Tryg
Annual Report 2009

Plain-text annual report

Annual report 2009 Contents Management’s report Introduction to TrygVesta Group chart Group overview Preface by Mikael Olufsen and Stine Bosse Financial highlights and key ratios of TrygVesta Highlights of 2009 Strategy Strategy Strategic themes KPI (Key Performance Indicators) 2009 Financial outlook for 2010 Results The Group’s financial performance in 2009 Private & Commercial Denmark Private & Commercial Norway Private & Commercial Sweden Private & Commercial Finland Corporate Investment activities Capitalisation and risk management Capitalisation and profit distribution Risk management Corporate governance Supervisory Board Group Executive Management Statutory report on corporate governance Remuneration Shareholder information Accounts Accounts – contents 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 – TrygVesta Group Income statement – TrygVesta A/S (parent company) 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 Editors: Investor Relations Concept: Blue Business A/S Layout: Amo design Printers: Centertryk A/S Paper: Munken Lynx Photos: Mads Armgaard/gab.dk and Colourbox Page 2 4 5 6 8 10 12 14 18 20 22 26 28 33 37 40 42 44 47 50 52 56 62 64 66 68 73 76 81 82 83 84 88 90 91 134 135 136 137 142 144 TrygVesta wants to be perceived as the leading peace-of-mind provider in the Nordic region and is dedicated to providing peace of mind to our customers on a daily basis. In 2009, our more than 4,300 employees ensured peace of mind for more than 2.7 million private customers and more than 140,000 businesses. TrygVesta is the second-largest general insurer in the Nordic region. 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. Our position in Sweden was futher strengthened through the acquisition of Moderna Försäkringar AB in 2009. TrygVesta mainly offers insurances through own sales and service channels and through business partners such as Nordea. We strive for high customer and employee satisfaction, and several surveys indicate that TrygVesta is considered to be best at claims handling. Our insurances cover, among other things, workers’ compensation, motor, building, contents, cargo and personal accident. Annual report 2009 l Profile l 1 of 148 Introduction to TrygVesta Introduktion til TrygVesta 2 of 148 l Introduction to TrygVesta l Annual report 2009 Peace of mind – brings courage for life Introduction to TrygVesta Annual report 2009 l Introduction to TrygVesta l 3 of 148 Introduction to TrygVesta Group chart TrygVesta A/S TrygVesta A/S TrygVesta Forsikring A/S Vesta Skadeförsäkring (Swedish branch) TrygVesta Forsikring A/S TrygVesta Forsikring (Norwegian branch) Vesta Moderna Skadeförsäkring Försäkringar SAK AB (Swedish branch) (Swedish subsidiary) TrygVesta Forsikring Enter Forsikring AS (Norwegian branch) (Norwegian subsidiary) Moderna Netviq AB Försäkringar SAK AB (Swedish subsidiary) (Swedish subsidiary) Respons Inkasso AS Enter Forsikring AS (Norwegian subsidiary) (Norwegian subsidiary) Netviq AB MF Bilsport & MC (Swedish subsidiary) Specialförsäkring AB (Swedish subsidiary) Other real property Respons Inkasso AS companies (Norwegian subsidiary) (Norwegian subsidiaries) MF Bilsport & MC Specialförsäkring AB ModernRe S.A (Swedish subsidiary) (Luxembourg) Other real property companies (Norwegian subsidiaries) TrygVesta Garantiforsikring A/S (Dansk Kaution) TrygVesta Garantiforsikring A/S (Dansk Kaution) TrygVesta Garanti (Norwegian branch) TrygVesta Garanti Vesta Garanti (Norwegian branch) (Swedish branch) Vesta Garanti TrygVesta Garanti (Swedish branch) (Finnish branch) TrygVesta Garanti (Finnish branch) ModernRe S.A (Luxembourg) Group chart at 31 December 2009. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated. Company Branch Group chart at 31 December 2009. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated. Company Branch 4 of 148 l Introduction to TrygVesta l Annual Report 2009 Nordea Vahinkovakuutus (Finnish branch) Nordea Vahinkovakuutus (Finnish branch) Tryg Ejendomme A/S Tryg Ejendomsselskabet Ejendomme A/S af 8. maj 2008 Ejendomsselskabet Vesta af 8. maj 2008 Eiendom AS (Norwegian subsidiary) Vesta Eiendom AS (Norwegian subsidiary) Group overview % of total business Principal activities PrIVaT E & CO M M ErCI a L Denmark Norway Sweden Finland Read more on page 33 Read more on page 37 Read more on page 40 Read more on page 42 COrPOraTE Denmark, Norway & Sweden Read more on page 44 37 24 6 3 30 Insurance for private individuals as well as small and medium-sized businesses. Insurance for private individuals as well as small and medium-sized businessses. Insurance for private individuals and small busi- nesses. Insurance for private individuals and small busi- nesses. The branch was set up in 2006. The branch was set up in 2001. Enter Forsikring, which sells insur- ance to private individuals, is included in Private & Commercial Nor- way. Corporate custom- ers are customers paying annual premiums of more than DKK 900,000, having more than 50 employees or handled by insurance brokers. TrygVesta Garanti, the leading provider of guarantee insur- ance, is included in Corporate. Employees* 1,858 1,151 421 191 715 Distribution channels Customer centres/ call centres Customer centres/ call centres Call centres Call centres Own sales force Nordea’s branches Own sales force Insurance brokers Own sales force Own sales force Real estate agents Franchise offices Nordea’s branches Nordea’s branches Affinity groups Affinity groups Car dealers Car dealers Internet Internet Affinity groups Nordea’s branches Car dealers Car dealers Internet Internet Strategic partnership Brands * Staff functions are distributed proportionately among the business areas. Annual Report 2009 l Introduction to TrygVesta l 5 of 148 Introduction to TrygVesta Preface MIKAEL OLUFSEN – At the start of 2009, prospects for the improved investment result and a lower technical result global economy were extremely uncertain, but as the year due to higher claims expenses compared with 2008. Based progressed, low interest rates and government stimulus pack- on our positive performance and the updated capital ages had a positive impact on both the financial markets and requirement, we propose that a total of DKK 1.8bn be paid the economy. Considerable uncertainty still prevails, however. out to our shareholders. – TrygVesta is committed to being perceived as the leading – Looking at the Supervisory Board’s involvement in 2009, peace-of-mind provider in the Nordic region. In that per- what aspects did you emphasise, and did the financial crisis spective, what was 2009 like for TrygVesta? make you think differently about corporate governance? STINE BOSSE – As early as in 2008, we stepped up our prep- MIKAEL OLUFSEN – As always, we focused on strategy, arations for a period of economic uncertainty – we reduced including securing the Group’s position and development. our equity portfolio, showed restraint in recruiting new staff On the Supervisory Board, we were aware of how the and focused on in-house rotation, we strengthened our recession could impact the business. In 2009, this involved capital resources, and we explored the potential for both paying special attention to the investment portfolio and acquisitive and organic growth. In 2009, we had fewer regular operational follow-up. When we experienced rising employees than originally planned and therefore did not expenses for claims in 2009, caused, among other things, need to make rapid cost adjustments. Finally, we maintained by a greater number of break-ins in Denmark and Norway, a capital buffer, which enabled us to acquire Swedish com- we concurred in Management’s analyses and initiatives for pany Moderna Försäkringar in the spring of 2009. claims prevention and premium increases. It is crucial that we ensure a sound financial and operational development Our premium income was up by 9.6% in local currency in for the Group, in order to lay the foundation for a good per- 2009 and 4.7% excluding Moderna, which we consider to formance in good times as well as bad. The financial crisis be satisfactory in a recession period. We improved our presented a challenge for all financial companies, and the profit for the year, which was composed of a greatly Supervisory Board followed developments closely. As a listed DKKbn Gross premiums earned Technical result Profit after tax Total shareholders’ equity company with a majority shareholder that has a member- ship of a million Danes, we have a special obligation to be sharp now and in the future when it comes to the compe- tencies of senior management and the Supervisory Board. We are committed to corporate governance, and the finan- cial crisis underlines how important that is. 2009 18.3 1.6 2.0 9.7 6 of 148 l Introduction to TrygVesta l Annual report 2009 – The day-to-day management has to identify trends within MIKAEL OLUFSEN –The Supervisory Board is confident that the framework defined by the Supervisory Board. Could you the TrygVesta organisation evolved since we became a listed point out some special aspects? company in 2005 has a good structure with many competent employees and managers who can take the company into STINE BOSSE – I still believe it is important to focus on the future. The identity which a company shows its custom- strategy, the financial position and the company’s perform- ers is to a large extent based on the experience customers ance. But the agenda also includes other items, such as have when they contact the company. Therefore, it is vital to the Group’s climate impact and behaviour. We have already optimise that experience, by strengthening the internal cul- introduced reduced CO2 consumption as a bonus parameter ture for service, innovation, development and drive. In addi- for the management team, and in 2009 we reduced premi- tion, we must ensure that TrygVesta’s strategy is aligned ums for customers with electric and hybrid cars in order to with the realities of the world in these very challenging encourage environmentally conscious behaviour. times. TrygVesta must also stay focused on the four strategic performance indicators: profitable growth, peace-of-mind Demography in society is also changing at a rapid pace. delivery, self-service and human competencies, in order to In 10-15 years, the structure of the labour market will provide peace of mind to shareholders, customers and probably be characterised by more people with an immi- employees, and thereby be perceived as the leading peace- grant background being active on the labour market and a of-mind provider in the Nordic region. much larger elderly population. This calls for us to be inno- vative in attracting employees with an immigrant back- – What are your plans for implementing that, and what will ground and the right employee skills. be the results for 2010? In 2009, we opened the first finished parts of The Living STINE BOSSE – In 2010, more than 50 TrygVesta managers House, the comprehensive refurbishment of TrygVesta as a will attend a value-based development programme that will workplace. This work transcends the physical aspect, and like help identify talent and competencies even more effectively The Living Organisation, will be expressed in a corporate cul- than before and also build an organisation of culture bearers ture that aims to create an optimum framework for compas- with a distinct common set of values and point of reference. sion, drive and innovation. 2009 was also the first year of our But in the final analysis, TrygVesta is continuously measured Nordic organisation with clearly defined pan-Nordic responsi- by its performance. We expect a gradual improvement of the bilities and uniformity with respect to sales, product develop- economy in 2010, which will improve conditions for insurance ment, claims handling, IT systems and underwriting. The dedi- generally. 2010 will also bring more clarity with respect to cated Nordic organisation will strengthen the Group’s market future capital requirements from regulators – the socalled position, because we have now paved the way for shared Solvency II rules – and thus the basis for long-term stable processes and infrastructure. I would also mention that and disciplined development of our industry. through the strategic focus on self-service we are in the process of establishing better internal and customer-driven – What are your headlines for the work in 2010? business processes, and looking ahead, our IT systems will support the self-service business processes completely. MIKAEL OLUFSEN – The Supervisory Board intends to dedicate efforts to profitable growth, improvement of the technical – What are the Supervisory Board’s key themes going result, continuously enhanced customer service, and sustained forward? Premium growth in local currency** Combined ratio before run-off Technical result Profit before tax 2009 Expected 2010* 4.7 96.2 3-4% 93-95 DKK 1.2-1.6bn DKK 1.4-1.8bn * Run-off 2010 is assumed to be zero ** Excluding Moderna development of the level of competencies throughout the Group. This will ensure TrygVesta’s continued ability to create value for customers, employees and shareholders alike. We hope you will enjoy reading our annual report. Mikael Olufsen Chairman Stine Bosse Group CEO Annual report 2009 l Introduction to TrygVesta l 7 of 148 Introduction to TrygVesta Financial highlights and key ratios of TrygVesta DKKm 2005 2006 2007 2008 2009 NOK/DKK, average rate for the period SEK/DKK, average rate for the period 92.85 - 93.04 80.37 92.81 80.73 91.74 78.02 84.59 70.02 15,705 -11,159 -2,662 16,021 -10,564 -2,697 16,606 -11,175 -2,769 17,323 -11,766 -3,003 18,283 -13,206 -3,098 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 41 35 45.5 33 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 31 23 33.5 17 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 15 9 12.8 6.5 1,979 -582 157 1,554 1,086 -38 2,602 -623 1,979 29 2,008 713 3.8 29,002 1,320 9,666 44,740 72.2 3.2 75.4 16.9 92.3 74.5 17.4 91.9 91.6 17.0 29 22 31.2 31.7 15.5 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 Profit/loss for the year, continuing business Profit/loss on discontinued and divested business after tax Profit/loss for the period Run-off gains/losses, net of reinsurance Relative run-off gains/losses 1,884 -7 170 2,047 894 -28 2,913 -788 2,125 -28 2,097 283 1.8 Balance sheet Total provisions for insurance contracts 26,757 Total reinsurers’ share of provisions for insurance contracts 2,630 8,215 Total shareholders’ equity 40,811 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 Expense ratio, net Combined ratio, net Operating ratio Gross expense ratio with adjustment* Return on equity before tax (%) Return on equity after tax (%)** Earnings per share, continuing business (DKK) Diluted earnings per share (DKK)*** Dividend per share (DKK) 71.1 0.1 71.2 17.0 88.2 69.7 17.6 87.3 87.1 17.0 39 28 31.3 21 8 of 148 l Introduction to TrygVesta l Annual report 2009 DKKm 2005 2006 2007 2008 2009 Other data Net asset value per share (DKK) Share price 31.12 (DKK) Quoted price/net asset value Price Earnings Average number of shares (1,000) Diluted average number of shares (1,000)*** Number of shares, year end (1,000) Solvency 121 319.2 2.6 10.2 68,000 68,000 72 147 431.5 2.9 9.5 67,824 67,790 58 148 388.0 2.6 11.6 67,648 67,638 81 128 328.0 2.6 25.7 66,184 64,378 100 Number of full-time employees, end of period Continuing business - of which Moderna Försäkringar Discontinued and divested business 3,694 3,808 3,814 4,091 24 0 0 0 153 342.8 2.2 11.0 63,334 63.448 63,228 97 4,336 310 0 * In the calculation of the gross expense ratio with adjustment pursuant to the order issued by the Danish FSA, costs are stated ex- clusive 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. Including discontinued and divested businesses. ** *** There has been no dilution of earnings or equity in the period 2005-2008. Annual report 2009 l Introduction to TrygVesta l 9 of 148 Introduction to TrygVesta Highlights of 2009 JaNuary M ay PrI letter of intent TrygVesta was among the first Nordic insurance com- pany to sign a letter of intent on socially responsible investment issued by the UN. The Principles for Responsible Investment are based on a number of principles intended to ensure that TrygVes- ta’s investments comply with a range of environmental and social requirements besides focusing on good cor- porate governance. Motor Children’s accident Contents Travel Personal accident House J uNE Online self-service TrygVesta launched two new self-service products as part of the self-service strategy. The Motor and Contents self-service products were launched on tryg.dk. The insurances can be bought online every day from 7:00 to 24:00. Joining international climate initiative TrygVesta was the first Nordic company to join the ClimateWise climate initiative. ClimateWise is the insur- ance industry’s international climate initiative. Being a part of this industry initiative allows TrygVesta to benefit from and exchange climate competencies and experience with some of the leading global insurance companies. Theme packages about climate and environment Theme packages have been a cornerstone in the Group’s work with corporate values since the autumn of 2005. The climate and environment theme package included, among other things, an electronic climate school and a cli- mate quiz which was held in all departments. By focusing on this theme, TrygVesta intended to enable all employees to make better and more sustainable decisions. The Living Organisation An extensive organisational change took effect on 1 Jan- uary 2009. The organisation got a pan-Nordic structure with fewer management layers and a flatter organisation vis-à-vis customers. The Group Executive Management was expanded from six to nine members. aPrIL acquisition of Moderna Försäkringar The acquisition of Moderna Försäkringar was completed on 2 April, making Moderna a part of TrygVesta. Mod- erna contributed around 250 employees and a share of 2% of the Swedish market to the Group. Partnership with the Danish Handicap Federation TrygVesta signed a collaboration agreement with the Danish Handicap Sports Federation. The object of the agreement is to give injured persons the best possible help to pursue a full and active life after an accident. 10 of 148 l Introduction to TrygVesta l Annual report 2009 Dog Health young Living auGuST OCTOB Er Customised product to young people TrygVesta launched YoungLiving – a new Nordic product targeting young people between 18 and 28 years, packaging several insurances into one product. Climate agreement signed Group CEO Stine Bosse signed The Copenhagen Commu- niqué on Climate Change, a statement calling for an ambitious, specific and binding climate agreement. SEPTE M BEr Capital markets day TrygVesta held a capital markets day in London on 1 September, attended by 50 analysts and investors. Nordic corporate party X-party – TrygVesta held a joint corporate party for all employees in the four Nordic countries. Collaboration agreement on EV insurance TrygVesta entered into a collaboration with Better Place, the world’s leading provider of services for electric vehi- cles. The collaboration is initially intended to help develop a customised EV insurance product. More self-service solutions In October, YoungLiving products and dog health cover were included in the self-service offering at tryg.dk. Inauguration of The Living House The first floors of the refurbishment project, The Living House, which is to transform the head offices at Ballerup and Bergen into workplaces of the future, were completed in the autumn of 2009. This was celebrated with a moving-in event in the new offices. OCTOBEr DECE M B Er Changed distribution strategy In October, TrygVesta changed the distribution strategy in Denmark and Norway, aligning customers’ access to contact with their behaviour and requirements. The change improved customer accessibility due to increased staffing on telephone and web services. Focus on electric vehicles (EVs) TrygVesta extended the collaboration with Better Place, and intends to convert parts of the Group’s car fleet to EVs, The intention is for around 25% of TrygVesta’s car fleet to consist of EVs as from 2011. Annual report 2009 l Introduction to TrygVesta l 11 of 148 Strategy TrygVesta focuses on a common understanding of goals, strategies and prioritised action plans 12 of 148 l Strategy l Annual report 2009 Strategy Annual report 2009 l Strategy l 13 of 148 Strategy Strategy TrygVesta’s vision is supported by our strategic focus and cost management in general. In 2009, we achieved growth ongoing assessment, adaptation and development of the of 9.6% in local currency, a combined ratio of 92.3 and a strategic focus areas. The strategy is achieved through return on equity of 22%. TrygVesta aims to expand the activities and action plans implemented in all relevant proc- Nordic market position through profitable growth. esses; customer service, marketing, capital utilisation and IT, and it is clearly embedded throughout the Group. The In 2009, Moderna Försäkringar reported gross premium strategy plan contains four themes: growth of 12.2% and a pre-tax profit of DKK 117m (nine- STraTEGIC THEMES Profitable growth Peace-of-mind delivery Self-service Human competencies month profit), equal to around 6% of the profit for the period. Growth and earnings exceeded expectations at the time of acquisition, when Moderna was expected to lift overall earnings per share by 5% in 2010. In Denmark and Norway, where we are the number one and number three player, respectively, we made adjust- ments to the way we present ourselves to customers. We changed the distribution platform to meet customers’ requirements and wishes, strengthening telephone and internet staff levels, while in future, personal meetings Customer requirements and expectations must be fulfilled at customer centres have to be booked in advance. The in all sub-targets, activities and action plans contributing change will reduce the number of TrygVesta’s high street to the general strategic targets and the strategic themes. customer centres and is expected to cut costs as well as In practice, the strategy is pursued by ongoing optimisa- enhance overall customer satisfaction because of tion of day-to-day operations, productivity enhancements, improved telephone services. higher quality in customer service with respect to sales as well as claims handling, and simplified communication with In Finland and Sweden, our focus in 2009 was on striking customers. The strategic efforts are planned and managed a better balance between sales and profitability. In Swe- centrally, but with clearly defined ownership in the relevant den, the acquisition of Moderna contributed greater business areas. breadth and strength to the sales distribution, thereby creating a better basis for profitable growth going for- Profitable growth ward. In Finland, Nordea, call centres and our own sales TrygVesta emphasises that growth should be profitable. force continued to generate high sales volumes, although Accordingly, we focus strongly on profitable risk pricing and lower than in 2008 due to our focus on profitability- 14 of 148 l Strategy l Annual report 2009 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 enhancing measures such as premium increases, addi- The peace-of-mind delivery tional sales to existing customers and an adjustment of The peace-of-mind delivery ensures that our customers’ sales channels. These measures are expected to have a needs are met in the best possible way before, during positive impact on profits in the years ahead. and after they have a claim. Our insurance products and The Group’s expenses in all business areas and staff func- events from arising. Should an event nevertheless occur, tions are regularly assessed in order to eliminate ineffec- the customer has a sudden need for coverage and service tive processes and costs, thereby gradually reducing rela- such as repairs or a replacement purchase. concepts build on advice intended to help prevent claims tive costs over time. Lean plays a major role in that process. Lean is a process-driven and customer-oriented A period of economic downturn is a challenge for many review of work processes and routines for the purpose individuals and businesses. Therefore, our peace-of-mind of reducing waste, freeing resources and thereby making delivery is even more relevant in periods of reduced room for development, innovation and more efficient certainty because an unforeseen expense or event that work routines. TrygVesta’s Lean efforts started in 2007, changes everyday life for the customer may have greater and around 1,000 employees and 90 managers have consequences than would otherwise be the case. Our since worked in accordance with the method. The Lean peace-of-mind delivery aims to alleviate customer con- projects have produced good results in the form of cerns by offering easy access to contact, plain communi- greater employee satisfaction, customer satisfaction and cation, easy-to-understand coverage and, not least, faster and more efficient processes. In 2009, for example, remedying if a claim occurs. case processing time was halved in several departments. At the same time, telephone accessibility increased sig- TrygVesta seeks to enhance claims handling on an ongo- nificantly in customer service units working with Lean. ing basis, aiming to expand the peace-of-mind delivery to customers and providing high quality at a competitive Structured and consistent use of customer data will ena- cost. In 2009, a MATI survey by Enalyzer asked Danish ble us to prioritise and adapt products and service efforts insurance customers how satisfied they were with the to individual customer needs. We have worked to refine claims handling of their insurance company. TrygVesta our customer segmentation since 2008. When fully topped the survey relative to the four biggest companies implemented, the results will provide enhanced customer in Denmark. This performance is assumed to be connected loyalty and satisfaction, generate good opportunities for with the training of TrygVesta staff as peace-of-mind pro- additional sales, and thus support profitable growth. In viders, which teaches the Group’s claims handlers skills 2009, we focused on using segmentation to support such as interpreting individual customer requirements and advisory services to our customers. work from the thesis “in order to treat all customers Annual report 2009 l Strategy l 15 of 148 Strategy equally, we have to treat them differently”. Likewise in gic theme on self-service is exactly about meeting cus- 2009, insurance broker Willis made a survey among their tomers on their preferred terms. We want to give own employees, asking them to assess claims handling in customers an option of electronic communication and the companies they work with. TrygVesta also emerged webbased self-service, allowing them to deal with their best from this survey. One of the explanations emphasised insurance issues around the clock in the same way most in this respect was the extra service provided by TrygVesta people now handle banking transactions, travels, or buy through Proactive Claims Handling. books, electronic appliances, etc. via the Internet. In 2010, we will launch the most comprehensive programme Self-service means that customers handle their own busi- of change in TrygVesta’s history. This programme of change ness online, and that the underlying systems automatically is an extensive process intended to develop TrygVesta into a generate policies with the desired content, or that simple truly pan-Nordic company. This means that in the future, we claims are handled automatically. Self-service options will have shared Nordic product development and structures include policy changes, service, advice, claims handling and providing a better overview, faster product launches and lower purchase of insurances. In 2009, we extended our custom- administrative and sales cost. The insurance company of ers’ online self-service options. In Denmark, customers got tomorrow will significantly rely on online self-service. This form the option to buy the most common insurances online, of customer interaction is a key driver for the project paving such as motor, contents, dog and house insurances. In a the way for development and identification of synergies. few years’ time, all our customers will have a full range of Self-service self-service options for changing their insurance or report- ing and handling a claim. Since 2008 when we opened Our customers require a closer dialogue with us and more the e-Boks service and until 31 December 2009, 177,000 and more customers want to be able to communicate elec- customers have signed up for this electronic service. tronically with their insurance company. TrygVesta’s strate- In 2010, we intend to focus even more on electronic com- TryGVESTaS WEB BaSED S OLuTIONS DK NO SE FI Public website ’My page’ with editable customer profile and insurance overview ’My corporation’ with insurance overview and selected services Insurance overview in netbank Internet sales of private insurances Sales of insurances through netbank Price calculation at partner sites Claims forms on the Internet SMS/MSS customer communication Electronic customer communication on ’My page’ or e-Boks (DK) or netbank (SE + FI) = Established = Partially established = To be launched in 2010/2011 16 of 148 l Strategy l Annual report 2009 munication with our customers. At the start of the year, we The first phase of TrygVesta’s Nordic talent development will introduce a new procedure for obtaining customer programme was launched in early 2009. The programme is e-mail addresses and acceptances thereof (Denmark intended to strengthen and develop talent for manage- requires that customers provide acceptance for companies ment and project management and provide an opportunity to send them e-mails). The objective is to be better able to for ambitious, talented employees to build a career within tailor our communication to the wishes and requirements the Group. The first phase of the programme takes 19 of the individual customer, thereby making for a more per- months and focuses on identifying and developing a sonal and relevant customer experience. number of employees with no management experience Human competencies build a career as a manager or project manager. Over the In order to be an attractive partner for customers and live next few years, the programme will also include specialists who have the potential, and not least the ambition, to up to our vision of being perceived as the leading peace- and experienced managers. of-mind provider in the Nordic region, employees have to develop and put themselves in the customer’s place. The Group’s training and development efforts in 2010 will Our strategic focus on human competencies illustrates focus on implementing efficiency measures for all learning that we understand and respect that people making up activities to provide an overview of the financial benefits of the organisation are the most important resource in a the learning activities and to assure the quality of and im- successful organisation. prove the Group’s training offers. The peace-of-mind provider training will be the largest training initiative in 2010, with We completed a major organisational change in early 2009, more than 2,000 employees receiving training to give cus- expanding the Group Executive Management from six to tomers a unique peace-of-mind experience. Likewise in 2010, nine members, and basing the Group on a pan-Nordic a value-based development programme will be initiated, to be structure. The new organisation provides the framework attended by more than 50 managers. This programme will for shared Nordic development of products, concepts and help identify talent and competencies more effectively and peace-of-mind deliveries, and will greatly improve the strengthen the Group’s value-based corporate culture. conditions for collaboration between divisions, depart- ments and colleagues. 