and divested business (DKKm) Average number of shares Basic earnings per share of DKK 25 9,951 365 -2,244 -2,527 0 5,545 8,094 69 3,084 67,824 45 126 67,824 2 710 76 786 76 0 349 4 109 0 724 1,186 8,215 349 -1,428 -2,512 0 4,624 6,404 72 2,125 68,000 31 -28 68,000 0 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 127 of 147 Accounts dKKm dividends per share Dividends per share is calculated as the total dividend proposed by the Supervisory Board after the balance sheet date divided by the total number of shares. The dividend is not paid until approved by the shareholders at the annual general meeting of the following year. 2006 2005 Dividend per share of DKK 25 33 21 28 contractual obligations, contingent liabilities and collateral Operating leases Other contractual obligations payment due by period < 1 year 1-3 years 3-5 years > 5 years Total 105 221 326 197 240 437 191 1,350 1,843 0 0 461 191 1,350 2,304 The amounts include the following. Tryg Forsikring A/S and Vesta Forsikring AS have signed an operating agreement with CSC for an amount of DKK 342m for a period of 3 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 and taxes currently amount to DKK 80m. The remaining lease period is 19 years. The leasing contract contains the right to completely or partly rent out or completely or partly disposal by providing guarantee. Tryg Forsikring A/S has signed a portfolio management contract for DKK 75m. The contract expires in 2010. The Danish companies in Tryg Forsikring group are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for the entire amount. From 2005, the companies are only liable for their own part of the tax amount. Most of the Danish companies in TrygVesta are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes. In connection with the sale of Chevanstell Limited, Tryg Forsikring A/S issued few specific guarantees towards the buyer. Management believes that it is unlikely that these guarantees will result in a financial loss for Tryg Forsikring A/S. Companies of the TrygVesta are part of some disputes the outcome of which is not estimated to affect the financial position of the Group. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position beyond those receivables and obligations recognised in the balance sheet Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 128 of 147 dKKm 29 related parties Supervisory board and Executive Management Premium income: • Parent company (Tryg i Danmark smba) • Key management • Other related parties Claims paid: • Key management • Other related parties An amount of DKK 0.1m has been provided for claims payments. Guarantee agreements with related parties: • Account • Exercised, end of year • Premium Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees are issued without additional security. The company has full recourse against the individual companies. No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Guarantee agreements are made on market terms. Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a member of the board on market terms. parent company tryg i danmark smba Tryg i Danmark smba controls 60% of the shares in TrygVesta A/S. Intra-group trading involved: Providing and receiving services Intra-group account Interest Insurance products are purchased and sold on market terms. Assets are transferred on market terms. Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The TrygVesta companies have entered into reinsurance contracts on market terms. Transactions with subsidiaries have been eliminated in the consolidated financial statements in accordance with the accounting policies. 2006 2005 0.1 0.4 6.2 0.1 0.5 0.1 0.7 2.4 0.3 0.4 1,645 1,265 3 1,150 921 2 4 27 1 4 44 -44 Income statement and balance sheet for TrygVesta / TrygVesta Annual Report 2006 / Page 129 of 147 notES incoME StatEMEnt and balancE ShEEt for trygvESta (parEnt coMpany) incoME StatEMEnt dKKm Notes investment activities 1 Income from subsidiaries Income from associates 2 Interest income, etc. Value adjustment 2 Interest expenses Investment management charge total return on investment activities 3 Other expenses profit before tax 4 Tax profit on continuing business 5 Profit/loss on discontinued and divested business profit for the year proposed distribution for the