Tryg
Annual Report 2008

Plain-text annual report

A n n u a l R e p o r t 2 0 0 8 Annual Report 2008 TrygVesta A/S Klausdalsbrovej 601 DK-2750 Ballerup TrygVesta@trygvesta.com www.trygvesta.com Phone +45 70 11 20 20 CVR no. 26460212 Fax +45 44 20 66 00 TrygVesta A/S TrygVesta Forsikring A/S Vesta Skadeförsäkring (Swedish branch) TrygVesta Forsikring (Norwegian branch) Nordea Vahinkovakuutus (Finnish branch) Enter Forsikring AS (Norwegian subsidiary) Respons Inkasso AS (Norwegian subsidiary) Tryg Ejendomme A/S Ejendomsselskabet af 8. maj 2008 Vesta Eiendom AS (Norwegian subsidiary) Other real property companies (Norwegian subsidiaries) TrygVesta Garantiforsikring A/S (Dansk Kaution) TrygVesta Garanti (Norwegian branch) Vesta Garanti (Swedish branch) Vesta Garanti (Finnish branch) Group chart at 31 December 2008. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated. Company Branch Editors: Investor Relations Design: Bysted A/S Content and structure advice: Black Sun Plc London DTP: AMO design Printers: Centertryk Paper: Munken Lynx Photos: Mads Armgaard/gab.dk and Getty Images TrygVesta wants to be perceived as the leading peace-of–mind provider in the Nordic region and our aim is to prevent concerns from overshadowing our customers’ lives. Throughout 2008, our 4,000 employees used our products and services to provide peace of mind on a daily basis to more than 2.2 million private customers and more than 100,000 businesses. We are the second-largest general insurer in the Nordic region with activities in Denmark, Norway, Finland and Sweden. We are the largest player in Denmark and Norway’s third largest player. We have operated our rapidly growing activities in Finland and Sweden since 2001 and 2006, respectively. TrygVesta’s insurance offering includes the following areas: liability, workers’ compensation, motor, building, contents, cargo, house, personal accident and health care. By far most of our customer relations are handled through our own channels. In addition, we have a strategic partnership with Nordea, the largest bank in the Nordic region. TrygVesta Annual Report 2008 l Profile l 1 of 152 Introduction to TrygVesta 2 of 152 l Introduction to TrygVesta l TrygVesta Annual Report 2008 The future is now “At TrygVesta, we are seeing major changes on several fronts. Businesses develop in global markets; life styles and social cultures are changing – and our customers make new demands on how we can continue to provide peace of mind in their homes, at work and in their spare time. TrygVesta has launched a number of new projects requiring fresh thinking, development and innovation, and preparing us and our customers for a changeable future. That’s why we say ‘the future is now’ with this year’s theme.” Introduction to TrygVesta TrygVesta Annual Report 2008 l Introduction to TrygVesta l 3 of 152 Introduction to TrygVesta Contents Management’s report Introduction to TrygVesta Group overview Preface by Mikael Olufsen and Stine Bosse Financial highlights and key ratios of TrygVesta Highlights of 2008 Markets and strategy The insurance industry in the Nordic region The Nordic insurance markets Our products Strategy Strategic themes Key performance indicators Financial outlook for 2009 Results The Group’s financial performance in 2008 Private & Commercial Denmark Private & Commercial Norway Finnish general insurance Swedish general insurance Corporate Investment activities Our customers Our employees Capitalisation and risk management Capitalisation and profit distribution Risk management Corporate governance Supervisory Board Group Executive Management Corporate governance Remuneration Shareholder information Accounts Statement by the Supervisory Board and the Executive Management Independent auditors’ report Income statement and balance sheet – TrygVesta Group Statement of changes in equity – TrygVesta Group Cash flow statement – TrygVesta Group Notes Income statement and balance sheet – TrygVesta A/S (parent company) Statement of changes in equity (parent company) Notes (parent company) Financial highlights and key ratios by geography Glossary Organisation chart Inserts are placed in a separat pocket at the end of the Annual Report 2008 4 of 152 l Introduction to TrygVesta l TrygVesta Annual Report 2008 Page 1 5 6 8 10 12 14 17 20 22 25 26 28 32 34 39 43 46 48 50 52 55 58 60 62 65 74 76 78 80 85 87 91 92 93 96 98 99 138 140 141 146 148 150 Group overview Per cent of total business Principal activities PRIVATE & CO M M E RCIA L CORPORATE Denmark, Norway Denmark Norway Finland Sweden & Sweden Read more on page 39 Read more on page 43 Read more on page 46 Read more on page 48 Read more on page 50 38% 27% 2% 1% 32% Insurance to private individuals and small busi- nesses. The branch was set up in 2001. Insurance to pri- vate individuals. The branch was set up in 2006. Insurance to private individuals and small and medium-sized businesses. Insurance to private individuals and small and medium-sized businesses. Enter Forsikring, which sells insu- rance to private individuals, is included in Private & Commercial Norway. Insurance to cor- porate customers. Corporate custo- mers are customers paying annual premiums of more than DKK 900,000 or having more than 50 employees. TrygVesta Garanti, the leading provider of guarantee insu- rance, is included in Corporate. Employees* 1,861 1,230 180 120 700 Distribution channels 5 customer centres 3 regional customer centres Nordea’s branches Nordea’s branches Own sales force Own sales force Own call centre Insurance brokers 16 local service centres 35 local sales centres Own call centre Internet Own sales force Own sales force Car dealers Internet Car dealers Real estate agents Nordea’s branches Affinity group 85 franchise offices Car dealers Nordea’s branches Affinity group Strategic partnership Brands * Staff functions are distributed proportionately among the business areas. TrygVesta Annual Report 2008 l Introduction to TrygVesta l 5 of 152 Introduction to TrygVesta Preface 2008 – A challenging year due to sharp declines in equity returns. Profit for the year The year 2008 will go down in history as a year of financial after tax was DKK 846m, which exceeded expectations by crisis, a rapid slowdown in economic activity and difficult DKK 246m as set out in TrygVesta’s third quarter interim conditions for investors, borrowers and banks. Thanks to report. Based on our 2008 performance and the Group’s TrygVesta’s focus on profitable insurance operations, strong policy to distribute 50% of the profit for the year as cash market positions, conservative investment approach, dividend, the Supervisory Board recommends that dividends strong ownership structure and high competence level, be paid at the rate of DKK 6.50 per share. No share buy our business model proved its worth in difficult times, backs are planned based on the 2008 results. thereby enabling TrygVesta to help provide peace of mind for customers, employees and shareholders alike. Growth in 2008 was strengthened by continuing solid Strategy performances in Finland and Sweden and the introduction of a new customer system to promote sales in Norway. The performance of all TrygVesta’s four strategic themes Rising average prices indicate that growth and increasing – profitable growth, peace-of-mind delivery, self-service and profitability are in pipeline for the coming years. TrygVesta’s human competencies – continued to support a positive conservative investment policy and a reduced proportion of development. Growth in Finland and Sweden outperformed equities since mid-2007, our investment portfolio generated expectations. Product improvements such as the extended a positive return of 3.5% in 2008. roadside assistance product Udvidet Tryg Vejhjælp and the new building policy Ny Villaforsikring in Denmark enhanced Like in 2007, claims expenses continued to increase in our peace-of-mind delivery while the introduction of online 2008, particularly with respect to buildings and health sales of travel insurance provided new self-service options. care. Consequently, we have implemented initiatives to The management and leadership development programmes ensure sustained profitability. Changed climate conditions we introduced in 2008 set the framework for even better impacted the 2008 performance less than had been qualifications and good business performance. expected. However, TrygVesta believes that the number of claims caused by changed precipitation and windstorm You can read more about TrygVesta’s strategy and strategic patterns will rise in the future. focus areas in the section on Strategy on page 22. TrygVesta shares TrygVesta’s performance in 2008 The OMX C20 index including dividends fell by 46% and the Earned premiums at DKK 17,323m were 4.9% higher in local DJ Euro Insurance Index including dividends dropped 44% in currency terms, and the technical result was DKK 2,384m. 2008. Despite these strong price declines the TrygVesta Profit before tax was down from DKK 3,109m to DKK 1,347m share yielded a total return of -12% including dividends. A 6 of 152 l Introduction to TrygVesta l TrygVesta Annual Report 2008 healthy insurance business and conservative investment are concerned, we have subscribed to the UN Global strategy were contributory factors in the relatively good Compact and the Carbon Disclosure Project. Our target performance of TrygVesta shares. is to reduce our CO2 emissions by 10% over two years. Strong Nordic organisation Corporate governance TrygVesta is a Nordic insurance group addressing the TrygVesta’s managers have a special duty to ensure entire Nordic market. That is why we implemented a that we continuously work towards our vision. In 2008 new Nordic organisation on 1 January 2009 with clearly we continued to work with corporate governance and defined pan-Nordic responsibility and uniformity with our management profile. Among other initiatives, 192 respect to sales, product development, claims handling, managers attended in-house development courses such IT systems and underwriting. Our intention is for the new as ‘Leading the Brand’ and ‘Managing with BSC’. We structure to contribute increased efficiency, innovation promote management behaviour supporting our corporate and earnings, thereby enhancing our market position. vision, strategy and handshake, and going forward the At the same time, our new process-oriented organisation management profile will be implemented through “The creates good environments for the professional and Living House”, “The Living Organisation”, management personal development of our 4,000 employees, and we recruitment and talent development. intensify our in-house cooperation with a view to exploit- ing our competencies in the best possible manner. We TrygVesta’s general management is described in the call our new structure “The Living Organisation”. It reflects section on Corporate governance on page 80. our corporate culture and to exploit it to the full, it ties in with “The Living House”, a change of our physical work- Outlook for 2009 ing environment designed to enhance innovation, devel- For 2009, we expect 4% premium growth in local currency opment, knowledge-sharing and drive. terms as compared with the previous outlook of around 5% due to the adverse economic trends. On the earnings side, Peace-of-mind provider we expect a combined ratio of 92 before run-off, a profit “The Living Organisation” and “The Living House” create after tax of DKK 1.3bn, and a return on equity of 14-16%. an environment for producing new ideas and developing We base this outlook on a number of assumptions with them into profitable products and services supporting our respect to equity returns and interest rate levels. Due pan-Nordic peace-of-mind delivery and translatable into to the volatile financial markets, the impact on profit of our handshake – Dynamic, Compassionate and Innovative. these fluctuations is subject to great uncertainty. The outlook for 2009 and the related assumptions are Corporate Social Responsibility (CSR) described in greater detail in the section on Financial CSR represents good business ethics and common sense outlook for 2009 on page 28. and supports our business model. That is why we urge all TrygVesta managers and employees to commit themselves Recent years’ favourable performance will not make us to and familiarise themselves with the value of CSR. rest on our laurels. We have further potential for improve- TrygVesta has drawn up a CSR declaration of intent, de- ment in many areas, and we will face a wide variety of fining our commitment and describing our responsibility in future challenges and opportunities to expand our peace- relation to employees, customers and the external commu- of-mind delivery and value creation. nity. For example we have employed maladjusted young people with an immigrant background in an attempt to We hope you will enjoy reading our annual report. give them better opportunities and to meet customer requirements for a broader customer service interface. However, we are cautious about new recruitments in order Mikael Olufsen to avoid subsequent dismissals. As far as climate issues Chairman Stine Bosse Group CEO TrygVesta Annual Report 2008 l Introduction to TrygVesta l 7 of 152 Introduction to TrygVesta Financial highlights and key ratios of TrygVesta DKKm 2004 2005 2006 2007 2008 Income statement Gross premiums earned Gross claims incurred Total insurance operating expenses Profit/loss on gross business Profit/loss on ceded business Technical interest, net of reinsurance Technical result Return on investments after technical interest Other income and expenses Profit/loss for the year before tax Tax 15,266 -10,425 -2,611 2,230 -708 185 1,707 371 -26 2,052 -556 Profit/loss for the year, continuing business Profit/loss on discontinued and divested business after tax 1,496 -75 Profit/loss for the period Run-off gains/losses, net of reinsurance Relative run-off gains/losses 1,421 -71 -0.5 Balance sheet Total provisions for insurance contracts * 25,212 Total reinsurers’ share of provisions for insurance contracts 3,292 6,802 Total shareholders’ equity 37,824 Total assets Key ratios Gross claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio Claims ratio, net of reinsurance Expense ratio, net of reinsurance Combined ratio, net of reinsurance Operating ratio Gross expense ratio with adjustment ** 68.3 4.6 72.9 17.1 90.0 71.2 17.6 88.8 89.0 17.1 15,705 -11,159 -2,662 16,021 -10,564 -2,697 16,606 -11,175 -2,769 17,323 -11,766 -3,003 1,884 -7 170 2,047 894 -28 2,913 -788 2,125 -28 2,097 283 1.8 26,757 2,630 8,215 40,811 71.1 0.1 71.2 17.0 88.2 69.7 17.6 87.3 87.1 17.0 2,760 -591 343 2,512 1,228 -31 3,709 -624 3,085 126 3,211 555 3.0 25,957 1,561 9,951 42,783 65.9 3.7 69.6 16.8 86.4 68.4 17.2 85.6 84.6 16.8 2,662 -343 501 2,820 340 -51 3,109 -842 2,267 -1 2,266 743 3.6 26,916 1,587 10,010 43,830 67.3 2.1 69.4 16.7 86.1 68.1 17.1 85.2 83.5 16.7 2,554 -669 499 2,384 -988 -49 1,347 -501 846 0 846 793 4.0 25,193 1,036 8,244 38,445 67.9 3.9 71.8 17.3 89.1 70.7 17.8 88.5 86.6 16.9 8 of 152 l Introduction to TrygVesta l TrygVesta Annual Report 2008 DKKm 2004 2005 2006 2007 2008 Other data 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 (DKK) Net asset value per share (DKK) Dividend per share (DKK) Share price 31.12 (DKK) Quoted price/net asset value Price Earnings Average number of shares (1,000) Number of shares, year end (1,000) Solvency 33 39 41 31 15 23 22.0 100 10 - - - 68,000 68,000 78 28 31.3 121 21 319.2 2.6 10.2 68,000 68,000 72 35 45.5 147 33 431.5 2.9 9.5 67,824 67,790 58 23 33.5 148 17 388.0 2.6 11.6 67,648 67,638 81 9 12.8 128 6.5 328.0 2.6 25.7 66,184 64,378 100 Number of full-time employees, end of period Continuing business Discontinued and divested business 3,728 34 3,694 24 3,808 0 3,814 0 4,091 0 * The reduction from 2007 to 2008 is mainly caused by the decline in NOK versus DKK. ** In the calculation of the gross expense ratio with adjustment pursuant to the order issued by the Danish FSA, costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent. Other key ratios are calculated in accordance with ’’Recommendations & Financial Ratios 2005’’ issued by the Danish Society of Financial Analysts. TrygVesta Annual Report 2008 l Introduction to TrygVesta l 9 of 152 Introduction to TrygVesta Highlights of 2008 M ARCH J uNE Leading the Brand 192 managers with personnel responsibilities completed a Nordic development programme during the year. The programme Leading the Brand was a strategic initiative aimed at forging a closer link between managers’ role and TrygVesta’s vision, strategy and corporate values. In 2009, TrygVesta intends to launch a further management development programme – Leading by Strategy, designed for managers who have managers reporting to them. Self-service in Norway In Norway, TrygVesta’s customers were given the option to report claims electronically on the Internet. The option of electronic claims reporting means that customers’ claims are handled quicker, and it involves less forwarding of documents. This solution makes internal processes more efficient and creates potential for further automation efforts in claims handling. The option was received favourably by customers. APRIL AuGuST SundPuls TrygVesta launched a preventive health care product, called SundPuls. The product offers Danish businesses a thorough check of the state of their employees’ health. Based on the health check, each employee receives an individual action plan and the business receives an overall anonymised report. In addition, employees are offered advice on food, exercise, smoking and alcohol over the SundPuls telephone service and can read about health issues at the SundPuls Internet portal. Employees with special needs, for example substance abuse problems or a risk of lifestyle diseases, may be offered additional expert counselling. SundPuls is offered to businesses with more than 25 employees and the annual cost is DKK 895 per employee. New roadside assistance product in Denmark TrygVesta extended its role as a peace-of-mind provider with the roadside assistance concept Tryg Vejhjælp in Den- Antal mark. Tryg Vejhjælp offers a loan car, towing, battery jump- start and other services. The extended Tryg Vejhjælp pro- duct also offers a taxi service, hotel accommodation, an annual safety check-up and a bi-annual change between snow tyres and summer tyres. Tryg Vejhjælp was added to the motor insurance coverage of some 300,000 concept customers in 2008 at no additional cost. EXTENDED TRYG VEJHJÆLP Number of insurances 25,000 20,000 10,500 10,000 5,000 0 M AY Q2 Q3 Q4 New international network partner TrygVesta and AXA Corporate Solutions signed a letter of intent to the effect that by 1 January 2009 TrygVesta would be using the international network of AXA Corpo- rate Solutions to meet Nordic customers’ international insurance requirements. The AXA Corporate Solutions partnership makes TrygVesta part of a global network represented in more than 90 countries and with geo- graphical coverage of 95% of the inhabited world. AXA is one of the world’s largest insurance companies. 10 of 152 l Introduction to TrygVesta l TrygVesta Annual Report 2008 SEPTE M BER Oslo achieves milestone Efforts to lift TrygVesta’s market share in Oslo were on track. TrygVesta’s shares of the private market in Oslo have been below those recorded in the rest of Norway. The goal is to lift TrygVesta’s share of the private mar- ket in Oslo to the level of the rest of Norway by the end of 2011. The first milestone was to reverse the adverse trend in the Oslo area and lift sales, and in 2008 we out- performed the growth forecasts for the first time. TrygVesta is now the company that records the highest growth rates in the private lines in Oslo. In 2009, TrygVesta intends to focus on further increasing sales in Oslo to the private as well as the commercial market. Corporate in Sweden As a natural extension of the Group’s Nordic commit- ment TrygVesta set up a Swedish corporate business, initially with an office in Stockholm. The Stockholm office will collaborate with already established under- writing teams in Denmark and Norway to sell insurance to large customers in the Swedish business sector through insurance brokers. Products initially offered to Swedish corporate customers include liability, consequential loss, building (property) and commercial cargo policies. The office had a staff of five at 31 December 2008. NemKonto In Denmark, TrygVesta began transferring repayments from insurances automatically to customers’ NemKonto, an ordinary bank account, to which public authorities and businesses may transfer money. All Danish citizens have a NemKonto. TrygVesta used to send several hundred thousands of cheques to Danish customers each year. Using the NemKonto saves customers a trip to the bank, and TrygVesta disposes of the manual work of writing and sending cheques. Customers who do not want money paid into their NemKonto may still opt to receive a cheque. NOVE M B ER Nordea partnership extended TrygVesta and Nordea have extended the successful partnership, operated since 1999, to 2013. The partnership provides for Nordea to sell TrygVesta’s policies on a pan-Nordic basis in its branch network, and for TrygVesta to sell Nordea’s life and pension products in Denmark and Norway. The agreement also involves Nordea’s portfolio management of most of TrygVesta’s investment assets. DECE M B ER TrygVesta in European top league Consulting firm Arthur D. Little concluded in a survey that Nordic insurance companies are the most cost- efficient in Europe. TrygVesta ranked four out of fifty companies. The top-fifteen companies in Europe include nine Nordic-based companies. When comparing countries, Denmark came in one, Sweden two and Norway three. TrygVesta Annual Report 2008 l Introduction to TrygVesta l 11 of 152 Markets and strategy 12 of 152 l Markets and strategy l TrygVesta Annual Report 2008 Markets and strategy Global is the future “TrygVesta’s share of the aggregate Nordic market is expected to rise in the years ahead, including from our rapidly growing market shares in Finland and Sweden. TrygVesta operates on a pan-Nordic scale, developing uniform sales channels, products and infrastructure. Our partnership with Nordea, developing our own sales channels and entering into partnership agreements with affinity groups and others enable us to reach wider circles of the Danish, Finnish, Norwegian and Swedish insurance markets.” TrygVesta Annual Report 2008 l Markets and strategy l 13 of 152 Markets and strategy The insurance industry in the Nordic region The industry in general although they were adversely impacted by the financial The Nordic insurance markets have a wide distribution of market turmoil. conventional insurance services such as motor, building, transport, workers’ compensation and personal accident insurance. Volume growth is largely in line with GDP plus Challenges the impact of price changes over time. Profitability Insurance and economic downturn fluctuates relative to claims expenses. The insurance industry is characterised by a robust underlying The Nordic market is characterised by direct sales of mind by agreement or because insurance is required by law. business because consumers and businesses buy peace of insurances to private and commercial customers. Large corporate customers are approached either directly by the An economic downturn will, however, generally result in insurer or through an insurance broker. Customer contacts weaker growth as car and real estate sales decline. Likewise, are based on telephone sales, insurers, insurance brokers, the number of commercial policies and workers’ compensa- bancassurance and, on a smaller scale, via the Internet. tion policies will be affected by cyclical trends. These factors are to some extent offset by ongoing price increases. The price of an insurance product is determined on the basis of estimated claims expenses, selling costs and administra- Historically, weaker economic activity has generally not had tive expenses, and the desired level of profitability. an adverse impact on claims due to the combined effect of more cautious behaviour, lower mileage and the possibility The Nordic insurance industry generated aggregate of cheaper claims procurement. Furthermore, prior periods estimated earned premiums of around DKK 140bn in of weak economic activity have only to a limited extent 2008 and accounted for some 1.8% of the region’s been characterised by unusual increases in the number of, total GDP. The market is characterised by a few large for example, burglaries and fraudulent claims. companies holding relatively large market shares com- pared with other countries. The four largest companies Competition in the Nordic insurance industry in each country thus accounted for a total market All the large Nordic insurance groups focus on operating share of between 64% and 87%. As the large compa- their insurance business in a profitable and financially healthy nies also work on a pan-Nordic scale, the four largest way, and for the industry as a whole the past few years have insurers account for a total market share of around therefore represented a stable and profitable period. Compe- 46% in the Nordic region. In 2008, the large companies tition can roughly be classified as price competition and ser- of the Nordic insurance industry reported sustained vice competition. Small insurers have in recent years chosen good core earnings from their insurance operations, to apply lower prices as a means of attracting customers, 14 of 152 l Markets and strategy l TrygVesta Annual Report 2008 while the large companies have focused on service and the adverse impact which losses on securities have on a extended coverage. The competitive environment in each company’s investment performance and capitalisation. of the markets is described in more detail on page 17 in the section on The Nordic insurance markets. The poor investment performance and in many cases lower equity will in the years ahead force players with inadequate Investment performance financial strength to increase their earnings from insurance All insurance companies have investment portfolios con- operations considerably, which will mainly be from prices. sisting of funds dedicated to payment of claims at a later date. Such portfolios are generally invested in equities, TrygVesta has no structured financial products or hedge real estate and bonds, but some industry players have funds, and the proportion of equities in the investment also chosen to invest portfolios in hedge funds and struc- portfolio was reduced already in 2007 and early in 2008. tured financial products. Interim reports published by the Furthermore, the bond portfolio consists of liquid, ordi- Nordic insurance companies in 2008 clearly demonstrated nary bonds with an average maturity of two years. TOTAL MARKET SIZE DENMARK EUR 6.2BN TOTAL MARKET SIZE NORWAY EUR 4.7BN 27.3% 20.6% 13.2% 9.8% 17.8% 4.9% 3.4% 14.0% 30.1% 29.1% 10.3% 19.5% TrygVesta If Alka Codan Topdanmark Alm. Brand Other TrygVesta If Gjensidige Sparebank Other TOTAL MA RKET SIZE FINLAND EUR 3.2BN TOTAL MARKET SIZE SWEDEN EUR 6.2BN 1.4% 16.8% 25.7% 0.4% 18.6% 19.6% 10.0% 18.3% 13.9% 30.3% 27.8% 17.2% TrygVesta If Pohjola Tapiola Fennia Other Vesta If Länsforsk. Codan Folksam Other Source: Data based on national statistics and most recent published financial statements for the largest companies. TrygVesta Annual Report 2008 l Markets and strategy l 15 of 152 Markets and strategy The Nordic labour markets The market is nevertheless seeing healthy growth with poli- In the years up to 2008, the entire Nordic region was chal- cies being regarded as a supplement to the public system. lenged by a shortage of labour, partly due to wage pres- sure and partly due to difficulties in attracting and retain- Climate change ing labour. However, 2008 marked a shift towards rising Insurance companies are, naturally, greatly impacted by unemployment and, probably, lower rates of wage increases. weather related claims. The climate has warmed in the Nor- In the longer term, however, businesses face a number dic region, and it is expected generally to become warmer, of challenges with the large post-war generation retiring damper and windier, thereby likely to increase claims from the labour market and being replaced by the much expenses. TrygVesta regularly assesses the risk of changed smaller number of young people born in the 1980s and claims patterns in order to price policies such as building 1990s. This is one of the reasons why governments in and house insurance correctly. However, climate change the Nordic countries seek to increase the supply of also presents opportunities as we can advise customers on labour, for example by enhancing integration and lifting how to prevent damage, and we adapt our coverage in employment rates among immigrants from non-Western order to reduce customers’ concerns. countries. Read about a new integration initiative and other initiatives on page 59. Implementation of Solvency II Opportunities TrygVesta has in recent years prepared for the new EU Sol- vency II regime, which will impact the capital structure of insurance companies and impose stricter requirements with Claims procurement respect to risk management and risk control skills. TrygVesta Recent years’ strong economic activity has increased has applied an internal capital model (ALM) since 2002 as claims expenses due to higher wages and higher costs the basis for calculating the individual solvency need, supple- of materials. The weaker economic activity in 2009 will mented by qualitative assessments of selected risk scenarios probably improve procurement conditions for companies from the Group’s in-house risk management environment. focusing on procurement management. For many suppli- The Solvency II regime will require enhanced expertise and ers, insurance companies are a stable and attractive busi- core competencies, thereby potentially leading to greater con- ness partner due to the steady procurement of goods solidation in the market due to smaller players’ need for and and services in connection with claims. This applies lack of resources to meet the new sophisticated requirements. especially in periods of slowing economic activity. Private health care insurance The market for private health care insurance has grown strongly in the Nordic region in recent years, and particularly in Denmark. The Nordic welfare model is well developed, but as far as health care is concerned, an increased strain on public hospitals and the desire for shorter treatment times have triggered a requirement for private treatment, and private health care insurance is one way to meet this. Growth exceeded 70% in 2008. The strong growth was Solvency II Column 1 (Quantitative requirements / standard model) Column 2 (Supervision / Individual model) Column 3 (Disclosure requirements) For a number of years TrygVesta has worked with an internal capital model (ALM), which is used attributable to an increasing number of companies offering TrygVesta participates for calculating the health care insurance in their pay packages. TrygVesta expects the total market for health care insurance in Denmark to exceed one million policies in 2009. The Norwegian in QIS calculations individual solvency on ongoing basis. needs, and has Most recently QIS4 establish its own from 2008 risk environment. market for health care insurance is smaller than the Danish QIS is a term for quantitative studies about the effect from new market due to the strong public focus on health and welfare. EU solvency requirements. 16 of 152 l Markets and strategy l TrygVesta Annual Report 2008 The Nordic insurance markets Competitor behaviour The aggressive market behaviour of small and medium- The Nordic insurance markets are characterised by the sized insurers from 2005 to 2008 is expected to be customer’s direct contact to the insurance company and replaced by endeavours to strike a good balance between large market players, and by large insurers focusing on price and risk in the years ahead. The price changes profitability. Insurers compete on price as well as on con- already announced will gradually feed through as gross tent and service. premiums earned in 2009 and 2010. The situation is expected to change in 2009 and 2010 No new players entered the Danish private market in 2008. as price competition becomes less important due to As regards the commercial and corporate market, a foreign an increased requirement for capital among companies group opened an office while another announced an whose capital was reduced in 2008 as a result of losses intention to offer insurance to large businesses. on securities, unprofitable insurance operations and the upcoming tighter solvency rules with larger capital Norway requirements. There is a good probability that the market Competition in the private and commercial markets in will see reduced price competition from small and medium- Norway in 2008 was dominated by rising claims expenses sized companies which have extensively used low prices and a need to increase prices in order to sustain profita- as a marketing tool in recent years. bility. The years 2003-2006 saw unusually low claims Denmark expenses, triggering a fall in the prices of a number of main products. However, the underlying claims inflation Competition in Denmark from 2005 to 2008 was domi- continued to rise, and since mid-2007 average prices nated by aggressive price-driven behaviour by a number have gone up. Price competition in the form of bundling of small and medium-sized companies. Claims expenses discounts is used extensively in the Norwegian mass were low in those years, permitting market players to market because it enhances loyalty, while the use of use increased earnings for competitive purposes. Rising introductory discounts offering lower prices to new cus- claims expenses and losses on securities caused price tomers than to existing customers has declined. TrygVesta competition to subside during 2008. Several companies operates a principle of price transparency for all custom- announced premium increases during 2008 as earnings ers and accordingly does not use introductory discounts. came under pressure. For many Danish insurers, rising claims expenses and declining premiums triggered an adverse combined ratio performance in 2008. TrygVesta Annual Report 2008 l Markets and strategy l 17 of 152 Markets and strategy Small Norwegian insurers have increased their market By international standards, customers in the Finnish mar- share in recent years at the expense of larger companies. ket are among the most loyal insurance customers with The small players can be divided into two groups: average relations to their insurer of more than ten years. 1) companies offering a full product portfolio to the private market; and TrygVesta has been an active player in the Finnish market 2) niche companies focusing on specific insurances to since 2001, and has built a portfolio of DKK 432m a segment or specific geographical areas. (EUR 58m). Some of the small companies are expected to retain their Sweden growth ambitions despite difficult conditions for invest- The Swedish market is generally characterised by being ment portfolios, although all market players are assumed served by call centres. TrygVesta is growing rapidly in the to focus on profitable growth and capital. Swedish market, partly thanks to the bancassurance part- nership with Nordea and partly to active additional sales New insurers in the market originate from the banking to new customers through the company’s own call cen- sector, but the challenges facing financial institutions in tre. The partnership with Nordea has contributed to a 2008 are assumed to impact those competitor’s capital quick penetration in Sweden where bancassurance is a requirements, hence reducing their incentive to expand fairly new concept. unprofitably into new areas in the short and medium term. Finland In line with trends in the other Nordic markets, the underlying claims performance requires price increases in Competition in Finland in 2008 was marked by rising order for profitability to be maintained, and TrygVesta has claims expenses and a consequent need among the large scheduled price increases in 2009. insurers to increase prices. Bancassurance is common in Finland, and TrygVesta/Nordea has two competitors TrygVesta has been an active player in the Swedish mar- where the insurance company is part of a banking group. ket since 2006, and has built a portfolio of DKK 259m 2009 is expected to see rising prices in order to offset (SEK 380m). the impact of higher claims expenses on profitability, and TrygVesta has scheduled price increases for 2009. PREMIUM GROWTH COMBINED RATIO % 15 8 9 6 3 0 -3 -6 100 96 92 88 84 80 2004 2005 2006 2007 2008* 2004 2005 2006 2007 2008* TrygVesta Gjensidige (estimated/adjusted for TrygVesta Gjensidige If aquisition in 2007 and 2008) Codan If Codan (Combined operating ratio) * Latest published interim report before 3 March 2009 * Latest published interim report before 3 March 2009 18 of 152 l Markets and strategy l TrygVesta Annual Report 2008 Corporate TrygVesta in 2009 TrygVesta’s corporate business has grown since 2006. Being the second-largest insurance group in the Nordic The corporate market is characterised by medium-sized region, TrygVesta has in-depth knowledge of and closely and large businesses served directly by the insurer or follows up on developments in the market. As described through an insurance broker. Large customers in particu- earlier, an economic downturn and declining investment lar see international insurance groups as an alternative to portfolio values are likely to cause a number of players in the Nordic insurance companies. In a historical perspec- the Nordic markets to change their behaviour in various tive, however, international groups have only to a small respects. As things stand early in 2009 it is still too early extent been able to win market shares. to draw conclusions about the consequences the develop- Like in 2008, players are expected to see a good deal to seize any opportunities that contribute to profitable ments might have on market shares, but TrygVesta intends of change in 2009. TrygVesta began offering corporate growth. insurance to the Swedish market in 2008. A business partnership with AXA Corporate Solutions meets Nordic TrygVesta’s share of the overall Nordic market is expected customers’ insurance requirements outside the Nordic to rise in the years ahead simply as a result of the rapidly region and AXA customers’ insurance needs in the Nordic growing market shares in Finland and Sweden. In addition region. Furthermore, Allianz has announced a partnership to the Nordea partnership, TrygVesta is establishing own with Topdanmark for selling workers’ compensation insu- sales channels and other partnerships, for example with rance in Denmark, and Zürich Versicherung intends to offer affinity groups, thereby gaining a broader foothold in the direct and broker-based insurance to large corporate cus- Finnish and Swedish insurance markets. tomers throughout the Nordic region. Finally, the financial turmoil seen in 2008 should be expected to induce some In the Danish and Norwegian markets, TrygVesta aims of the international groups experiencing challenges in to retain and develop our market position through our respect of their capital strength to reconsider the value behaviour, by striking a good balance between price and of having a presence in the Nordic market. risk, and by offering dynamic, compassionate and innova- tive service to our customers, in claims situations as well as the ongoing follow-up. TrygVesta Annual Report 2008 l Markets and strategy l 19 of 152 Markets and strategy Our products Motor insurance House contents insurance Motor insurance accounts for 32% of total premiums House contents insurance accounts for 6% of total premiums earned by the Group. A motor insurance policy consists earned by the Group. A contents insurance policy provides of mandatory third party liability comprehensive cover cover for the loss of, or damage to, the contents of private and cover for the motorist’s own vehicle. The mandatory dwellings with a range of additional features, such as third party liability insurance provides cover against lia- cover for valuables temporarily located away from the bility for injuries to a third party and damage to a third home, legal expenses and liability arising from occupancy party’s property. The comprehensive vehicle insurance, of a building. which is voluntary, provides cover for the motorist’s own vehicle, for example in connection with collisions, fire Personal accident insurance damage and theft. Motor insurance is written for passen- Personal accident insurance contributes 10% of total ger cars, motorcycles, mopeds, caravans, lorries, buses premiums earned by the Group. A personal accident and trailers. Motor policies taken out by TrygVesta’s con- insurance policy provides cover against accidental bodily cept customers in Denmark include roadside assistance, injury or death. The policy may be taken out with full-time including services such as towing and battery jump-start, or spare-time cover. Coverage and sums insured are at no additional charge. Building insurance Building insurance accounts for 11% of total premiums TRYGV ESTA – PRE M IU M S BY PROD UCT earned by the Group. A building policy covers damage to the policyholder’s house caused by events such as fire and storm and water damage. The policy also provides legal expenses cover and covers the policyholder’s liabil- ity as the owner of a building. TrygVesta introduced a new, extended building insurance policy in Denmark in November 2008, designed to provide enhanced peace of mind to customers. It includes, among other features, a new and extended water damage cover- age. The price of the new, enhanced building insurance is higher than previously and differentiated relative to cus- tomers’ risk profiles based on strong statistical material. 