Tryg
Annual Report 2010

Plain-text annual report

A n n u a l r e p o r t 2 0 1 0 Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark +45 70 11 20 20 tryg.com CVR-no. 26460212 Annual report 2010 Contents Management’s report About Tryg Preface Financial highlights and key ratios Group overview Highlights of 2010 Strategy and outlook Strategy KPI (Key performance Indictors) The insurance industry Customers and products Outlook Results The Group’s financial performance Private Nordic Commercial Nordic Corporate Nordic Investment activities Capital management and risk management Capital management and profit distribution Risk management Corporate governance Supervisory Board Group Executive Management Corporate governance Shareholder information Accounts Statement by the Supervisory Board and the Executive Management Independent auditor’s report Income statement and statement of financial position – Tryg Group Statement of changes in equity – Tryg Group Cash flow statement – Tryg Group Notes – Tryg Group Income statement – Tryg A/S (Parent company) Statement of financial position – (Parent company) Statement of changes in equity (Parent company) Notes (Parent company) Geographical segments Other key ratios Glossary Disclaimer Group chart Side 1 4 8 9 10 12 14 16 18 20 22 24 26 30 33 35 38 42 44 47 52 54 56 58 66 70 72 73 74 78 80 81 130 131 132 133 138 140 141 143 144 Editors Investor Relations Design Layout e-types amo design Printers Centertryk A/S Munken Polar Paper This is a translation of the Danish annual report 2010. In case of any discrepancy between the Danish and the English version of the annual report 2010, the Danish version shall apply. Our vision | is to be perceived as the leading peace-of-mind provider in the Nordic region. Our mission | is to secure a stable, high-quality supply of products and services offering peace of mind to private households and businesses. In order to facilitate the realisation of our vision we created a common Nordic brand in 2010. Read more about our new brand on page 16. Tryg A/S | Annual report 2010 | 1 Our values | We create peace of mind because - we show people respect, openness and trust. - we show initiative, share knowledge and take responsibility. - we provide solutions characterised by quality and simplicity. - we create sustainable results. The peace-of-mind delivery | is anchored in our handshake - Dynamic - Compassionate - Innovative 2 | Annual report 2010 | Tryg A/S Annual report 2010 | Tryg 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. Our products include contents, house, motor, building, workers’ compensation, transport, health and personal accident insurances. In 2010, our 4,300 employees ensured peace of mind for more than 2.7 million private customers and more than 140,000 businesses. Tryg is the second-largest insurance company in the Nordic region. We are the largest player in Denmark and the third largest in Norway. We have operated our rapidly growing activities in Finland and Sweden since 2001 and 2006, respectively. We strive for high customer and employee satisfaction, and several surveys indicate that Tryg is considered to be second-to-none in terms of claims handling. We offer insurances mainly through our own sales channels, and our business partners include Nordea and AXA Corporate Solutions. Tryg A/S | Annual report 2010 | 3 Preface Our 2010 performance was affected by winter claims, a considerable number of large claims, cloudbursts during the summer and a decision by the Danish Supreme Court, all of which had an adverse impact on the Group’s performance. 4 | Annual report 2010 | Tryg A/S Mikael Olufsen: In a year with many large one-off claims which we focused even more on cost reductions. In-house rota- events and an increase in the claims level in Denmark, the tion was a key priority, we optimised a number of processes, technical result of DKK 375m was not satisfactory. However, reduced the number of offices and improved sales efficiency, a strong capital structure and tight management of operations all of which is expected to provide for a lower expense ratio. enabled us to generate a profit before tax of DKK 941m and a The expense ratio in recent years has been almost steady in- number of initiatives create a solid basis for future value crea- cluding start-up costs in Sweden and Finland and affected by tion for customers, shareholders and employees. the refurbishment of our head offices to create The Living House and by branding activities in 2010. Branding activities affected Throughout the economic downturn, the Supervisory Board has the combined ratio by around 0.4 percentage point. been committed to maintaining the Group’s strong capitalisa- tion. The Group has implemented initiatives to reduce claims Furthermore, 2010 was impacted by claims that were DKK 1.4bn as well as premium increases in 2009 and 2010, which are higher than in a normal year due to the events described above. expected to improve profitability significantly going forward. The events affected the claims ratio by around 7 percentage Backed by these initiatives and our focus on stable insurance points. To this should be added higher-than-expected claims earnings, Tryg still has a solid basis for strong earnings, com- payments of around 2 percentage points of the combined ratio, petitive equity returns and high dividends. mainly attributable to changed behaviour and increased use of insurances following the financial crisis in Denmark. Just after the turn of the year, Group CEO Stine Bosse announced that she wished to resign her position, and the Supervisory Board appointed Morten Hübbe new Group CEO. Stine, would you provide a brief review of the year’s performance? The technical result was DKK 375m and the combined ratio 98.8, which was not satisfac- tory, but still in line with the outlook reported in the third quarter 2010 report. Stine Bosse: Our 2010 performance was unsatisfactory and af- fected by winter claims, a considerable number of large claims, Finally, the investment result exceeded expectations due to rising cloudbursts during the summer and a decision by the Danish equity prices. In 2010, we divided our investment portfolio into Supreme Court that changes the terms of workers’ compensa- a match portfolio which creates the best possible match to our tion claims, all of which had an adverse impact on the Group’s technical provisions, and a free investment portfolio comprising performance. the active investments of the Group’s capital. The total premium volume was DKK 19.5bn, distributed on high For many years, it has been a key concern for me to align our growth rates in Sweden and Finland, while Corporate Nordic branding landscapes in the Nordic region as this provides the reported falling premium volumes in Denmark and Norway. basis for our Nordic strength. We achieved that in 2010 when we changed our name from TrygVesta to Tryg and followed up with 2010 was a year in which we launched a number of initiatives comprehensive branding activities in all four Nordic countries. that will improve our performance in the years ahead, and in We have for many years owned the peace-of-mind position in DKKm Earned premiums Technical result Profit after tax Denmark, where the Tryg brand enjoys strong awareness. With the new common Nordic branding strategy, Tryg is even better equipped to support our pan-Nordic organisation. 19,475 375 593 The Supervisory Board focused strongly on the recommendations on corporate governance, which were updated in 2010. What are the Board’s perspectives after the developments of 2010? Tryg A/S | Annual report 2010 | 5 Mikael Olufsen: The Supervisory Board is focused prima- Morten Hübbe new Group CEO after having followed his compe- rily on Tryg’s financial and market position, development and tent work as Group CFO for more than seven years. strategy as the key areas. We have monitored our performance in Denmark, which deviated negatively from expectations, par- Stine, let me take this opportunity to thank you for your efforts ticularly close. The Supervisory Board believes that the Group’s during the 23 years you have been with Tryg, and in particular scheduled action will pave the way for improved profitability and your last eight years as Group CEO. It has been a pleasure work- continually ensure satisfied customers in the years ahead. ing with you, and I wish you all the best in the future. Looking ahead, the sale of the right to renew marine business will Morten, you have been involved in all major decisions since 2003 help reduce volatility in our earnings from insurance operations, and you will now have the ultimate responsibility for our day-to- which the Supervisory Board approves. The changed structure of day operations. What are the particular focus areas that you be- our investment portfolio provides for a more stable performance lieve the Supervisory Board should address in the years ahead? and is a good basis for actively managing the Group’s capital. Overall, we believe that the decisions and actions taken in 2010 to improve profitability support the Supervisory Board’s focus and are balanced both short-term and longer-term. Morten Hübbe: As the newly appointed Group CEO I first and foremost represent continuity. I am in charge of a company whose management has launched a number of initiatives in re- cent years to strengthen the Group and maintain Tryg’s strong customer satisfaction going forward. My focus will also be on further enhancing efficiency and reducing selling and marketing costs and administrative expenses. In recent years, our costs in Denmark and Norway have fallen if we exclude activities such as Corporate governance is also an important area for the Super- The Living House and branding activities in 2010. Furthermore, visory Board. The Supervisory Board has reviewed each item we have introduced paperless processes, we mainly recruit new of the updated corporate governance recommendations. The staff by in-house rotation, and we have rationalised our distri- conclusions can be seen on page 58 of this annual report and bution by increasing the use of the Internet and call centres. the full version can be downloaded on tryg.com. Looking further ahead, Tryg’s ambition is to have an expense The Supervisory Board finds it important that Tryg is a transpar- things, through Tryg Transition, a multi-year process and IT ef- ent company and that the skills necessary to facilitate corporate ficiency enhancement project. We intend to invest around DKK governance and essential for the Group’s value creation are 200m in this project each year, which is necessary for paving represented on the Supervisory Board. the way for achieving our 2020 ambition. ratio of 10 in 2020. We intend to achieve this, among other Moreover, a number of new rules have been introduced as from On the management, we are very much aware of external 2011 which provide very detailed regulation of the governance events that may impact customers’ purchasing power and claims of insurance companies. The new rules have a decisive impact inflation, and thus the Group’s profitability and growth. The on the balance between the tasks of the Supervisory Board general economic trends in the Nordic region improved in 2010, and the Executive Management and thus on the distribution of but were impacted by economic cycles in other regions in which responsibilities between the governing bodies. public debt burdens and the need for structural adjustments In compliance with the recommendations, the Supervisory Board Globally, the economic activity and prices of a number of raw ma- has regularly considered the question of continuity and suc- terials increased, which may push up inflation in the longer term. of public spending dampened the economic progress at times. cession in the supreme management of Tryg. We benefit from that now that you, Stine, have decided to seek new challenges. The historically low level of interest rates has in recent years re- The day after your resignation the Supervisory Board appointed sulted in lower returns on the bond portfolio, thereby affecting our 6 | Annual report 2010 | Tryg A/S performance adversely. In 2010, we divided our investment activities plans for improving profitability, and what are your expectations into a free portfolio and a match portfolio. This means that the for our 2011 performance? immediate net effect of changes in interest rates on bonds and dis- counted provisions for claims is close to zero, while current returns Morten Hübbe: The initiatives implemented in 2010 and will track changes in interest rates. Thus, an increase in interest activities planned for 2011 should be seen in conjunction with rates would have a positive impact on our results going forward. our target of a combined ratio of around 90 including any run- Going forward, the number of persons in the working-age bracket is expected to be reduced in large parts of the western world, which may increase wage inflation. Tryg will continue to monitor developments in order to adjust premiums and claims procurement with a view to improving profitability. off results in the medium term, corresponding to a post-tax return on equity of around 20%. Based on the higher claims inflation seen, in particular, in 2009 and 2010, we will launch additional initiatives to improve profit- ability, including claims prevention consultancy, portfolio enhancing initiatives, changes in the scope of cover and premium increases. In addition, we intend to ensure that each product area produces a return that matches the cash outflow reflected by the risk. In 2011, we expect an improvement of combined ratio based on Since 2009 we have seen a distinct, marked increase in the the substantial initiatives implemented in 2009 and 2010 as well number of claims in Denmark compared with other countries. as planned initiatives in 2011. As far as reserves are concerned, Denmark is the country in the Nordic region which was the hard- our review in late 2010 revealed that we have maintained our est hit by the economic downturn, as reflected in a comparison strong level of provisions. of developments in private consumption and the number of bankruptcies across the Nordic region. A common feature for all In order to generate sustained, robust technical results, we must countries is that irrespective of the economic situation, we con- maintain high customer retention and satisfaction rates. The iden- sider the claims put forward by our customers on a constructive tity which a company presents to its customers is to a large extent basis. Post-crisis developments in Denmark have revealed a need based on the experience customers have when they contact the to review internal processes, underwriting criteria, premium levels company. Therefore, it is important to optimise all processes and and claims procurement to enable us to bring profitability to the be at the forefront of product developments while also developing targeted levels. the level of skills of the Group’s employees. These are areas that will ensure Tryg’s ability to create value and be perceived as the I look forward to meeting the target of improved profitability leading peace-of-mind provider in the Nordic region. and strengthening Tryg’s market position. From the Supervisory Board’s perspective, what is your key priority going forward? We hope you will enjoy reading our annual report. Mikael Olufsen: The Supervisory Board is committed to maintain- ing Tryg’s strong capital and reserve position in anticipation of the changed Solvency II capital requirements. The changed capital re- Mikael Olufsen quirements, possible