year: Dividend Transferred to Net revaluation as per equity method Transferred to Retained profits 2006 2005 3,219 2,086 5 1 -1 -35 -5 0 34 -1 -60 -3 3,184 2,056 -36 -37 3,148 2,019 17 18 3,165 2,037 126 -28 3,291 2,009 2,244 1,782 -735 3,291 1,428 1,409 -828 2,009 Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 131 of 147 Accounts balancE dKKm Notes 6 6 7 assets Investments in subsidiaries Investments in subsidiaries in respect of discontinued business Investments in associates total investments in subsidiaries and associates Bonds Cash in hand and at bank total other financial assets total investment assets Current tax assets 8 Deferred tax assets total other assets total assets liabilities Shareholders’ equity 9 Debt to credit institutions Debt to subsidiaries Other debt total debt total liabilities and equity capital adequacy, etc. contractual obligations, contingent liabilities and collateral related parties 10 11 12 2006 2005 10,643 0 0 10,643 0 3 3 8,804 121 14 8,939 22 8 30 10,646 8,969 3 0 3 21 0 21 10,649 8,990 9,974 8,242 596 74 5 675 710 30 8 748 10,649 8, 990 Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 132 of 147 StatEMEnt of changES in Equity dKKm revaluation Share equity met- retained proposed capital hod capital earnings dividends total Shareholders’ equity at 1 January 2005 1,700 477 4,004 650 6,831 Equity entries in 2005 Profit for the year Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Tax on equity entries Total comprehensive income Dividend paid total equity entries in 2005 1,409 -828 1,428 2,009 7 133 -119 31 7 133 -119 31 0 0 1,461 -828 1,428 2,061 1,461 -828 -650 778 -650 1,411 Shareholders’ equity at 31 december 2005 1,700 1,938 3,176 1,428 8,242 Shareholders’ equity at 1 January 2006 1,700 1,938 3,176 1,428 8,242 Equity entries in 2006 Profit for the year Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Tax on equity entries Total comprehensive income Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options 1,782 -735 2,244 3,291 3 -143 107 -31 3 -143 107 -31 0 1,718 -735 2,244 3,227 5 -88 13 3 -1,428 -1,428 5 -88 13 3 total equity entries in 2006 0 1,718 -802 816 1,732 Shareholders’ equity at 31 december 2006 1,700 3,656 2,374 2,244 9,974 Vesta Forsikring AS has in its consolidated financial statements included provisions for contingency funds of NOK 2,251m under provisions for insurance contracts. In the consolidation, these provisions, due to their nature as additional provisions, are included in shareholder’ equity (retained earnings), net of deferred tax. When assessing Vesta Forsikring AS’ option to pay dividend to the parent company Tryg Forsikring this amount should be considered. Tryg Forsikring’s option to pay dividend to TrygVesta is influenced by this amount. The dividend payment is also affected by a contingency fund provision of DKK 670m, which is included in shareholders’ equity in Tryg Forsikring A/S’ financial statements. Dansk Kaution has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 133 of 147 Accounts notES dKKm 1 income from subsidiaries Tryg Forsikring A/S profit on continuing business Profit/loss on discontinued business after tax 2 interest and dividends, etc. Interest and dividend concerning financial assets at fair value with value adjustment in the income statement: Interest expenses Interest income 3 other expenses Administrative expenses Remuneration of 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. Specification of remuneration, etc. Supervisory Board Executive Management Remuneration, etc. includes pension contributions Supervisory Board Executive Management 2006 2005 3,219 3,219 126 3,345 2,086 2,086 -28 2,058 -35 1 -34 -36 -36 -4 -11 -15 0 -2 -2 -60 34 -26 -37 -37 -3 -12 -15 0 -1 -1 Members of the Supervisory Board of TrygVesta A/S do not receive bonuses and are not participants in any severance plans. The Group Executive Management has a bonus scheme for up to 3 months’ salary and participate ind the share option programme as mentioned in Corporate governance. as mentioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Group Executive Management. Average number of full-time employees during the year Administrative expenses include fee to the auditors appointed by the Annual General meeting: Deloitte Grant Thornton In addition, expenses have been incurred for the Group´s Internal Audit Department. 