10% 4% 9% 10% 4% 32% 11% 14% 6% Motor Buildings Professional liability Transport and marine Contents Accident Other Property, commercial Workers’ compensation 20 of 152 l Markets and strategy l TrygVesta Annual Report 2008 tailored to customer requirements. Compensation is in conduct of its business or in connection with its products, the form of a lump sum intended to help the policyholder professional liability incurred by professionals such as cope with the financial consequences of an accident, lawyers and engineers arising from negligence, and direc- thereby easing the strain of a changed everyday life. tors’ and officers’ liability with respect to claims against board members and key personnel arising from negligent Many children are not covered by accident insurance. conduct. TrygVesta therefore intends to make a special effort in 2009 to market this policy to parents. Profitability in the Transport and marine insurance personal accident business will furthermore be enhanced Transport and marine insurance accounts for 4% of total by various initiatives in 2009. premiums earned by the Group. A marine insurance policy Property – commercial insurance factors including fire, collision, sinking and third-party covers damage to the policyholder’s vessel caused by Commercial insurance comprises Property and accounts liability. for 14% of total premiums earned by the Group. A com- mercial insurance policy provides cover for the loss of, A transport insurance policy covers damage to the policy- or damage to, the buildings, inventory or equipment of holder’s dispatched goods caused by for example collision, commercial customers. In addition, TrygVesta provides capsizing or crashing. cover for financial loss due to business interruption resulting from covered claims. Other products, including health care insurance Other products include coverage in connection with Workers’ compensation insurance change of home ownership, unemployment insurance, 9% of total premiums earned by the Group is attributable health care insurance, travel insurance, insurance for to workers’ compensation insurance. A workers’ compen- summer cottages and pleasure boats, and insurance sation policy provides cover for employees against bodily for pets. injury sustained at work and, in Norway, also occupational diseases. This insurance is mandatory for all employers Health care insurance, which is a relatively new product and covers their employees, except for public employees in the market, experiences strong demand. A health care and those employed by sole proprietorships. insurance policy covers expenses involved in examination, treatment, medicine, surgery and rehabilitation in a pri- Proactive claims handling is a focus area for TrygVesta, vate health care facility. The sustained increase in living which pursues a close dialogue with the claimant to opti- standards has raised expectations with respect to services mise claims handling. We have set up a proactive claims to be provided by the public health care services, and not handling team consisting of claims handlers, social coun- least the quality of such services. Combined with increas- sellors, legal experts, occupational health practitioners, ing health care costs and waiting times in the public sys- orthopaedic surgeons and a network of psychologists. tem, citizens’ higher requirements have generated sub- Proactive claims handling has three winners: the busi- stantial demand for health care policies, and this demand ness, the injured person and TrygVesta in the form of is expected to continue in the years ahead. The greater a shorter period of absence from work, enhanced self- number of insured persons and the increased use of the esteem for the injured person and reduced expenses. private health care policies will together generate signifi- cant growth potential within health care insurance. Professional liability insurance Professional liability insurance accounts for 4% of total premiums earned by the Group. A professional liability insurance policy provides cover for various types of liability, such as claims incurred by a company arising from the TrygVesta Annual Report 2008 l Markets and strategy l 21 of 152 Markets and strategy Strategy TrygVesta’s vision is supported by our ongoing assess- Profitable growth ment and adaptation of our strategy, and it is imple- Emphasising that overall growth should be profitable mented through our activities and action plans. increases our focus on profitable pricing and on managing relative costs, as is also reflected by the change of our Our efforts to implement the strategy in all relevant processes strategic theme ‘growth’ to ‘profitable growth’ in 2008. such as budgeting, marketing, utilisation of capital and IT are We generated 4.9% growth in local currency terms in clearly and firmly anchored, and the work is organised to a 2008 with a combined ratio of 89.1 (93.7 before run-off). defined schedule with general targets and sub-targets. THE STRATEGY PLAN CONTAINS FOuR STRATEGIC THEMES Profitable growth Peace-of-mind delivery Self-service Human competencies We intend to maintain and strengthen our market position in the Nordic region with due consideration to earnings. We intend to enhance our sales power by adapting our sales channels and insurance terms and conditions and by creating entirely new solutions to specific geographical areas with a market potential, such as the so-called Oslo project. Our core focus will be on insurance operations and capital utilisation in our general efforts with respect to value creation, including knowing the value of individual customers and the financial performance of our distribu- tion channels and claims handling centres. All sub-targets, activities and action plans contributing to In Denmark and Norway, where we are the number one and the general strategic target and the strategic themes are number three player, respectively, in terms of market posi- typically based on meeting customer requirements and tion, we are making adjustments to where and how custom- expectations. In practice, the strategy is pursued by ers meet us and to the products and coverage required by means of improving day-to-day operations, increasing individual customers. Thus we enhanced our motor policy productivity, enhancing the quality of our customer service for concept customers in 2008 by adding the Tryg Vejhjælp with respect to sales and claims, simplifying processes roadside assistance feature at no extra cost, but with and making our communications with customers more add-on options. We still have relatively modest market understandable. The strategic efforts are planned and shares in Finland and Sweden where we focus strongly on managed centrally, but with clearly defined ownership of sales. The Finnish sales channels were extended by an current improvements in the relevant areas. outbound call centre and our own sales force, and sales in 2008 were the highest since the beginning of 2002. 22 of 152 l Markets and strategy l TrygVesta Annual Report 2008 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 percieved as the leading peace-of-mind provider in the Nordic region We continuously seek to have efficient claims handling peace-of-mind delivery is even more relevant in periods procedures, always enabling us to provide high quality at of uncertainty because an unforeseen expense or event a low cost. We do this by making claims handling processes that changes everyday life for the claimant may have more efficient on an ongoing basis and by joint procure- greater consequences than would otherwise be the case. ment so that our customers get a quality experience. TrygVesta’s peace-of-mind delivery aims to alleviate customer concerns, and we do this by offering easy Sales costs and administrative expenses in all business access, clear communication, easy-to-understand areas and staff functions are regularly reviewed in order coverage and remedying if a claim occurs. to reduce unnecessary processes and costs, thereby gradually reduce relative costs over time. A number In 2008, the results of our strategic efforts with respect of our strategic action plans are also intended to to the peace-of-mind delivery included that we simplified contribute to this area. our communications with customers, written as well as oral. Our corporate values – Compassionate, Dynamic and Segmentation or structured and consistent use of cus- Innovative – are reflected in our products and our com- tomer data will enable us to prioritise and adapt products munications with customers. We changed the contents of and service efforts to individual customer needs. We are our Danish building policies in 2008 to provide extended in the process of refining our segmentation. When fully coverage for precipitation claims caused by changed cli- implemented, it will provide tools for enhanced customer matic conditions, thereby meeting our customers’ need loyalty and satisfaction and generate good opportunities for peace of mind. for additional sales, thereby supporting profitable growth. We are in the process of simplifying our written commu- The peace-of-mind delivery nications, including letters, brochures and policy texts to Our peace-of-mind delivery ensures that our customers’ the mass market, targeting them to customer segments needs are met in the best possible way before, during and and bringing them closer to customers. The intention is after they have a claim. Our insurance products and con- for customers to perceive our communications as relevant cepts build on advice intended to help prevent claims and understandable. Enhanced customer communication events from arising. Should an event nevertheless occur, is also part of the strategic theme – self-service. the customer has a sudden need for coverage and service such as repairs or replacement purchases. Self-service A period of economic downturn is a challenge for self-service options will meet many customers’ needs and many individuals and businesses. Accordingly, our wishes to deal with insurance matters at their own pace Our values are based on quality and simplicity. Online TrygVesta Annual Report 2008 l Markets and strategy l 23 of 152 Markets and strategy and whenever it suits them best, the same way as many reflects that we understand and respect that people are people now handle their banking matters, travels and the most important resource in a successful organisation. purchases of books, electronic products and the like. Lean is a process driven and customer oriented review of Online self-service means that customers handle their work processes and routines for the purpose of reducing own business, and that the underlying processes and waste and free resources, making room for development, products automatically generate policies with the desired innovation and more efficient work routines. Our Lean contents, or that claims handling is automated. Self- efforts were launched in 2007 with three projects, and 16 service options include policy changes, service, advice, projects were implemented in 2008. 28 new projects are claims handling and purchase of insurances. scheduled for 2009. We already offer various online service options, but this As an example, Lean has been implemented in our Private only amounts to a small proportion of our total business underwriting departments, reducing handling times by more processes. In order to fully exploit online insurance than 50% for several tasks within a few weeks. Further- servicing a number of processes and product contents more, employee satisfaction has increased, and the day- have to be adjusted to facilitate end-to-end processes. to-day collaboration with Sales and Customer Service has grown much stronger. These factors have also contributed Our existing solutions comprise sales in Sweden and Finland, to the growing customer satisfaction. The experience sales of travel insurance, and an option for commercial cus- gained in Private underwriting will now be deployed in tomers to report changes to the persons covered by work- other departments. ers’ compensation insurance and changes to their car fleet. The management academy was set up in 2008, aiming to Customers currently have online access to an overview of induce all TrygVesta managers to work in line with the their policies in Denmark. Further to this, e-mail and text Group’s corporate values. A total of 192 managers attended messages will become natural communication platforms development training in 2008. Systematic follow-up and with customers together with a personal space on our development of the Group’s managers will be implemented website, to be accessed by mobile or via the Internet. in 2009, making them ambassadors for our corporate values in relation to employees and the external community. In 2009, online claims reporting will become available for private customers in Norway. Customers in Denmark will “The Living House”, a means to fully exploit the synergies be able to buy the most common policies, such as motor, anticipated from project “The Living Organisation”, will contents and building, and in a few years’ time, custom- create a new environment in the workplace, intended to ers will have a full self-service option for changing their further enhance creative thinking and innovation. policies and for reporting and handling claims. The transition to more self-service options will contribute to the ongoing adjustment of costs of sales, administra- tive expenses and claims handling costs as well as to enhancing customer loyalty and satisfaction. Human competencies In order to be an attractive partner for customers and employees alike, employees need to develop and be com- passionate, and as an organisation we should live up to our vision. Our strategic focus on human competencies 24 of 152 l Markets and strategy l TrygVesta Annual Report 2008 Organisational change in 2009 Effective as at 1 January 2009, the organisational change helps embed the four strategic themes more clearly as ownership to the work processes and rou- tines that support each strategic theme is more clearly defined. The organisational change will facilitate better utilisation of pan-Nordic synergies within efficient sales processes, customer service, product development, risk selection and procurement/service in claims handling. Strategic themes PROFITAB LE G ROWT H SELF-SERVI CE We intend to secure the right balance between growth and earnings in all our initiatives. We intend to meet customers on their own terms. Initiatives and results in 2008 • growing market shares • Swedish part of the Corporate business • Oslo efforts • health care – treatment insurance in Norway, SundPuls in Denmark • mergers & acquisitions Goals and projects for 2009-10 • annual premium growth in excess of market growth • to increase Nordic market share • to increase share of the private market in Finland and Sweden (2012) to 8% Initiatives and results in 2008 • e-boks & Net ID/Digital signature • new intranet • pipeline of new web initiatives • efficiency improvements through Lean and new IT systems Goals and projects for 2009-10 • operational self-service platform • handling of motor claims in Denmark THE PEACE-O F-M IND DELIVERY Hu M A N CO M P ETEN CI ES Our customers should be confirmed in their choice of insurer on an ongoing basis. We intend to focus on our employees and to be an attractive workplace. Initiatives and results in 2008 • increase customer loyalty • satisfaction with claims handling • risk consultancy for corporate customers • simplified customer communications • segmentation/customer commitment Goals and projects for 2009-10 • to enhance customer loyalty • to increase the proportion of concept customers • to increase the retention rate Initiatives and results in 2008 • “ The Living House” • lower rates of employee turnover and sickness absence • Leading the Brand training • Managing by BSC • Corporate Social Responsibility (CSR) • Lean Goals and projects for 2009-10 • to reduce CO2 consumption by 5% annually • to be the most attractive workplace in the financial sector in the Nordic region • to increase the proportion of employees with an ethnic background TrygVesta Annual Report 2008 l Markets and strategy l 25 of 152 Markets and strategy Key performance indicators 2008 Turning words into results We use the balanced scorecard (BSC) to implement the Group’s strategy and retain our strategic focus areas. Note: 2001 = 100 for indexed indicators T R E N D D E S C R I P T I O N G O A L S A N A L Y S I S PRO FI TAB LE G ROWTH THE PEACE-OF-M IN D DEL IVERY FINA NCIAL PERSPECTIVE CuSTO M E R PE RSPECTIVE Return on equity Combined ratio Expense ratio Customer loyalty Number of custo- after tax (%) (Index) mers with concept agreements (Index) 2008: 9 2008: 89.1 2008: 16.7* 2008: 118 2008: 110 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 23 28 35 23 90.0 88.2 86.4 86.1 17.1 17.0 16.8 16.7 109 109 112 110 106 108 108 108 Profit after tax divided The ratio of the Administrative The proportion of Index showing the by equity technical result expenses and sales 100 customers staying proportion of our exclusive of technical costs as a percentage on with the company private customers interest to earned of earned premiums after one year having made a premiums multiple product/ concept agreement with TrygVesta 21-23% annually 89-91 in the medium 16.5 with a slowly Retain in Denmark To gradually improve term falling trend and improve in Norway Return on equity A ratio of 89.1 was The expense ratio for Retained in Denmark This group in- was 9% in 2008. achieved for the 2008 was in line with as expected, higher- creased following The relatively low year due to lower- expectations when than-expected the introduction of achievement level than-expected adjusted for expenses increase in Norway more peace-of-mind was attributable to claims expenses for ”The Living House” due to for example deliveries for capital losses on securities improved customer concept customers loyalty in the Oslo region * The cost ratio was 17.3 including costs related to ”The Living House” 26 of 152 l Markets and strategy l TrygVesta Annual Report 2008 SELF-SERVICE Hu M AN CO M PE TENCIES PRO CE SS PERSPECTIVE LE ARNING PERSPECTIVE Portfolio per full-time employee Customer satisfaction in claims Employee satisfaction (Index) handling (Index) (Index) 2008: 134 2008: N/A 2008: 100 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 129 133 131 139 104 105 107 105 105 N/A 102 100 Index of portfolio size per employee Index of customer satisfaction for Index of employee satisfaction customers having experienced claims measured in an annual employee handling survey To increase in line with productivity, To gradually enhance loyalty and To be the most attractive workplace approximately 2% annually satisfaction in the financial sector in the Nordic region The portfolio per employee decreased The 2008 survey has too few answers Employee satisfaction is among in 2008 by 5% points due to the decline to give an accurate result the highest in the financial sector of NOK relative to DKK in the Nordic region T R E N D D E S C R I P T I O N G O A L S A N A L Y S I S TrygVesta Annual Report 2008 l Markets and strategy l 27 of 152 Markets and strategy Financial outlook for 2009 DKKm Interest rate level Exchange rate DKK/NOK Premium growth* Technical result before run-off Technical result after run-off Investment result Profit before tax Profit after tax Combined ratio Actual 2008 Mid-February 2009** Favourable Negative scenario scenario Outlook 2009 4.9% 1,591 2,384 -988 1,347 846 89.1 3.93% 0.85 4% 1,500 1,500 300 1,800 1,300 92 1,650 1,350 1,400 91 1,200 93 * In local currency ** Since the autumn of 2008, changes in interest rates and exchange rates have impacted the outlook negatively for the pre-tax profit for 2009 by DKK 400m, of which DKK 350m is attributable to lower interest rates and DKK 50m to the lower NOK against DKK. Interest rate changes have had an adverse impact of 1 percentage point on the combined ratio. The financial crisis and economic downturn have caused The Outlook for 2009 does not include the impact from greater uncertainty in a number of areas. TrygVesta is the acquisition of Moderna Försäkringar Sak, as these committed to providing profit guidance that is as precise activities only will be included once the transaction is as possible. However, with respect to 2009, the outlook closed and this is expected in first half of 2009. For fur- is subject to much greater uncertainty. ther information please refer to separate company announcement dated 2 March 2009. Future reporting TrygVesta’s new process-oriented organisation, which was implemented on 1 January 2009, will result in future changes to our reporting so as to reflect the new areas of responsibility. The geographical reporting of the Danish and Norwegian businesses will continue unchanged while, beginning in the first quarter of 2009, Private & Commercial Denmark and Private & Commercial Norway will be reported as Nordic private and commercial busi- ness. Reporting on Corporate, Sweden and Finland will be unchanged. Since the end of the third quarter of 2008, the credit and financial crisis has, among other things, resulted in sig- nificant changes in interest rates and exchange rates, and such changes impact TrygVesta’s profit outlook for 2009. Due to the exceptional circumstances, TrygVesta has elected to update the outlook to include interest rate and exchange rate levels at mid-February 2009. Other assumptions remain unchanged. 28 of 152 l Markets and strategy l TrygVesta Annual Report 2008 Due to the greater uncertainty and large fluctuations LARGE CLAIMS in the financial markets we have elected to present a more detailed picture of our expectations, also adding a number of sensitivity calculations. This is intended to illus- trate the impact of falling interest rates and the substantial depreciation of NOK against DKK. Lower premium growth expected for 2009 Earned premiums are expected to increase by some 4% in local currency terms, assuming no major changes in competitive conditions relative to 31 December 2008. Earned premium growth is expected to originate from organic growth and measures already implemented with respect to premiums. Finland and Sweden together are expected to contribute 1.8%, while Denmark and Norway will contribute 2.2%. DKKm 1,200 1,000 800 600 400 200 0 1,042 637 586 490 416 275 501 340 2005 2006 2007 2008 Large claims, gross Expected level 2008/2009 (DKK 500m) Large claims, net Expected level 2007 (DKK 400m) STORM AND WEATHER RELATED CLAIMS Expectations for expected growth in earned premiums in 2009 have been lowered relative to the 4.9% gross increase achieved in 2008. This is a consequence of DKKM 1,000 911 the economic downturn which is expected to affect our business in several areas; lower sales of new cars, fewer new single-family houses being built and rising unem- ployment, reducing the requirement for workers’ compen- sation insurance. An overall assessment of the various factors has caused us to reduce the original growth fore- 800 600 400 200 0 332 202 112 cast for 2009 from 5% to 4%. 2005 2006 2007 2008 TrygVesta retains the strategy of generating profitable growth. Combined ratio affected by declining interest rates Our third quarter 2008 interim report released in November 2008 set out a combined ratio forecast for 2009 at the level prevailing in 2008. This was based on interest rate and other assumptions as prevailing at 30 September 2008. The interest rate used to discount provisions for claims fell by 1.2 percentage points in the period from the fourth quarter of 2008 until mid-February 2009 (including the effect of a changed discount curve) with a significant adverse effect on the combined ratio. Seen in isolation, a 1 percentage point drop in interest rates would increase the combined ratio by around 1 percentage point due to an increase in the discounted technical provisions. Expected level 2009 (DKK 250m) Expected level 2008 (DKK 225m) RUN-OFF (GROSS) DKKm 1,000 800 600 400 200 0 -200 -400 -400 -600 868 744 618 361 68 -410 -588 2002 2003 2004 2005 2006 2007 2008 TrygVesta Annual Report 2008 l Markets and strategy l 29 of 152 Markets and strategy Based on the interest rate level prevailing at mid-February Assumptions for sales and loss of policies are based on 2009, the combined ratio for 2009 before run-off is esti- historical levels, planned initiatives and the market situa- mated to be at the level of 91-93 with an expectation of tion. Assumptions for price adjustments are primarily 92. The past three years had run-offs of 1.8–4.6% of the based on agreements relating to adjustments of individ- combined ratio, for example, with a combined ratio in ual insurance policies. The outlook is expressed in local 2008 of 89.1 after run-off and 93.7 before run-off. currency terms. The increase of the outlook in the combined ratio from the forecast in the autumn of 2008 thus only reflects We generally base our expectations for claims incurred the lower interest rate level. on assumptions for the various products in the individual business areas. Expectations regarding claims ratios are Downward trend in expenses based on historical performance in the form of average Costs in 2008 were affected by rising wage inflation and claims ratios for the past five years, with recent years’ substantial investments in “The Living House”. When trends generally being weighted stronger than those of adjusted for these factors the expense ratio was 16.7 prior years. Trends in the pricing of our insurance premi- equal to 2007. The expense ratio for 2009 is expected to ums, claims frequencies and the discount rate applied be on a level with 2007. This expectation includes continued are the most important factors that may affect our overall expansion in Finland and Sweden. The expense ratio would performance. Assumptions for storm events and large be just over 15 for the Danish and Norwegien activities. claims are based on historical experience for not less Technical result than ten years, with recent years’ trends being weighted stronger than those of prior years. In addition, we incor- The technical result is expected to be DKK 1.5bn for the porate the effect of profitability initiatives and the effect full-year 2009 relative to DKK 1,591m in 2008 and before of any legislative measures in the anticipated claims level. run-off. The interest rate used for discounting has risen and fallen considerably again since the summer of 2008. The outlook for 2009 assumes weather related claims of The outlook for the technical result for 2009 is therefore around DKK 250m and large claims of around DKK 500m subject to uncertainty due to uncertainty with respect to gross. The outlook assumes no run-off losses or gains in interest rates. See also the sensitivity analysis in the sec- 2009 on the provisions for claims. tion on Risk management on page 69. The outlook regarding gross expenses reflects the pro- Assumptions for insurance activities jected number of employees during 2009 and the related The outlook for the financial results for 2009 is based costs. The projected number of employees incorporates on assumptions with respect to gross earned premiums, the effect of measures launched to improve efficiency. gross claims incurred, gross expenses, result of business The outlook further includes other expenses such as ceded and technical interest. Our outlook for gross those relating to IT, operations and our owner-occupied earned premiums is based on the Group’s portfolio at properties, which are predominantly based on agree- 31 December 2008 and assumptions with respect to ments that are known to us. sales and loss of policies and price adjustments of existing policies. 30 of 152 l Markets and strategy l TrygVesta Annual Report 2008 The result of business ceded is based on contracts made Currency risk with reinsurers to cover claims events and events such as Currency exchange rates, which have a major impact on storms and large claims. The expected result of business the results of the insurance operations, were very volatile ceded is calculated on the basis of such contracts and in 2008. TrygVesta’s insurance operations are directly historical data. exposed to fluctuations in NOK, SEK and EUR. Based on the expectation of a positive profit contribution from, Assumptions for investment activities the Norwegian part of the business, a depreciation of Due to the volatile and unusual conditions prevailing in NOK against DKK would adversely impact the total profit the financial markets the assumptions for investment of the Group which presents its financial statements in return are subject to considerable uncertainty. See the DKK. The currency risk on the part of equity tied up in section on Risk management on page 69 for a sensitivity NOK is hedged. The table shows the impact on premium analysis. growth and the result of insurance operations of different The outlook for the return on investments for 2009 is based on the following assumptions with respect to Assumptions for tax NOK/DKK rates. investment assets. An equity proportion of 3.6% and a The effective tax rate is affected by the corporate tax rate return of 7% including dividend are assumed. Bonds are of 25% in Denmark and 28% in Norway, and by the fact expected to account for around 86% of total investment that tax loss carry-forwards are not utilised in Sweden assets and to yield a return of 3.93% based on interest and Finland. We expect an effective tax rate of 27 for rates mid-February 2009. Finally, the real estate portfolio, 2009. Whether this is achieved depends on the amount which accounts for 10% of assets including owner-occupied of gains or losses on equities which are tax-exempt or properties, is expected to yield a return of 6.1% exclusive non-deductible. of any value adjustments. In 2008, bonds, equities and real estate yielded returns of 6.1%, minus 32.8% and The return on equity for 2009 is expected to be 14-16% 8.4%, respectively. The investment result after transfer of after tax. technical interest for 2009 is expected to be a profit of DKK 300m against a loss of 988m in 2008. IMPACT OF EXCHANGE RATE CHANGES ON THE GROuPS’ RESuLTS DKK/NOK 0.95 0.90 0.85 0.80 0.75 Premium growth change in DKK Result of insurance (DKKm) 4.7% 70 2.4% 35 0.0% 0 -2.4% -35 -4.7% -70 TrygVesta Annual Report 2008 l Markets and strategy l 31 of 152 Results Development is the future “Meeting customers on their own terms is another strategic focus area. Our experience is that customers feel greater accessibility and peace of mind when they have an online self-service option. This focus produced a number of benefits for customers in 2008 and will continue to have a major influence on our communications with customers in the years ahead.” 32 of 152 l Results l TrygVesta Annual Report 2008 Results TrygVesta Annual Report 2008 l Results l 33 of 152 Results The Group’s financial performance in 2008 TrygVesta’s focus on profitable growth in the insurance claims within building insurance, triggered in part by rising operations was once again the foundation that sustained claims inflation (higher labour costs and material prices) the company throughout 2008, which was otherwise a and a changed claims mix. However, claims inflation sub- challenging year for the insurance industry. sided in the second half-year of 2008 due to the economic Gross earned premiums were 4.9% higher in local currency introduced in both Denmark and Norway in 2008 to strike terms (4.3% in DKK terms), the result of a great effort by a profitable balance between price and claims expenses slowdown. Premium increases and other measures were our employees, high customer retention rates and a large during 2009 and 2010. inflow of new customers, with the new markets in Sweden and Finland once again contributing high growth rates. In Financial results in 2008 2008 we succeeded in reversing the previous negative The technical result amounted to a profit of DKK 2,384m growth in Private & Commercial Norway to positive growth in 2008 compared with DKK 2,820m in 2007. Outper- of 4.8% in local currency terms, driven by higher customer forming the forecast announced in our third quarter retention and premium increases. interim report in November 2008 by DKK 184m, the profit was primarily driven by run-off gains on prior-year However, 2008 was challenging for our insurance opera- provisions of DKK 191m in the fourth quarter of 2008. tions. Claims expenses increased due to higher average Although lower than in 2007, the performance was still TECHNICAL RESULT, DENMARK AND NORWAY TECHNICAL RESULT BY BUSINESS AREA DKKM 2,000 1,500 1,000 500 0 1,131 956 1,032 720 1,639 1,695 1,377 1,214 1,335 DKKm 1,500 1,200 900 1,440 1,098 994 757 815 600 523 300 0 1,092 842 842 836 870 757 692 461 393 315 2004 2005 2006 2007 2008 P&C Denmark P&C Norway Corporate Denmark Norway 2004 2005 2006 2007 2008 34 of 152 l Results l TrygVesta Annual Report 2008 good in a historic perspective. Higher claims and wage The profit after tax fell by DKK 1,420m to 846m due to inflation combined with investments in “The Living the lower investment return and a slightly lower technical House” were the primary causes of the technical result result. Capital losses on equities are non-deductible, and for 2008 being DKK 436m lower than in 2007. Claims therefore the tax rate was above normal. expenses also increased within personal insurance, including health care insurance, in 2008. The growing New Markets lifting growth use of health care insurance has triggered higher claims TrygVesta recorded gross earned premiums of DKK 17,323m expenses, and premium increases have been implemented in 2008, which was DKK 717m, or 4.9% in local currency to offset this effect. terms (4.3% in DKK terms), more than in 2007. Premium growth was in line with expectations. It should be noted, Investment activities generated a profit of DKK 440m in particular, that Sweden and Finland recorded aggregate before transfer of technical interest in 2008 compared growth of 69%, contributing DKK 234m of the DKK 717m. with DKK 1,740m in 2007. The reduction was primarily The total portfolio in the two countries was DKK 691m at attributable to capital losses on equities amounting to 31 December 2008. Growth was attributable to a sustained DKK 887m in 2008. TrygVesta recognises all investment high inflow of customers. In Finland, it was a direct result assets at market value, and value changes have a direct of the sales organisation being enhanced and enlarged. impact on the income statement. The proportion of Sweden and Finland accounted for 1.4 percentage points equities in the investment portfolio was reduced from and Denmark and Norway accounted for 3.5 percentage DKK 5.4bn in mid-2007 to DKK 1.7bn in January 2008. points of the Group’s total premium growth of 4.9% in Capital losses on equities would have been approximately local currency terms. DKK 1.2bn higher if the lower allocation to equity invest- ments had not been implemented. Private & Commercial Denmark reported 1.8% growth in The pre-tax profit amounted to DKK 1,347m against expected, and was affected in 2008 by relatively fierce DKK 3,109m in 2007. This was DKK 247m more than competition from smaller companies. More existing cus- the full-year forecast announced in the third quarter tomers chose to stay on with TrygVesta in Norway. The gross earned premiums over 2007. This was less than 2008 interim report. G ROSS EARN ED PRE M IU M S BY BUSI NE SS A REA 2% 1% 32% 38% P&C Denmark P&C Norway 27% Corporate Finland Sweden combined effect of this, a fair inflow of new customers and a large number of premium increases was to lift premium growth in Private & Commercial Norway to an annualised 4.8% in local currency terms, thereby exceed- ing expectations. Gross earned premiums in the Corporate business increased by 4.3% over 2007. Gross earned premiums grew rapidly at the beginning of the year due to the large inflow of new customers in the second half of 2007, while the growth rate was somewhat slower in the second half of 2008. During the period from mid-2007 to 2008, the Corporate business outperformed the estimated market growth by a considerable margin, and a more natural growth level was therefore expected in the second half of 2008. TrygVesta expanded its position within health care in 2008. The heavy demand for health care insurance TrygVesta Annual Report 2008 l Results l 35 of 152 Results PREMIUM GROWTH IN LOCAL CURRENCY – TRYGVESTA GROUP % 8 7 6 5 4 3 2 1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2008 YTD 2007 Large claims – defined as claims of more than DKK 10m – were a gross amount of DKK 586m in 2008 against a gross amount of DKK 1,042m in 2007. After reinsurer contributions, large claims amounted to DKK 490m net against DKK 637m in 2007. The most widely covered large claim in 2008 related to a fire on Bryggen in Bergen, Norway in September, which destroyed several of that city’s his- toric timber built houses. The level of fires in single-family houses in Norway amounted to NOK 264m in 2008, sig- nificantly above 2007, which amounted to NOK 209m. Weather related claims were DKK 112m in 2008 compared with DKK 332m in 2007. The reduction was due partly to the mild winter and partly to fewer cloudbursts in the summer of 2008 compared with the summer of 2007. Claims in 2008 were positively impacted by gains on prior combined with good market timing of the launch of new year claims. The favourable run-off performance contributed product initiatives produced portfolio growth of more than a net amount of DKK 793m (gross amount of DKK 868m) 70% in Denmark. compared with a net amount of DKK 743m (gross amount of DKK 744m) in 2007. The motor and personal accident Combined ratio under pressure lines were the major contributors of run-off gains, while from rising claims inflation building generated run-off losses in 2008, mainly attribut- The combined ratio was up from 86.1 in 2007 to 89.1 in able to larger than expected cloudburst claims from 2007. 2008. The adverse performance was triggered by higher claims expenses for building and personal insurances. The underlying claims ratio increased when adjusted for Increasing average claims and high wage increases were the effect of large claims, weather related claims, run-off the primary cause of the higher combined ratio, although results and interest rates. The underlying increase in in a historic and, in particular, European perspective 89.1 claims expenses was attributable to higher claims expenses reflected a continued good and sound insurance opera- in several areas. The average building claim in Denmark was tions performance. Large claims were higher than expected in 2008, while weather related claims were lower than expected. Run-off gains had a favourable impact of 4.6 percentage points on the combined ratio in 2008, on a level with 2007. Claims experience Gross claims at DKK 11,766m were 5.3% higher, bringing the claims ratio, net of ceded business, to 71.8 in 2008 compared with 69.4 in 2007. The DKK 591m increase in gross claims incurred was primarily attributable to higher claims expenses in relation to building and per- sonal insurance. STORM AND WEATHER RELATED CLAIMS DKKm 1,000 911 800 600 400 200 0 332 202 112 2005 2006 2007 2008 Expected level in 2008 (DKK 225m) 36 of 152 l Results l TrygVesta Annual Report 2008 around 21 percentage points higher, driven by higher prices EXPENSE RATIO of labour and materials and by a changed claims mix towards a larger number of more expensive piping claims and reserve strengthening. To counter the effect of these factors on the Group’s financial results, TrygVesta has already launched a number of initiatives and additional measures have been scheduled to maintain and improve the earnings level. Costs impacted by investments in New Markets and the workplace of the future As disclosed in the third quarter 2008 interim report, % 20 18 16 14 12 17.0 16.8 16.7 17.3 16.7 2005 2006 2007 2008 costs in the fourth quarter of 2008 would be adversely Expense ratio impacted by costs in connection with “The Living House” project to create the workplace of the future. The project will change the physical working environment at Ballerup and Bergen with a view enhancing innovation, develop- Expense ratio excluding costs to “The Living House” ment and knowledge sharing. Previously, all or part of of expansion in the new markets had an impact of 1.5 such costs would have been capitalised as appreciation percentage points in 2008 against 1.3 percentage points of the values of the properties, but the item has been in 2007 and are financed through ongoing process recognised in current costs due to the current uncertain improvements in Denmark and Norway. situation. Investment return Expenses relating to “The Living House” totalled DKK The investment portfolio amounted to a total of 133m. Excluding “The Living House”, the expense ratio DKK 34.2bn at 31 December 2008 compared with was 16.7, in line with 2007. Including costs of this project, DKK 37.3bn at 1 January 2008. The gross return on the expense ratio was 17.3 in 2008. In light of high wage investment assets totalled DKK 1,258m in 2008 against inflation of around 5-8%, high initial costs in New Mar- DKK 1,523m in 2007, corresponding to a gross return kets, and high growth with derived commission expenses, of 3.5% in 2008 compared with 4.1% in 2007. Invest- the expense performance is considered satisfactory. Costs ment activities generated a loss of DKK 988m after transfer of technical interest compared with a profit of DKK 340m in 2007. The performance fell considerably short of expectations and was mainly attributable to capital losses on equities of DKK 887m incurred in 2008. The proportion of equities 1,042 in the investment portfolio was reduced from DKK 5.4bn LARGE CLAIMS DKKm 1,200 1,000 800 600 400 200 0 416 275 501 340 637 586 490 2005 2006 2007 2008 Large claims, gross Large claims, net Expected level in 2008 (DKK 500m) in 2007 to DKK 1.7bn in January 2008. Capital losses on equities would have been approximately DKK 1.2bn higher if the lower allocation to equity investments had not been implemented. TrygVesta acquired its head office in Ballerup at a price of DKK 1,085m in the spring of 2008. The acquisition replaced the existing lease with Danica from 1995, which would have expired in 2025. The purchase provides TrygVesta Annual Report 2008 l Results l 37 of 152 Results TrygVesta with certain immediate financial benefits as TrygVesta generated a cash inflow from operating the annual rent exceeded the yield on bonds sold to activities of DKK 1.8m 2008 compared with DKK 2.7bn fund the acquisition. Acquiring the head office also facili- in 2007. tates “The Living House” refurbishment project described in the preface to this annual report. Investments amounted to a total of DKK 0.5bn in 2008, Tax and there was a cash outflow for financing activities of DKK 2.2bn, primarily relating to cash dividend of DKK The tax expense was DKK 501m in 2008 compared with 1.6bn and share buy back of own shares of DKK 1.2bn. DKK 842m in 2007, equalling an increase in the effective tax rate from 27% to 37%. The effective tax rate in 2007 Equity was favourably affected by the reduction of the Danish Equity stood at DKK 8,244m at 31 December 2008, corporate tax rate from 28% to 25%, which reduced the a reduction of DKK 1,766m. deferred tax. The effective tax rate in 2008 was adversely affected by non-deductible equity losses, which were The change was attributable to cash dividends paid out partly offset by a favourable impact from closed tax cases. in the amount of DKK 1,156m, purchases of own shares in the amount of DKK 1,197m, profit for the year and Balance sheet and cash flow other adjustments. Total assets decreased from DKK 43,830m to DKK 38,453m in 2008, primarily due to the depreciation of NOK against Events after the balance sheet date DKK. On 2 March 2009 TrygVesta agreed to acquire Moderna Försäkringar Sak in Sweden for DKK 427m in transaction Liabilities mainly comprised shareholders’ equity of goodwill and a total amount of SEK 1,256m (DKK 810m). DKK 8,244m and technical provisions of DKK 25,193m. For further information please refer to separate company announcement dated 2 March 2009. Technical provisions decreased from DKK 26,916m to DKK 25,193m in 2007, equal to 6.4%. The ratio of provi- sions for claims, net of reinsurance, to earned premiums, was 112 against 124 in 2007. 