consolidations, and the new competition may Chairman affect the structure of the market, but on the Supervisory Board we are confident that Tryg stands well prepared for the future. So, Morten, after a 2010 performance strongly impacted by more Morten Hübbe one-off events than expected, improving performance is a key Group CEO Stine Bosse Group CEO priority for the Supervisory Board. What are the management’s From 1 February 2011 Until 31 January 2011 Tryg A/S | Annual report 2010 | 7 Financial highlights and key ratios See page 140 for a more detailed list of key ratios. DKKm 2006 2007 2008 2009 2010 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 a) Profit/loss for the period Run-off gains/losses, net of reinsurance Balance sheet Total provisions for insurance contracts Total reinsurers’ share of provisions for insurance contracts Total shareholders’ equity 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 Gross expense ratio without adjustment Operating ratio Return on equity after tax (%) Relative run-off gains/losses Number of full-time employess, end of period Solvency Share performance Earnings per share - continuing business of DKK 25 Net asset value per share (DKK) Dividend per share (DKK) Price Earnings Number of shares, end of peiod (1,000) 15,715 -10,292 -2,662 2,761 -554 337 2,544 1,228 -31 3,741 -632 3,109 102 3,211 561 26,005 1,561 9,916 42,783 65.5 3.5 69.0 16.9 85.9 16.9 84.2 35.5 3.0 3,783 58 45.8 146.2 33.0 9.4 67,790 16,262 -10,448 -2,730 3,084 -553 494 3,025 340 -51 3,314 -893 2,421 -155 2,266 792 26,969 1,587 9,975 43,830 64.2 3.4 67.6 16.8 84.4 16.8 81.9 22.8 4.2 3,788 81 35.8 147.5 17.0 10.8 67,638 16,976 -11,473 -2,964 2,539 17,862 -12,882 -3,056 1,924 19,475 -15,617 -3,304 554 -598 491 2,432 -988 -49 1,395 -513 882 -36 846 800 25,228 1,036 8,209 38,445 67.6 3.5 71.1 17.1 88.2 17.5 86.1 9.3 4.1 4,065 100 13.3 127.5 6.5 24.7 64,378 -520 158 1,562 1,086 -38 2,610 -625 1,985 23 2,008 683 29,042 1,320 9,631 44,740 72.1 2.9 75.0 17.2 92.2 17.1 91.3 22.5 3.6 4,310 97 31.3 152.3 15.5 11.0 63,228 -313 134 375 570 -4 941 -265 676 -83 593 824 32,031 1,588 8,458 50,591 80.2 1.6 81.8 17.0 98.8 17.0 98.1 6.6 3.9 4,291 125 10.8 139.5 4.0 23.8 60,634 The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating expenses to earned gross premiums. Other key ratios are calculated in accordance with ’Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ definition of expense ratio and combined ratio, involves the addition of a calculated expense (rent) concerning owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. a) Profit/loss on discontinued and divested business after tax includes Marine Hull insurance. Comparative figures are restated to reflect Marine Hull insurance. 8 | Annual report 2010 | Tryg A/S Group overview Private Nordic Privat & Erhverv Commercial Nordic Privat & Erhverv Corporate Nordic Denmark, Norway, Sweden and Finland Read more on page 30 Denmark, Norway, Sweden and Finland Read more on page 33 Denmark, Norway og Sweden Read more on page 35 % of total business Combined ratio 52 96.4 22 111.6 26 92.7 Insurances for corporate customers. Corporate customers are custom- ers who pay annual premiums of more than DKK 900,000 or have more than 50 employees or are served by brokers. Tryg Garanti, the leading provider of guarantee insurances, is included in Corporate. • Own sales force • Insurance brokers Principal activities Insurances for private individuals. Insurances for businesses. Enter Forsikring, which sells insurances to private individuals, is included in Private Nordic. Distributions- channels • Call centres • Own sales force • Car dealers • Call centres • Own sales force • Franchise offices • Real estate agents • Internet • Nordea’s branches • Affinity groups • Internet Strategic partnership Brands Tryg A/S | Annual report 2010 | 9 Highlights of 2010 January Danish Handicap Sports Federation Claims handlers had an opportunity to participate in disabled sports when the Danish Handicap Sports Federation visited Tryg’s head office. The session was part of a collaboration initiated in April 2009 to enhance the peace-of-mind delivery. The object was to become even better at helping injured persons pursue a full life through a closer dialogue with the federation. The Danish Handicap Sports Federation has 18,000 members. High customer satisfaction in Finland Tryg scored high in a customer loyalty and satisfaction survey in Finland. Tryg focuses primarily on the private market in Finland and has 150,000 Finnish customers. March The renewal right for marine sold to Codan The right to renew marine insurance was sold to Codan for DKK 50m. The business had annual revenue of around DKK 400m. It was divested due to unsatisfactory profitability over a number of years, producing a loss also in 2010. May Health insurances for people aged 60 and over Tryg was the first insurer to launch health insurances to people aged 60 and over. Under the motto ’at Tryg, health has no age’, we now offer health insurance to all customers irrespective of age. Read about a +60 customer on page 32 in the Stakeholder Magazine. Tryg has the best image in the insurance industry In the annual image analysis among Denmark’s 140 leading com- panies performed by Berlingske Nyhedsmagasin, Tryg climbed from 23rd to a 14th place. Tryg was the best placed insurance company, recording strong progress on all nine benchmarks. February Inauguration of The Living House The Ballerup head office celebrated the opening of The Living Hou- se. The Living House is a change project for the Group’s offices, June replacing cubicle offices with open-plan office environments, com- Number one in health insurances mon and quiet zones and café environments. The change project is Tryg ranks first in the market for health insurances in Denmark. the Group’s new basis for learning, innovation and collaboration. This position is based on good products, high customer satisfac- Career site To focus even more on in-house recruitment, Tryg launched a tion and stronger collaboration between operations and sales. The profitability of health insurances improved in 2010. career site on the Group’s intranet, which permits all employees Online health check-up before you travel to advertise their skills in-house. The data base supports Tryg’s On tryg.dk, customers can take their own health check-up wish to be a workplace in which openness and mobility across before a trip. This service provides an overview of the travel the Group are important elements of the corporate culture. insurance’s coverage. 10 | Annual report 2010 | Tryg A/S July Moderna becomes a branch of Tryg The Group’s Swedish subsidiary, Moderna Försäkringar AB, which was acquired in March 2009, became a branch of Tryg Forsikring A/S. Moderna had a total premium volume of DKK 1.8bn in 2010. August Trekking and management training Tryg’s Group Executive Management members Lars Bonde and Kjerstin Fyllingen went trekking with Danish and Norwegian second-generation immigrants, respectively, for five days in the Norwegian mountains under primitive conditions, focusing on collaboration and introspection. The trek was part of Tryg’s September The World’s Best News Volunteering Tryg employees participated in ’The World’s Best News‘, a campaign launched by the UN, Danida and the Danish development organisations to eradicate poverty in developing countries. Tryg in Finland rated third-best sales company Tryg in Finland was rated the third-best sales company. The jury emphasised Tryg’s sales processes and training. Tryg Garanti introduces credit insurance Tryg Garanti launched a credit insurance to protect trade and industry against financial losses on debtors. The other players in this specialised market are Euler Hermes and Atradius. Standard & Poor’s and Moody’s affirm ’A-’ rating Credit rating agencies Standard & Poor’s and Moody’s affirmed management development concept the Trek and CSR efforts. Tryg’s ’A-’ rating. Read about the trek on page 26 in the Stakeholder magazine. From TrygVesta to Tryg To strengthen the position as the leading peace-of-mind provider in the Nordic region, the Group changed its name to Tryg in Denmark, Norway and Finland, while the name was changed to Moderna in Sweden. Tryg introduced the new common name and a new logo in an extensive branding campaign throughout the Nordic region. Read about the name change on page 16. Tryg on Facebook Tryg launched a Danish and a Norwegian corporate site on Facebook, where Tryg answers general questions and offers good advice about prevention and insurance matters. NemID on tryg.dk November Unique software insurance with Tryg Backup Tryg launched a software insurance for commercial customers in Denmark. Tryg Backup provides automatic backup of data on the company’s computers and servers without limitation of the volume of backup data. Tryg is the only company offering such a product. December Adjustment of the organisation An adjustment of the organisation resulted in changed respon- sibilities in Tryg’s senior management and a reduced number of From 10 August, Tryg’s Danish customers were able to log on to second-tier managers. The new organisation reflects Tryg’s focus their owns pages on tryg.dk using the digital signature, NemID. on efficiency and profitability. Tryg A/S | Annual report 2010 | 11 Tryg focuses on a common understanding of goals, strategy and action plans. Strategy and outlook Strategy Tryg’s vision is to be perceived as the leading peace- • generating profitability in all customer segments of-mind provider in the Nordic region. The Group’s stra- and countries and tegy plan for 2007-2010 has taken us one step closer to • offering customers value-creating insurance solutions. achieving our vision and has helped generate satisfactory returns on equity almost throughout the entire period, Financial perspective a strong market position in the Group’s principal markets The Group’s productivity will be increased through process improve- and growth opportunities in Sweden and Finland. ments that also enhance the customer experience and result in Strategy plan for 2011-2014 Recent years’ economic downturn has demonstrated the im- portance of sustaining the focus on our core business. In the increased customer retention. We intend to implement structural changes to make the entire Group operate on the same platform by 2020. Our ambition is to achieve an expense ratio of 10 by 2020. years ahead, our focus will be on tight cost management, a new Increased productivity means a better relationship between earn- platform for sales and claims handling, and the ability to quickly ings, costs and the number of employees. For example, we have adapt the Group to changes in the market. to improve sales per employee and the portfolio per employee by With a view to strengthening the Group’s position, the Super- at least 2% annually. visory Board adopted a new strategy plan at the end of 2010, We must increase the Group’s revenue per customer by ensuring a designed to strengthen the company towards 2014. Called ’Tryg more correct price per risk. We will do this by offering more targeted in transition’, the strategy plan is based on the four perspec- products, services and claims handling. At the same time, we must tives: financial, customer, process and learning. The strategy plan be able to meet all of a customer’s peace-of-mind requirements by defines ambitions of: offering a range of solutions rather than individual products. Based • achieving an expense ratio of 10 by 2020 on a high proportion of products and services per customer, we • generating competitive returns on equity of more than 20% expect high retention rates and increased profitability. New name and branding landscape In order to move closer to the Group’s vision of being perceived as the leading peace-of-mind provider in the Nordic region, Tryg launched a new brand in 2010 with a strong visual identity, which in a modern and simple way brings out our handshake: Dynamic, Compassionate and Innovative. The Group changed its name from TrygVesta to Tryg. The new logo was based on the familiar Tryg name from Denmark and the Norwegian lifebuoy, which will be the Group’s future mark in Denmark, Norway and Finland. Due to the coincidence of name with Trygg-Hansa, Tryg’s products and solutions are marketed in Sweden under the name Moderna. Changing Tryg’s name and brand is a natural next step in our still stronger common Nordic corporate culture and our close collabo- ration across national borders. The Group’s business divisions are pan-Nordic, and Tryg will increasingly be launching more Nordic products to our customers. 14 | Annual report 2010 | Tryg A/S We intend to reduce the Group’s claims expenses, the claims fre- quency and the average claim. We will do that through improved risk selection, partnership agreements with respect to claims procurement, and not least claims prevention initiatives. Custom- ers will be provided with more information about how to prevent claims, and they must experience short response times when reporting a claim. We also intend to reduce the size of claims by taking swift action and limiting the scope of the loss. Customer perspective In August 2010, Tryg introduced a common Nordic branding platform (see box to the left). A strong Nordic brand will strengthen our posi- tion and competitive strength, and we expect that our customers will experience a stronger presence and recognisability. We intend to continue our pan-Nordic marketing of the Group’s new brand and to enhance our communication with customers, thereby increasing the Group’s top-of-mind position throughout the Nordic region. We must appreciate that our customers require peace of mind from the first contact, and if they experience major changes in life and we must ensure that they remain loyal. By ’remain loyal’ We wish to generate profitability in all segments through cost re- we mean customers who renew their commitment with us and ductions, premium adjustments and by defining the right price per act as ambassadors by speaking positively of and recommending risk. We intend to reduce the Group’s selling costs by focusing on Tryg to others. We want our customers to experience the peace- partnership agreements, geographic representation, outsourcing of-mind delivery through segmentation of customer profiles and and online sales. Distribution costs will be reduced through the claims behaviour. We will continue to expand our active claims introduction of additional self-service solutions in Private Nordic assistance and claims prevention consultancy rather than just and Commercial Nordic including our partnership agreements. providing financial solutions. A strong branding platform is important with respect to customer Tryg wants to increase the Group’s market positions and Nordic loyalty and retention and it supports the potential for increasing market share by balancing profitable growth through direct acti- the Group’s market position and Nordic market share. vities as well as partnerships. Our customers should be confirmed in their choice of insurer on an ongoing basis. We intend to Communication increasingly takes place over the Internet and on maintain the Group’s high retention rate by being among the in- mobile platforms. Accordingly, we intend to meet our customers on surance companies with the highest customer satisfaction rates. their own terms by increasingly communicating electronically and Tryg intends to reduce claims by urging customers to prevent providing services that customers can access irrespective of where claims through guidance and attractive agreements, as preven- they are