4 reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax Changes to previous year Tax on non-taxable income and expenses Effective tax rate Tax on financial loss Changes to previous year Tax on non-taxable income and expenses 0 -0.9 0.0 -0.9 -21 3 1 -17 % 28 -4 -2 22 0 -0.9 -0.4 -1.3 19 0 -1 18 % 28 0 -2 26 Please refer to the part “TrygVesta Financial performance 2006” for an explanation regarding effective tax rate. Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 134 of 147 dKKm 2006 2005 5 profit/loss on discontinued and divested business Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Technical result Return on investment activities after technical interest Loss before tax Tax 4 -1 119 -25 97 63 160 -34 126 Claims incurred includes a DKK 139m gain in connection with the commutation of the reinsurance agreement with Chevanstell Limited. Sale of chevanstell The accounting value of assests and liabilities at the time of divestment: Bonds Deposits in credit institutions Reinsurers’ share of provisions for insurance contracts Receivables Provisions for insurance contracts Debt Accruals and deferred income Gain from sale Reversal of impairment Exchangerate adjustment net cash from sale Costs incurred in connection with the sale amounted to DKK 3m. -27 28 23 -45 -21 -6 -27 -1 -28 465 78 802 109 465 78 802 109 -1,176 -1,176 -116 -43 119 63 -42 2 142 -116 -43 119 63 -42 2 142 At 31 December 2005, Chevanstell had total assets amounting to DKK 1.7bn, which were recognised in Tryg Forsikring’s total assets. the technical result of discontinued and divested business is specified by lines of business as follows: gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance technical result accident and health 2005 2006 Marine, aviation and other 2006 cargo 2005 insurance 1) 2005 2006 2006 total 2005 0 0 7 -1 -7 0 -1 -3 -3 -8 -1 4 0 -8 1 -4 2 -25 3 -32 1 15 -2 -14 3 -4 0 -19 27 9 2 232 -21 -113 -5 -25 -25 -29 34 19 3 254 -24 -134 -2 -32 -33 -49 65 28 3 13 95 -26 97 -21 1) The line of business “Other insurance” includes indirect insurance. Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 135 of 147 Accounts dKKm 2006 2005 6 investments in subsidiaries cost Balance 1 January Balance 31 December revaluations and impairment writedowns at net asset value Balance 1 January Revaluations during the year Dividend paid Balance 31 December 6,987 6,987 1,938 3,282 -1,564 3,656 6,987 6,987 477 2,111 -650 1,938 carrying amount 31 december 10,643 8,925 name and registered office 2006 Tryg Forsikring A/S, Ballerup 2005 Tryg Forsikring A/S, Ballerup 7 investments in associates cost Balance 1 January Additions during the year Balance 31 December revaluations and impairment writedowns at net asset value Balance 1 January Balance 31 December carrying amount 31 december In 2005 TrygVesta A/S held a ownership share of 28% of the company Nordisk Flyforsikring A/S. In 2006 the ownership share was disposed. 8 deferred tax tax as set Debt and provisions deferred tax, end of year reconciliation of deferred tax, beginning of year Deferred tax, beginning of year Change in deferred tax taken to the income statement non-capitalised tax loss TrygVesta A/S The loss in TrygVesta A/S can only be utilised in TrygVesta A/S. The loss can be carried forward indefinitely. ownership share in % 100 100 profit/loss Shareholders´ for the year 3,219 Equity 10,643 2,058 8,925 14 -14 0 0 0 0 0 0 0 0 0 72 14 0 14 0 0 14 0 0 3 -3 0 72 The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to utilise the tax loss. Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 136 of 147 dKKm 9 debt to credit institutions Bank loans In 2005, a consortium of banks granted TrygVesta A/S a loan facility for DKK 2,000m, of which DKK 600m had been utilised at 31 December 2006. In 2006, the loan carried interest at CIBOR plus a margin, totalling approximately 3.2% p.a. The unutilised part of the loan facility is measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost are amortised until the loan facility expires in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 600m. 10 capital adequacy, etc. Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings capital base weighted assets Solvency 2006 2005 596 596 710 710 9,974 365 -2,244 -2,527 5,568 8,117 69 8,242 349 -1,428 -2,512 4,651 6,431 72 11 contractual obligations, contingent liabilities and collateral The Danish companies in the TrygVesta group are jointly taxed with Tryg i Danmark smba. Until 2004, the companies were jointly and severally liable for payment of imposed corporation tax. From 2005, the companies are liable for the company´s own share of the imposed corporation tax. Most of the Danish companies in 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 TrygVesta group are part of some disputes the outcome of which is not estimated to affect the financial position of the group. Management believes that the outcome of these legal proceedings will not affect the group’s financial position beyond those receivables and obligations recognised in the balance sheet. TrygVesta Annual Report 2006 / Page 137 of 147 Accounts dKKm 12 related parties Supervisory board and Executive Management Premium income • Parent company (Tryg i Danmark smba) • Key management • Other related parties Claims payments • Key management • Other related parties An amount of DKK 0.1m has been provided for claims payments. Guarantee agreements with related parties • Account • Exercised, end of year • Premium Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees are issued without additional security. The company has full recourse against the individual companies. No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Guarantee agreements are made on market terms. Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a member of the board on market terms. parent company tryg i danmark smba Tryg i Danmark smba controls 60% of the shares in TrygVesta A/S. Intra-group trading involved • Providing and receiving services • Intra-group account • Interest Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. Subsidiaries and associates TrygVesta A/S controls Tryg Forsikring A/S 100%. Intra-group trading involved • Buying and selling of other assets • Providing and receiving services • Intra-group account • Interest Assets are transferred on market terms. Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. Income statement and balance sheet for TrygVesta (Parent company) / TrygVesta Annual Report 2006 / Page 138 of 147 2006 2005 0.1 0.4 6.2 0.1 0.5 1,645 1,265 3 4 27 1 0 38 74 3 0.1 0.7 2.4 0.3 0.4 1,150 921 2 4 44 -44 37 -30 -30 32 notES Accounts group ovErviEw dKKm trygvesta a/S has the following subsidiaries: registred for ownership capital equity office country 2006 share, % 31.12.2006 31.12.2006 profit/loss Share Shareholders’ Tryg Forsikring A/S Vesta Forsikring AS Ballerup Bergen Bergen Bergen Bergen Bergen Enter Forsikring AS Slettebakksveien AS Respons Inkasso AS Thunes Vei 2 AS Dansk Kautionsforsikrings- Aktieselskab Ballerup ApS Kbil 9 nr. 2032 (in liquidation) Ballerup Ballerup Tryg Ejendomme A/S Ballerup TrygVesta IT A/S Denmark Norway Norway Norway Norway Norway Denmark Denmark Denmark Denmark 3,345 1,331 71 0 2 2 69 0 59 -6 100 100 100 100 100 100 100 100 100 100 1,100 781 45 6 0 48 45 0 2 3 10,643 4,582 153 27 1 50 529 0 741 293 Group overview / TrygVesta Annual Report 2006 / Page 140 of 147 financial highlightS and KEy ratioS by gEography dKKm danish general insurance Gross premiums earned Technical result Profit on investment Other income Other expenses Profit/loss for the period before tax Key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 2006 9,084 1,366 792 65 -63 2,160 68.4 3.8 72.2 16.1 88.3 ifrS 2005 8,764 956 567 77 -70 1,530 78.0 -3.9 74.1 16.6 90.7 danish gaap 2004 2004 2003 2002 8,525 722 376 76 -72 1,102 73.6 3.5 77.1 16.3 93.4 8,570 790 450 76 -71 1,245 71.6 3.5 75.1 19.0 94.1 8,242 443 393 71 -68 839 70.4 6.1 76.5 20.4 96.9 7,411 -61 -128 78 -74 -185 82.0 1.6 83.6 21.1 104.7 Number of full-time employees, end of period 2,231 2,215 2,223 2,223 2,248 2,330 norwegian general insurance Gross premiums earned Technical result Profit on investment Other income Other expenses Profit/loss for the period before tax Key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 6,738 1,242 455 53 -50 1,700 65.6 3.5 69.1 16.5 85.6 6,810 1,138 354 49 -47 1,494 64.0 5.2 69.2 16.7 85.9 6,653 1,023 33 45 -43 1,058 63.5 6.4 69.9 17.3 87.2 