38 of 152 l Results l TrygVesta Annual Report 2008 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 Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 2006 2007 2008 6,390 -4,215 -1,109 1,066 6,490 -4,041 -1,086 1,363 6,605 -4,443 -1,155 1,007 -200 -87 -89 128 994 164 1,440 180 1,098 66.0 3.1 69.1 17.4 86.5 62.3 1.3 63.6 16.7 80.3 67.3 1.3 68.6 17.5 86.1 Private & Commercial Denmark sells insurances to private impacted by significantly lower run-off gains, which were households and small and medium-sized enterprises in DKK 164m lower in 2008 than in 2007, and high claims Denmark under the Tryg brand name. Sales are handled inflation at the beginning of 2008, which subsided by five customer centres/call centres, 16 local service cen- towards the end of 2008. tres, our own sales agents, Nordea’s branches, affinity groups, car dealers and real estate agents. Private & The higher average claims on building insurance presented Commercial Denmark has around 1,400 employees. one of the major challenges in 2008 due to higher wage to skilled craftsmen and higher costs of materials, a changed Performance at a sustained high level in 2008 claims mix and run-off losses from an increase of provisions despite rising claims inflation for cloudburst claims from 2007. However, the rapid eco- The technical result amounted to DKK 1,098m in 2008, nomic slowdown reduced demand for craftsmen services which was DKK 342m lower than in 2007, but around during the year, thereby curbing claims inflation. TrygVesta DKK 100m higher than in 2006. The performance was has implemented price increases on building insurance as a TrygVesta Annual Report 2008 l Results l 39 of 152 Results result of the change in claims patterns in connection with 100 private customers chose to renew their policies with the climate changes. us. The high retention rate made a positive contribution to the performance, as a high retention rate is important in 2008 was yet another year with health care in focus relation to the development of premiums, claims and costs. Gross earned premiums rose by 1.8% to DKK 6,605m in 2008, which was lower than anticipated. In 2008, The implementation of the changed tariff parameters for growth in gross premiums was affected by lower premiums motor insurance in Denmark resulted in a decline in the on motor insurance and competition from small insurers average motor premium throughout 2008. However, it in particular. Going forward, price competition from small stabilised towards the end of the year. Although the insurers is expected to tail off as a result of changed implementation of the new tariff parameters began in late market conditions under which losses on investments 2006, it takes time before the entire portfolio has been and higher combined ratios are likely to lead to a stronger transferred. The new parameters are based on the age of focus on striking the balance between earned premiums/ the car, the annual mileage and the age and gender of the growth and the related claims expenses. driver, all of which facilitates a better risk assessment. The level of average motor insurance premiums is expected to 2008 was yet another year with health care in focus. remain largely unchanged in 2009. Average premiums will Health care insurance premiums grew by more than 70%, be favourably affected by the general increase in prices and TrygVesta further strengthened its position in this (index), totalling 4.4% in 2009, but adversely impacted by market. The Private & Commercial and Corporate portfolios the ongoing portfolio restructuring and premium reduc- total more than DKK 200m. tions to customers as they build up their driving seniority. Private & Commercial Denmark also recorded strong of high seniority customers, for whom the continuous shift growth within so-called industry agreements with the towards lower premiums is connected with a high degree The motor portfolio is characterised by a large proportion business sector as a result of recent years’ efforts to of loyalty and good profitability. target selected segments of the business sector. These agreements are characterised by a high degree of In 2008, Private & Commercial Denmark launched a number customer loyalty and good profitability. of initiatives to further enhance the customer experience. In 2008, the retention rate for private customers stabilised surance coverage of some 300,000 concept customers at a high level of around 91, which means that 91 out of as a customer benefit at no additional cost. The extended As a result, Tryg Vejhjælp was added to the motor in- AVERAGE PREMIUMS PREMIUMS BY PRODUCT DKK 5,000 4,750 4,500 4,250 4,000 3,750 3,500 3,250 3,000 8% 5% 13% 13% 34% 2005 2006 2007 2008 27% Motor Building Motor Property, private Property, commercial Personal Lines Workers’ compensation Other 40 of 152 l Results l TrygVesta Annual Report 2008 Tryg Vejhjælp provides additional peace-of-mind services, CUSTOMER RETENTION such as changing of winter and summer tyres, taxi and hotel service and safety checks on the car. Sales of the extended Tryg Vejhjælp have exceeded expectations, thereby confirming that customers welcome the Group’s ambition to continuously improve the quality and service it provides. In 2008, TrygVesta signed a cooperation agreement with DLG, Denmark’s leading supplier of feedstuffs for the agricultural sector, for the distribution of insurance products in Denmark and Sweden. DLG, which also sells telecom- munications, food products and machinery, generates annual revenue of DKK 38bn and has 5,000 employees. The agreement is expected to contribute to earned premiums and earnings beginning in 2009. % 93 92 91 90 89 88 2005 2006 2007 2008 CLAIMS FREQUENCY IN DENMARK Claims affected by claims inflation In 2008, total claims expenses at DKK 4,443m were up by 9.9% relative to 2007, and the gross claims ratio increased from 62.3 to 67.3. Despite the increase we are still at an acceptable level. In this connection, it should be empha- sised that the claims ratio was exceptionally low in 2007. The increase in 2008 was primarily attributable to higher building and health insurance claims and significantly reduced run-off gains as compared with 2007. Index 120 115 110 105 100 95 90 0 0 1 = 5 0 0 2 : x e d n I 2005 2006 2007 2008 The average claim in building insurance rose by around Motor Building 20 percentage points in 2008, which was one of the most important reasons for the increase in claims expenses. Average claims rose as a consequence of higher payroll and material costs and a change in the claims mix, with TrygVesta recording a higher number of costly claims, which gave rise to run-off losses in 2008, primarily attributable to increased provisions for cloudburst claims from 2007. The claims frequency for building policies dropped by 5 percentage points in 2008, mainly as a result of fewer weather related claims. Due to the higher claims expenses, premium increases of approximately 11% were implemented on building policies at the end of 2008. The time lag from implementation of a price increase until it feeds through AVERAGE CLAIMS – DENMARK Index 140 130 120 110 100 90 0 0 1 = 5 0 0 2 : x e d n I 2005 2006 2007 2008 as a gross earned premium is up to two years, and the Motor Building effect of such price increases will therefore only begin to TrygVesta Annual Report 2008 l Results l 41 of 152 Results DKKm Storm and weather, gross Large claims, gross 2005 2006 2007 2008 739 23 109 25 242 78 51 83 materialise in the second half-year of 2009 and be fully Expenses recognised in the financial statements for 2010. Expenses rose to DKK 1,155m in 2008 from DKK 1,086m in 2007 due to high wage inflation, increased initiation of The claims frequency for motor policies fell by around IT projects and expenses of DKK 24m incurred in connec- 3 percentage points in 2008 compared with 2007, and tion with “The Living House” in the fourth quarter of the average claim was up by around 4 percentage points. 2008. Excluding the expense in connection with “The TrygVesta’s cooperation with selected garages helps keep Living House”, the expense ratio was 17.1 against 16.7 average claims expenses at a competitive level, while the year before. ensuring that customers receive high-quality service. Combined ratio of 86.1 Expenses for weather related claims fell, as 2008 saw The combined ratio was 86.1, an increase relative to the fewer cloudburst and storm claims as compared with exceptionally low level of 80.3 recorded in 2007. previous years. Large claims totalled DKK 83m in 2008 compared with DKK 78m in 2007. A large part of this difference was attributable to higher run-off gains in 2007, as, in relative terms, a 2.6 percent- Run-off gains from prior-year claims positively impacted age point higher positive impact was recorded in 2007 as the 2008 performance by a gross amount of DKK 391m compared with 2008. Moreover, the underlying claims (DKK 414m net) against a gross amount of DKK 551m inflation contributed to the higher combined ratio in 2008 (DKK 578m net) in 2007. Motor and workers’ compensa- relative to 2007. Premium initiatives already implemented tion recorded positive run-off gains, whereas reserves for and additional planned initiatives are intended to enable building policies were strengthened. Run-off gains had a the strong earnings to be retained going forward. favourable impact on the combined ratio of 6.3 percent- age points compared with 8.9 percentage points in 2007. 42 of 152 l Results l TrygVesta Annual Report 2008 Private & Commercial Norway DKKm 2006 2007 2008 NOK/DKK, average rate for the period 93.04 92.81 91.74 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 Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 4,509 -2,866 -922 4,490 -2,962 -936 4,636 -3,371 -1,004 721 -75 111 757 63.6 1.7 65.3 20.4 85.7 592 -82 182 692 66.0 1.8 67.8 20.8 88.6 261 -68 122 315 72.7 1.5 74.2 21.7 95.9 Private & Commercial Norway sells insurances to private of the positive trend, TrygVesta was able to retain households and small and medium-sized enterprises in its market share in 2008. This could be viewed as an Norway under the TrygVesta and Enter brand names. indication that the many initiatives, particularly in Sales are handled by 85 franchise offices, our own sales the Oslo region, are beginning to pay off. agents, three regional customer centres, 35 local sales centres, car dealers and Nordea’s branches. Private & The technical result amounted to a profit of DKK 315m Commercial Norway has around 1,100 employees and in 2008 compared with DKK 692m in 2007. The perfor - some 300 franchise office staff. mance was adversely affected by high claims inflation and a higher number of fires in single-family houses as com- Financial results in 2008 pared with previous years. Moreover, Private & Commer- In 2008, we succeeded in reversing the negative trend in cial Norway recorded run-off losses of DKK 32m in 2008 gross premiums from 2005-2007 to growth. As a result as compared with run-off gains of DKK 81m in 2007. TrygVesta Annual Report 2008 l Results l 43 of 152 Results CUSTOMER RETENTION From minus to plus % 87 86 85 84 83 82 Private & Commercial Norway recorded a gross premium increase of 4.8% in local currency terms (3.3% in DKK terms) to DKK 4,636m, as against a decline in gross pre- miums of 0.2 percentage point in local currency terms in 2007. The DKK 146m increase was attributable to a combination of rising customer loyalty and increased sales in several regions, particularly in the Oslo area. 2005 2006 2007 2008 mium increases implemented since mid-2007 on motor and Gross premiums were also favourably affected by the pre- building policies in particular. Private & Commercial Norway has scheduled additional premium increases in 2009, which will contribute to further growth going forward. The reten- tion rate improved further in 2008 to 86.9 from 85.8 at 31 December 2007, and Private & Commercial Norway recorded a rising retention rate for large customer rela- tionships in particular. Customer loyalty has been growing since Private & Commercial Norway changed its price and loyalty model in 2005/2006. In 2008, the net number of policies rose by 58,000. All TrygVesta’s franchise and sales offices have applied a new customer system, ‘Salgsnøkkelen’, since the spring of 2008, which has significantly eased the administrative selling routines. Moreover, the growth in sales has entailed an increase in sales and commission expenses. Going forward, this development will generate higher premium growth rates, thereby strengthening TrygVesta’s position and market opportunities in Norway. Claims Claims expenses at DKK 3,371m were 13.8%, or DKK 409m, higher, and the claims ratio, net of ceded business, increased from 67.8 to 74.2. The increase was mainly attributable to an increase in medium-sized building and fire claims. In 2008, expenses for fires in single-family stantially above the level of previous years, as indicated in the chart. Fires in single-family houses are far more frequent in Norway than in Denmark, due to the fact that many houses and cabins in Norway are made from wood and heated by electric heating and wood burning stoves or fireplaces. Large claims, defined as claims in excess of DKK 10m, totalled DKK 131m, as against DKK 121m in 2007. 48% houses in Norway totalled NOK 264m, which was sub- AVERAGE PREMIUMS NOK 5,000 4,750 4,500 4,250 4,000 3,750 3,500 3,250 3,000 2005 2006 2007 2008 Motor Building PREMIUMS BY PRODUCT 9% 4% 8% 8% 23% Motor Property, private Property, commercial Personal Lines Workers’ compensation Other 44 of 152 l Results l TrygVesta Annual Report 2008 As a percentage of gross earned premiums, large claims mission costs, wage inflation of around 8% and expenses of thus amounted to 2.8% compared with 2.7% in 2007. DKK 12m incurred in connection with “The Living House” in the fourth quarter of 2008. Excluding expenses relating to The claims frequency for motor policies rose by approxi- “The Living House”, the expense ratio was 21.4 in 2008. mately 1 percentage point relative to 2007, and the aver- age claim was up by around 4 percentage points. The Combined ratio affected by claims inflation average claim tracks the general development in payroll Overall, the combined ratio was 95.9 in 2008, as against and material costs. TrygVesta’s cooperation with selected 88.6 in 2007. A large part of this difference was attributable garages which repair three out of four motor claims to the higher run-off gains in 2007. Moreover, the increase ensures high quality and lower costs per repair. in the combined ratio relative to 2007 was attributable to higher expenses for fires in single-family houses and under- The claims frequency for building policies rose by approxi- lying claims inflation. The premium initiatives implemented mately 2 percentage points in 2008, and the average since mid-2007 in several areas are expected to improve claim was up by 7 percentage points, driven by higher profitability in the upcoming period. payroll and material costs. The index for construction costs in Norway declined in the second half-year of 2008, and this development is expected to impact the perform- ance of average claims in the upcoming quarters. The provisions for claims increased by a net amount of DKK 32m in 2008 as compared with a DKK 81m run-off gain in 2007. This corresponds to an adverse impact on the combined ratio of 0.7% in 2008 relative to a favourable impact of 1.8% in 2007. In particular, provisions for building and group life insurances were strengthened. Expenses Expenses rose by 7.3% or DKK 68m (6% or DKK 56m exclud- ing expenses relating to “The Living House”) to DKK 1,004m, and, as a result, the expense ratio was up from 20.8 to 21.7. The increase was primarily attributable to higher selling com- FIRE CLAIMS FOR BUILDINGS NOKm 300 250 200 150 100 50 0 211 200 209 264 2005 2006 2007 2008 AVERAGE CLAIMS IN NORWAY CLAIMS FREQUENCY IN NORWAY Index 140 0 0 1 = 5 0 0 2 : x e d n I 130 120 110 100 90 Index 107 103 101 99 97 95 0 0 1 = 5 0 0 2 : x e d n I 2005 2006 2007 2008 2005 2006 2007 2008 Motor Building Motor Building TrygVesta Annual Report 2008 l Results l 45 of 152 Results Finnish general insurance DKKm 2006 2007 2008 EUR/DKK, average rate for the period 745.94 745.11 745.63 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 Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 198 -155 -83 -40 0 6 -34 78.1 0.2 78.3 41.7 251 -188 -125 -62 -1 14 -49 74.9 0.4 75.3 49.8 354 -258 -154 -58 -1 17 -42 72.9 0.3 73.2 43.5 120.0 125.1 116.7 Our Finnish branch sells insurances to private household through a targeted effort to build and strengthen customers and small enterprises under the brand name of the sales channels. The rapidly growing portfolio is TrygVesta Finland and Nordea Vahinkovakuutus. Insurance attributable partly to sales made through Nordea, policies are sold by Nordea’s branches, our own sales but to an increasing extent also to sales made through force and call centres, car dealers and via the Internet. own sales channels. Such sales account for around The Finnish branch has around 150 employees. three quarters of sales today, a large part of which Broader distribution platform lifting sales introduced by Nordea. Sales via the Internet totalled Gross earned premiums in Finland rose by 41%, or 6% of aggregate sales, a new record in terms of the concerns additional sales to customers originally DKK 103m, to DKK 354m driven by an increase in sales. number of policies. In 2008, the Finnish business sold around 160,000 insur- ance policies, as against approximately 100,000 policies The portfolio totalled DKK 432m at 31 December 2008 in 2007. The sustained high level of sales was achieved and grew by 45% in 2008 from DKK 299m at 31 Decem- 46 of 152 l Results l TrygVesta Annual Report 2008 ber 2007. The number of customers was approximately The effects of these price increases will begin to materi- 130,000 at 31 December 2008. alise from the second half of 2009, but will not feed The market share was 4.4% at 31 December 2008 in terms of households, as compared with 3.6% at Expenses through until 2011. 1 January 2008. The high sales level added pressure to expenses, which rose from DKK 125m in 2007 to DKK 154m in 2008. The potential for sales of insurance policies to small Costs are primarily driven by selling commissions, but commercial customers is strong in Finland, as Nordea as the proportion of policies sold by the unit’s own call has a strong position in this customer segment. Sales centre increases, the charge on the expense ratio will be through own channels significantly outperformed gradually reduced for the benefit of future earnings. expectations in 2008. In 2008, TrygVesta signed a new agreement with Nordea The strong growth in the Finnish business and the on settlement of commission regarding policies sold plans for continued growth give rise to an ongoing through Nordea. As a result of this agreement, it is now requirement for attracting qualified employees. The possible to accrue commission over the first year of the number of employees rose in 2008 from 127 to around policy, as it is actually a prepayment to Nordea, as com- 150. To this number should be added 40 independent pared with the previous method of charging commission to insurance agents. the income statement at the time of writing the business. Claims ratio improved The expense ratio was 43.5 in 2008, compared with The claims ratio, net of ceded business was 73.2 in 2008 49.8 in 2007. against 75.3 in 2007. Despite a generally satisfactory claims performance, there are a few lines, which, based Combined ratio on an overall evaluation of the competitive situation and The combined ratio was 116.7 relative to 125.1 for 2007. the premium and profitability levels, require premium In the private business, the combined ratio was 101.5 increases. These increases will be implemented in 2009. against 106.6 for 2007. Looking ahead, the private busi- ness, which is now well balanced, will focus on reducing the combined ratio and thus on good profitability. ACCUMULATED WEEK LY SALES IN FINLAND FINLAND SALES DISTRIBUTION Policies 200,000 150,000 100,000 50,000 0 2002 2007 % 100 80 60 40 20 0 10 20 30 40 2004 2008 2006 50 Weeks 2007 2008 Nordea Other sales channels TrygVesta Annual Report 2008 l Results l 47 of 152 Results Swedish general insurance DKKm 2006 2007 2008 SEK/DKK, average rate for the period 80.37 80.73 78.02 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 Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 4 -6 -39 -41 0 0 90 -80 -95 -85 0 3 221 -214 -104 -97 0 7 -41 -82 -90 144.9 0.4 145.3 1,003.8 1,149.1 88.9 0.0 88.9 105.6 194.5 96.8 0.0 96.8 47.1 143.9 Vesta Skadeförsäkring sells insurances to private individu- The overall portfolio amounted to DKK 259m (SEK 380m) als. Insurance policies are sold by Nordea’s branches, our at 31 December 2008 and was adversely impacted by the own call centre and via the Internet. The Swedish branch weakening of SEK relative to DKK. The number of custom- has around 100 employees. ers totalled 107,000 at 31 December 2008 compared with 50,000 at 1 January 2008. Further acceleration in Sweden Gross earned premiums in Sweden were up by 146%, or Claims DKK 131m, to stand at DKK 221m. The rapid growth was The claims ratio, net of ceded business was 96.8 com- generated principally by strong sales through Nordea, but pared with 88.9 in 2007. This level is considered satisfac- increasingly also by employees of the business unit’s own tory for such a relatively new portfolio. Moreover, the call centre, which now account for around 50% of sales. Swedish business was affected by a number of medium- During 2008, a total of 122,000 policies were sold in sized fire claims on holiday and single-family houses in Sweden, an increase of 35,000 policies relative to 2007. 2008, which had a relatively severe impact on ratios and 48 of 152 l Results l TrygVesta Annual Report 2008 generated significant fluctuations, as the size of the on the expense ratio will be gradually reduced for the business is still relatively limited. benefit of future earnings. The Swedish business had not raised its premiums since In 2008, TrygVesta signed a new agreement with Nordea being launched in mid-2006, and automatic annual pre- on settlement of commission regarding policies sold mium indexation is not used in the Swedish market in through Nordea. As a result of this agreement, it is now the way it is done in Denmark. As a result, Vesta Skade- possible to accrue commission over the first year of the försäkring is planning a number of premium related policy, as it is actually a prepayment to Nordea, as com- measures in 2009. The effects of these price increases pared with the previous method of charging commission to will begin to materialise from the second half of 2009, the income statement at the time of writing the business. but will not feed through fully until 2011. Expenses The rapid growth entailed a need to strengthen human resources, and the number of full-time employees was The increase in nominal costs by 9.5% to DKK 104m just over 100 at 31 December 2008 relative to 60 at should be seen in the light of the strong gross premium 1 January 2008. growth, which led to an overall reduction of the expense ratio from 105.6 to 47.1. Costs are primarily driven by Combined ratio selling commissions, but as the proportion of policies The combined ratio was 143.9 for 2008, as against sold by the unit’s own call centre increases, the charge 194.5 for 2007. MONTHLY SALES SINCE START-UP IN SWEDEN AND FINLAND SWEDEN SALES DISTRIBUTION Policies 15,000 12,000 9,000 6,000 3,000 0 Average monthly sales in Finland 2008 % 100 80 60 40 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 2007 2008 Months Sweden Finland Nordea Own sales channels TrygVesta Annual Report 2008 l Results l 49 of 152 Results Corporate DKKm Gross earned premiums Gross claims incurred Gross expenses Profit/loss on gross business 2006 2007 2008 4,921 -3,322 -539 1,060 5,285 -3,904 -504 877 5,512 -3,489 -588 1,435 Profit/loss on ceded business -316 -172 -516 Technical interest, net of reinsurance Technical result Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 98 842 67.5 6.4 73.9 11.0 84.9 137 842 173 1,092 73.9 3.3 77.2 9.5 86.7 63.3 9.4 72.7 10.7 83.4 Corporate is a Nordic business area which sells insurances Yet another performance improvement to corporate customers under the TrygVesta brand. Corpo- The technical result rose by DKK 250m to DKK 1,092m in rate’s products are sold through its own sales force and 2008, reflecting a strong customer selection approach through insurance brokers. The Corporate business area based on pricing risk correctly. In addition, run-off gains has some 3,000 customers each paying annual premiums of DKK 486m in gross terms, as against DKK 102m in of more than DKK 900,000 or having more than 50 emplo- 2007, contributed to the performance improvement. yees, and around 75 customers each paying annual premi- ums of more than DKK 10m. Corporate has 535 employees. Corporate generated strong growth compared TrygVesta Garantiforsikring is included in the financial re sults to the market performance of Corporate. TrygVesta Garantiforsikring is a subsidiary Gross earned premiums rose by DKK 227m, or 4.3%, to whose principal activity is to guarantee, in relation to third DKK 5,512m. Since mid-2007, Corporate has significantly parties, its customers’ performance under agreements made, outperformed the estimated market growth due to the such as construction contracts where guarantee is provided addition of several new large customers. The Danish part in respect of risks during the construction period and re- of the Corporate business recorded growth of 5.6%, and medying of defects after the project has been handed over. the Norwegian part recorded growth of 3.4%. 50 of 152 l Results l TrygVesta Annual Report 2008 DKKm Storm and weather, gross Large claims, gross Large claims, net 2005 2006 2007 2008 136 356 224 51 456 294 57 843 439 27 330 255 In 2008, Corporate retained previous years’ overall focus The gross claims ratio was 63.3 in 2008, as compared with on generating profitable growth, which resulted in price 73.9 in 2007. The relatively low level of the gross claims increases in the marine segment due to unsatisfactory earn- ratio in 2008 resulted in higher payments to reinsurers, ings. This increase led to a customer outflow in the segment. which naturally caused the reinsurance ratio to increase from 3.3 in 2007 to 9.4 in 2008. Overall, this was reflected It was expected in 2008 that increased competition would in an improvement of the claims ratio, net of ceded busi- yield weaker growth going forward. Due to the turbulent ness from 77.2 in 2007 to 72.7 in 2008. developments in the financial markets, a number of com- petitors refocused on profitable insurance operations, Expenses which, from a rational perspective, should create more Expenses rose by 16.7% to DKK 588m, corresponding stable price trends and a balanced competitive situation to an expense ratio of 10.7, as against 9.5 in 2007. The going forward. Claims increase was a result of several factors. In 2007, expenses were favourably influenced by the reversal of a provision relating to losses on reinsurers. In 2008, relatively high Gross claims expenses at DKK 3,489m were down by 10.6%, wage inflation added to the pressure on expenses. More- or DKK 415m, due to run-off and fewer large claims, which over, 2008 was impacted by expenses in connection with amounted to DKK 330m (DKK 255m net) in 2008 compared “The Living House”. Excluding this expense, the expense with DKK 843m (DKK 439m net) in 2007. The underlying ratio was 10.5. The expense ratio produced by the Corpo- trend was an increase in claims in the personal lines. rate business is considered competitive and satisfactory. In 2008, the gross run-off result amounted to DKK 486m Combined ratio (DKK 394m net) and was mainly attributable to motor and The combined ratio was 83.4 in 2008, against 86.7 in personal lines. In 2007 the gross run-off result totalled 2007. Run-off gains favourably impacted the combined DKK 102m (DKK 84m net). ratio by 7.1 percentage points in 2008 compared with CORPORATE – PREMIUM DISTRIBUTION BY PRODUCT 1.6 percentage points in 2007. Large claims impacted the combined ratio adversely by 4.6 percentage points in 2008, as against 8.3 percentage points in 2007. 5% 7% 17% 19% 20% 9% 23% Motor Liability Property, commercial Personal Lines Workers’ compensation Marine Other TrygVesta Garantiforsikring was the centre of increased focus in 2008 as a result of the construction industry, the company’s main business area, being hit by the financial crisis. The company pursues a profitability focused under- writing policy focusing on low risk. The number and size of claims were satisfactory in 2008. Risks are reinsured to the effect that the greatest loss cannot exceed DKK 30.0m net of reinsurance. The company recorded a com- bined ratio of 74.3 in 2008 and contributed DKK 44m to the overall performance of Corporate. TrygVesta Annual Report 2008 l Results l 51 of 152 Results Investment activities DKKm Bonds etc. Equities * Real estate ** Total Value adjustment, changed discount rate Other financial income and expenses *** Return of investments 2007 2008 2006 Investment assets End 2007 End 2008 788 966 317 2,071 368 -180 1,103 180 240 1,523 298 -81 1,882 -887 263 30,294 4,445 2,569 29,417 1,172 3,561 1,258 37,308 34,150 -478 -340 440 Total return on investment activities 2,259 1,740 Transferred to technical interest Return on investment activities -1,031 1,228 -1,400 340 -1,428 -988 *) DKK 67m sold on futures contracts has been deducted from the equity portfolio **) Return on properties includes a calculated return on owner-occupied property (excl. cost concerning ’’The Living House’’). The balancing item is recognised in ’’Other financial income and expenses’’ to the effect that the total return shown corresponds to the investment return according to the income statement which does not include return on owner-occupied property. ***) The item comprises interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insu- rance items, costs of investment activities and offsetting of return on owner-occupied property. TrygVesta’s investment activities comprise any placement portions in the autumn with mounting problems in the of the Group’s funds in investment assets, such as bonds, liquidity markets, peaking so far with the collapse of equity investments, land and buildings or cash. Funds are Lehman Brothers and AIG. Equity markets dropped by an placed pursuant to guidelines defined by legislation, aggregate 40%–50%. The proportion of equities in the regulators and our Supervisory Board. investment portfolio was reduced from DKK 5.4bn in mid-2007 to DKK 1.7bn in mid-January 2008. The overall allocation of assets is made by TrygVesta based on risk and cash management considerations, Investment result in 2008 while specific securities are mainly selected by external In 2008, the return on TrygVesta’s investment activities asset managers within the defined framework. before transfer to technical interest totalled DKK 1,258m, The financial turmoil started in 2007, deepening into a due to lower returns on the equity portfolio. Capital financial crisis in 2008. The crisis grew to dramatic pro- losses on equities would have been DKK 1.2bn higher equivalent to 3.5%. This was less than in 2007, mainly 52 of 152 l Results l TrygVesta Annual Report 2008 if we had not reduced the equity portfolio during 2007 Bonds and 2008. The return on investment activities after trans- The Group’s overall bond portfolio including cash yielded fer to technical interest was DKK 1,328m lower than in a return of DKK 1,882m in 2008, equal to 6.1% for the 2007 due to lower equity returns and an increase in the full year. The return in 2008 was affected by an overall amount transferred to technical interest. drop in bond yields of around 1.2% in Denmark and 2.8% in Norway, with yields rising in the first half-year and Other financial income and expenses were DKK 259m dropping significantly in the second half-year. The mort- lower. The change was attributable to a number of indi- gage spread widened drastically in Denmark during the vidual items, none of them particularly dominant, and the period until 31 October when Danish regulators adopted most important being non-recurring interest income in a new yield curve for discounting insurance company lia- 2007, higher currency hedging expenses, lower return bilities, thereby stabilising demand for Danish mortgage due to the acquisition of the head office in Ballerup, and bonds. About 75% of the bonds, or DKK 22bn, are issued the net result of inflation hedging related to workers’ by banks or mortgage credit institutions, and 23% are compensation provisions. issued by the Danish and Norwegian governments. 92% The return on investment activities before other financial unrated bonds was reduced from 15% to 5% during the income and expenses was DKK 1,258m, equal to a return year. The unrated 5% of the portfolio comprises mainly of 3.5%. The return was 2.2% including changes in provi- short-term Norwegian money market certificates issued sions for claims due to lower interest rates. by banks. We have diversified exposure to banks, mainly of the portfolio is rated AAA or AA. The proportion of Asset allocation Nordic banks with little or no involvement in the financial products that triggered the subprime crisis. We currently The bond portfolio increased during 2008 to account for monitor the performance of credits with the financial 86.1% of total investment assets against 81.2% at 1 January institutions to which our bonds portfolio is exposed. 2008. The higher proportion of bonds was a result of new investments and a switch-over from equities to bonds Interest rate sensitivity measures changes in the value of despite the head office acquisition. The proportion of the bond portfolio and the provisions for claims, respec- equities fell from 11.9% to 3.4%, or by DKK 3,273m. tively, at a parallel yield increase of 1 percentage point. The real estate proportion was 10.5% in 2008 against the previous 6.9%, primarily attributable to the acquisition of We conduct ongoing follow-up on interest rate sensitivity the head office at Ballerup. The head office accounted to optimise the match between assets and liabilities in for 3.9% of total investment assets. order to reduce the impact of interest rate changes on our income statement. The duration including cash of the Net investments in the year made up at the exchange Group’s total bond portfolio was 1.7 years at 31 Decem- rates ruling at 31 December 2008 amounted to about ber 2008 compared to 1.9 years at 31 December 2007. DKK 156m, of which DKK 918m was invested in bonds, while net investments in equities (excluding hedging) Equities were negative at DKK 1,833m and net investments in real The total return on the equity portfolio was negative at estate amounted to DKK 1,070m. For security and rating DKK 887m, or minus 32.8%, for the financial year. The considerations, TrygVesta’s investment portfolio has a financial crisis and the resulting global economic recession high proportion of highly liquid securities carrying low have triggered equity market drops over the past year interest rate and credit risk. TrygVesta does not invest in in line with those seen in previous severe recessions. structured fixed income products such as CDOs, CLOs, TrygVesta’s total equity return was 0.5% above the bench- hedge funds or the like. mark return. International equities generated a negative return of 36.6%, which was 2.9% above the benchmark return. Nordic equities generated a negative return of 48.1%. TrygVesta Annual Report 2008 l Results l 53 of 152 Results For comparison, the VINX Benchmark Cap Index generated a Real estate negative return of 42.4%. Currency risks relating to interna- The investment return on real estate was DKK 263m tional equities were hedged during the year. Unlisted equi- including revaluation and sales gains of DKK 78m and ties accounted for DKK 180m at 31 December 2008. Nestle 6.0% from current operations. The occupancy rate was SA was the largest stake, accounting for 2.9% of the port- 99.0 at 31 December 2008 compared with 97.5 at 1 Janu- folio of listed equities and 0.09% of total investment ary 2008. The portfolio comprises the head office proper- assets. The 25 largest equities in our portfolio accounted ties at Ballerup and Bergen, amounting to around DKK for 31.5% of the total listed equity portfolio. After reducing 1.3bn at 31 December 2008, and a portfolio of investment the equity proportion in June and December 2007 by a properties of some DKK 2.3bn, consisting of well-diversi- total of DKK 0.8bn, TrygVesta reduced the equity exposure fied quality buildings, typically in prime locations in major by an additional DKK 2.2bn in January. At 31 December cities in Denmark and Norway. The portfolio mainly com- 2008 the Group’s equity portfolio had a total value of DKK prises office premises, but also includes a small proportion 1,172m compared to DKK 4,445m at 31 December 2007. of other commercial property and residential property. LISTED EQ UITIES BY GEOGRAPHY RETURN BY ASSET CLASS 15% 20% 25% 10% 30% Nordic region UK Rest of Europe USA Asia and others % 30 20 10 0 -10 -20 -30 -40 20.3 6.1 2.8 3.7 2.0 15.0 10.4 8.4 5.8 4.1 3.5 -32.8 Bonds etc. Equities Real estate Total 2006 2007 2008 BON DS BY G EOG RAPHY BONDS BY RATING 7% 28% 5% 3% 13% 65% 79% Danish bonds Other Norwegian bonds and money market AAA AA A Not rated / other 54 of 152 l Results l TrygVesta Annual Report 2008 Our customers TrygVesta seeks to constantly create added value for our satisfaction was almost unchanged at 72.2. In Denmark, customers, confirming them in their choice of peace-of- we ranked above the average of large companies with mind provider. Rather than just providing a financial solu- respect to customer loyalty while we were below average tion in claims situations, our wish is to provide peace of in terms of customer satisfaction. Since 2007, we have mind by eliminating concerns in everyday life and pre- seen customer loyalty rise by 4.7 points to 76.9 with venting injury or damage. satisfaction declining from 75.9 to 74.7. We believe expectations to TrygVesta are fairly high. We have defined ambitious targets of enhancing our already good customer loyalty. The peace-of-mind delivery Our customer loyalty rating in Norway increased by 5.8 to customers, one of our strategic focus areas, plays an points in 2008 to 74.1, above the industry average. Cus- important part in our efforts to enhance customer tomer satisfaction was at a level with the industry average, loyalty. The peace-of-mind delivery is embedded in our but dropped 0.7 point to 68.8. Our actual customer loyalty, handshake: Compassionate, Dynamic and Innovative. measured in terms of retention rates, improved significantly. We believe this is a result of our transparent communica- Meeting customers on their own terms is another strategic tion of prices and terms and conditions. focus area. Our experience is that customers feel greater accessibility and pece of mind when they have an online Our customers in Finland are some of the most loyal and self-service option. This focus resulted in a number of satisfied customers in the market. Compared with the benefits to customers in 2008 and will also have a great previous survey, we also improved our ratings significantly impact on our communications with customers in the in a number of other areas, such as customer loyalty years ahead. which at 80.6 points rated significantly above the market Customer surveys in 2008 Customer loyalty is measured on a scale from 1-100 and the survey is performed by EPSI, an independent non- profit organisation. Customer loyalty and satisfaction rates in the insurance sector are generally high in the Nordic countries compared with other European coun- tries. The customer satisfaction and loyalty surveys per- formed in the Nordic region in 2008 showed that the industry was generally on a level with 2007. TrygVesta’s customer loyalty surged from 73.2 to 78.4 while customer average of 75.6. The peace-of-mind delivery is anchored in our handshake: Compassionate, Dynamic and Innovative. TrygVesta Annual Report 2008 l Results l 55 of 152 Read more about TrygVesta’s customers on the insert ”Our most important handshake” In Sweden, TrygVesta was included in the survey for the could, for example, opt to receive mail from TrygVesta in second time. The survey ranked us second in the market e-Boks, their electronic mailbox on the Internet, and more in terms of customer loyalty and above average in terms than 138,562 Danish customers had registered for this of customer satisfaction. service by the end of 2008. Norwegian customers wel- Only three companies have a presence in more than one we introduced online sales of travel insurance, one of our comed the option of reporting claims online. In Denmark, market of the Nordic region: TrygVesta, Codan/Trygg- core products. Hansa and If. TrygVesta continued to record the highest overall customer satisfaction score among the Nordic We intend to expand the electronic communication with companies. customers further in 2009, emphasising simplicity and accessibility. In 2009, it will also be possible for Danish Nordic customer communication project customers to buy the Group’s four other core products In 2007, TrygVesta launched a Nordic communication (motor, building, contents and personal accident) online. project intended to simplify the Group’s written customer communications. The language of our insurance terms International requirements. Several large commercial and conditions is now more customer-friendly and plain and corporate customers need to take out insurance with a clear layout, giving an easy overview of what is globally. In 2008, TrygVesta extended its partnership with and what is not included in the policy. AXA Corporate Solutions. AXA is one of the world’s larg- est insurers with a network extending to more than 90 New customer initiatives in 2008 countries and with geographical coverage of 95% of the TrygVesta intends to increase benefits offered to our cus- inhabited world. TrygVesta’s partnership with AXA enables tomers on an ongoing basis. Our new initiatives in 2008 us to provide insurance solutions through AXA’s interna- included: tional network to customers requiring insurance for foreign subsidiaries and production units. The partnership also SundPuls. In 2008, TrygVesta added SundPuls to its permits us to benefit from AXA’s specialist knowledge offering of health care products. The philosophy behind within certain areas. We intend to continue to strengthen SundPuls is that prevention is better than cure. SundPuls our international competencies in the years ahead, and in addresses businesses wanting to offer their employees 2009 we expect to provide international solutions to our to work actively with their health by having a health Swedish customers. check. SundPuls offers advice and guidance, and the www.sundpuls.dk portal and the SundPuls telephone line provide lifestyle advice. The product supplements TrygVesta’s other health care offering to commercial customers, comprising the SmerteFri and StressStop products. All products emphasise the importance of taking action before treatment becomes necessary. 1) The benchmarks in the Nordic comparison are simple averages of official EPSI country results for companies with a presence in E-communication and self-service. One of the more than one Nordic market. Group’s four strategic focus areas is self-service and electronic communication. We set up a Nordic e-business centre in 2007, which launched several self-service solu- 2) Satisfaction and loyalty is measured on a scale from 1-100. Sector=average for all companies surveyed. Source: EPSI rating (EPSI is an independent non-profit organisation for measuring tions and other initiatives in 2008. In Denmark, customers customer satisfaction in the Nordic region). 