2010 will be the first year in which The first departments in the head office refurbishment in the organisational change and our occupation of The Denmark and Norway (The Living House) were completed Living House begin to interact. With a view to providing in the autumn of 2009 and were positively received. In additional momentum, we plan to re-brand the Group addition to a physical change of the offices, the refurbish- based on a shared business model and supporting ment, which was initiated in 2008, also represents a pan-Nordic IT systems. change of corporate culture and an organisational tool cre- ating a workplace encouraging activity and creativity and In 2009, we continued the intensive development of generating energy and inspiration. In addition to café our training and development activities. One initiative was areas, innovation, meeting and quiet rooms, all employees the launch of a new training programme involving much will have two screens, laptops and wireless internet access more dynamic training offers with courses customised to as part of a mobile, paperless office. The total project is individual needs to a greater extent. The new training pro- expected to be completed in 2011. As part of the refur- gramme is designed to ensure identical handshakes from bishment project, we also aim to become a paperless work- all employees, and ensure that they are all familiar with place, handling all documents electronically. In the first half the spirit of being a peace-of-mind provider. Corporate of 2010, around 1,400 employees in Claims and Sales in Learning, the Group’s training unit, which handles employee Denmark will work in a paperless environment. This will training and quality assurance of training offers, organised improve the working environment for the employees, 243 different courses in 2009. On average each employee reduce costs and speed up case processing, for the benefit attended a course 1.7 times during the year. of the customer experience and the company’s earnings. Annual report 2009 l Strategy l 17 of 148 Strategy Strategic themes results and goals A selection of TrygVesta’s results in 2009 within the strategic themes; profitable growth, peace-of-mind delivery, self-service and human competencies – as well as the goals planned for 2010-11. P rO FI TaB LE G rOWTH SEL F- SErV ICE We intend to secure the right balance between growth and earnings in all our initiatives. We intend to meet customers on their own terms. results in 2009 > Acquisition of Moderna Försäkringar for DKK 939m. Premium growth of 12.2% and a technical result of SEK 107m (nine-month result) > Premium increases in P&C Norway gradually improving profit > Yearly premium growth better than market growth Goals for 2010-11 > Profitable growth in Sweden and Finland and increased market share – 2012 goal of 6-8% > Premium initiatives to ensure profitability of less cost effective products > Moderna becoming a branch of TrygVesta results in 2009 > Self-service of the most common types of insurances in Denmark > Self-service of claims reporting in Norway > 177,000 customers joined e-Boks in Denmark Goals for 2010-11 > Handling of motor claims in Denmark > New Group internet platform > Start of common Nordic business models, processes and IT systems THE PEaCE-OF-M IND DELIVEry Hu M a N CO M P ET ENCI 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. results in 2009 > Increased customer loyalty > Satisfaction with claims handling > Risk consultancy for corporate customers Goals for 2010-11 > Common Nordic brand platform > Increase customer loyalty, retention rate and proportion of concept customers > Improve distribution strategy and customer accessibility results in 2009 > The Living House opened in Ballerup and Bergen > Lower rates of employee turnover and sickness absence > Several CSR and climate initiatives Goals for 2010-11 > To be the most attractive workplace in the financial sector in the Nordic region > Leading the Strategy – management training programme with increased organisational effect > The Living House and The Living Organisation start to show effects > Best in class’ at CSR initiatives within climate, prevention, inclusion and well-being 18 of 148 l Strategy l Annual report 2009 Annual report 2009 l Strategy l 19 of 148 Strategy KPI (Key Performance Indicators) 2009 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 FITaB LE G rOWTH THE PEaCE-OF -M IN D DE LIVE ry FI NaNCIaL PErSPECTIVE CuSTO M Er PErSP ECTIVE return on equity Combined ratio Expense ratio Customer loyalty Number of custo- after tax (%) (Index) mers with concept agreements (Index) 2009: 22 2009: 92.3 2009: 16.6* 2009: 100 2009: 109 2005 2006 2007 2008 2005 2006 2007 2008 2005 2006 2007 2008 28 35 23 9 88.2 86.4 86.1 89.1 17.0 16.8 16.7 16.7* 2005 2006 2007 2008 108 108 108 110 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 Gradual improvement Retain in Denmark To gradually improve term of the expense ratio by and improve in Norway 0.1 percentage points per year Return on equity The combined ratio The 2009 expense ratio New measurement The proportion of cus- was 22% in 2009, was 92.3, adversely was impacted by costs method (MATI - Market tomers with concept favourably impacted impacted by lower in connection with The and satisfaction survey) agreements fell by higher investment interest rates and Living House. Adjusted introduced in 2009. marginally in 2009, income and a good higher claims expen- for such costs, the ex- TrygVesta emerged as which was related to technical performance ses in the Danish pense ratio was in line the best among the the lower customer private business with expectations largest companies retention in the surveyed in Denmark. Norwegian part of the business * Including costs of The Living House, the ex- pense ratio was 17.3 in 2008 and 16.9 in 2009 20 of 148 l Strategy l Annual report 2009 SELF-SE rVICE Hu M aN CO M PE TENCIES P rO CESS PErSP ECTIVE LEarNING PErSP ECTIVE Portfolio per full-time employee Customer satisfaction in claims Employee satisfaction (Index) handling (Index) (Index) 2009: 139 2009: 100 2009: 103 2005 2006 2007 2008 133 131 139 134 2005 2006 2007 2008 N/A 102 100 100 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 increased New measurement method 75% of TrygVesta employees are in 2009 due to focus on in-house (MATI – Market and satisfaction survey) either satisfied or very satisfied. This recruitment and restraint with respect introduced in 2009. TrygVesta emerged is a good result considering the many to new appointments best from this survey among the changes that are continuously being largest companies in Denmark. implemented In Norway, the survey showed that we were in line with the average 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 Annual report 2009 l Strategy l 21 of 148 Strategy Financial outlook for 2010 Discounting rate (%) Premium growth* (%) Technical result ** (DKKbn) Investment result (DKKm) Profit before tax (DKKbn) Tax rate Combined ratio before run-off ** 2009 2010 4.7 96.2 3.6 3-4 1.2-1.6 200-300 1.4-1.8 approx 26 93-95 * In local currency and 2009 excluding Moderna Försäkringar. ** Run-off 2010 is assumed to be zero. Run-off net in 2007, 2008 and 2009 was DKK 743m, DKK 793m and DKK 713m respectively affecting the combined ratio by 4.5%, 4.6% and 3.9%, respectively. Despite low interest rates and stimulus packages from will be neutral due to a matching of insurance provisions several governments, the speed and sustainability of an and the investment portfolio. Compared with previous economic recovery are still subject to uncertainty due to years, the low interest rate level reduced the pre-tax profit continued high levels of debt and the need for debt reduc- by DKK 342m in 2009. tion, factors that are expected to have an adverse effect on private and public spending in the coming years. As See the section Risk management for a sensitivity part of TrygVesta’s transparent information platform, we analysis aim to provide accurate guidance to and assumptions for the future developments of our company. Fluctuations in the exchange rates of NOK and SEK to DKK Expectations for earnings in 2010 are nonetheless subject not include expected exchange rate developments in the to uncertainty due to rapidly increasing claims expenses outlook and therefore states growth rates in local curren- recorded in 2009 for contents, house and change of own- cies. Norway and Sweden account for 38% and 6%, ership insurances and uncertainty with respect to the respectively, of earned premiums in TrygVesta. affect profits which are reported in DKK. TrygVesta does impact of changes in interest rate levels. TrygVesta’s tecni- cal result and investment performance are to a significant Future reporting degree affected by changes in interest rates. This is partly Effective on 1 January 2009, TrygVesta changed the organ- because the investment return is affected by interest rate isation to a Nordic, process-oriented organisation, which levels, and partly due to ongoing interest rate return of will result in changes to the reporting in 2010. These insurances. On the other hand, the balance sheet effect changes will involve pan-Nordic reporting of the Private, 22 of 148 l Strategy l Annual report 2009 Commercial and Corporate business areas. Geographical LARGE CLAIMS (GROSS) reporting distributed on Denmark, Norway, Sweden and Finland will be unchanged. Premium growth of 3-4% in 2010 Earned premiums are expected to increase by 3-4% in local currency, assuming a gradual economic recovery and no major changes in competition relative to end 2009. Premium growth is expected to originate from continued strong organic growth in Sweden and Finland and the implementa- tion of announced premium increases in all four countries. The total effect of premium increases and indexation will be around DKK 0.9bn in 2010. Most of TrygVesta’s insurances are for private individuals. The economic downturn did not affect the portfolio of insurances within this customer segment. However, the rising unem- ployment and the number of business bankruptcies in 2009 had an adverse impact on the volume of commercial insur- ances, for which we recorded a decline within workers’ com- pensation, vans, liability and building insurance. Assuming a gradual economic recovery in 2010, the development in vol- umes in the areas that are most sensitive to economic con- ditions should stabilise. Growth within Corporate exceeded expectations in 2009, but with a declining trend over the year and indications of a lower premium growth in 2010. Competition from non-Nordic insurance companies through brokers in the Nordic market mainly targets the largest cor- porations, thus only affecting part of the market. DKKm 500 400 300 200 100 0 Q1 06 Q4 06 Q1 07 Q4 07 Q1 08 Q4 08 Q1 09 Q4 09 Large claims quarterly Average large claims quarterly Expected level quarterly 2010 (DKK 125-150m) STORM AND WEATHER-RELATED CLAIMS DKKm 1,000 911 800 600 400 200 0 202 332 112 121 2005 2006 2007 2008 2009 Storm and weather-related claims, gross Expected level for 2010 (DKK 200-300m) Combined ratio at the level of 93-95 before run-off The combined ratio was in 2009 generally affected by inter- est rate levels and increasing claims expenses. For 2010, the combined ratio before run-off is expected to be in the range RUN-OFF (NET) of 93-95 compared with 96.2 for 2009 before run-off. Thus, an improvement of the combined ratio is very likely, mainly due to an increase in gross earned premiums and indexation. The performance of claims in the second half of 2009 increased uncertainty with respect to the claims perform- ance particularly in relation to higher claims paid for Danish contents, house and change of ownership insurances. This is reflected in the outlook for the combined ratio range. The interest rate used to calculate the combined ratio is 3.6%, which is assumed to continue unchanged in 2010. If inter- DKKm 1,000 700 600 500 400 300 200 100 0 743 793 713 555 283 2005 2006 2007 2008 2009 Annual report 2009 l Strategy l 23 of 148 Strategy est rates increased by 1 percentage point to 4.6%, the com- affected by uncertainty with respect to claims inflation in bined ratio would improve by around 1.2 percentage points. contents, house and change of ownership insurances. If interest rates declined further, this would have the same proportionate effect. Run-off had a positive impact of 3.5- See the assumptions described under combined 4.6% on the combined ratio from 2006 to 2009, for exam- ratio above and the section Risk management for a ple, with a combined ratio in 2009 of 92.3 after run-off and sensitivity analysis 96.2 before run-off. assumptions for insurance activities rationalisation and more investments in the future The outlook for the financial results for 2010 is based on In 2010, focus on costs will continue. Ongoing efficiency assumptions with respect to gross earned premiums, gross and rationalisation measures are expected to ensure an claims incurred, gross expenses, result of business ceded unchanged expense ratio in Denmark and Norway. This and technical interest. The outlook for gross earned premi- cost reducing process is expected to create room for ums is based on the Group’s portfolio at 31 December 2009 further investments in expansion and growth. To this and assumptions with respect to sales and loss of policies should be added increased costs in 2010 in connection and price adjustments of existing policies. Assumptions for with a multi year improvement of business processes and sales and loss of policies are based on historical data, supporting IT systems (see also the section Strategy) and planned initiatives and the market situation. Assumptions higher costs in connection with the preparation and imple- for price adjustments are primarily based on agreements mentation of Solvency II. Furthermore, one-off costs for relating to adjustments of individual insurance policies. branding and marketing will increase by DKK 80-100m in connection with marketing of the Group as a Nordic peace- The outlook is expressed in local currency. TrygVesta gener- of-mind provider with a shared brand platform. Overall, the ally bases expectations for claims incurred on assumptions expense ratio for 2010 including investments is expected for the various products in the individual business areas. to be 0.5 percentage point higher than the expense ratio Expectations regarding claims ratios are based on historical of 16.9 recorded in 2009. performance in the form of average claims ratios for the past Technical result stronger than those of prior years. Trends in the pricing of The technical result is expected to be DKK 1.2-1.6bn before our insurance premiums, claims frequencies and the discount run-off for the full-year 2010 relative to DKK 1,554m in rate applied are the most important factors that may affect 2009. The outlook for the technical result for 2010 is overall performance. Assumptions for storm events and large five years, with recent years’ trends generally being weighted DANISH DISCOUNT RATE NORWEGIAN DISCOUNT RATE % 6 5 4 3 2 1 % 6 5 4 3 2 1 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Rate at the start of 2009 Rate at the end of 2009 Rate at the start of 2009 Rate at the end of 2009 24 of 148 l Strategy l Annual report 2009 claims are based on historical experience for not less than ten to DKK 12.5bn and is used to invest the company’s capital. years, with recent years’ trends being weighted stronger The investment portfolio includes equities for DKK 1.7bn, than those of prior years. In addition, the effect of profitabil- real estate for DKK 3.9bn and bonds for DKK 6.9bn. The ity initiatives and the effect of any legislative measures are return on investments for 2010 is based on the following incorporated in the anticipated claims level. assumptions with respect to investment assets: an assumed return on equities of 7% including dividend, bond yields of The outlook for 2010 assumes weather-related claims for 2.1% based on interest rates at the beginning of 2010, and 2010 of DKK 200-300m and large claims of DKK 500-600m real estate is expected to yield a return of 6.0% excluding any gross. The outlook assumes no run-off losses or gains in value adjustments. The investment result after transfer of 2010 on the provisions for claims. The outlook regarding technical interest for 2010 is expected to be DKK 200-300m gross expenses reflects the projected number of employees against DKK 1.1bn in 2009. The assumptions for investment in 2010 and the related costs. The projected number of return are subject to considerable uncertainty. employees incorporates the effect of measures launched to improve efficiency and in-house rotation of vacant positions. See the section Risk management for a sensitivity The outlook further includes other expenses such as those analysis relating to IT, operations and owner-occupied properties, which are generally based on agreements and development Currency risk plans that are known to us. The result of business ceded is Currency exchange rates, which have a major impact on the based on contracts made with reinsurers to cover claims results of the insurance operations, were volatile in 2008 and events and events such as weather-related claims and large 2009. TrygVesta’s insurance operations are directly exposed claims. The expected result of business ceded is calculated to fluctuations in NOK, SEK and EUR. Based on the expecta- on the basis of such contracts and historical data. tion of a positive profit contribution from the Norwegian and Swedish part of the business, a depreciation of NOK and SEK The harsh winter in the Nordic region in 2010 increased against DKK would adversely impact the total profit of the claims expenses but is not expected to affect the outlook. Group which has DKK as its reporting currency. The currency risk on the part of equity tied up in NOK and SEK is hedged. Investment activities TrygVesta initiated a division of the investment portfolio into assumptions for tax two portfolios at the beginning of 2010. One is called the The effective tax rate is affected by the corporate tax rate of matching portfolio and amounts to approximately DKK 27bn. 25% in Denmark and 28% in Norway. TrygVesta expects an The matching portfolio comprises bonds, interest rate deriva- effective tax rate of 26 in 2010, depending, however, on tives and money market placements that overall match the the amount of tax-exempt or non-deductible gains or losses technical provisions. The technical provisions including pre- on equities in the Norwegian part of the equity portfolio. mium provisions have an average duration of 2.4 years. The Based on the above expectations and assumptions for 2010, other portfolio is called the investment portfolio. It amounts the return on equity is expected to be 18-20% after tax. FINaNCIaL CaLENDar 2010 15 April 2010 16 April 2010 21 April 2010 21 May 2010 Annual general meeting 2010 TrygVesta shares trade ex-dividend Payment of dividend Interim report for Q1 2010 17 August 2010 Interim report for the first half of 2010 16 November 2010 Interim report for Q1-Q3 2010 Annual report 2009 l Strategy l 25 of 148 Results 26 of 148 l Results l Annual report 2009 results – the right balance between premiums and risk is the basis for results results Annual report 2009 l Results l 27 of 148 Results The Group’s financial performance in 2009 TrygVesta’s pre-tax profit for 2009 increased to DKK Financial results in 2009 2,602m from DKK 1,347m for 2008, reflecting an improved The pre-tax profit amounted to DKK 2,602m against DKK investment return and a lower technical result. The lower 1,347m in 2008. This was around DKK 200m higher than technical result was attributable to lower interest rates and the full-year forecast announced in the third quarter rising claims expenses, in particular for house and contents interim report 2009. The improvement relative to the fore- insurances, making premium increases necessary on a cast was attributable to a higher investment income and number of insurances. This was the first time since the run-off gains on prior-year claims. period 2002-2004 that TrygVesta implemented premium increases on this scale. The premium increases are The profit after tax increased to DKK 2,008m, more than expected to improve earnings in 2010 and 2011, and double the 2008 figure. The performance was affected further premium increases will be implemented in 2010. by the positive performance of the investment activities, TrygVesta continued to invest in expansion in Sweden and which reversed the negative result of 2008 to a positive Finland, which affected costs, but a focused effort with result in 2009, as well as by a positive contribution of respect to process enhancement measures and Lean DKK 29m from the divestment of business. resulted in a declining expense ratio overall. TECHNICAL RESULT, DENMARK AND NORWAY TECHNICAL RESULT BY BUSINESS AREA 1,639 1,695 1,377 1,214 1,335 1,131 956 815 1,191 566 DKKm 2,000 1,500 1,000 500 0 1,440 994 757 1,098 616 DKKm 1,500 1,200 900 600 300 0 1,092 842 842 889 870 757 692 461 315 258 2005 2006 2007 2008 2009 P&C Denmark P&C Norway Corporate Denmark Norway 2005 2006 2007 2008 2009 28 of 148 l Results l Annual report 2009 The technical result amounted to DKK 1,554m in 2009 erna. The increasing unemployment in Denmark and Nor- against DKK 2,384m in 2008. In addition to the effect of way in 2009 had an adverse impact on the development lower interest rates of DKK 342m, the result was adversely of premiums in workers’ compensation insurance. A simi- affected by a fall in the contribution from prior-year claims. lar negative trend was recorded in other lines of business Developments within house and contents insurances, with declining activity levels. The transport sector was primarily in the Danish market, also had an adverse impact among the areas affected by the slowdown, with fewer on the result. Strong increases in the number of break-ins goods being carried and fewer vans being insured. The and an increase in the number and severity of cloudburst negative effects of the recession are not expected to claims had an adverse impact on earnings and made terminate until there are clear indications of economic premium increases necessary. recovery, including lower unemployment rates. Moderna and premium increases Private & Commercial Denmark reported 4% growth in lifted premium growth gross premiums, which was significantly higher than last TrygVesta recorded gross earned premiums of DKK year. The large number of premium increases affected pre- 18,283m in 2009, which was an increase of DKK 960m, mium growth in Private & Commercial Norway, which or 9.6% in local currency (5.5% in DKK). Premium growth recorded growth of 4% in local currency in 2009 (minus was favourably impacted by the acquisition of Moderna 4.1% in DKK). Customer retention rates remained at a Försäkringar (Moderna), which was included with effect for high level. The overall market share in Norway was main- three quarters in 2009, or DKK 768m. Excluding Moderna, tained, reflecting growth in Corporate, but a fall in Private. premium growth was 4.7% in local currency. Current premium increases and sustained high customer renewal TrygVesta continued to expand its position within health rates also lifted growth. care in 2009. The strong demand for health care insur- At the start of 2009, the Group expected the economic of new product initiatives produced portfolio growth of slowdown to have an adverse impact on premium growth. more than 30% to DKK 275m in Denmark. ance combined with good market timing of the launch This impact was smaller than expected, but tended towards weaker growth at the end of 2009. The overall The Swedish and Finnish activities recorded growth of 57% growth in gross premiums for 2009 exceeded expectations in Sweden excluding Moderna and 34% in Finland, respec- of 4% growth excluding Moderna and 8% including Mod- tively. Taken alone, Moderna grew by 12.2%, exceeding PRE M IU M S BY BUSINESS AREA PRE M IU M S BY PROD UCT S 6% 3% 37% 30% 8% 8% 32% 13% 4% P&C Denmark P&C Norway 24% Corporate Finland Sweden Motor Liability Property, private Personal lines Others Property, commercial Workers’ compensation 14% 21% Annual report 2009 l Results l 29 of 148 Results the 5% growth anticipated when acquired. The total port- The Danish part of the Corporate business was impacted folio in Sweden and Finland amounted to DKK 2.0bn at 31 by fiercer competition. This, together with the deliberate December 2009. Sweden and Finland accounted for 6.9 phase-out of unprofitable customers, caused gross premi- percentage points and Denmark and Norway accounted ums to decline. In light of the economic slowdown, the for 2.7 percentage points of the Group’s total premium performance is considered satisfactory, underlining the growth of 9.6% in local currency. The total Nordic bank strength of the Group’s pan-Nordic market position. portfolio increased 21%, with Sweden and Finland accounting for the largest growth. Claims development Gross premiums in Corporate increased by 2.2% in local 2008 was adversely impacted by the lower discount rate currency (minus 1.6% in DKK), reflecting an underlying which, seen in isolation, had a negative effect of 1.7 per- positive development in the Norwegian part of Corporate, centage points on the claims ratio, while the remaining and falling gross premiums in the Danish part of Corporate. increase was mainly attributable to higher claims expenses The gross claims ratio of 72.2 in 2009 against 67.9 in CLAIMS RATIO AND INTEREST RATE EFFECT % 80 60 40 20 0 69.6 3.7 72.7 5.4 73.3 5.4 75.9 3.7 65.9 67.3 67.9 72.2 2006 2007 2008 2009 Claims ratio, reported Interest rate effect Claims ratio excluding interest rate effect in the private lines of the Danish part of the business. Large claims, defined as claims of more than DKK 10m, were a gross amount of DKK 534m in 2009 against DKK 586m in 2008. After reinsurer contributions, large claims amounted to DKK 399m net against DKK 490m in 2008. Weather-related claims, defined as high-frequency events with claims expenses in excess of DKK 5m, amounted to DKK 121m in 2009 against DKK 112m in 2008. Higher claims expenses, particularly for contents and house insurances, had an impact of DKK 456m on the underlying claims development with DKK 293m stemming from the private lines in the Danish part of the business. This was attributable to an increasing number of break- HOUSE AND CONTENTS CLAIMS IN DENMARK* STORM AND WEATHER-RELATED CLAIMS 1,259 1,070 946 899 DKKm 1,600 1,200 800 400 0 1,552 DKKm 1,000 911 800 600 400 200 0 332 202 112 121 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Claims expenses Strengthening provision *Excluding storm and claims handling expenses Storm and weather-related claims, gross Expected level 2009 (DKK 225m) 30 of 148 l Results l Annual report 2009 ins, more expensive average claims due to contents being Even if the economic slowdown had a limited effect on the more expensive after the private consumption boom from results in 2009, it was necessary to adjust the cost struc- 2004 to 2007, a worrying development in water and piping ture because higher unemployment and economic reces- claims under house insurances, and rising expenses for fire sion are expected to impact the future volume of business claims. Positive trends included a slight decline in average until economic recovery sets in. The ongoing improvement claims for small house claims (less than DKK 100,000). This of business efficiency and recruitment restraint had the was due to the economic downturn which within a short overall effect of reducing the expense ratio in Denmark period of time reduced demand for craftsmen’s services. and Norway from 16.4 in 2008 to 15.4 in 2009. Costs affected by efficiency measures and Lean As was expected, Sweden and Finland had a relatively The gross expense ratio improved from 17.3 in 2008 strong impact on costs. Excluding Moderna, Sweden and to 16.9 in 2009. Both 2009 and 2008 were adversely Finland had a 1.7 percentage point impact on the overall impacted by costs in connection with The Living House, expense ratio in 2009 against 1.5 percentage points in which amounted to DKK 64m in 2009 against DKK 133m 2008. The acquisition of Moderna in the second quarter in 2008. The refurbishment of the head offices began of 2009 generated a number of synergies which material- in 2008 and accelerated during 2009. ised over the year with a favourable impact on the Group’s total costs. An example is cost savings with In step with the incorporation of Lean as a natural part of respect to IT in connection with the start-up of the Cor- work routines and the improvement of the Group’s proc- porate business in Sweden, where Corporate was estab- esses, productivity will increase. This is important in order to lished on Moderna’s IT platform following the acquisition. make room for the expansion in Sweden and Finland, which Furthermore, this made it possible to begin sales of cor- requires high costs and ongoing investments. porate insurances ahead of expectations. TrygVesta focused on in-house recruitment in 2009 and Read more about the acquisition of Moderna only made a few external appointments, thereby reducing in the section Sweden. employee numbers over the year. This generated signifi- cant cost savings as there were about 100 fewer employ- Combined ratio ees than at the beginning af the year (excluding Moderna). The combined ratio was up from 89.1 in 2008 to 92.3 in 2009. The discount rate that is used to discount provi- LARGE CLAIMS EXPENSE RATIO DKKm 1,200 1,000 800 600 400 200 0 1,042 501 340 416 275 637 586 490 534 399 % 18 17 16 15 14 13 12 17.0 16.8 16.7 17.3 0.6 16.9 0.3 0.1 16.7 16.5 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Large claims, gross Large claims, net Expected level 2009 (DKK 500m) Adjusted expense ratio The Living House Moderna Annual report 2009 l Results l 31 of 148 Results sions for claims fell in 2009 which, seen in isolation, trig- bonds to non-callable bonds. The total investment portfolio gered an increase of 1.7 percentage points in the com- stood at around DKK 40bn at 31 December 2009 compared bined ratio. Run-off gains had a favourable impact of 3.9 with DKK 34.2bn at 1 January 2009. TrygVesta recognises percentage points on the combined ratio in 2009 as com- all investment assets at market value, and value changes pared with 4.6 percentage points in 2008. Run-off gains have a direct impact on the income statement. came from personal lines, whereas reserves for house and contents policies were strengthened. Large claims Tax were a gross amount of DKK 534m in 2009 against The tax expense of continuing business was DKK 623m in DKK 586m in 2008. 2009 compared with DKK 501m in 2008, equalling a fall in Investment return the effective tax rate from 37% in 2008 to 24% in 2009. The effective tax rate in 2008 was adversely affected by Positive trends in the equity markets, generally falling non-deductible equity losses. In 2009, the effective tax rate interest rates, and a narrowing credit spread produced a was affected by utilisation of prior-year tax loss carry- significantly higher investment result in 2009. The gross forwards in Sweden and tax-free gains on equities. return on investment assets totalled DKK 1,931m in 2009 against DKK 440m in 2008, corresponding to a gross Balance sheet and cash flow return of 6.6% in 2009 compared with 3.5% in 2008. Total assets increased from DKK 38,445m to DKK 44,740m Investment activities generated a profit of DKK 1,086m in 2009, primarily due to the consolidation of Moderna and after transfer of technical interest compared with a loss the appreciation of NOK against DKK. of DKK 988m in 2008. Liabilities mainly comprised shareholders’ equity of DKK The bond portfolio accounted for an almost constant 9,666m and technical provisions of DKK 29,002m. Technical proportion of 86.2% of total assets in 2009. In 2009, provisions increased by DKK 3,809m relative to 31 December TrygVesta invested in High Yield bonds, which accounted 2008, primarily due to the addition with respect to Moderna for 2.2% of the Group’s total investment assets at 31 and the appreciation of NOK against DKK. December 2009. The Investment Grade portfolio increased by DKK 500m in the spring, but the entire portfolio was TrygVesta generated a cash inflow from operating activities of sold at the end of the year. Furthermore, TrygVesta com- DKK 2.2bn in 2009 compared with DKK 1.8bn in 2008. There pleted a major restructuring of the mortgage bond port- was a cash outflow for investing activities of DKK 1.6bn and a folio in the second half of 2009, switching from callable cash outflow for financing activities of DKK 0.4bn. INVESTMENT RESULT DKKm 1,500 1,000 894 1,228 Equity and rOE Equity stood at DKK 9,666m at 31 December 2009, an increase of DKK 1,422m in the year. The increase was com- posed of the profit for the year, dividends paid out in the amount of DKK 410m, own shares bought back in the 1,086 amount of DKK 334m and other adjustments. The return on equity was 22% in 2009 against 9% in 2008. 500 0 -500 -1,000 340 Events after the balance sheet date No other material events have occurred in the period from the balance sheet date until today which in the opinion of 2005 2006 2007 2008 2009 financial position. -998 Management affect the assessment of the company’s 32 of 148 l Results l Annual report 2009 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 2007 2008 2009 6,490 -4,041 -1,086 1,363 6,605 -4,443 -1,155 1,007 -87 -89 164 180 1,440 1,098 62.3 1.3 63.6 16.7 80.3 67.3 1.3 68.6 17.5 86.1 6,866 -5,136 -1,063 667 -122 71 616 74.8 1.8 76.6 15.5 92.1 Private & Commercial Denmark sells insurances to private average house claim (less than DKK 100,000) was individuals as well as small and medium-sized enterprises reported, but due to an increase in expensive house in Denmark under the Tryg brand name. Sales are han- claims, the total claims expenses rose. dled by call centres, own sales agents, affinity groups, car dealers, real estate agents and Nordea’s branches. Development in gross premiums Overall, gross premiums rose by 4.0% to DKK 6,866m in Performance impacted by lower interest rates 2009, which was significantly better than the year before and higher claims expenses and in line with expectations. The economic downturn The technical result amounted to DKK 616m in 2009 resulted in a reduced number of workers’ compensation compared with DKK 1,098m in 2008. The performance insurances and reduced premiums. The ongoing restruc- was impacted by lower technical interest, higher claims turing of the motor portfolio, which accounted for a third expenses for house, contents and change of ownership of the total portfolio in Private & Commercial Denmark, insurances and lower run-off gains. The higher claims produced a slight drop of 1% in the average premium. expenses were mainly due to a larger number of piping This was due, among other things, to a number of agree- claims, break-ins and fires. An adverse trend in the ments with affinity groups being transferred to new tariff Annual report 2009 l Results l 33 of 148 Results parameters sooner than expected. At 31 December 2009, the increased use of the insurance and the related most of the motor portfolio had been transferred to the increase in claims expenses. Despite the economic down- new tariff parameters, which include the age of the car, turn, health insurances were among the products with the annual mileage and the age and gender of the driver, the highest growth rate in 2009, recording premium all of which facilitates a better risk selection. The average growth of more than 70%. TrygVesta expanded its posi- premium is expected to see a flat trend in 2010. Indexa- tion further in this market, and the portfolio comprised tion for 2010 amounts to 4.2%, but the positive impact 165,000 customers and amounted to DKK 275m at 31 will be offset by the conversion of the remaining portfolio. December 2009 against DKK 204m at 1 January 2009. The trend for customers to reduce annual mileage and buy Personal accident, holiday home and travel insurance smaller cars will also have an adverse impact on the aver- premiums were also increased by 10-20% in 2009. The age premium, but the risk will be reduced correspondingly. effect of the many premium initiatives is expected to restore balance in earnings during 2010 and 2011, and The average premium on house insurances increased by new measures will be introduced as required. 