6,614 722 94 45 -44 817 62.7 6.9 69.6 21.2 90.8 7,161 41 316 44 -42 359 72.9 7.8 80.7 22.4 103.1 7,111 -278 -55 49 -47 -331 75.8 9.2 85.0 22.6 107.6 Number of full-time employees, end of period 1,460 1,431 1,454 1,454 1,460 1,374 finnish general insurance Gross premiums earned Technical result Profit on investment Profit/loss for the period before tax Key ratios Claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Expense ratio Combined ratio 198 -34 -4 -38 78.1 0.2 78.3 41.7 120.0 140 -41 -2 -43 80.9 0.2 81.1 50.2 131.3 97 -45 -2 -47 97 -45 -2 -47 61 -48 -1 -49 75.3 0.2 75.5 73.0 148.5 68.5 0.2 68.7 79.8 148.5 77.5 1.0 78.5 102.8 181.3 21 -66 -1 -67 84.8 18.7 103.5 316.3 419.8 Number of full-time employees, end of period 77 48 51 51 42 35 Swedish general insurance Gross premiums earned Technical result Profit on investment Profit/loss for the period before tax Number of full-time employees, end of period 4 -41 0 -41 40 - - - - - - - - - - - - - - - - - - - - - - - - - Financial highlights and key ratios by geography / TrygVesta Annual Report 2006 / Page 141 of 147 Accounts organiSation chart dEcEMbEr 2006 Group CEO Christine Bosse Personal & Commercial (P&C) Denmark Peter Falkenham Personal & Commercial (P&C) Norway Kjerstin Fyllingen Corporate Lars Bonde New markets Stig Ellkier-Pedersen Group Finance Morten Hübbe Group Management Secretariat & IT Martin Bøge Mikkelsen Sales & Customer Service Manager Karsten Kristiansen Sales & Customer Service Manager Martin Nielsen Sales & Customer Service Manager Bente Arnesen Sales & Customer Service Manager Truls Holm Olsen & Martin Hay Schmidt Finland Ville-V. Laukkanen Group Control Corporate Peter Brondt Pedersen Investor Relations Ole Søborg Underwriting, policy & Product development Kevin Carlson Product development Manager Birgitte Kartman Product development Manager Trond Tepstad Underwriting Kevin Carlson & Trond Thorsen Sweden Peter Appelros Group Accounting & Administration Fatiha Benali Communications Troels Rasmussen Claims Handling & purchase Jesper Joensen Claims Manager Jesper Joensen Claims Manager Anne Stine Mollestad Claims Manager Alice Meulengracht BusinessLab Yngvar Skar Group Risk Ole Hesselager Marketing Torben Vejen Affinity Groups & Civil Servants Keld Holm Group Investments Torben Jørgensen HR Enter Roger Slinning Dansk Kaution Mads Løgstrup Domicile & Building Kim Styltvig & Even Berge Group Legal Dept. Bjarne Lau Pedersen g n i d n a r b e t a r o p r o C Bankassurance Bankassurance Health Care & Pension Health Care & Pension Health Care & Pension Bankassurance Flemming Steen Pedersen Health Care & Pension Jens Stener (cid:55)(cid:106)(cid:104)(cid:94)(cid:99)(cid:90)(cid:104)(cid:104)(cid:21)(cid:103)(cid:90)(cid:104)(cid:101)(cid:100)(cid:99)(cid:104)(cid:94)(cid:87)(cid:94)(cid:97)(cid:94)(cid:105)(cid:110) (cid:67)(cid:100)(cid:103)(cid:89)(cid:94)(cid:88)(cid:21)(cid:56)(cid:100)(cid:98)(cid:101)(cid:90)(cid:105)(cid:90)(cid:99)(cid:88)(cid:90)(cid:21)(cid:56)(cid:90)(cid:99)(cid:105)(cid:103)(cid:90) (cid:69)(cid:103)(cid:100)(cid:88)(cid:90)(cid:104)(cid:104)(cid:21)(cid:103)(cid:90)(cid:104)(cid:101)(cid:100)(cid:99)(cid:104)(cid:94)(cid:87)(cid:94)(cid:97)(cid:94)(cid:105)(cid:110) (cid:72)(cid:106)(cid:87)(cid:104)(cid:94)(cid:89)(cid:94)(cid:86)(cid:103)(cid:110) organisation chart december 2006 / TrygVesta Annual Report 2006 / Page 142 of 147 MEMbErS of thE SupErviSory board MiKaEl olufSEn chairman born 1943 Joined the Supervisory board 2002 pEr SKov born 1941 Joined the Supervisory board 1998 Education Education MSc (Forestry); PMD Harvard Business School MSc (Economics); management training at MIT current position Chairman of the Supervisory Board chairman of the board of Tryg i Danmark smba/TrygFonden Tryg Forsikring A/S Malaplast Co. Ltd. Bangkok The Danish Rheumatism Association vice chairman of current position Various directorships chairman of the board of Utility Development A/S Nordlux A/S Cobra Holding A/S deputy chairman of Tryg i Danmark smba The Board of Trustees of the Egmont Foundation board member of Egmont International Holding A/S Dagrofa A/S Ejendomsselskabet Gothersgade 55 ApS DSV, De Sammensluttede Vognmænd af 13.7.1976 A/S Ejendomsselskabet Vognmagergade 11 ApS board member of WWF in Denmark British Import