56 of 152 l Results l TrygVesta Annual Report 2008 CUSTOMER EXPECTATIONS CUSTOMER SURVEY – NORDIC REG ION – PRIVATE CUSTOMERS 1) Index 84 82 80 78 76 74 72 Denmark Norway Sweden Finland TrygVesta Competitor 1 Competitor 2 Competitor 3 Sector 80 78 76 74 72 y t l a y o L 70 68 69 70 71 72 73 74 Satisfaction TrygVesta 2007 TrygVesta 2008 Sector Competitor 1 Competitor 2 Competitor 3 CUSTOMER SURVEY – DENMARK – PRIVATE CUSTOMERS 2) CUSTOMER SURVEY – NORWAY – PRIVATE CUSTOMERS 2) y t l a y o L 80 78 76 74 72 70 70 71 72 73 74 75 76 77 78 Satisfaction 76 74 72 70 y t l a y o L 68 66 67 68 69 70 71 Satisfaction TrygVesta 2007 TrygVesta 2008 Sector TrygVesta 2007 TrygVesta 2008 Sector Competitor 1 Competitor 2 Competitor 1 Competitor 2 CUSTOMER SURVEY – SWEDEN – PRIVATE CUSTOMERS 2) CUSTOMER SURVEY – FINLAND – PRIVATE CUSTOMERS 2) y t l a y o L 82 80 78 76 74 72 70 66 67 68 69 Satisfaction 70 71 72 82 80 78 76 y t l a y o L 74 73 74 75 76 77 Satisfaction TrygVesta 2007 TrygVesta 2008 Sector TrygVesta 2007 TrygVesta 2008 Sector Competitor 1 Competitor 2 Competitor 1 TrygVesta Annual Report 2008 l Results l 57 of 152 Results Our employees It is our employees at TrygVesta who provide peace of included in the survey. Compared with the financial sector mind and make a difference for customers. Highly skilled in the Nordic region, TrygVesta managers had a particularly and motivated employees are our most important asset high score, and our ability to provide opportunities for and a prerequisite for us to achieve our targets. Human professional and personal development was assessed to competencies are one of the Group’s four strategic focus be stronger than for the industry in general. areas. That means ongoing focus on ensuring our employees to have the skills and reserves of energy required to handle We believe that respect, openness and trust are important everyday challenges. This focus area is also about giving features for maintaining a good working environment. managers and employees latitude and responsibility, and The results of the employee survey are therefore used we expect managers to create commitment and frame- proactively in dialogue meetings in all departments. As works and to generate results. We give high priority to a consequence of the results, focus in 2009 will be on innovative thinking and openness towards new ideas, communication and employee branding, our performance- and we believe that helps create an attractive and exciting related pay systems and on performance interviews and workplace. development plans. Employee survey 2008 “The Living House” and “The Living Organisation” In order to identify areas where we can improve, we The work of converting TrygVesta’s offices in Ballerup, conduct bi-annual anonymous employee surveys on topics Denmark and Bergen, Norway into modern workplaces that include the working environment, satisfaction and facilitating innovation, knowledge sharing and a motivating well-being. In the intermediate years, we perform meas- working environment started in 2008. The conversion will urements on a smaller scale, taking stock of the working be very important for the individual employees, who will climate and the activities that have been launched. have improved facilities in the form of innovation, meeting and quiet rooms as well as recreational and café environ- The 2008 employee survey showed the same high level of ments. Individual workplaces will also be improved with employee satisfaction as the status survey in 2007, that new equipment and modern design. More than 100 90% of the Group’s employees were very satisfied or satis- employees and managers were involved in developing fied with working at TrygVesta. As a new feature in 2008, the project in 2008, and the first pilot projects were imple- we compared the results of the employee survey with mented. The large conversion projects will start in 2009. the Nordic labour markets in general and specifically with They will be supported by the roll-out of new IT tools and the financial sector in the Nordic region. This comparison training in readiness to change for all employees. The indicated higher satisfaction levels for TrygVesta than for project is scheduled for completion by the end of 2010. Nordic companies in general with respect to all areas 58 of 152 l Results l TrygVesta Annual Report 2008 Read more about TrygVesta’s employees on the insert ”Learning and personal development at TrygVesta” Recruitment and employee branding Focus on competence building TrygVesta performed a thorough analysis of the Group’s We are aware that development is necessary if we want recruitment process in 2008, resulting in a large number to continue to be perceived as the leading peace-of-mind of initiatives to ensure transparency, flow and high quality provider in the Nordic region. It is therefore important for in the recruitment process. us to make training and development tools available to enable employees and managers to update and develop We drafted a Nordic recruitment concept in 2008 to be their skills at all times. Training and development activities used on print, the Internet and exhibition stands. We also are handled by Corporate Learning and TrygVesta Manage- enhanced the Group’s visibility at career fairs and educa- ment Academy. The responsibilities of our Corporate tional institutions throughout the Nordic region in order Learning training unit include employee training and to raise our profile in relation to recent graduates. Further- quality assurance of all in-house and external courses. more, for the second time we introduced a Nordic man- TrygVesta Management Academy is a development unit agement trainee programme comprising eight trainees in focusing on developing managers and specialists. the Nordic region. We worked together with various asso- ciations and organisations in order strengthen diversity in The Management Academy’s projects in 2008 included the Group’s recruitment process. In this context, our Group TrygVesta’s new talent development programme, which CEO took part in a project intended to help young people focuses on accelerating the development of a defined with an immigrant background and a criminal past gain group of talented, ambitious employees. In relation to our access to the labour market. strategic focus areas we intend to develop talent to ensure In 2009, we intend to further develop the opportunities for important for adding value to the Group in the years employees wishing to work internationally, and we intend ahead. In early 2009 we will complete a programme for to continue to raise our profile vis-à-vis potential new talents with management potential and junior project we have competencies in disciplines that are particularly employees. managers with the potential to drive major projects in TrygVesta. As part of the overall talent development strategy the next stage of the programme will also include managers and industry experts. TRYG TRYK In 2008 TrygVesta initiated a three-year collaboration with art society Kunst foreningen Gl. Strand in Copenhagen under the name Tryg Tryk. As part of the arrangement, a lithograph will be made each year that will be made available to the Group’s customers and employees. Under the agreement, 120 lithographs by artist Ivan Andersen were customised in 2008. Half of them were made available to TrygVesta while the artist and the art society were entitled to the other half. TrygVesta distributed 40 of the lithographs available to it to reward outstanding performance by employees who had been recommended by their colleagues. TrygVesta Annual Report 2008 l Results l 59 of 152 Capitalisation and risk management Risk management is the future “We consider strategic risk and insurance risk to be the most important types of risk, both of them closely related to our business as a general insurer. Our current investment strategy keeps investment risk at a satisfactory level. We consider operational risk to be less important than the other risk types.” 60 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 Capitalisation and risk management TrygVesta Annual Report 2008 l Capitalisation and risk management l 61 of 152 Capitalisation and risk management Capitalisation and profit distribution TRYGVESTA WAS RATED AS FOLLOWS AT 31 DECEMBER 2008 TrygVesta Forsikring A/S TrygVesta Garantiforsikring A/S Standard & Poor’s Moody’s “A-“/stable “A-“/stable A2 n.a. Capital and risk Our internal risk and capital requirement assessments are TrygVesta relies on its capital base and financial strength based on the balance sheet model (ALM), which uses to assume risks from the customers and for the customers stochastic simulation to calculate the necessary capital to be confident that TrygVesta is able to meet its obliga- taking into consideration the actual insurance portfolio tions if and when they report a claim. The aim is for the mix and profitability, the actual provisioning profile and capital base to match the Group’s risk profile and support the composition of provisions, the existing reinsurance natural growth. Basically, TrygVesta’s capital base is the protection and the chosen investment profile. Within this result of risk assessments and risk management. This framework, it is also possible to quantify the geographic basic view thus also determines the dividend policy. diversification effect and the effect of the investment pol- Capital requirement icy under which interest rate risk on the bond portfolio matches the corresponding interest rate risk on the dis- TrygVesta wants the risk and capitalisation to be counted provisions, thereby ensuring that TrygVesta’s net assessed externally on a regular basis, and therefore interest rate risk is negligible for practical purposes (see TrygVesta has rating agencies Standard & Poor’s and the section on Risk management). TrygVesta calculates its Moody’s perform annual interactive credit assessments. Individual Solvency Need on this basis in accordance with the rules effected for Danish insurance companies at 1 July This is consistent with TrygVesta’s ambitions and provides 2007. Under these rules, insurance companies and their a good balance with high creditworthiness and powerful supervisory boards are required to regularly identify, quan- financial strength while at the same time avoiding tying tify and control all forms of risk, and to calculate and up more capital than can be justified by commercial rea- report the necessary capital on a quarterly basis. TrygVesta sons. In practice, an A level rating corresponds to capital calculates the necessary capital corresponding to a 99.5% of around 52%-56% of premiums, and the agencies seek security level on a one-year horizon, equal to the security to calibrate the rating so that companies at this level level required under Solvency II in the future. As the wish is have adequate capital on a one-year horizon with to continue to maintain a rating of A-, TrygVesta has made 99.5% certainty. a simplified model based on the Standard & Poor’s capital 62 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 model, which is used to determine the capital target and TrygVesta intends to pursue a risk-based transparent thus dividends. The model is described in more details at policy for capital management, and thus also for dividend www.trygvesta.com, and is updated on a quarterly basis. distribution. At 31 December, a capital requirement is determined based on the simplified Standard & Poor’s In future, the capital requirement will have to be calcu- model corresponding to the level of an A-rating plus a lated under the EU Solvency II rules, which are expected to buffer of 5%. Any capital in excess thereof will be distrib- be implemented from 2012. See the section on Solvency II uted as dividend. Dividend is determined once a year implementation on page 16 for a more detailed description. while profit is generated on an ongoing basis, and this The latest version of the Solvency II draft standard model means that the buffer will grow over the year in excess was tested in QIS4 (quantitative studies that measure the of the 5% originally determined. Buffer growth in 2007 impact of the new Solvency rules) in the first half of 2008. and 2008 was 21.5% and 16.5%, respectively. Dividend policy Dividend for the 2008 financial year Dividend is determined on the basis of the Group’s and share buy back profit distribution policy. Profit after tax amounted to DKK 846m in 2008. Pursuant to • TrygVesta distributes 50% of the profit for the year our profit distribution policy, this entails a cash distribution as ordinary cash dividends. of dividends totalling DKK 423m or DKK 6.50 per share. • Any excess capital after distribution of ordinary TrygVesta’s risk instructions provide for an equity proportion dividends and taking into consideration the capital, of up to 8.0%. The equity proportion at 31 December strategy and growth, will be returned to shareholders 2008 was 3.4%. The present capital base permits the in the form of a share buy back programme. increased equity risk within the limits of the risk instruc- • The dividend policy reflects our long-term earnings and tions. However, as a consequence of the financial crisis cash flow potential, while maintaining and appropriate and the difficulties involved in procuring additional subor- level of capitalisation. dinate capital in the financial markets, we have decided not to buy back treasury shares in respect of 2009 in order to safeguard TrygVesta’s resources. Profit for the year, DKKm Cash dividends, DKKm Cash dividends per share (DKK) Cash payout ratio Total buy back, DKKm Buy back per share (DKK) Total distribution per share (DKK) Total distribution, DKKm Total payout ratio CAR Buffer to A level Solvency 2008 846 423 6.50 50% 0 0 6 423 50% N/A 16% 2007 2,266 1,156 17 51% 1,405* 21 38 2006 3,211 2,244 33 70% 2005 2,097 1,428 21 68% 33 21 2,561 2,244 1,428 113% N/A 5% 318% 70% 128% 2.4% 383% 68% 128,5% 2.8% 362% * The share buy back programme was based on our 2007 profit, amounted to DKK 1,405m and was initiated on 4 April 2008. On 2 February 2009, the programme was extended up to and including 22 April 2009 due to low trading volumes. The programme had been scheduled for completion by 2 March 2009. TrygVesta Annual Report 2008 l Capitalisation and risk management l 63 of 152 Capitalisation and risk management Capital structure Credit facility TrygVesta’s equity amounted to DKK 8,244m at 31 In 2005, TrygVesta raised a five-year revolving credit facility December 2008, and the capital base was DKK 3,926m of DKK 2,000m subscribed with eight Danish and inter- calculated in accordance with legislative requirements. national banks. At 31 December 2008, DKK 599m had The actual capital as calculated in the Standard & Poor’s been utilised under the facility. Interest rate expenses on capital model (TAC) was DKK 8,952m at 31 December loan capital totalled DKK 100m for 2008. The total debt 2008. The major differences in the calculation of actual ratio was 18.0 at 31 December 2008. capital are the treatment of subordinate loan capital which is included in the capital base at DKK 685m and Financial flexibility in TAC at DKK 1,102m, as well as the recognition of the As a result of the decision not to implement share buy discounting effect on provisions. The latter reduced the backs on the basis of our 2008 performance, the buffer capital base by DKK 721m at 31 December 2008. relative to an A-level rating in the simplified Standard & Poor’s model increases to 16%, 11% or some DKK 850m In 2005, TrygVesta raised subordinate loan capital in the more than the 5% buffer target. form of a 20-year bond loan in the amount of EUR 150m, which was listed on the London Stock Exchange. The loan, TrygVesta’s capital contingency plan describes measures which carries a coupon of 4.5%, is included in the capital that can be applied in the short term to improve the base at DKK 685m and in TAC at DKK 1,102m. Subordi- Group’s solvency, if required. The plan includes restructur- nate loan capital accounted for 12% of the capital calcu- ing of assets from equities to bonds and the buying of lated according to Standard & Poor’s capital model for proportional reinsurance. These measures together would credit purposes in 2008, with the present limit being 25%. substitute for around DKK 1,000m capital. The capital base could also be increased by the raising of additional subordinate loan capital of around DKK 1,100m in rela- tion to the Standard & Poor’s capital model. TRYGVESTA – PAYOUT PER SHARE IN DKK CAPITAL DKK 40 35 30 25 20 15 10 5 0 21 33 21 17 6.5 DKK 12,000 11,000 10,000 9,000 8,000 7,000 6,000 2005 2006 2007 2008 2006 Q1 07 Q2 07 Q3 07 2007 before distrib. 2007 after distrib. Q1 08 Q2 08 Q3 08 2008 before distrib. 2008 after distrib. Cash dividend Share buy back Capital requirement Buffer (5%) Surplus capital 64 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 Risk management Being an insurance business, TrygVesta’s concept is to create peace of mind for customers by helping them manage and handle situations when a claim has occurred. Risk management is therefore at the core of the business, and it is only natural that TrygVesta also focuses in-house on managing the risks that the operations expose the Group to. Structured and competent risk management is fundamental to maintaining confidence in TrygVesta and living up to the vision of being perceived as the leading peace-of-mind provider in the Nordic region. Risk management environment and risk identification The Supervisory Board has overall responsibility for the Group’s risk management (see the section on Corporate governance). The Supervisory Board defines the risk man- agement framework, including risk appetite, in the Super- visory Board’s capital and risk management instructions. TrygVesta has set up a number of risk committees and drafted policies for the purpose of optimising the control- ling, monitoring and handling of the present and future risk exposure. The supreme body of this structure is the risk management committee which, in addition to the Group CEO and the Group CFO, consists of the chairmen of the respective risk committees. In order to support the risk management environment in the best possible way, an Enterprise Risk Management (ERM) department has been set up as a body anchoring and supporting risk management in TrygVesta. underwriting risk The risk related to entering into insurance contracts. The risk that claims at the end of an insurance contract deviate significantly from our assumptions when pricing at inception of the contract. Handled by the Underwriting reinsurance committee Provisioning risk We make technical provisions at the end of a financial period to cover expected future payments for claims already incurred. Provisioning risk is the risk that future payments deviate significantly from our assumptions when making the provisions. Handled by the Provisions committee Investment risk The risk that volatility of financial markets impacts our results. Interest rate risk constitutes a major part of investment risk. Interest rate risk is the risk of fluctuating market interest rates. Handled by the Investment risk committee Strategic risk The risk of changes to the conditions under which we operate, including changed legislation, competition, partnerships or market conditions. Handled by the Risk management committee Operational risk The risk of errors, fraud or failures in internal procedures, systems and processes. Handled by the Operational risk committee TrygVesta Annual Report 2008 l Capitalisation and risk management l 65 of 152 Capitalisation and risk management In addition to the risk management committee TrygVesta the adequacy of the control environment. Such data is com- has set up four special committees to handle the risk piled in TrygVesta’s risk data base, which forms the basis for management process within the areas of further processing in the risk management environment in • underwriting and reinsurance the representation of TrygVesta’s overall risk exposure. The • provisions • investment risk risk exposure is supplemented by a number of scenarios illustrating the consequences of special events that may • operational risk and security. impact several risks simultaneously. The Group’s overall risk exposure is presented in an annual risk report submitted to The special committees report to the risk management the Executive Management and the Supervisory Board. committee, and their chairmen are also members of the risk management committee. There is a direct correlation between the scenarios identified by the risk managers and the Group’s calcula- The risk management committee is directly responsible tion of its Individual Solvency Need. for strategic risk management and capital management. All committees focus on risk management and have no business responsibility. The business units are involved in the risk management environment through membership of the relevant commit- tees, as risk managers and as participants in the annual RISK IDENTIFICATION AND RISK MANAGEMENT PROCESS Instructions & risk appetite mapping of risk, through compliance with and implementa- Risk report I d e n t ification o f risk Risk database tion of policies and controls, including by setting up rules with respect to authority, binding signatures and implemen- Data tation of the relevant system support. A standard project model is applied for implementing TrygVesta’s strategy in specific projects, of which risk assessment is an integral ele- ment. TrygVesta has defined a structured process for map- ping risk throughout the Group. The risk managers describe risk, assess the potential impact and probability and evaluate rting o p e R M a n a Risk managers g e risk M i t i g Q u s a c l i e f i n c a r i a t i o s o n Capital a tion Individual Solvency Business contingency plans Controls Business processes Supervisory Board Executive committee Risk management environment Organisation Risk appetite Instructions Risk management committee Policies Risk managers Capital Strategy Crisis management Risk identification Risk management Risk reporting Recommen- dations Underwriting Reinsurance committee Provisions committee Investment risk committee Operational risk committee Systematic risk evaluation TrygVesta’s risk management environment anchored in the Supervisory Board and business areas, and the risk identification process 66 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 The Individual Solvency Need is determined by calculating INSURANCE RISK one-year consequences of such risk scenarios and con- verting them to the level of probability on the basis of Effect which the capital is made up. An element covering the worst case of such sub-scenarios overlapping is added to the Individual Solvency Need. The individual risks are grouped into five risk types: underwriting/reinsurance risk, provisioning risk, invest- ment risk, strategic risk and operational risk. All risk types are treated in the risk identification process and described in the following. The three charts show a simplified representation of some of these risks. The mapping process shows that insurance risk and strategic risk are the most dominanting risks followed by investment risk. Operational risk is less important than the other risk types. Risk types underwriting and reinsurance risk underwriting risk Underwriting risk is the risk related to entering into insur- ance contracts and thus the risk that premiums charged do not adequately cover the liabilities TrygVesta has assumed. The risk may materialise as losses either as a result of single events or over a period of time due to a general adverse trend in the performance of claims or to premiums that are too low. Conversely, there is also a risk that premiums charged are too high, resulting in a loss Provisions Adverse claims development Under- reinsurance Adverse risk selection Lack of growth Probability OPERATIONAL RISK Effect Legislation IT-systems Fraud Errors and default in processes Probability of competitiveness. TrygVesta manages underwriting INVESTMENT RISK risk through tariffs and by monitoring profitability on an ongoing basis as well as through business procedures, acceptance policies and authorities. Single events are controlled and protected, primarily through reinsurance. The risk related to underlying trends is controlled through close follow-up and extensive reporting on the most important key ratios of the individual insurance areas. Effect The charts show the distribution of risk types (and individual risks) in a risk map representing risk according to assessed probability and potential impact. Equities Real estate Credit and concentration risk Liquity Currency Interest rate and spread risk Probability TrygVesta Annual Report 2008 l Capitalisation and risk management l 67 of 152 Capitalisation and risk management BREAKDOWN OF PREMIUMS CEDED BY REINSURER’S RATING BREAKDOWN OF BALANCES WITH REINSURERS BY REINSURER’S RATING BBB 7% AAA 3% AA 42% A 48% BB 5% Not rated 8% AAA 2% A 33% AA 52% Reinsurance In addition, TrygVesta also buys reinsurance for certain Reinsurance is an important element of the day-to-day risk lines for which experience has shown that claims vary management. The ongoing risk management is supported considerably. The largest single risks in the corporate by TrygVesta’s internal ALM model, which is also used for portfolio are property risks protected by reinsurance cover assessing the impact of different reinsurance alternatives. up to DKK 1.5bn/NOK 1.6bn/SEK 1.8bn with a retention of The Group buys reinsurance for the aggregate Nordic busi- DKK/NOK/SEK 100m for the first claim and DKK/NOK/SEK ness, thereby generating substantial price synergies. 50m for subsequent claims. For property risks exceeding the upper level, facultative reinsurance is bought. Other For property risks, major events in 2009 are protected by lines covered by reinsurance include liability and motor, catastrophe reinsurance of DKK 5bn with a retention up marine, fish farms and guarantee insurance. to a maximum of DKK 105m in Denmark and NOK 105m in Norway. The primary risk of single events is claims caused Exposure to terrorist losses of a biological, chemical or by storm. TrygVesta has defined the level of cover using radioactive character can be covered only partly by rein- simulation models to the effect that protection would surance today. TrygVesta has for several years played an statistically be inadequate less than once every 250 years. active role under the Danish Insurance Association in the TrygVesta’s exposure to natural disasters in Norway is work to establish a national arrangement to address this furthermore limited through participation in the issue. The work was finalised in 2008 with the Danish Norwegian Pool of Natural Perils. Folketing passing the act on a terrorist insurance arrange- The catastrophe reinsurance programme also covers other vides for the government to provide a guarantee of up catastrophe events, including terrorist-related events, for to DKK 15bn for the total Danish market to cover such up to DKK 3.75bn, with terrorist events being covered for losses in excess of the level that can be protected in ment in the general insurance area in June. The act pro- buildings, building contents and consequential loss for risks the reinsurance market. with a total insured value of up to DKK 500m. TrygVesta has bought catastrophe reinsurance up to DKK 1.5bn for In the event of a major insurance event comprised by the the personal accident and workers’ compensation policies reinsurance programme TrygVesta may have large balances with a retention of DKK 50m, covering the risk of multiple outstanding with reinsurers, and thus be exposed to credit injuries from the same cause, including terror. risk. TrygVesta manages this risk by defining requirements to reinsurers’ ratings and spreading the reinsurance on 68 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 several reinsurers. In addition, TrygVesta has set up a revalued by the wage inflation rate each year. This exposes security committee focusing specifically on managing TrygVesta to explicit inflation risk in case of changes in credit risk in connection with reinsurance receivables. Danish wage inflation. TrygVesta hedges such risk using an inflation swap. Provisioning risk After the period of the policy’s cover has expired, in- surance risk relates to the provisions for claims made to cover future payments on claims already incurred. SENSITIVITY IN CASE OF SELECTED CHANGES IN uNDERWRITING, PROVISIONING AND MARKET CONDITIONS Customers generally report claims with a certain delay. RISKS IMPACTING PROFIT Depending on the complexity of the claim, a fairly long period of time may pass until the claim has been finally calculated. This may be a prolonged process particularly for personal injuries. Even when the claim has been settled there is a risk that it will be resumed at a later date, triggering further payments. The size of the provisions for claims is determined both through individual assessments and statistical calculations. At 31 December 2008, the provisions for claims amounted to DKK 19,715m with an average duration of 3.3 years. EXPECTED CASH FLOWS FROM PROVISIONS FOR CLAIMS IN DENMARK AND NORWAY , DKK Total 0-1 years 1-2 years 2-3 years > 3 years 19,271 7,182 3,397 2,202 6,490 Most of the provisions for claims relate to personal injury claims. They are exposed, among other risks, to changes in inflation, the discount rate (see also the heading inter- est rate risk under investment risk), disbursement pat- terns, economic trends, legislation and court decisions. The calculation of provisions for claims will always be subject to considerable uncertainty. TrygVesta manages this risk through a provisioning policy, model analysis, control calculations, follow-up and reviews in order to ob- tain the best possible match between provisions and claims payments. Historically, many insurers have experi- enced substantial negative as well as positive impacts on profit (run-off) resulting from provisioning risk, and that may also happen in future. Provisions for claims relating to annuities in Danish workers’ compensation insurance are discounted using the current market rate and are also INSuRANCE RISK underwriting risk Increase in claims expenses of 1% Decrease in premium rates by 1% Weather related claims of DKK 5.5bn (reinsurance coverage DKK 5bn) Provisioning risk Increase in social inflation by 1% Error estimation of e.g. 10% on workers’ compensation and motor DKKm -129 -176 -600 -520 -1,099 MARKET RISK Investment risk Interest rate market – increase in interest rates of 1% Impact on fixed interest securities -512 562 Higher discounting of provisions for claims Equity market Decrease of equity markets of 15% Impact arising from derivatives Real estate market Decrease of real estate markets of 15% Currency market Decrease of NOK of 15% relative to DKK impacts profit Decrease of exchange rates of balance sheet items in foreign currencies of 15% Impact arising from hedging -186 10 -534 -107 76 -90 RISK ADJuSTED OVER EQ uITY MARKET RISK Investment risk Interest rate market – increase in interest rates of 1% Impact on Norwegian pension obligation 157 Currency market Decrease of exchange rates of equity in foreign currencies of 15% Impact arising from hedging -342 342 TrygVesta Annual Report 2008 l Capitalisation and risk management l 69 of 152 Capitalisation and risk management IMPACT ON FIXED-INTEREST SECuRITIES AND PROVISIONS BEFORE THE FINANCIAL CRISIS 2000 Liabilities 1500 1000 500 Assets -2000 -1500 -1000 -500 500 1000 1500 2000 -500 -1000 -1500 -2000 Perfect match 90 out of 100 years Investment risk Investment risk is the risk that volatility in the financial markets will impact the results of operations and thus the financial position. TrygVesta defines the asset mix based on the investment policies approved by the Supervisory Board, including limits on types of assets and the geographic distri- bution and risk profile of bonds, equities and real estate for each company in the Group. The asset mix and investment activities focus mainly on interest rate risk, security and liquidity. Interest rate risk Fluctuating interest rate levels is one of the most important elements in determining investment risk. As TrygVesta fur- thermore discounts provisions for claims in accordance with the IFRS accounting rules (market value), the provisions for claims are also exposed to interest rate risk. If interest rates AFTER INCREASE IN INTEREST RATE SPREAD fall, the value of the Group’s bond portfolio would increase, 2000 Liabilities claims to rise. Changes in the level of interest rates thus but at the same time it would cause the provisions for 1500 1000 500 Assets have an opposite effect on assets and liabilities. An important element of TrygVesta’s risk management is to have a bond portfolio mix ensuring that the two opposite effects are -2000 -1500 -1000 -500 500 1000 1500 2000 counterbalanced as exactly as possible. -500 -1000 -1500 -2000 The portfolio of fixed-interest securities stood at DKK 29.5bn at 31 December 2008, while the provisions for claims dis- counted using a market rate amounted to DKK 19.7bn, net Perfect match 90 out of 100 years of reinsurance. The respective durations were 1.7 and 3.3 AFTER INTRODUCTION OF NEW DISCOUNTING CURVE (OCTOBER 2008) 2000 Liabilities 1500 1000 500 Assets -2000 -1500 -1000 -500 500 1000 1500 2000 -500 -1000 -1500 -2000 years. The difference in duration is attributable to the bond portfolio being significantly larger than the discounted provisions. A parallel shift of interest rates of 1% would reduce the market value of the securities by DKK 512m, while the opposite impact on provisions would be DKK 562m, triggering a net impact of DKK 50m. TrygVesta intends to minimise the net interest rate expo- sure, and will therefore in 2009 start dividing total invest- ment assets into a hedge portfolio and an active portfolio. The hedge portfolio will consist exclusively of interest-bear- ing assets, as far as possible matching the expected cash flow from the discounted provisions. Accordingly, the net interest rate exposure of the hedge portfolio together with Perfect match 90 out of 100 years the provisions would be approximately nil to a random change in the yield curve. 70 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 The first figure shows by stochastic simulation based on The equity portfolio primarily focuses on the large, liquid TrygVesta’s internal model the impact of value adjustment equity markets in Europe and the USA (see the graph in on liabilities and on assets in the hedge portfolio. Based the section on Investment activities). TrygVesta has on the internal model, the Group has calculated that the defined a strategy with relatively little exposure to the net interest rate risk would have a 90% certainty to stay Nordic region (around 20% at 31 December 2008) in within a range of +/- DKK 115m. order to reduce company risk, because a few companies Value adjustments of assets are determined by yield Furthermore, TrygVesta has tied each equity mandate to changes on the actual bond portfolio, which to a great a recognised benchmark (MSCI), which is monitored extent comprises Danish mortgage bonds, while the closely. The 25 largest equities in the portfolio accounted counteracting adjustments of provisions are determined for some 32% of the total listed equity portfolio at 31 account for large parts of the markets in these countries. by changes in the discount curve prescribed by the Dan- December 2008. ish Financial Supervisory Authority. Until recently, this curve was calculated as the Euro zero-coupon yield curve TrygVesta reduced its proportion of equities significantly plus a spread between the Danish and German govern- in January 2008. The equity proportion accounted for ment zero coupon yield curve. In connection with the 3.4% at 31 December 2008 against 11.9% at the end of financial crisis the spread between mortgage bond yields 2007 and 15.4% in May 2007. This reduction has limited and government bond yields has widen significantly. the Group’s equity losses significantly. Overall, the finan- When updating the internal model to account for an cial crisis triggered equity losses of DKK 887m. In 2008, interest rate scenario as seen in 2008, the net interest TrygVesta bought the head office in Ballerup, thereby rate risk is increasing significantly, as illustrated in the increasing the proportion of real estate significantly. The second figure on page 70. In this situation, the net inter- proportion is expected to be reduced over time. est rate risk would have a 90% certainty to fluctuate within a range of +/- DKK 260m. In response to the prob- Currency risk lems the financial crisis has caused for life insurers in TrygVesta is exposed to exchange rate fluctuations. This particular, the Danish Financial Supervisory Authority in exposure is minimised through currency derivatives, and October 2008 revised the methodology for calculating cash flows are mostly matched. The Group’s premium the yield curve for discounting the provisions of Danish income in foreign currency is mostly matched by claims insurance companies. The calculation now considers and expenses in the same currencies, primarily NOK, EUR, developments in Danish mortgage bonds to a much SEK and USD. This means that an expected profit would greater extent. Using the new methodology, TrygVesta’s be adversely impacted by depreciating exchange rates rel- internal model shows a significant reduction in the net ative to DKK. TrygVesta does not hedge the remaining, interest rate risk to a level where fluctuations would in limited currency risk in connection with future cash flows 90% of the cases be within a range of +/- DKK 120m. in foreign currencies. Equity and real estate risk TrygVesta uses currency derivatives to hedge the risk of a The equity and real estate portfolios are exposed to loss of value of balance sheet items due to exchange rate changes in equity markets and real estate markets, fluctuations in accordance with a general hedge ratio of respectively. TrygVesta manages such risk through invest- 90–100% for each currency. The aim is to hedge 98–100% ment limits for various asset classes. In certain circum- of the net book value of the Norwegian entity. stances, TrygVesta also uses interest rate and equity derivatives in the investment activities. NOK depreciated from 93.51 to 75.72, or 19%, against DKK in 2008. This was the main reason for the year’s negative DKK 640m exchange rate adjustment of the value of the foreign entities. Under the hedge policy, this TrygVesta Annual Report 2008 l Capitalisation and risk management l 71 of 152 Capitalisation and risk management currency risk was hedged with a resulting gain of DKK tice, the work is organised through a structure of 615m. The net effect was thus negative at DKK 25m. procedures, controls and guidelines that cover the vari- Both items have been taken directly to equity. ous aspects of the Group’s operations, including the IT Credit risk security policy. TrygVesta has also set up a security and investigation unit to handle matters such as fraud, IT Credit risk is the risk of incurring a loss if counterparties security, physical security and contingency plans. fail to meet their obligations. In connection with the investment activities, the primary counterparties are bond In order to avoid any unintentional violations of competi- issuers and counterparties in other financial instruments. tion law, a competition law training programme for the TrygVesta manages credit risk and concentration risk entire organisation has been completed. through investment limits and rating requirements (see the section on Investment activities for an overview of TrygVesta has prepared contingency plans to handle the the bond portfolio distributed on ratings and geography). most important areas, such as the contingency plans in Receivables with Danish banks are covered by a govern- the individual parts of the business to handle an event of ment guarantee from October 2008 to 2010. a prolonged IT breakdown. The Group has also set up a crisis management structure should TrygVesta be hit by a The financial crisis in 2007 and 2008 emphasised the major crisis. importance of managing risk, including credit risk. TrygVesta has no investments in sub-prime loans, CDOs or similar products, and accordingly has not Strategic risk incurred financial losses in this respect in connection Strategic risk relates to TrygVesta’s choice of strategic with the financial crisis. position, including IT strategy, time-to-market, business Read more in the section on Investment activities on tions, including the competitive environment, falling pre- partners and reputation as well as changed market condi- page 52. Debtor risk mium rates and developments in New Markets. Strategic risk is managed through a strategic planning There is a risk that customers fail to pay for their insur- process. The Supervisory Board defines the overall strategy ance. Accordingly, TrygVesta has intensified efforts and within the framework of the Group’s corporate vision, and processes towards customers with an account arrange- the Group Executive Management uses this as the basis ment, large customers and commercial customers in sec- for further strategy work. The balanced scorecard is used tors strongly impacted by economic trends. A separate as a tool to ensure current follow-up on the implementa- review has been made of ratings for customers with large tion of the strategy and the initiatives launched in the premium volumes in order to assess the risk of bankruptcy. business areas. During the year, the strategy is managed Provisions for debtor risk were increased in 2008 by 13% low up on the balanced scorecard performance by busi- to DKK 120m in 2008. ness areas and staff functions. TrygVesta maintains full in Executive Management meetings and meetings to fol- Operational risk strategic focus on the business partners, and protects the reputation through corporate values, by maintaining focus on handling complaints and through internal and Operational risk relates to errors or failures in internal external communication policies. The Group also continu- procedures, fraud, breakdown of infrastructure, IT security ously monitors the market to ensure that the assessment and similar factors. As operational risks are mainly inter- of external conditions rely on an up-to-date basis, be it nal, TrygVesta focuses on establishing an adequate con- competitors’ market initiatives, new legislation or other trolling environment in the Group’s operations. In prac- external factors that may impact the Group. 72 of 152 l Capitalisation and risk management l TrygVesta Annual Report 2008 The overall risk exposure TrygVesta considers strategic risk and insurance risk (underwriting and provisions) to be the most important types of risk TrygVesta is exposed to. Both types of risk are closely related to the operations as a general insurer. Investment risk is at a satisfactory level due to the current investment strategy. TrygVesta considers the operational risk to be less important than the other risk types. The financial crisis has had an adverse impact on TrygVesta albeit only to a fairly limited extent, thereby illustrating the results of effective risk management in the Group. TrygVesta considers the risk identification process and overall risk exposure to be satisfactory relative to the risk appetite defined by the Supervisory Board. However, TrygVesta is continuously seeking to optimise the relationship between risk and return and to reduce unwanted risks further. TrygVesta Annual Report 2008 l Capitalisation and risk management l 73 of 152 Corporate governance Corporate governance is the future “At TrygVesta, we promote management behaviour that supports our business and our peace-of-mind delivery. Managers are responsible for pursuing our vision and creating value for our stakeholders in a sound and profitable manner. Our commitment and responsibility to the world around us support our business further.” 