and through their preferred means of communication. tive measures can help reduce risk and thus premium levels. Learning perspective We wish to preserve our market-leading skills within niche Tryg intends to use Corporate Social Responsibility (CSR) to concepts as demonstrated by our activities in Enter Forsikring, provide a competitive edge and incorporate CSR thinking in Atlantica and Bilsport & MC. everything we do. The Group’s CSR efforts cover four themes: climate, inclusion, well-being and prevention. Process perspective In order to preserve our position in the Nordic market, we must Read more about Tryg’s CSR efforts continuously make our business more efficient and focus on cus- in the Stakeholder magazine. tomers’ purchase and use of insurance. In 2010, the Group took the initial steps in Tryg Transition, a project designed to create pan- We focus on our employees’ well-being and development, and Nordic processes, systems and deliveries to customers as well as a we strive to continuously develop as an attractive workplace. Our common business platform in the Group. Tryg Transition is a busi- ambition is to be perceived as the most attractive workplace in ness project designed to secure Tryg’s long-term Nordic position the Nordic financial sector. by improving efficiency, reducing product complexity and address- ing market trends, for example with respect to self-service. The Group intends to ensure that the skills of managers and em- By intensifying our focus on costs and continuously increasing the portfolio per employee, we intend to improve the expense ratio and to gain a leading position in the area. Our ambition is to reduce the expense ratio to 10 by 2020. ployees are developed in step with the competency requirements of a developing organisation – an area that is closely linked to the Tryg Transition project. Furthermore, Tryg intends to maintain employee satisfaction, which is above the financial sector average, and to have diversity as a competitive advantage. Tryg A/S | Annual report 2010 | 15 KPI (Key Performance Indicators) Turning words into results – We use the balanced scorecard (BSC) to implement the Group’s strategy and retain our strategic focus areas. Financial perspective Customer perspective T r e n d Retention rate (index) Expense ratio Claims ratio before run-off Number of custo- mers with concept agreement (index) Customer satis- faction in claims handling (index) 2006: 100 2007: 101.4 2008: 101.5 2009: 100.9 2006: 16.9 2007: 16.8 2008: 17.1 2009: 17.2 2006: 69.5 2007: 69.1 2008: 72.8 2009: 75.8 2007: 100 2008: 102 2009: 101 2009: 100 2010: 100.4 2010: 17.0 2010: 84.7 2010: 102 2010: 102 D e s c r i p t i o n G o a l s A n a y s i s l Number of customers Administrative ex- The ratio of claims Index showing the Index of customer that renew their penses and selling incurred to gross proportion of our satisfaction for insurances annually. costs as a percentage earned premiums private customers customers having of earned premiums. before run-off. having made a multi- experienced claims ple product/concept handling. agreement. Maintain the current level. Reduce of the Gradual improvement. Gradual increase Maintain the leading expense ratio to 10 by 2010. of the proportion. position in satisfaction in claims handling. The retention rate Despite increased The claims ratio was The number of custo- In 2010, Tryg had remained at a high, costs for branding affected by extraordi- mers with a concept the highest customer stable level in 2010. activities, Tryg was nary claims due to agreement increased satisfaction among able to reduce the hard winter weather, in 2010 as a result of the Danish companies In Denmark, the high expense ratio from cloudbursts and a an increase in the ave- and among the best retention rate was 17.2 to 17.0. deterioration in some rage number of pro- placed of the Norwe- maintained despite substantial premium increases. product areas such as ducts per customer. gian companies pro- house and contents insurances. gressing 2 percentage points. The positive develop- ment was due to shorter processing time and higher telephone availability. 16 | Annual report 2010 | Tryg A/S Customer perspective Process perspective Learning perspective Tryg Transition Will figure as a KPI from 2011. Portfolio per full-time employee (index) Employee satisfaction (index) CO2 emission (tonnes) 2006: 131 2007: 139 2008: 134 2009: 139 2006: 102 2007: 100 2008: 100 2009: 103 2007: 1,460 2008: 1,563 2009: 1,685 2010: 146 2010: 102 2010: 1,580 Tryg Transition is a change Index of portfolio Index of employee project and the next natural per employee. satisfaction measured Total CO2 emission from air travel (tonnes). step in making the Group’s business model Nordic. in an annual employee survey. T r e n d D e s c r i p t i o n Establish a unified Nordic Increase in step with Become the most business with one set of productivity, that is about attractive financial Reduce the Group’s CO2 emission from air travel by G o a l Nordic products, processes 2% per year. workplace in the Nordic 10% relative to 2008 level. and IT platform. region. The Tryg Transition project A decrease of employees In 2010, Tryg expanded After an increase in the was launched in 2010. in Denmark and Norway the scope of questions Group’s CO2 emissions and an increased number to obtain a more varied from air transport in 2008 in Sweden and Finland picture of employee and 2009, the emissions ensured a higher portfolio satisfaction. in 2010 fell due to a stricter per employee. travel policy and expansion Tryg is 1 index point of the Group’s video con- above the financial sector ference facilities. average, where banks are traditionally ranked higher than insurance companies. A n a y s i s l Tryg A/S | Annual report 2010 | 17 The insurance industry The Nordic insurance industry is characterised by few companies market and submitted bids in insurance programmes tendered by holding relatively large market shares and having a presence in brokers for several large companies. Tryg does not compromise several markets in the Nordic region. The four largest companies on profitability, and accordingly had to see several corporate cus- have an aggregate Nordic market share of around 47%, and tomers leave the company during the year. Historically, however, the four largest companies in each of the four Nordic countries many such customers return as it is difficult for the foreign insur- cover an aggregate of between 63% and 81% of the respective ers to match our service and quality in claims handling. markets between them. In 2010, the Nordic insurance industry generated aggregate benefited from rising equity prices. Strong earnings growth and earned premiums of around DKK 150bn, accounting for some moderate equity valuations relative to the return on bonds gen- 2.1% of the region’s GDP. erated good equity returns despite a negative sentiment and In 2010, the investment activities of the insurance companies In the past few years, insurance companies across the Nordic region have generally increased premiums to counter higher claims costs and maintain profitability. However, these initiatives are not yet deemed to be sufficient. economic challenges in several European countries. Recent years’ challenges in the financial markets have resulted in stronger focus on capitalisation and risk management. The upcoming Solvency II rules are expected to affect the insurance companies’ risk behaviour including capital requirements com- pared to investment risk. Tryg in the market Fierce competition, high claims inflation, more weather claims region, Tryg helps shape developments in the Nordic insurance Being the second-largest insurance company in the Nordic and the economic downturn continued to put pressure on Dan- industry. ish insurers’ earnings in particular in 2010. Premium and profit- ability initiatives retained top priority in order to restore the Financial market volatility and the focus on risk, the lower earn- earnings levels of prior years. Most companies, particularly the ings in 2010 and upcoming stricter solvency requirements are Danish ones, implemented premium increases and profitability likely to cause the insurance industry to change its behaviour. initiatives in the private and commercial markets, while competi- tion for large corporate customers was fierce due to bids from Developments would indicate better pricing relative to the risk several international players. Premium increases implemented in which insurers assume from their customers. It is difficult to 2010 will feed through as gross earned premiums in 2011 and predict how these developments will affect the distribution of 2012. Behaviour in the market would generally indicate more market shares and the behaviour of individual competitors, but measures to enhance profitability in the years ahead. Tryg intends to exploit any opportunities that may contribute to profitable growth. Tryg’s overall market share in the Nordic The corporate market is characterised by medium-sized and large region is expected to increase in the years ahead, primarily due businesses served directly by an insurer or through an insurance to growing market shares in Finland and Sweden. In addition broker. Large customers in particular may see international insur- to the partnership with Nordea, Tryg is continuously develop- ance groups as an alternative to the Nordic insurance compa- ing and streamlining the Group’s own sales channels and other nies. In a historical perspective, however, international players business partnerships, thereby covering more parts of the Finn- have only to a small extent been able to build market positions ish and Swedish insurance markets. For Denmark and Norway, in the Nordic region. In 2010, several large international insur- the main target is to improve profitability, which may cause a ers once again showed an interest in setting up in the Nordic loss of market shares in the short term. 18 | Annual report 2010 | Tryg A/S Like the rest of the industry, Tryg increased premiums in 2010. investments in process enhancements such as digitalisation, IT The premium increase will continue to have an impact in the systems and self-service are expected to improve the Group’s years ahead. Likewise, initiatives have been implemented to earnings and are important longer-term drivers for ensuring the reduce claims. These initiatives are designed to improve overall Group’s strong competitive power and low expense ratio. earnings while also making for a better distribution in earnings between the individual insurance products. In 2011, Tryg will focus on further strengthening the balance between price and risk, and on dynamic, compassionate and However, improvements will not be created by higher insurance innovative servicing of customers – in relation to regular premiums alone, but through a sound balance with claims consultancy as well as in a claims situation. reducing initiatives and process enhancements. Targeted Market shares in Denmark Market shares in Norway 22.3 20.8 5.8 Percent 10.1 18.6 5.0 13.9 3.5 Tryg Alm. Brand IF Alka Codan Topdanmark Gjensidige Other Tryg Gjensidige Sparbank 1 IF Other 18.6 17.0 Percent 26.2 28.1 10.1 Market shares in Sweden Market shares in Finland 3.3 18.3 15.2 15.7 Percent 28.9 18.6 Moderna Folksam Länsforsäkringar IF Codan Other Source: The official market statistics from the countries concerned. 2.3 16.5 18.9 Percent 10.0 27.6 24.7 Tryg a) Tapiola Fennia IF Pohjola Other a) Estimated market share of the private market is above 5%. Tryg A/S | Annual report 2010 | 19 Customers and products Being one of the largest insurance companies in the Nordic Customer segmentation region, Tryg offers a broad range of insurance products to private At Tryg, we treat the Group’s private customers in accordance individuals and businesses. Tryg develops new products on a with their current stage of life. We work with five life stages regular basis and continuously adapts existing peace-of-mind characterised by different levels of activity, cohabitation, work solutions to customer requirements and developments in society. life, financial situation and peace-of-mind requirements. Seg- mentation enables us to the greatest extent possible to offer Tryg sells insurances through own sales channels and through advice and solutions tailored to the customers’ specific require- partners such as Nordea. Tryg offers a broad range of insurances, ments, while at the same time the targeted advice and individual and continuously expands the Group’s peace-of-mind solutions. service make our customers even more satisfied and improve our potential for sales. Tryg segments private customers into five Examples of new products groups (life-stages) according to age and whether they have Tryg focuses on product development and worked on several children living at home or not. The segmentation means that new product launches in 2010. As the only insurer in the Nordic customers in each segment have several things in common. We region, Tryg launched a new health product for customers aged use our segmentation to provide optimum service to customers. 60 and over in May 2010. The health insurance reflects the Knowing the segment a customer belongs to allows us to target Group’s attitude that ’health has no age’. An increasing number products, services, claims handling and sales campaigns in a of people see life in their 60s as an extension of their 40s and much better way. This enables us to advise and service custom- 50s, only with more time for the things they like to do best. We ers based on their own requirements, giving us much more satis- live longer, are active longer, and want to challenge ourselves fied customers and improving our potential for sales. and the world for a long time after we have left the labour market. As an insurance company, we want to support that Read about Tryg’s work with life stages movement, and that is why we have removed the age limit for in the Stakeholder magazine on page 34. health insurances. Customer commitments Furthermore, Tryg worked on a modular treatment insurance In 2010, Tryg focused on making the Group’s peace-of-mind in Norway at the end of 2010, which was introduced 1 January deliveries visible and clearly positioning us as a peace-of-mind 2011. The insurance is tailored to individual customer require- provider. In 2011, Tryg will launch a number of specific com- ments, ensuring an improved peace-of-mind delivery. The treat- mitments to customers relating to our products and services. ment insurance comprises four modules, with the base module We began working on customer commitments in late 2009 being mandatory when the insurance is taken out. In addition, where Tryg’s employees suggested more than 700 ideas for the customer may add optional modules such as psychological commitments. In the spring of 2010, we interviewed 1,200 assistance and physical treatment depending on individual re- Danish and Norwegian private customers, narrowing down the quirements. The launch of the modular treatment insurance was number of commitments based on their responses. The internal based on the very successful introduction of the modular health implementation of commitments to private customers began in insurance in Denmark in 2009. The modular solution is unique, the autumn of 2010. The customer commitments were clearly making the product extremely competitive in a market with only anchored in Tryg and became an integral part of day-to-day marginal differences between products. work processes, allowing managers and employees to familiar- Read more about the new health insurance