Union Kemp & Lauritzen A/S Tryg Forsikring A/S Member of the board of representatives of Tryg i Danmark smba Danmark-Amerika Fondet number of shares held in trygvesta: 2,468 Member of the board of representatives of Tryg i Danmark smba The Danish Rheumatism Association number of shares held in trygvesta: 1,918 JØrn wEndEl andErSEn bodil nyboE andErSEn deputy chairman born 1940 born 1951 Joined the Supervisory board 2002 Education MSc (Business Economics); IMD Executive Development Joined the Supervisory Programme; IMD Programme ”Strategy in Action” board 2006 Education MSc (Economics) current position Various directorships chairman of the board of The University of Copenhagen The Danish Red Cross The Laurids Andersen Foundation board member of The Danish Film Institute The Villum Kann Rasmussen Foundation current position CFO, Arla Foods amba chairman of the board of Arla Foods Finance A/S Arla Insurance Company (Guernsey) Ltd. (Captive) Fidan A/S board member of Arla Foods AB AF A/S Tryg i Danmark smba Tryg Forsikring A/S Tholstrup Cheese A/S The Danish-Norwegian Collaboration Foundation Tholstrup Cheese Holding A/S Member of the board of representatives of Tholstrup Pastella A/S Dagbladsnævnet Tholstrup Taulov A/S Ministry of Finance Investment Strategy Council, Oslo Member of the board of representatives of number of shares held in trygvesta: 0 Tryg i Danmark smba number of shares held in trygvesta: 1,078 Members of the Supervisory Board / TrygVesta Annual Report 2006 / Page 143 of 147 Accounts John r. frEdEriKSEn born 1948 Joined the Supervisory board 2002 Education Business training current position CEO, Fortunen A/S chairman of the board of Hellebo Park A/S Ejendomsselskabet Storken A/S Ejendomsselskabet Uglen A/S RenHold A/S SBS Rådgivning A/S SBS Byfornyelse Smba Sjælsø Enterprise A/S Sjælsø Gruppen A/S Renholdningsselskabet af 1898 board member of Tryg i Danmark smba Fortunen A/S niElS bJØrn chriStianSEn born 1966 Joined the Supervisory board 2006 Education BB.Sc. E.E; MSc (Engineering), MBA Insead current position Executive Vice President and COO, Danfoss A/S chairman of the board of Danfoss Compressors Holding A/S Danfoss Industries Private Limited, India deputy chairman of Danfoss (Tianjin) Limited, China board member of Business Minds Danfoss Distribution Services A/S Danfoss Drives A/S Danfoss Ejendomsselskab A/S Danfoss innovation A/S Danfoss International A/S Danfoss Commercial Compressors S.A., France Freja Ejendomme A/S (Statens Ejendomssalg A/S) Danfoss Bauer GmbH, Germany Højgård Ejendomme A/S Oak Property Invest A/S Jacob Holm & Sønner A/S RenoflexGruppen A/S C.W. Obel Ejendomme A/S C.W. Obel Projekt A/S Ejendomsaktieselskabet Knud Højgaards Hus Ejendomsaktieselskabet Helleholm Invista Foundation Property Trust Limited Invista Foundation Property Limited Invista Foundation Property No. 2 Limited Invista Foundation Holding Company Limited Thermia Värme AB, Sweden Axcel A/S Danfoss Universe Foss A/S Danish Management Society number of shares held in trygvesta: 0 hÅKon J. huSEKlEpp Employee representative born 1955 Joined the Supervisory SIPA (Scandinavian International Property Association) board 2003 BERCO Deutschland GmbH Invista European Real Estate Trust Sicaf cEo of Oak Property Invest A/S Berco ApS Education Certified insurer current position Senior corporate advisor board member of Member of the board of representatives of Tryg Forsikring A/S Tryg i Danmark smba chairman of Ejendomsforeningen Danmark Member of Vesta Forsikring AS The Finance Sector Union of Vesta The Finance Sector Union of Norway Sogn og Fjordane Bustadbyggelag The Advisory Board of Sparinvest Property Fund K/S number of shares held in trygvesta: 0 The Advisory Board of Ejendomsselskabet Norden 1 K/S number of shares held in trygvesta: 280 Members of the Supervisory Board / TrygVesta Annual Report 2006 / Page 144 of 147 paul bErgqviSt born 1946 Joined the Supervisory board 2006 Education Engineer, economist current position Various directorships chairman of the board of Carlsberg Sverige AB pEtEr wagnEr MollErup Employee representative born 1966 Joined the Supervisory board 2002 Education Travel agency guide, certified insurer, psychotherapist current position Commercial insurance agent chairman of the board of The