8% in 2009, which contributed towards restoring profitabil- ity in the area, although it was not sufficient. Profitability When TrygVesta, as the first Danish company, imple- on house insurances has been under pressure in the past mented necessary premium increases in the Danish mar- few years due to high claims inflation, an increase in the ket, an adverse trend in customer renewal rates had been number of piping claims, more break-ins and more fre- expected. In connection with the premium increases, the quent cloudbursts during the summer period. These devel- net outflow of customers increased slightly, but this trend opments made it necessary to implement premium was reversed as other companies in the market also increases in addition to those already effected on house increased their premiums. For 2009 as a whole, the insurances at the beginning of the year. The contents renewal rate for private customers was stable at around insurance was increased by around 15% including indexa- 91, which means that on average, customers will remain tion at 1 January 2010. with TrygVesta for 11 years. The high renewal rate made In addition to the premium increases on house and con- renewal rate is important in relation to the development tents insurances, premiums were also increased on a of premiums, claims and costs. a positive contribution to the performance, as a high number of other products. The health insurance premium was raised twice during 2009 by a total of 25% to reflect Claims AVERAGE PREMIUMS DKK 5,000 4,750 4,500 4,250 4,000 3,750 3,500 3,250 3,000 2005 2006 2007 2008 2009 Lower run-off gains and the lower level of interest rates in combination with higher claims expenses for contents and house insurances triggered an increase in the claims ratio from 67.3 in 2008 to 74.8 in 2009. Run-off gains amounted to DKK 303m in 2009, which was DKK 87m lower than in 2008 due to lower run-off gains on motor. As TrygVesta discounts provisions for claims, the lower interest rate level had an adverse impact on the present value of the provisions for claims, increasing the claims ratio by 1.2 percentage points. Another contributory factor was the performance of con- tents and house insurances, for which it was necessary to strengthen reserves significantly by the end of the Motor House year in order to reflect the higher claims level. 34 of 148 l Results l Annual report 2009 More break-ins, fire claims and piping claims caused CUSTOMER RETENTION claims expenses to increase in 2009. The higher number of break-ins affected contents as well as house insur- ances. Around 41% of the contents insurance claims was related to break-ins, and the related cost increased from 2008 to 2009. This development was also seen because customers have acquired more, new and more expensive furniture. Inadequate police efforts and falling detection rates have made it easier for thieves. The development in the number of break-ins is not caused solely by the % 93 92 91 90 89 88 recession as the upward trend has been recorded over a 2005 2006 2007 2008 2009 longer period of time. One of the reasons is that organ- ised foreign gangs more frequently commit more serious crimes and serial break-ins. The higher number of fire claims under house insurances mainly related to claims in excess of DKK 100,000 and was caused by more large fire claims and short circuit claims related to an increased number of lightning strikes in 2009. Higher expenses for piping and service piping claims impacted claims expenses adversely by around DKK 50m more in 2009 than in 2008. These claims were due to the fact that more frequent cloudbursts put pressure on local authorities to dimension the public sewage and drainage systems to adequately handle the larger quanti- ties of water. In connection with such investigations and subsequent replacement of sewage pipes it is often detected that some customers’ piping and service pipes connected to the public sewage system are damaged, and a claim is therefore reported under the insurance for the damage to be repaired. HOUSE AND CONTENTS CLAIMS IN DENMARK* DKKm 1,600 1,200 800 400 0 1,552 1,259 1,070 946 899 2005 2006 2007 2008 2009 Claims expenses Strengthening provision *Excluding storm and claims handling expenses Large claims had an impact of DKK 81m on the perform- CLAIMS FREQUENCY IN DENMARK ance in 2009, which was on a level with 2008. The trend seen from 2006 to 2008 with a steep increase in average claims subsided as expected during 2009, supported by the economic downturn. Being one of the major players in the market, Tryg Vesta’s focus on claims procurement is also very important. Nego- tiations with craftsmen thus reduced both wages and the cost of materials, and a new agreement with the damage Index 120 115 110 105 100 95 90 0 0 1 = 5 0 0 2 r a e Y : x e d n I 2005 2006 2007 2008 2009 control companies strengthened TrygVesta’s position in Motor Building the market. The positive development in average claims Annual report 2009 l Results l 35 of 148 Results AVERAGE CLAIMS IN DENMARK by 1 percentage point. With respect to car repairs, Index 140 0 0 1 = 5 0 0 2 r a e Y : x e d n I 130 120 110 100 90 TrygVesta works closely with selected garages, which helps keep average claims expenses down and ensure high quality and service to customers. Costs Gross costs totalled DKK 1,063m, which was a decline of DKK 92m relative to 2008, causing the expense ratio to fall from 17.5 to 15.5. The Group’s restraint with respect to external appointments since the second half of 2008 mate- 2005 2006 2007 2008 2009 rialised in substantial savings in 2009. Both 2008 and 2009 Motor House were adversely impacted by the refurbishment project relat- ing to the head office in Denmark, in the amount of DKK 24m in 2008 and DKK 8m in 2009. was, however, offset by an adverse trend in large house Premium increases to improve the combined ratio claims, which increased by DKK 121m. The combined ratio increased from 86.1 in 2008 to 92.1 in 2009, with an increase in the underlying claims devel- The claims frequency for house insurances increased by opment due to the adverse trend in contents and house around 6 percentage points, related to more break-ins, insurance. Lower interest rates had an adverse effect of short circuit claims and a minor increase in piping and serv- 1.2 percentage points on the combined ratio, while lower ice piping claims. run-off gains depressed the combined ratio by 1.1 per- centage points. Weather-related claims lifted the com- The claims frequency for motor increased by around 1 bined ratio by 0.4 percentage point. Finally, the expense percentage point in 2009, favourably impacted by a drop ratio improved by 2 percentage points. The premium in mileage, but adversely impacted by the winter weather increases already implemented will increase profitability at the end of the year. The average motor claim increased during 2010 and 2011. 36 of 148 l Results l Annual report 2009 Private & Commercial Norway DKKm 2007 2008 2009 NOK/DKK, average rate for the period 92.81 91.74 84.59 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 4,490 -2,962 -936 4,636 -3,371 -1,004 4,445 -3,224 -942 592 -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 95.9 279 -53 32 258 72.5 1.2 73.7 21.2 94.9 Private & Commercial Norway sells insurances to private 122m in 2008 to DKK 32m in 2009 was the main reason individuals as well as small and medium-sized enterprises for the lower result. Furthermore, the claims expenses in Norway under the TrygVesta and Enter brand names. were higher, primarily due to heavy snowfalls in eastern Sales are handled by some 80 franchise offices with 300 Norway at the beginning of the year, which increased the employees, own sales agents, call centres, car dealers number of motor claims and claims relating to holiday and Nordea’s branches. houses. However, the high claims level early in 2009 improved during the year and both the third and fourth Performance impacted by lower interest quarters were better than the year before. rates and winter weather On the basis of 4% gross premium increases in local cur- Claims inflation decreased in 2009 after increasing claims rency the combined ratio was improved through the year. inflation in 2007 and 2008, which saw rising prices for The technical result was DKK 258m in 2009 against DKK craftsmen and materials. Unlike in Denmark, where the ini- 315m in 2008. The decline in technical interest from DKK tial premium increases were implemented from 1 January Annual report 2009 l Results l 37 of 148 Results CUSTOMER RETENTION IN NORWAY gross premiums was achieved despite fiercer competition, in % 87 86 85 84 83 82 particular from new competitors in the private market. Despite the competition, the overall Norwegian market share increased from 17.9 to 18.1 in 2009 (end-September 2009). The underlying trend showed a small decline in the market share in the private area, whereas the market share for commercial increased. The substantial premium increases in the middle of the year resulted in a minor decline in market share in the second half of 2009, which was not unexpected. This had an adverse impact on the renewal 2005 2006 2007 2008 2009 rate which dropped by 1.8 percentage points to 85.1%. AVERAGE PREMIUMS IN NORWAY the national average. TrygVesta introduced a number of changes to the distribu- tion platform in 2009, including a strengthening of sales via call centres. Furthermore, focus remained on strength- ening the market share in areas with a market share below NOK 5,000 4,750 4,500 4,250 4,000 3,750 3,500 3,250 3,000 2005 2006 2007 2008 2009 The average premium for motor insurances increased by 4.9%, and house insurances increased by 8.1% in 2009. In line with the other large insurance companies in the Norwegian market, TrygVesta has since mid-2007 increas- ed premiums in order to improve profitability. The premium increases implemented during 2009 are expected to improve earnings when fully incorporated in the portfolio. This trend is further intensified by an increase in premiums for house insurances of 6.7% and for passenger cars of Motor House 3.3% from 1 January 2010. Claims Claims expenses increased by 3.4%, or NOK 126m, to NOK 3,811m. Considering the growth in gross premiums of 4.0% 2009, the premium increases in Norway have been imple- in local currency, the performance was well balanced. The mented since mid-2007. The effect of the semi-annual claims ratio, net of ceded business improved from 74.2 to premium initiatives began to materialise in 2009 and will 73.7 relative to 2008. In light of the adverse impact of the improve the performance going forward. lower discount rate which, seen in isolation, lifted the claims ratio by 1.1 percentage points in 2009 compared with 2008, Growth maintained despite competition the performance was in line with expectations. Gross premiums in Private & Commercial Norway increased by 4.0% in local currency (minus 4.1% in DKK) and stood The claims frequency for houses increased by 11.0 per- at DKK 4,445m in 2009. Growth was slightly lower than in centage points relative to 2008 and was impacted by more 2008, but still at a high level. The increase in gross premi- fire, water and piping claims as well as more thefts, which ums of NOK 203m was favourably impacted by the pre- stabilised at a level almost double that of 18 months ago. mium increases that had been implemented, while the The average house claim fell by around 2 percentage number of insurances sold declined slightly. The growth in points, supported by the economic downturn causing lower repair expenses. 38 of 148 l Results l Annual report 2009 The claims frequency for motor policies rose by 3.8 percent- CLAIMS RATIO IN NORWAY (GROSS) age points in 2009 relative to 2008, and the average motor claim was up by 2.7 percentage points. The higher claims frequency mainly related to many accidents due to icy road conditions in eastern Norway, and especially around Oslo, at the beginning of the year. There were 1,800 more motor claims in the first quarter of 2009 compared with first quar- ter of 2008. Expenses for larger fire claims (more than NOK 1m) under house insurances in Private & Commercial Nor- way developed favourably in 2009, accounting for NOK % 90 80 70 60 50 185m against NOK 264m in 2008, and impacting the claims 2005 2006 2007 2008 2009 ratio by 3.5 percentage points in 2009 against 5.2 percent- age points in 2008. Compared with Denmark, the number of house fires is significantly higher in Norway, due to the large number of houses and cabins made from wood and heated by wood burning stoves or fireplaces. Large claims, defined as claims in excess of DKK 10m, totalled DKK 35m in 2009, as against an unusually high level of DKK 131m in 2008. As a percentage of gross pre- miums, large claims thus accounted for 0.8 percentage point compared with 2.8 percentage points in 2008. Run-off gains were a gross amount of DKK 24m in DKK against a run-off loss of DKK 26m in 2008, or 0.5% of gross premiums compared with minus 0.6% in 2008. Run-off gains originated mainly from the personal accident lines. Costs Costs rose by 1.4%, or NOK 15m, to stand at NOK 1,114m, and the overall expense ratio fell from 21.7 to 21.2. The improvement was attributable to restraint in new appoint- AVERAGE CLAIMS IN NORWAY Index 140 0 0 1 = 5 0 0 2 r a e Y : x e d n I 130 120 110 100 90 2005 2006 2007 2008 2009 Motor House ments, and the effect of the process and efficiency meas- CLAIMS FREQUENCY IN NORWAY ures introduced which began to materialise during the year. Combined ratio improved Private & Commercial Norway reported an overall combined ratio for 2009 of 94.9 against 95.9 in 2008. The year started out at a high level due to the winter effect, but there was improvement over the year. The combined ratio was higher than expected and impacted by the low interest rate level. The premium increases already implemented and additional planned premium measures are expected to Index 115 0 0 1 = 5 0 0 2 r e a Y : x e d n I 111 107 103 99 95 2005 2006 2007 2008 2009 improve profitability further in the years ahead. Motor House Annual report 2009 l Results l 39 of 148 Results Private & Commercial Sweden DKKm 2007 2008 2009 SEK/DKK, average rate for the period 80.73 78.02 70.02 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 90 -80 -95 -85 0 3 221 -214 -104 -97 0 7 -82 -90 88.9 0.0 88.9 105.6 194.5 96.8 0.0 96.8 47.1 143.9 105.5 1,081 -875 -251 -45 -15 8 -52 80.9 1.4 82.3 23.2 TrygVesta sells insurances to private individuals and profit in the second to fourth quarters of 2009. The per- businesses under the Moderna brand and the Vesta formance was satisfactory and better than expected. At the Skadeförsäkring brand. Moderna has several sub-brands; time of acquisition, Moderna was expected to raise the total the best known are Atlantica and Bilsport&MC. Insurances earnings per share by 5% in 2010. The acquisition strength- are sold through Nordea’s branches, own sales agents, ened TrygVesta’s position and distribution power signifi- call centre, the Internet and car and boat dealers. cantly in the Swedish private market, adding call centres, Moderna – a good match an online solution for all customers in Sweden. The acquisi- TrygVesta acquired Swedish company Moderna in April tion is a good match to TrygVesta’s strategy of increasing group insurance schemes, sales agents, a car channel and 2009 for a total acquisition price of DKK 939m, including the market share in Sweden. goodwill on acquisition of DKK 310m. Moderna reported a pre-tax profit of DKK 117m (nine-months profit) corre- Moderna was consolidated in the financial statements of sponding to approximately 6% of the Group’s total pre-tax TrygVesta as from the second quarter of 2009. The consol- 40 of 148 l Results l Annual report 2009 idation of Moderna was thus a major contributor to the which improved the performance significantly. In addition high premium growth in 2009. Gross premiums increased to critical mass, the acquisition of Moderna also contrib- from DKK 221m to DKK 1,081m, with Moderna account- uted strong underwriting competences to the Swedish ing for DKK 768m of the increase. Growth in premiums business, which are expected to strengthen the overall was 12.2% in Moderna in 2009, which was considerably Swedish business going forward. higher than the 5% expected on the acquisition of Mod- erna. Vesta Skadeförsäkring reported growth in gross Costs premiums of 57% in 2009 (41.6% in DKK). Nominal costs increased from DKK 104m to DKK 251m, with the consolidation of Moderna being the principal In 2009, 109,000 insurances were sold in Vesta Skade- reason. The distribution mix was changed in 2009, which försäkring – a sustained high level, although slightly was another reason for the improved expense ratio. The below 2008. The main reason for this was the economic expense ratio fell from 47.1 to 23.2. The rapid growth downturn. Excluding Moderna, the portfolio amounted to entailed a need to strengthen human resources. The SEK 517m at 31 December 2009 against SEK 370m at 1 number of full-time employees was 429 at 31 December January 2009, and the number of customers was 136,000 2009, and 310 of them came from Moderna. at 31 December 2009 against 107,000 at the beginning of the year. Moderna’s portfolio amounted to SEK 1,460m Combined ratio at 31 December 2009. The premium increases of 10-20% The combined ratio for 2009 was 105.5 as against 143.9 which were implemented in Vesta Skadeförsäkring in for 2008. Moderna had a combined ratio of 90.8 for 2009 will improve profitability in 2010 and 2011. How- 2009. The remaining Swedish portfolio had a combined ever, these measures also had a negative impact on ratio of 141.9, which was adversely impacted by the customer renewal rates as premium increases for un- strengthening of reserves. The technical result for 2009 profitable customer segments caused a number of such was a loss of DKK 52m against a loss of DKK 90m in customers to leave the company. 2008. This was the best performance to date of the Claims Group’s Swedish activities and mainly attributable to the consolidation of Moderna’s profit of DKK 75m. The claims ratio was 80.9 in 2009 compared with 96.8 in Moderna reported a total profit before tax of DKK 117m 2008. Claims incurred included a strengthening of IBNR (nine-months profit), which was satisfactory considering reserves of SEK 50m. The improved claims ratio was the acquisition price for Moderna. mainly attributable to the consolidation of Moderna, PORTFOLIO DEVELOPMENT IN SWEDEN CLAIMS RATIO IN SWEDEN (GROSS) DKKm 1,500 1,200 900 600 300 0 % 160 140 120 100 80 60 2005 2006 2007 2008 2009 2006 2007 2008 2009 Vesta Skadeförsäkring Moderna Annual report 2009 l Results l 41 of 148 Results Private & Commercial Finland DKKm 2007 2008 2009 EUR/DKK, average rate for the period 745.11 745.63 744.68 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 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 43.5 472 -402 -194 -124 -1 12 -113 85.2 0.2 85.4 41.1 125.1 116.7 126.5 In Finland, TrygVesta sells insurances to private individuals 2009 against around 160,000 in 2008. Gross earned pre- and small enterprises under the brand names of TrygVesta miums from sales to small and medium-sized enterprises Finland and Nordea Vahinkovakuutus. Insurances are sold rose from DKK 41m in 2008 to DKK 73m in 2009. by Nordea’s branches, own sales agents, call centres, car dealers and via the Internet. In 2009, TrygVesta increased premiums by around 10%, From growth to focus on profitability forward. As the largest competitors also increased their Gross premiums in Finland increased by 33.3%. Sales premiums, TrygVesta is believed to have retained its which will have a positive impact on profitability going were intentionally held back due to increased focus on strong competitiveness. profitable growth. In that connection, earnings in Finland were affected by non-recurring expenses of approximately In 2009, sales made through own sales agents and own DKK 20m. Gross premiums rose by DKK 118m, to DKK call centre were strengthened. Nordea accounted for 18% 472m, and a total of 150,000 insurance were sold in of direct sales in Finland in 2009 through Nordea’s branch 42 of 148 l Results l Annual report 2009 network and netbank, while 31% of sales were made SALES D ISTRIBUTION IN FINLAND through TrygVesta’s affiliated sales force based on, among other things, referrals from Nordea. The Finnish portfolio totalled DKK 554m at 31 December 31% 2009 and grew by 28% in 2009. 16% 35% Claims ratio The claims ratio, which was 85.2 in 2009 against 72.9 in 2008, was impacted by higher claims handling costs, among other factors. Costs Costs, which amounted to DKK 194m in 2009 against DKK 154m in 2008, were impacted by the higher number of employees. Costs were futhermore impacted by non- recurring costs of around DKK 20m in relation to The Living House as well as in relation to writedowns of a commerial insurance system. Higher Group costs also impacted costs. The growth in the Finnish business gives rise to an ongo- ing requirement for attracting qualified employees. The number of employees increased from 147 to 191 in 2009, to which should be added 53 independent insurance agents. The streamlining of distribution channels and own resources combined with sound costs restrained will gradually reduce the expense ratio going foreward. Combined ratio The combined ratio was 126.5 relative to 116.7 in 2008. In the private business, the combined ratio was 107.1 against 101.5 in 2008. The targeted combined ratio of around 95 will be achieved through focus on profitable growth and changes in the sales channels. Private & Commercial Finland reported an overall loss of DKK 113m for 2009 against a loss of DKK 42m in 2008. 14% 4% Call centres Nordea Car dealers Netbank Affiliated sales agents PORTFOLIO DEVELOPMENT IN FINLAND DKKm 600 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 ACCUMULATED WEEKLY SALES IN FINLAND Policies 200,000 150,000 100,000 50,000 0 10 20 30 40 50 Weeks 2002 2004 2006 2008 2009 Annual report 2009 l Results l 43 of 148 Results Corporate DKKm NOK/DKK, average rate for the period SEK/DKK, average rate for the period 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 2007 2008 2009 92.81 80.73 5,285 -3,904 -504 877 91.74 78.02 5,512 -3,489 -588 1,435 84.59 70.02 5,423 -3,583 -604 1,236 -172 -516 -381 137 842 173 1,092 73.9 3.3 77.2 9.5 86.7 63.3 9.4 72.7 10.7 83.4 34 889 66.1 7.0 73.1 11.1 84.2 Corporate is a Nordic business area which sells insurances whose principal activity is to guarantee, in relation to third to corporate customers under the TrygVesta brand. Cor- parties, its customers’ performance under agreements porate’s products are sold through its own sales force made, such as construction contracts where guarantee is and through insurance brokers. Corporate has more than provided in respect of risks during the construction period 12,000 customers each paying annual premiums of more and remedying of defects after the project has been than DKK 900,000 or having more than 50 employees, handed over. and around 70 customers each paying annual premiums of more than DKK 10m. Corporate has around 400 Financial results employees. TrygVesta Garanti is included in the financial The technical result for 2009 was DKK 889m against DKK results of Corporate. TrygVesta Garanti is a subsidiary 1,092m in 2008, which was an unusually profitable year 44 of 148 l Results l Annual report 2009 with the combined ratio as low as 83.4. The combined insurance requirements in the Nordic region and TrygVesta ratio was 84.2 in 2009, which is considered a very satis- customers’ insurance requirements outside the Nordic factory level. The performance was impacted by lower region. Globalisation, relocation of production facilities, technical interest, which reduced the result by DKK 139m. and sales offices, etc. in all parts of the world require that The Norwegian part of the Corporate business was able TrygVesta is able to follow existing customers in their glo- to implement premium increases, while the Danish part balisation efforts. The partnership with AXA provides both experienced fiercer competition and pressure on prices. companies with a respectable and sound collaboration Run-off gains amounted to DKK 387m in 2009, which this part of the portfolio. In 2010, TrygVesta intends to was on a level with the 2008 figure. Large claims focus on further expansion of this part of the Corporate amounted to DKK 419m, DKK 89m more than in 2008. portfolio, thereby supporting growth. platform and thus a good basis for further expansion of As in previous years, TrygVesta Garanti was particularly aware of the sensitivity of the construction industry and LARGE CLAIMS IN CORPORATE the consequences of the economic crisis. TrygVesta Garanti pursues a restrictive underwriting and reinsurance policy, and the number and size of claims were therefore satisfac- tory in 2009. The company recorded a combined ratio of 75.3 in 2009, which was in line with 2008, and contributed DKKm 1,000 800 600 843 DKK 45m to the overall performance of Corporate. 456 439 Favourable market conditions in Norway, competition in Denmark 400 356 224 294 200 0 330 255 419 284 Gross earned premiums rose by 2.2% in local currency, 2005 2006 2007 2008 2009 but fell by 1.6% in terms of DKK to stand at DKK 5,423m due to the fall of NOK against DKK. Gross premiums fell in the Danish part of the business, while they increased in the Norwegian part. This performance was attributable to a good customer inflow in Norway, whereas the Danish market was characterised by price competition and declin- ing volumes within workers’ compensation insurances due to rising unemployment. Large claims, gross Large claims, net PREMIUM DISTRIBUTION BY PRODUCT IN CORPORATE 3% 10% 16% On 1 January 2010, TrygVesta implemented general pre- mium increases of 5-8% in the Norwegian part of the Corporate business. This was not possible in Denmark 18% due to the competitive environment. Competition and the price/risk relationship in Denmark intensified during 2009, and, focusing on profitability, TrygVesta refrained from submitting quotations on a number of contracts. 21% 9% 23% TrygVesta has since 2009 had a partnership with AXA, a large international insurer, relating to AXA customers’ Motor Personal lines Property, commercial Liability Workers’ compensation Transport and marine Others Annual report 2009 l Results l 45 of 148 Results The Swedish part of the Corporate business, which In 2009, the run-off result amounted to DKK 387m net started up in September 2008, gained momentum in and was mainly attributable to the personal lines. By way 2009 and made a positive contribution to growth. The of comparison, the run-off result was DKK 394m in 2008. portfolio amounted to SEK 64m at 31 December 2009. Insurances include buildings, consequential loss, liability, When the claims ratio is adjusted for the interest rate cargo and motor. Workers’ compensation insurance is effect, run-off, large claims and storm, the underlying handled through public collective agreements and is claims development was unchanged from 2008. therefore not offered as a product in Sweden. The Swed- ish business sector is highly internationalised, and the Costs partnership with AXA therefore supports TrygVesta’s Costs rose by 2.7% to DKK 604m, corresponding to expansion in the Swedish market for corporate insur- an expense ratio of 11.1, as against 10.7 in 2008. ances. Given the current action plans and distribution The increase was related to investments for expansion strategies, this part of the portfolio is expected to grow in Sweden. significantly over the next few years. Combined ratio Claims The combined ratio was 84.2 in 2009 against 83.4 in Gross claims expenses rose by 2.7%, or DKK 94m, to DKK 2008. Run-off gains impacted the combined ratio favour- 3,583m, and the claims ratio, net of ceded business was ably by 7.1 percentage points in 2009 - the same as in 73.1 in 2009 against 72.7 in 2008. The claims ratio was 2008. Large claims impacted the combined ratio adversely adversely impacted by the lower discount rate which, by 5.2 percentage points in 2009 against 4.6 percentage seen in isolation, added 2.2 percentage points to the points in 2008 claims ratio. Gross claims were furthermore adversely affected by several large claims, which amounted to DKK 419m (DKK 284m net) in 2009 compared with DKK 330m (DKK 255m net) in 2008. After contributions from rein- surers, net expenses for large claims were lower in 2009 than in 2008. 46 of 148 l Results l Annual report 2009 Investment activities DKKm Bonds etc. Equities* Real estate** Total Value adjustment, changed discount rate Other financial income and expenses*** Total return on investment activities 2007 1,103 180 240 1,523 298 -81 1,740 result 2008 1,882 -887 263 Investment assets 2009 End-2008 End-2009 1,850 405 258 29,417 1,172 3,561 34,248 1,589 3,893 1,258 2,513 34,150 39,730 -478 -340 440 -294 -288 1,931 Transferred to technical interest return on investment activities -1,400 340 -1,428 -988 -845 1,086 * ** DKK 125m sold on futures contracts has been deducted from the equity portfolio. Return on properties includes a calculated return on owner-occupied property (excluding 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 insur- ance items, costs of investment activities and offsetting of return on owner-occupied property. TrygVesta’s investment activities comprise any placement return on investment activities before other financial of the Group’s funds in investment assets, such as income and expenses was DKK 2,513m, equal to a return bonds, equity investments, land and buildings or cash. of 6.6%. The return was 5.9% including changes in provi- Funds are placed pursuant to guidelines defined by legis- sions for claims due to lower interest rates. lation, regulators and the Supervisory Board. asset allocation Investment result in 2009 Net investments in the year amounted to DKK 644m. The Generally falling interest rates, a narrowing credit spread bond portfolio made up an almost unchanged proportion and positive equity markets produced a good investment of total assets of 86.2% in 2009 compared with 86.1% in performance in 2009. The return on TrygVesta’s invest- 2008. The proportion of High Yield bonds increased by ment activities totalled DKK 1,931m before transfer to DKK 686m to stand at 2.2% of total investment assets technical interest, but after other financial income and at 31 December 2009. The Investment Grade portfolio expenses. This was DKK 1,491m more than in 2008. The was increased by around DKK 500m in the spring, Annual report 2009 l Results l 47 of 148 Results but the entire portfolio was sold at the end of the year. The slightly lower proportion relative to 2008 was primarily TrygVesta placed DKK 3.2bn with Danish banks under the due to the overall growth in investment assets. First Bank Package at the start of the year. Furthermore, TrygVesta completed a major restructuring of the mort- Bonds gage bond portfolio in the second half of 2009, switching The bond portfolio including cash yielded a return of DKK from callable bonds to non-callable bonds. TrygVesta 1,850m in 2009, equal to 5.6% for the full year. The return made no new equity investments in 2009. The increase in was affected by declining interest rates and the narrowing the equity proportion from 3.4% at 31 December 2008 to credit spread. A large part of TrygVesta’s bond portfolio is 4.0% at 31 December 2009 was therefore solely attribut- invested in Danish mortgage bonds, which benefited from able to higher equity prices. The real estate portfolio was the general credit spread narrowing. The smaller portfolio unchanged, accounting for 9.8% at 31 December 2009. of company corporate bonds also contributed strong investment return with High Yield bonds yielding 57.5%. LISTED EQUITIES BY GEOGRAPHY RETURN BY ASSET CLASS 16% 25% 25% 10% % 35 25 15 5 -5 -15 -25 -35 31.5 6.1 5.6 3.7 2.0 10.4 8.4 7.2 6.6 4.1 3.5 -32.8 24% Bonds etc. Equities Real estate Total Nordic region UK Rest of Europe USA Asia and others 2007 2008 2009 BON DS BY G EO G RAP HY BONDS BY RATING 12% 30% 5% 2% 14% 58% 79% Danish bonds Others Norwegian bonds and money market AAA Not rated/other AA A 48 of 148 l Results l Annual report 2009 Equities payables and because of different calculation methods The equity portfolio yielded a return of DKK 405m in 2009, for assets and liabilities. equal to 31.5%. The portfolio had an overweight in Nordic equities in 2009. TrygVesta therefore profited from the fact The investment portfolio consists of the investment assets that the Nordic markets outperformed the global equity not included in the match portfolio. The assets in the markets in 2009. real estate investment portfolio comprise equities, real estate, bonds, money market products and various derivatives. The investment return on real estate was DKK 258m includ- Going forward, the total investment return will be com- ing revaluation. The portfolio comprises the head office puted as the net yield on the match portfolio and the yield properties at Ballerup and Bergen, amounting to around on the investment portfolio. The net yield on the match DKK 1.5bn at 31 December 2009, and a well-diversified portfolio will be calculated as the gross yield on the match portfolio of investment properties of some DKK 2.4bn, portfolio less the sum of technical interest and capital consisting of quality buildings, typically office property in gains from discounting of provisions. prime locations in major cities in Denmark and Norway. Division of investment assets In the beginning of 2010, TrygVesta initiated a division of the investment assets into a match portfolio with the same market value as the provisions, and an investment port- folio. The purpose was to ensure optimum hedging of the interest rate risk on the provisions and to achieve a better and more transparent allocation of distributable funds. The match portfolio is composed so as to create an optimum match with cash flows from the portfolio and expected insurance payables within the legislative frame- work. The market value of the provisions for claims is measured by discounting them with an official interest rate curve defined by the Danish Financial Supervisory Author- ity. The match portfolio will comprise bonds, fixed-income derivatives and money market investments correlating to the development in the official interest rate curve. The pro- portion of fixed-income derivatives will be increased to reduce risk. The components of the match portfolio will change if the official interest rate changes in the future. The portfolio will reduce TrygVesta’s exposure to general interest rate changes significantly and, in particular, its exposure to non-parallel interest rate shifts. However, it is not possible to eliminate risk completely. There will still be unhedged risks due to uncertainty with respect to esti- mated insurance payables because it will not be possible to create a perfect match to the expected insurance Annual report 2009 l Results l 49 of 148 Capitalisation and risk management 50 of 148 l Capitalisation and risk management l Annual report 2009 at TrygVesta we focus on strong capitalisation and risk management to ensure we can always pay our debts Capitalisation and risk management Annual report 2009 l Capitalisation and risk management l 51 of 148 Capitalisation and risk management Capitalisation and profit distribution TryGVESTa’S CrEDIT raTINGS at 31 December 2009 Standard & Poor’s Moody’s TrygVesta Forsikring A/S TrygVesta Garantiforsikring A/S Moderna Försäkringer AB ‘A-’/stable ‘A-’/stable ‘A-’/stable A2 n.a. n.a. TrygVesta relies on its capital base and financial strength All three models present an estimate of the capital need to assume risks from customers and for customers to be that matches TrygVesta’s risk profile. confident that the company is able to meet its obliga- tions if and when they report a claim. The aim is for the TrygVesta has rating agencies Standard & Poor’s and capital base to match the Group’s risk profile and support Moody’s perform external credit ratings, and both agencies natural growth. Basically, TrygVesta’s capital base is the perform annual interactive credit assessments. TrygVesta result of risk assessments and risk management because targets financial strength corresponding to an ‘A-’ rating TrygVesta aims to have the necessary capital available, from Standard & Poor’s, which is equivalent to a security but no more than that. This basic approach thus deter- level of 99.5% on a one-year horizon according to Stand- mines the company’s dividend policy. ard & Poor’s own global analyses. The model assessments risk based capital management Solvency II rules are based on an identical security level. TrygVesta aims for its capital management to optimise the company’s financial strength and ensure financial In connection with the acquisition of Swedish company flexibility. Capital management is based on Moderna Försäkringer, Moderna was upgraded from in TrygVesta’s internal capital model and the future > TrygVesta’s internal capital model > A standard model under development within the EU in connection with the implementation of Solvency II in 2012 > A standard model developed by Standard & Poor’s. Capital requirement Given TrygVesta’s rating of ‘A-’, the capital requirement currently amounts to around 50% of net premiums. 