on page 32 in the Stakeholder magazine. ise themselves with them. In 2011, we will launch the customer commitments on the private markets in Denmark and Norway, while Sweden and Finland will await the experience gained in Denmark and Norway. We intend to launch customer commit- ments to commercial customers at a later date. 20 | Annual report 2010 | Tryg A/S Product overview Motor insurances Workers’ compensation insurances Motor insurances account for 33% of the Group’s total premium income and comprise a mandatory third party liability insurance providing cover for injuries to a third party or damage to a third party’s property and a voluntary own vehicle insurance providing cover for damage to the customer’s own vehicle from collision, fire or theft. Workers’ compensation insurances account for 7% of the Group’s premium income and cover employees against bodily injury sustained at work (in Norway, also occupational diseases. Workers’ compensation insurances are mandatory and cover a business’ employees (except for public-sector employees and persons working as sole traders). In Denmark, motor insurance taken out by Tryg concept customers include roadside assistance, such as towing and battery jump-start. Fire & contents – Private Private fire & contents insurances account for 23% of the Group’s total premium income and include for example house and content insurances. Tryg works with the concept of pro-active claims handling, pursuing a close dialogue with the claimant to optimise claims handling. Our pro-active claims handling team consists of claims handlers, social counsellors, legal experts, occupational health practitioners, orthopaedic surgeons and a network of psycholo- gists. Pro-active claims handling has three winners: the business, the injured person and Tryg in the form of a shorter period of absence from work, enhanced self-esteem for the injured per- son and reduced expenses. House insurances cover damage to buildings due to fire, storm, water and other damage, legal expenses and householder com- prehensive liability while contents insurances cover the loss of, or damage to, the contents of private dwellings with a range of additional features, such as cover for valuables temporarily away from home, legal expenses and liability arising from occupancy of the dwelling. Professional liability insurances Professional liability insurances account for 4% of the Group’s premium income and cover various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products and professional lia- bility incurred by professionals. Personal accident insurances Transport insurances Personal accident insurances account for 9% of the Group’s premium income and cover accidental bodily injury or death. Compensation is in the form of a lump sum intended to help the policyholder cope with the financial consequences of an acci- dent, thereby easing the strain of a changed everyday life. Fire & contents – Commercial Commercial fire & content insurances account for 14% of the Group’s premium income and comprise commercial building in- surances that cover the loss of, or damage to, the buildings, in- ventory or equipment of commercial customers. In addition, Tryg provides cover for financial loss due to business interruption re- sulting from covered claims. Transport insurances account for 2% of the Group’s premium in- come and cover damage to goods in transit due to collision, capsizing or crash of the means of transport. Health insurances Health insurances account for 2% of the Group’s premium income and is a relatively new product in the market attracting great demand. Health insurances cover expenses involved in examination, treatment, medicine, surgery and rehabilitation in a private health care facility. Increasing health care costs and waiting times in the public system, citizens’ higher requirements have generated substantial demand for health insurances, and this demand is expected to continue in the years ahead. The greater number of insured persons and the increased use of private health insurances will combine to generate significant growth potential within health insurance. Tryg A/S | Annual report 2010 | 21 Outlook Outlook for the medium term Despite a lower expense ratio in 2011, expenses involved in Tryg maintains a medium-term target of generating a return on the multi-year process and IT efficiency project Tryg Transition equity exceeding 20%, corresponding to a combined ratio at the will increase by around DKK 200m annually. Tryg Transition is level of 90 including any run-off gains or losses, assuming an a multi-year process and IT efficiency project. Expenses related unchanged level of interest rates relative to 2010. to Tryg Transition will support Tryg’s ambition of an expense Technical result ratio of 10 by 2020, achieved in particular through extensive restructuring of processes and IT infrastructure and increased The combined ratio for 2011 is expected to improve based on use of self-service. the major initiatives implemented in 2009 and 2010 and the initiatives planned for 2011. However, Tryg still expects a high Investment return level of claims costs and follow the risk of a new claims inflation Tryg divided the investment portfolio into two portfolios in 2010 closely. The initiatives are expected to have an impact of more – a match portfolio exclusively intended to match the technical than DKK 1.0bn in 2011 with an additional impact in 2012. The provisions and a free investment portfolio for actively investing initiatives mark the first major step on the road towards achieving the Group’s capital. the combined ratio targeted for the medium term, but additional important improvements are scheduled for 2012 and 2013 in Read more about the investment return order to achieve our long-term targets. in the section Investment activities. Tryg expects premium growth at the level of 2010, composed Price fluctuations on the match portfolio resulting from interest of sustained organic growth in Sweden and Finland and growth rate changes are offset by an opposite interest rate effect on the in Denmark and Norway that will to a great extent relate to the discounted provisions, thereby neutralising any immediate effect above initiatives. on the financial results. On the other hand, higher interest rates produce higher, current earnings. Based on the most recent experience, the level of both weather claims and large claims is expected to increase in 2011 compared Equities and real estate in the investment portfolio are expected with previous forecast for a normal year. The increase in weather to generate returns of 7% and 6%, respectively. The outlook for claims is in particular attributable to the more frequent and more bonds is based on the interest rates prevailing at 31 December. violent cloudbursts. In addition, winter claims in 2010 triggered At 31 December 2010, bonds in the investment portfolio yielded an upgrade of forecasts. The level of large claims was higher 1.4%, while bonds in the match portfolio yielded 2.3%. than expected in 2010, resulting in the higher expectations going forward. It should be noted in this context that the divestment Capitalisation of the marine portfolio reduced the exposure to large claims As in prior years, Tryg’s capitalisation in 2011 is expected to significantly. exceed the capital requirements to be imposed on the insur- ance industry by the upcoming Solvency II rules by a substantial The expense ratio is expected to fall in 2011. This will expectedly margin. The Group’s own capital requirement target is currently be achieved, among other things, because all divisions still have to based on Standard & Poor’s ’A-’ rating, to which Tryg has added reduce their direct costs by at least 2% each year. In 2011, addi- a safety margin of 5%. tional cost reductions have been implemented in the form of less staffing due to efficiency improving initiatives and automation as The Group’s capital requirement and structure well as lower travel, meeting and consultant costs. Furthermore, are described in greater detail in the section branding costs which affected the expense ratio by 0.4 percentage Capital management and profit distribution. point in 2010 will be substantially reduced in 2011. 22 | Annual report 2010 | Tryg A/S Tryg A/S | Annual report 2010 | 23 Good risk selection, low costs and focus on efficient processes are the basis for the results achieved. Results The Group’s financial performance The pre-tax profit for 2010 was DKK 941m against DKK 2,610m terms) to DKK 19.5bn in 2010. Premium increases in Denmark in 2009, reflecting a sustained high underlying claims level and a and Norway and high growth rates in Sweden and Finland lifted number of one-off events. Winter claims, cloudburst and a workers’ premiums, while Corporate saw intensified competition. The com- compensation verdict produced claims which were DKK 1.4bn higher mercial and corporate markets especially in Denmark remained than in a normal year. These events are referred to as extraordinary affected by the lower level of activity in society in general, which events in the annual report. Additionally, an adjustment of DKK resulted in fewer assets to insure as well as challenges on the 0.1bn of unearned premium provisions for change of ownership claims side. insurance was made. With a view to improving profitability, Tryg has implemented significant initiatives in the past few years, and Tryg continued to expand in Sweden and Finland in 2010. To we record a distinct improvement in the underlying development in this should be added increased costs of branding activities due Norway and Finland and an incipient improvement in the Danish pri- to a new Nordic name and logo as well as costs related to the vate market. Profitability remains unsatisfactory relative to the target multi-year process and IT project named Tryg Transition. Despite of a combined ratio at the level of 90, and additional initiatives are increased branding costs, Tryg managed to reduce the expense therefore underway to improve profitability in 2011 and 2012. ratio from 17.2 to 17.0, which was better than expected. The gross claims ratio was 80.2 in 2010 against 72.1 in 2009 and Premium growth driven by premium initiatives and new markets negatively impacted by 7 percentage points due to the above- Gross earned premiums increased by 4.5% in 2010 to stand at mentioned extraordinary one-off events. DKK 19.5bn, attributable to high premium growth rates in Swe- The combined ratio increased to 98.8 in 2010 from 92.2 in mented in all four countries. Private Nordic generated premium 2009 including the events referred to above. The combined ratio growth of 8.3% in local currency terms, to stand at DKK 10.2bn. was impacted by a positive run-off result of DKK 824m in 2010 Most of Tryg’s customers are private households with a fairly against DKK 683m in 2009. The relative run-off result relating stable purchasing power and insurance requirements. provisions was almost unchanged in 2010 compared with 2009. den and Finland and the impact of the premium increases imple- At the end of 2010, Commercial Nordic was characterised by in- Tryg generated high growth in gross earned premiums in a creasing average premiums, reduced insurance need and a slightly challenging market, recording an increase of 4.5% (9% in DKK higher customer outflow. Gross earned premiums increased by Technical result by business area One-off and extraordinary events DKKm 1,200 900 600 300 0 -300 -600 4 1 9 2 3 7 6 4 4 9 6 3 7 3 1 , 1 8 7 8 4 9 3 4 - 5 6 4 - Private Nordic Commercial Nordic Corporate Nordic DKKm 2,500 2,000 1,500 1,000 500 0 One-off events DKK 2.2bn All figures are gross. Extraordinary events DKK 1.4bn 2008 2009 2010 Extraordinary winter claims Q4 Large claims Extraordinary winter claims Q1 Cloudburst in August Workers’ compensation verdict 26 | Annual report 2010 | Tryg A/S 9.6% in local currency terms (12.9% in DKK terms) to stand at DKK made with respect to loss-making insurance products for 4.3bn, affected by a portfolio transfer from Corporate to Commer- the expected future loss until the product is profitable, which is cial. Excluding this transfer, premium growth was 3.0%. recognised as a reduction in earned premiums. This accounting Gross earned premiums in Corporate Nordic were lower than ex- corresponding to a reduction of 0.6 percentage point of pre- policy reduced earned premiums for the full year by DKK 106m, pected at the beginning of the year, falling by 5.9% in local cur- mium growth for the year. rency terms (a fall of 1.6% in DKK terms) to stand at DKK 5.0bn. Several large insurance programmes were tendered in 2010. The Claims strongly impacted by claims inflation Group’s underwriting assumes profitability for such businesses, and extraordinary claims and accordingly Tryg did not participate in the tender rounds for The gross claims ratio was 80.2 in 2010 compared with 72.1 in reasons of profitability. Danish workers’ compensation insurance 2009. The development in the claims level was affected by rising in particular recorded a declining number of customers. Corporate claims costs, particularly in Denmark, and extraordinary claims, Nordic transferred a portfolio to Commercial Nordic, which had a which impacted the claims ratio by around 7 percentage points. 