association of insurance agents and account Svenska Bryggareföreningen (spokesman) managers in Tryg board member of Baltica Beverages Holding (BBH) Telenor ASA City Mail AB East Capital Amber Fund Lantmännen Pieno Zyaigzdios Nova Linija Unibake A/S The Association of Danish Certified Insurers/The Danish Financial Services Union board member of The Danish Financial Services Union number of shares held in trygvesta: 118 birthE pEtErSEn Employee representative Member of the board of represesentatives of born 1949 Compensation committee Telenor Compensation committee Lantmännen honorary positions Joined the Supervisory board 1996 Education Chairman of the Board of Norrköpings Segelsällskap Diploma in business studies; management training number of shares held in trygvesta: 0 programme, the Organisation of Danish Insurance Employees current position trond chriStianSEn Principal administrative officer Employee representative board member of born 1945 The Organisation of Danish Insurance Employees Joined the Supervisory Member of board 2002 The Executive Committee of the Organisation of Danish Insurance Employees number of shares held in trygvesta: 20 Education Certified insurer current position Senior shop steward board member of Tryg Forsikring A/S Vesta Forsikring AS The Finance Sector Union of Norway number of shares held in trygvesta: 0 Members of the Supervisory Board / TrygVesta Annual Report 2006 / Page 145 of 147 Accounts MEMbErS of thE group ExEcutivE ManagEMEnt chriStinE boSSE group cEo born 1960 Joined trygvesta 1987 Stig EllKiEr-pEdErSEn Member of the group Executive Management in charge of new Markets born 1947 Joined the group Executive Management 1999 Joined trygvesta 1999 Education Joined the group Executive Management 2001 LL.M.; several management training programmes Education including Insead and Wharton chairman of the board of Forsikring & Pension Hjertebarnsfonden Vesta Forsikring AS Mechanical engineer; several management training programmes at Insead chairman of the board of Forsikringsakademiet A/S Fonden Forsikringsakademiet af 26/2 2003 Chairman of a number of intra-group supervisory board member of boards board member of Grundfos Management A/S Poul Due Jensen’s Fond Member of The Danish Welfare Commission number of shares held in trygvesta: 934 MortEn hÜbbE group cfo born 1972 Enter Forsikring AS FA, the Danish Employers’ Association for the Financial Sector SOS International A/S number of shares held in trygvesta: 18 pEtEr falKEnhaM Member of the group Executive Management in charge of private & commercial denmark born 1958 Joined trygvesta 2000 Joined trygvesta 2002 Joined the group Executive Management 2000 Joined the group Executive Management 2003 Education Education BCom (International Trade); MSc (Engineering) BSc (International Business Administration and chairman of the board of Modern Languages); MSc (Finance and Accounting); Glunz & Jensen A/S management training at Wharton chairman of the board of Dansk Kautionsforsikrings-Aktieselskab board member of Tryg Ejendomme A/S Vesta Forsikring AS Enter Forsikring AS deputy chairman of TrygVesta IT A/S board member of Tryg Ejendomme A/S Vesta Forsikring AS Høyteknologisenteret AS number of shares held in trygvesta: 933 Dansk Kautionsforsikrings-Aktieselskab Solar A/S Danmarks Skibskredit A/S number of shares held in trygvesta: 201 Members of the Group Executive Management / TrygVesta Annual Report 2006 / Page 146 of 147 KJErStin fyllingEn Member of the group Executive Management in charge of private & commercial norway born 1958 Joined trygvesta 2006 Joined the group Executive Management 2006 Education BSc (Business Administration) and Master of Management – both from BI Norwegian School of Management board member of Enter Forsikring AS FNH, the Norwegian Financial Services Association TrygVesta Almennyttige Stiftelse number of shares held in trygvesta: 0 larS bondE Member of the group Executive Management in charge of corporate born 1965 Joined trygvesta 1998 Joined the group Executive Management 2006 Education General insurance training; LL.M. number of shares held in trygvesta: 18 Members of the Group Executive Management / TrygVesta Annual Report 2006 / Page 147 of 147 notES 

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