52 of 148 l Capitalisation and risk management l Annual report 2009 ‘BBB’ to ‘A-’ by Standard and Poor’s based on TrygVesta’s tion carried out in 2008, suggested a weighted average financial strength. capital requirement for Danish insurance companies of around 50% of net premiums, with small companies gen- In addition to requirements by the rating agencies, the erally being subject to higher capital requirements and Danish authorities call for active capital management large companies to requirements lower than 50%. in that they require an individual solvency need to be assessed. These requirements are the precursor of the The global financial markets saw a turbulent period from Solvency II rules which will apply as from 2012. 2008 to 2009 when the market values of investment assets decreased significantly. This gave rise to a previ- TrygVesta assesses its individual solvency need on sion of the parameters used under OIS 4, which was the basis of the Group’s internal capital model, which carried out during 2009 in connection with the Consulta- estimates the necessary capital taking into account the tion Papers (CP), which allowed insurance companies to actual business composition, profitability, reserving comment on a draft standard model. As a consequence profile, reinsurance protection and the investment mix of the revision, several risk weights and correlation fac- chosen. The assessment takes into account the geographic tors will be increased, and geographic diversification will diversification effect and the effect of the defined invest- no longer be explicitly acknowledged. In consequence of ment policy, under which interest rate risk on the bond this, the capital requirements are expected to increase portfolio matches the corresponding interest rate risk on by around 45% relative to QIS 4, and will for TrygVesta be the discounted provisions, thereby ensuring that, for just under 50% of net premiums. The weighted average practical purposes, TrygVesta’s net interest rate risk is of the Danish market is expected to be around 50% or negligible. more of net premiums. If the current draft is maintained, it is expected that several companies will need to See also the section Risk management. strengthen their capital in order to comply with the new capital requirements. The individual solvency need is assessed on a quarterly basis and reported to the Danish Financial Supervisory TrygVesta currently determines its targeted capital with Authority. The assessment is based on a 99.5% security a view to supporting the company’s rating of ‘A-’ from level on a one-year horizon, equivalent to the security Standard & Poor’s plus a buffer of 5%. The capital level required under the future Solvency II rules. requirement supporting a rating of ‘A-’ currently amounts to around 50% of net premiums (excluding buffer), while Implementation of Solvency II the actual capital at the end of 2009 was 66% before In 2009, the European Parliament and the Commission dividend. The capital requirement for TrygVesta relative adopted the directive setting out future solvency rules for to Standard & Poor’s capital model has been reduced by insurance companies. The directive is expected to be about 5% of net premiums in the past few years due to implemented in the individual member states by the end measures to reduce risk and a lower equity proportion. of 2012. The directive, which defines quantitative as well as qualitative requirements for insurance companies, will TrygVesta has applied an internal capital model since require an extensive review of existing legislation. This 2002 as the basis for assessing the individual solvency will impact the capital structure of insurance companies need, supplemented by qualitative assessments of and make greater demands on the companies’ skills with selected risk scenarios. The internal model describes the respect to risk management, control, capital planning and statistical uncertainty estimated on assets and liabilities, follow-up. In quantitative terms, TrygVesta has taken part but also includes an element representing the additional in the test calculations for a standard model under Sol- risk that may apply in particularly stressed situations. vency II since 2005. QIS 4, the latest official test calcula- Conversely, the internal model also accounts for the Annual report 2009 l Capitalisation and risk management l 53 of 148 Capitalisation and risk management effect of risk-reducing measures such as hedging of infla- by the EU Commission in 2009. TrygVesta follows tion risk, matching of interest rate risk on assets and lia- developments closely, taking account thereof when bilities, diversification etc. Based on the internal capital determining dividends for the year. model, the capital requirement for TrygVesta would be somewhat lower than the latest estimate of a Solvency II In 2005, TrygVesta raised a 20-year EUR 150m subordi- requirement. In future under Solvency II, TrygVesta nated bond loan, listed on the London Stock Exchange. intends to use the internal capital model for capital plan- In connection with the acquisition of Moderna in 2009, ning rather than the standard model referred to above. TrygVesta also raised a 20-year EUR 65m bond loan with Capital structure TryghedsGruppen, which owns 60% of TrygVesta. This brought TrygVesta’s total subordinated debt to approxi- TrygVesta’s capital structure comprises equity and sub- mately EUR 215m. Furthermore, approximately DKK 600m ordinated loan capital. The relationship between the two of short-term senior debt was raised, but this debt is not components is assessed on a regular basis in order to included in the capital calculation made by Standard & maintain the optimum structure that takes into account Poor’s. The total debt ratio was around 16% at 31 Decem- return on equity, cost of capital and flexibility. Regulators ber 2009, and the cost of debt in 2009 was DKK 90m. and rating agencies assess the actual capital differently. Regulators require companies to calculate a capital base Financial flexibility comprising mainly equity less intangible assets and other The financial flexibility must take into account considera- statutory adjustments plus subordinated loan capital of tions about strategic acquisitions and ensure the possi- up to 25% of the Solvency I requirement. Standard & bility of additional contributions of capital as part of the Poor’s applies the term Total Available Capital (TAC), capital resources. TrygVesta’s capital contingency plan under which intangible assets are also deducted from the describes measures that can be applied in the short term capital base, and subordinated loan capital generally may to improve the Group’s solvency, if required. As a result not exceed 25% of the total capital. The future Solvency II of the strategy chosen for the future and distribution for rules will change regulatory capital structure requirements, 2009, restructuring of investment assets and additional and the first indications of such requirements were issued hedging of insurance obligations could substitute for PAYOUT PER SHARE CAPITALISATION 33 38 21 21 17 6.5 28 12.5 15.5 DKK 40 35 30 25 20 15 10 5 0 DKK 12,000 11,000 10,000 9,000 8,000 7,000 6,000 2005 2006 2007 2008 2009 Q1 08 Q2 08 Q3 08 2008 before distrib. 2008 after distrib. Q1 09 Q2 09 Q3 09 2009 before distrib. 2009 after distrib. Cash dividend Share buy back Capital requirement Buffer (5%) Surplus capital 54 of 148 l Capitalisation and risk management l Annual report 2009 CaPITaL aND DIVIDEND DKKm Profit for the year, DKKm Cash dividends, DKKm Cash dividend 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 Buffer to ‘A-’ level 2005 2,097 1,428 21 68% 21 1,428 68% 2.8% 2006 3,211 2,244 33 70% 33 2,244 70% 2.4% 2007 2,266 1,156 17 51% 1,405* 21 38 2,561 113% 5% 2008 846 442 6.5 50% 0 0 6.50 442 50% 16% 2009 2,008 991 15.50 49% 799 12.50 28 1,790 89% 7.7% * The share buy back programme was based on the profit for 2007, 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. around DKK 1.4bn in 2010. Furthermore, there would be distribution. At 31 December, a capital requirement is room for increasing the capital base by raising additional determined based on the Standard & Poor’s model corre- subordinated loan capital. In relation to the Danish sol- sponding to the level of an ‘A-’ rating plus a buffer of vency rules the full potential for including subordinated 5%. Any capital in excess thereof will be distributed as loan capital has already been utilised (around DKK dividend. Dividend is determined once a year while profit 700m). The capital base can be increased with around is generated on an ongoing basis, and this means that DKK 600m (after dividend) in relation to Standard & the buffer will grow over the year in excess of the 5% Poor’s capital model based on 31 December 2009. originally determined. Dividend policy Dividend for the 2009 financial year Dividend is determined on the basis of the Group’s profit Based on a capital requirement of DKK 8,959m, profits of distribution policy. TrygVesta distributes 50% of the profit DKK 2,008m and TAC (before dividend) of DKK 11,443m, for the year as ordinary cash dividends. TrygVesta distributes DKK 991m by way of cash dividend and DKK 799m by way of a share buy back. Any excess capital after distribution of ordinary dividends and taking into consideration the minimum capital TrygVesta’s investment policy allows for an equity requirement, strategy and growth, will be returned to proportion of up to 6.5% as defined in the Supervisory shareholders in the form of a share buy back programme. Board’s instructions to the Executive Management. The The dividend policy reflects TrygVesta’s long-term earn- a capital base that accommodates the investment policy ings and cash flow potential, while maintaining an appro- limits, DKK 1,790m may be distributed at 31 December priate level of capitalisation. 2009 in the form of share buy backs and the cash equity proportion at 31 December 2009 was 4.0%. Given TrygVesta intends to pursue a risk-based transparent policy for capital management, and thus also for dividend dividend. Annual report 2009 l Capitalisation and risk management l 55 of 148 Capitalisation and risk management risk management THE MOST IMPOrTaNT rISK TyPES Risk management is an integral part of TrygVesta’s business 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. Reserving 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 fluctuat- ing market interest rates. operations. We continuously seek to minimise the risk of unnecessary losses in order to optimise returns relative to the capital available in the company from time to time. risk management environment and identification The introduction of Solvency II in 2012 will introduce stricter requirements with respect to the way in which insurance companies work with and control risk, including the Supervisory Board’s involvement in risk and capital management. See the section Capitalisation and profit distribution TrygVesta has for a number of years worked to align the company to such requirements. This involves that the Supervisory Board actively defines risk appetite and risk management limits and regularly assesses the overall risk in the company and the resulting capital requirement. This Handled by the Investment risk committee is handled in a risk management environment, in which the 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. risk management committee, including representation from the Group Executive Management, is responsible for the overall risk and capital management. The areas of > underwriting and reinsurance > provision > investment risk > operational risk and security Handled by the Operational risk committee are managed by corresponding sub-committees. Risk man- agement is supported by Trygvesta’s internal capital model, which has been developed on an ongoing basis over the 56 of 148 l Capitalisation and risk management l Annual report 2009 TryGVESTa’S rISK MaNaGEMENT ENVIrONMENT Supervisory Board Executive Management 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 past ten years. In addition, we make an annual mapping provides target premium levels for the respective parts of of risk to identify new risks that cannot currently be the insurance business. Risk is furthermore managed on an assessed using statistical analyses. Such data is compiled ongoing basis by monitoring of profitability, business pro- in TrygVesta’s risk data base, forming the basis for an cedures, acceptance policies, authorities and reinsurance. annual risk report to the Executive Management and the Supervisory Board. The assessment of selected risk reinsurance scenarios based on this work is incorporated directly in Reinsurance is used to reduce underwriting risk in areas the Group’s calculation of the necessary solvency need where this is particularly required. The need for reinsur- (Individual Solvency Need). ance is assessed on the basis of TrygVesta’s internal capi- underwriting risk and reinsurance underwriting Underwriting risk is the risk related to entering into insur- ance contracts and thus the risk that premiums charged do not adequately cover the claims TrygVesta has to pay. This risk is assessed and managed based on statistical analyses of historical experience for the various lines of business. The insurance premium must be adequate to cover expected claims, but must also comprise a risk pre- mium equal to the return on the part of the company’s capital that is used to protect against random fluctua- tions. All other things being equal, this means that insur- ance lines or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium. The figure Norwegian property and motor liability shows how the fluctuations observed in different lines may vary considerably in practice, affecting the underwriting risk. Underwriting risk is continuously assessed based on tal model, which compares the price of buying reinsurance with the reduced capital need that could be achieved. NORWEGIAN PROPERTY AND MOTOR LIABILITY % 175 150 125 100 75 50 25 0 1988 1992 1996 2000 2004 2008 Motor Liability Property Example of fluctuations in historical claims experience for lines subject to a large degree and a minor degree, respectively, analyses in TrygVesta’a internal capital model which thus of random fluctuations (risk). Annual report 2009 l Capitalisation and risk management l 57 of 148 Capitalisation and risk management For property risks, major events in 2010 are protected by general insurance area. The act provides for the govern- catastrophe reinsurance of DKK 5bn with a retention up to ment to provide a guarantee of up to DKK 15bn for the a maximum of DKK 100m. The primary risk of single events total Danish market to cover such losses in excess of the is storm, and the level of cover has been defined using level that can be protected in the reinsurance market. In simulation models to the effect that protection would statis- January 2010, the EU Commission finally approved the act tically be inadequate less than once every 250 years. The which may thus become effective in the first half of 2010. catastrophe reinsurance programme also covers other catas- No similar arrangement has as yet been set up in Norway, trophe events, including terrorist events up to DKK 4.15bn. Sweden and Finland. TrygVesta has bought catastrophe reinsurance up to DKK 1.5bn for personal accident and workers’ compensation pol- In case of a major insurance event comprised by the icies with a retention of DKK 50m, covering the risk of mul- reinsurance programme, TrygVesta may have major receiv- tiple injuries from the same cause, including terror. ables with reinsurers and thus be exposed to credit risk. In addition, TrygVesta buys reinsurance for certain lines for ings and by spreading reinsurance on several reinsurers. which experience has shown that claims vary considerably. TrygVesta has also set up a security committee focusing The largest single risks in the corporate portfolio with specifically on managing credit risk in connection with This risk is managed by requirements to reinsurers’ rat- respect to property risks are protected by reinsurance cover reinsurance receivables. of DKK 1.7bn with a retention of DKK 100m for the first claim and DKK 50m for subsequent claims. Property risks exceeding the upper level are protected by facultative rein- Provisioning risk surance. Other lines covered by reinsurance include liabil- After the period of the policy’s cover expires, insurance risk ity, motor, marine, fish farms and guarantee insurance. relates to the provisions for claims made to cover future payments on claims already incurred. Customers report Exposure to terrorist losses of a biological, chemical or claims with a certain delay. Depending on the complexity radioactive character can be covered only partly by reinsur- of the claim, a shorter or longer period of time may pass ance today. However, Denmark established a national solu- until the amount of the claim has been finally calculated. tion to this issue in June 2008 when the Danish Folketing This may be a prolonged process particularly for personal passed the act on a terrorist insurance arrangement in the injuries. Even when the claim has been settled there is a RISK OVERVIEW Effect Provisions Equities Legislation Under reinsurance IT operations Fraud risk that it will be resumed at a later date, triggering fur- ther payments. The size of the provisions for claims is determined both through individual assessments and actuarial calculations. At 31 December 2009, the provisions for claims amounted Adverse claims development to DKK 22,430m. The duration of the provisions, that is, the average period until such amounts are paid out to the Adverse risk selection customer, was 3.3 years at 31 December 2009. Interest rate and spread risk Most of the provisions for claims relate to personal injury claims. They are exposed to changes in inflation, the dis- count rate, disbursement patterns, economic trends, legis- Insurance risk Investment risk Probability lation and court decisions. See also the section Investment and interest rate risk 58 of 148 l Capitalisation and risk management l Annual report 2009 PrOVISIONS FOr CLaIMS (GrOSS) Investment and interest rate risk Expected cash flow 0-1 year 1-2 years 2-3 years > 3 years Total DKK 6,972 3,421 2,256 9,178 22,827 * Provisions for claims are excluding Finland, Sverige (Vesta Skade- försäkring) og TrygVesta Garanti. Investment risk is the risk that volatility in the financial mar- kets will impact the results of operations and thus the financial position. Investment assets as well as provisions for claims are exposed to interest rate changes. If interest rates fall, the value of the bond portfolio would rise, but at the same time it would cause the provisions for claims to rise, thereby reducing net interest rate exposure. The investment assets are partly made up of assets match- The calculation of provisions for claims will always be sub- ing the technical provisions and partly of the company’s ject to considerable uncertainty. Historically, many insurers equity. At the beginning of 2010, TrygVesta explicitly initi- have experienced substantial positive as well as negative ated a division of the investment assets into two invest- impacts on profit (run-off) resulting from reserving risk, ment portfolios. The part of the portfolio matching the and that may also be expected to happen in future. TrygVesta technical provisions will be placed exclusively in interest- manages reserving risk by pursuing a reserving policy related assets, and the sole purpose is to hedge interest ensuring that the process for determining provisions for rate sensitivity with respect to discounted provisions. The claims is updated and aligned at all times. This includes part of the portfolio that matches equity will be a free that it is based on an underlying model analysis, and that investment portfolio intended to generate an optimum internal control calculations and evaluations are made. return relative to the risk involved. The figure on the next page illustrates how interest rate risk on assets and liabili- Provisions for claims relating to annuities in Danish work- ties varies before and after the division of the portfolio. ers’ compensation insurance are discounted using the current market rate and are also revalued by the wage After the division, fluctuations in the hedging portfolio will in inflation rate each year. This exposes TrygVesta to explicit principle perfectly match fluctuations in liabilities. In practice, inflation risk in case of changes in Danish wage inflation. it would not be expedient to target a perfect match simply TrygVesta hedges such risk using an inflation swap. because of the management expenses involved. We expect PROVISIONS FOR CL AI M S 4% 9% 18% 19% 8% 6% that, in practice, the net interest rate risk after division of the portfolio can be kept within a limit of DKK 100m. The division of the portfolio is described in more detail in the section Investment activities Equity and real estate risk The equity and real estate portfolios are exposed to changes in equity markets and real estate markets, respec- tively. At 31 December 2009, the equity portfolio accounted for 4.0% of the total investment assets. The proportion is expected to be between 2%-6.5% in 2010. 36% Motor Liability Personal Workers’ compensation Property Accident In 2008, TrygVesta bought the head office in Ballerup, Others thereby increasing the proportion of real estate signifi- cantly. This proportion is expected to be reduced over Annual report 2009 l Capitalisation and risk management l 59 of 148 Capitalisation and risk management DIVISION OF THE INVESTMENT aSSETS BEFOrE DIVISION PORTEFØLGE POrTFOLIO Assets 2000 Liabilities 1500 1000 500 -2000 -1500 -1000 -500 500 1000 1500 2000 -500 -1000 -1500 -2000 Perfect match aFTEr DIVISION AFDELINGSPORTEFØLGE MaTCH POrTFOLIO 2000 Liabilities 1500 1000 500 Assets -2000 -1500 -1000 -500 500 1000 1500 2000 -500 -1000 -1500 -2000 FRIPORTEFØLGE INVESTMENT POrTFOLIO 2000 Liabilities 1500 1000 500 Assets -2000 -1500 -1000 -500 500 1000 1500 2000 -500 -1000 -1500 -2000 Perfekt match Before the division of the portfolio, fluctuations in liabilities would to some extent be offset by opposite fluctuations in assets (left figure). After the division, fluctuations in the hedging portfolio will in principle perfectly match fluctuations in liabilities. The investment portfolio will (solely) be exposed to interest rate risk to the extent of active investments in interest-bearing assets. In such case, fluctuations would not be offset by fluctuations on liabilities. To achieve best possible match derivatives will be used. time. Besides the owner-occupied properties, TrygVesta’s of the net book value of the Norwegian entity. Exchange real estate port-folio consists of office and rental proper- rate adjustments of foreign entities and hedging thereof ties comprising 3.8% and 5.9% respectively of the total are taken directly to equity. investment activities. Credit risk Currency risk Credit risk is the risk of incurring a loss if counterparties Currency risk is kept at a very low level. The Group’s pre- fail to meet their obligations. In connection with the mium income in foreign currency is mostly matched by investment activities, the primary counterparties are bond claims and expenses in the same currencies, and thus, issuers and counterparties in other financial instruments. only the profit for the period is exposed to currency risk. TrygVesta manages credit risk and concentration risk TrygVesta uses currency derivatives to hedge the risk of a loss of value of balance sheet items due to exchange rate See the section Investment activities for an overview fluctuations in accordance with a general hedge ratio of of the bond portfolio distributed on ratings 90-100 for each currency. The aim is to hedge 98-100% through limits and rating requirements. 60 of 148 l Capitalisation and risk management l Annual report 2009 TrygVesta’s receivables in Danish banks are covered by a market, business partners and reputation as well as government guarantee under the Act on Financial Stability changed market conditions. The management of strategic (Bank Package 1) until 30 September 2010. risk closely involves the Supervisory Board. The financial crisis and economic downturn prevailing since The overall risk exposure mid-2008 emphasised the importance of managing risk, TrygVesta considers strategic risk and insurance risk including credit risk. TrygVesta has no investments in sub- (underwriting and provisions) to be the most important prime loans, CDOs or similar products, and accordingly has types of risk TrygVesta is exposed to. Both types of risk not incurred financial losses in this respect in connection are closely related to the operations as a general insurer. with the financial crisis. Investment risk is at a satisfactory level due to the current Liquidity risk Many businesses, in particular financial businesses, have had their access to liquidity significantly impaired during the financial crisis. TrygVesta is not exposed to the same risk of a lack of liquidity since premiums are due for pay- ment before claims have to be paid out. Most of the pay- ments received are placed in cash accounts or liquid securi- ties ensuring that TrygVesta will be able to procure the necessary liquidity at all times. Operational risk Operational risk relates to errors or failures in internal pro- cedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal, TrygVesta focuses on establishing an adequate controlling environment for the Group’s operations. In practice, this work is organised through a structure of procedures, con- trols and guidelines that cover the various aspects of the Group’s operations, including the IT security policy. TrygVesta has also set up a security and investigation unit to handle matters such as fraud, IT security, physical security and contingency plans. TrygVesta has prepared contingency plans to handle the most important areas, such as the contingency plans in the individ- ual parts of the business to handle an event of a prolonged IT breakdown. The Group has also set up a crisis manage- ment structure should TrygVesta be hit by a major crisis. Strategic risk Strategic risk relates to TrygVesta’s choice of strategic position, including IT strategy, flexibility relative to the investment strategy. TrygVesta considers the operational risk to be less important than the other risk types. SENSITIVITy IN CaSE OF SELECTED CHaNGES IN uNDErWrITING, rESErVING aND MarKET CONDITIONS INSuraNCE rISK underwriting risk Increase in claims expenses of 1% Decrease in premium rates of 1% Weather-related claim of DKK 5.5bn (reinsurance coverage DKK 5bn) Provisioning risk Increase in social inflation of 1% Error estimation of e.g. 10% on workers’ compensation and motor DKKm -132 -183 -260 -557 -1,158 MarKET rISK Investment risk Interest rate market – increase in interest rates of 1%: -694 Impact on fixed interest securities 624 Higher discounting of provisions for claims 142 Impact on Norwegian pension obligation Equity market Decrease of equity markets of 15% Effect arising from derivatives real estate market Decrease of real estate markets of 15% Currency market Decrease of 15% of exposed currencies relative to DKK Impact derivatives -257 19 -584 -378 327 Annual report 2009 l Capitalisation and risk management l 61 of 148 Corporate governance 62 of 148 l Corporate governance l Annual report 2009 TrygVestas managers must create strong results by communicating clearly, sharing knowledge and having a passion for positive changes Corporate governance Annual report 2009 l Corporate governance l 63 of 148 Corporate governance Supervisory Board Mikael Olufsen Bodil Nyboe Andersen Jørn Wendel Andersen Paul Bergqvist Christian Brinch Ms Nyboe andersen has competencies within Mr Bergqvist has international management ex- the areas of management, strategy, treasury perience in strategic development, complex trans- and financial business from her former posi- actions, development of new markets, tions as Chairman of the Board of Governors of marketing, sales and financial management. Being Danmarks Nationalbank and Managing Director a Swedish citizen, Mr Berggvist has special insight of Andelsbanken. into Swedish market conditions. Number of shares held: 100. Number of shares held: 100. Jørn Wendel andersen Born 1951. Joined the Supervisory Board in 2002. Christian Brinch Born 1946. Norwegian citizen. Mikael Olufsen Chairman of the Supervisory Board Born 1943. Joined the Supervisory Board in 2002. Professional board member. Former CEO of Toms Chokoladefabrikker A/S. Educational background: MSc (Forestry); PMD Harvard Business School. Chairman: TryghedsGruppen smba, TrygVesta A/S, TrygVesta Forsikring A/S, Egmont Foundation, Egmont International Holding A/S, Ejendomssel- skabet Gothersgade 55 ApS, Ejendomsselskabet Vognmagergade 11 ApS, Malaplast Co. Ltd. Bangkok, the Advisory Board of CareWorks Africa Ltd. and the Danish Rheumatism Association Board member: WWF in Denmark and Danmark-Amerika Fondet. Committee memberships: Chairman of the remuneration committee of TrygVesta A/S. Mr Olufsen has experience in managing large international companies, including strategic development, and experience as a board member of Danish and international companies. Professional board member and interim manage- ment projects. Former CFO, Arla Foods amba. Educational background: MSc (Business Economics), IMD Executive Development Pro- gramme, IMD ‘Strategy in Action’ Programme, and Leadership Assessment – Heidrick & Struggles. Board member: TryghedsGruppen smba, TrygVesta A/S and TrygVesta Forsikring A/S. Mr Wendel andersen has experience in international management, strategy, finance, treasury, IT and project management from his former position as CFO of Arla Foods and from Tulip International and Foss. Number of shares held: 3,018. Number of shares held: 1,078. Bodil Nyboe andersen Deputy Chairman of the Supervisory Board Born 1940. Joined the Supervisory Board in 2006. Paul Bergqvist Born 1946. Swedish citizen. Joined the Supervisory Board in 2006. Former Chairman of the Board of Governors, Carlsberg A/S. Professional board member. Former CEO of Danmarks Nationalbank (Danish Central Bank). Educational background: MSc (Economics). Chairman: Sverige Bryggerier AB, East Capital Chairman: The Laurids Andersen Foundation. Explorer AB, HTC Group AB, Pieno Zvaigzdes AB, Deputy chairman: TrygVesta A/S and TrygVesta Forsikring A/S. Board member: TV2, The Villum Kann Rasmus- sen Foundation and The Energy Technological Development and Demonstration Programme Returpack Svenska AB, Norrkipings Segelsäll- skap and Östkinds Häradsallmänning. Board member: TrygVesta A/S, TrygVesta Forsikring A/S, Lantmännen and Björk Eklund Group AB. (‘Energiteknologisk udviklings- og Demonstrations Committee memberships: Member of the Joined the Supervisory Board in 2007. Chief executive of his own business. Professional board member. 