74 of 152 l Corporate governance l TrygVesta Annual Report 2008 Corporate governance TrygVesta Annual Report 2008 l Corporate governance l 75 of 152 Corporate governance Supervisory Board Mikael Olufsen Bodil Nyboe Andersen Jørn Wendel Andersen Paul Bergqvist Christian Brinch Mikael Olufsen Chairman of the Supervisory Board and chairman of the remuneration committee Born 1943. Joined the Supervisory Board in 2002 Ms Nyboe Andersen has competencies within the areas of management, strategy, treasury and financial business from her former positi- ons as Chairman of the Board of Governors of Danmarks Nationalbank and Managing Director of Andelsbanken. Number of shares held: 100. Christian Brinch Born 1946. Joined the Supervisory Board in 2007 Chief executive of his own business. Professional board member. Norwegian citizen. Former President and CEO of Helicopter Services Group ASA and Executive Vice President of ABB Norge. Educational background: Norway’s naval academy, PMD Harvard Business School. Chairman of Hafslund AS, Sørco AS, HV IV Invest Alfa AS, Kjell Ostnes AS, Østnes Aero AS, Østnes Jørn Wendel Andersen Born 1951. Joined the Super- visory Board in 2002 CFO, Arla Foods amba. Educational background: MSc (Business Eco- Defence AS, Helicopter Network AS, Fortissimo AS, nomics), IMD Executive Development Programme, Line Consult AS, Gluteus AS and Røa Invest AS. IMD “Strategy in Action” Programme, and Deputy chairman of Technor AS, Sørcogrup- Leadership Assessment – Heidrick & Struggles. pen AS, Technor Holding AS, Norges Statsbaner Chairman of Arla Insurance Company (Guernsey) AS, Prosafe AS and Prosafe Production AS. Ltd. (Captive), Arla Foods Finance A/S and Fidan A/S. Board member of TrygVesta A/S, TrygVesta Board member of TryghedsGruppen smba, Forsikring A/S, STG Engineering AS, Subsea TrygVesta A/S, TrygVesta Forsikring A/S, Arla Technology Group AS, STG Products AS, Thor Dahl Foods AB, Arla Foods International, AF A/S, Management AS and Thor Dahl Shipping AS. Tholstrup Cheese A/S, Tholstrup Cheese Mr Brinch runs his own business providing Holding A/S and Tholstrup Taulov A/S. strategic consulting and board services. Mr Brinch has experience and knowledge within Mr Wendel Andersen has experience in the areas of strategic development, branding, international management, strategy, finance, distribution and consulting services with re- treasury, IT and project management from his spect to board work. current position as CFO of Arla Foods. Number of shares held: 500. Number of shares held: 1,078. Paul Bergqvist Member of the remuneration committee. Born 1946. Joined the Supervisory Board in 2006 Professional board member. Swedish citizen. Former CEO of Carlsberg A/S. Educational background: Economist, engineer. Chairman of Sverige Bryggerier AB, East Capital Explorer ABvaigzdes AB and HTC AB. Board member of TrygVesta A/S, TrygVesta Forsikring A/S, Telenor ASA, Lantmännen, Nova Linija, Björk Eklund Group AB and Svenska Re- turpack AB. Mr Bergqvist has international management experience in strategic development, complex transactions, development of new markets, marketing, sales and financial management. Number of shares held: 100. Niels Bjørn Christiansen Born 1966. Joined the Supervisory Board in 2006 CEO, Danfoss A/S. Former Executive Vice President and COO, GN Store Nord A/S. Educational background: B.Sc., E.E., MSc (Engineering), MBA Insead. Chairman of Danfoss Compressors Holding A/S, Danfoss Industries Private Limited, India and Sea Recovery Inc. Deputy chairman of Danfoss (Tianjin) Limited, China. Board member of TrygVesta A/S, TrygVesta Forsikring A/S, Bang & Olufsen A/S, Axcel A/S, Danfoss Universe, Danfoss Drives A/S, Danfoss Ejendomsselskab A/S, Danfoss Ventures A/S, Danfoss International A/S, Danfoss Bauer GmbH, Germany, Danfoss Semco A/S, Danfoss-Murman Holding A/S, Sauer-Danfoss Inc., Provinsindustri- ens Arbejdsgiverforening and DI Hovedbestyrelse. Professional board member. Former CEO of Toms Chokoladefabrikker A/S. Educational background: MSc (Forestry); PMD Harvard Business School. Chairman of TryghedsGruppen smba, TrygVesta A/S, TrygVesta Forsikring A/S, Malaplast Co. Ltd. Bangkok, Advisory Board of CareWorks Africa Ltd. and The Danish Rheumatism Association. Deputy chairman of the Board of Trustees of the Egmont Foundation. Egmont International Holding A/S, Ejendomsselskabet Gothersgade 55 ApS and Ejendomsselskabet Vognmagergade 11 ApS. Board member of WWF in Denmark and Danmark-Amerika Fondet. Mr Olufsen has experience in managing large international companies, including strategic de- velopment, and experience as a board member of Danish and international companies. Number of shares held: 3,018. Bodil Nyboe Andersen Deputy chairman of the Super- visory Board and chairman of the audit committee. Born 1940. Joined the Supervisory Board in 2006 Former Chairman of the Board of Governors, Danmarks Nationalbank (Danish Central Bank). Educational background: MSc (Economics). Chairman of The University of Copenhagen, The Danish Red Cross and The Laurids Andersen Foundation. Deputy chairman of TrygVesta A/S, TrygVesta Forsikring A/S and The Danish Film Institute. Board member of The Villum Kann Rasmussen Foundation, The Danish-Norwegian Collaboration Foundation and The Energy Technological De- velopment and Demonstration Programme (Energiteknologisk Udviklings- og Demonstrations Program). 76 of 152 l Corporate governance l TrygVesta Annual Report 2008 Niels Bjørn Christiansen John R. Frederiksen Rune Torgeir Joensen Peter Wagner Mollerup Birthe Petersen Per Skov Berit Torm Mr Christiansen has experience with interna- tional businesses, including from his work at Danfoss and GN Store Nord A/S. He has compe- tencies within management, strategy, IT, processes, distribution, innovation, production, finance and private and listed companies. Number of shares held: 100. John R. Frederiksen Member of the remuneration committee. Born 1948. Joined the Supervisory Board in 2002 CEO, Fortunen A/S, Oak Property Invest Aps and Berco ApS. Former chief executive of Jacob Holm & Sønner A/S and Bastionen A/S. Educational background: Business training. Chairman of Hellebo Park A/S, RenHold A/S, Renoflex-Gruppen A/S, Renholdningsselskabet af 1898, SBS Rådgivning A/S, SBS Byfornyelse Rune Torgeir Joensen Elected by the employees and member of the audit committee. Born 1956. Joined the Super- visory Board in 2008 Department manager with TrygVesta Forsikring A/S. Norwegian citizen. Educational background: Printer, market economist, HMS adviser. Per Skov Member of the audit committee. Born 1941. Joined the Super- visory Board in 1998 Professional board member. Former CEO of FDB. Educational background: MSc (Economics), management training programme at MIT. Chairman of Utility Development A/S and NX Board member of TrygVesta A/S and Holding A/S. TrygVesta Forsikring A/S. Member of Advisory Board TrygVesta Norge. Number of shares held: 28. Peter Wagner Mollerup Elected by the employees. Born 1966. Joined the Supervisory Board in 2002 Deputy chairman of TryghedsGruppen smba. Board member of TrygVesta A/S, TrygVesta Forsikring A/S, Dagrofa A/S, DSV A/S, Kemp & Lauritzen A/S, Nordea Liv og Pension Livs- forsikringsselskab A/S. From his board work and former positions, including as CEO of FDB, Mr Skov has experience within management, strategy and finance. Commercial insurance agent with Number of shares held: 2,468. Berit Torm Elected by the employees. Born 1959. Joined the Super- visory Board in 2008 Claims Manager with TrygVesta Forsikring A/S. Educational background: LL.M. Board member of TrygVesta A/S and TrygVesta Forsikring A/S. Member of Furesø local council. Number of shares held: 69. Smba, Sjælsø Danmark A/S, Sjælsø Gruppen A/S, TrygVesta Forsikring A/S Ejendomsforeningen Danmark, Komplementar- Educational background: Certified insurer, selskabet Uglen ApS and Grundejernes Investeringsfond. Board member of TryghedsGruppen smba, TrygVesta A/S, TrygVesta Forsikring A/S, Fortunen A/S, Freja Ejendomme A/S (Statens Ejendoms- travel agency guide, psychotherapist. Chairman of The Association of Insurance Agents and Account Managers in TrygVesta Forsikring A/S and The Association of Danish Certified Insurers within the Danish Financial salg A/S), Højgård Ejendomme A/S, Oak Property Services Union. Invest Aps, C.W. Obel Ejendomme A/S, C.W. Board member of TrygVesta A/S, TrygVesta Obel Projekt A/S, Ejendomsaktieselskabet Knud Forsikring A/S and The Danish Financial Højgaards Hus, BERCO Deutschland GmbH, Services Union. Invista Foundation Holding Company Limited, Number of shares held: 219. SIPA (Scandinavian International Property Association), Invista Foundation Property Trust Limited, Invista Foundation Property Limited, Invista Foundation Property No. 2 Limited and Invista European Real Estate Trust SICAF. Member of the advisory board of Sparinvest Property Fund K/S and President of European Property Federation, Brussels. Mr Frederiksen has experience within management, strategy and finance from serving as a CEO and most recently as a board member of a number of companies, including property companies. Number of shares held: 280. Birthe Petersen Elected by the employees and member of the remuneration committee. Born 1949. Joined the Supervisory Board in 1996 Principal administrative officer of TrygVesta Forsikring A/S. Educational background: Diploma in business studies, management training programme of The Organisation of Danish Insurance Employees. Board member of TrygVesta A/S, TrygVesta Forsikring A/S and The Organisation of Danish Insurance Employees. Number of shares held: 71. TrygVesta Annual Report 2008 l Corporate governance l 77 of 152 Corporate governance Group Executive Management Peter Falkenham Morten Hübbe Kjerstin Fyllingen Stine Bosse Lars Bonde Stig Ellkier-Pedersen 78 of 152 l Corporate governance l TrygVesta Annual Report 2008 Christine (Stine) Bosse Group CEO. Born 1960. Joined TrygVesta in 1987. Joined the Group Executive Management in 1999 Member of the Executive Management of TrygVesta A/S. Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: LL.M, management tra- ining programmes, including Insead and Wharton. Chairman of The Danish Insurance Association, Hjertebarnsfonden, Tryg Ejendomme A/S and Ejen- domsselskabet af 8. maj 2008 A/S. Board member of Nordea Bank, Amlin Plc, Grund- Board member of Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj 2008 A/S and Note: Changed Group Executive Management TrygVesta Garantiforsikring A/S. Number of shares held: 69. Lars Bonde Member of the Group Executive Management in charge of Corpo- rate. Born 1965. Joined TrygVesta in 1998. Joined the Group Execu- tive Management in 2006 as of 1 January 2009 Effective on 1 January 2009, TrygVesta changed its organisation so that the entire Group will be based on a pan-Nordic structure with a busi- ness management comprising nine members, all of whom will be responsible for the Nordic region. The Group Executive Management will be exten- ded by four members and will be as follows: Member of the Executive Management of Christine Bosse, Group CEO, 48 years old. TrygVesta Forsikring A/S. Morten Hübbe, Group Executive Vice Educational background: Insurance training, President, CFO, 37 years old. fos Management A/S and Poul Due Jensens Fond. LL.M. Peter Falkenham, Group Executive Vice Number of shares held: 3,237. Number of shares held: 1,312. President, Process & IT, and COO, 51 years old. Morten Hübbe Group CFO. Born 1972. Joined TrygVesta in 2002. Joined the Group Executive Management in 2003 Member of the Executive Management of TrygVesta A/S. Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: BSc (International Business Administration and Modern Languages), MSc (Finance and Accounting), management training at Wharton. Chairman of TrygVesta Garantiforsikring A/S and Enter Forsikring AS. Board member of Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj 2008 A/S and Høyteknologisenteret AS. Number of shares held: 3,159. Peter Falkenham COO and member of the Group Executive Management in charge of Private & Commercial Denmark. Born 1958. Joined TrygVesta in 2000. Joined the Group Executive Management in 2000 Member of the Executive Management of TrygVesta A/S. Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: BCom (International Trade), MSc (Engineering) and management training programmes, including St. Gallen and Wharton. Chairman of Glunz & Jensen. Deputy chairman of Solar A/S Kjerstin Fyllingen Member of the Group Executive Management in charge of Private & Commercial Norway. Born 1958. Joined TrygVesta in 2006. Joined the Group Executive Manage- ment in 2006 Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: Bachelor of Business Administration and Master of Management, Handelshøyskolen BI. Board member of Enter Forsikring AS, Finans- næringens Hovedorganisation, TSS Marine ASA and TrygVestas Allmennyttige Stiftelse. Number of shares held: 1,898. Stig Ellkier-Pedersen Member of the Group Executive Management in charge of New Markets. Born 1947. Joined Tryg- Vesta in 1999. Member of the Group Executive Management 2001-2008 Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: Mechanical engineer, management training programmes at Insead. Chairman of Forsikringsakademiet A/S. Board member of Enter Forsikring A/S, The Danish Employers’ Association for the Financial Sector and SOS International A/S. Number of shares held: 1,737. Lars Bonde, Group Executive Vice President, Sales and Customer Service Direct and Country Manager in Denmark, 43 years old. Kjerstin Fyllingen, Group Executive Vice President, Customer Service & Sales Partners and Country Manager in Norway, 50 years old. New members Truls Holm Olsen, Group Executive Vice President, Corporate, 45 years old. Birgitte Kartman, Group Executive Vice President, Claims, 48 years old. Jens Stener, Group Executive Vice President, Corporate Branding & Business Centres, 42 years old. Martin Bøge Mikkelsen, Group Executive Vice President, Strategy & Human Competencies, 46 years old. Stig Ellkier-Pedersen stepped down from his position to retire on 31 December 2008. Mr Ellkier-Pedersen has been with TrygVesta since 1999 and has been a member of the Group Executive Management since 2001. Read more about the organisational changes and see the new management at www.trygvesta.com > About us > Management. TrygVesta Annual Report 2008 l Corporate governance l 79 of 152 Corporate governance Corporate governance In 2008, TrygVesta’s Supervisory Board focused on organ- which also offers stakeholders to receive the latest news ising the Group’s strategic development with a healthy as RSS feeds or to download webcasts and teleconfer- balance between short-term and long-term activities and ences as podcasts. The Group’s mission and relevant action plans. The Supervisory Board takes care in prepar- stakeholder policies, such as the policies for Investor ing future tasks for the Group, such as new capital Relations, communications and the environment, are requirements and capital resources in connection with available at www.trygvesta.com under Investor, About us, the future Solvency II rules so as to continuously Press and CSR > Climate, respectively. strengthen the Group’s financial and strategic position. Capital and share structures TrygVesta’s corporate governance and remuneration poli- The Supervisory Board monitors that TrygVesta’s capital cies are based on the corporate governance recommen- structure is in line with the interests of the Group and our dations issued by OMX Nordic Exchange Copenhagen. shareholders, and that the capital structure is in compli- The Supervisory Board believes that TrygVesta complies ance with the requirements applicable to TrygVesta as a with the recommendations. financial undertaking. The Supervisory Board optimises our Stakeholders capitalisation on an ongoing basis while duly safeguarding the interests of policyholders and shareholders and leaving TrygVesta issues press releases and company announce- the Group sufficient scope for development and growth. ments on a regular basis and publishes interim reports and annual reports in order to enable stakeholders to In 2008, the shareholders at the annual general meeting form an adequate impression of the Group’s position and authorised the Supervisory Board to let TrygVesta acquire its performance. The financial statements have been pre- own shares within 10% of the share capital in the period up pared in accordance with IFRS. TrygVesta updates its out- to the next annual general meeting. The Supervisory Board look for the Group’s performance each quarter. All finan- is authorised to distribute extraordinary dividends in accord- cial announcements are released simultaneously in Danish ance with the rules of the Danish Public Companies Act. and English. The Group has a number of in-house guide- lines to ensure that disclosures are made in accordance The annual general meeting in 2008 decided to initiate a with the stock exchange rules of ethics. Investor Relations share buy back programme. has regular contacts to equity analysts and major investors and organises investor presentations, teleconferences At 31 December 2008, around 3.0m shares worth DKK and webcasts together with the management. The Super- 1,053m had been bought under the total share buy back visory Board is regularly briefed on the dialogue with programme of DKK 1,405m, and DKK 352m of the share investors. All material is available at www.trygvesta.com, buy back programme was thus outstanding. TrygVesta has 80 of 152 l Corporate governance l TrygVesta Annual Report 2008 Read more about TrygVesta’s Corporate Governance at www.trygvesta.com decided to extend the share buy back programme, originally The tasks and responsibilities scheduled for completion on the day before the release of of the Supervisory Board the annual report 2008, until the day before the annual The Supervisory Board is responsible for the overall man- general meeting, which will be held on 22 April 2009. agement and financial control of TrygVesta. In this work, The Supervisory Board intends to consider any public agement based on regular and systematic consideration the Supervisory Board uses targets and framework man- takeover bid that may be made as prescribed by legisla- of strategies and risks. tion and, depending on the nature of such bid, to con- vene an extraordinary general meeting of shareholders The Executive Management reports to the Supervisory in accordance with applicable requirements and rules. Board on strategies and action plans, market develop- ments and the Group’s performance, funding issues, Annual general meeting capital resources and special risks. The Supervisory Board TrygVesta holds its annual general meeting of sharehold- cooperates with the Executive Management to ensure ers each year before the end of April. The Supervisory follow-up on and development of the Group’s strategies. Board convenes the annual general meeting by a com- pany announcement and by advertisement in at least one The Supervisory Board holds at least six annual meetings national newspaper, giving not less than eight days’ and an annual strategy seminar to discuss and define notice. Shareholders may elect to receive an electronic strategies and goals for the years ahead. The Supervisory notice of the general meeting, or they may download the Board discusses the Supervisory Board’s tasks on a regu- notice at www.trygvesta.com. The notice includes rele- lar basis, and at the last meeting in the year, it deter- vant information about the time and place of the meet- mines the items on the agenda for the coming year. ing and sets out the agenda, which as a minimum com- prises the following items: The Supervisory Board carries out an annual evaluation of the work and results of the Executive Management and of • Report of the Supervisory Board on the activities the cooperation between the Supervisory Board and the of the company during the past financial year Executive Management. In addition, the Supervisory Board • Presentation of the annual report for approval and reviews and approves the rules of procedures of the discharge of the Supervisory Board and the Executive Supervisory Board and the Executive Management each Management, including determination of the Super- year to ensure they are aligned with TrygVesta’s require- visory Board’s remuneration ments. Under the rules of procedure, the Supervisory • Adoption of a resolution as to the distribution of profit Board has defined an evaluation procedure for assessing or covering of loss, as the case may be, according to the work and results of the Supervisory Board, the Chair- the annual report as approved, including proposed man of the Supervisory Board and the other individual payment of dividend for the past financial year members as well as the composition of the Supervisory • Any proposals from the Supervisory Board or from Board in order to improve the work of the Supervisory shareholders Board. The assessment includes individual interviews • Election of members to the Supervisory Board between the Chairman of the Supervisory Board and the • Appointment of auditors • Any other business individual members in January and a discussion of these interviews at the next following Board meeting. All shareholders are urged to attend the annual general The Supervisory Board is headed by the Chairman and meeting, and shareholders may vote in person at the the Deputy Chairman. The duties of the Chairman and general meeting or appoint the Supervisory Board or a the Deputy Chairman of the Supervisory Board are third party as their proxy. The proxy form will be available defined in the rules of procedure of the Supervisory at www.trygvesta.com from 1 April 2009. Board and include preparing meetings of the Supervisory TrygVesta Annual Report 2008 l Corporate governance l 81 of 152 Corporate governance Board and evaluating the work of the Supervisory Board To ensure replacement on the Supervisory Board, mem- and the cooperation with the Executive Management. The bers elected by the shareholders may hold office for a Chairman and the Deputy Chairman also plans the future maximum of nine years. Furthermore, members of the composition of and replacement in the Supervisory Board. Supervisory Board must retire at the first general meeting The Chairman of the Supervisory Board acts as spokesman following their 70th birthday. for the Supervisory Board for external purposes. Prior to the election of new members, the Supervisory The composition of the Supervisory Board Board prepares a description of the candidates’ back- The Supervisory Board makes an assessment of the com- ground, professional qualifications and experience, and petencies required for the Supervisory Board to perform the notice convening the general meeting makes reference its duties in the best possible way. In connection with the to this description. Information about the Supervisory Board evaluation of the Supervisory Board’s work and its mem- members’ profiles and the number of TrygVesta shares bers’ competencies, it is assessed whether the Supervisory held is set out in the section on Members of the Supervisory Board has the required competencies, or whether the Board and is also available at www.trygvesta.com. A few competencies and expertise of its members need to be Supervisory Board members hold more than the recom- updated in some respects. A balanced distribution with mended number of directorships. However, the Supervisory respect to gender and age is sought in the composition of Board considers that each member has adequate time and the Supervisory Board. The Supervisory Board has eight resources to serve as a member of the Supervisory Board members elected by the shareholders. They are aged of TrygVesta in a satisfactory manner. between 43 and 68 years, and there is one female member. New board members are offered an introduction course. CSR/corporate social responsibility CSR is a focus area for TrygVesta; it supports the com- The Supervisory Board has 12 members, including eight pany’s business and peace-of-mind delivery. TrygVesta members elected by the shareholders for a term of one has drawn up a CSR declaration of intent, defining our year. Four of the eight members are non-affiliated. The commitment and describing our responsibility in relation Supervisory Board deems that the number of members is to employees, customers and the external community. adequate to ensure a constructive debate and an efficient TrygVesta pursues an open policy with respect to the decision-making process. Group’s social commitment and reports on current CSR THE COMPOSITION OF THE SuPERVISORY BOARD 4 affiliated members 4 non-affiliated 4 members elected members by the employees candidates elected among elected among the members of the Super- without any visory Board of Trygheds- Gruppen smba. Gruppen smba. distributed on the elected according to agreement between the Danish and Norwegian employee associations affiliation with Trygheds- Group’s Danish employees and one Norwegian employee. activities at www.trygvesta.com and in the Annual Report. TrygVesta is also committed to working with CSR through the Group’s participation in the Danish Council for Sustain- able Business Development and the UN Global Compact. CSR organisation The Group CEO chairs the TrygVesta CSR Board, and in addition, the Group Executive Vice Presidents, Customer Sales & Partners and direct sales, the commnucations Director and two other senior executives sit on the Board. The figure shows the three sub-committees in the CSR work. Diversity Read more about the employee representatives on TrygVesta considers diversity a strength and has there- TrygVesta’s Supervisory Board at www.trygvesta.com fore worked towards the goal that the composition of the under Our business > Corporate governance. company’s employees should reflect that of society in 82 of 152 l Corporate governance l TrygVesta Annual Report 2008 Read more about CSR at TrygVesta on the insert ”We acknowledge our corporate social responsibility” general. In the past few years, there has been increased Management reports to the Supervisory Board on the focus on ethnicity, both in our current recruitment activi- Group’s risk management work. A more detailed review of ties and in projects focusing on recruitment of employees TrygVesta’s risk management is set out in the section on with an ethnic background. In 2008, just over 4% of the Risk management and at www.trygvesta.com. Group’s employees had a foreign ethnic background, slightly less than this population group’s proportion of Audit the Nordic population. The Supervisory Board ensures that the Group is moni- tored by competent and independent auditors. Each year, At the end of 2008, TrygVesta had seven women at senior the annual general meeting appoints external auditors management level. At 1 January 2009, the Group Executive recommended by the Supervisory Board. The audit agree- Management comprised nine members, including three ment with the external auditors, including the auditors’ women. TrygVesta’s Group Executive Management is thus fees, is concluded between the Supervisory Board and the one of the most highly gender diversified among large auditors. The Supervisory Board adopts the framework for companies in the Nordic region. The age distribution in the the auditors’ performance of non-audit services each year. Group Executive Management ranges from 37 to 51 years. Risk management TrygVesta’s internal audit department regularly reviews the quality of the Group’s internal control systems and Being an insurance business, TrygVesta is subject to the business procedures. The department is responsible for requirements of the Danish Financial Business Act on risk planning, performing and reporting the audit work to management. In capital and risk management instructions, the Supervisory Board. The internal and external auditors’ the Supervisory Board defines the framework for risk man- long-form reports are reviewed by the Supervisory Board. agement in TrygVesta with respect to insurance risk/rein- surance, investment risk and operational risk, including In connection with the Supervisory Board’s review of IT security. This framework is then implemented in risk the annual report, it discusses the accounting policies, policies that define detailed guidelines for the Group’s risk among other issues, and the results of the audit are management. A risk management committee comprising discussed with the audit committee and in Supervisory the Group CEO, Group CFO and selected senior executives Board meetings for the purpose of assessing the audi- monitors the risk management environment. The Executive tors’ observations and conclusions. CSR Secretariat CSR Board Chairman: Group CEO Employee Committee Chairman: Group Executive Vice President, Strategy & Human Competence Environment and Climate Committee Chairman: Group Executive Vice President, direct sales Society Committee Chairman: Group Executive Vice President, customer service and sales/partners TrygVesta Annual Report 2008 l Corporate governance l 83 of 152 Corporate governance AuDIT COMMITTEE REMuNERATION COM MITTEE The remuneration committee has four members elected by the Supervisory Board. The remuneration committee is chaired by the Chairman of the Supervisory Board. In addition, the committee must include at least one mem- ber of the Supervisory Board of TryghedsGruppen and at least one non-affiliated member of the Supervisory Board. The remuneration committee was set up in the spring of 2008. Going forward, the committee intends to hold four annual meetings. The work of the remuneration commit- tee is based on TrygVesta’s remuneration policy and guidelines for incentive pay adopted by the shareholders at the annual general meeting held on 3 April 2008. Members - Mikael Olufsen, chairman - John R. Frederiksen - Paul Bergqvist - Birthe Petersen Responsibilities • To support the Supervisory Board in considerations and decisions with respect to issues of remuneration to the Supervisory Board, Board committees and the Executive Management, and to discuss the framework for the Group Executive Management’s remuneration in con- sultation with the Group CEO. • To ensure compliance with the Group’s guidelines for incentive pay. • To keep the Supervisory Board informed of the market level and forms of remuneration paid to members of the supervisory boards and executive managements of the company’s peers. Activities in 2008 • The remuneration committee was set up in May 2008 and held one meeting in the second half of 2008 to define the strategy and terms of reference for its work. • The committee’s terms of reference were approved at a meeting of the Supervisory Board held in November 2008. The audit committee has three members elected by the Supervisory Board and is chaired by a non-affiliated member of the Supervisory Board. The committee held four meetings in 2008, and it reports to the Supervisory Board on a regular basis. The audit committee made an assessment of the preceding year’s work in August 2008, evaluating the need for changes to its areas of responsibility. The audit committee works with historical data, and it is not involved in forward-looking events such as outlook and budgets. TrygVesta’s audit committee complies with the statutory requirements of 1 July 2008 for listed companies. As of 31 December 2008, certain unlisted financial businesses were also required to have an audit committee. However, it is possible to set up shared audit committees for several financial businesses within the same group. The audit committees must be set up immediately following the companies’ annual general meetings held in the spring of 2009. TrygVesta will ensure compliance with the statutory requirements in accordance with the applicable rules. Members - Bodil Nyboe Andersen, chairman - Per Skov - Rune Joensen Responsibilities • To monitor the financial reporting process, including the application of accounting policies, and to assess the adequacy of any changes thereto. • To monitor that internal control and risk management systems function efficiently. • To review and discuss the results of the internal and external auditors’ work, and to supervise manage- ment’s follow-up on the recommendations reported by the internal and external auditors. • To ensure that the Group’s internal and external auditors are independent. Activities in 2008 • Reviewed the Group’s technical provisions. • Reviewed the methodology for and calculation of the Group’s Individual Solvency Needs. • Reviewed the efficiency of the Group’s contingency plans. • Assessed the Group’s internal control procedures to prevent fraud. • Supervised annual and interim financial statements. • Supervised the audit work performed by the external auditors. 84 of 152 l Corporate governance l TrygVesta Annual Report 2008 Remuneration Remuneration policy for the Supervisory Board REMuNERATION OF THE AuDIT COMMITTEE and the Executive Management TrygVesta has adopted a policy for remuneration of the Supervisory Board and the Executive Management and has defined overall guidelines for incentive pay. DKK Chairman Other members, each Total, audit committee 2008 150,000 100,000 350,000 Read more at www.trygvesta.com > Our business > REMuNERATION OF THE REMuNERATION COMMITTEE Corporate governance. Remuneration of the Supervisory Board Members of the Supervisory Board receive a fixed fee and are not covered by incentive programmes or severance schemes. Their remuneration is fixed on the basis of trends in the com- DKK Chairman Other members, each Total, remuneration committee 2008* 37,500 25,000 112,500 * In 2008 members recieved remuneration for six months. pany’s peer group, taking into account competencies and Remuneration of the Executive Management efforts as well as the scope of the Board work. The Chairman TrygVesta’s Executive Management comprises three receives triple the amount of the other members, and the members. Their remuneration reflects a wish to secure Deputy Chairman receives double the amount. a balanced earnings performance for the Group in the short as well as the longer term. In addition, members of the Supervisory Board who par- ticipate in the audit and remuneration committee receive The remuneration of the Executive Management includes remuneration for these duties. The chairmen receive one performance-related bonus, comprising a bonus plan of up and a half times the amount of other members. The to three months’ salary including pension (four months for shareholders approve the remuneration of the Supervisory the Group CEO). The plan is directly linked to pre-defined Board for the current financial year and the remuneration benchmarks. The assessment of the individual member’s was unchanged from 2007 to 2008. achievement includes the Group’s overall performance as REMuNERATION OF THE SuPERVISORY BOARD DKK Chairman Deputy Chairman Members, each Total, Supervisory Board 2008 750,000 500,000 250,000 3,750,000 well as that of the individual members within their areas of responsibility. Specific benchmarks are defined within all four perspectives of the balanced scorecard (financial, customer, processes and learning) and reflect the strategic focus areas of the Group and the individual business areas or organisational units, including growth, profitability, cost reduction, customer satisfaction, customer loyalty, image, TrygVesta Annual Report 2008 l Corporate governance l 85 of 152 Corporate governance processes, communication, employee satisfaction and minus dividend payout in the period. Stock options can development, and innovation. Members may choose to only be exercised during the open trading windows for the receive their bonus in cash or shares at a discount to the full-year and half-year profit announcements. Own shares market price. Members who choose shares at a discount to are bought to cover the stock option programmes. the market price can buy the shares at par with a total dis- count equal to the bonus entitlement. Part of the remuner- ation consists of stock options in order to build loyalty and motivation. The value of the stock options on grant may not exceed 50% of the fixed annual salary inclusive of pen- sion. On exercise the value, calculated as the difference between the market price on exercise and the price on granted, may not exceed 200% of the member’s fixed annual salary inclusive of pension. Members are entitled to company cars. A contribution equal to 25% of their fixed salary is paid into a pension scheme. Each member is entitled to 12 months’ notice of termination and to 12 months’ severance pay. The Group CEO is entitled to STOCK OPTION PROGRAMME IN 2008 Stine Bosse Morten Hübbe Peter Falkenham Other Group Executive Management and senior executives Granted to reward outstanding performance Total granted in 2008 Options 24,597 15,916 11,575 Value on grant (DKK) 1,700,000 1,100,000 800,000 167,203 11,800,000 28,700 247,991 2,000,000 17,400,000 12 months’ notice and to 18 months’ severance pay plus In 2008, the stock options entitled the holders to shares pension contributions during such period. at the average price of TrygVesta shares (all trades) Incentive pay on OMX Copenhagen Stock Exchange on 22 February 2008 plus 10%, equal to an strike price of DKK 416.06. Like the Executive Management, the Group Executive Man- TrygVesta expects to grant programme of a similar value agement and senior employees are offered a performance- and on similar terms in 2009. related bonus of up to three months’ salary on similar terms. Furthermore, TrygVesta has a stock option programme for Employee bonus the Executive Management, the Group Executive Manage- TrygVesta operates an employee bonus programme ment, senior executives and employees to reward out- because it is important to the Group that all employees standing performance. Each option entitles the holder to see their own efforts relative to the company’s overall one share at the exercise price. Stock options cannot be targets. Employee bonus benchmarks are combined ratio exercised earlier than three years and not later than five and growth. For 2008, the bonus triggered an offer to years after the grant. The strike price is the market price buy shares at a discount to the market price with a dis- on grant plus 10%. The exercise price is the strike price count element equal to DKK 5,000 to each employee. REMuNERATION OF THE EXECuTIVE M ANAGEMENT IN 2008 DKK Stine Bosse Morten Hübbe Peter Falkenham Basic salary Bonus Pension Car Total 5,560,000 3,500,000 3,000,000 1,390,000 584,000 250,000 1,390,000 875,000 750,000 247,100 156,000 106,000 8,587,100 5,115,000 4,106,000 REMuNERATION OF THE EXECuTIVE MANAGEMENT IN 2007 DKK Stine Bosse Morten Hübbe Peter Falkenham Basic salary Bonus Pension Car Total 5,200,000 3,000,000 2,575,000 1,734,000 750,000 644,000 1,300,000 750,000 644,000 113,000 156,000 106,000 8,347,000 4,656,000 3,969,000 86 of 152 l Corporate governance l TrygVesta Annual Report 2008 Shareholder information FINANCIAL CALENDAR 2009 22 April 2009 at 14:00 Annual general meeting 2009 23 April 2009 28 April 2009 TrygVesta shares trade ex-dividend Payment of dividend 12 May 2009 at 7:30 Interim report for Q1 2009 18 August 2009 at 7:30 Interim report for the first half of 2009 10 November 2009 at 7:30 Interim report for Q1-Q3 2009 TrygVesta emphasises openness, transparency and an Share price performance in 2008 understanding of stakeholder information requirements. TrygVesta shares opened 2008 at DKK 388 and closed The Group’s Investor Relations strive to maintain a high at DKK 328, thus generating a total negative return for level of information by 2008 of 12% including dividends of DKK 17. By way of • being available and answering queries as promptly comparison, the OMX C20 index fell by 46% and the DJ as possible Euro Insurance Index dropped 44%. TrygVesta shares • preparing plain and relevant written communication were affected by the general decline in equity prices in and presentation material 2008 as described in the Preface. • having a website that is of relevance to professional and private investors alike Other listed insurance companies in the Nordic region • being proactive in dealings with investors generated returns including dividends as follows in 2008: Alm. Brand -76%, Sampo -22% and Topdanmark -6%. Information that may influence the pricing of TrygVesta shares is published in accordance with the rules applicable Turnover of TrygVesta shares and share buy back to distribution of news in the EU. The Group’s website, TrygVesta shares had an average daily turnover of DKK www.trygvesta.com, is updated simultaneously. In addi- 44m in 2008. The total volume of TrygVesta shares tion, TrygVesta distributes information directly to the traded on OMX Nordic Exchange Copenhagen was DKK London Stock Exchange, the press, equity analysts, inves- 11.0bn in 2008. tors and other stakeholders. In accordance with the recom- mendations issued by OMX Nordic Exchange Copenhagen, On 4 April 2008, TrygVesta launched a share buy back pro- TrygVesta refrains from commenting on matters relating to gramme in a maximum amount of DKK 1,405m. At 31 financial performance or forecasts during a period of three December 2008, an aggregate of approximately 3.0m shares weeks prior to the release of financial reports. worth a total amount of DKK 1,053m had been bought. TrygVesta Annual Report 2008 l Corporate governance l 87 of 152 Corporate governance MOST ACTIVE STOCKBROKERS IN TERMS OF PROPORTION OF TuRNOVER ON OMX NORDIC EXCHANGE COPENHAGEN conferences. TrygVesta also participated in five events for private shareholders in Denmark and Sweden. The Group’s 1. Danske Bank 2. SEB Enskilda 3. Nordea 4. Morgan Stanley 5. Carnegie 20% 9% 8% 6% 5% performance is followed by 18 equity analysts, three of whom are based in London. The equity analysts’ recom- mendations with respect to TrygVesta shares are available at www.trygvesta.com. Share capital and ownership is an important vehicle for providing information about the TrygVesta has a total share capital of DKK 1,700,000,000 Group’s performance to prospective investors. A Danish comprised of a single class of shares (68m shares of version of the website was launched in February 2009, DKK 25 nominal value each), and all shares rank pari passu. making it more user-friendly for all Danish shareholders. The website is being developed on an ongoing basis and The principal shareholder, TryghedsGruppen smba (formerly Tryg i Danmark smba), Kgs. Lyngby, Denmark, holds 60% Annual general meeting of the issued shares and is the only shareholder, apart TrygVesta’s annual general meeting will be held on from TrygVesta, with a holding of more than 5%. 22 April 2009 at Falconer Center, Falkoner Allé 9, 2000 Trygheds Gruppen invests in Nordic businesses that promote Frederiksberg, Denmark. The invitation to attend the peace of mind and health, and supports benevolent activities. meeting will be advertised in the daily press and will be sent to shareholders who so request. Notice of the At 31 December 2008, the 40% free float was distributed meeting will also be posted at www.trygvesta.com. among 28,828 registered shareholders. The 200 largest shareholders held 57% of the free float. At 31 December Any queries relating to the annual general meeting may 2008, TrygVesta held own shares corresponding to 5.3% be addressed to: of the share capital. Bjarne Lau Pedersen, Chief Group Legal Adviser, telephone +45 4420 3065, e-mail bjarne.lau@tryg.dk Dialogue with investors Ole Søeberg, IRO, telephone +45 4420 4520, Following publication of all financial statements, Investor e-mail ole.soeberg@tryg.dk. Relations and the Executive Management meet with institu- tional investors and equity analysts. In 2008, TrygVesta Reference > Read about dividends for 2008 in the section held 250 investor meetings and participated in 15 investor on Capital and profit distribution. FREE FLOAT 31 DECEMBER 2008 SHAREHOLDERS 31 DECEMBER 2008 2% 4% 8% 10% 76% 7% 16% 17% 60% Denmark UK USA Nordic Others TryghedsGruppen smba Small shareholders Major Danish shareholders* Major international shareholders * Major shareholders are shareholders holding more than 10,000 shares. 