3% negative impact on the performance. The rising claims costs related particularly to the Danish part of the business, affecting the private, commercial and corporate markets Geographically, growth rates remained high in Sweden and Finland alike, and were mainly attributable to the economic downturn. at 43.8% and 23.4%, respectively. Growth in Sweden was impacted by the acquisition of Moderna, which was consolidated from the For 2010, the Group had originally expected weather claims second quarter of 2009. Adjusted growth in Sweden was 19.6%. of DKK 200-300m and large claims of DKK 500-600m, Gross earned premiums in Norway increased by 1.4% to DKK 7.5bn, corresponding to a total assumption of around DKK 800m. and premiums income in Denmark increased by 1.2% to DKK 9.6bn. Extraordinary winter claims totalled a gross amount of DKK Like Norway, the Danish market has generally been characterised by 0.9bn at 31 December 2010, cloudburst claims DKK 0.3bn, premium increases since 2008, which is reflected in the growth. large claims DKK 0.8bn, and a decision by the Danish Supreme The Group’s premium growth was adversely affected by an in- Corporate Nordic) entailed increased provisions of DKK 200m. crease in unearned premium provisions for change of ownership Total expenses for extraordinary claims amounted to DKK 2.2bn insurances. According to accounting rules, provisions must be or DKK 1.4bn more than in a normal year. Court on workers’ compensation (read more in the section Weather claims Large claims DKKm 1,200 1,000 800 600 400 200 0 DKKm 1,000 800 600 400 200 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Storm and cloudburst, gross Extraordinary winter claims Large claims, gross Large claims, net Expected level for 2010 (DKK 200-300m) Expected level 2010 (500-600 DKKm) Tryg A/S | Annual report 2010 | 27 Example of lean at Tryg Department Before After Dealer service in Norway Case processing time: 30 days Case processing time: 2 days Team Internet Norway Sales budget achievement: 90% Sales budget achievement: 165% Motor claims Case processing time: 22 days Case processing time: 4 days The winter in January 2010 was the coldest in Denmark in 14 costs in Denmark and Norway remained at a competitive level with years, December the second coldest and August was the 10th an expense ratio of 16.0. Sweden and Finland improved the expense wettest month in weather history. January was the 8th coldest ratio from 30.1 to 24.1 and are on track in enhancing profitability. month in Norway in weather history. Based on the Group’s experi- ence from cloudburst and snow load claims, a number of initiatives The Group made sales distribution more efficient in 2009 and 2010. have been launched, and more will be made to improve the risk In Denmark, this resulted in 8 out of 22 sales offices being closed balance going forward (read more in the section Private Nordic). and the employees relocated to larger sales offices or call centres. In Norway, the number of franchise offices was reduced from 85 to While Denmark, Norway and Sweden were all affected by the 70, and the remuneration structure for franchisees was changed winter weather, especially Denmark was also impacted by the to focus more on sale to new customers and less to existing cus- economic downturn and the severe effects this had in Denmark. tomers. Tryg’s own sales force in the Norwegian private business The adverse development impacted, among others, contents, was relocated to customer service centres, leaving the franchise house and change of ownership insurances which recorded steeply part with direct physical sales. increasing claims and required additional provisions (read more in the section Private Nordic). In addition to the Supreme Court deci- Paperless processes, digitalisation of a large number of internal sion in Denmark, the performance of workers’ compensation was processes, including in particular claims processes, will enhance affected by low economic activity, which reduced the number of efficiency by improving business processes and IT systems, less complex industrial injuries but increased the number of claims enabling staffing to be reduced. In the longer term, digitalisation involving loss of ability to work. Overall, this impaired the perform- and automation will be among the most important competition ance since claims involving loss of ability to work account for only and profitability drivers. around 3% of the number of claims, but nearly 80% of claims paid. At 31 December 2010, the Group employed 4,291 full-time em- In Finland, claims in the private business developed satisfactorily ployees, which was 19 employees fewer from the year-earlier date. as reflected in an improvement of the claims ratio from 84.2 in This development is a combination of natural wastage in Denmark 2009 to 80.9 in 2010. The claims ratio in Sweden was 84.6 in and Norway with 80 employees leaving the Group since 2008, and 2010 against 80.6 in 2009 and, like in Denmark and Norway, it an increase of employees in Sweden and Finland, where the Group was adversely impacted by winter claims. is expanding rapidly. In the past few years, Tryg has focused on in-house rotation to fill vacant positions, particularly in the Danish After settlement of reinsurance, the claims ratio, net of ceded and Norwegian parts of the organisation. business was 81.8 against 75.0 in 2009. Efficiency enhancements reducing costs principles contributed to reducing staff costs in 2010. This has Costs were affected by branding activities, which amounted to DKK been achieved with enhanced quality to customers and greater em- 70m with a 0.4 percentage point impact on the gross expense ratio. ployee satisfaction. For example, the work load has been evened The gross expense ratio was 17.0 against 17.2 in 2009. Overall, out between the claims departments, and employee involvement Greater efficiency in operations and processes based on the Lean 28 | Annual report 2010 | Tryg A/S has been increased in the day-to-day planning of work flows. The equity proportion was increased slightly in 2010, while the See lean examples on the opporsite page. proportion of bonds was reduced accordingly. The equity and Tryg’s overall efforts to improve profitability include initiatives to to the return. The total investment return (free investment and optimise procurement of goods and services, more efficient claims match portfolios) was DKK 570m against DKK 1,086m in 2009. handling and distribution platforms, and a sustained requirement for The gross investment return (before transfer to insurance and be- all managers to reduce their direct costs by at least 2% annually. fore other financial expenses) not related to investment activities was DKK 722m against DKK 1,193m in the same period of 2009. real estate investments in particular made positive contributions In addition to cost reductions, Tryg invests in a multi-year improvement of business processes and IT systems, which will Tax increase costs in the short term. This is the Group’s transition Tax on continuing business was DKK 265m in 2010 against DKK programme, designed to ensure common business processes and 625m in 2009, equalling a slight increase in the effective tax rate systems and support the ambition of achieving an expense ratio from 24 in 2009 to 28 in 2010. The effective rate in 2009 was of 10 by 2020. Finally, increased expenses will be incurred in con- low due to utilisation of accumulated tax losses in Sweden and nection with the implementation of Solvency II. Focus on costs tax-free gains on equities. The effective tax rate in 2010 was also and investments in processes provide a strong foundation and positively affected by tax-free gains on equities but adversely af- help secure Tryg’s longer-term growth and value creation. fected by the distribution of profits on individual countries as, for Performance of discontinued business In the spring of 2010, Tryg sold the right to renew the Group’s ma- Shareholders’ equity example, Norway has a higher tax rate. rine portfolio, which at the time of divestment amounted to around Shareholders’ equity stood at DKK 8,458m at 31 December 2010. DKK 400m and had produced unsatisfactory results over a prolonged The decrease was composed of dividends paid out of DKK 991m period. The results of the run-off portfolio are included in ’discon- and own shares bought back of DKK 816m which was, however, tinued business’ in the financial statements. At 31 December 2010, offset by the profit for the year of DKK 593m. The return on equity less than 10% of the portfolio remained, and this is expected to be was 6.6% in 2010 against 22% in 2009. phased out around the summer of 2011. Run-off of the provisions for claims is expected to last a number of years. Events after the balance sheet date Overall, divested business reported a loss of DKK 83m against DKK resign her position as Group CEO. Stine Bosse has been with On 11 January 2011 Stine Bosse announced that she wished to 23m in 2009. Tryg since 1987 and has served as Group CEO since 2003. The Supervisory Board agreed with Stine Bosse that she would remain Investment return as Group CEO until 31 January 2011 and subsequently make her At the beginning of 2010, Tryg divided the investment assets into a services available during the six-month notice period. free and a match portfolio. The size of the match portfolio were DKK 30.9bn at the end of the year which corresponds to the discounted In accordance with good corporate governance, the Supervisory value of the technical provisions and hedging the related interest rate Board had regularly considered the question of continuity and suc- risk. The match portfolio is composed so as to best generate a return cession in the company’s senior management and announced on corresponding to the technical interest plus/less the value adjust- 12 January 2011 that Group CFO Morten Hübbe would assume the ment resulting from changed discount rates. In 2010, the match position as Group CEO of Tryg on 1 February 2011. Simultaneously portfolio generated a return of DKK 974m as compared with the total with the appointment of Morten Hübbe as Group CEO and upon return to technical provisions of DKK 979m. The total negative devia- consultation with Morten Hübbe, the Supervisory Board appointed tion for the year was thus DKK 5m. The free investment portfolio Group Executive Vice President Lars Bonde as member of the Execu- comprising equities, real estate and bonds amounted to DKK 9.5bn tive Management. Morten Hübbe and Lars Bonde will thus form the at 31 December 2010 and yielded a return of DKK 772m or 7.4%. senior management in charge of day-to-day operations in Tryg. Tryg A/S | Annual report 2010 | 29 Private Nordic Read about a new cooperation agreement to prevent snow pressure claims in the Stakeholder magazine page 16. Private Nordic sells insurances to private individuals in As in Denmark and Norway, the Swedish part of Private Nordic Denmark, Norway, Sweden and Finland. Sales take place was also greatly impacted by the winter. In 2010, the Swedish through call centres, the Internet, own sales agents, business focused on integrating the Group’s original Swedish franchisees (Norway), affinity groups, car dealers, real business in Malmø with the acquired company, Moderna, and on estate agents and Nordea’s branches. setting up a single Swedish organisation and business platform. Performance affected by weather claims and economic Combined ratio was 96.4 relative to 92.8 in 2009. The combined recession, but underlying operations improved ratio in Finland of 101.7 was only to a limited extent impacted by Weather claims and the economic downturn reduced the overall winter claims. The Finnish combined ratio reflects the achievement performance, while the underlying operations improved, particu- of the most important targets in relation to restoring profitability. larly due to premium increases implemented in 2009 and 2010. The effect of the economic downturn was particularly pro- Development in gross premiums nounced in the Danish part of Private Nordic, having a distinct Gross earned premiums were up by 8.3% in local currency terms impact on claims development related to house, contents and to stand at DKK 10,181m. Growth was 5.8% when adjusted for change of ownership insurances. Moderna, which was included with one quarter more in 2010 than in 2009. Premium initiatives in the Danish, Norwegian and Finnish The lower profit was in particular attributable to weather parts of the business made a major contribution to the positive losses, which stood at an unusually high level in 2010. The performance. harsh winter impacted particularly the Danish and Norwegian parts of the business, while the Finnish business was only The Danish private business implemented in particular premium in- to a limited extent affected by winter claims despite a longer creases for contents, holiday home and change of ownership insur- period of frost and snow. With a 5 percentage point fall in the ances and, to a lesser extent, for house insurances. These initiatives combined ratio, the Finnish business was a positive contribu- had an impact of almost DKK 150m. The higher premiums increased tor to the overall profit, illustrating the earnings advantage of the premium volume. To this should be added higher sales through geographic diversification. partners, and several partnership agreements were renewed. Profit/loss for Private Nordic 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 Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Business ceded as percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 30 | Annual report 2010 | Tryg A/S 2008 2009 2010 8,122 -5,735 -1,598 789 -85 210 914 190 70.6 1.0 71.6 19.7 91.3 8,962 -6,751 -1,477 734 -87 85 732 134 75.3 1.0 76.3 16.5 92.8 10,181 -8,223 -1,627 331 38 77 446 399 80.8 -0.4 80.4 16.0 96.4  Read about how diversity in Tryg creates added value for the Group, employees and not least customers in the Stakeholder magazine page 22. The impact of the premium increases was clearly reflected in the by premium initiatives. As already noted, Sweden focused development of average premiums for house and motor insuranc- particularly on the integration of Moderna with the Swedish es in both the Danish and the Norwegian parts of the business. business in Malmø, which Tryg founded in 2006. Growth in 2010 Developments in change of ownership insurances were unsat- fact that Moderna was included with an extra quarter in 2010. isfactory despite premium increases of 40% from the beginning of 2010. Due to the negative performance, Private Nordic will Claims affected by harsh winter and cloudbursts implement further premium increases of 50% from 2011 and also The development in claims deteriorated in 2010 in particular adopt a more restrictive underwriting policy. due to winter and cloudburst claims, which increased the claims was nearly 20% in Finland and 20% in Sweden, adjusted for the Unemployment insurances were considered an increased risk already in 2008, and since 2009 Tryg has to a large extent with- Severe winter claims had an impact of DKK 500m on the per- drawn from this market. We introduced large premium increases formance, corresponding to a 5 percentage point impact on the in 2010, which resulted in an outflow of business and a major combined ratio. Winter claims had major impacts in Denmark and ratio from 75.3 in 2009 to 80.8 in 2010. reduction of the business volume. As was expected, the general premium increases resulted in a higher outflow of customers, and the retention rate in Denmark decreased during 2010 from 91 to Customer retention in Denmark and Norway 90, remaining, however, at a satisfactory, high level. The Norwegian private business recorded premium growth of 3.4%, composed of premium increases for particularly motor, house and contents insurances with an impact in 2010 of around DKK 100m. Unlike in Denmark, the Norwegian private business improved its retention rate from around 85 at the beginning of the year to around 86 at the end of 2010. Sweden and Finland recorded growth in accordance with the plans for those areas. Finland sustained its strong growth, however, at the same time focussing on improving profitability % 94 92 90 88 86 84 82 2006 2007 2008 2009 2010 Denmark Norway Average premiums – House Average premiums – Motor Index 150 140 130 120 110 100 90 Index 120 110 100 90 80 2005 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 Denmark Norway Denmark Norway Tryg A/S | Annual report 2010 | 31 Norway of DKK 163m and DKK 260m respectively. The Swedish busi- 2010 was affected by a sustained increase in claims within contents, ness was impacted by winter claims of DKK 66m, while the Finnish house and change of ownership insurances, particularly in the Dan- business was almost unaffected by extraordinary winter claims. ish part of the business. Tryg believes there is a clear connection between this trend and the economic downturn and claims inflation. In August, Denmark was hit by a cloudburst that produced claims Tryg recorded, among other things, a steep increase in the number of of around DKK 200m with a 2 percentage point impact on the reported thefts of jewellery, and has introduced stricter documenta- combined ratio. Tryg provides consultancy to customers on how tion requirements for this type of claim. Tryg has previously expressed to best protect their homes from cloudbursts, including on how concern about police efforts in relation to theft, and we are pleased to prevent basement flooding. In addition, the Group intends to to note that the police have scaled up their efforts against burglaries differentiate prices which will be higher in areas with the greatest and similar crimes since the first quarter of 2010. risk of flooding, and to combine these measures with require- ments for preventive measures and higher deductibles. In Norway, the underlying claims ratio improved when disregard- ing weather claims, which was