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: Hafslund AS, Apply Group AS, Subsea Technology Group AS, HV IV Invest Alfa AS, Heli- copter Network AS, Fortissimo AS, Line Consult AS, Gluteus AS and Røa Invest AS. Deputy chairman: Norges Statsbaner AS, Prosafe SE and Prosafe Production Plc. Board member: TrygVesta A/S, TrygVesta Forsikring A/S, Kjell A. Østnes AS, Thor Dahl Management AS and Thor Dahl Shipping AS. Committee memberships: Chairman of the remuneration committee of Hafslund ASA and member of the election committee of Prosafe SE. Mr Brinch runs his own business providing stra- tegic consulting and board services. Mr Brinch has strategic development, branding, distribution and consulting services with respect to board work. Being a Norwegian citizen, Mr Brinch has special insight into Norwegian market conditions. Number of shares held: 500. Niels Bjørn Christiansen Born 1966. Joined the Supervisory Board in 2006. Educational background: Economist, engineer. experience and knowledge within the areas of Program’). remuneration committee of TrygVesta A/S, spokesman of the audit committee of East CEO, Danfoss A/S. Former Executive Vice President and COO, GN Store Nord A/S. Committee memberships: Chairman of the Capital Explorer AB and chairman of the nomi- audit committee of TrygVesta A/S. Advisory nation committee of East Capital Exlorer AB. Board of the Nordic Investment Bank and the Committee of Corporate Governance. Educational background: B.Sc., E.E., MSc (Engineering), MBA INSEAD. Chairman: Danfoss Compressors Holding A/S and Danfoss International A/S. 64 of 148 l Corporate governance l Annual report 2009 Niels Bjørn Christiansen John R. Frederiksen Rune Torgeir Joensen Peter Wagner Mollerup Birthe Petersen Per Skov Berit Torm Deputy chairman: Danfoss (Tianjin) Limited, Committee memberships: Member of the Board member: TrygVesta A/S and TrygVesta China and Sauer-Danfoss Inc. remuneration committee of TrygVesta A/S, mem- Forsikring A/S. Board member: TrygVesta A/S, TrygVesta Forsikring A/S, Bang & Olufsen A/S, Axcel A/S, William Demant Holding A/S, Danfoss Drives A/S, Danfoss Ejendomsselskab A/S, Danfoss Ventures A/S, Danfoss-Murman Holding A/S, Provinsindus- ber of the audit committee of Invista Foundation Property Trust Ltd. and Invista European Real Es- tate Trust Sicaf, member of the audit committee Committee memberships: Member of the remuneration committee. and the investment committee of Sjælsø Number of shares held: 88. Gruppen A/S. triens Arbejdsgiverforening and DI Hovedbestyrelse. Mr Frederiksen has experience within manage- Mr Christiansen has experience with international businesses, including from his work at Danfoss and GN Store Nord A/S. He has competencies ment, strategy and finance from serving as a CEO and most recently as a board member of a number of companies, including property companies. within management, strategy, IT, processes, Number of shares held: 280. distribution, innovation, production, finance and private and listed companies. Number of shares held: 100. John r. Frederiksen Born 1948. Joined the Supervisory Board in 2002. rune Torgeir Joensen Elected by the employees Born 1956. Norwegian citizen. Joined the Supervisory Board in 2008. Department manager with TrygVesta Forsikring A/S. CEO, Fortunen A/S, Oak Property Invest Aps and Educational background: Printer, market Berco ApS. Former chief executive of Jacob Holm economist, HMS adviser. & Sønner A/S and Bastionen A/S. Board member: TrygVesta A/S and TrygVesta Educational background: Business training. Forsikring A/S. Chairman: Hellebo Park A/S, RenHold A/S, Renoflex-Gruppen A/S, Renholdningsselskabet af Committee memberships: Member of the audit committee of TrygVesta A/S, member of 1898, Rådgivningsselskabet af 1. september 2009 the Advisory Board TrygVesta Norge. A/S, SBS Byfornyelse Smba, Sjælsø Danmark A/S, Sjælsø Gruppen A/S, Ejendomsforeningen Dan- mark, Komplementarselskabet Uglen ApS and Grundejernes Investeringsfond. Board member: TryghedsGruppen smba, TrygVesta A/S, TrygVesta Forsikring A/S, Fortunen A/S, Freja Ejendomme A/S (Statens Ejendomssalg A/S), Højgård Ejendomme A/S, Oak Property Invest Number of shares held: 45. Peter Wagner Mollerup Elected by the employees Born 1966. Joined the Supervisory Board in 2002. Per Skov Born 1941. Joined the Supervisory Board in 2002. Professional board member. Former CEO of FDB. Educational background: MSc (Economics), management training programme at MIT. Chairman: Utility Development A/S and NX Holding A/S. Deputy chairman: TryghedsGruppen smba. Board member: TrygVesta A/S, TrygVesta For- sikring A/S, Dagrofa A/S, DSV A/S, Kemp & Lau- ritzen A/S, Nordea Liv og Pension Livsforsikrings- selskab A/S. Committee memberships: Member of the audit committee of TrygVesta A/S. From his board work and former positions, including as CEO of FDB, Mr Skov has experi- ence within management, strategy and finance. Number of shares held: 2,468. Berit Torm Elected by the employees Born 1959. Joined the Supervisory Board in 2008. Lead negotiator with TrygVesta Forsikring A/S. Forsikring A/S. Quality assurance manager with TrygVesta Aps, C.W. Obel A/S, C.W. Obel Ejendomme A/S, Educational background: Certified insurer, C.W. Obel Projekt A/S, Obel-LFI Ejendomme A/S, travel agency guide, psychotherapist. Ejendomsaktieselskabet Knud Højgaards Hus, SSG A/S, BERCO Deutschland GmbH, Invista Foundation Holding Company Limited, SIPA (Scandinavian Board member: TrygVesta A/S and TrygVesta Forsikring A/S. Forsikring A/S. Educational background: LL.M. Board member: TrygVesta A/S and TrygVesta Inter national Property Association), Invista Number of shares held: 236. Foundation Property Trust Limited, Invista Foun- dation Property Limited, Invista Foundation Property No. 2 Limited and Invista European Real Estate Trust SICAF. President: the European Property Federation, Birthe Petersen Elected by the employees Born 1949. Joined the Supervisory Board in 2002. Brussels. Consulting negotiator with TrygVesta Forsikring A/S. Committee memberships: Member of Furesø local council. Number of shares held: 86. Educational background: Diploma in business studies, management training programme of The Unless otherwise stated, the Board Organisation of Danish Insurance Employees. Members are Danish citizens. Annual report 2009 l Corporate governance l 65 of 148 Corporate governance Group Executive Management Birgitte Kartman Morten Hübbe Kjerstin Fyllingen Truls Holm Olsen Stine Bosse Martin Bøge Mikkelsen Jens Stener Peter Falkenham Lars Bonde 66 of 148 l Corporate governance l Annual report 2009 Christine (Stine) Bosse CEO/ Group CEO Peter Falkenham COO/Group Executive Vice President, Birgitte Kartman Group Executive Vice President, Claims Process & IT Born 1960. Joined TrygVesta in 1987. Born 1960. Joined TrygVesta in 1996. Joined the Group Executive Management in 1999. Born 1958. Joined TrygVesta in 2000. Joined the Group Executive Management in 2009. Member of the Executive Management 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. Member of the Executive Management of TrygVesta A/S. of TrygVesta Forsikring A/S. Member of the Executive Management Educational background: LL.M. Educational background: LL.M, management of TrygVesta Forsikring A/S. Number of shares held: 619. training programmes at INSEAD and Wharton. Educational background: BCom (International Chairman: The Danish Insurance Association and BØRNEfonden. Trade), MSc (Engineering) and management training programmes at Wharton and Stanford. Martin Bøge Mikkelsen Group Executive Vice President, Strategy & Board member: Nordea Bank and Amlin Plc. Deputy chairman of Solar A/S. Human Competencies Joined the Group Executive Management in 2006. Number of shares held: 1,911. Member of the Executive Management of Try- gVesta Forsikring A/S. Committee memberships: member of the Committee memberships: member of the au- risk committee of Nordea Bank and the dit committee of Solar A/S. remuneration committee of Amlin Plc. Number of shares held: 6,264. Morten Hübbe CFO/Group Executive Vice President, 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 Number of shares held: 1,594. Lars Bonde Group Executive Vice President, Customer Service & Sales – Direct, and Country Manager Denmark Born 1965. Joined TrygVesta in 1998. of TrygVesta Forsikring A/S. Educational background: Insurance training, Educational background: BSc (International LL.M. Business Administration and Modern Languages), Board member: The Danish Employers’ MSc (Finance and Accounting), management Association for the Financial Sector. training at Wharton. Board member: Høyteknologisenteret AS. Number of shares held: 4,801. Number of shares held: 1,643. Kjerstin Fyllingen Group Executive Vice President, Customer Service & Sales – Partners, and Country Manager Norway Born 1958. Joined TrygVesta in 2006. Joined the Group Executive Management in 2006. Member of the Executive Management of TrygVesta Forsikring A/S. Born 1962. Joined TrygVesta in 1989. Joined the Group Executive Management in 2009. Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: Graduate Diplomas from CBS in Organisation, in Marketing Manage- ment and in Accounting, and management training programmes, including Wharton and Ashridge. Truls Holm Olsen Group Executive Vice President, Corporate Born 1964. Joined TrygVesta in 1998. Joined the Group Executive Management in 2009. Member of the Executive Management of TrygVesta Forsikring A/S. Educational background: LL.M. Board member: Energon A/S. Number of shares held: 17. Jens Stener Group Executive Vice President, Corporate Branding & Business Centres Born 1966. Joined TrygVesta in 2006. Joined the Group Executive Management in 2009. Educational background: Bachelor of Business Member of the Executive Management Administration and Master of Management, of TrygVesta Forsikring A/S. Handelshøyskolen BI. Board member: Finansnæringens Hoved- organisation og TSS Marine ASA. Committee memberships: member of the audit committee of TTS Marine ASA. Number of shares held: 2,462. Educational background: BSc Business Economics, INSEAD and IMD. Board member: Leroy Design A/S. Number of shares held: 17. Annual report 2009 l Corporate governance l 67 of 148 Corporate governance Statutory report on corporate governance In 2009, TrygVesta’s Supervisory Board focused on organ- Danish and English. Furthermore, the Group has a ising the Group’s further strategic development with a number of in-house guidelines to ensure that disclosures healthy balance between short-term and long-term activi- of price-sensitive information are made in accordance ties and action plans. Profitable growth was very much in with the stock exchange rules of ethics. Investor Rela- focus during the year, and TrygVesta benefited from the tions have regular contacts to equity analysts and major economic slowdown to acquire Moderna Försäkringar investors and organise investor presentations, teleconfer- after following the company for some years. ences and webcasts together with the Executive Manage- ment. The Supervisory Board is regularly informed of the Revised corporate governance recommendations are to dialogue with investors and other stakeholders. All mate- be introduced in 2010. TrygVesta takes a positive view of rial is available at trygvesta.com, which also offers stake- this, and the Supervisory Board believes that TrygVesta holders to receive the latest news as RSS feeds or to complies with the recommendations in all essentials. The download webcasts and teleconferences as podcasts. The sections Corporate governance and Remuneration are Group has a number of policies that describe the compa- based on Nasdaq OMX Copenhagen’s corporate govern- ny’s relationship with its stakeholders. ance recommendations, and the individual headings make reference to the specific recommendations. Any devia- See TrygVesta’s press policy on trygvesta.com > Press tions from the recommendations are disclosed below. > Press policy Find information in relation to the recommendations on Se TrygVesta’s Investor Relations policy on trygvesta.com trygvesta.com > Our Business > Corporate Governance > Investor > Contact IR Stakeholders Capital and share structures Recommendation I.1, Recommendation II.1-2, Recommendation I.2 Recommendation III. 1-4 The Supervisory Board monitors that TrygVesta’s capital TrygVesta issues press releases and company announce- structure is in line with the needs of the Group and its ments on a regular basis and publishes interim reports shareholders, and that the capital structure is in compli- and annual reports in order to enable stakeholders to ance with the requirements applicable to TrygVesta as a form an adequate impression of the Group’s position and financial undertaking. The Supervisory Board optimises performance. The financial statements have been pre- capitalisation on an ongoing basis while duly safeguarding pared in accordance with IFRS. TrygVesta updates its out- the interests of policyholders and shareholders and leaving look for the Group’s performance each quarter. All finan- the Group sufficient scope for development and growth. cial announcements are released simultaneously in 68 of 148 l Corporate governance l Annual report 2009 In 2009, the shareholders at the annual general meeting > Adoption of a resolution as to the distribution of profit authorised the Supervisory Board to let TrygVesta acquire or covering of loss, as the case may be, according to own shares within 10% of the share capital in the period the annual report as approved, including proposed up to the next annual general meeting. Based on the payment of dividend for the past financial year Group’s 2009 performance, the Supervisory Board > Any proposals from the Supervisory Board or from proposes that TrygVesta implements a share buy back shareholders programme in 2010/11 totalling DKK 799m. > Election of members to the Supervisory Board The annual general meeting held on 22 April 2009 passed a > Any other business resolution to cancel the 4,068,427 shares bought back in > Appointment of auditors connection with the share buy back programme imple- All shareholders are urged to attend the annual general mented from 4 April 2008 to 26 March 2009. Effective as at meeting, and shareholders may vote in person at the 28 August 2009, the company’s share capital was reduced general meeting, by postal ballot or appoint the Supervi- by DKK 101,710,675 nominal value to DKK 1,598,289,325 sory Board or a third party as their proxy. The proxy form nominal value, corresponding to 63,931,573 shares. and postal ballot form will be available at trygvesta.com on or before 25 March 2010. Recommendation I.4 The Supervisory Board intends to consider any public The composition of the Supervisory Board takeover bid that may be made as prescribed by legisla- Recommendation V.1-2 tion and, depending on the nature of such bid, to con- The Supervisory Board makes an annual assessment of vene an extraordinary general meeting of shareholders in the competencies required for the Supervisory Board to accordance with applicable requirements and rules. perform its duties in the best possible way. Focus is on annual general meeting Recommendation I.3 competencies within financial business, marketing, IT and management. In connection with an evaluation of the Supervisory Board’s work and its members’ competen- TrygVesta holds its annual general meeting of sharehold- cies, it is assessed whether the Supervisory Board has ers each year before the end of April. The Supervisory the required competencies, or whether the competencies Board convenes the annual general meeting in accord- and expertise of its members need to be updated in ance with the Danish Companies Act and the company’s some respects. A balanced distribution with respect to articles of association, giving not less than three weeks’ age, gender and nationality, among other factors, is notice, by a company announcement, at the company’s sought in the composition of the Supervisory Board. website and in at least one national newspaper. Share- The Board members are aged between 44 and 69 years, holders may elect to receive the notice by mail or as an and there are three female members. Looking forward, electronic notice of the general meeting, or they may TrygVesta intends to increase the number of female download the notice at trygvesta.com. The notice Supervisory Board members elected by the shareholders. includes relevant information about the time and place of the meeting and sets out the agenda, which as See also the CVs of the Board members in the section a minimum comprises the following items: The Supervisory Board > Report of the Supervisory Board on the activities Recommendation V.3-4, V.9 of the company during the past financial year The Supervisory Board has 12 members, including eight > Presentation of the annual report for approval and members elected by the shareholders for a term of one discharge of the Supervisory Board and the Executive year. Four of the eight members are non-affiliated. The Management, including determination of the Supervisory Board deems that the number of members is Supervisory Board’s remuneration adequate to ensure a constructive debate and an efficient decision-making process. Annual report 2009 l Corporate governance l 69 of 148 Corporate governance Recommendation V.10 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 member of the Supervisory Board of TryghedsGruppen and at least one non-affiliated member of the Supervi- sory Board. The committee held four meetings in 2009. The work of the remuneration committee 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 consultation with the Group CEO. > To ensure compliance with the Group’s guidelines for incentive pay. > To prepare recommendations to the Supervisory Board about elements that should be included in the remu- neration of the Supervisory Board and the Executive Management. > 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 2009 > Discussed and adopted the remuneration structure for 2009. > Prepared a recommendation to the Supervisory Board concerning variable salary for 2008 and remuneration for 2009. > Prepared a recommendation to the Supervisory Board concerning salaries for 2009. > Planned the work for 2010. The framework for the audit committee’s work is defined in terms of reference, and the committee is solely a pre- paratory body supporting the Supervisory Board in its work. The committee has three members and is chaired by a non-affiliated member of the Supervisory Board. The Supervisory Board deems that Bodil Nyboe Andersen who does not represent the majority shareholder Trygheds- Gruppen, meets the independency and qualification requirements. Bodil Nyboe Andersen has chaired the audit committee of TrygVesta A/S since 2006. Four meetings of the committee were held in 2009, and it reported to the Supervisory Board on a regular basis. The audit committee made an assessment of the preced- ing year’s work in August 2009, evaluating the need for changes to its terms of reference. The audit committee works with historical data, and it is not involved in for- ward-looking events such as outlook and budgets. Members - Bodil Nyboe Andersen, chairman - Per Skov - Rune Joensen responsibilities > To ensure the accuracy of financial information disclosed in the Group’s financial reports, including the application of accounting policies. > To review and assess, at least once a year, manage- ment’s guidelines for identifying, monitoring and managing the most important risks, including internal control and risk management systems. > To review and discuss the results of the work of the internal and external auditors and to supervise manage- ment’s follow-up on the recommendations reported by the internal and external auditors. > To ensure that the Group is being monitored by independent auditors. activities in 2009 > Reviewed the Group’s technical provisions. > Reviewed the methodology for and assesment of the Group’s Individual Solvency Need. > 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. 70 of 148 l Corporate governance l Annual report 2009 THE COMPOSITION OF THE SuPErVISOry BOarD A few Supervisory Board members hold more than the rec- 4 affiliated 4 non-affiliated 4 members elected members members by the employees* candidates elected according elected among elected among to agreement the members between the Danish of the Super- without any and Norwegian visory Board of Trygheds- employee associations Gruppen smba. Gruppen smba. distributed on three affiliation with Trygheds- of the Group’s Danish employees and one Norwegian employee. * Following the annual general meeting of 2010, the mem- bers elected by the employees will comprise two Danish, one Norwegian and one Swedish employee. ommended number of directorships. However, the Supervi- sory Board considers that each member has adequate time and resources to serve as a member of the Supervisory Board of TrygVesta in a satisfactory manner. The tasks and responsibilities of the Supervisory Board Recommendation IV.1 The Supervisory Board is responsible for the overall manage- ment and financial control of TrygVesta. In this work, the Super- visory Board uses targets and framework management based on regular and systematic consideration of strategies and risks. Recommendation IV.4 The Executive Management reports to the Supervisory Board on strategies and action plans, market developments Recommendation V.5 and the Group’s performance, funding issues, capital Read more about the employee representatives resources and special risks. The Supervisory Board cooper- on TrygVesta’s Supervisory Board at trygvesta.com ates with the Executive Management to ensure follow-up > Our business > Corporate governance on and development of the Group’s strategies. > Governance principals > Composistion of the Board Recommendation V.6 The Chairman and the Deputy Chairman of the Supervi- The Supervisory Board holds at least six annual meetings sory Board perform the duties otherwise handled by a and an annual strategy seminar to discuss and define strat- Nomination committee. egies and goals for the years ahead. The Supervisory Board discusses the Supervisory Board’s tasks on a regular basis, Recommendation V.8 and at the last meeting in the year, it determines a meeting To ensure replacement on the Supervisory Board, mem- plan for the coming year. bers elected by the shareholders may hold office for a maximum of nine years. Furthermore, members of the Recommendation V.11 Supervisory Board must retire at the first general meeting The Supervisory Board carries out an annual evaluation of following their 70th birthday. the work and results of the Executive Management and of the cooperation between the Supervisory Board and the Recommendation V.1-2, V.7 Executive Management. In addition, the Supervisory Board Prior to the election of new Board members, the Supervi- reviews and approves the rules of procedure of the Super- sory Board prepares a description of the candidates’ back- visory Board and the Executive Management each year to ground, professional qualifications and experience, and the ensure they are aligned with TrygVesta’s requirements. The notice convening the general meeting makes reference to Supervisory Board has defined an evaluation procedure for this description. When taking up office, new Supervisory assessing the composition of the Supervisory Board and Board members are given an introduction to the Group. the work and results of the Supervisory Board and its indi- Read more about the Supervisory Board members’ assessment interviews with each member of the Supervi- profiles and holdings of TrygVesta shares in the sec- sory Board at the beginning of the year, which are dis- tion Supervisory Board cussed at the first Board meeting of the year. vidual members. In addition, the Chairman has individual Annual report 2009 l Corporate governance l 71 of 148 Corporate governance Recommendation IV.2-3 planning, performing and reporting the audit work to the The Supervisory Board is headed by the Chairman and the Supervisory Board. The internal and external auditors’ long- Deputy Chairman. The duties of the Chairman and the Dep- form reports are reviewed by the Supervisory Board. uty Chairman of the Supervisory Board are defined in the rules of procedure of the Supervisory Board and include In connection with the Supervisory Board’s review of the annual preparing meetings of the Supervisory Board and evaluat- report, it discusses the accounting policies, among other ing the work of the Supervisory Board and the cooperation issues. The results of the audit are discussed with the audit with the Executive Management. The Chairman and the committee and in Supervisory Board meetings for the purpose Deputy Chairman furthermore plan the future composition of assessing the auditors’ observations and conclusions. of the Supervisory Board. The Chairman acts as spokesman for the Supervisory Board for external purposes. Internal control and risk management systems risk management Recommendation VII.1-3 The responsibility for the Group’s internal controls and risk management systems in connection with the financial reporting process rests with the Supervisory Board and the Being an insurance business, TrygVesta is subject to the Executive Management. requirements of the Danish Financial Business Act on risk management. In capital and risk management instructions, The Supervisory Board and the Executive Management the Supervisory Board defines the framework for risk man- approve and monitor the Group’s general policies, procedures agement in TrygVesta with respect to insurance risk/reinsur- and controls in key areas in relation to the financial reporting ance, investment risk and operational risk, including IT secu- process, including compliance with relevant legislation and rity. This framework is then implemented in risk policies that regulations, internal business procedures and segregation of define detailed guidelines for the Group’s risk management. duties, continuous monitoring of significant risks, etc. A risk management committee comprising the Group CEO, Group CFO and Group CRO monitors the risk management In connection with major acquisitions, a general risk analysis environment. The Executive Management reports to the is performed, and the significant business procedures and Supervisory Board on the Group’s risk management work. internal controls are reviewed. Read more in the section Risk management and at The Executive Management has established a formal Group trygvesta.com > Our business > Risk management. reporting process which comprises monthly reporting, includ- audit Recommendation VIII ing budget reporting and deviation reporting. TrygVesta pub- lishes quarterly interim reports. The Supervisory Board ensures that the Group is monitored See also the section Stakeholders on page 68 by competent and independent auditors. Each year, the annual general meeting appoints external auditors recom- The Group’s internal control systems are based, among other mended by the Supervisory Board. The audit agreement things, on clear organisational structures and guidelines, with the external auditors, including the auditors’ fees, is general IT controls and segregation of duties, which are concluded between the Supervisory Board and the audi- supervised by the internal auditors. tors. The Supervisory Board adopts the framework for the auditors’ performance of non-audit services each year. Statutory report on corporate social responsibility TrygVesta’s internal audit department regularly reviews See TrygVesta’s statutory report on corporate social the quality of the Group’s internal control systems and responsibility at trygvesta.com > CSR > CSR business procedures. The department is responsible for 72 of 148 l Corporate governance l Annual report 2009 remuneration remuneration policy for the Supervisory Board and rEMuNEraTION OF THE SuPErVISOry BOarD IN 2009 the Executive Management Recommendation VI. 1-5 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 Deputy Chairman Members, each Total remuneration of the Supervisory Board Fee 750,000 500,000 250,000 3,750,000 The remuneration policy and the guidelines for incen- tive pay are posted at trygvesta.com > Our business > Governance > Remuneration 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 company’s peer group, taking into account competencies and efforts as well as the scope of the Board work. The Chairman of the Supervisory Board rEMuNEraTION OF THE auDIT COMMITTEE IN 2009 DKK Fee 150,000 Chairman Two other members, each 100,000 Total remuneration of the audit committee 350,000 rEMuNEraTION OF THE rEMuNEraTION COMMITTEE IN 2009 receives triple the fee of the other members, and the DKK Deputy Chairman receives double the amount. In addition, members of the Supervisory Board who sit on the audit committee and the remuneration committee receive remuneration for these duties. The committee Chairman Two other members, each Total remuneration of the remuneration committee Fee 75,000 50,000 225,000 chairmen receive one and a half times the fee of the remuneration of the Executive Management other members. TrygVesta’s Executive Management comprises three members. The remuneration of the Executive Manage- The shareholders approve the remuneration of the Super- ment reflects a wish to secure a balanced earnings visory Board for the current financial year. The remunera- performance for the Group in the short term as well tion paid to the Supervisory Board was unchanged from as the longer term. 2008 to 2009. Annual report 2009 l Corporate governance l 73 of 148 Corporate governance The remuneration of the Executive Management members of variable remuneration may not exceed 50% of the fixed includes an incentive plan, comprising a bonus plan of up annual salary inclusive of pension in any finacial year. to three months’ additional salary including pension (four months for the Group CEO). The bonus plan is directly Members of the Executive Management are entitled to linked to the achievement of pre-defined benchmarks. The company cars, and a contribution equal to 25% of the assessment of the individual members’ target achievement basic salary is paid into a pension scheme. Each member includes the Group’s overall performance as well as that of of the Executive Management is entitled to 12 months’ the individual members within their areas of responsibility. notice of termination and to 12 months’ severance pay. Specific benchmarks are defined within all four perspec- However, the Group CEO is entitled to 12 months’ notice tives of the balanced scorecard (financial, customer, proc- and to 18 months’ severance pay plus pension contribu- esses and learning), reflecting the strategic focus areas of tions during such period. the Group and the individual business areas or organisa- tional units, including growth, profitability, cost reduction, Incentive pay customer satisfaction, customer loyalty, image, processes, Like the Executive Management, the Group Executive communication, employee satisfaction and development, Management and senior employees are offered a per- and innovation. The bonus is paid out in cash. Part of the formance-related bonus of up to three months’ salary. Executive Management’s remuneration consists of stock The bonus is linked to the achievement of pre-defined options in order to build loyalty and motivation. The value benchmarks and paid out in cash. rEMuNEraTION OF THE ExECuTIVE MaNaGEMENT IN 2009 DKK Stine Bosse Morten Hübbe Peter Falkenham Basic salary Bonus Pension Car Total 5,838,000 3,675,000 3,150,000 1,459,500 612,500 525,000 1,459,500 918,750 787,500 252,372 156,000 217,656 9,009,372 5,362,250 4,680,156 rEMuNEraTION OF THE ExECuTIVE MaNaGEMENT 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 1,300,00 750,000 644,000 113,000 156,000 106,000 8,347,000 4,656,000 3,969,000 74 of 148 l Corporate governance l Annual report 2009 Furthermore, TrygVesta has a stock option programme for with profit announcements. Own shares are bought to the Executive Management, the Group Executive Manage- cover the stock option programme. ment, senior executives and employees to reward out- standing performance. The options, which entitle the In 2009, the stock options entitled the holders to holders to buy one share per option, cannot be exercised acquire shares at the average price of TrygVesta shares earlier than three years and later than five years after the (all trades) on OMX The Nordic Exchange Copenhagen on grant. The strike price is the market price on grant plus 3 March 2009 plus a 10% supplement, equal to a strike 10%. The exercise price is the strike price less dividend price of DKK 344.86. TrygVesta expects to grant a stock payouts in the period. Stock options can only be exer- option programme of a similar value and on similar terms cised during the open trading windows in connection in 2010. STOCK OPTION PrOGraMME IN 2009 Stine Bosse Morten Hübbe Peter Falkenham Other Group Executive Management and senior executives Granted to reward outstanding performance Total granted in 2009 Number 18,066 11,690 8,502 124,076 21,200 183,534 Value on grant (DKK) 1,700,000 1,100,000 800,000 11,700,000 2,000,000 17,400,000 TOTaL NuMBEr OF STOCK OPTIONS OuTSTaNDING aT THE END OF 2009 Options 2006 2007 2008 2009 Total Stine Bosse Morten Hübbe Peter Falkenham Other option programme participants Total number of outstanding stock options 20,960 7,860 0 85,530 114,350 13,527 7,101 5,072 116,896 142,596 24,597 15,916 11,575 190,883 242,971 18,066 11,690 8,502 143,686 181,944 77,150 42,567 25,149 536,995 681,861 Annual report 2009 l Corporate governance l 75 of 148 Corporate governance Shareholder information FINaNCIaL CaLENDar 2010 15 April 2010 at 14:00 Annual general meeting 2010 16 April 2010 21 April 2010 TrygVesta shares trade ex-dividend Payment of dividend 21 May 2010 at 7:30 Interim report for Q1 2010 17 August 2010 at 7:30 Interim report for H1 2010 16 November 2010 at 7:30 Interim report for Q1-Q3 2010 TrygVesta emphasises openness, transparency and trygvesta.com, is updated simultaneously with the accommodation of stakeholder information requirements, announcement of new information. In addition, information thereby providing investors, equity analysts and advisers is distributed directly to the London Stock Exchange, the with a good basis for forming a correct picture of the press, equity analysts, investors and other stakeholders. Group’s market and financial position, its performance and its opportunities and risks. In accordance with the recommendations issued by Nas- The Group’s Investor Relations strive to maintain a high ing on matters relating to financial performance or fore- level of information by casts during a period of three weeks prior to the release daq OMX Copenhagen, TrygVesta refrains from comment- > being available and proactive, and answering queries of financial reports. from investors and other stakeholders as promptly as Share price performance in 2009 possible TrygVesta shares opened 2009 at DKK 328 and closed at > having in-depth insight into and knowledge of the DKK 342.75, thus generating a total return for 2009 of Group as well as relevant external trends 7% including dividends of DKK 6.50. The return was > preparing plain and relevant written communication and below the return of the market in general in 2009, with presentation material the OMX C20 index increasing by 28% and slightly below > having a website that is of relevance to professional the DJ Euro Insurance Index, which increased by 11%. and private investors alike Information that may influence the pricing of TrygVesta period of the financial crises, TrygVesta shares fell 6% shares is published in accordance with the rules applicable including dividends. By way of comparison, the OMX C20 to distribution of news in the EU. The Group’s website, fell by 25% and the DJ Euro Insurance Index by 34%. From the beginning of 2008 to the end of 2009, the 76 of 148 l Corporate governance l Annual report 2009 Turnover of TrygVesta shares and share buy back Denmark, holds 60% of the issued shares and is the only TrygVesta shares had an average daily turnover of DKK shareholder with a holding of more than 5%. Trygheds- 27m in 2009 compared with DKK 44m in 2008. The total Gruppen invests in Nordic businesses that promote peace volume of TrygVesta shares traded on Nasdaq OMX of mind and health, and supports benevolent activities. Copenhagen was 6.7bn in 2009 compared with 11.1bn in 2008. New trading platforms such as Chi-X, Turquise Read more about TryghedsGruppen at and Burgundy accounted for around 8% of all trades in tryghedsgruppen.dk TrygVesta shares in the second half of 2009. In the period from 1 January 2009 to 24 March 