88 of 152 l Corporate governance l TrygVesta Annual Report 2008 ANNO uNCEMENTS PuBLISHED IN 2008 21.01.2008 25.02.2008 25.02.2008 13.03.2008 03.04.2008 03.04.2008 05.05.2008 27.06.2008 19.08.2008 27.10.2008 11.11.2008 11.11.2008 11.11.2008 24.11.2008 TrygVesta has reduced the exposure to equities Annual report 2007 Q4 2007 report Notice of the annual general meeting Resolutions from the annual general meeting TrygVesta initiates share buy back programme First quarter 2008 report Revised financial calendar 2008 Half-year 2008 report TrygVesta organises towards innovation and development Interim report for the first nine months of 2008 Fincial calendar 2009 T rygVesta and Nordea extend partnership to 2013 TrygVesta owns 5.0% of own shares In addition to the above-mentioned anouncements of the share buy back programme which was initiated on 4 April 2008, TrygVesta has published an announcement of the weekly share buy back amount every Monday. TrygVesta Annual Report 2008 l Corporate governance l 89 of 152 Accounts Accounts – contents Notes Statement by the Supervisory Board and the Executive Management Independent Auditor’s Report Income Statement and Balance Sheet – TrygVesta Group Statement of Changes in Equity – TrygVesta Group Cash Flow Statement – TrygVesta Group Notes – TrygVesta Group Accounting policies Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of insurance Insurance operating expenses, net of reinsurance Segments Technical result, net of reinsurance, by line of business Interest and dividends Market value adjustment Tax Profit/loss on discontinued and divested business Intangible assets Operating equipment Owner-occupied property Assets under construction Investment property Investments in associates Other financial investment assets Reinsurers’ share Current tax Shareholders’ equity Subordinated loan capital Provisions for claims Pensions and similar obligations Deferred tax Other provisions Debt to credit institutions Other debt Earnings per share Contractual obligations, contingent liabilities and collateral Acquisition of subsidiary Related parties 1 2 3 4 5 6 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Income Statement and Balance Sheet – TrygVesta A/S (parent company) Statement of Changes in Equity (parent company) Notes (parent company) Financial Highlights and Key Ratios by Geography Glossary Organisation Chart Inserts are placed in a separat pocket at the end of the Annual Report 2008 90 of 152 l Contents l TrygVesta Annual Report 2008 Page 91 92 93 96 98 99 109 109 109 109 114 116 118 118 118 119 119 119 120 121 121 122 123 126 126 126 127 128 131 133 134 134 134 134 135 136 136 138 140 141 146 148 150 Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2008 of TrygVesta A/S and the TrygVesta Group. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises. position at 31 December 2008 and of the results of the Group’s and the parent company’s operations and the cash flows of the Group for the financial year 1 January – 31 December 2008. Furthermore, in our opinion the Management’s report gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group’s and the parent com- pany’s financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company. In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and financial We recommend the annual report to be adopted by the shareholders at the annual general meeting. Ballerup, 3 March 2009 Executive Management Christine Bosse Group CEO Morten Hübbe Group CFO Peter Falkenham Group COO Supervisory Board Mikael Olufsen Chairman Bodil Nyboe Andersen Deputy Chairman Jørn Wendel Andersen Paul Bergqvist Christian Brinch Niels Bjørn Christiansen Peter Mollerup John R. Frederiksen Rune Torgeir Joensen Birthe Petersen Per Skov Berit Torm TrygVesta Annual Report 2008 l Statement by the Supervisory Board and the Executive Management l 91 of 152 Accounts Independent auditor’s report To the shareholder of TrygVesta A/S We have audited the annual report of TrygVesta A/S for the financial year starting on January 1 and ending on December 31, 2008, which comprises the management’s report, the statement by management, accounting policies, income statement, balance sheet, capital and notes for the Group as well as the parent company and the cash flow statement for the Group. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parents financial statements have been prepared in accordance with the Danish Financial Business Act. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises. Management’s responsibility for the annual report Management is responsible for preparing and presenting an annual report that gives a true and fair view in accordance with the International Financial Reporting Standards as adopted by the EU in respect of the consolidated financial statements and in accordance with the Danish Financial Busi- ness Act in respect of the parent company’s financial state- ments and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises. This responsibility includes; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an annual report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Basis of opinion Our responsibility is to express an opinion on the annual report based on our audit. We conducted our audit in accordance with Danish auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual report is free from materiel misstatement. An audit involves performing procedures to obtain audit evi- dence about the amounts and disclosures in the annual report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual report, whether due to fraud or error. In making those risk assessments, the auditor considers in- ternal controls relevant to the preparation and fair presenta- tion of the annual report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of in- ternal control. An audit also includes evaluating the appropri- ateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual report. We believe that the audit evidence we have obtained is suffi- cient 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 Decem- ber 31, 2008, and of the results of the Group’s operations and the Group’s cash flows for the financial year starting on January 1 and ending on December 31, 2008 in accordance with International Financial Reporting Standards as adopted by the EU and in accordance with additional Danish disclosure requirements 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 December 31, 2008, and of the results of the parent company’s operations for the financial year starting on January 1 and ending on December 31, 2008 in accordance with the Danish Financial Business Act and in accordance with additional Danish disclosure requirements for annual reports of listed financial enterprises. Ballerup, 3 March 2009 Deloitte Statsautoriseret Revisionsaktieselskab Lars Kronow State Authorised Public Accountant Leif Zilmer State Authorised Public Accountant 92 of 152 l Independent auditor’s report l TrygVesta Annual Report 2008 Income statement – TrygVesta Group 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 2 Earned premiums, net of reinsurance 3 Technical interest, net of reinsurance Claims paid Reinsurance recoveries Change in provisions for claims Change in the reinsurers’ share of provisions for claims 4 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 5 Total insurance operating expenses, net of reinsurance 6 Technical result 16 Investment activities Income from associates Income from investment properties Interest income and dividends 7 8 Value adjustment Interest expenses 7 Investment management charges Total return on investment activities 3 Interest on insurance provisions Total return on investment activities after technical interest Other income Other expenses Profit/loss before tax 9 Tax Profit/loss on continuing business 10 Profit/loss on discontinued and divested business Profit/loss for the year 28 Earnings per share – continuing business of DKK 25 Earnings per share of DKK 25 2007 2008 16,959 -893 -130 -46 15,890 501 -11,336 495 161 6 -10,674 -223 -1,821 -948 -2,769 95 -2,674 2,820 1 116 1,382 415 -88 -86 1,740 -1,400 340 121 -172 3,109 -842 2,267 -1 2,266 33.5 33.5 17,629 -926 -134 66 16,635 499 -12,880 605 1,114 -486 -11,647 -172 -2,247 -756 -3,003 72 -2,931 2,384 -2 128 1,523 -1,008 -100 -101 440 -1,428 -988 124 -173 1,347 -501 846 0 846 12.8 12.8 TrygVesta Annual Report 2008 l Income statement – TrygVesta Group l 93 of 152 Accounts Balance sheet – TrygVesta Group DKKm Notes Assets 11 Intangible assets 12 Operating equipment 13 Owner-occupied property 14 Assets under construction Total property, plant and equipment 15 Investment property 16 Investments in associates Total investments in associates Equity investments Unit trust units Bonds Deposits in credit institutions 17 Total other financial investment assets Deposits with ceding undertakings, receivable 2007 2008 335 80 306 0 386 2,263 19 19 2,961 1,629 30,654 302 35,546 19 450 46 1,315 0 1,361 2,246 14 14 422 940 28,721 389 30,472 13 Total investment assets 37,847 32,745 Reinsurers’ share of provisions for unearned premiums 22 Reinsurers’ share of provisions for claims 18 Total reinsurers’ share of provisions for insurance contracts Receivables from policyholders Total receivables in relation to direct insurance contracts Receivables from insurance enterprises Other receivables 17 Total receivables 19 Current tax assets 17 Cash in hand and at bank Other Total other assets Accrued interest and rent earned Other prepayments and accrued income Total prepayments and accrued income 159 1,428 1,587 901 901 509 1,145 2,555 93 298 4 395 666 59 725 176 860 1,036 838 838 250 601 1,689 111 282 3 396 626 142 768 Total assets 43,830 38,445 94 of 152 l Balance sheet – TrygVesta Group l TrygVesta Annual Report 2008 DKKm Notes Liabilities 20 Shareholders’ equity 21 Subordinated loan capital 22 Provisions for unearned premiums 22 Provisions for claims Provisions for bonuses and premium rebates Total provisions for insurance contracts 23 Pensions and similar obligations 24 Deferred tax liability 25 Other provisions Total provisions Debt related to direct insurance Debt related to reinsurance 26 Debt to credit institutions 19 Current tax liabilities 27 Other debt Total debt Accruals and deferred income 2007 2008 10,010 1,101 5,403 21,104 409 26,916 403 1,109 57 1,569 358 253 599 336 2,597 4,143 91 8,244 1,102 5,100 19,715 378 25,193 523 949 36 1,508 311 172 709 248 871 2,311 87 Total liabilities and equity 43,830 38,445 1 Accounting policies 20 Capital adequacy 28 Earnings per share 29 Contractual obligations, contingent liabilities and collateral 30 Acquisition of subsidiary 31 Related parties TrygVesta Annual Report 2008 l Balance sheet – TrygVesta Group l 95 of 152 Accounts Statement of changes in equity – TrygVesta Group DKKm Shareholders’ equity at 31 December 2006 Equity entries in 2007 Profit for the year 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 Dividend own shares Purchase of own shares Issue of employee shares Issue of share options Total equity entries in 2007 Revalua- Reserve for tion exchange rate adj. reserves Share capital Equali- sation reserve Other Retained Proposed reserves earnings dividends Total 1,700 7 -20 58 800 5,162 2,244 9,951 -3 3 0 0 7 84 -98 24 10 75 1,035 1,156 94 -25 2,266 -3 84 -98 94 2 0 75 1,104 1,156 2,345 -2,244 -2,244 14 -96 32 8 14 -96 32 8 10 0 75 1,062 -1,088 59 -10 58 875 6,224 1,156 10,010 0 0 Shareholders’ equity at 31 December 2007 1,700 Equity entries in 2008 Profit for the year 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 0 Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options -585 615 -154 -124 -126 0 -126 423 423 -1,156 549 -55 -196 53 351 12 -1,197 37 14 846 -640 615 -196 -101 524 -1,156 12 -1,197 37 14 Total equity entries in 2008 0 0 -124 0 -126 -783 -733 -1,766 Shareholders’ equity at 31 December 2008 1,700 7 -134 58 749 5,441 423 8,244 96 of 152 l Statement of changes in equity – TrygVesta Group l TrygVesta Annual Report 2008  Proposed dividend per share DKK 6.50 (in 2007 DKK 17). Dividend per share is calculated as the total dividend proposed by the Supervi- sory Board after the end of the financial year divided by the number of shares year end (64,377,683). The dividend is not paid until ap- proved by the shareholders at the annual general meeting of the subsequent year. TrygVesta Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of NOK 2,743m (2007 NOK 2,564m). In TrygVesta Forsikring A/S, these provisions, due to their nature as additional provisions, are included in shareholders’ equity (retained earnings), net of deferred tax. TrygVesta Forsikring A/S’ option to pay dividend to TrygVesta A/S 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 TrygVesta Forsikring A/S. TrygVesta Garantiforsikring A/S has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. STATEMENT Of RECOGNISED INCOME AND EXPENSES DKKm Revaluation of owner-occupied properties for the year Tax on 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 Tax on hedging of currency exposure in foreign entities for the year Actuarial gains/losses on defined benefit pension plans Tax on actuarial gains/losses on defined benefit pension plans Net income/expense recognised in equity Profit for the year Total recognised income and expenses 2007 -3 3 84 -98 24 94 -25 79 2,266 2,345 2008 0 0 -640 615 -154 -196 53 -322 846 524 TrygVesta Annual Report 2008 l Statement of changes in equity – TrygVesta Group l 97 of 152 Accounts Cash flow statement – TrygVesta Group DKKm 2007 2008 Cash generated from operations Premiums Claims paid Ceded business Expenses Change in other payables and other amounts receivable Cash flow from insurance operations Interest income Interest expenses Dividend received Taxes Other items Cash generated from operations, continuing business Cash generated from operations, discontinued and divested business Total cash generated from operations Investments Acquisition of real property Sale of real property Acquisition of equity investments and unit trust units (net) Purchase/Sale of bonds (net) Deposits in Credit institutions Purchase of operating equipment Sale of operating equipment Foreign currency hedging Investments, continuing business Investments, discontinued and divested business Total investments funding Purchase of own shares Dividend paid Change in debt to credit institutions funding, continuing business Funding, discontinuied and divested business Total funding Change in cash and cash equivalents, net Price adjustment of cash and cash equivalents, beginning of period Change in cash and cash equivalents, gross Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 16,800 -11,376 -122 -2,705 -308 2,289 1,164 -186 169 -693 -55 2,688 0 2,688 -16 17 1,062 -856 -303 -187 5 -98 -376 0 -376 -50 -2,244 -65 -2,359 0 -2,359 -47 7 -40 338 298 17,412 -12,934 -22 -2,890 -591 975 1,573 -135 40 -628 -53 1,772 0 1,772 -1,098 26 2,080 -1,180 -87 0 110 615 466 0 466 -1,160 -1,156 110 -2,206 0 -2,206 32 -48 -16 298 282 98 of 152 l Cash flow statement –TrygVesta Group l TrygVesta Annual Report 2008 Notes 1 ACCOUNTING POLICIES The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU on 31 December 2008 and in accordance with the Danish Statutory Order on Adoption of IFRS. The financial statements of the parent company are prepared in accordance with executive order no. 1266 dated 26 October 2007 issued by the Danish FSA on the presentation of financial reports by insurance companies and profession-specific pension funds. The devia- tions from the recognition and measurement requirements of IFRS are: Changes in accounting policies Accounting policies are unchanged from the annual report 2007. Implementation of accounting standards in 2008 In 2008, the Group implemented the following standards: • IAS 1 concerning ‘Presentation of Financial Statements – Capital Disclosures’ will take effect on 1 January 2009. The standard deals exclusively with presentation. The implementation has not resulted in major changes but involves a change in the information to be presented for the capital base and the presentation of the Group’s calculation of recognised income and expenses directly in equity. • IFRS 7 concerning ‘Financial Instruments Disclosures’ will take effect • Investments in subsidiaries are valued according to the equity method, whereas under IFRS valuation is made at cost or fair value. Furthermore the requirements regarding presentation and disclosure are less comprehensive than under IFRS. on 1 January 2009, although the improvements must be imple- mented in case of early implementation of IAS 1. Replacing IAS 30 and IAS 32, the standard involves additional presentation of interest income and interest expenses. • Unlike IAS 19, the Danish FSA’s executive order does not allow for actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions to be taken to equity. Actuarial gains and losses will therefore be recognised in the parent compa- ny’s income statement. Executive orders, standards and interpretations not yet in force The International Accounting Standards Board (IASB) has issued a number of revised international accounting standards and the Interna- tional Financial Reporting Interpretations Committee (IFRIC) has issued a number of interpretations that have not yet come into force. • The Danish FSA’s executive order does not allow provisions for de- ferred tax of contingency reserves allocated from untaxed funds. De- ferred tax and the equity of the parent company have been adjusted accordingly on the transition to IFRS. The executive order on application of international financial reporting standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differences between the format of the annual report under international financial reporting stand- ards and the rules issued by the Danish FSA. The following is a reconcilia- tion 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 2007 2008 2,266 846 69 -143 -2 0 Profit for the year ended 31 December – Danish fSA executive order 2,333 703 Equity reconciliation Shareholders equity at 31 December – IFRS Deferred tax provisions for contingency funds Change in deferred tax relating 10,010 8,244 21 23 to contingency funds -2 0 Equity at 31 December – Danish fSA executive order 10,031 8,265 • IAS 23 concerning ‘Borrowing costs”, which is effective for financial years commencing on or after 1 January 2009. IAS 23 requires the recognition of borrowing costs in the cost of a qualifying asset (intangible assets, property, plant and equipment and inventories). The standard is not expected to have financial reporting impact (IAS 23 remains to be adopted by the EU). • IFRIC 16 concerning hedge accounting is expected to be imple- mented in 2009. The standard will result in an assessment of existing hedges. (IFRIC 16 has yet to be adopted by the EU). The standard is not expected to have financial reporting impact. • IFRS 2, amendment to ‘Share-based payment’. The amendment concerns vesting conditions and the cancellation of allotted share options. The amendment is not expected to have financial reporting impact. (The amended IFRS 2 has yet to be adopted by the EU). Amendments to IFRS 3 concerning ‘Business combinations’, and IAS 27 concerning ‘Consolidated and separate financial statements’, IAS 28 concerning ’Investments in assosiates’ and IAS 31concerning ’Interests in Joint Venture’ are expected to be implemented in 2009. The amend- ments are applied prospectively for any future business combinations. Other interpretations, including IFRIC 12 ’Service Concession Arrange- ments, IFRIC 13 ’Customer Loyalty Programmes’, IFRIC 14 ’The limit on a Defined Benefit Asset’, IFRIC 15 ‘Agreements for Construction of Real Estate’ and IFRIC 17 ’Distributions of Non-cash Assets to Owners’, are not expected to have any financial reporting impact. Changes in accounting estimates • The assumptions for the allocation of insurance operating expenses to acquisition and administrative expenses respectively were re- assessed with effect from 30 June 2008. As a result, acquisition expenses total approximately 75% of insurance operating expenses, as compared with the previous total of approximately 65%. The change TrygVesta Annual Report 2008 l Notes l 99 of 152 Accounts Notes has no impact on the aggregate insurance operating expenses. • The TrygVesta Group’s defined benefit plan in Norway is impacted by DKK 53m due to a change in the assumptions that provided the ba- sis for the value at the end of 2008. • In October 2008, the Danish FSA changed the discount curve for dis- counting of provisions. As a result of the change, the discount rate is determined based on a risk-free interest rate and the mortage bond yield, enabling a better match between assets and liabilities. The effect of the change to the new yield curve is: DKKm Gross claims incurred Interest on insurance provisions Technical result Return on investment activities after transfer to insurance activities Profit/loss before tax Impact 31 Oct. Impact 31 Dec. -5 -6 -11 57 46 0 -8 -8 78 70 Provisions for claims -52 -78 Profit/loss, shareholders’ equity and capital base are impacted by the same amount. Accounting estimates and judgements The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exer- cise its judgement in the process of applying the company’s account- ing policies. The areas involving a higher degree of judgement or com- plexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets A more detailed description of primary assumptions about the future and other primary sources of estimation uncertainty is given in the risk management section in the Management’s report. Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions involve a number of uncertainty factors. Liabilities for unpaid claims are estimates that involve actuarial and statistical projections of the claims and the administration of the claims. The projections are based on the TrygVesta Group’s know- ledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other effects that might influence the future development of the liabilities. The TrygVesta Group establishes claims reserves covering both case reserves and estimated claims that have been incurred by its policy- holders but not yet reported to the company (known as “IBNR” reserves) and future developments on claims which are known to the TrygVesta Group but have not been finally settled. The group also in- cludes in its claims reserves direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the TrygVesta Group. The projection for claims reserves is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as to fac- tors such as court decisions, changes in law, social inflation and other economic trends, including inflation. The TrygVesta Group’s actual lia- bility for losses may therefore be subject to material positive or nega- tive deviations relative to the initially estimated provisions for claims. Provisions for claims are discounted. As a result, initial changes in dis- count rates or changes in duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor liability, professional liability, workers’ compensation and personal acci- dent classes, in particular. For discounting of provisions for claims, the Group generally applies a risk-free market rate composed of a risk-free euro-denominated inter- est rate and a country-specific spread to the German government bond yield. As a result of the adoption of the temporary ‘Package to ensure financial stability’, from the end of October the Group has applied a synthetic interest rate that includes a certain mortgage yield spread, for liabilities denominated in Danish kroner. Liabilities in Norwegian kroner are still discounted using a Norwegian risk-free interest rate composed as described above. Liabilities in Swedish kroner and euro are discounted using a Danish risk-free interest rate. Several assumptions and estimates underlying the calculation of the provisions for claims are mutually dependent. Most importantly, this can be expected to be the case for interest rate and inflation assumptions. Defined benefit pension schemes The company operates a defined benefit plan in Norway. A “defined benefit” plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, depending on age, years of service and compensation. The liability recognised in the bal- ance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecog- nised actuarial gains or losses and past service costs. The projected unit credit method is a cash-flow calculation, which calculates the obligation as the present value of benefit attributed to current and prior years. The defined benefit obligation is calculated periodically by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting estimated future cash outflows. Changes in the present value are primarily made due to changes in as- sumptions about discount rate, expenses, return on plan assets, future salary increases and future pension increases. Since the provision for pension funds is based on actuarial calculations involving statistics and cash flow from such factors as investments, changes in interest rates, inflation and expectation of life, it may mean that the TrygVesta Group’s provision may be inadequate to cover its actual liability towards employees and current pensioners. fair value of financial assets Measurements of financial assets for which prices are quoted in an ac- 100 of 152 l Notes l TrygVesta Annual Report 2008 tive market or which are based on generally accepted models with ob- servable market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instru- ment or using a model calculation. The valuation models include the dis- counting of the instrument cash flow using an appropriate market inter- est rate with due consideration to credit and liquidity premiums. achieved through direct or indirect ownership or disposal of more than 20% but less than 50% of the votes. Investments in joint ventures are recognised using the pro rata consoli- dation method. Using pro rata consolidation, the group’s share of joint venture assets and liabilities is recognised in the balance sheet. The share of income and expenses and assets and liabilities are presented on a line by line basis in the consolidated financial statements. BASIS Of PRESENTATION Recognition and measurement The annual report has been prepared under the historical cost conven- tion, as modified by the revaluation of owner-occupied properties, where increases are credited to equity and revaluation of investment property, financial assets held for trading and financial assets and financial liabilities (including derivative instruments) at fair value through the income statement. Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to the group and the value of the asset can be reliably measured. Liabilities are recognised in the balance sheet when the group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the group, and the value of the liabilities can be measured reliably. On initial recognition assets and liabilities are measured at cost, with the exception of financial assets, which are recognised at fair value. Measurement subsequent to initial recognition is effected as described below for each financial statement item. Anticipated risks and losses that arise before the time of presentation of the annual report and that confirm or invalidate affairs and conditions existing at the balance sheet date are considered at recognition and measurement. Income is recognised in the income statement as earned, whereas costs are recognised by the amounts attributable to this financial year. Value adjustments of financial assets and liabilities are recorded in the income statement unless otherwise described below. All amounts in the notes are shown in millions of DKK, unless other- wise stated. Consolidation The consolidated financial statements comprise the financial state- ments of TrygVesta A/S (the parent company) and enterprises (subsidi- aries) controlled by the parent company. Control is achieved where the parent company directly or indirectly holds more than 50% of the voting rights or is otherwise able to exercise or actually exercises a controlling influence. The consolidated financial statements are prepared on the basis of the financial statements of the parent company and its subsidiaries by adding items of a uniform nature. The financial statements of subsidi- aries that present financial statements under other legislative rules are restated to the accounting policies applied by the group. Enterprises in which the group exercises significant influence but not control are classified as associates. Significant influence is typically On consolidation, intra-group income and expenses, shareholdings, intra-group accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated. Newly acquired or divested subsidiaries are consolidated at the results for the period subsequent to achieving or surrendering control, respec- tively. Profit and loss in divested subsidiaries and profit and loss on discontinued activities are included under discontinued and divested business in the income statement. Unrealised gains on transactions between the group and its subsidiar- ies and associates are eliminated to the extent of the group’s interest in the companies. Unrealised losses are eliminated in the same way as unrealised gains unless impairment has occurred. In accordance with IFRS 1 TrygVesta has elected not to apply IFRS 3 retrospectively to past business combinations (business combinations that occurred before the date of transition to IFRS). Business combinations Newly acquired companies are recognised in the consolidated financial statements from the date of acquisition. Comparative figures are not restated to reflect acquisitions. The purchase method is applied on acquisitions if the TrygVesta Group gains control of the company acquired. Identifiable assets, liabilities and contingent liabilities in companies acquired are measured at the fair value at the date of acquisition. The tax effect of revaluations is taken into account. The date of acquisition is the date on which control of the acquired company actually passes to the TrygVesta Group. The cost of a company is the fair value of the agreed consideration paid plus costs directly attributable to the acquisition. If the final amount of the consideration is conditional on one or more future events, these adjustments are only recognised in cost if the event in question is likely to occur and its effect on cost can be reliably measured. Any excess of the cost of acquisition over the fair value of the acquired identifiable assets, liabilities and contingent liabilities is recognised as goodwill under intangible assets. Goodwill is tested for impairment at least once a year. If the carrying amount of an asset exceeds its recover- able amount, the asset is written down to the lower recoverable amount. TrygVesta Annual Report 2008 l Notes l 101 of 152 Accounts Notes Intra-group transactions Intra-group transactions are settled on market terms. Intra-group balances carry interest on market terms. Currency translation A functional currency is determined for each of the reporting entities in the group. The functional currency is the currency in the primary economic environment in which the reporting entity operates. Transac- tions in currencies other than the functional currency are transactions in foreign currencies. On initial recognition, transactions in foreign currencies are translated into the functional currency at the exchange rate ruling at the trans- action date. Assets and liabilities denominated in foreign currency are translated at the exchange rates at the balance sheet date. Translation differences are recognised in the income statement under value adjustments. On consolidation, the assets and liabilities of the group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classified as equity and transferred to the group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. All other currency translation gains and losses are rec- ognised in the income statement. Prensentation currency in the annual report is DKK. Segment reporting Segment information is based on the group’s management and inter- nal financial reporting system and is prepared in accordance with the group’s accounting policies. The operational business segments in the TrygVesta Group are the Pri- vate & Commercial (Denmark) segment, the Private & Commercial (Norway) segment, the Corporate segment and the General Insurance (Finland and Sweden) segment. Geographical information is presented on the basis of the economic environment in which the TrygVesta Group operates. The geographical areas are Denmark, Norway, Finland and Sweden. Segment income and segment costs as well as segment assets and lia- bilities comprise those items that can be directly attributed to each in- dividual segment and those items that can be allocated to the individ- ual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity. Ratios Earnings per share (EPS) are calculated according to IAS 33. Other key ratios are calculated in accordance with “Recommendations and Ratios 2005” issued by the Danish Society of Financial Analysts and the exec- utive order no. 1266 dated 26 October 2007 issued by the Danish FSA. INCOME STATEMENT Premiums Earned premiums represent gross premiums earned during the year, net of outward reinsurance premiums and adjusted for changes in the provision for unearned premiums, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the provision for unearned premiums. Premiums are recognised as earned premiums according to the expo- sure of risk over the period of coverage, computed separately for each insurance contract using the pro rata method, and adjusted if neces- sary to reflect any variation in the incidence of risk during the period covered by the contract. The portion of premiums received on contracts that relates to unex- pired risks at the balance sheet date is reported under provisions for unearned premiums. The portion of premiums paid to reinsurers that relate to unexpired risks at the balance sheet date is reported as the reinsurers’ share of provisions for unearned premiums. Technical interest According to the Danish FSA’s executive order, technical interest is presented as a calculated return on the year’s average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions. Technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Claims incurred Claims incurred represent claims paid during the year and adjusted for changes in provisions for unpaid claims less the reinsurers’ share. In addition, the item includes run-off results regarding previous years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to technical interest. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and contain claims incurred and other direct and indirect costs associated with the handling of claims incurred. Changes in provisions for claims due to changes in the yield curve and exchange rates are recognised as a market value adjustment. TrygVesta hedges the risk of changes in future wage and price figures for provisions for workers’ compensation and annuities for accident and health insurance. For 90-100% of this risk, TrygVesta uses swaps specifically acquired with a view to hedging the inflation risk. Value adjustment of these swaps is included in claims incurred, thereby reducing the effect of changes to inflation expectations under claims incurred. 102 of 152 l Notes l TrygVesta Annual Report 2008 Bonus and premium rebates Bonus and premium rebates represent anticipated and reimbursed pre- miums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the business was written. On initial recognition of the share options, the number of options ex- pected to vest is estimated. Subsequently, adjustment is made for changes in the estimated number of vested options to the effect that the total amount recognised is based on the actual number of vested options. Insurance operating expenses Insurance operating expenses represent acquisition costs and adminis- trative expenses less reinsurance commissions received. Expenses re- lating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is accrued over the term of the policy when a legal obligation occurs. Administra- tive expenses are all other expenses attributable to the administration of the insurance portfolio. Administrative expenses are accrued to match the financial year. Leasing Leases are classified either as operating or finance leases. The assess- ment of the lease is made on the basis of criteria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custom-made, the lease term and the present value of the lease payments. Assets held under operating leases are not recognised in the balance sheet, but the lease payments are recognised in the income statement over the term of the lease, corresponding to the economic life of the asset, while assets held under finance leases are recognised at fair value and depreciated according to the same accounting policy as the group applies for similar owned assets. For assets held under finance leases, a lease liability is recognised at amortised cost. Share-based payment The TrygVesta Group’s incentive programmes comprise a share option programme and employee shares. Share option programme The value of services received as consideration for options granted is measured at the fair value of the options. The fair value of the options granted is estimated using the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted. Employee shares When employees are given the opportunity to subscribe shares at a price below the market price, the discount is recognised as an expense in staff costs. The balancing item is recognised directly in equity. The discount is calculated at the grant date as the difference between fair value and the subscription price of the subscribed shares. 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. Investment activities Income from associates includes the group’s share of the associates’ net profit. Income from investment properties before fair value adjustment repre- sents the profit from property operations less property management expenses. Interest, dividends, etc. represent interest earned, dividends received, etc. during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of land and buildings, exchange rate adjustments and the effect of move- ments in the yield curve used for discounting, are recognised as value adjustments. Equity-settled share options are measured at the fair value at the grant date and recognised under staff costs over the period from the grant date until vesting. The balancing item is recognised directly in equity. Investment management charges represent expenses relating to the management of investments. 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 concern- ing sickness and death and in case of change to the company’s capital position, etc. The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the employment relationship. In case of termination due to restructuring or retirement, the employee is still entitled to 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 op- tions are settled in shares. A part of the company’s holding of treasury shares is reserved for settlement of the options allocated. Other income and expenses Other income and expenses includes income and expenses which can- not be ascribed to TrygVesta’s insurance portfolio or investment as- sets, including the sale of products for Nordea Liv og Pension. Discontinued and divested business Discontinued and divested activities are consolidated in one line item in the income statement and supplemented with disclosure of the dis- continued and divested activities in a note to the financial statements. Recognition of the balance sheet items in respect of the discontinued activities remains unchanged in the respective items whereas assets and liabilities from divested activities are consolidated in one line as “assets concerning divested business” and “liabilities concerning di- vested business”, respectively. TrygVesta Annual Report 2008 l Notes l 103 of 152 Accounts Notes The comparative figures, including financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested activities in the income statement include the post-tax profit of TrygVesta’s business in run-off as well as divested enterprises. Busi- ness in run-off comprises the results of the business in run-off in Tryg Forsikring A/S. Divested subsidiaries comprise the activities in Chevan- stell Ltd. UK (2006), Poland (2004), Nordicum Kindlustus (2004) and Tryg Baltica International A/S (2004). BALANCE ShEET Intangible assets Software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful life (four years). Costs that are directly associated with the production of identifiable and unique software products, for which there is sufficient certainty that future earnings will exceed costs for more than one year, are rec- ognised as intangible assets. Direct costs include the software devel- opment team’s employee costs and an appropriate portion of relevant overheads. All other costs associated with developing or maintaining software are recognised as an expense as incurred. After completion of the development the asset is depreciated on a straight-line basis over the expected useful life, however with a maxi- mum period of 4 years. The basis of amortisation is reduced by any impairment writedowns. fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumu- lated depreciation and any accumulated impairment losses. Cost en- compasses the purchase price and costs directly attributable to the ac- quisition of the relevant assets until the time when the asset is ready to be brought into use. Depreciation on plant and equipment is calculated using the straight- line method over their estimated useful lives, as follows: • IT, 4 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years Leasehold improvements are depreciated over the expected useful life, however with a maximum of the term of the lease. The assets’ residual values and useful lives are reviewed at each bal- ance sheet date and adjusted if appropriate. Land and buildings Land and buildings are divided into owner-occupied property and in- vestment property. The TrygVesta Group’s owner-occupied properties consist of the head office buildings at Ballerup and Bergen and a few summer houses. The remaining properties are classified as investment properties. Owner-occupied property Owner-occupied properties are measured in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumu- lated impairment writedowns. Revaluations are performed regularly to avoid the carrying amount differing materially from the owner-occu- pied property’s fair value at the balance sheet date. 