attributable to premium increases, particularly for house, motor and holiday home insurances, and the fact that Norway was not affected by the economic downturn to Extraordinary winter effect in Private Nordic any significant extent. DKKm 0 -50 -100 -150 -200 -250 House and content Motor Accident Denmark Norway The claims ratio in Finland improved by 3.4 percentage points, at- tributable to minor premium increases for all products, emphasising that the Finnish business now contributes to the Group’s overall profitability and will continue to do so in future. Focus on optimising costs Costs remained a key issue in 2010. The distribution of tasks be- tween insurance agents, service centres and web-based self-service was optimised. The number of service centres in Denmark was reduced from 22 to 14, while the franchise offices in Norway was reduced from 85 to 70. This trend will continue in the years ahead through the continuous development of digital processes. Claims frequency – House Claims frequency – Motor Index 145 135 125 115 105 95 Index: Year 2005 = 100 Index Index: Year 2005 = 100 140 130 120 110 100 90 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Denmark Norway Exclusive extraordinary winter claims Denmark Norway Exclusive extraordinary winter claims Exclusive extraordinary winter claims 32 | Annual report 2010 | Tryg A/S Commercial Nordic Read more about workers’ compensation insurances in Corporate Nordic. Commercial Nordic sells insurances to small and medium- recession also triggered a fall in the number of persons employed by sized enterprises, mainly in Denmark and Norway. In Swe- small and medium-sized enterprises. These trends are directly linked den, most of the commercial business is written through to a reduction in the number of workers’ compensation insurances brokers and forms a part of Corporate Nordic. The com- while at the same time a decision by the Danish Supreme Court on mercial business in Finland remains in a start-up phase. workers’ compensation had an adverse impact on profit. Performance affected by claims, recession and costs The performance in Norway was also negative compared with The technical result was a loss of DKK 465m in 2010. The loss is 2009, although the Norwegian part of the commercial business composed of winter claims, large claims and cloudburst claims, was not nearly as much affected by weather claims and unaffected which particularly affected the Danish part of Commercial Nordic, by economic conditions. However, the level of large claims was and continued challenges in the commercial business which are high, and group life insurances saw an adverse development. being addressed by profitability initiatives. Interest rates were low as in 2009, adversely impacting profit. The underlying development was unsatisfactory, necessitating Development in gross premiums premium increases and cost adjustments. With a view to improv- Gross earned premiums increased by 9.6% in local currency terms ing profitability, the Danish part of the commercial business to DKK 4,263m in 2010. When adjusted for a transfer of business implemented premium increases for agricultural insurances in an from Corporate to Commercial Nordic, growth amounted to 3.0%. average of 10%. In the autumn, premium increases were imple- mented for contents insurances. In 2009, we recorded profitability challenges in the commercial The economic climate affected the Danish part of the commercial tural insurances by an average of 10% effective from the begin- market in particular, which has moved from boom to recession in the ning of 2010, and in the autumn we increased premiums for con- course of the past few years. This trend continued in 2010 and was tents insurances. In addition to general premium measures, Tryg among other things reflected in an increase of bankruptcies in Den- made overhauls based on individual customer performances. In mark by more than 13% from an already high level. The economic the great majority of cases, premiums were adjusted or deducti- market. Following up on this, we increased premiums for agricul- Profit/loss for Commercial Nordic 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 Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Business ceded as percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 2008 2009 2010 3,694 -2,550 -819 325 -73 117 369 193 69.0 2.0 71.0 22.2 93.2 3,777 -2,797 -925 55 -98 39 -4 192 74.1 2.6 76.7 24.5 4,263 -3,768 -1,029 -534 39 30 -465 100 88.4 -0.9 87.5 24.1 101.2 111.6 Tryg A/S | Annual report 2010 | 33 bles increased. The premium increases from the autumn of 2010 Claims will have a major positive impact on profitability in 2011, while The claims ratio increased from 74.1 in 2009 to 88.4 in 2010, corre- there was only a minor effect in 2010. sponding to 14.3 percentage points. The development in claims was affected by an above-average number of claims in an average year. The Norwegian part of the commercial business did not require premium initiatives to the same extent as the Danish part, and Winter claims and cloudbursts affected the claims ratio by only minor premium increases were implemented, covering in 8 percentage point. Commercial Nordic had the highest level particular contents and building insurances in Norway. of large claims in 2010 and impacted the claims level by almost Earned premiums in the Finnish part of Commercial Nordic in- 10 percentage points. creased by about 35% to about DKK 100m. One of the year’s largest claims was a fire event in central Copen- hagen, which is expected to total a gross amount of DKK 170m and DKK 114m net of reinsurance. The economic downturn had a positive impact on workers’ com- pensation insurances in respect of the number of minor claims, Customer retention in Denmark and Norway whereas an increase in the number of claims involving loss of abil- % 92 90 88 86 84 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Denmark Norway ity to work and thus significantly higher compensation resulted in an overall negative performance for workers’ compensation. Costs Costs amounted to DKK 1,029m, and the expense ratio was reduced from 24.5 to 24.1, which is still not satisfactory. The level was explained by the continued large number of manual proc- esses and significantly higher distribution costs than in the private business. Reducing costs will be an important focus area for the Group in 2011, and total costs are expected to be reduced in the years ahead due to lower distribution costs and more internal processes being automated. Extraordinary winter effect in Commercial Effect of claims costs in Commercial Nordic DKKm 0 -50 -100 -150 -200 -250 DKKm 800 600 400 200 0 Property insurance Motor insurance 2008 2009 2010 Denmark Norway Large claims Workers’ comp. verdict Winter claims 34 | Annual report 2010 | Tryg A/S Corporate Nordic Corporate Nordic sells insurances to corporate custom- unusually low level of 83.5 in 2009. Run-off gains had a positive ers under the brands ’Tryg’ in Denmark and Norway and impact of 6.4 percentage points on the combined ratio compared ’Moderna’ in Sweden. Corporate Nordic’s products are with 7.0 percentage points in 2009, while large claims had a sold through its own sales force and through insurance negative impact of 4.3 percentage points against 4.6 percent- brokers. Corporate Nordic serves customers paying age points in 2009. annual premiums of more than DKK 900,000 or having more than 50 employees, and around one fourth of our The run-off result was DKK 325m in 2010 against DKK 357m in customers pay annual premiums of more than DKK 10m. 2009, and expenses in respect of large claims amounted to DKK All sales through brokers are written in Corporate Nordic 357m against DKK 344m in 2009. irrespective of customer size. Tryg Garanti is included in the financial results of Corporate Nordic. In the spring of 2010, Tryg divested its renewal rights for the Danish workers’ compensation insurance business were previously recognised in Corporate, but are now posed challenges in 2010 recognised in ’Profit/loss on discontinued business’, which is The technical result amounted to DKK 394m in 2010 compared described in the section The Group’s financial performance. marine business to Codan Forsikring. The results of the marine with DKK 878m in 2009. The performance was affected by one-off events with an adverse impact of around DKK 250m. Tryg Garanti is mainly involved in guarantee insurance, provid- Competition intensified in 2010, particularly in the Danish part ing guarantees to contractors, but also to contract manufactur- of Corporate Nordic and particularly in relation to workers’ com- ers and public authorities. Tryg Garanti had earned premiums pensation insurances. Competition was less fierce in the Norwe- of DKK 203m in 2010, an increase of 14% relative to 2009. gian part of Corporate Nordic, and general premium increases of A higher number of claims in the building and construction 5-7% were implemented. industry triggered an increase in the claims ratio. The claims Overall, gross earned premiums fell by 5.9% or DKK 83m in a combined ratio for the year of 71.9 against 75.3 in 2009, 2010. Combined ratio was 92.7 in 2010 compared with the supported by an improved cost level. In the second half of 2010, ratio was 45.8 against 43.7 in 2009, and Tryg Garanti reported Profit/loss for Corporate Nordic 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 Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Business ceded as percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio Combined ratio 2008 2009 2010 5,165 -3,197 -549 1,419 -446 164 1,137 376 61.9 8.6 70.5 10.6 81.1 5,127 -3,348 -610 1,169 -325 34 878 357 65.3 6.3 71.6 11.9 83.5 5,044 -3,630 -648 766 -399 27 394 325 72.0 7.9 79.9 12.8 92.7 Tryg A/S | Annual report 2010 | 35  Read about new initiatives for corporate customers to prevent claims in the Stakeholder magazine page 6, 9 and 12. Tryg Garanti introduced credit insurances, a product protecting compensation is insured through public collective agreements policyholders against losses on debtors. and is therefore not offered as a product in Sweden. A significant proportion of the Swedish corporate business comprises commer- Competition putting premiums in Denmark under pressure cial customers served by insurance agents. The Swedish business Corporate Nordic reported gross earned premiums of DKK sector is highly internationalised, and the partnership with AXA 5,044m, a fall of 5.9% in local currency terms. The business Corporate Solutions has therefore supported Tryg’s expansion in volume was reduced due to the economic downturn, which still the Swedish market for corporate insurances. Given the current persists particularly in the Danish market. A further cause of action plans and distribution strategy, this part of the portfolio is the lower earned premiums was an internal transfer of business expected to see further growth in the years ahead. between Commercial and Corporate. Profitability before growth In Denmark, lower demand for insurance and intensified compe- Corporate Nordic generally provides a full insurance package to tition put pressure on prices, and gross earned premiums fell by customers within, for example, building, contents, transport, 12%. When adjusted for the transfer of business to Commercial, workers’ compensation and liability insurances. the fall was 6%. In particular the portfolio of workers’ com- pensation insurances was affected by the reduction. Increased Risk consultancy is the cornerstone of our customer efforts. risk in relation to workers’ compensation and lower premiums Consultancy is provided by dedicated customer teams, with Tryg’s does not make for a sound combination, and Tryg has therefore employees ensuring a high level of service with respect to risk reduced the business volume since the autumn of 2009. The consultancy as well as in a claims situation. We focus on develop- adverse development was aggravated by intensified competi- ing areas with sensible risk, in which pricing, product adjustment tion and businesses’ increased focus on costs. Tryg does not and development, and profitability are aligned with the Group’s compromise on profitability, and accordingly lost several large targets. customers in 2010. Claims affected by one-off events Competition was less fierce in Norway, although premiums came Gross claims incurred by Corporate Nordic increased by 8.4% or under pressure early in the year, but the pressure subsided as DKK 282m to DKK 3,630m. The claims ratio, net of ceded busi- the year progressed. Overall, the Norwegian part of Corporate ness was 79.9 in 2010 against 71.6 in 2009. Nordic reported a 6.0% decrease in gross earned premiums. This was particularly related to renewals at 1 January 2010 A number of one-off events had an adverse impact on claims when several large customers left the Group, reducing the in 2010. Workers’ compensation insurances in Denmark were opening portfolio. In 2010, the Norwegian part of the corpo- adversely affected by a decision by the Danish Supreme Court in rate business implemented general premium increases of 5-7%. August 2010, which made it possible for part-time employees The competitive environment prevented a premium increase in to increase their compensation retroactively. The decision trig- Denmark. gered a need to strengthen provisions for prior year claims and increasing provisions for claims with respect to the current year The Swedish part of the corporate business made a positive of around DKK 200m, DKK 120m of which related to Corporate contribution to growth. The portfolio amounted to around SEK Nordic and had a 2.5 percentage point impact on the claims ratio. 