2009, among approximately 27,900 registered shareholders. TrygVesta implemented and completed a share buy back The 200 largest shareholders held 67% of the free float. programme of DKK 352m out of a total programme of At 31 December 2009, TrygVesta held own shares corre- DKK 1,405m set up in April 2008. sponding to 1.1% of the share capital. At 31 December 2009, the 40% free float was distributed The shares that had been bought back were cancelled in Dialogue with investors August 2009, reducing the number of outstanding shares The Executive Management and Investor Relations meet from 68.0m to 63.9m including own shares. with institutional investors and equity analysts after publi- MOST aCTIVE STOCKBrOKErS* 1. Danske Bank 2. Nordea 3. SEB Enskilda 4. Carnegie 5. Svenska Handelsbanken * in terms of percentage of turnover on Nasdaq OMX 19% 9% 8% 7% 5% cation of all financial statements. In 2009, TrygVesta held around 270 investor meetings and participated in 15 inves- tor conferences. TrygVesta also participated in five events for private shareholders in both Denmark and Sweden. The Group’s performance is followed by 18 equity analysts, eight of whom are based in London. The equity analysts’ recommendations with respect to TrygVesta shares are available at trygvesta.com. The website, which is available Share capital and ownership in a Danish and an English version, is being updated and TrygVesta has a total share capital of DKK 1,598,289,325 developed on an ongoing basis, making it an important comprised of a single class of shares (63.2m shares of DKK source for providing information about the Group’s per- 25 nominal value each), and all shares rank pari passu. The formance to interested investors. principal shareholder, TryghedsGruppen smba, Kgs. Lyngby, FREE FLOAT AT 31 DECEMBER 2009 SHAREHOLDERS AT 31 DECEMBER 2009 10% 3% 17% 13% 57% 13% 13% 14% 60% Denmark Nordic UK Others USA TryghedsGruppen smba Small shareholders Large Danish shareholders* Large international shareholders * Shareholders holding more than 10,000 shares Annual report 2009 l Corporate governance l 77 of 148 Corporate governance COMPaNy aNNOuNCEMENTS PuBLISHED IN 2009 26.01.2009 No. 04 TrygVesta comments on market rumours about acquisition of Moderna Försäkringar 02.02.2009 No. 06 TrygVesta extends length of share buy back programme 17.02.2009 No. 10 TrygVesta ends negotiations with Moderna without result 02.03.2009 No. 13 TrygVesta acquires Moderna Försäkringar Sak in Sweden 03.03.2009 No. 14 Fourth quarter 2008 report 03.03.2009 No. 15 Annual report 2008 27.03.2009 No. 19 TrygVesta ends share buy back programme 31.03.2009 No. 20 Notice of the annual general meeting of TrygVesta A/S 02.04.2009 No. 21 TrygVesta closes acquisition of Moderna 22.04.2009 No. 22 Resolutions from annual general meeting 12.05.2009 No. 23 First quarter 2009 results 18.08.2009 No. 24 Half-year 2009 report 28.08.2009 No. 25 Cancellation of TrygVesta shares 28.08.2009 No. 26 TrygVesta issues guarantee for Moderna Försäkringar Sak AB 01.09.2009 No. 27 TrygVesta – Capital markets day 2009 10.11.2009 No. 28 Third quarter 2009 report 10.11.2009 No. 29 Financial calendar 2010 After implementing the share buy back programme on 4 April 2008, TrygVesta issued a company announcement on the weekly share buy backs each Monday in 2009 until 23 March 2009. As a new feature in 2009, TrygVesta’s Investor Relations be advertised in the daily press and will be sent to share- issued IR newsletters. The newsletters deal with topical holders who so request. Notice of the meeting will also issues in order to create a better understanding of factors be posted at trygvesta.com. of importance to TrygVesta’s performance. Read about dividends for 2009 in the section Capital annual general meeting management and profit distribution TrygVesta’s annual general meeting will be held on 15 April 2010 at Falconer Center, Falkoner Alle 9, 2000 Frederiks- berg, Denmark. The invitation to attend the meeting will a Ny q uErI ES rEL aT IN G TO T HE a NN ua L G EN Era L M EE TI NG M ay BE aDD rESSED TO Bjarne Lau Pedersen, Chief Legal Adviser Tel.: +45 44 20 30 65. bjarne.lau@tryg.dk Ole Søeberg, IR Director Tel.: +45 44 20 45 20. ole.soeberg@tryg.dk. 78 of 148 l Corporate governance l Annual report 2009 Annual report 2009 l Corporate governance l 79 of 148 Regnskab accounts – contents Notes Statement by the Supervisory Board and the Executive Management Independent auditors’ report Income statement – TrygVesta Group Total comprehensive income Balance sheet – TrygVesta Group Statement of change in equity Statement of cashflows - TrygVesta Group Notes – TrygVesta koncernen accounting policies Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Segments Technical result, net of reinsurance, by line of business Interest and dividends Value adjustment Tax Profit/loss on discontinued and divested business Intangible assets Property, plant and equipment Investment property Investments in associates Fair value hierarchy for financial instruments measured at fair value in the balance sheet Reinsurers’ share Current tax Shareholders’ equity Capital adequacy 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 Financial highlights and key ratios of TrygVesta 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 – TrygVesta A/S (parent company) 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 page 82 83 84 85 86 88 90 91 101 101 101 101 106 108 110 110 110 111 111 113 114 115 116 120 120 121 121 122 123 126 128 129 129 129 129 130 131 132 133 134 135 136 137 142 144 Annual report 2009 l Accounts – contents l 81 of 148 Regnskab 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 2009 of TrygVesta A/S and the TrygVesta Group. the Group’s and the parent company’s operations and the cash flows of the Group for the financial year 1 January - 31 December 2009. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Stand- ards 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 re- port has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed finan- cial enterprises. In our opinion, the accounting policies applied are appropri- ate, and the annual report gives a true and fair view of the Group’s and the parent company’s assets, liabilities and fi- nancial position at 31 December 2009 and of the results of Furthermore, in our opinion the Management’s report gives a true and fair view of developments in the activities and finan- cial position of the Group and the parent company, the re- sults for the year and of the Group’s and the parent compa- ny’s financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company. We recommend that the annual report be adopted by the shareholders at the annual general meeting. Ballerup, 25 February 2010. 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 82 of 148 l Statement by the Supervisory Board and the Executive Management l Annual report 2009 Independent auditors’ report To the shareholders of TrygVesta a/S We have audited the consolidated and parent company finan- cial statements of TrygVesta A/S for the financial year starting on January 1 and ending on December 31, 2009, which com- prise income statement, the statement of comprehensive income, balance sheet, statement of changes in equity and notes to the financial statements, including accounting poli- cies, and the management’s report, for the Group as well as the parent company, and the cash flow statement for the Group. The consolidated financial statements have been pre- pared in accordance with International Financial Reporting Standards as adopted by the EU, and the parent company financial statements have been prepared in accordance with the Danish Financial Business Act. In addition, the consoli- dated and parent company financial statements have been prepared in accordance with additional Danish disclosure requirements for listed companies. The management’s report has been prepared in accordance with the Danish Financial Business Act. Management’s responsibility for the consolidated and parent company financial statements and the manage- ment’s report Management is responsible for preparing and presenting con- solidated and parent company financial statements that give a true and fair view in accordance with the International Fi- nancial Reporting Standards as adopted by the EU in respect of the consolidated financial statements, in accordance with the Danish Financial Business Act in respect of the parent company financial statements and in accordance with addi- tional Danish disclosure requirements for listed companies, and a management’s report including a fair review in accord- ance with the Danish Financial Business Act. This responsibil- ity includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated and parent company financial statements and a management’s report that are free from material misstate- ment, 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 consoli- dated and parent company financial statements and the management’s report based on our audit. We conducted our audit in accordance with Danish and international auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the consolidated and parent company financial statements and the management’s report are free from materiel misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consoli- dated and parent company financial statements and the management’s report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and parent company financial statements and the management’s 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 consolidated and parent company financial statements and to the preparation of a management’s report that in- cludes a fair review 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 internal con- trol. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of account- ing estimates made by management, as well as evaluating the overall presentation of the consolidated and parent com- pany financial statements and the management’s 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 consolidated financial statements give a true and fair view of the Group’s assets, liabilities and financial position at December 31, 2009, 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, 2009 in accordance with International Financial Reporting Standards as adopted by the EU and in accordance with addi- tional Danish disclosure requirements for listed companies. Furthermore in our opinion, the parent company financial statements give a true and fair view of the parent company’s assets, liabilities and financial position at December 31, 2009, and of the results of the parent company’s operations for the financial year starting on January 1 and ending on December 31, 2009 in accordance with the Danish Financial Business Act and in accordance with additional Danish disclosure require- ments for listed companies. Furthermore, in our opinion, the management’s report in- cludes a fair review in accordance with the Danish Financial Business Act. Ballerup, 25 February 2010. Deloitte Statsautoriseret Revisionsaktieselskab Lars Kronow State Authorised Public Accountant Kasper Bruhn Udam State Authorised Public Accountant Annual report 2009 l Independent auditors’ report l 83 of 148 Regnskab 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 14 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 27 Earnings per share - continuing business of DKK 25 Earnings per share of DKK 25 Diluted earnings per share of DKK 25 84 of 148 l Income statement – TrygVesta Group l Annual report 2009 2008 2009 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 - 18,315 -914 85 -60 17,426 157 -13,479 264 273 42 -12,900 -117 -2,244 -854 -3,098 86 -3,012 1,554 0 136 1,287 734 -116 -110 1,931 -845 1,086 123 -161 2,602 -623 1,979 29 2,008 31.2 31.7 31.7 Total comprehensive income DKKm 2008 2009 Notes 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 comprehensive income 0 0 -640 615 -154 -196 53 -322 846 524 9 -2 505 -474 119 28 -7 178 2,008 2,186 Annual report 2009 l Total comprehensive income l 85 of 148 Regnskab Balance sheet – TrygVesta Group DKKm Note s assets 11 Intangible assets Operating equipment Owner-occupied property Assets under construction 12 Total property, plant and equipment 13 Investment property 14 Investments in associates Total investments in associates Equity investments Unit trust units Bonds Deposits in credit institutions Total other financial investment assets Deposits with ceding undertakings, receivable 2008 2009 450 46 1,315 0 1,361 2,246 14 14 422 940 28,721 389 30,472 13 934 83 1,358 172 1,613 2,364 17 17 381 2,143 29,410 2,938 34,872 15 15 Total investment assets 32,745 37,268 Reinsurers’ share of provisions for unearned premiums 21 Reinsurers’ share of provisions for claims 16 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 15 Total receivables 17 Current tax assets 23 Deferred tax assets 15 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 176 860 1,036 838 838 250 601 1,689 111 0 282 3 396 626 142 768 195 1,125 1,320 967 967 271 1,190 2,428 0 86 512 4 602 417 158 575 Total assets 38,445 44,740 86 of 148 l Balance sheet – TrygVesta Group l Annual report 2009 DKKm Notes Liabilities 18 Shareholders’ equity 20 Subordinated loan capital 21 Provisions for unearned premiums 21 Provisions for claims Provisions for bonuses and premium rebates Total provisions for insurance contracts 22 Pensions and similar obligations 23 Deferred tax liability 24 Other provisions Total provisions Debt related to direct insurance Debt related to reinsurance 25 Debt to credit institutions 17 Current tax liabilities 26 Other debt Total debt accruals and deferred income 2008 2009 8,244 1,102 5,100 19,715 378 25,193 523 949 36 1,508 311 172 709 248 871 2,311 87 9,666 1,586 6,208 22,430 364 29,002 496 1,330 46 1,872 383 168 611 303 954 2,419 195 Total liabilities and equity 38,445 44,740 1 accounting policies 19 Capital adequacy 27 Earnings per share 28 Contractual obligations, contingent liabilities and collateral 29 acquisition of subsidiary 30 related parties 31 Financial highlights and key ratios of TrygVesta Annual report 2009 l Balance sheet – TrygVesta Group l 87 of 148 Regnskab Statement of change in equity DKK m Shareholders’ equity at 31 December 2007 1,700 7 -10 58 875 6,224 1,156 10,010 revalua- reserve for tion exchange rate adj. reserves Share capital Equali- sation reserve Other retained Proposed reserves earnings dividends Total 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 -585 615 -154 -124 -126 0 -126 Dividend paid Dividend own shares Purchase of own shares Issue of employee shares Issue of share options Total equity entries in 2008 0 Shareholders’ equity at 31 December 2008 1,700 2009 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 Nullification of own shares Dividend paid Dividend own shares Purchase of own shares Exercise of share options Issue of employee shares Issue of share options 0 -102 0 7 9 -2 7 -124 0 -126 -802 -714 -1,766 -134 58 749 5,422 442 8,244 201 816 991 18 28 -7 2,008 9 505 -474 28 110 0 201 855 991 2,186 487 -474 119 132 442 442 -1,156 530 -55 -196 53 332 12 -1,197 37 14 846 -640 615 -196 -101 524 -1,156 12 -1,197 37 14 102 32 -418 19 30 15 635 -442 0 -442 32 -418 19 30 15 549 1,422 Total equity entries in 2009 -102 7 132 0 201 Shareholders’ equity at 31 December 2009 1,598 14 -2 58 950 6,057 991 9,666 88 of 148 l Statement of change in equity l Annual report 2009 DKK m Proposed dividend per share DKK 15.5 (in 2008 DKK 6.50) 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 (63,931,573). 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 branch financial statements included provisions for contingency funds in the amount of NOK 2,906m (in 2008 NOK 2,743m) 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 Garanti insurance has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. Annual report 2009 l Statement of change in equity l 89 of 148 Regnskab Statement of cashflows - TrygVesta Group DKKm 2008 2009 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 -87 110 0 0 615 466 0 466 -1,160 0 -1,156 110 -2,206 0 -2,206 32 -48 -16 298 282 18,438 -13,501 -603 -2,988 -191 1,155 1,573 -173 14 -349 -42 2,178 18 2,196 -203 1 14 1,411 -1,850 -166 -939 605 -474 -1,601 0 -1,601 -334 485 -442 -98 -389 0 -389 206 24 230 282 512 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/sale of operating equipment (net) 29 Acquisition of subsidiares 29 Acquisition of subsidiares, cash and cash equivalents Foreign currency hedging Investments, continuing business Investments, discontinued and divested business Total investments Funding Purchase of own shares Subordinated loan capital Dividend paid Change in debt to credit institutions Funding, continuing business Funding, discontinuied and divested business Total funding Change in cash an 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 90 af 152 90 of 148 l Statement of cashflows – TrygVesta Group l Annual report 2009 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 2009 and in accordance with the Danish Statutory Order on Adoption of IFRS. The financial statement of the parent company is prepared in accord- ance with the executive order on financial reports presented by insur- ance companies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement requirements of IFRS are: > 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. > 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. > 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 implementation of the new standards and interpretations has not affected recognition and measurement in 2009, but solely affected the disclosures to be included in the annual report. 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. > IAS 1 ‘Presentation of Financial Statements’ > IFRS 2 ‘Share-based Payments’ > IAS 17 ‘Leases’ > IAS 36 ‘Impairment of Assets’ > Amendments to IFRS 5 ‘Non-current Assets Held for Sale and Dis- continued Operations’ > Amendments to IAS 7 ‘Statement of Cash Flows’. The changes will be implemented from 2010. 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 judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complex- ity, or areas where assumptions and estimates are significant to the consolidated financial statements, are: Changes in accounting policies Accounting policies are unchanged from the annual report 2008. > Liabilities under insurance contracts > Valuation of defined benefit plans > Fair value of financial assets Implementation of accounting standards in 2009 In 2009, the Group implemented the following standards and interpre- tations: > IAS 23 ‘Borrowing Costs’ > IAS 27 ‘Consolidated and Separate Financial Statements’ > IAS 28 ‘Investments in Associates’ > IFRS 3 ‘Business Combinations’, revised 2008. Not implemented earlier > Amendments to IFRS 7 ‘Improving disclosures about Financial Instru- ments’ > Amendments to IFRS 2 ‘Share-based Payments: Vesting Conditions and Cancellation’ > Amendments to IFRS 1 and IAS 27 ‘Cost of an Investment in a Sub- sidiary, Jointly Controlled Entity or Associate’ > Amendments to IAS 32 and IAS 1 ‘Puttable Financial Instruments and Obligations Arising on Liquidation’ > Amendments to IAS 38 ‘Intangible Assets’ > Amendments to IAS 40 ‘Investment Property’ > Amendments to IAS 39 ‘Financial Instruments: Recognition and Measurement – Eligible Hedged Items’ > Amendments to IAS 39 and IFRIC 9 ‘Embedded Derivatives’ > IFRIC 9 ‘Reassessment of Embedded Derivatives’, IFRIC 12 ‘Service Concession Arrangements’, IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 14 ‘The Limit on a Defined Benefit Asset’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 16 ‘Hedges of Net Invest- ment in a Foreign Operation’, IFRIC 17 ‘Transfers of Assets from Cus- tomers’. A more detailed description of primary assumptions about the future and other primary sources of estimation uncertainty is given in the Capitalisation and profit distribution section in the management’s re- port. 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 knowledge of historical developments, payment patterns, reporting delays, dura- tion of the claims settlement process and other effects that might in- fluence the future development of the liabilities. The TrygVesta Group establishes claims provisions covering both known case reserves and estimated claims that have been incurred by its policyholders 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 includes in its claims reserves direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have oc- curred up to the balance sheet date even if they have not yet been re- ported to the TrygVesta Group. Annual report 2009 l Notes – TrygVesta Group l 91 of 148 Regnskab Notes The projection for claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as to factors such as court decisions, changes in law, social inflation and other economic trends, including inflation. The TrygVesta Group’s actual liability 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 2008 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 with a swedish risk-free interest rate 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 Group 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 net obligation with respect to the defined benefit plan is based on actuarial calculations involving a number of assumptions. These as- sumptions include discount rate, salary adjustment and mortality. Fair value of financial assets Measurements of financial assets for which prices are quoted in an active market or which are based on generally accepted models with observable 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 instrument or using a model calculation. The valuation models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration to credit and liquidity premiums. BaSIS OF PrESENTaTION recognition and measurement The annual report has been prepared under the historical cost con- vention, 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 fi- nancial 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 bal- ance 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 subsidiaries 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 subsidiaries 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 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. 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. 92 of 148 l Notes – TrygVesta Group l Annual report 2009 Unrealised gains on transactions between consolidated companies (in- cluding 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. 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. 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 operational business segments in the TrygVesta Group are Private & Commercial Denmark, Private & Commercial Norway, Private & Com- mercial Sweden, Private & Commercial Finland and Corporate. 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 ad- justments 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 of the enterprise 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 recoverable amount, the asset is written down to the lower recoverable amount. 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 transaction 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 oper- ations are translated at exchange rates of the balance sheet date. In- come and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classi- fied 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 transla- tion gains and losses are recognised in the income statement. The presentation currency in the annual report is DKK. 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 liabil- ities comprise those items that can be directly attributed to each individ- ual segment and those items that can be allocated to the individual seg- ments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity managed at Group level. 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 on financial reports presented by insurance companies and lateral pension funds 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 pre- miums 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 relates 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 liabil- ity 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. Annual report 2009 l Notes – TrygVesta Group l 93 of 148 Regnskab Notes Technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Share option programme The value of services received as consideration for options granted is measured at the fair value of the options. 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 associ- ated with the handling of claims incurred. Changes in claims provisions 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. 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 in- curred, thereby reducing the effect of changes to inflation expecta- tions under claims incurred. 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. 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 recog- nised when a legal obligation occurs and is accrued over the term of the policy. Administrative 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. 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. The options are issued at an exercise price that corresponds to the market price of the Group’s shares at the time of allocation. No other vesting conditions apply. Special provisions are in place concerning sickness and death and in case of change to the Group’s capital posi- tion, 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 restruc- turing 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, half-year and quarterly reports and in accordance with TrygVesta’s in-house rules on trading in the Group’s shares. The options are settled in shares. A part of the Group’s holding of treasury shares is reserved for settlement of the options allocated. On initial recognition of the share options, the number of options ex- pected to vest for employees and members of the Executive Manage- ment 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. 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. Share-based payment The TrygVesta Group’s incentive programmes comprise share option programmes and employee shares. Interest and dividends represent interest earned and dividends received during the financial year. 94 of 148 l Notes – TrygVesta Group l Annual report 2009 Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of investment properties, exchange rate adjustments and the effect of movements in the yield curve used for discounting, are recognised as value adjustments. Investment management charges represent expenses relating to the management of investments. Other income and expenses Other income and expenses include income and expenses which cannot be ascribed to TrygVesta’s insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension. Discontinued and divested business Discontinued and divested business is consolidated in one line item in the income statement and supplemented with disclosure of the dis- continued and divested business in a note to the financial statements. Recognition of the balance sheet items in respect of the discontinued business 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 divested business”, respectively. The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discon- tinued and divested business in the income statement includes the post-tax profit of TrygVesta’s business in run-off as well as divested enterprises. Business in run-off comprises the results of the business in run-off in Tryg Forsikring A/S. No enterprises were divested in the year. The subsidiary Chevanstell Ltd. UK was divested in 2006. BaLaNCE SHEET Intangible assets Goodwill Goodwill was acquired in connection with acquisition of business. Goodwill is calculated as the difference between the cost of the under- taking and the fair value of acquired identifiable assets, liabilities and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the in- vestment and is recognised under intangible assets. Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected useful lives of 5-12 years. 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 amortised on a straight-line basis over the expected useful life, however with a maxi- mum period of four 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 of 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. Gains and losses on disposals and retirements are determined by comparing proceeds with carrying amount. Gains and losses are recognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserves are transferred to retained earnings. 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. Annual report 2009 l Notes – TrygVesta Group l 95 of 148 Regnskab Notes 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 repair and maintenance costs are charged to the income statement when incurred. Depreciation on owner-occupied property is calculated using straight- line method using the estimated useful lives up to 50 years. Land is not depreciated. assets under construction In connection with the refurbishment of the owner-occupied proper- ties, costs to be capitalised are recognised at cost under owner-occu- pied 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 market prices, adjusted for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices on less active markets. 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 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. Changes in fair values are recorded in the income statement. Impairment test for intangible assets and property, plant and equipment The carrying amounts of intangible assets and property, plant and equipment are tested at least once a year for impairment for each cash-generating unit to which the asset belongs. The asset is written down to the recoverable amount if the carrying amount of the asset is higher than the recoverable amount. 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 exceeds cost. The results of foreign subsidiaries are based on translation of the items in the income statement at average exchange rates for the period. Income and expenses in domestic enterprises denominated in foreign 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 influ- ence but not control, generally accompanying an ownership interest 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 propor- tionate share of the enterprises’ net assets. Income after taxes from investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised intra-group profits and losses. 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. Investments Investments include financial assets at fair value through the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this at every reporting date. 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 income. 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. 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 96 of 148 l Notes – TrygVesta Group l Annual report 2009 there is evidence of short-term profit-taking. Derivatives are also classified as financial assets available for trading unless they are designated 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. 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 infla- tion. Forward exchange contracts and currency swaps are used for cur- rency hedging of portfolios of shares, bonds, hedging of foreign enti- ties 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 in the form of futures and options are used from time to time to adjust share exposures. Derivatives are recognised from the trade date and measured at fair value in the balance sheet. Positive fair values of derivatives are recog- nised as bonds and shares or other receivables if they cannot unam- biguously be attributed to the former. Negative fair values of deriva- tives 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. 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. 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 entities and which provide effective currency hedg- ing of the net investment are recognised directly in equity. The net asset value of the foreign entities estimated at the beginning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge account- ing. 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 impair- ment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount. Impairment write-downs are recog- nised 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 in hand and at bank is recognised 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. Annual report 2009 l Notes – TrygVesta Group l 97 of 148 Regnskab Notes 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 is- sue 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. period. However, as a minimum to the part of the premium calculated using the pro rata temporis principle until the next payment date. Ad- justments 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 that 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. 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. Provisions for bonus and premium rebates represent amounts expected to be paid to policyholders in view of the claims experience during the financial year. Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (the date of decla- ration). 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 for employee shares and the share option pro- grammes. Proceeds from the sale of treasury shares in connection with the exer- cise of share options or employee shares are taken directly to equity. Provisions for claims are determined for each line of business based on actuarial methods. Where such business lines encompass more than one business area, short-tail provisions for claims are distributed based on number of claims reported while long-tail provisions for claims are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for busi- ness lines with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes 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-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for example the number of insured. 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 income statement over the period of the borrowings using the effective interest method. Provisions for insurance contracts Premiums are recognised in the income statement (earned premiums) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premi- ums 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 The provision for annuities in workers’ compensation insurance is cal- culated on the basis of a mortality corresponding to the G82 calcula- tion basis (official mortality table). In some instances, the historic data used in the actuarial models is not necessarily predictive of the expected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected in- crease in claims. For legislative changes this estimate is used also in determining the level of claims. Subsequently, this estimate is main- tained until new loss history materialises for re-estimation. 