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. Increases in the revalued carrying amount of owner-occupied proper- ties are credited to the properties’ revaluation reserve in equity. De- creases that offset previous increases of the same asset are charged against the properties’ revaluation reserves directly in equity; all other decreases are charged to the income statement. Subsequent costs are included in the asset’s carrying amount or rec- ognised as a separate asset, as appropriate, when it is probable that future economic benefits associated with the item will flow to the group, and the cost of the item can be reliably measured. Ordinary re- pair and maintenance costs are charged to the income statement dur- ing the financial period in which they are incurred. Owner-occupied property is depreciated using the straight-line method over its expected useful life up to 50 years. Land is not depreciated. Assets under construction In connection with the refurbishment of the owner-occupied proper- ties, part of the costs is recognised at cost under owner-occupied property. On completion of the project, depreciation will be made on a straight-line basis over the expected useful life, up to the number of years stated under the individual categories. Investment property Properties held for renting yields that are not occupied by the group are classified as investment properties. Investment property is carried at fair value. Fair value is based on mar- ket prices, adjusted for any difference in the nature, location or condi- tion of the specific asset. If this information is not available, the group uses alternative valuation methods such as discounted cash flow pro- jections and recent prices on less active markets. Gains and losses on disposals and retirements are determined by com- paring proceeds with carrying amount. Gains and losses are recog- nised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserves are transferred to re- tained earnings. The fair value is calculated on the basis of market-specific rental in- come per property and typical operating expenses for the upcoming year. The resulting operating income is divided by the percentage re- turn requirement of the property, which has been adjusted to reflect 104 of 152 l Notes l TrygVesta Annual Report 2008 market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently ad- justed with the value in use of the return on prepayments and depos- its and adjustment for specific property issues such as vacant premises or special tenant terms and conditions. Investments Investments include financial assets at fair value through the income statement. The classification depends on the purpose for which the in- vestments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this at every re- porting date. Changes in fair values are recorded in the income statement. Impairment of intangible assets, equipment, owner-occupied property and investment property The carrying amount of intangible assets, operating equipment, own- er-occupied property and investment property is tested at least once a year for impairment in the cash-generating unit to which the asset be- longs, and the asset is written down to the recoverable amount through the income statement if the carrying amount is higher. The recoverable amount is generally calculated as the present value of the future cash flows expected to be derived from the activity to which the asset belongs. Investments in subsidiaries The parent company’s investments in subsidiaries are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intra- group profits and losses is recognised in the income statement. In the balance sheet, investments are measured at the pro rata share of the enterprises’ equity. Subsidiaries with a negative net asset value are measured at zero value. Any receivables from these enterprises are written down by the parent company’s share of such negative net asset value where the re- ceivables are deemed irrecoverable. If the negative net asset value ex- ceeds the amount receivable, the remaining amount is recognised un- der provisions if the parent company has a legal or constructive obligation to cover the liabilities of the relevant enterprise. Net revaluation of investments in subsidiaries is taken to reserve for net revaluation under the equity method if the carrying amount ex- ceeds cost. The results of foreign subsidiaries are based on translation of the items in the income statement at average exchange rates for the pe- riod. Income and expenses in domestic enterprises denominated in for- eign currency are translated at the exchange rate ruling on the date of the transaction. Investments in associates Associates are enterprises over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are measured according to the equity method of accounting so that the carrying amount of the investment represents the group’s pro- portionate share of the enterprises’ net assets. Income after taxes from investments in associates is included as a separate line in the income statement. Associates with a negative net asset value are measured at zero value. If the group has a legal or constructive obligation to cover the associ- ate’s negative balance, such obligation is recognised under liabilities. Financial assets measured at fair value with recognition of value changes in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment through profit and loss. financial assets at fair value through income Financial assets are classified as financial assets available for trading at inception if acquired principally for the purpose of selling in the short term, or if they form part of a portfolio of financial assets in which there is evidence of short-term profit-taking. Derivatives are also clas- sified as financial assets available for trading unless they are desig- nated as hedges. Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired, or if they have been transferred, and the group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis – the date on which the group commits to purchase or sell the asset. Financial assets are recognised at fair value at the transaction date. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through income are in- cluded in the income statement in the period in which they arise. The fair values of quoted investments are based on stock exchange prices at the balance sheet date. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using valuation techniques or using OTC prices. These include the use of similar recent arm’s length transactions, reference to other instru- ments that are substantially the same and a discounted cash flow analysis. Derivative financial instruments and hedge accounting The group’s activities expose it to financial risks, including changes in share prices, foreign currency exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance balance sheet items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks related to the portfolio of bonds and technical provisions. Share derivates are used from time to time to adjust share exposures. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently measured at their fair value. The valuation is performed in securities systems with data usually provided by Nordea, and the valuation is verified using own valuation methods. Derivatives which include expected future cash flows are discounted on the basis of market interest rates. TrygVesta Annual Report 2008 l Notes l 105 of 152 Accounts Notes Derivatives are recognised from the trade date and measured at fair value in the balance sheet. Positive fair values of derivatives are recognised as bonds and shares or other receivables if they cannot unambiguously be attributed to the former. Negative fair values of derivatives are recognised under other payables. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments. Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The group designates certain derivatives as hedges of investments in foreign operations. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign net assets and which provide effective currency hedging of the net investment are recognised directly in equity. The net asset value of the foreign entities as estimated in the beginning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign operation. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the group with reinsurers under which the group is compensated for losses on one or more contracts issued by the group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets. The benefits to which the group is entitled under its reinsurance con- tracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts. Amounts recoverable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in technical interest. Changes due to changes in the yield curve or foreign currency exchange rates are recognised as value adjustments. The group assesses continuously its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the group reduces the carrying amount of the reinsurance asset to its recov- erable amount and recognises that impairment loss in the income state- ment. Impairment write-downs are recognised in the income statement. Receivables Receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market other than receivables that the group intends to sell in the short term. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the impairment review of receivables. On initial recognition, receivables are measured at fair value, and they are subsequently measured at amortised cost. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured at the difference between the asset’s carrying amount and the present value of estimated future cash flows. Other assets Other assets include current tax assets and cash in hand and at bank. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash is rec- ognised at nominal value at the balance sheet date. Prepayments and accrued income Prepayments include expenses paid in respect of subsequent financial years and interest receivable. Accrued underwriting commission relat- ing to the sale of insurance is also included. Equity Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Revaluation reserves Revaluation of owner-occupied properties is recognised in equity unless the revaluation offsets a previous impairment loss, and relates primarily to owner-occupied properties. Exchange adjustment reserve Assets and liabilities of foreign entities are recognised at the exchange rate at the balance sheet date. Income and expense items are recog- nised at the average exchange rates for the period. Any resulting ex- change rate differences are recognised in equity. When an entity is wound up, the balance is transferred to the income statement. The hedging of the exchange rate risk concerning foreign entities is also offset in shareholders’ equity in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of retained earnings under equity. The funds may only be used when so permitted by the Danish FSA and when it is to the benefit of the policyholders. Dividend distribution Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (the date of declaration). Dividends expected to be paid in respect of the year are stated as a separate line item under equity. Treasury shares The purchase and sale sums of treasury shares and dividends thereon are taken directly to retained earnings under equity. Treasury shares include shares acquired as part of the share buyback programme and shares for employee shares and the share option programmes. Proceeds from the sale of treasury shares in connection with the exer- cise of share options or employee shares are taken directly to equity. 106 of 152 l Notes l TrygVesta Annual Report 2008 Subordinate loan capital Subordinate loan capital is recognised initially at fair value, net of transaction costs incurred. Subordinate loan capital is subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the in- come statement over the period of the borrowings using the effective interest method. Provisions for insurance contracts Premiums are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as unearned premium provisions. Unearned premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period. However, as a minimum to the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any variations in the risk. This applies to gross as well as ceded business. Claims and claims handling costs are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third parties damaged by the contract holders. They include direct and indirect claims handling costs and arise from events that have occurred up to the balance sheet date even if they have not yet been reported to the group. Provisions for claims are estimated using the input of assessments for individual cases reported to the group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be af- fected by external factors (such as court decisions). The provisions include claims handling costs. Provisions for claims are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liabil- ity, workers’ compensation and personal accident classes, in particular. Provisions for bonus and premium rebates represent amounts expected to be paid to policyholders in view of the claims experience during the financial year. Provisions for claims are determined for each product line based on actuarial methods. In cases where product lines encompass more than one business unit, the claims provisions are distributed, as a main rule, based on reported number of claims in Denmark and individual claims in Norway. The models currently used are Chain-Ladder, Bornhuetter- Ferguson, the Loss Ratio method, De Vylder’s credibility method and a proprietary collective reserve model for use in private business lines in Denmark. Chain-Ladder techniques are used for business lines with a stable run-off pattern. The Bornhuetter-Ferguson method, and some- times the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run- off performance. De Vylder’s credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Fergu- son/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for exam- ple the number of insured. The proprietary collective model is based exclusively on actual payments and is therefore only used for provisions for small claims, below DKK 364,000 for motor, or DKK 200,000, for contents and DKK 100,000 for other. The model is so dynamic that, to the greatest ex- tent possible, it captures changes in the run-off pattern. It consists of two modules, with the first module estimating on a daily basis with due consideration to days off and special high-frequency days such as New Year’s Eve or days with slippery roads. The model also takes the season into consideration, both in terms of claims performance and in claims handling intensity. In the second module, estimates are on a more aggregate level, and the calculations are based on a generalised hierarchic De Vylder model. The provision for annuities in workers’ compensation insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis (official mortality table). In some instances, the historic data used in the actuarial models is not necessarily predictive of the future development of claims. Specifically, this is the case with legislative changes where in each specific case an estimate used for premium increases related to the relevant risk in- crease is derived. For legislative changes this estimate is used also in determining the level of claims – and hence reserves. Subsequently, this estimate is updated when new loss history materialises. Several assumptions and estimates underlying the calculation of the provisions for claims are mutually dependent. Most importantly, this can be expected to be the case for interest rate and inflation assumptions. Workers’ compensation is an area in which explicit inflation assump- tions are used, with annuities for the insured being indexed with the workers’ compensation index. An inflation curve that reflects the mar- ket’s inflation expectations plus a real wage spread is used as an approximation to the workers’ compensation index. For other lines of business, the inflation assumptions, because present only implicitly in the actuarial models, will cause a certain lag in pre- dicting the level of future losses when a shift in inflation occurs. On the other hand, the effect of discounting will show immediately as a consequence of inflation changes to the extent that this change af- fects the interest rate. Other correlations are not significant. Liability adequacy test Tests are continuously performed to ensure the adequacy of the technical provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency is charged to the income statement by raising the relevant provision. Any positive deviations are also recognised in the income statement. Employee benefits Pension obligations The group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-administered funds. In Norway, the group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension ben- efit that an employee will receive on retirement, dependent on age, years of service and compensation. In Denmark, the group operates a defined contribution plan. A defined contribution plan is a pension plan TrygVesta Annual Report 2008 l Notes l 107 of 152 Accounts Notes under which the group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. Expectations of returns on plan assets are based on the return within each asset class and the current allocation thereof. Market expec- tations of future returns are taken into consideration. The actuarial gains and losses arising from experience adjustments and changes in actuarial estimates is recognised in equity. Other employee benefits Employees of the group are entitled to a fixed payment when they reach retirement and when they have been employed with the group for 25 and for 40 years. The group recognises this liability as soon as the employment begins. In special instances the employee can enter a contract with the group to receive compensation for loss in pension benefits caused by re- duced working hours. The group recognises this liability based on sta- tistical models. Income tax and deferred tax The group provides current tax expense according to the tax law of each jurisdiction in which it operates. Current tax liabilities and current tax receivables are recognised in the balance sheet as estimated tax on the taxable income for the year, adjusted for change in tax on prior years’ taxable income and for tax paid under the on-account tax scheme. Deferred tax is measured according to the balance sheet liability method on all timing differences between the tax and accounting value of assets and liabilities. Deferred income tax is measured using tax rules and tax rates that apply in the relevant countries by the bal- ance sheet date when the deferred tax asset is realised or the deferred income tax liability is settled. financial liabilities Bond loans, debt to credit institutions, etc. are recognised at the rais- ing of the loan as the proceeds received less transaction costs. In the subsequent periods, financial liabilities are measured at amortised cost, applying the ‘effective interest rate method’, to the effect that the difference between the proceeds and the nominal value is recog- nised in the income statement under financial expenses over the term of the loan. Transaction costs in connection with floating-rate loans or floating-rate credit facilities are amortised over the loan period using straight-line amortisation. Other liabilities are measured at net realisable value. Cash flow statement The cash flow statement of the group is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the group’s cash and cash equivalents at the be- ginning and the end of the financial year. No separate cash flow state- ment has been prepared for the parent company because it is included in the consolidated cash flow statement. Cash flows from acquisition and divestment of enterprises are shown separately under cash flows from investing activities. Cash flows from acquired enterprises are recognised in the cash flow statement from the time of their acquisition, and cash flows from divested enterprises are recognised up to the time of sale. Cash flows from operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed. Cash flows from investing activities comprise payments in connection with acquisition and divestment of enterprises and activities as well as purchase and sale of intangible assets, property, plant and equipment as well as fixed asset investments. Cash flows from financing activities comprise changes in the size or composition of TrygVesta’s share capital and related costs as well as the raising of loans, instalments on interest-bearing debt, and pay- ment of dividends. Cash and cash equivalents comprise cash and demand deposits. Deferred income tax assets, including the tax value of tax losses car- ried forward, are recognised to the extent that it is probable that fu- ture taxable profit will be available against which the temporary differ- ences can be utilised. financial highlights and key ratios Financial highlights and key ratios for the TrygVesta Group are set out at the beginning of the Annual Report. Deferred income tax is provided on temporary differences concerning investments, except where TrygVesta controls when the temporary dif- ference will be realised, and it is probable that the temporary differ- ence will not be realised in the foreseeable future. Provisions Provisions are recognised when, as a consequence of an event that has occurred before or on the balance sheet date, the group has a le- gal or constructive obligation, and it is likely that an outflow of re- sources will be required to settle the obligation. Provisions are meas- ured as the management’s best estimate of the amount with which the liability is expected to be settled. 108 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 2 Earned premiums, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance 16,764 78 16,842 -13 16,829 -891 -48 15,890 Direct insurance, by location of risk 2007 2008 Denmark Other EU countries Other countries 3 Technical interest, net of reinsurance Interest on insurance provisions Transferred from provisions for claims concerning discounting Return on discontinued business 4 Claims incurred, net of insurance Claims incurred Run-off previous years, gross Reinsurance recoveries Run-off previous years, reinsurers’ share Gross 9,321 469 6,961 16,751 Ceded -512 -29 -350 -891 Gross 9,538 742 7,168 17,448 1,400 -896 -3 501 -11,919 744 -11,175 502 -1 -10,674 Under claims incurred, the value adjustment of inflation swaps to hedge the inflation risk concerning annuities on workers’ compensation insurance totals DKK 8m (in 2007 DKK -22m.) 5 Insurance operating expenses, net of reinsurance Commission regarding direct business Other acquisition costs Total acquisition costs Administrative expenses Insurance operating expenses, gross Commission from reinsurers Administative expenses include fee to the auditors appointed by the Annual General Meeting: Deloitte Of which services other than audit: Deloitte In adddition, expenses have been incurred for the Group´s Internal Audit Department. -406 -1,415 -1,821 -948 -2,769 95 -2,674 -8 -8 -2 -2 17,465 47 17,512 -17 17,495 -819 -41 16,635 Ceded -489 -16 -314 -819 1,428 -926 -3 499 -12,634 868 -11,766 194 -75 -11,647 -429 -1,818 -2,247 -756 -3,003 72 -2,931 -8 -8 -1 -1 TrygVesta Annual Report 2008 l Notes l 109 of 152 Accounts Notes DKKm 5 Insurance operating expenses, gross, classified by type Commision Staff expenses Other staff expenses Office expenses and fees, headquarter expenses Operating and maintenance costs IT, software expenses Depreciation, amortisation and impairment writedowns Other income Total lease expenses amount to DKK 66m (in 2007 DKK 106m). Insurance operating expenses and claims include the following staff expenditure: Salaries and wages Commision Allocated share options Pensions Other social security costs Payroll tax 2007 2008 -406 -1,594 -198 -462 -198 -102 191 -2,769 -1,832 -21 -8 -257 -5 -249 -2,372 -429 -1,658 -232 -557 -208 -111 192 -3,003 -1,972 -17 -14 -282 -5 -256 -2,546 Remuneration for the Supervisory Board and Group Executive Management is disclosed in note 31 ‘Related parties’. Average number of full-time employees during the year 3,813 3,985 110 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 5 Share option programmes In 2008, TrygVesta awarded share options to the Executive Management (3 persons) and other senior employees (69 persons) and other employees (39 persons). At 31 December 2008, the share option plan comprised 572,367 share options (at 31 December 2007 329,902 share options). 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 0.84% of the share capital if all share options are exercised. The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the employment relationship. In case of termination due to restructuring or retirement, the employee is still entitled to the options. Special provisions are in place concerning sickness and death and in case of change to the company’s capital position. No other vesting conditions apply. The share option programmes are classified as equity-settled and recognised directly in equity. Treasury shares are acquired for use and hedging purposes, se note 20. Specification of outstanding options: Share options TOTAL NUMBERS Group Executive Management Other senior em- ployees Other em- ployees fAIR VALUE Total fair option option at Per value per Per option Total fair at 31 value at 31 at grant grant date December December DKKm DKKm DKK Total date DKK 2007 2006 allocation Allocated in 2006, 1 January Exercised Cancelled Expired 35,370 0 0 0 150,650 0 -2,620 0 0 0 0 0 186,020 0 -2,620 0 Outstanding options from 2006 allocation 31 Dec 2007 35,370 148,030 0 183,400 2007 allocation Allocated in 2007 Exercised Cancelled Expired Outstanding options from 2007 allocation 31 Dec 2007 Number of options exercisable end of 2007 2008 2006 allocation Allocated in 2006, 1 January Exercised Cancelled Expired 25,700 0 0 0 106,255 0 -1,453 0 18,000 0 -2,000 0 149,955 0 -3,453 0 25,700 104,802 16,000 146,502 0 0 35,370 0 0 0 148,030 0 -2,620 0 0 0 0 0 0 0 183,400 0 -2,620 0 Outstanding options from 2006 allocation 31 Dec 2008 35,370 145,410 0 180,780 2007 allocation Allocated in 2007, 1 January Exercised Cancelled Expired 25,700 0 0 0 104,802 0 -2,906 0 16,000 0 0 0 146,502 0 -2,906 0 Outstanding options from 2007 allocation 31 Dec 2008 25,700 101,896 16,000 143,596 2008 allocation Allocated in 2008 Exercised Cancelled Expired 52,088 0 0 0 167,203 0 0 0 28,700 0 0 0 247,991 0 0 0 Outstanding options from 2008 allocation 31 Dec 2008 Number of options exercisable end of 2008 52,088 167,203 28,700 247,991 0 0 0 0 64 0 64 0 - 99 0 99 0 - 0 64 0 64 0 - 99 0 99 0 - 69 0 0 0 - 0 12 0 0 0 12 15 0 -1 0 14 0 12 0 0 0 12 14 0 0 0 14 17 0 0 0 17 0 119 0 119 0 - 49 0 49 0 - 0 83 0 83 0 - 45 0 45 0 - 79 0 0 0 - 0 22 0 0 0 22 7 0 0 0 7 0 15 0 0 0 15 7 0 0 0 7 20 0 0 0 20 0 TrygVesta Annual Report 2008 l Notes l 111 of 152 Accounts Notes DKKm 5 Share option programmes Allocated Total numbers share options Exercised Cancelled Expired Outstanding Period of exercise Outstanding options by exercise date: Allocated in 2006 concerning 2005 Allocated in 2007 concerning 2006 Allocated in 2008 concerning 2007 183,400 146,502 247,991 Outstanding options 31 Dec. 2008 577,893 0 0 0 0 -2,620 -2,906 0 -5,526 0 0 0 0 180,780 February 2009 - February 2011 143,596 February 2010 - February 2012 247,991 February 2011 - February 2013 572,367 In 2008, the fair value of share options for the Group amounted to DKK 13.5m. The fair value in 2008 for the programme allocated in 2006, 20007 and 2008 is DKK 24m. Fair values at the time of allocation are based on the Black & Scholes option pricing formula. The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: Share option programmes Average share price (DKK) at time of allocation Exercise price (DKK) Expected volatility Expected maturity Risk-free interest rate 2006 355.85 0 17.9% 4 years 3.3% 2007 456.76 0 24.1% 4 years 3.9% 2008 378.24 0 20.3% 4 years 3.6% The expected volatility is based on the average volatility of TrygVesta shares in 2008. The expected maturity is 4 years, corresponding to the average of the exercise period of 3 to 5 years. 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 calculation is based on the strike price as set out in the option agreement and the average share price at the time of grant. The dividend payout ratio is not included in the calculation as the strike price is reduced by dividends paid in order to prevent recipients of option payments from being penalised for the company’s dividend payments. 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 2008, the average term to maturity is 1.2 years for the 2006 programme, 2.2 years for the 2007 programme and 3.2 years for the 2008 programme. 112 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 5 Employee shares In 2008, TrygVesta granted employee shares at a discount to the market price to employees at all levels in the Group. Employees of non- Danish branches were offered employee shares or alternatively a cash consideration. Each employee was offered 28 shares at a discount to the market price equal to DKK 25 per share, equivalent to a total of 59,492 shares or around DKK 23m being granted to the employees. Senior executives received part of their bonus in the form of shares at a discount to the market price. In 2008, a total of 26,323 shares were granted at discount to the market price of DKK 25 per share or DKK 9.3m. The grant of shares equalled 0.1% of the share capital. The amount was provided in 2007 and did not affect the profit for 2008. In 2008, TrygVesta offered its employees employee shares at a discount to the market price equal to DKK 25 per share subject to achieve- ment of specific financial benchmarks for 2008. Employees of non-Danish branches were offered employee shares or an alternative cash consideration. Senior executives of TrygVesta may elect to receive part of their bonus for 2008 in the form of shares at a discount to the market price. Bonus will be granted in early 2009. Provisions have been made for the above obligations in 2008. TrygVesta Annual Report 2008 l Notes l 113 of 152 Accounts Notes DKKm SEGMENTS 6 Operating segments 2007 P&C Denmark P&C Norway Corporate finland Sweden Other Total Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result 6,490 -4,041 -1,086 -87 164 1,440 Total return on investment activities after technical interest Other income and expenses 4,490 -2,962 -936 -82 182 692 5,285 -3,904 -504 -172 137 842 Profit before tax Tax Profit on continuing business Profit/loss on discontinued and divested business Profit Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates Provisions Debt Accruals and deferred income Total liabilities Description of segments 0 13 62 0 0 0 146 139 1,227 2,485 7,092 268 1,505 3,417 1,317 10,292 0 141 251 -188 -125 -1 14 -49 0 0 0 64 172 0 90 -80 -95 0 3 -82 0 0 0 32 33 0 0 0 -23 -1 1 -23 19 0 0 42,224 0 98 0 1,569 4,143 91 16,606 -11,175 -2,769 -343 501 2,820 340 -51 3,109 -842 2,267 -1 2,266 19 159 1,428 42,224 43,830 5,403 21,104 409 1,569 4,143 91 32,719 Please refer to ‘Our business areas’ in the Annual Report 2008 for a description of our operating segments. Amounts relating to TrygVesta A/S, Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj and eliminations are included in ‘Other’. Depreciation/amortisation is included in gross operating expenses, but managed at Group level and allocation to the individual segments would therefore not provide a true and fair view. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments. These amounts are thus included under ‘Other’. Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. A presentation of segments broken down by geography is provided in ‘Financial highlights and key ratios by geography.’ 114 of 152 l Notes l TrygVesta Annual Report 2008 DKKm SEGMENTS 6 Operating segments 2008 P&C Denmark P&C Norway Corporate finland Sweden Other Total Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result 6,605 -4,443 -1,155 -89 180 1,098 Total return on investment activities after technical interest Other income and expenses 4,636 -3,371 -1,004 -68 122 315 5,512 -3,489 -588 -516 173 1,092 Profit before tax Tax Profit on continuing business Profit/loss on discontinued and divested business Profit Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates Provisions Debt Accruals and deferred income Total liabilities 0 0 49 0 0 99 0 176 712 2,528 6,780 250 1,202 3,088 1,222 9,489 0 128 354 -258 -154 -1 17 -42 0 0 0 90 207 0 221 -214 -104 0 7 -90 0 0 0 58 84 0 -5 9 2 5 0 11 0 14 0 0 37,395 0 67 0 1,508 2,311 87 17,323 -11,766 -3,003 -669 499 2,384 -988 -49 1,347 -501 846 846 14 176 860 37,395 38,445 5,100 19,715 378 1,508 2,311 87 29,099 TrygVesta Annual Report 2008 l Notes l 115 of 152 Accounts Notes DKKm 6 Technical result, net of reinsurance, by line of business Accident and health health care Worker’s compensation Motor TPL Motor comprehensive Marine aviation and cargo 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 1,615 1,535 - 841 - 249 12 53 510 1,691 1,679 - 1,033 - 278 2 58 428 112 74 - 108 - 23 0 4 - 53 195 152 - 215 - 25 0 5 - 83 1,487 1,424 - 1,514 - 150 13 58 - 169 1,525 1,536 - 933 - 176 - 47 63 443 2,416 2,389 - 757 - 386 - 13 76 2,375 2,412 - 994 - 415 - 16 65 1,309 1,052 3,094 3,007 - 1,982 - 461 0 71 635 3,240 3,092 - 2,327 - 498 0 72 339 Claims frequency * Average claims DKK ** Total claims 8.0% 22,582 74,723 8.4% 21,871 81,213 23.0% 20,942 5,294 67.2% 10,495 20,139 24.2% 70,177 15,688 26.3% 68,748 17,109 5.9% 20,817 75,637 6.3% 16,290 83,569 20.7% 10,759 186,909 22.3% 10,623 212,185 10.0% 81,703 6,781 10.0% 70,555 7,105 fire & contents (Private) fire and contents (Commercial) Change of ownership Liability insurance insurance Credit & guarantee Tourist assistance 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 3,195 3,149 - 2,331 - 704 - 102 113 125 3,351 3,258 - 2,734 - 739 - 102 78 - 239 2,451 2,471 - 1,760 - 398 - 280 61 94 2,484 2,474 - 1,672 - 451 - 321 61 91 98 85 - 72 - 11 0 9 11 88 89 - 94 - 12 0 10 - 7 724 664 - 271 - 126 - 88 21 200 745 729 - 428 - 138 - 50 25 138 146 146 1 - 41 - 32 4 78 164 159 - 34 - 50 - 31 4 48 Claims frequency * Average claims DKK ** Total claims 12.8% 11,239 199,579 12.5% 11,876 202,314 20.7% 49,224 36,529 19.9% 46,185 35,651 14.8% 8,193 7,702 11.8% 12,448 6,732 10.6% 46,661 8,589 10.3% 48,025 8,489 0.7% 0.9% 48,061 1,220,934 19 28 7.1% 7,192 10,435 8.3% 7,303 14,987 699 688 - 586 - 92 156 1 167 261 268 - 214 - 54 - 1 7 6 787 739 - 487 - 98 - 104 25 75 327 323 - 255 - 55 - 1 7 19 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result Other insurance 2007 147 146 - 327 - 8 - 5 0 - 194 2008 114 121 - 26 4 3 - 1 101 Total Norwegian Group Life One-year policies 2007 2008 2007 2008 16,445 16,046 - 10,762 - 2,703 - 340 478 2,719 17,086 16,763 - 11,232 - 2,931 - 667 472 2,405 514 560 - 413 - 66 - 3 23 101 543 560 - 534 - 72 - 2 27 - 21 Claims frequency * Average claims DKK ** Total claims - 377,446 834 - 15,660 919 * The claims frequency is calculated as the number of claims incurred in proportion to the average number of insurance contracts. ** Average claims are total claims before run-off relative to total number of claims incurred. 116 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 6 Technical result, net of reinsurance, by line of business Accident and health health care Worker’s compensation Motor TPL Motor comprehensive Marine aviation and cargo 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 1,615 1,535 - 841 - 249 12 53 510 1,691 1,679 - 1,033 - 278 2 58 428 112 74 - 108 - 23 0 4 - 53 195 152 - 215 - 25 0 5 - 83 1,487 1,424 - 1,514 - 150 13 58 - 169 1,525 1,536 - 933 - 176 - 47 63 443 2,416 2,375 2,389 - 757 - 386 - 13 76 2,412 - 994 - 415 - 16 65 1,309 1,052 3,094 3,007 - 1,982 - 461 0 71 635 3,240 3,092 - 2,327 - 498 0 72 339 699 688 - 586 - 92 156 1 167 787 739 - 487 - 98 - 104 25 75 Claims frequency * Average claims DKK ** Total claims 8.0% 22,582 74,723 8.4% 21,871 81,213 23.0% 20,942 5,294 67.2% 10,495 20,139 24.2% 70,177 15,688 26.3% 68,748 17,109 5.9% 20,817 75,637 6.3% 16,290 83,569 20.7% 10,759 186,909 22.3% 10,623 212,185 10.0% 81,703 6,781 10.0% 70,555 7,105 fire & contents (Private) fire and contents (Commercial) Change of ownership Liability Credit & guarantee insurance Tourist assistance insurance 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 3,195 3,149 - 2,331 - 704 - 102 113 125 3,351 3,258 - 2,734 - 739 - 102 78 - 239 2,451 2,471 - 1,760 - 398 - 280 61 94 2,484 2,474 - 1,672 - 451 - 321 61 91 724 664 - 271 - 126 - 88 21 200 745 729 - 428 - 138 - 50 25 138 146 146 1 - 41 - 32 4 78 164 159 - 34 - 50 - 31 4 48 261 268 - 214 - 54 - 1 7 6 327 323 - 255 - 55 - 1 7 19 Claims frequency * Average claims DKK ** Total claims 12.8% 11,239 199,579 12.5% 11,876 202,314 20.7% 49,224 36,529 19.9% 46,185 35,651 14.8% 8,193 7,702 11.8% 12,448 6,732 10.6% 46,661 8,589 10.3% 48,025 8,489 0.7% 48,061 19 0.9% 1,220,934 28 7.1% 7,192 10,435 8.3% 7,303 14,987 98 85 - 72 - 11 0 9 11 514 560 - 413 - 66 - 3 23 101 88 89 - 94 - 12 0 10 - 7 543 560 - 534 - 72 - 2 27 - 21 Other insurance Total Norwegian Group Life One-year policies 2007 2008 2007 2008 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance 2007 147 146 - 327 - 8 - 5 0 2008 114 121 - 26 4 3 - 1 16,445 16,046 - 10,762 - 2,703 - 340 478 17,086 16,763 - 11,232 - 2,931 - 667 472 Technical result - 194 101 2,719 2,405 Claims frequency * Average claims DKK ** Total claims - 377,446 834 - 15,660 919 * The claims frequency is calculated as the number of claims incurred in proportion to the average number of insurance contracts. ** Average claims are total claims before run-off relative to total number of claims incurred. TrygVesta Annual Report 2008 l Notes l 117 of 152 Accounts Notes DKKm 2007 2008 7 Interest and dividends Dividends Interest income cash in hand and at bank Interest income bonds Interest income other Interest expenses Interest expenses subordinated loan capital and credit institutions Interest expenses other 8 Market value adjustment 168 46 1,112 56 1,382 -76 -12 -88 1,294 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 Market value adjustments concerning assets and liabilities that cannot be attributed to IAS 39: Investment property Owner-occupied property Discounting Other balance sheet items Market value gains Market value losses Market value adjustment, net 99 -80 0 25 -56 -12 107 14 298 8 427 415 1,861 -1,446 415 39 49 1,404 31 1,523 -83 -17 -100 1,423 -521 -549 98 456 17 -499 70 8 -478 -109 -509 -1,008 1,656 -2,664 -1,008 Exchange rate adjustments recognised in the income statement concerning assets and liabilities not measured at fair value total DKK 129m (in 2007 DKK 73m). Under market value adjustment the adjustment of inflation swaps totals DKK -46m (in 2007 DKK 4m.) 9 Tax Reconciliation of tax Tax on profit for the year Diffrence between Danish and foreign tax rate Prior-year tax adjustment Change tax rate Tax on non-taxable income and expenses, and tax concerning limitation of deductibility Change in valuation of tax assets Other taxes Effective tax rate Tax on profit for the year Diffrence between Danish and foreign tax rate Prior-year tax adjustment Change tax rate in Denmark Tax on non-taxable income and expenses, and tax concerning limitation of deductibility Change in valuation of tax assets Other taxes -777 -39 13 20 -2 -42 -15 -842 % 25 1 0 -1 0 1 1 27 -337 1 72 0 -203 -26 -8 -501 % 25 0 -5 0 15 2 0 37 See TrygVestas financial performance 2008 for futher information in the Management’s report regarding the tax expense 118 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 10 Profit/loss on discontinued and divested business Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Technical result Profit/loss before tax Profit/loss on discontinued and divested business 11 Intangible assets Cost Balance 1 January Exchange rate adjustment Transferred to 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 3 -1 -3 -1 -1 -1 373 4 -1 175 -23 528 -153 -3 -56 19 -193 335 Intangible assets under development amount to a total of DKK 198m (in 2007 DKK 220m). Additions for internally generated expenses amount to DKK 21m (in 2007 DKK 22m). Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. 12 Operating equipment Cost Balance 1 January Exchange rate adjustment Transferred from 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 243 1 1 43 -59 229 -145 -1 -31 28 -149 80 Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. 3 -1 -2 0 0 0 528 -21 -1 154 -15 645 -193 22 -31 7 -195 450 229 -9 1 3 -39 185 -149 8 -20 22 -139 46 TrygVesta Annual Report 2008 l Notes l 119 of 152 Accounts Notes DKKm 13 Owner-occupied property Cost Balance 1 January 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 in profit and loss Value adjustment for the year at revalued amount in equity Balance 31 December Accumulated depreciation Balance 1 January Exchange rate adjustment Depreciation for the year Balance 31 December 2007 2008 317 10 0 -9 318 12 -17 -3 -8 -3 0 -1 -4 318 -57 1,085 -13 1,333 -8 -1 0 -9 -4 1 -6 -9 Balance at revalued amount at 31 December 306 1,315 * Additions during the year include the purchase of owner-occupied property in Ejendomsselskabet af 8. maj totalling DKK 1,085m. Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. 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: Office property Office property Lowest percentage 2008 6.80 Lowest percentage 2007 7.00 Average percentage 2008 7.00 Average percentage 2007 7.83 highest percentage 2008 7.90 highest percentage 2007 7.90 120 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 14 Assets under construction Cost Balance 1 January Additions during the year Balance 31 December Accumulated value adjustments Balance 1 January Value adjustment for the year at revalued amount in profit and loss Balance 31 December Balance at revalued amount at 31 December 0 0 0 0 0 0 0 Value adjustments for the year relate to costs associated with refurbishment and improvement of owner-occupied property. It has been assessed that the costs cannot be contained in the future value of the owner-occupied property, which is the reason why the property has been written down. 15 Investment property Fair value 1 January Exchange rate adjustment Additions during the year Disposals during the year Value adjustment for the year fair value 31 December 2,127 13 23 -5 105 2,263 Total rental income for 2008 amounts to DKK 168m (DKK 159m in 2007). Total expenses for 2008 amount to DKK 40m (DKK 43m in 2007). Of this amount, unlet property represented DKK 0.5m (DKK 1m in 2007). Total expenses for investment property generating rental income thus amount to DKK 39.5m (DKK 42m in 2007). 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. 0 54 54 0 -54 -54 0 2,263 -96 80 -66 65 2,246 Business property Office property Residential property Business property Office property Residential property Lowest percentage 2008 7.00 3.80 4.00 Lowest percentage 2007 7.00 3.75 4.00 Average percentage 2008 7.30 6.70 5.30 Average percentage 2007 7.27 6.57 5.30 highest percentage 2008 7.50 7.80 6.00 highest percentage 2007 7.50 7.50 6.00 TrygVesta Annual Report 2008 l Notes l 121 of 152 Accounts Notes DKKm 16 Investments in associates Cost Balance 1 January Balance 31 December Revaluations at net asset value Balance 1 January Exchange rate adjustment Revaluations during the year Reversed depriciation Balance 31 December Carrying amount 31 December 2007 2008 0 0 18 0 1 0 19 19 0 0 19 -3 0 -2 14 14 Shares in associates according to the lastest financial statements: 2008 Name and registered office Assets Liabilities Shareholders’ equity Revenue Profit/loss for the year Ownership share in % Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway Edsvåg Fabrikker AS, Norway 2007 0 4 32 0 0 3 0 4 29 0 1 12 0 0 3 50 30 28 Name and registered office Assets Liabilities Shareholders’ equity Revenue Profit/loss for the year Ownership share in % Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway Edsvåg Fabrikker AS, Norway 0 4 40 0 0 5 0 4 35 0 1 17 0 0 5 50 30 28 An individual estimate of the degree of influence under the contracts is made. 122 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 17 Other financial investment assets Financial assets at fair value with value adjustment in the income statement, cf. IAS 39 Total receivables financial assets at fair value with value adjustment in the income statement Trading porfolio: Bonds Consisting of: Cash allocated to portfolio management Unsettled securities trading Deposits, derivatives Shares Cash in hand, deposits and other investment assets 35,844 2,555 38,399 30,294 -246 1,063 -302 30,809 4,445 609 30,754 1,689 32,443 29,417 -71 -101 -388 28,857 1,239 672 Total other financial investment assets, cash and investments in associates in accordance with the balance sheet 35,863 30,768 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 receivables from unsettled investment transactions. Bond portfolio Duration 1 year or less Duration 1 year through 5 years Duration 5 years through 10 years Duration more than 10 years Total Adjusted duration of bond portfolio 2008 2007 12,112 15,293 3,386 18 30,809 17,990 8,535 2,316 16 28,857 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. TrygVesta Annual Report 2008 l Notes l 123 of 152 Accounts Notes DKKm 17 Maturity of the Group’s interest-bearing financial assets and debt 2008 Total 0-1 year 1-5 years > 5 years Bonds Cash in hand and at bank Debt Receivables 28,857 672 -1,811 1,689 29,407 5,989 672 -111 1,689 8,239 11,473 0 -598 0 11,395 0 -1,102 0 10,875 10,293 2008 Total 0-1 year 1-5 years > 5 years Bonds Cash in hand and at bank Debt Receivables 30,809 601 -1,700 2,555 32,265 5,257 601 -2 2,555 8,411 18,326 0 -597 0 17,729 7,226 0 -1,101 0 6,125 Effective interest rate Adjusted duration 4.4 4.4 4.6 - 1.7 0.0 0.0 - Effective interest rate Adjusted duration 5.3 4.2 4.5 - 1.9 0,0 0,0 - The duration of interest-bearing debt is stated at zero as such debt is measured at amortised cost and is not subject to value adjustment. The note should be seen in connection with the expected cash flow from the Group’s provisions for unearned premiums and provisions for claims, see note 22. Please refer to the section on ’Interest risk’ in ’Risk management’ in the ’Management’s report’. Listed shares Scandinavia United Kingdom Rest of Europe United States Asien etc. Total The portfolio of unlisted shares totals Sold futures on shares are recognised in the amount at DKK -67m. Unlisted equity investments are measured at estimated fair value, see ’Accounting policies’. 