435m at 31 December 2010, increasing by around 40% in 2010. Going forward, the annual impact on claims will be limited, In Sweden, insurances offered by Corporate Nordic include and it is estimated at DKK 15-20m. building, loss of profits, liability, transport and motor. Workers’ 36 | Annual report 2010 | Tryg A/S In addition to the Supreme Court decision, workers’ compensa- When adjusted for the interest rate effect, run-off, large claims tion insurances were also affected by the economic downturn. and storms, the underlying claims ratio was higher compared The number of minor claims fell, whereas the number of claims with 2009. involving loss of ability to work and thus significantly higher compensation resulted in an overall negative performance for Costs workers’ compensation. The overall current claims ratio for The cost level of Corporate Nordic was under pressure in 2010 workers’ compensation insurances is estimated to be close to due to the adverse portfolio development. The expense ratio 100. Accordingly, additional claims-reducing and premium initia- increased from 11.9 in 2009 to 12.8 in 2010. This level is not tives will be introduced. satisfactory, and initiatives have been implemented to restore the low level seen in prior years. Targets for 2010 and 2011 include Weather claims affected the performance in several respects. reducing the number of employees in Denmark and Norway by Winter losses and violent cloudbursts in August had an impact around 10%, mainly by natural wastage. Conversely, the invest- of 2.4 percentage points on the claims ratio. ment in the Swedish part of the corporate business has triggered an overall increase in the cost level. Furthermore, the claims ratio was adversely impacted by the lower discount rate which, seen in isolation, added 1 percent- Additional self-service solutions were introduced in Norway in 2010. age point to the claims ratio. Large claims amounted to DKK One such solution was ’Min bedrift’, a portal providing businesses 357m, which was on level with 2009. with an overview of all their insurance agreements, correspondence The total net run-off result was DKK 325m in 2010, mainly business maintains for its employees. These initiatives will succes- attributable to the personal lines in the Norwegian part of the sively be deployed to all corporate customers and are expected to corporate business. In 2009, the run-off result was DKK 357m. improve efficiency and restore costs to previous years’ lower level. and claims processing, and a new portal showing the insurances a Effect of claims costs in Corporate Nordic Workers' compensation in Denmark DKKm 800 600 400 200 0 % 100 80 60 40 20 0 2008 2009 2010 Claims costs Number of claims Large claims Winter claims Workers' comp. verdict Loss of ability to work Other Tryg A/S | Annual report 2010 | 37 Investment activities Tryg discounts technical provisions using the yield curve The total investment return (free and match portfolios) before published by the Danish Financial Supervisory Authority other financial income and expenses not related to investment and matches the disbursement profile of provisions was DKK 722m compared with DKK 1,193m in the same period with investment assets (bonds). This means that the im- of last year. The net investment return at DKK 570m exceeded pact of changing yields on the matching bond portfolio expectations, mainly due to buoyant equity prices. will more or less be offset by an almost corresponding change in the discounted technical provisions. Invest- Out of the total bond portfolio, 90% is placed in AAA rated ment assets other than those included in the match bonds, some 5% in AA rated bonds, and the remainder in A rated portfolio are included in the free portfolio and are bonds and unrated Norwegian money market certificates with placed in equities, bonds and real estate. good credit quality. The total negative deviation between the match portfolio return Restructuring of the investment portfolio in 2010 and the return to technical provisions was DKK 5m. In 2010, Tryg restructured the Group’s investment portfolio, Out of a match portfolio of DKK 30.9bn, this is equivalent to a dividing it into a match portfolio matching the technical, deviation 0.02 percentage point. This is considered satisfactory discounted provisions, and a free portfolio comprising active and meets the target of a maximum deviation of plus/minus investments and corresponding to the Group’s equity. The DKK 50m in any quarter by a fair margin. principles of this division are described in more detail on page The free portfolio amounted to DKK 9.5bn at 31 December extended to include return and other movements for the 2010 and yielded a total gross return of DKK 772m, corre- Group’s two investment portfolios. 40. As a result of the division, the below table has been sponding to a return of 7.4% on average invested capital. The performance was favourably impacted by developments in Match portfolio the equity markets. The equity portfolio produced a return of The match portfolio, which solely comprises fixed income products, 15.5% or DKK 261m. yielded a return of DKK 974m. This should be seen in relation to the negative amount of DKK 979m relating to technical provisions and Income statement of match and free portfolio DKKm Bonds, cash deposits, etc. Equities Real estate Total Value adjustment, changed discount rate Transferred to technical interest Total return, investment activities Other financial income and expenses, investment Other financial income and expenses, non-investment Return on investment activities 38 | Annual report 2010 | Tryg A/S Match Free Total 974 974 -227 -752 -5 211 261 300 772 772 1,185 261 300 1,746 -227 -752 767 -45 -152 570 value adjustments due to a changed discount rate. As it is impos- Other financial income and expenses sible to perfectly match investments to the regulatory yield curve, The item ’Other financial income and expenses’ comprises various Tryg has defined an ambition of a maximum fluctuation of plus/mi- elements included in the investment result. Some of these ele- nus DKK 50m in any quarter, corresponding to around 0.15% of the ments are fairly predictable, such as interest expenses on the loan securities in the match portfolio. For the full year 2010, there was a portfolio. Including rent from head office properties and interest negative deviation of DKK 5m, but deviations have been close to the received on operating assets, this is expected to amount to an tolerance threshold in the individual quarters. annual net expense of around DKK 250m. For 2010, this part of the item was calculated at an expense of DKK 197m, including an 7.4% return on the free portfolio expense of DKK 98m relating to ’Reversal of rent’ and an expense The free portfolio is invested in equities, real estate and bonds of DKK 86m relating to interest on loans. To this should be added and generated a total gross return of DKK 772m in 2010, cor- a number of less predictable items such as exchange rate adjust- responding to 7.4% of average invested capital. The investment ments, mismatch of inflation hedging of workers’ compensation portfolio amounted to around DKK 9.5bn at 31 December 2010. provisions, and other items. Tryg expects a deviation in these The globally diversified equity portfolio produced a return of DKK items in the range of plus/minus DKK 100m per year and plus/ 261m or 15.5%, mainly due to increases in global equity markets. minus DKK 50m per quarter. In 2010, the less predictable part amounted to a net income of DKK 42m, including DKK 27m attrib- The real estate portfolio, comprising Danish and Norwegian proper- utable to inflation hedging of workers’ compensation provisions. ties, produced a return of DKK 300m or 8.0%. The return on real estate is calculated on the basis of the properties’ current net Principles for the match portfolio and the free portfolio rental income, sales gains and revaluation, if any. A return is calcu- Denmark is one of the only countries in the world that requires lated for the head office buildings based on market rents for similar insurance companies to discount technical provisions. The Dan- buildings, but this amount is deducted in the item ’Other financial ish Financial Supervisory Authority publishes a discount rate income and expenses’. The bond portfolio produced a return of DKK which all companies must use. In countries which do not require 211m, corresponding to 3.8%. The duration of bonds in the invest- discounting of technical provisions and where technical provisions ment portfolio was around 1 year at 31 December 2010. are therefore unaffected by changes in market rates, insurance Income statement of investment activities DKKm Bonds, cash deposits, etc. Equities a) Real estate b) Total Value adjustment, Transferred to technical interest Total return, investment activities Other financial income and expenses, investment c) Other financial income and expenses, non-investment c) Return on investment activities 2009 2010 31.12.09 31.12.10 Investment assets 34,248 1,589 3,893 34,317 2,179 3,897 39,730 40,393 1,850 405 258 2,513 -294 -845 1,374 -181 -107 1,086 1,185 261 300 1,746 -227 -752 767 -45 -152 570 a) DKK 246m bought on futures contracts has been added to the equity portfolio. b) Return on properties includes a calculated return on owner-occupied property (excl. cost concerning The Living House). The balancing item is recognised in ‘Other financial income and expenses’ to the effect that the total return shown corresponds to the investment return according to the income statement which does not include return on owner-occupied property. c) The item comprises interest on operating assets, bank debt and reinsurance deposits, exchange rate adjustment of insurance items, costs of investment activities and offsetting of return on owner-occupied property. Tryg A/S | Annual report 2010 | 39 companies often structure their active portfolios differently and volatile asset portfolios and thus greater earnings fluctuations. independently of the liabilities side (the technical provisions). Under the upcoming Solvency II rules, high earnings fluctua- The new requirements for calculation under Solvency II, which sions brings out deviations between the return on assets and are expected to be implemented in 2013, will change the rules liabilities. In order to reduce fluctuations and risk in the overall and require all European companies to discount provisions. results, insurance companies are expected to have to match Under the current solvency rules and in countries that do not assets and liabilities over time or to consider why they have use discounting, an insurance company will typically have more chosen different risk profiles for assets and liabilities. tions will require a stronger capital base. Discounting of provi- Division of the investment portfolio Gross investment return • Bonds • Equities • Real estate Match – net return • Bonds • Derivatives • Deducted return of provisions Risk minimisation – create a return close to technical interest rate and discounting +/- DKK 50m per quarter. Investment return • Bonds • Real estate • Equities etc. Other financial income and expenses • Rent (domicile) • Interest expenses, loan • Interest income, operation Absolute return – creates the best return after risk, capital spending and investment costs. Items that is not directly related to the return on investment approx. DKK 250m p.a. Unstable • Others for instance workers’ compensation Others +/- DKK 50m per quarter. The free investment portfolio The total investment portfolio Bonds Property Equities 36 Percent 41 23 Bonds Property Equities 10 5 Percent 85 40 | Annual report 2010 | Tryg A/S Scenario 1 | Unmatched Scenario 2 | Duration match DKKm 400 200 0 -200 -400 DKKm 400 200 0 -200 -400 Excepted acceptance level Excepted acceptance level Time Time Scenario 3 | Fully matched Scenario 4 | Teoretically perfect match DKKm 400 200 0 -200 -400 DKKm 400 200 0 -200 -400 Excepted acceptance level Excepted acceptance level Time Time In a perfect match, the return on the match portfolio (coupon and value adjustment) is identical to the return on provisions (value adjustment of provisions attributable to interest rate changes plus technical interest). A perfect match is impossible in practice. The above figures illustrate differences in the fluctuation between the value of an in- terest rate portfolio and the value of a discounted provisions portfolio in four scenarios (1) A scenario without any attempts to match interest rate sensitivity on the provisi- ons; (2) A scenario matching the duration of assets and liabilities, hedging parallel yield curve changes; (3) A scenario matching the sensitivity of assets and liabilities to changes in specific interest rate points; (4) A scenario perfectly matching all payments from the asset portfolio with payments from the provisions and ’invested’ in the re- gulatory yield curve. The changes made by Tryg correspond to a movement from scenario 2 to scenario 3. Tryg discounts insurance liabilities and regularly adjusts the ment profile of the technical provisions as perfectly as possible. bond portfolio in order to minimise net interest rate risk (price The model portfolio is then used as the benchmark for external changes caused by interest rate changes). Provisions are portfolio managers who for practical reasons are permitted to de- discounted using a yield curve defined by the Danish Finan- viate within narrowly defined limits. This structure removes most cial Supervisory Authority. The yield curve is hypothetical, and of the market risks to which the match portfolio is exposed. The it is not possible to invest and generate return and risk to difference between the return to provisions and the return on match this curve perfectly. Tryg has designed a model portfolio the actual portfolio will continue to deviate, not least because an which matches the return and risk of the regulatory yield curve exact prediction of payments out of provisions is not possible. as perfectly as possible. In the model portfolio, future interest payments and repayment dates of principals match the disburse- Tryg A/S | Annual report 2010 | 41 Tryg relies on its capital base and financial strength for the Group to assume risks from customers. Capital management and risk management Capital management and profit distribution Credit ratings At 31 December 2010 Tryg Forsikring A/S Tryg Garantiforsikring A/S Standrd & Poor’s Moody’s ‘A-’/stable ‘A-’/stable A2 n.a. Tryg relies on its capital base and financial strength for the ments with respect to equities, bonds and real estate in its Group to assume risks from customers. The platform is a capital capital model. This increase was partly offset by the possibility base adapted to the Group’s risk profile taking into account of including discounting of provisions for unearned premiums. natural growth. Tryg aims to have the necessary capital avail- able, but no more than that. This approach thus determines our In addition to requirements by the rating agencies, the Dan- dividend policy. ish authorities call for active capital management in that they require an individual solvency need to be assessed. These Risk based capital management requirements are the precursor of the Solvency II rules which are Tryg aims for its capital and risk management to optimise the expected to apply as from 2013. Tryg assesses its individual sol- company’s financial strength and ensure financial flexibility. vency need on the basis of the Group’s internal capital model, Capital management is based on which estimates the necessary capital taking into account the actual business composition, profitability, reserving profile, • Tryg’s internal capital model reinsurance protection and the investment mix chosen and also • a standard model currently being developed within the EU in includes scenarios representing the additional risk that may connection with the implementation of Solvency II in 2013 and apply in particularly stressed situations. The assessment takes • Standard & Poor’s standard model (’A-’ level) into account the geographic diversification effect and the effect of the defined investment policy, under which interest rate risk All three models present the capital required to match Tryg’s cur- on the bond portfolio matches the corresponding interest rate rent risk profile. The capital requirement is estimated subject to a risk on the discounted provisions, thereby ensuring that, for 99.5% confidence level, which means that statistically the defined practical purposes, Tryg’s net interest rate risk is negligible. The capital level would be insufficient once in a 200-year period. individual solvency need is assessed on a quarterly basis and Tryg currently determines its targeted capital with a view to supporting the company’s rating of A- from Standard & Poor’s plus a buffer of 5%. reported to the Danish Financial Supervisory Authority. Implementation of Solvency II In 2009, the European Parliament and the Commission adopted the directive setting out future solvency rules for insurance companies. The directive, which is expected to be implemented in early 2013, defines quantitative as well as qualitative re- quirements for insurance companies that will require extensive Tryg has rating agencies Standard & Poor’s and Moody’s per- adjustment of existing legislation. form external credit ratings once a year. At 31 December 2010, Tryg had a buffer of 5% relative to the capital required for an ‘A’ Tryg has taken part in the test calculations for a