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 assump- tions. 98 of 148 l Notes – TrygVesta Group l Annual report 2009 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 ap- proximation 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. The plan was closed for new business as at 1 January 2009. 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 reduced working hours. The Group recognises this liability based on statistical models. Other correlations are not deemed to be significant. Liability adequacy test Tests are continuously performed to ensure the adequacy of the tech- nical provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims han- dling costs are used. Any deficiency is charged to the income state- ment by raising the relevant provision and the adjustment is recog- nised 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 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. In Sweden, the Group complies with the industry pen- sion agreement, FTP-Planen. 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. The plan is therefore accounted for as a defined contribution plan. The liability recognised in the balance sheet in respect of defined ben- efit 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 expecta- tions of future returns are taken into consideration. The defined benefit obligation is calculated annually by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by a duration that matches the conditions of the under- lying pension obligation. 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. 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. 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. 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. The actuarial gains and losses arising from experience adjustments and changes in actuarial estimates is recognised in equity. Other liabilities are measured at net realisable value. Annual report 2009 l Notes – TrygVesta Group l 99 of 148 Regnskab Notes 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. 100 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 100 of 148 DKKm 2008 2009 2 Earned premiums, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance 17,465 47 17,512 -17 17,495 -819 -41 16,635 Direct insurance, by location of risk 2008 2009 Denmark Other EU countries Other countries Gross 9,538 742 7,168 17,448 Ceded -489 -16 -314 -819 Gross 9,607 1,736 6,999 18,342 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 reinsurance Claims incurred Run-off previous years, gross Reinsurance recoveries Run-off previous years, reinsurers’ share 1,428 -926 -3 499 -12,634 868 -11,766 194 -75 -11,647 Under claims incurred, the value adjustment of inflation swaps to hedge the inflation risk concerning annuities on workers’ compensation insurance totals DKK -62m (in 2008 DKK 8m.) 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. -429 -1,818 -2,247 -756 -3,003 72 -2,931 -8 -8 -1 -1 18,324 58 18,382 18 18,400 -940 -34 17,426 Ceded -509 -86 -345 -940 844 -686 -1 157 -13,883 677 -13,206 270 36 -12,900 -445 -1,799 -2,244 -854 -3,098 86 -3,012 -8 -8 -1 -1 Annual report 2009 l Notes – TrygVesta Group l 101 of 148 TrygVesta Årsrapport 2009 l Noter l 101 af 152 Regnskab 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 35m (in 2008 DKK 66m). Insurance operating expenses and claims include the following staff expenditure: Salaries and wages Commision Allocated share options Pensions Other social security costs Payroll tax 2008 2009 -429 -1,658 -232 -557 -208 -111 192 -3,003 -1,972 -17 -14 -282 -5 -256 -2,546 -448 -1,786 -278 -454 -228 -140 236 -3,098 -2,064 -33 -15 -324 -9 -278 -2,723 Remuneration for the Supervisory Board and Executive Management is disclosed in note 30 ‘Related parties’. average number of full-time employees during the year 3,985 4,390 Share option programmes In 2009, TrygVesta awarded share options to the Executive Management (3 persons) and other senior employees (98 persons) and other employees (40 persons). At 31 December 2009, the share option plan comprised 681,861 share options (at 31 December 2008 572,367 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 1.1% of the share capital if all share options are exercised. In 2009, the fair value of share options recognised in the consolidated income statement amounted to DKK 15.1m (in 2008 DKK 13.5m). As at 31 December 2009, a total amount of DKK 39m was recognised for share option programmes issued in 2006, 2007, 2008 and 2009.Fair values at the time of allocation are based on the Black & Scholes option pricing formula. 102 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 102 of 148 DKKm 5 Share option programmes Specification of outstanding 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 2009 Allocation 2006-2007 Allocated in 2006-2007 beginning of year Exercised Cancelled Expired Outstanding options from 2006-2007 allocation 61,070 -6,550 0 0 247,306 -52,020 -4,287 0 16,000 -2,620 -1,953 0 324,376 -61,190 -6,240 0 64/99 64/99 64/99 0 26 -4 0 0 73/15 73/15 73/15 0 15 -4 0 0 31 Dec 2009 54,520 190,999 11,427 256,946 - 22 - 11 Allocation 2008 Allocated in 2008, beginning of year 52,088 0 Exercised 0 Cancelled 0 Expired 167,203 0 -4,320 0 28,700 0 -700 0 247,991 0 -5,020 0 69 0 69 0 17 0 0 0 45 0 45 0 11 0 0 0 Outstanding options from 2008 allocation 31 Dec 2009 52,088 162,883 28,000 242,971 - 17 - 11 Allocation 2009 Allocated in 2009, beginning of year 38,258 0 Exercised 0 Cancelled 0 Expired 124,076 0 -1,060 0 21,200 0 -530 0 183,534 0 -1,590 0 Outstanding options from 2009 allocation 31 Dec 2009 Number of options exercisable end of 2009 38,258 123,016 20,670 181,944 28,820 82,910 2,620 114,350 94 0 94 0 - 64 17 0 0 0 17 7 82 0 82 0 - 73 15 0 0 0 15 8 Annual report 2009 l Notes – TrygVesta Group l 103 of 148 TrygVesta Årsrapport 2009 l Noter l 103 af 152 Regnskab Notes DKK m 5 Share option programmes Specification of outstanding 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 2008 Allocation 2006 Allocated in 2006, beginning of year 35,370 0 Exercised 0 Cancelled 0 Expired 148,030 0 -2,620 0 0 0 0 0 183,400 0 -2,620 0 64 0 64 0 12 0 0 0 83 0 83 0 15 0 0 0 Outstanding options from 2006 allocation 31 Dec 2008 35,370 145,410 0 180,780 - 12 - 15 Allocation 2007 Allocated in 2007, beginning of year 25,700 0 Exercised 0 Cancelled 0 Expired 104,802 0 -2,906 0 16,000 0 0 0 146,502 0 -2,906 0 99 0 99 0 14 0 0 0 45 0 45 0 Outstanding options from 2007 allocation 31 Dec 2008 25,700 101,896 16,000 143,596 - 14 - Allocation 2008 Allocated in 2008, beginning of year 52,088 0 Exercised 0 Cancelled 0 Expired 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 69 0 0 0 - 0 17 0 0 0 17 0 79 0 0 0 - 0 7 0 0 0 7 20 0 0 0 20 0 104 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 104 of 148 DKKm 5 Share option programmes year of allocation years of exercise 1 Jan. 2009 Exercised Cancelled Expired 31 Dec. 2009 2006 2007 2008 2009 2009-2011 2010-2012 2011-2013 2012-2014 180,780 143,596 247,991 183,534 -61,190 0 0 0 -5,240 -1,000 -5,020 -1,590 Outstanding options 31 December 2009 755,901 -61,190 -12,850 0 0 0 0 0 114,350 142,596 242,971 181,944 681,861 The assumptions by calculating the marketvalue at time of allocation year of allocation year of exercise Expected Volatility Expected Volatility Expected maturity average exercise average term share price to maturity interest rate 31 Dec. 2009 31 Dec. 2009 risk-free 2006 2007 2008 2009 2009-2011 2010-2012 2011-2013 2012-2014 355.85 456.76 378.24 313.51 17.90% 24.10% 20.30% 37.70% 4 år 4 år 4 år 4 år 3.30% 3.90% 3.60% 2.80% 0.58 1.16 2.15 3.17 342.78 - - - The following assumptions were applied in calculating the market value of outstanding share options at the time of allocation: The expected volatility is based on the average volatility of TrygVesta shares. The expected maturity is 4 years, corresponding to the aver- age of the exercise period of 3 to 5 years. The risk-free interest rate is based on a bullet loan with the same term as the expected term of 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 allocation. The dividend payout ratio is not included in the calculation as the strike price is reduced by dividends paid in order to prevent option holders from being placed at a disadvantage in connection with the company’s dividend payments. The as- sumptions 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. Employee shares In 2009, 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 17 shares at a discount to the market price equal to DKK 25 DKK per share, equivalent to a total of 38,829 shares or around DKK 11.2m 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 2009, a total of 31,713 shares were granted at discount to the market price of DKK 25 per share or DKK 9.9m. The grant of shares equalled 0.1% of the share capital. The amount was provided in 2008 and did not affect the profit for 2009. Annual report 2009 l Notes – TrygVesta Group l 105 of 148 TrygVesta Årsrapport 2009 l Noter l 105 af 152 Regnskab Notes DKK m SEGMENTS 6 Operating segments 2009 P&E Denmark P&E Norway P&E Finland P&E Sweden Corporate Other Group Gross premiums earned 6,866 Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result -5,136 -1,063 -122 71 616 4,445 -3,224 -942 -53 32 258 Total return on investment activities after technical interest Other income and expenses 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 44 0 0 83 2,619 6,972 228 1,381 3,588 0 472 -402 -194 -1 12 -113 0 0 0 116 298 0 1,081 -875 -251 -15 8 -52 5,423 -3,583 -604 -381 34 889 -4 14 -44 -10 0 -44 0 48 84 779 904 0 0 147 914 1,313 10,658 136 17 0 0 43,403 0 10 0 1,872 2,419 195 18,283 -13,206 -3,098 -582 157 1,554 1,086 -38 2,602 -623 1,979 29 2,008 17 195 1,125 43,403 44,740 6,208 22,430 364 1,872 2,419 195 33,488 106 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 106 of 148 DKK m SEGMENTS 6 Operating segments 2008 P&E Denmark P&E Norway P&E Finland P&E Sweden Corporate Other Group Gross premiums earned 6,605 Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result -4,443 -1,155 -89 180 1,098 4,636 -3,371 -1,004 -68 122 315 Total return on investment activities after technical interest Other income and expenses Profit before tax Tax Profit on continuing business Profit/loss on discontinued and divested business 0 0 49 0 0 99 2,528 6,780 250 1,202 3,088 0 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 354 -258 -154 -1 17 -42 0 0 0 90 207 0 221 -214 -104 0 7 -90 5,512 -3,489 -588 -516 173 1,092 -5 9 2 5 0 11 0 0 0 58 84 0 0 176 712 1,222 9,489 128 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 0 846 14 176 860 37,395 38,445 5,100 19,715 378 1,508 2,311 87 29,099 Please refer to ‘Our business areas’ in the Annual Report 2009 for a description of our operating segments. Amounts relating to Moderna Försäkringar are included in ‘P&E Sweden’ from 2 April 2009. 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. Other assets and lia- bilities are managed at Group level and allocation to the individual segments would therefore not provide a true and fair view. 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.’ Annual report 2009 l Notes – TrygVesta Group l 107 of 148 TrygVesta Årsrapport 2009 l Noter l 107 af 152 Regnskab Notes DKKm LINE OF BuSINESS 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 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 787 739 - 487 - 98 - 104 25 75 327 323 - 255 - 55 - 1 7 19 725 703 - 488 - 74 - 95 5 51 431 455 - 400 - 70 - 1 4 - 12 Gross premiums written 1,691 1,665 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result Claims frequency * Average claims DKK ** Total claims 1,679 - 1,033 - 278 2 58 428 4.1% 34,662 33,218 1,644 - 863 - 250 - 13 5 523 195 152 - 215 - 25 0 5 - 83 258 263 - 220 - 26 0 3 20 1,525 1,402 2,375 2,413 3,240 3,372 1,536 - 933 - 176 - 47 63 443 1,432 - 702 - 169 - 47 23 537 2,412 - 994 - 415 - 16 65 1,052 2,405 - 1,365 - 449 - 36 11 566 3,092 - 2,327 - 498 0 72 339 3,317 - 2,673 - 554 - 12 32 110 3.7% 39,044 31,112 69.0% 10,359 20,972 80.1% 7,409 33,700 26.3% 68,748 17,109 19.6% 78,086 13,800 6.3% 16,290 83,569 6.1% 18,421 91,489 22.3% 10,623 212,185 19.7% 10,428 241,946 35.3% 79,923 5,561 23.5% 114,691 4,480 Fire & contents (Private) Fire and contents (Commercial) Change of ownership Liability Credit & guarantee Tourist assistance insurance insurance 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 Gross premiums written 3,351 3,351 3,919 2,480 2,587 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 3,258 - 2,734 - 739 - 102 78 - 239 3,876 - 3,328 - 698 - 70 36 - 184 Claims frequency * Average claims DKK ** Total claims 12.1% 12,065 203,858 7.6% 9,973 319,222 2,471 - 1,672 - 449 - 321 61 90 19.9% 46,185 35,651 2,570 - 1,868 - 476 - 255 16 - 13 22.2% 45,981 40,925 88 89 - 94 - 12 0 10 - 7 90 86 - 234 - 8 0 4 - 152 749 732 - 428 - 140 - 50 25 139 757 745 - 518 - 153 31 5 110 164 159 - 34 - 50 - 31 4 48 187 181 - 38 - 54 - 39 2 52 11.8% 12,448 6,732 9.8% 18,193 6,186 10.3% 48,025 8,489 10.3% 0.9% 1.4% 51,511 1,228,333 843,571 9,422 28 45 17.9% 4,608 61,021 13.3% 6,876 50,274 Other insurance Total Norwegian Group Life One-year policies 2008 2009 2008 2009 2008 2009 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 114 121 - 26 4 3 - 1 101 65 74 - 59 - 48 - 43 7 - 69 17,086 17,821 16,763 - 11,232 - 2,931 - 667 472 2,405 17,751 - 12,756 - 3,029 - 580 153 1,539 543 560 - 534 - 72 - 2 27 - 21 494 532 - 450 - 69 - 2 4 15 Average claims DKK ** Total claims 15,660 919 17,897 1,306 * 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 the number of claims incurred. 108 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 108 of 148 DKKm LINE OF BuSINESS 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 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 Gross premiums written 1,691 1,665 1,525 1,402 2,375 2,413 3,240 3,372 2,412 - 994 - 415 - 16 65 1,052 2,405 - 1,365 - 449 - 36 11 566 3,092 - 2,327 - 498 0 72 339 3,317 - 2,673 - 554 - 12 32 110 787 739 - 487 - 98 - 104 25 75 725 703 - 488 - 74 - 95 5 51 Claims frequency * Average claims DKK ** Total claims 3.7% 39,044 31,112 69.0% 10,359 20,972 80.1% 7,409 33,700 26.3% 68,748 17,109 19.6% 78,086 13,800 6.3% 16,290 83,569 6.1% 18,421 91,489 22.3% 10,623 212,185 19.7% 10,428 241,946 35.3% 79,923 5,561 23.5% 114,691 4,480 Fire & contents (Private) Fire and contents (Commercial) Change of ownership Liability Credit & guarantee insurance Tourist assistance insurance 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 Claims frequency * Average claims DKK ** Total claims 12.1% 12,065 203,858 7.6% 9,973 319,222 11.8% 12,448 6,732 9.8% 18,193 6,186 10.3% 48,025 8,489 10.3% 51,511 9,422 0.9% 1,228,333 28 1.4% 843,571 45 17.9% 4,608 61,021 13.3% 6,876 50,274 749 732 - 428 - 140 - 50 25 139 757 745 - 518 - 153 31 5 110 164 159 - 34 - 50 - 31 4 48 187 181 - 38 - 54 - 39 2 52 327 323 - 255 - 55 - 1 7 19 431 455 - 400 - 70 - 1 4 - 12 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 1,679 - 1,033 - 278 2 58 428 4.1% 34,662 33,218 1,644 - 863 - 250 - 13 5 523 195 152 - 215 - 25 0 5 - 83 258 263 - 220 - 26 0 3 20 1,536 1,432 - 933 - 176 - 47 63 443 - 702 - 169 - 47 23 537 Gross premiums written 3,351 3,351 3,919 2,480 2,587 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 3,258 - 2,734 - 739 - 102 78 - 239 3,876 - 3,328 - 698 - 70 36 - 184 2,471 - 1,672 - 449 - 321 61 90 19.9% 46,185 35,651 2,570 - 1,868 - 476 - 255 16 - 13 22.2% 45,981 40,925 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Technical interest, net of reinsurance Technical result 114 121 - 26 4 3 - 1 101 65 74 - 59 - 48 - 43 7 - 69 17,086 17,821 16,763 - 11,232 - 2,931 - 667 472 17,751 - 12,756 - 3,029 - 580 153 2,405 1,539 Average claims DKK ** Total claims 15,660 919 17,897 1,306 88 89 - 94 - 12 0 10 - 7 543 560 - 534 - 72 - 2 27 - 21 90 86 - 234 - 8 0 4 - 152 494 532 - 450 - 69 - 2 4 15 Other insurance Total Norwegian Group Life One-year policies 2008 2009 2008 2009 2008 2009 * 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 the number of claims incurred. Annual report 2009 l Notes – TrygVesta Group l 109 of 148 TrygVesta Årsrapport 2009 l Noter l 109 af 152 Regnskab Notes DKKm 2008 2009 Interest and dividends 7 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 Value adjustment 39 49 1,404 31 1,523 -83 -17 -100 1,423 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 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 Exchange rate adjustments concerning financial assets or liabilities which cannot be valuated to market value is in total DKK 1.4m (in 2008 DKK 129m) Under market value adjustment the adjustment of inflation swaps totals DKK 13m (in 2008 DKK -46m). 9 Tax Tax on profit for the year Diffrence between Danish and foreign tax rate Prior-year tax adjustment Adjustment non-taxable income and expenses Change in valuation of tax assets Change in valuation of tax loss carried forward Other taxes Effective tax rate Tax on profit for the year Diffrence between Danish and foreign tax rate Prior-year tax adjustment Adjustment non-taxable income and expenses Change in valuation of tax assets Change in valuation of tax loss carried forward -521 -549 98 456 17 -499 70 8 -478 -109 -509 -1,008 1,656 -2,664 -1,008 -337 1 72 -203 -26 0 -8 -501 % 25 0 -5 15 2 0 37 14 67 1,197 9 1,287 -90 -26 -116 1,171 62 485 -38 532 -23 1,018 19 1 -294 -10 -284 734 1,606 -872 734 -651 -43 -4 58 55 -37 -1 -623 % 25 2 0 -2 -2 1 24 See ‘TrygVestas ‘Financial performance 2009’ in the Management report for further information regarding the tax expense. 110 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 110 of 148 DKKm 2008 2009 10 Profit/loss on discontinued and divested business Earned premiums, net of reinsurance Technical interest, net of reinsurance Claims incurred, net of reinsurance Insurance operating expenses, net of reinsurance Technical result Profit/loss before tax Tax Profit/loss on discontinued and divested business 0 3 -1 -2 0 0 0 0 0 1 38 0 39 39 -10 29 Profit/loss on discontinued and divested business is included in ‘Other insurance’ in the accounts broken down by line of business. Claims incurred in 2009 include DKK 18m received in connection with the sale of business in run-off. 11 Intangible assets Trademarks and customer relations Goodwill Software Total 2009 Cost Balance 1 January Exchange rate adjustment Addition on acquisition of subsidiary* Additions during the year Disposals during the year Balance 31 December amortisation and writedowns Balance 1 January Exchange rate adjustment Amortisation for the year Impairment writedowns for the year Reversed amortisation Balance 31 December 0 19 310 0 0 329 0 0 0 0 0 0 0 9 139 0 0 148 0 0 -12 0 0 -12 Carrying amount 31 December 329 136 2008 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 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 645 18 17 143 -19 804 -195 -18 -121 -10 9 -335 469 528 -21 -1 154 -15 645 -193 22 -31 7 -195 450 645 46 466 143 -19 1,281 -195 -18 -133 -10 9 -347 934 528 -21 -1 154 -15 645 -193 22 -31 7 -195 450 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29. Intangible assets under development amount to a total of DKK 114m in the total software (in 2008 DKK 198m). Additions for internally generated software expenses amount to DKK 28m (in 2008 DKK 21m). Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. Annual report 2009 l Notes – TrygVesta Group l 111 of 148 TrygVesta Årsrapport 2009 l Noter l 111 af 152 Regnskab Notes DKK m 11 Impairment test Goodwill As at 31 December 2009, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating units. Assumptions for impairment test: The value-in-use method is used 2009 Moderna Försäkringar Sak AB MF Bilsport & MC Specialförsäkring AB assumed annual growth > 5 years return requirement before tax 2.5% 2.5% 15.4% 15.4% Insurance activities in Sweden In 2009, TrygVesta acquired Moderna Försäkringar Sak AB, Moderna Re S.A., Netviq AB and MF Bilsport & MC specialfösäkringar. The insurance activities were incorporated into the TrygVesta Group’s business structure in 2009 and are reported under Sweden. The acquisition is expected to enhance efficiency in the distribution of insurances in the Swedish market and to contribute to growth, in particular in the Swedish market. The assumed growth during the terminal period has been estimated based on expectations for general economic growth. The return re- quirement is based on an assessment of the risk profile for the tested business activities. Higher return requirements or lower growth would entail a lower value of the activities, whereas lower return requirements or higher growth expectations would entail a higher value. 2009 Moderna Försäkringar Sak AB Moderna Re S.A. Netviq AB MF Bilsport & MC Specialförsäkring AB Total Total after impairment Software Goodwill Trademarks and customer relations 320 0 0 9 329 329 136 0 0 0 136 136 Total 456 0 0 9 465 465 The impairment charges are recognised in the income statement in depreciation, amortisation and impairment writedowns of software. In the impairment test, the carrying amount is compared with the estimated present value of future cash flows. Trademarks and customer relations The impairment test performed for trademarks and customer relations did not indicate any impairment. 112 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 112 of 148 DKK m 12 Property, plant and equipment 2009 Cost Balance 1 January Exchange rate adjustment Addition on acquisition of subsidiary* Additions during the year Disposals during the year Balance 31 December accumulated value adjustments Balance 1 January Exchange rate adjustment 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 Reversed depreciation Balance 31 December Carrying amount 31 December Operating equipment assets Owner- occupied under property construction 185 6 11 45 -22 225 0 0 0 0 0 -139 -6 -18 21 -142 83 1,333 44 1 0 0 1,378 -9 -2 -2 11 -2 -9 -1 -8 0 -18 54 5 0 199 0 258 -54 -5 -27 0 -86 0 0 0 0 0 Total 1,572 55 12 244 -22 1,861 -63 -7 -29 11 -88 -148 -7 -26 21 -160 1,358 172 1,613 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 2008 Cost Balance 1 January Exchange rate adjustment Transferred from intangible assets 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 Reversed depreciation Balance 31 December Carrying amount 31 December 229 -9 1 3 -39 185 0 0 0 0 -149 8 -20 22 -139 46 318 -57 0 1,085 -13 1,333 -8 -1 0 -9 -4 1 -6 0 -9 1,315 0 0 0 54 0 54 0 -54 0 -54 0 0 0 0 0 0 547 -66 1 1,142 -52 1,572 -8 -55 0 -63 -153 9 -26 22 -148 1,361 Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. External experts were involved in valuing part of the owner-occupied properties. Annual report 2009 l Notes – TrygVesta Group l 113 of 148 TrygVesta Årsrapport 2009 l Noter l 113 af 152 Regnskab Notes DKKm 12 Impairment test Property, plant and equipment The value of the owner-occupied properties was assessed in connection with The Living House and the improvements made to those properties. The impairment charges on assets under construction are recognised in the income statement in total insurance oprating expenses. The impairment test performed for operating equipment and assets under construction did not indicate any impairment. In establishing the market value of the owner-occupied properties, the following return percentages were used for each property category. return percentages 2009 Office property 2008 Office property 13 Investment property Fair value 1 January Exchange rate adjustment Additions during the year Disposals during the year Value adjustment for the year Reversed on sale Fair value 31 December Lowest percentage average percentage Highest percentage 6.00 6,80 7.80 Lowest percentage average percentage Highest percentage 6.80 7.00 7.90 2008 2,263 -96 80 -66 65 0 2,246 2009 2,246 76 32 -2 17 -5 2,364 Total rental income for 2009 was DKK 173m (in 2008 DKK 168m). Total expenses for 2009 amount to DKK 37.3m (in 2008 DKK 40m). Of this amount, unlet property represented DKK 0.8m (in 2008 DKK 0.5m). Total expenses for investment property generating rental income amount to DKK 38.1m (DKK 39.5m in 2008). External experts were involved in valuing investment property. In establishing the market value of the properties, the following return percentages were used for each property category. return percentages 2009 Business property Office property Residential property 2008 Business property Office property Residential property Lowest percentage average percentage Highest percentage 7.00 6.00 3.80 7.30 6.80 5.30 7.50 7.80 6.00 Lowest percentage average percentage Highest percentage 7,00 3.80 4.00 7.30 6.70 5.30 7.50 7.80 6.00 114 of 148 l Notes – TrygVesta Group l Annual report 2009 DKKm 2008 2009 14 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 depreciation Balance 31 December Carrying amount 31 December 0 0 19 -3 0 -2 14 14 0 0 14 3 0 0 17 17 Shares in associates according to the lastest financial statements: 2009 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 AS Eidsvåg Fabrikker AS, Norway 0 5 39 0 1 3 0 4 36 0 1 14 0 0 2 50 30 28 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 AS Eidsvåg Fabrikker AS, Norway 0 4 32 0 0 3 0 4 29 0 1 12 0 0 3 50 30 28 An individual estimate of the degree of influence under the contracts is made. Annual report 2009 l Notes – TrygVesta Group l 115 of 148 Regnskab Notes DKK m 15 Fair value hierarchy for financial instruments measured at fair value in the balance sheet 2009 quoted market Observable unobservable input prices input Financial assets at fair value with value adjustment in the income statement Bonds Shares Unit trust units Derivatives Cash in hands and deposits in credit institutions 16,337 200 2,143 0 3,450 22,130 12,947 0 0 6 0 12,953 126 181 0 31 0 338 Financial instruments measured at fair value in the balance sheet on the basis of non-observable input Carrying amount 1 January 2009 Exchange rate adjustment Gains/losses in the income statement Purchases Sales Transfers to/from the group ‘non-observable input’ Carrying amount 31 December 2009 Gains/losses in the income statement for assets held at the balance sheet date recognised in value adjustments Total 29,410 381 2,143 37 3,450 35,421 121 10 90 117 0 0 338 96 Bond mesured on the basis of observable inputs mainly consist of Norwegian bonds issued by banks and to some extent Danish semi liquid bonds, where no quoted prices within the last 5 days exist. Unobservable input, total result DKK 96m, mainly comprises inflation derivatives of DKK 75m, hedging inflation risk on technical provisions which recorded a 2009 accounting loss of DKK 62m. The risk of the unobservable input group is moderate since the inflation derivatives aim at hedging the inflation risk of the technical provisions 100 percent, while the unquoted shares and bonds, which are influenced by market conditions such as the development in interest rates and expected earnings, is limited amount, Financial assets at fair value with value adjustment in the income statement 2009 Investment assets as per the section ‘Investment activities’ in the Management’s report Consisting of: Cash in hands allocated to portefolio management Unsettled securities trading Unit trust units Futures Deposits, Derivatives etc. Owner-occupied property Equity investments Investment assets according to balance sheet Unit trust units Deposits, Derivatives etc. Bonds Shares Property Total 34,248 1,589 3,893 39,730 -50 -1,022 -827 0 -2,939 0 0 29,410 0 0 -1,316 125 0 0 -17 381 0 0 0 0 0 -1,530 0 2,363 -50 -1,022 -2,143 125 -2,939 -1,530 -17 32,154 2,143 2,939 37,236 17 15 37,268 Investment assets at fair value according to balance sheet recognised through profit and loss Associated shares Deposits with ceding undertakings, receivable Total investment assets according to balance sheet 116 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 116 of 148 DKKm 15 Financial assets at fair value with value adjustment in the income statement 2008 Investment assets as per the section ‘Investment activities’ in the Management’s report Consisting of: Cash in hands allocated to portefolio management Unsettled securities trading Unit trust units Futures Deposits, Derivatives etc. Owner-occupied property Equity investments Bonds Shares Property Total 29,417 1,172 3,561 34,150 -71 -101 -137 0 -387 0 0 0 0 -803 67 0 0 -14 422 0 0 0 0 0 -1,315 0 2,246 -71 -101 -940 67 -387 -1,315 -14 31,389 940 389 32,718 14 13 32,745 Investment assets according to balance sheet 28,721 Unit trust units Deposits, Derivatives etc. Investment assets at fair value according to balance sheet recognised through profit and loss Associated shares Deposits with ceding undertakings, receivable Total investment assets according to balance sheet adjusted duration of bond portfolio 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 2008 2009 18,550 8,535 2,316 16 29,417 19,198 11,875 2,869 306 34,248 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. Annual report 2009 l Notes – TrygVesta Group l 117 of 148 TrygVesta Årsrapport 2009 l Noter l 117 af 152 Regnskab Notes DKKm 15 Maturity of the Group’s interest-bearing financial assets and debt 2009 0-1 year 1-5 years > 5 years Bonds Cash in hand and at bank Debt Receivables 10,084 462 -611 2,428 13,004 0 0 0 12,363 13,004 11,160 0 -1,586 0 9,574 2008 0-1 year 1-5 years > 5 years Total 34,248 462 -2,197 2,428 34,941 Total 29,417 211 -1,811 1,689 Effective interest rate adjusted duration 3.3 0.9 4.1 - 2.0 0 0 - Effective interest rate adjusted duration 4.4 4.4 4.6 - 1.7 0 0 - Bonds Cash in hand and at bank Debt Receivables 6,549 211 -111 1,689 8,338 11,473 0 -598 0 11,395 0 -1,102 0 10,875 10,293 29,506 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 21. Please refer to the section on ‘Investment and interest rate 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 Unlisted equity investments are measured at estimated fair value, see ‘Accounting policies’ 2008 2009 195 103 298 244 152 992 180 348 134 336 354 219 1,391 198 Exposure to exchange rate risk 2009 Properties Bonds Shares Insurance Hedge Exposure USD EUR GBP NOK SEK Other Total 2008 USD EUR GBP NOK Other Total 0 0 0 852 1 0 0 128 0 11,952 1,673 361 479 418 126 359 72 231 -162 -1,610 4 -10,457 -578 -18 -261 1,210 -122 -2,678 -1,241 -565 56 146 8 28 -73 9 320 Properties Bonds Shares Insurance Hedge Exposure 0 0 0 649 0 21 723 1 10,113 0 270 337 94 170 294 -232 -1,117 3 -8,616 -13 -73 73 -93 -2,396 -269 14 15 4 81 52 166 Please refer to the section on ‘Currency risk’ in ‘Risk management’ in the ‘Management’s report’. 118 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 118 of 148 DKK m 2008 2009 15 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% 23 -57 -141 -315 -4 -219 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 Derivatives with value adjustment in the income statement according to IAS 39. Fair value: 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 2008 2009 Gross 3,124 67 3,618 5,253 8,444 3,618 Net 27 0 -41 311 297 0 Gross 3,659 125 3,623 7,240 11,024 3,623 Gains Losses 759 91 850 -254 -565 -819 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 Balance at 31 December 15 receivables Receivables from insurance enterprises Exchangerate and inflation derivatives Unsettled transactions Other receivables Specification of writedowns on receivables from insurance contracts Balance at 1 January Exchange rate adjustment Writedowns and reversed writedowns for the year Balance at 31 December 2008 75 -585 -510 1,088 383 136 82 1,689 106 -8 22 120 Reversed impairment losses are estimated at around DKK 45m 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’. 26 -42 -191 -336 -12 -218 Net 7 0 31 -4 34 0 Net 505 -474 31 2009 -510 487 -23 1,238 27 1,051 112 2,428 120 6 -2 124 Annual report 2009 l Notes – TrygVesta Group l 119 of 148 TrygVesta Årsrapport 2009 l Noter l 119 af 152 Regnskab Notes DKKm 15 receivables Receivables in connection with insurance contracts include overdue recievables totalling: Falling due: Within 90 days After 90 days Including writedowns of due amounts 16 reinsurers’ share Reinsurers’ share Writedowns after impairment test Balance at 31 December Impairment test As at 31 December 2009, management performed a test of the carrying amount of total re- insurers’ share of provisions for insurance contracts. The impairment test resulted in impairment charges totalling DKK 17 (in 2008 DKK 15m) Writedowns during the year include reversed write- downs totalling DKK 3m (in 2008 DKK 7m). Please refer to the section on ’Reinsurance’ in ’Risk management’ in the ’Management´s report’. 17 Current tax Current tax, beginning of year Exchange rate adjustment Addition on acquisition of subsidiary* Current tax for the year Current tax on equity entries Adjustment of prior-year current tax 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 2008 2009 259 117 376 120 1,051 -15 1,036 243 -66 0 434 154 0 -628 137 111 248 137 271 110 381 124 1,337 -17 1,320 137 25 24 576 -118 8 -349 303 0 303 303 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 120 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 120 of 148 DKKm 18 Shareholders’ equity Share capital Numbers of shares Balance at 1 January Bought during the year Sold during the year 2008 2009 No. of Nominal value (DKK’000) shares No. of Nominal value (DKK’000) shares 67,638,478 -3,346,610 85,815 1,690,962 -83,665 2,145 64,377,683 -1,286,817 136,784 1,609,442 -32,170 3,420 Balance at 31 December 64,377,683 1,609,442 63,227,650 1,580,692 Treasury shares Balance at 1 January Bought during the year Cancellation in connection with buyback programme. Used in connection with issue of employee shares Used in connection with exercise of stock options 2008 2009 No. of Nominal value (DKK’000) shares % of share capital No. of Nominal value (DKK’000) shares % of share capital 361,522 3,346,610 9,038 83,665 0.53 4.92 3,622,317 1,286,817 90,558 32,170 5.32 2.01 0 0 0 -4,068,427 -101,711 -6.02 -85,815 -2,145 -0.13 -70,354 -1,759 -1,661 17,597 -0.11 -0.1 1.10 Balance at 31 December 3,622,317 90,558 5.32 703,923 0 0 0 -66,430 Pursuant to the authorisation granted by the shareholders, TrygVesta may acquire up to 10.0% of the share capital until the next annual general meeting in 2010. Treasury shares are acquired for use in the Group’s incentive programme and as part of the share buy back programme. 