2007 975 718 1,160 828 527 4,208 237 2008 195 103 298 244 152 992 180 Exposure to exchange rate risk 2008 Properties USD EUR GBP NOK Other Total 0 0 0 649 0 Bonds 21 723 1 10,113 0 Shares Insurance hedge Exposure 270 337 94 170 294 -232 -1,117 3 -8,616 -13 -73 73 -93 -2,396 -269 14 15 4 81 52 166 Exposure to exchange rate risk 2007 Properties Bonds Shares Insurance hedge Exposure USD EUR GBP NOK Other Total 0 0 0 786 0 1,116 2,018 472 8,352 4 688 1,308 570 1,007 642 -251 -1,136 -1 -5,756 -9 -1,535 -2,101 -983 -4,256 -619 18 89 58 133 18 316 Please refer to the section on Market risk Risk management in the Management’s report. 124 of 152 l Notes l TrygVesta Annual Report 2008 23 -57 -141 -315 -4 -219 Net 27 0 -41 311 297 0 Net -110 615 505 DKKm 2007 2008 17 Sensitivity information Impact on shareholders’ equity from the following changes: 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% 2 -27 -533 -214 -8 -220 The impact on the income statement is similar to the impact on shareholders’ equity. The calculation is made in accordance with the disclosure requirements of the executive order issued by the Danish FSA on the presentation of financial reports by insurance companies and profession-specific pension funds. Please refer to the section on ‘Risk management’ for an elaboration of risk management and risk exposure. Derivative financial instruments 2007 2008 Derivatives with value adjustment in the income statement according to IAS 39: Fair value: Gross 3,659 0 681 9,494 13,153 681 Net -7 0 26 205 224 0 Gross 3,124 67 3,618 5,253 8,444 3,618 Gains 144 615 759 Losses -254 0 -254 Interest derivatives Share derivatives Inflation derivatives Exchange rate derivatives Due within one year Due after more than five years Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes: Gains and losses on hedges charged to equity at 1 January Gains and losses on hedges charged to equity in the period Gains and losses on hedges charged to equity at 31 December Exchange rate adjustment Exchange rate adjustments of foreign entities recognised in equity in the amount of: Balance at 1 January Exchange rate adjustment during the year Exchange rate adjustment during the year recognised in profit and loss Balance at 31 December Receivables Receivables from insurance enterprises Exchange rate and inflation derivatives Unsettled transactions Other receivables Specification of writedowns on receivables from insurance enterprises Balance at 1 January Exchange rate adjustment Writedowns and reversed writedowns for the year Balance at 31 December 2007 2008 -9 120 -36 75 1,410 190 794 161 2,555 129 0 -23 106 75 -585 0 -510 1,088 383 136 82 1,689 106 -8 22 120 Reversed impairment losses are estimated at around DKK 20-30m annually, but may vary due to major cases/disputes. Please refer to the section on ‘Credit risk’ in ‘Risk management’ in the ‘Management’s report.’ TrygVesta Annual Report 2008 l Notes l 125 of 152 2007 2008 336 152 488 106 1,609 -22 1,587 186 8 746 -24 -673 243 93 336 243 259 117 376 120 1,051 -15 1,036 243 -66 434 154 -628 137 111 248 137 Accounts Notes DKKm 17 Receivables Receivables in connection with insurance include overdue receivables totalling: Falling due: Within 90 days After 90 days Including writedowns of due amounts 18 Reinsurers’ share Reinsurer’s share Writedowns after impairment test Writedowns during the year include reversed writedowns totalling DKK 7m (in 2007 DKK 12m). Please refer to the section on ‘Reinsurance’ in ‘Risk management’ in the ‘Management’s report’. 19 Current tax Current tax, beginning of year Exchange rate adjustment Current tax for the year Current tax on equity entries Tax paid during the year Net current tax, end of year Current tax is recognised in the balance sheet as follows: Under assets, current tax Under liabilities, current tax Net current tax, end of year 20 Shareholders’ equity Share capital Issued shares Balance at 1 January Bought during the year Sold during the year Balance at 31 December 2007 2008 No. of shares Nominal value (DKK’000) No. of shares 67,790,001 -221,200 69,677 1,694,750 -5,530 1,742 67,638,478 -3,346,610 85,815 Nominal value (DKK’000) 1,690,962 -83,665 2,145 67,638,478 1,690,962 64,377,683 1,609,442 Tresury shares Balance at 1 January Bought during the year Used in connection with issue of employee shares Balance at 31 December 2007 Nominal value (DKK’000) 5,250 5,530 -1,742 9,038 No. of shares 209,999 221,200 -69,677 361,522 % of share capital No. of shares 0.30 0.33 361,522 3,346,610 -0.10 -85,815 0.53 3,622,317 2008 Nominal value (DKK’000) 9,038 83,665 -2,145 90,558 % of share capital 0.53 4.92 -0.13 5.32 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 2009. In 2008, Tryg Vesta acquired treasury shares worth nom. DKK 83,665k, corresponding to 3,346,610 shares at a total cost of DKK 1,197m. Treasury shares are acquired for use in the Group’s incentive programme and as part of the share buy back programme. TrygVesta’s share buy back programme was launched after the annual general meeting held on 3 April 2008. Until 31 December 2008, shares worth DKK 1,053m had been bought back, corresponding to 75% of the total share buy back programme. 126 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 20 Capital adequacy Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capital base Weighted assets Solvency ratio 2007 2008 10,010 637 -1,156 -3,824 5,667 7,030 81 8,244 685 -423 -4,601 3,905 3,924 100 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. TrygVesta manages its capital requirement as described in “Capitalisation” in the Management’s report’ 21 Subordinated loan capital In December 2005, TrygVesta Forsikring A/S raised a subordinate bond loan for EUR 150m at the price of 99,017. The loan carries a fixed rate of interst at 4.5% p.a. until 2015, when it can be repaid. After that time, it will carry interest at 2.1% above EURIBOR until it expires in 2025. The loan is measured at amortised cost, and when the loan was raised capital losses and costs were deducted, amounting to DKK 16m at the balance sheet date. The fair value of the loan at the balance sheet date is DKK 908m (in 2007 DKK 1,041m) based on a price of 81.23 (in 2007 a price of 93.12). 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 TrygVesta Forsikring A/S. The loan is automatically accelerated upon the liquidation or bankruptcy of TrygVesta Forsikring A/S. The share of subordinated capital included in the calculation of the capital base amounts to DKK 685m (in 2007 a total of DKK 637m). TrygVesta Annual Report 2008 l Notes l 127 of 152 Accounts Notes DKKm 22 Provisions for claims Gross 2000 2001 2002 2003 2004 2005 2006 2007 2008 Estimated accumulated claims 0 1 2 3 4 5 6 7 8 Cumulative payments to date Discounting Reserves from 1999 and prior years Other reserves Gross provisions for claims, end of year 7,825 8,132 8,332 8,527 8,613 8,728 8,480 8,601 8,587 8,587 -8,003 -116 8,341 8,557 8,721 8,822 8,770 8,764 8,967 8,947 10,257 10,526 10,544 10,601 10,599 10,503 10,481 9,745 9,853 9,562 9,550 9,596 9,575 10,114 10,150 10,022 9,913 9,653 10,840 10,729 10,593 10,225 10,613 10,875 10,422 11,529 12,093 12,046 8,947 -8,094 -164 10,481 -9,348 -201 9,575 -8,180 -246 9,653 -8,006 -268 10,225 -8,316 -288 10,422 -7,911 -359 12,093 -8,541 -462 12,046 -5,745 -625 Ceded business 2000 2001 2002 2003 2004 2005 2006 2007 2008 Estimated accumulated claims 0 1 2 3 4 5 6 7 8 Cumulative payments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, end of year 1,258 1,351 1,328 1,350 1,379 1,374 1,371 1,379 1,382 1,382 -1,335 -5 1,239 1,259 1,261 1,273 1,252 1,240 1,246 1,230 1,804 1,883 1,786 1,781 1,780 1,789 1,793 790 762 760 807 739 735 725 740 777 776 763 912 807 813 808 269 270 257 497 463 158 1,230 -1,207 -7 1,793 -1,590 -23 735 -675 -10 763 -657 -21 808 -751 -10 257 -230 -4 463 -419 -2 158 -44 -5 Net of reinsurance 2000 2001 2002 2003 2004 2005 2006 2007 2008 92,029 -72,144 -2,729 2,115 444 19,715 7,589 -6,908 -87 200 66 860 Estimated accumulated claims 0 1 2 3 4 5 6 7 8 6,567 6,781 7,004 7,177 7,234 7,354 7,109 7,222 7,205 7,205 -6,668 -111 7,102 7,298 7,460 7,549 7,518 7,524 7,721 7,717 8,453 8,643 8,758 8,820 8,819 8,714 8,688 8,955 9,091 8,802 8,743 8,857 8,840 9,389 9,410 9,245 9,137 8,890 9,928 9,922 9,780 9,417 10,344 10,605 10,165 11,032 11,630 11,888 Cumulative payments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year 7,717 -6,887 -157 8,688 -7,758 -178 8,840 -7,505 -236 8,890 -7,349 -247 9,417 -7,565 -278 10,165 -7,681 -355 11,630 -8,122 -460 -620 11,888 84,440 -5,701 -65,236 -2,642 1,915 378 18,855 The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S. Other Group units are included in the item “Other reserves”, which comprises the provisions for claims for TrygVesta Garantiforsikring A/S and the Finnish and Swedish business units. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December to prevent the im- pact of exchange rate fluctuation. 128 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 22 Provisions for claims The accident-year 2000 is influenced by Chevanstell, which at that time operated under the name TBi UK in the London market. The im- pact derives from the stop-loss agreement between TrygVesta 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 final settelment had a positive impact. The inclusion of the Zurich portfolio acquired in 2002 and, to a minor extent, the Norwegian Allianz portfolio acquired in 2001, has an im- pact 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. After the introduction of variable interest rate discounting of Danish Worker’s Compensation annuities, inflation explicitly influences claims from 2007 onwards. In previous calender years the inflation element is partially offset by the use of discounting with a real rate of inte- rest. Hence undiscounted claims amounts are adversely affected in 2007 by a total of DKK 1,271m. 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) 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) Gross 20,761 -1,619 19,142 -5,745 -5,904 -11,649 11,178 -787 10,391 1,387 19,271 444 19,715 Gross 20,068 276 20,344 5,786 -5,343 -11,129 11,680 -740 10,940 606 20,761 343 21,104 2008 Ceded 1,366 -171 1,195 -44 -515 -559 145 -55 90 68 794 66 860 2007 Ceded 1,312 38 1,350 -139 -348 -487 504 -11 493 10 1,366 62 1,428 Net 19,395 -1,448 17,947 -5,701 -5,389 -11,090 11,033 -732 10,301 1,319 18,477 378 18,855 Net 18,756 238 18,994 -5,647 -4,995 -10,642 11,176 -729 10,447 596 19,395 281 19,676 1) The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S. Other units in the Group are included in ‘Other’ 2) Comprises provisions for claims for TrygVesta Garantiforsikring A/S and the Finnish and Swedish business units. 3) Discounting also includes exchange rate adjustments. TrygVesta Annual Report 2008 l Notes l 129 of 152 Accounts Notes DKKm 22 Provisions for claims 2008 Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 2007 Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded Carrying amount Total 0-1 years Expected cash flow 2-3 years 1-2 years > 3 years 4,946 -172 19,271 -794 4,763 -172 7,182 -244 23,251 11,529 66 0 3,397 -126 3,337 39 0 2,202 -88 2,153 78 0 6,490 -336 6,232 Carrying amount Total 0-1 years Expected cash flow 2-3 years 1-2 years > 3 years 5,303 -158 20,761 -1,366 5,100 -158 7,906 -534 24,540 12,314 68 0 3,644 -196 3,516 41 0 2,380 -137 2,284 94 0 6,831 -499 6,426 The table consists of figures for TrygVesta Forsikring A/S and TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S. The note should be seen in connection with the maturity of the Group’s interest-bearing financial assets and liabilities, see note 17. Please refer to the section on ’Risk management’ for an elaboration of risk management and risk exposure. 130 of 152 l Notes l TrygVesta Annual Report 2008 DKK m 2007 2008 23 Pensions and similar obligations Jubilees, shemes for older employees etc. Recognised obligation, end of year 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 Effect associated with optional shift to contribution pension plan 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 the year Estimated return on pension funds Actuarial gains/losses Paid during the period Effect associated with optional shift to contribution pension plan Carrying amount of plan assets, end of year Total pensions and similar obligations, end of year Total recognised obligation, end of year Specification of pension costs for the year: Present value of amounts accumulated during the year Interest expense on accrued pension obligation Expected return on plan assets Accrued employers’ nat. insurance contribution Effect associated with optional shift to contribution pension plan The year’s cost of defied benefit plans The premium for the following financial year is estimated at: Estimated distribution of plan assets: Shares Bonds Real property Average return on plan assets 43 43 129 1,163 1,292 932 360 1,298 43 60 56 -105 -46 2 -16 1,292 825 27 87 43 -9 -32 -9 932 360 403 60 56 -43 10 -7 76 103 % 18 66 16 8.2 28 28 120 1,003 1,123 628 495 1,292 -246 56 49 23 -51 0 0 1,123 932 -177 31 44 -173 -29 0 628 495 523 58 62 -56 9 0 73 53 % 13 64 23 -1.7 TrygVesta Annual Report 2008 l Notes l 131 of 152 Accounts Notes 23 Pensions and similar obligations 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 Plan Mortality table 2007 2008 % 5.2 6.2 4.5 4.3 4.3 7.0 14.1 20.0 Adjusted K1963 % 4.0 6.0 4.0 3.8 3.8 7.0 14.1 20.0 Adjusted K2005 DKKm 2005 2006 2007 2008 Pension obligation Plan assets Surplus/deficit Actuarial gains/losses associated with the pension obligation Actuarial gains/losses associated with pension assets 1,362 727 635 -136 18 1,298 825 473 90 26 1,292 932 360 104 -10 1,123 628 495 -23 -173 The pension liability related to participation by the Norwegian member of the Group Executive Management in the Norwegian defined benefit pension plan is DKK 2.2m 31. december 2008. 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 2008 amounted to DKK 1m, which is less than 1% of the annual premium in FPK (2007). FPK writes in its half-year report for 2008 that it had a collective consolidation ratio of 119 at 30 June 2008 (131 at 30 June 2007). The collective consoli- dation ratio is defined as the market value of the plan assets relative to the total collective pension obligations. 132 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 24 Deferred tax Tax asset Operating equipment Debt and provisions Bonds and loans secured by mortgages Tax liability Land and buildings Contingency funds Debt and provisions Intellectual property rights Deferred tax, end of year Unaccrued assets or liabiliaties of equity investments Unaccrued assets or liabiliaties of balance sheets items Reconciliation of deferred tax Deferred tax, beginning of year Exchange rate adjustment Change in deferred tax beginning of year Change in tax rate in Denmark Change in deferred tax taken to the income statement Change in deferred tax taken to equity Non-capitalised tax loss Denmark Sweden Finland The loss in TrygVesta A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Under Finnish rules, losses may be carried forward for ten years and under Swedish rules, losses may be carried forward indefinitely. The total current and deferred tax relating to items recognised in equity is recognised in the balance sheet in the amount of DKK 101m (in 2007 DKK -4m). No deferred tax is associated with investments in subsidiaries (in 2007 DKK 0m). 84 0 84 168 157 1,021 35 64 1,277 1,109 102 6 959 27 0 -20 119 24 1,109 72 105 142 65 133 0 198 157 890 0 100 1,147 949 126 1 1,109 -164 -51 0 122 -67 949 72 188 189 TrygVesta Annual Report 2008 l Notes l 133 of 152 Accounts Notes DKKm 25 Other provisions Other provisions, beginning of year Exchange rate adjustment Change in provisions Other provisions, end of year Other provisions primarily include provisions for own insurance contracts 26 Debt to credit institutions Bank loans Bank overdrafts Debt falling due within one year Debt falling due after more than five years 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 2008. In 2008, the loan carried interest at CIBOR plus a margin, totalling approximately 5.3% p.a. The unutilised part of the loan facility is measured at am- ortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost is depreciated on a straight-line basis 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. 27 Other debt Unsettled transactions Interest derivatives Exchange and inflation rate derivatives Other debt Debt falling due within one year 28 Earnings per share 2007 2008 50 0 7 57 597 2 599 2 0 1,857 8 0 732 2,597 2,597 57 -10 -11 36 598 111 709 111 0 66 0 31 774 871 871 Basic earnings per share are calculated by dividing the profit for the year and the profit/loss from discontinued and divested activities 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 exercised before 2009, therefore, there is no difference between basic EPS and diluted EPS as per 31 December 2008. During a two-year period commencing at the end of February 2009 180,780 share options from the 2006 share option programmes are exercisable. This could potentially dilute the earnings per share. Profit/loss for the period from continuing business (DKKm) Average number of shares (1,000 shares) Basic earnings per share of DKK 25 2,267 67,648 33.5 846 66,184 12.8 134 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 29 Contractual obligations, contingent liabilities and collateral 2008 < 1 years 1-3 years 3-5 years > 5 years Total Payment due by period Operating leases Other contractual obligations 65 375 440 68 55 123 10 45 55 9 0 9 Payment due by period 2007 < 1 years 1-3 years 3-5 years > 5 years Operating leases Other contractual obligations 108 348 456 213 314 527 187 0 187 1,260 0 1,260 152 475 627 Total 1,768 662 2,430 The amounts include the following: TrygVesta Forsikring A/S has on 1 february 2008 signed an operating agreement with CSC for an amount of DKK 1bn for a period of 5 years which cannot be cancelled the next 2 years. TrygVesta Forsikring A/S has signed a portfolio management contract for DKK 126m. The contract expires in 2013. TrygVesta Forsikring A/S has signed a car leasing contract with NF Fleet for DKK 37m. The contract expires in 2013. TrygVesta Forsikring A/S has signed on IT leasing contract with IBM for DKK 27m. The contract expires in 2011. The Danish companies in TrygVesta Group are jointly taxed with TryghedsGruppen smba. Assets to cover the technical provisions have been registered in a total amount of 2007 33,746 2008 29,690 Most of the Danish companies in TrygVesta Group are jointly 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, TrygVesta Forsikring A/S issued a few specific guarantees to the buyer. Management believes that it is unlikely that these guarantees will result in a financial loss for TrygVesta Forsikring A/S. Companies of the TrygVesta Forsikring Group are part of certain disputes. 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 2008 l Notes l 135 of 152 Accounts Notes DKKm 2007 2008 30 Acquisition of subsidiary On 8 May 2008, TrygVesta Forsikring A/S acquired all the voting shares (nominally DKK 1m) of Ejendomsselskabet af 8. maj 2008 A/S through a cash payment of DKK 1,085.5m to Danica Pension. The sole activity of Ejendomsselskabet af 8. maj 2008 A/S is the ownership of TrygVesta’s Ballerup headquarters. Costs for advisors in connection with the preparation, conclusion and performance of the agreement was DKK 0.2m. Acquired net assets Owner-occupied property Cash in hand and at bank Cost Carrying amount prior to acquisition 1,085.0 0.5 1,085.5 fair value at date of acquisition 1,085.0 0.5 1,085.5 There have not been any adjustment to the fair value, which is therefore identical to the carrying amount are therefore the same. There is no difference between cost and the fair value of the identifiable assets, liabilities and contingent liabilities. The acquisition of Ejendomsselskabet af 8. maj 2008 A/S replaces the existing lease with Danica from 1995, which would expire in 2025. The purchase enhances the framework for modernising and refurbishing workplaces. See the section ‘Our employees’ for further details.’ Ejendomsselskabet af 8. maj 2008 A/S Amounts relating to the period since the acquisition on 8 May 2008 Rental income Profit/loss after tax Impact on equity 2008 45.9 8.6 8.6 See ‘Owner-occupied property and operating equipment’ in note 1 ‘Accounting policies’ for a more elaborate description of the valuation method used. A pro forma statement of TrygVesta Group’s profit/loss for 2008 as if Ejendomsselskabet af 8. maj 2008 had been acquried as per 1 Janu- ary 2008 would not be significantly different from the Group’s realised profit/loss for 2008. The Group’s gross premiums earned would not be affected. Management estimates that the fair value at 1 January 2008 would have been the same as the fair value at the date of acquisition. The TrygVesta Group did not make any acquisitions in 2007. 31 Related parties Supervisory Board and Executive Management Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims paid - Parent company (TryghedsGruppen smba) - Key management - Other related parties Guarantee agreements with related parties - Account - Utilised, end of year - Premium 0.2 0.4 17.3 0.2 0.3 43.6 1,950 885 3 0.3 0.4 115.3 0.0 0.2 9.6 1,200 726 3 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. 136 of 152 l Notes l TrygVesta Annual Report 2008 DKKm 2007 2008 31 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. Specification of remuneration Supervisoy Board Executive Management Remuneration includes pension contributions Supervisory Board Executive Management -4 -16 -20 0 -3 -3 -4 -19 -23 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 Executive Manage- ment has a bonus scheme for up to 3 months’ salary (Group CEO up to 4 months’ salary) and participate ind the share option programme as men- tioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Executive Management. If a member of the Executive Management is given notice of termination by TrygVesta and such termination is not due to breach on the part of the member of the Executive Management, such member is entitled to cash severance pay equal to 12 to 18 months’ fixed salary inclusive of pension contribution and taxed benefits. Severance pay is paid at expiry of the period of notice. Members of the Executive Management can raise no fur- ther claims in this respect, including claims for compensation pursuant to sections 2a and/or 2b of the Salaried Employees Act, as such claims are included in the severance pay. Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in TrygVesta A/S. Intra-group trading involved - Providing and receiving services - Sale of unlisted shares Insurance products are purchased and sold on market terms Assets are transferred on market terms Intra-group trading Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. 0 15 1 0 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. TrygVesta Annual Report 2008 l Notes l 137 of 152 Accounts Income statement – TrygVesta A/S (parent company) DKKm 2007 2008 Notes 2 Investment activities Income from subsidiaries Interest income Value adjustment Interest expenses Investment management charges 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 Reserve for net revaluation as per equity method Transferred to Retained profits 2,396 0 -1 -30 -4 2,361 -48 2,313 21 2,334 -1 2,333 1,156 79 1,098 2,333 757 22 0 -32 -6 741 -56 685 18 703 0 703 423 -2,007 2,287 703 138 of 152 l Income statement for TrygVesta A/S (parent company) l TrygVesta Annual Report 2008 Balance sheet – TrygVesta A/S (parent company) DKKm 2007 2008 Notes Assets 6 Investments in subsidiaries Total investments in subsidiaries Total investment assets Receivables from subsidiaries Total receivables 7 Current tax assets 8 Deferred tax assets Cash in hand and at bank Total other assets Total prepayments and accrued income 10,732 10,732 10,732 0 0 21 0 1 22 7 8,546 8,546 8,546 293 293 18 0 1 19 24 Total assets 10,761 8,882 Liabilities Shareholders’ equity 9 Debt to credit institutions Debt to subsidiaries Other debt Total debt 10,031 8,265 599 131 0 730 602 0 15 617 Total liabilities and equity 10,761 8,882 1 Accounting policies 10 Capital adequacy 11 Contractual obligations, contingent liabilities and collateral 12 Related parties TrygVesta Annual Report 2008 l Balance sheet for TrygVesta A/S (parent company) l 139 of 152 Accounts Statement of changes in equity (parent company) DKKm Shareholders’ equity at 31 December 2006 1,700 3,656 2,374 2,244 Share capital Revaluation equity method Retained earnings Proposed dividends Equity entries in 2007 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 0 79 -3 84 -98 27 89 Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options 1,098 1,156 1,098 1,156 -2,244 14 -96 32 8 Total equity entries in 2007 0 89 1,056 -1,088 Total 9,974 2,333 -3 84 -98 27 2,343 -2,244 14 -96 32 8 57 Shareholders’ equity at 31 December 2007 1,700 3,745 3,430 1,156 10,031 Equity entries in 2008 Profit for the year Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Tax on equity entries Total comprehensive income 0 -2,007 -640 615 -154 -2,186 Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options Total equity entries in 2008 0 -2,186 2,287 423 2,287 423 12 -1,197 37 14 1,153 -1,156 -733 703 -640 615 -154 524 -1,156 12 -1,197 37 14 -1,766 Shareholders’ equity at 31 December 2008 1,700 1,559 4,583 423 8,265 Proposed dividend per share DKK 6.50 (total for 2007 DKK 17 DKK). Dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the number of shares year end (64,377,683). The dividend is not paid until approved by the shareholders at the annual general meeting of the subsequent year. TrygVesta Forsikring A/S’ Norwegian branch has in its financial statements included provisions for contingency funds in the amount of NOK 2,743m (2007: NOK 2,564m). In TrygVesta Forsikring A/S, these provisions, due to their nature as additional provisions, are included in shareholders’ equity (retained earnings), net of deferred tax. TrygVesta Forsikring A/S’ option to pay dividend to TrygVesta A/S is influ- enced by this amount. The dividend payment is also affected by a contingency fund provision of DKK 670m, which is included in sharehol- ders’ equity in TrygVesta Forsikring A/S. TrygVesta Garantiforsikring has a similar contingency amounting to DKK 139m, which is also inclu- ded in the company’s shareholders’ equity. 140 of 152 l Statement of changes in equity (parent company) l TrygVesta Annual Report 2008 Notes (parent company) DKKm 2007 2008 1 Accounting policies Please refer to TrygVesta Group’s ’Accounting policies’. 2 Income from subsidiaries TrygVesta Forsikring A/S Profit on continuing business Profit/loss on discontinued business after tax 3 Other expenses Administrative expenses 2,396 2,396 -1 2,395 -48 -48 757 757 0 757 -56 -56 Remuneration of the Executive Management is paid by TrygVesta Forsikring A/S and TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S and is charged to TrygVesta A/S by the cost allocation. Remuneration for the Supervisory Board and the Executive Management is disposed in note 12 ‘Related parties’. Average number of full-time employees during the year 0 0 Administrative expenses include fee to the auditors appointed by the Annual General Meeting: Deloitte In addition, expenses have been incurred for the Group’s Internal Audit Department. 4 Tax Reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax Effective tax rate Tax on financial loss See ‘TrygVestas financial performance 2008 for further information regarding tax’ -0.9 -0.9 21 21 % 25 25 -0.9 -0.9 18 18 % 25 25 TrygVesta Annual Report 2008 l Notes (parent company) l 141 of 152 Accounts Notes (parent company) DKKm 2007 2008 5 Profit/loss on discontinued and divested business Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Technical result Loss before tax Profit/loss on discontinued and divested business 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 Carrying amount 31 December Name and registered office 2008 TrygVesta Forsikring A/S, Ballerup 2007 TrygVesta Forsikring A/S, Ballerup 7 Current tax assets Tax payable, beginning of year Current tax for the year Tax paid during the year 8 Deferred tax assets Non-capitalised tax loss TrygVesta A/S 3 -1 -3 -1 -1 -1 6,987 6,987 3,656 2,407 -2,318 3,745 10,732 Ownership shares in % 100 100 3 21 -3 21 72 3 -1 -2 0 0 0 6,987 6,987 3,745 575 -2,761 1,559 8,546 Equity 8,546 10,732 21 18 -21 18 72 The loss in TrygVesta A/S can only be utilised in TrygVesta A/S. The loss can be carried forward indefinitely. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to utilise the tax loss. 142 of 152 l Notes (parent company) l TrygVesta Annual Report 2008 DKKm 2007 2008 9 Debt to credit institutions Bank loans Overdraft facility 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 2008. In 2008, the loan carried interest at CIBOR plus a margin, totalling approximately 5.3% p.a. The unutilised part of the loan facility is measured at am- ortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost is depreciated on a straight-line basis 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 Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capital base Weighted items Solvency ratio 597 2 599 598 4 602 10,031 637 -1,156 -3,824 5,688 7,051 81 8,265 685 -423 -4,601 3,926 3,945 100 11 Contractual obligations, contingent liabilities and collateral The Danish companies in TrygVesta Group are jointly taxed with TryghedsGruppen smba. Most of the Danish companies in TrygVesta Group are jointly 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 certain disputes the outcome of which is not esti- mated 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 obliga- tions recognised in the balance sheetat 31 December 2008. TrygVesta Annual Report 2008 l Notes (parent company) l 143 of 152 Accounts Notes (parent company) DKKm 2007 2008 12 Related parties Supervisory Board and Executive Management Sales of insurances and claims payments - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Key management - Other related parties Guarantee agreements with related parties - Commitment - Utilesed, end of year - Premium Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Fol- lowing 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 dur- ing 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. Specification of remuneration Supervisory Board Executive Management Remuneration includes pension contributions Supervisory Board Executive Management Members of the Supervisory Board of TrygVesta A/S do not receive bonuses and are not participants in any severance plans. The Executive Management has a bonus scheme for up to 3 months’ salary (Group CEO up to 4 months’ salary) and participate in the share option programme as mentioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Executive Management. 0.2 0.4 17.3 0.3 43.6 1,950 885 3 -4 -16 -20 0 -3 -3 0.3 0.4 115.3 0.2 9.6 1,200 726 3 -4 -19 -23 0 -3 -3 144 of 152 l Notes (parent company) l TrygVesta Annual Report 2008 DKKm 12 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in TrygVesta A/S. Intra-group trading involved - Providing and receiving services - Sale of unlisted shares 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 has 100% control of TrygVesta Forsikring A/S 100%. Intra-group transactions Intra-group trading involved - 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. 2007 2008 0 15 49 131 4 1 0 59 297 21 TrygVesta Annual Report 2008 l Notes (parent company) l 145 of 152 Accounts financial highlights and key ratios by geography DKKm 2004 2005 2006 2007 2008 Danish general insurance Gross premiums earned Technical result Return on investment activities Other income and expenses Profit/loss before tax Fixed assets Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 8,525 720 378 4 1,102 903 73.0 3.5 76.5 16.3 92.8 8,764 956 567 7 1,530 1,011 77.1 -3.9 73.2 16.6 89.8 9,084 1,377 723 2 2,102 1,135 66.8 3.9 70.7 16.1 86.8 9,346 1,639 225 2 1,866 1,171 69.3 0.0 69.3 15.3 84.6 9,620 1,695 -435 4 1,264 1,616 64.9 4.2 69.1 16.0 85.1 Number of full-time employess, end of period 2,223 2,215 2,231 2,242 2,377 Norwegian general insurance Gross premiums earned Technical result Return on investment activities Other income and expenses Profit/loss before tax Fixed assets Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 6,653 1,032 24 2 1,058 682 62.1 6.2 68.3 17.2 85.5 6,810 1,131 361 2 1,494 721 63.0 5.2 68.2 16.7 84.9 6,738 1,214 483 3 1,700 737 64.3 3.6 67.9 16.5 84.4 6,919 1,335 118 -7 1,446 799 64.0 4.9 68.9 15.8 84.7 7,129 815 -597 3 221 659 71.0 3.8 74.8 16.8 91.6 Number of full-time employess, end of period 1,454 1,431 1,460 1,384 1,455 finnish general insurance Gross premiums earned Technical result Return on investment activities Profit/loss before tax Fixed assets Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio 97 -45 -2 -47 0 75.3 0.2 75.5 73.0 140 -41 -2 -43 0 80.9 0.2 81.1 50.2 198 -34 -4 -38 0 78.1 0.2 78.3 41.7 251 -49 -10 -59 0 74.9 0.4 75.3 49.8 Combined ratio 148.5 131.3 120.0 125.1 Number of full-time employess, end of period 51 48 77 127 354 -44 -4 -48 5 72.9 0.3 73.2 44.1 117.3 154 146 of 152 l Financial highlights and key ratios by geography l TrygVesta Annual Report 2008 DKKm 2004 2005 2006 2007 2008 Swedish general insurance Gross premiums earned Technical result Return on investment activities Profit/loss before tax Fixed assets Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employess, end of period Other * Gross premiums earned Technical result Return on investment activities Other income and expenses Profit/loss before tax Fixed assets Number of full-time employess, end of period TrygVesta Gross premiums earned Technical result Return on investment activities Other income and expenses Profit/loss before tax Fixed assets Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio - - - - - - - - - - - -9 0 -29 -32 -61 588 34 15,266 1,707 371 -26 2,052 2,173 68.3 4.6 72.9 17.1 90.0 - - - - - - - - - - - -9 1 -32 -37 -68 432 24 15,705 2,047 894 -28 2,913 2,164 71.1 0.1 71.2 17.0 88.2 4 -41 0 -41 2 144.9 0.4 145.3 1,003.8 1,149.1 40 -3 -4 26 -36 -14 677 0 16,021 2,512 1,228 -31 3,709 2,551 65.9 3.7 69.6 16.8 86.4 90 -82 -1 -83 3 88.9 0.0 88.9 105.6 194.5 61 0 -23 8 -46 -61 676 0 16,606 2,820 340 -51 3,109 2,649 67.3 2.1 69.4 16.7 86.1 225 -93 -2 -95 2 95.1 0.9 96.0 48.4 144.4 105 -5 11 50 -56 5 1,775 0 17,323 2,384 -988 -49 1,347 4,057 67.9 3.9 71.8 17.3 89.1 Number of full-time employess, end of period 3,762 3,718 3,808 3,814 4,091 * Amounts relating to TrygVesta A/S, Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj and eliminations are included in ’Other’. TrygVesta Annual Report 2008 l Financial highlights and key ratios by geography l 147 of 152 Glossary Glossary The financial highlights and key ratios of TrygVesta have been prepared in accordance with the executive order issued by the Danish Financial Supervisory Authority on the presentation of financial reports by insur- ance companies and profession-specific pension funds and also comply with “Recommendations & Financial Ratios 2005” issued by the Danish Society of Financial Analysts. Run-off result The difference between provisions for claims at the beginning of the fi- nancial year (adjusted for currency translation differences and dis- counting effects) and the sum of claims paid in the financial year plus the part of the provisions for claims at the end of the financial year that relates to claims incurred in prior financial years. Gross earned premiums Calculated as gross premiums written adjusted for change in gross pro- visions for unearned premiums, less bonuses and premium rebates. Relative run-off gains/losses Run-off result relative to provisions insurance contract, beginning of year. Gross claims ratio Calculated as the ratio of gross claims incurred to gross earned premiums. Gross claims incurred x 100 Gross earned premiums Business ceded as a percentage of gross premiums Calculated as the ratio of the net result of business ceded to gross earned premiums. Net result of business ceded x 100 Gross earned premiums Gross expense ratio Calculated as the ratio of gross insurance operating expenses to gross earned premiums. Gross insurance operating expenses x 100 Gross earned premiums Adjusted gross expense ratio Calculated as the ratio of gross insurance operating expenses including adjustment to gross earned premiums. The adjustment involves the de- duction of depreciation and operating costs on the owner-occupied property and the addition of a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent. Discounting Expresses recognition in the financial statements of expected future pay- ments at a value below the nominal amount, as the recognised amount carries interest until payment. The size of the discount depends on the market based discount rate applied and the expected time to payment. Unwinding Unwinding of discounting takes place with the passage of time as the expected time to payment is reduced. The closer the time of payment, the smaller the discount. This gradual increase of the provision is not rec- ognised under claims, but in technical interest in the income statement. Return on equity Calculated as the profit for the year as a percentage of the average shareholders’ equity. Profit for the year x 100 Average equity Net asset value per share Calculated as year-end shareholders’ equity divided by the average number of shares. Year-end equity Average number of shares Gross insurance operating expenses incl. adjustment x 100 Gross earned premiums Earnings per share Calculated as the profit for the year divided by the average number of shares. Combined ratio Calculated as the sum of the gross claims ratio, the net result of busi- ness ceded as a percentage of gross earned premiums and the gross expense ratio. Operating ratio Calculated like the combined ratio but adding technical interest in the denominator. Profit for the year x 100 Average number of shares Dividends per share Calculated as the total dividend proposed divided by the average number of shares. Proposed dividend Number of shares year end (Claims incurred + insurance Operating expenses + result of reinsurance) x 100 Gross earned premiums + technical interest Provisions for claims to earned premiums Calculated as the ratio of provisions for claims relative to earned premiums. Price/net asset value Calculated as the quoted price of the share divided by the net asset value per share. Quoted price Net asset value per share 148 of 152 l Glossary l TrygVesta Annual Report 2008 Price/earnings Calculated as the ratio of the price per share to earnings per share. Quoted price Earnings per share Danish general insurance Comprises the legal entities in TrygVesta Forsikring A/S (excluding the Norwegian, Finnish and Swedish branches) and TrygVesta Garantiforsikring A/S. Norwegian general insurance Comprises TrygVesta Forsikring A/S, Norwegian branch, the Norwegian sub- sidiaries and the Norwegian branch of TrygVesta Garantiforsikring A/S. finnish general insurance Comprises TrygVesta Forsikring A/S, Finnish branch and the Finnish branch of TrygVesta Garantiforsikring A/S. Swedish general insurance Comprises TrygVesta Forsikring A/S, Swedish branch and the Swedish branch of TrygVesta Garantiforsikring A/S. Individual Solvency New Danish solvency requirements for insurance companies. With effect from 1 January 2008, companies are required to make their own determination of their capital requirements applied with own methods. The Individual Solvency shall be reported to the Danish FSA four times a year. Solvency II New solvency requirements for insurance companies issued by the EU Commisison. The new rules are expected to com into effect in 2012 at the earliest. TrygVesta Annual Report 2008 l Glossary l 149 of 152 Organisation Chart Organisation chart 2009 CEO Stine Bosse COMMUNICATIONS INVESTOR RELATIONS LEGAL DEPARTMENT & QUALITY Customer Service & Sales Direct Lars Bonde Customer Service & Sales Partners Kjerstin Fyllingen Corporate Claims Corporate Branding & Business Centres Process & IT Group finance Strategy & human Competency Truls Holm Olsen Birgitte Kartman Jens Stener Peter Falkenham Morten Hübbe Martin Bøge Mikkelsen Customer Service Sweden Sales DK Personal Claims Marketing IT strategy, Arkitecture & Planning Controlling & Reporting Strategy & Planning Sales Outbound Sales Private Finland Sales NO Car Claims Segmentation / Concepts Sales- and Customer Processes Group Risk M&A Civil Servants UW Building / Property Claims BusinessLab Product-, Police- and UW Processes Business Intelligence Organisational & Leadership Development Sales Commercial Partner Contracts Private International Solutions Claims Liability / Lawyers BC Health Care & Person Claims and Support Processes Finance & Salary Lean Advisory Services & Sales Support Partner Contracts Commercial Travel Claims and Alarm Bankassurance Claims Purchase BC Private BC Car E-business Investments Recruitment & Benefits IT Operations Corporate Finance Car Channel & Enter Claims Secretariat & Fact-finding BC Commercial / Corporate Nordea + partners Corporate Learning The Living House TrygVesta Garantiforsikring Excecutive Management of TrygVesta A/S Excecutive Management of TrygVesta Forsikring A/S 150 af 152 l Organisation chart 2009 l TrygVesta Annual Report 2008 Disclaimer Certain statements in this annual report are based on the beliefs TrygVesta urges readers to refer to the section on risk manage- of our management as well as assumptions made by and informa- ment for a description of some of the factors that could affect tion currently available to management. Statements regarding the Group’s future performance or the insurance industri. TrygVesta’s future results of operations, financial condition, cash flows, business strategy, plans and future objectives other than Should one or more of these risks or uncertainties materialise statements of historical fact can generally be identified by termino- or should any underlying assumptions prove to be incorrect, logy such as ”targets”, ”believes”, ”expects”, ”aims”, ”intends”, TrygVesta’s actual financial condition or results of operations ”plans”, ”seeks”, ”will”, ”may”, ”anticipates”, ”would”, ”could”, could materially differ from that described herein as anticiparted, ”continues” or similar expressions. believed, estimated or expected. A number of different factors may cause the actual performance TrygVesta is not under any duty to update any of the forward- to deviate significantly from the forward-looking statements in looking statements or to conform such statements to actual this annual report, including but not limited to general economic results, except as may be required by law. developments, changes in the competitive envrironment, develop- ments in the financial markets, extra ordinary events such as natural disasters or terrorist atttacks, changes in legislation or case law and reinsurance. This is a translation of the Danish Annual Report 2008. In case of any discrepency between the Danish and the English version of the Annual Report 2008, the Danish version shall apply. TrygVesta Annual Report 2008 l Discaimer l 151 of 152 A n n u a l R e p o r t 2 0 0 8 Annual Report 2008 TrygVesta A/S Klausdalsbrovej 601 DK-2750 Ballerup TrygVesta@trygvesta.com www.trygvesta.com Phone +45 70 11 20 20 CVR no. 26460212 Fax +45 44 20 66 00 

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