19 Capital adequacy Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capital base Weighted assets Solvency ratio 2008 8,244 685 -423 -4,601 3,905 3,924 100 2009 9,666 732 -991 -4,579 4,828 5,001 97 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 and profitdistribution’ in the Management’s report’ Annual report 2009 l Notes – TrygVesta Group l 121 of 148 TrygVesta Årsrapport 2009 l Noter l 121 af 152 Regnskab Notes DKK m 20 Subordinated loan capital Loan terms: Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure Subordinated bond loan* Subordinated loan capital Listed bonds EUR 150m 99.017 December 2005 2025 2015 Interest-only 4.5% (until 2015) 2.1% above EURIBOR 3M (from 2015) TryghedsGruppen EUR 65m 100 April 2009 2032 30 June 2012 Interest-only 5.13% above EURIBOR 3M (interest until 30 June 2012) 7.63%–6.63% (max. and min. until 30 June 2012) 5% above EURIBOR 3M (interest from 1 July 2012 to 30 June 6% above EURIBOR (interest from 1 July 2019) * In December 2005, TrygVesta Forsikring A/S raised a subordinated bond loan with no option for the creditor to call the loan before matu- rity 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. TrygVesta Forsikring A/S has subscribed the subordinated loan capital in connection with acquisitions made in April 2009, see note 29. Prices used for determination of fair value in respect of both loans are based on an assessment of the credit spread of the loans provided by Nordea. ** The fair value of the loan at the balance sheet date The fair value of the loan at the balance sheet date is based on a price of Total capital losses and costs the balance sheet date Interest expenses of the year Bond loan Tryghedsgruppen smba 2008 908 81.23 16 50 2009 2008 2009 893 80 14 51 - - - - 485 103 0 24 The share of subordinated capital included in the calculation of the capital base total DKK 732m The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. 122 of 148 l Notes – TrygVesta Group l Annual report 2009 DKK m 21 Provisions for claims – Estimated accumulated claims Gross End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later Cumulative payments 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 8,373 8,695 8,902 9,104 9,191 9,318 9,070 9,189 9,175 9,242 9,242 8,977 11,010 9,208 11,343 9,397 11,348 9,506 11,404 9,440 11,398 9,432 11,305 9,642 11,289 9,618 11,155 9,656 10,452 10,558 10,234 10,229 10,261 10,235 10,144 10,797 10,810 10,671 10,559 10,294 10,341 11,530 11,426 11,264 10,876 10,970 11,321 11,579 11,098 11,273 12,257 12,863 13,377 12,886 14,179 14,217 9,656 11,155 10,144 10,341 10,970 11,273 13,377 14,179 14,217 114,554 to date Discounting Reserves from 1999 and prior years Other reserves Gross provisions for claims, end of year -8,679 -106 -8,879 -10,313 -152 -145 -9,057 -188 -8,996 -221 -9,477 -243 -9,292 -287 -10,452 -375 -9,813 -507 -586 -6,960 -91,918 -2,810 1,947 657 22,430 Ceded business 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later 1,394 1,504 1,471 1,496 1,528 1,524 1,519 1,527 1,530 1,599 1,599 Cumulative payments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, end of year -1,510 -12 1,398 1,413 1,419 1,433 1,408 1,395 1,403 1,383 1,408 1,982 2,083 1,970 1,964 1,962 1,975 1,981 1,915 904 867 864 921 842 837 847 829 843 884 882 867 872 937 831 836 830 849 288 287 273 302 509 474 485 173 235 291 1,408 1,915 847 872 849 302 485 235 291 8,803 -1,365 -9 -1,776 -17 -787 -10 -788 -16 -789 -6 -279 -1 -454 -2 -119 -4 -73 -6 -7,940 -83 270 75 1,125 Net of reinsurance 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later Cumulative payments 6,979 7,191 7,431 7,608 7,663 7,794 7,551 7,662 7,645 7,643 7,643 7,579 7,795 7,978 8,073 8,032 8,037 8,239 8,235 8,248 9,028 9,260 9,378 9,440 9,436 9,330 9,308 9,240 9,548 9,691 9,370 9,308 9,419 9,398 9,297 9,968 9,967 9,787 9,677 9,427 9,469 10,593 10,595 10,428 10,046 10,121 11,033 11,292 10,825 10,971 11,748 12,389 12,892 12,713 13,944 13,926 8,248 9,240 9,297 9,469 10,121 10,971 12,892 13,944 13,926 105,751 -7,169 -94 to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year Estimated accumulated -8,537 -135 -7,514 -136 -8,270 -178 -8,208 -205 -8,688 -237 -9,013 -286 -9,998 -373 -9,694 -503 -580 -6,887 -83,978 -2,727 1,677 582 21,305 claims regarding Moderna Försäkringar 39 86 102 116 214 307 378 461 574 673 2,952 Annual report 2009 l Notes – TrygVesta Group l 123 of 148 Regnskab Notes DKKm 21 Provisions for claims The table consists of figures for TrygVesta Forsikring A/S, TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S, Enter For- sikring AS and Moderna Försäkringar. 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 2009 to prevent the impact of exchange rate fluctuation. The inclusion of the Moderna Försakringar acquired in 2009 has an impact on the figures. When the liabilities of these portfolios appear in the triangulation the ultimate liability for the preceding accident years is increased with effect from the financial year in question, whereas already existing liabilities concerning previous financial years remain unchanged. The combined impact of the acquisitions amounts to DKK 737m gross and DKK 657m net of reinsurance. Effect of change to yield curve In October 2008 the Danish FSA changed the discount curve for discounting of provisions. Previously composed of a risk-free euro- denominated interst rate and a contry-specific spread to the German government bond yield as a result of the change, the discount rate is determined based on a risk-free interest and the mortage bond yield, which creates a better match between assets and liabilities. 2008 2009 Effect of change to yield curve Gross claims incurred Interest on insurance provisions Technical result Return on investment activities after technical interest Profit/loss before tax Provisions for claims Profit/loss, shareholders´equity and capital base are impacted by DKK 68m after tax. Statement of financial position Total, beginning of period Market value adjustment of provisions, beginning of period Addition on acquisition of subsidiary* 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) 0 -8 -8 78 70 -78 Gross 19,271 1,325 648 21,244 -6,975 -6,225 -13,200 13,359 -683 12,676 1,107 21,827 603 22,430 2009 Ceded 794 113 69 976 -152 -204 -356 355 35 390 40 1,050 75 1,125 2 -2 0 -91 -91 -18 Net 18,477 1,212 579 20,268 -6,823 -6,021 -12,844 13,004 -718 12,286 1,067 20,777 528 21,305 124 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 124 of 148 DKKm 21 Erstatningshensættelser 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 2008 Ceded 1,366 -171 1,195 -44 -515 -559 145 -55 90 68 794 66 860 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 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 1) The table consists of figures for TrygVesta Forsikring A/S, TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S, Enter Forsikring AS and Moderna Försäkringar. Other units in the Group are included in ‘Other’ 1) Comprises provisions for claims for TrygVesta Garantiforsikring A/S and the Finnish and Swedish branches. 3) Discounting also includes exchange rate adjustments. 2009 0-1 year 1-2 years 2-3 years > 3 years Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 5,531 -153 6,972 -292 12,058 158 -12 3,421 -134 3,433 152 -15 2,256 -99 2,294 156 -10 9,178 -525 8,799 Expected cash flow 2008 0-1 year 1-2 years 2-3 years > 3 years Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 4,763 -172 7,182 -244 11,529 66 0 3,397 -126 3,337 39 0 2,202 -88 2,153 78 0 6,490 -336 6,232 Expected cash flow Carrying amount Total 5,997 -190 21,827 -1,050 26,584 Carrying amount Total 4,946 -172 19,271 -794 23,251 The table consists of figures for TrygVesta Forsikring A/S, TrygVesta Forsikring, Norwegian branch of TrygVesta Forsikring A/S, Enter Forsikring AS and Moderna Försäkringar. The note should be seen in connection with the maturity of the Group’s interest-bearing financial assets and liabilities, see note 15. Please refer to the section on ‘Risk management’ for an elaboration of risk management and risk exposure. Annual report 2009 l Notes – TrygVesta Group l 125 of 148 TrygVesta Årsrapport 2009 l Noter l 125 af 152 Regnskab Notes DKKm 22 Pensions and similar obligations Jubiless, schemes 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 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 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 pensions obligation Expected return on plan assets Accrued employers´nat.insurance contribution Total year´s cost of defined 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 126 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 126 of 148 2008 2009 28 28 120 1,003 1,123 628 495 1,292 -246 56 49 23 -51 1,123 932 -177 31 44 -173 -29 628 495 523 58 62 -56 9 73 53 % 13 64 23 -1.7 48 48 144 1,160 1,304 856 448 1,123 206 55 47 -70 -57 1,304 628 118 149 40 -42 -37 856 448 496 45 47 -40 8 60 55 % 10 70 20 5.1 DKKm 2008 2009 22 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 % 4.0 6.0 4.0 3.8 3.8 7.0 14.1 20.0 Adjusted K2005 % 4.6 5.8 4.0 4.0 4.0 7.0 14.1 20.0 Adjusted K2005 Pension obligation Plan assets Surplus/deficit Actuarial gains/losses associated with the pension obligation Actuarial gains/losses associated with pension assets 2006 1,298 825 473 90 26 2007 1,292 932 360 104 -10 2008 1,123 628 495 -23 -173 2009 1,304 856 448 70 -42 Moderna Försäkringar and Swedish branch of TrygVesta Forsikring A/S 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 under- taken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the appli- cable 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 2009 amounted to DKK 9m, which is about 1.5 % of the annual premium in FPK (2008). FPK writes in its half- year report for 2009 that it had a collective consolidation ratio of 113 at 30 June 2009 (DKK119m at 30 June 2008). The collective consol- idation ratio is defined as the market value of the plan assets relative to the total collective pension obligations. Annual report 2009 l Notes – TrygVesta Group l 127 of 148 TrygVesta Årsrapport 2009 l Noter l 127 af 152 Regnskab Notes DKK m 23 Deferred tax Tax asset Operating equipment Debt and provisions Capitalised tax loss Tax liability Intangible rights Land and buildings Bonds and loans secured by mortgages Contingency funds Deferred tax, end of year Unaccrued timing difference of shares Unaccrued timing difference of balance sheets items reconciliation of deferred tax Deferred tax, beginning of year Exchange rate adjustment Addition on acquisition of subsidiary* Change in deferred tax previous years Change in capitalised tax loss Change in deferred tax taken to the income statement Change in deferred tax taken to equity Non-capitalised tax loss Denmark Sweden Finland Luxembourg 2008 2009 65 133 0 198 100 157 0 890 1,147 949 126 1 1,109 -164 0 -51 0 122 -67 949 72 188 189 0 56 161 91 308 134 176 46 1,196 1,552 1,244 134 68 949 133 97 -3 -80 138 10 1,244 72 0 313 142 * Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 The loss in TrygVesta A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely in Denmark and Luxembourg. Under Finnish rules, losses may be carried forward for ten years and under Swedish rules, losses may be carried forward indefinitely. Losses are not recognised as tax assets until it is likely that there will be sufficient future taxable income for the loss to be utilised. The total current and deferred tax relating to items recognised in equity is recognised in the balance sheet in the amount of DKK 110m (in 2008 DKK -101m). No deferred tax is associated with investments in subsidiaries (in 2008 DKK 0m). 128 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 128 of 148 DKK m 2008 2009 24 Other provisions Other provisions, beginning of year Exchange rate adjustment Change in provisions Other provisions, end of year Other provisions primarily includes own insurance contracts 25 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 2009. In 2009, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5 % p.a. The unutilised part of the loan facility is meas- ured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost are depreciated linear 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. 26 Other debt Unsettled transactions Interest derivatives Exchange and inflation rate derivatives Other debt Debt falling due within one year Debt falling due after more than five years 27 Earnings per share Profit/loss for the period from continuing business Profit/loss on discontinued and divested business Profit/loss for the period Average number of shares (1,000 shares) Diluted average number of shares (1,000) Diluted average number of shares (1,000) Earnings per share - continuing business of DKK 25 Basic earnings per share of DKK 25 Diluted earnings per share (DKK) The company has not issued warrants, convertible debt instruments or the like. 57 -10 -11 36 598 111 709 111 0 66 0 31 774 871 871 0 846 0 846 66,184 0 66,184 12.8 12.8 - 36 6 4 46 600 11 611 611 0 27 3 0 924 954 954 0 1,979 29 2,008 63,334 114 63,448 31.2 31.7 31.7 Annual report 2009 l Notes – TrygVesta Group l 129 of 148 TrygVesta Årsrapport 2009 l Noter l 129 af 152 Regnskab Notes DKK m 28 Contractual obligations, contingent liabilities and collateral 2009 Operating leases Other contractual obligations 2008 Operating leases Other contractual obligations 0-1 year 231 429 660 0-1 year 65 375 440 Payment due by period 3-5 years 1-3 years > 5 years 99 143 242 49 16 65 67 0 67 Payment due by period 3-5 years 1-3 years > 5 years 68 55 123 10 45 55 9 0 9 Total 446 588 1,034 Total 152 475 627 The amounts include the following: TrygVesta Forsikring A/S and TrygVesta Forsikring, norwegian branch of TrygVesta Forsikring A/S have signed an operating agreement with CSC for an amount of DKK 1bn for a period of 5 years, which cannot be cancelled within 12 month. The contract expires in 2012. TrygVesta Forsikring A/S has signed a portfolio management contract for DKK 100m. The contract expires in 2013. TrygVesta Forsikring A/S has signed a telephony service contract with Telenor for DKK 93m. The contract expires in 2012. TrygVesta Forsikring A/S has signed a car leasing contrakt with NF Fleet for DKK 30m. The contract expires in 2013. TrygVesta Forsikring A/S has signed a it leasing contrakt with IBM for DKK 18m. The contract expires in 2011. Ejendomsselskabet af 8. Maj 2008 A/S has signed agreements for refurbishment of the property at Klausdalsbrovej 601, Ballerup. The remaining contract sum amounts to DKK 105.6m. The work is expected to be finalised in 2010/11. Vesta Eiendom A/S has signed agreements for refurbishment of the property at Folke Bernadottesvei 50, Bergen. The remaining contract sum amounts to DKK 45.6m. The work is expected to be finalised in 2010/11. The Danish companies in TrygVesta group are jointly taxed with TryghedsGruppen smba. Assets to cover the technical provisions have been registered in the total amount of 2008 29,690 2009 32,498 Most of the Danish companies in TrygVesta group are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes. In connection with the sale of Chevanstell Limited, TrygVesta Forsikring A/S issued few specific guarantees towards the buyer. Management believes that it is unlikely that these guarantees will result in a financial loss for TrygVesta Forsikring A/S. Companies of the TrygVesta Forsikring group are part of some 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 at 31 December 2009. 130 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 130 of 148 DKK m 29 acquisition of subsidiary 2009 In 2009 TrygVesta Forsikring A/S acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB og MF Bilsport & MC Specialförsäkring AB in Sweden. acquired businesses acquired interest Principal activity acquisition date Moderna Försäkringar Sak AB Modern Re S.A. Netviq AB MF Bilsport & MC Specialförsäkring AB 100% 100% 100% 100% Non-life insurance Intra-group reinsurance Agency for Moderna Agency for Moderna 2 April 2009 2 April 2009 2 April 2009 2 April 2009 Intangible assets Property, plant and equipment Investment assets Reinsurers´share of provisions for insurance contracts Receivalbles, other assets and prepayments Provisions for insurance contracts Provisions Debt, accruals and deferred income Shareholders¨equity Goodwill on acquisitions Cost Adjustment of cash and cash equivalents Cash acquisition cost Elements of cash acquisition cost Cash Direct acquisition costs Cash acquisition cost Gross premiums Technical result Profit/loss for the period Carrying amount before takeover* Market value at takeover 16 12 955 140 1,082 -1,345 -75 -259 526 155 12 955 140 1,082 -1,345 -111 -259 629 310 939 -605 334 350 -16 334 1 January - 1 april 2 april - 31 December 184 10 8 768 75 93 In a pro forma calculation of the consolidated profit for 2009 as if Moderna Försäkringar SAK AB, Modern Re S.A., Netviq AB and MF Bil- sport & MC had been acquired as at 1 January 2009, gross earned premiums are estimated at a total of DKK 18,467m and the profit for the year at DKK 2,016m relative to the actual figures for 2009. *The carrying amount prior to acquisition has been made up in accordance with the TrygVesta Group’s accounting policies. Annual report 2009 l Notes – TrygVesta Group l 131 of 148 TrygVesta Årsrapport 2009 l Noter l 131 af 152 Regnskab Notes DKK m 2008 2009 29 acquisition of subsidiary 2008 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. The carrying amount prior to acquisition amounts to DKK 1.085,5m. Fair value at the date of acquisition amounts to DKK 1.085,5m. 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 is not significant different compared to the Group’s realised profit/loss for 2008. The Group’s gross premiums earned will 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. 30 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 - Exercised, end of year - Premium 0.3 0.4 115.3 0.0 0.2 9.6 1,200 726 3 0.3 0.6 115.8 0.7 0.2 6.2 1,470 538 7 Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees are issued without additional security. The company has full recourse against the individual companies. No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Guarantee agreements are made on market terms. Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a mem- ber of the supervisory board on market terms. 132 af 152 l Notes – TrygVesta Group l Annual report 2009 l Noter l TrygVesta Årsrapport 2009 132 of 148 DKK m 2008 2009 30 related parties Specification of remuneration Supervisory Board Executive Management Remuneration includes pension contributions Supervisory Board Executive Management -4 -19 -23 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 Management 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 mentioned 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 further claims in this respect, including claims for compensation pursuant to sections 2a and/or 2b Salaried Em- ployees 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 - Subordinated loancapital - Interest expenses Transactions between TryghedsGruppen smba and TrygVesta A/S are on market terms. Intra-group trading involved Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The companies in TrygVesta Group have entered into reinsurance contracts on market terms. 1 0 0 0 485 -24 Transactions with subsidiaries have been eliminated in the consolidated financial statements in accordance with the accounting policies. 31 Financial highlights and key ratios of TrygVesta cf ‘Introduction to TrygVesta’ Annual report 2009 l Notes – TrygVesta Group l 133 of 148 TrygVesta Årsrapport 2009 l Noter l 133 af 152 Regnskab Income statement – TrygVesta a/S (parent company) DKK m 2008 2009 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 for the year Proposed distribution for the year: Dividend Transferred to Net revaluation as per equity method Transferred to Retained profits 757 22 0 -32 -6 741 -56 685 18 703 423 -2,007 2,287 703 2,079 2 -2 -14 -7 2,058 -46 2,012 17 2,029 991 1,470 -432 2,029 134 af 152 134 of 148 l Income statement – TrygVesta A/S (parent company) l Annual report 2009 Balance sheet – TrygVesta a/S (parent company) DKK m 2008 2009 Notes assets 5 Investments in subsidiaries Total investments in subsidiaries Total investment assets Receivables from subsidiaries Total receivables Current tax assets 6 7 Deferred tax assets Cash in hand and at bank Total other assets Total prepayments and accrued income 8,546 8,546 8,546 293 293 18 0 1 19 24 10,173 10,173 10,173 65 65 17 1 0 18 39 Total assets 8,882 10,295 Liabilities Shareholders’ equity 8 Debt to credit institutions Debt to subsidiaries Other debt Total debt 8,265 9,687 602 0 15 617 600 8 0 608 Total liabilities and equity 8,882 10,295 1 accounting policies 9 Capital adequacy 10 Contractual obligations, contingent liabilities and collateral 11 related parties Annual report 2009 l Balance sheet – TrygVesta A/S (parent company) l 135 of 148 135 af 152 Regnskab Statement of changes in equity (parent company) DKKm Shareholders’ equity at 31 December 2007 1,700 3,745 3,430 1,156 10,031 Share capital revaluation equity method retained earnings Proposed dividends Total 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 2,268 442 2,268 442 12 -1,197 37 14 1,134 -1,156 -714 703 -640 615 -154 524 -1,156 12 -1,197 37 14 -1,766 Shareholders’ equity at 31 December 2008 1,700 1,559 4,564 442 8,265 2009 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 Nullification of own shares Dividend paid Dividend own shares Purchase of own shares Exercise of shareoptions Issue of employee shares Issue of share options 1,470 9 505 -474 117 1,627 0 -102 Total equity entries in 2009 -102 1,627 -432 991 991 -442 -432 102 32 -418 19 30 15 -652 2,029 9 505 -474 117 2,186 0 -442 32 -418 19 30 15 549 1,422 Shareholders’ equity at 31 December 2009 1,598 3,186 3,912 991 9,687 Proposed dividend per share DKK 15.5 (in 2008 DKK 6.50). 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 (63,931,573). The dividend is not paid until approved by the shareholders at the annual general meeting of the subsequent year. Tryg Vesta Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of NOK 2,906m (in 2008 NOK 2,743m) 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 Garanti insurance has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. 136 af 152 136 of 148 l Statement of changes in equity (parent company) l Annual report 2009 Notes (parent company) DKK m 2008 2009 1 accounting policies Please refer to TrygVesta Groups ‘Accounting police.’ 2 Income from subsidiaries TrygVesta Forsikring A/S 3 Other expenses Administrative expenses 757 757 -56 -56 2,079 2,079 -46 -46 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 Supervisory Board and Group Executive Management appears in note 11 ‘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 Of which services other than audit: 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 -0.9 -0.9 0.0 0.0 18 18 % 25 25 -0.7 -0.7 0.0 0.0 17 17 % 25 25 Refer to the section ‘The Groups Financial performance 2009’ in the management report for further mention of the tax. Annual report 2009 l Notes (parent company) l 137 of 148 137 af 152 Regnskab Notes (parent company) DKK m 2008 2009 5 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 2009 TrygVesta Forsikring A/S, Ballerup 2008 TrygVesta Forsikring A/S, Ballerup 6 Current tax assets Current tax, beginning of year Current tax for the year Tax paid durring the year 7 Deferred tax assets Capitalised tax loss TrygVesta A/S Non-capitalised tax loss TrygVesta A/S 6,987 6,987 3,745 575 -2,761 1,559 8,546 Ownership shares in % 100 100 21 18 -21 18 0 72 6,987 6,987 1,559 2,238 -611 3,186 10,173 Equity 100 100 18 17 -18 17 1 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. 138 af 152 138 of 148 l Notes (parent company) l Annual report 2009 DKK m 2008 2009 8 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 2009. 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 amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost are depreciated linear 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. 9 Capital adequacy, etc. Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capital base Weighted items Solvencypct. 598 4 602 600 0 600 8,265 685 -423 -4,601 3,926 3,945 100 9,687 732 -991 -4,579 4,849 5,022 97 10 Contractual obligations, contingent liabilities and collateral The Danish companies in TrygVesta group are jointly taxed with TryghedsGruppen smba. Most of the Danish companies in Tryg Forsikring group are commonly registered for VAT and payroll tax and are jointly and severally liable for payment of all such direct and indirect taxes. Companies of the Tryg Forsikring Group are part of some disputes the outcome of which is not estimated to affect the financial position of the Group. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position beyond those receivables and obligations recognised in the balance sheet. Annual report 2009 l Notes (parent company) l 139 of 148 139 af 152 2008 2009 0.3 0.4 115.3 0.2 9.6 1,200 726 3 -4 -19 -23 0 -3 -3 0.3 0.6 115.8 0.2 6.2 1,470 538 7 -4 -19 -23 0 -3 -3 Regnskab Notes (parent company) DKK m 11 related parties Supervisory Board and Executive Management Premium income Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Key management - Other related parties Guarantee agreements with related parties - Account - Exercised, end of year - Premium Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees are issued without additional security. The company has full recourse against the individual companies. No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Guarantee agreements are made on market terms. Leases with related parties Transactions with related parties also comprise rental income as premises are being let to a member of the supervisory 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 partici- pants 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 gov- ernance. Other than that, there are no incentive plans for the Supervisory Board and Executive Management. 140 af 152 140 of 148 l Notes (parent company) l Annual report 2009 DKK m 2008 2009 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 - Subordinated loan capital - Interest expenses Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. Subsidiaries and associates TrygVesta A/S controls TrygVesta Forsikring A/S 100%. Intra-group trading involved - Providing and receiving services - Intra-group account - Interest Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. 1 0 0 0 -59 297 -21 0 0 485 -24 -49 65 -1 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 standards and the rules issued by the Danish FSA. The following is a reconciliation af differences in the profit and equity. reconciliation of differences in the profit and the shareholders equity Profit reconciliation Profit – IFRS Current priods effect of actuarial gains and losses on pension obligation after tax Profit – Danish FSa executive order Equity reconciliation Shareholders’ equity – IFRS Deferred tax provisions for contingency funds Equity – Danish FSa executive order 846 -143 703 8,244 21 8,265 2,008 21 2,029 9,666 21 9,687 Annual report 2009 l Notes (parent company) l 141 of 148 141 af 152 Regnskab Financial highlights and key ratios by geography DKKm 2005 2006 2007 2008 2009 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 Number of full-time employess, end of period 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 Number of full-time employess, end of period 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 Combined ratio Number of full-time employess, end of period 8,764 956 567 7 1,530 1,011 77.1 -3.9 73.2 16.6 89.8 2,215 6,810 1,131 361 2 1,494 721 63.0 5.2 68.2 16.7 84.9 1,431 140 -41 -2 -43 0 80.9 0.2 81.1 50.2 131.3 48 9,084 1,377 723 2 2,102 1,135 66.8 3.9 70.7 16.1 86.8 2,231 6,738 1,214 483 3 1,700 737 64.3 3.6 67.9 16.5 84.4 1,460 198 -34 -4 -38 0 78.1 0.2 78.3 41.7 120.0 77 9,346 1,639 225 2 1,866 1,171 69.3 0.0 69.3 15.3 84.6 2,242 6,919 1,335 118 -7 1,446 799 64.0 4.9 68.9 15.8 84.7 1,384 251 -49 -10 -59 0 74.9 0.4 75.3 49.8 125.1 127 9,620 1,695 -435 4 1,264 1,616 64.9 4.2 69.1 16.0 85.1 2,377 7,129 815 -597 3 221 659 71.0 3.8 74.8 16.8 91.6 1,455 354 -44 -4 -48 5 72.9 0.3 73.2 44.1 117.3 154 9,736 1,191 463 3 1,657 1,673 71.4 2.9 74.3 14.5 88.8 2,311 6,905 566 528 5 1,099 896 71.7 3.9 75.6 16.8 92.4 1,403 480 -115 -11 -126 8 84.2 0.6 84.8 41.7 126.5 194 142 af 152 142 of 148 l Financial highlights and key ratios by geography l Annual report 2009  DKKm 2005 2006 2007 2008 2009 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 Number of full-time employess, end of period - - - - - - - - - - - -9 1 -32 -37 -68 432 24 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 90 -82 -1 -83 3 88.9 0.0 88.9 105.6 194.5 61 0 -23 8 -46 -61 676 0 225 -93 -2 -95 2 95.1 0.9 96.0 48.4 144.4 105 -5 11 50 -56 5 1,775 0 1,166 -44 42 -2 500 78.1 1.7 79.8 24.6 104.4 428 -4 -44 64 -46 -26 1,832 0 15,705 16,021 16,606 17,323 18,283 2,047 894 -28 2,913 2,164 71.1 0.1 71.2 17.0 88.2 3,718 2,512 1,228 -31 3,709 2,551 65.9 3.7 69.6 16.8 86.4 3,808 2,820 340 -51 3,109 2,649 67.3 2.1 69.4 16.7 86.1 3,814 2,384 -988 -49 1,347 4,057 67.9 3.9 71.8 17.3 89.1 4,091 1,554 1,086 -38 2,602 4,909 72.2 3.2 75.4 16.9 92.3 4,336 * Amounts relating to TrygVesta A/S, Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj and eliminations are included in ‘Other’. ** Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 April 2009. Annual report 2009 l Financial highlights and key ratios by geography l 143 of 148 143 af 152 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 insu- rance companies and profession-specific pension funds and also com- ply with “Recommendations & Financial Ratios 2005” issued by the Danish Society of Financial Analysts. 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. Gross claims ratio Calculated as the ratio of gross claims incurred to gross earned premiums. Gross claims incurred x 100 Gross earned premiums Gross earned premiums Calculated as gross premiums written adjusted for change in gross pro- visions for unearned premiums, less bonuses and premium rebates. Gross expense ratio Calculated as the ratio of gross insurance operating expenses to gross earned premiums. Gross insurance operating expenses incl. adjustment x 100 Gross earned premiums Gross insurance operating expenses 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 ear- ned premiums. Net result of business ceded x 100 Gross earned premiums 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. 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. Net asset value per share Calculated as year-end shareholders’ equity divided by the average number of shares. Danish general insurance Comprises the legal entities in TrygVesta Forsikring A/S (excluding the Norwegian, Finnish and Swedish branches) and TrygVesta Garantiforsikring A/S. Discounting Expresses recognition in the financial statements of expected future payments 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. Dividends per share Calculated as the total dividend proposed divided by the average number of shares. Proposed dividend Number of shares year end Earnings per share Calculated as the profit for the year divided by the average number of shares. Profit for the year x 100 Average number of shares Finnish general insurance Comprises TrygVesta Forsikring A/S, Finnish branch and the Finnish branch of TrygVesta Garantiforsikring A/S. Year-end equity Average number of shares Norwegian general insurance Comprises TrygVesta Forsikring A/S, Norwegian branch, the Norwegian subsidiaries and the Norwegian branch of TrygVesta Garantiforsikring A/S. Operating ratio Calculated like the combined ratio but adding technical interest in the denominator. (Claims incurred + insurance Operating expenses + result of reinsurance) x 100 Gross earned premiums + technical interest Price/earnings Calculated as the ratio of the price per share to earnings per share. Quoted price Earnings per share 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 Provisions for claims to earned premiums Calculated as the ratio of provisions for claims relative to earned premiums. 144 of 148 144 af 152 l Glossary l Annual report 2009 relative run-off gains/losses Run-off result relative to provisions insurance contract, beginning of year. 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 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. 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. Swedish general insurance Comprises TrygVesta Forsikring A/S, Swedish branch and the Swedish branch of TrygVesta Garantiforsikring A/S. 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 re- cognised under claims, but in technical interest in the income statement. Annual report 2009 l Glossary l 145 of 148 145 af 152 Regnskab Disclaimer Noter Mio. DKK Certain statements in this annual report are based on the beliefs TrygVesta urges readers to refer to the section on risk manage- 2008 2007 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 Try- the Group’s future performance or the insurance industri. gVesta’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 termi- or should any underlying assumptions prove to be incorrect, nology 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. 146 of 148 l Disclaimer l Annual report 2009 146 af 152 l Noter l TrygVesta Årsrapport 2009 147 af 152 The living organisation Market / external community CAR CHANNEL & ENTER CIVIL SERVANTS SALES DK PARTNER CONTRACTS COM MERCIAL PARTNER CONTRACTS PRIVATE FINLAND BANCASSURANCE SALES NO NORDIC UW SWEDEN SWEDEN ADVISORY SERVICE & SALES SUPPORT SALES COM MERCIAL SALES PRIVATE SALES OUTBOUND CUSTOMER SERVICE TRAVEL CLAI MS & ALARM CLAI MS SECRETARIAT t & FACT-FINDING CUSTOM ER SERVICE & SALES PARTNERS CORPORATE PRODUCT & CLAIMS PROCESSES CUSTOMER SERVICE & SALES DIRECT CLAIMS CEO CFO COO PROCESS & IT IT OPERATIONS SALES, CUSTOMER & E-BUSINESS PROCESSES SUPPORT PROCESSES TRYG TRANSITION COM MUNICATION CLAIMS LIABILITY/ATTORNEYS CLAIMS PURCHASE CORPORATE BRANDING & BUSINESS CENTRES CORPORATE FINANCE STRATEGY & PLANNING LEAGAL & QUALITY INVESTOR RELATIONS BUILDING/ PROPERTY CLAIMS CAR CLAIMS PERSONAL CLAI MS BC – CAR MARKETING GROUP FINANCE STRATEGY & HUMAN COM PETENCE RECRUITMENT & BENEFITS CONTROLLING & REPORTING INVESTM ENTS ORG. & LEADERSHIP DEVELOPMENT LEAN GROUP RISK BUSINESS INTELLIGENCE THE LIVING HOUSE BC – COM MERCIAL/ CORPORATE SEGM ENTATION/ CONCEPTS FINANCE & SALARY BC – HEALTH CARE & PERSON NORDEA + PARTNERS TRYGVESTA GARANTI BUSINESSLAB BC – PRIVATE CORPORATE LEARNING TrygVesta’s organisational structure, which became effective on 1 Jan- tion across the Group. At the same time, the organisation supports uary 2010, creates a distinct Nordic organisation with well-defined the implementation of the Group’s strategy. The organisation chart roles and responsibilities. The organisational structure is designed to symbolises the Group’s evolution and should be viewed as a heart ensure that we meet the market with the best solutions within our which is the origin of all activities springing to the market/the products and services and establish the best conditions for collabora- external community. TrygVesta A/S Klausdalsbrovej 601 DK-2750 Ballerup +45 70 11 20 20 trygvesta.com CVR-no. 26460212 

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