standard model rating. In 2010, Standard & Poor’s increased the capital require- under Solvency II since 2005. Under QIS5, the latest official 44 | Annual report 2010 | Tryg A/S  See a simplified updated capital model on tryg.com under Investor > Key figures. Composition of partial capital model test calculation carried out in the autumn of 2010, Tryg had an excess of DKK 1,800m over the capital requirement calculated according to the standard model. If the QIS5 capital requirement is maintained, it is expected that several companies will need to strengthen their capital in order to comply with the new capital requirements. Based on the internal capital model, the capital requirement for Tryg would be somewhat lower than QIS5. Solvency II permits companies to use internal models in full or in part. Tryg’s approach is to use the existing internal model for areas in which risk differs from that assessed in the standard Standard model Partial model Internal model model. With respect to insurance risk, we believe that Tryg could Insurance risk Operational risk Credit risk more correctly model own risk. For example, the standard model TAC Market risk does not consider geographic diversification among Nordic coun- tries, an important aspect of Tryg’s Nordic exposure. Conversely, the treatment of investment risks in the existing internal model is very similar to that of the standard model due to the homoge- nous investment risk across national borders created by efficient a capital base comprising mainly equity less intangible assets and financial markets. The aim is that in future under Solvency II, other statutory adjustments plus subordinated loan capital of up Tryg will use a partially internal model for capital planning rather to 25% of the Solvency I requirement. Standard & Poor’s applies than the standard model referred to above. The partially internal the term Total Available Capital (TAC), under which intangible model will thus be based on the insurance module of Tryg’s assets are also deducted from the capital base, and subordinated existing model supplemented by the other modules (investment, loan capital generally may not exceed 25% of the total capital. operational risk, etc.) from the standard model. In 2005, Tryg raised a 20-year EUR 150m subordinated bond In addition to changes in the way of calculating capital, the loan, which is listed on the London Stock Exchange. In connection future Solvency II rules will also change regulatory capitalisation with the acquisition of Moderna in 2009, Tryg raised a 20-year requirements. Solvency II will classify capital under Tiers (1-3), EUR 65m subordinated loan with TryghedsGruppen, which owns reflecting the quality of the company’s capital. Tryg believes 60% of Tryg. This brought Tryg’s total subordinated debt to that 72% of its capital will be approved as Tier 1 capital, while approximately EUR 215m. The total ratio of debt to equity was the remainder, being subordinated loan capital and parts of around 19% at 31 December 2010, and the cost of debt in 2010 the Norwegian Pool, will be classified under Tier 2. Tryg follows was DKK 83m. See table overleaf. developments closely, taking account thereof when determining dividends for the year. The former credit facility which is included as part of Tryg’s cash Capital structure resources expired in 2010. To replace this facility, a new senior credit facility in a total amount of DKK 2bn was raised. The new Tryg’s capital structure comprises equity and subordinated facility has a term to maturity of 12 months, and the utilisation loan capital. The relationship between the two components is ratio was 0 at 31 December 2010. assessed on a regular basis in order to maintain the optimum structure that takes into account return on equity, cost of capi- Financial flexibility tal and flexibility. Regulators and rating agencies assess the ac- The financial flexibility must take into account strategic considera- tual capital differently. Regulators require companies to calculate tions and ensure the possibility of additional contributions of Tryg A/S | Annual report 2010 | 45 Subordinated loans Amount EUR 150m EUR 65m For further details see note 20 on page 117. Maturity Repayment profile Interest rate 2025 2032 Interest-only 4.50% Interest-only 5.13% above EURIBOR 3 M capital. The strategic considerations are processed each year in a capital plan which tests the extent to which the capital sup- Profit distribution Dividend policy ports Tryg’s strategy. The possibility of additional contributions Dividend is determined on the basis of the Group’s profit of capital is dealt with in Tryg’s capital contingency plan, which distribution policy. Tryg intends to pursue a risk-based transpar- describes measures that can be applied in the short term to im- ent policy for capital management, and thus also for dividend prove the Group’s solvency, if required. As a result of the strategy distribution. At 31 December, a capital requirement is deter- chosen for the future and distribution for 2010, restructuring of mined based on the Standard & Poor’s model corresponding investment assets and additional hedging of insurance liabilities to the level of an A rating plus a buffer of 5%. Any capital in could substitute for around DKK 1.4bn of capital in 2011. excess thereof will be distributed as dividend. The relationship between cash dividend and share buy back is determined by the Furthermore, there would be room for increasing the capital Supervisory Board, but out of the total distribution at least 50% base by raising additional subordinated loan capital. In relation of the profit for the year must be paid out in cash. to the Danish solvency rules, the full potential of subordinated loan capital has already been utilised (around DKK 800m). The Dividend for the 2010 financial year subordinated loan capital could be increased by around DKK Based on Standard & Poor’s capital model, the capital require- 880m (after dividends) in relation to Standard & Poor’s capital ment is DKK 9,857m and TAC before dividend DKK 10,607m. In model, at 31 December 2010. this light and based on a profit of DKK 593m, the Supervisory Board proposes that DKK 256m be distributed by way of cash dividend, equivalent to 4 DKK per share. Capital and dividend DKKm Profit for the year Cash dividends Cash dividend per share (DKK) Cash payout ratio Total buy back Buy back per share (DKK) Total distribution per share (DKK) Total distribution Total payout ratio Buffer to ’A-’ level (%) 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% 5.0% 2008 2009 2010 846 442 6.5 52% 6.5 442 52% 16.0% 2,008 991 15.50 49% 799a) 12.5 28 1,790 89% 7.7% 593 256 4 43% 0 0 4 256 43% 5.2% a) The share buy back programme was based on the profit for 2009, amounted to DKK 799m and was initiated on 16 April 2010 with completion on 7 February 2011. 46 | Annual report 2010 | Tryg A/S Risk management Read about the Supervisory Board’s Risk committee in the section Corporate governance on page 62. Risk management environment and risk identification The introduction of Solvency II in 2013 will impose stricter Underwriting risk and reinsurance Underwriting requirements with respect to the way in which insurance com- Underwriting risk is the risk related to entering into insurance panies work with and control risk, including the Supervisory contracts and thus the risk that premiums charged do not Board’s involvement in risk and capital management. adequately cover the claims which Tryg has to pay when a claim has been reported. The risk can be divided into random variation See also the section Capital management. in relation to estimated payments and the systematic trend of the underlying claims level. Random variation is, for example, a Tryg has for a number of years worked to align the company to greater-than-expected number of large losses, while a system- such requirements. This involves the Supervisory Board actively atic trend could be attributable to an increased frequency of defining risk appetite and risk management limits and regularly cloudbursts during summer periods or a falling frequency of assessing the overall risk in the company and the resulting personal injuries in motor insurances due to safer cars. capital requirement. The risk of random fluctuations is assessed and managed The Group Executive Management’s responsibility for the overall based on statistical analyses of historical experience for the risk and capital management is handled in a risk management various lines of business. Systematic shifts in claims levels are environment, in which separate committees handle the areas of also identified by means of statistical methods combined with underwriting and reinsurance, provisions, investment risk, and information about changes in societal, climate-related and other operational risk and security. Risk management is supported by conditions. The insurance premium must be adequate to cover Tryg’s internal capital model and has been developed on an on- expected claims, but must also comprise a risk premium equal going basis over the past ten years. In addition, we make an an- to the return on the part of the Group’s capital used to protect nual mapping of risk to identify new risks that cannot currently against random fluctuations. All other things being equal, this be assessed using statistical analyses. Such data is compiled in means that insurance lines or areas which, from experience, the Group’s risk data base, forming the basis for an annual risk are subject to major fluctuations, must comprise a larger risk report to the Executive Management and the Supervisory Board. premium. The assessment of selected risk scenarios based on this work is incorporated directly in the Group’s calculation of the necessary solvency need (individual solvency need). Tryg’s risk mangement environment Supervisory- Board • Risk appetite • Capital • Strategy • Crisis management Executive Manage- ment Instructions Risk management environment Organisation Risk management committee Policies Risk reporting recommen- dations Underwriting Reinsurance committee Provisions committee Investment risk committee Operational risk committee Systematic risk evaluation • Risk managers • Risk identification • Risk management Tryg A/S | Annual report 2010 | 47 The chart headed Insurance development in Norway shows how, in practice, there may be significant variation in the Insurance development in Norway over time fluctuations observed in different lines, and thus in the underwriting risk of those lines. Underwriting risk is continu- ously assessed based on analyses in Tryg’s internal capital model which provide target premium levels for the respective parts of the insurance business. This applies to definition and updating of tariffs and for individual pricing of major agree- ments in the corporate area and with business partners. Risk is furthermore managed on an ongoing basis by monitoring profitability, business procedures, acceptance policies, au- Claims ratio 175 150 125 100 75 50 25 0 Year thorities and reinsurance. Reinsurance Reinsurance is used to reduce underwriting risk in areas where this is particularly required. The need for reinsurance is Property insurance Motor liability insurance assessed on the basis of Tryg’s internal capital model, which a market claim of DKK 20bn would thus be around DKK 100m, compares the price of buying reinsurance with the reduced equal to Tryg’s market share of the pool’s DKK 0.5bn retention. capital need achievable. In addition, Tryg buys reinsurance for certain lines for which With respect to property risks, major events in 2011 are experience has shown that claims vary considerably. The largest protected by catastrophe reinsurance of DKK 5.5bn with a single risks in our corporate portfolio are property risks protected maximum retention of DKK 100m. The primary risk of one- by reinsurance cover of DKK 1.7bn with a retention of DKK 100m off events is storm, and the level of cover has been defined for the first claim and DKK 50m for each subsequent claim. Build- using simulation models to the effect that protection would ing and contents risks exceeding the upper level are protected statistically be inadequate less than once every 250 years. by facultative reinsurance. Other lines covered by reinsurance The catastrophe reinsurance programme also covers other ca- include liability, motor, fish farms and guarantee insurance. tastrophe events, including terrorist events up to DKK 4.2bn. We have bought catastrophe reinsurance up to DKK 1.5bn for In case of a major insurance event comprised by the reinsurance personal accident and workers’ compensation policies with a programme, we may have major receivables from reinsurers and retention of DKK 50m, covering the risk of multiple injuries thus be exposed to credit risk. This risk is managed through from the same cause, including terror. requirements to reinsurers’ ratings and by spreading reinsurance Denmark has established a guarantee scheme for terror that came into force on 31 March 2010. Under the scheme, the Reserving risk on several reinsurers. government provides a guarantee of up to DKK 15bn for the After the period of the policy’s cover expires, insurance risk re- total Danish market to cover total claims expenses in excess lates to the provisions for claims made to cover future payments of DKK 5bn. At 1 January 2011, the Danish Terrorism Insur- on claims already incurred. Customers report claims at a certain ance Pool for general insurance had protected the first DKK delay. Depending on the complexity of the claim, a shorter or 5bn through reinsurance cover of DKK 4.5bn. Tryg’s share of longer period of time may pass until the amount of the claim has 48 | Annual report 2010 | Tryg A/S been finally calculated. This may be a prolonged process particu- larly for personal injuries. Even when the claim has been settled Major risk types there is a risk that it will be resumed at a later date, triggering further payments. The size of the provisions for claims is determined both through individual assessments and actuarial calculations. At 31 Decem- ber 2010, the provisions for claims amounted to DKK 24,883m. The duration of the provisions, that is, the average period until such amounts are paid out to customers, was 3.2 years at 31 December 2010. Most of the provisions for claims related to personal injury claims. These provisions are exposed to changes in wage developments, the discount rate, disbursement pat- terns, economic trends, legislation and court decisions. Read more about the discount rate in the section Investment and interest rate risk. The calculation of provisions for claims will always be subject to considerable uncertainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from reserving risk, and that may also be expected to happen in future. Tryg manages reserving risk by pursuing a reserving policy to ensure a uniform process for Underwriting risk The risk related to entering into insurance contracts. The risk that claims at the end of an insurance contract deviate signifi- cantly from our assumptions when pricing at inception of the contract. Handled by the Underwriting reinsurance committee Reserving risk We make technical provisions at the end of a financial period to cover expected future payments for claims already incurred. Re- serving risk is the risk that future payments deviate significantly from our assumptions when making the provisions. Handled by the Claims reserving committee Investment risk The risk that volatility of financial markets impacts the Group’s results. Investment risk includes elements such as interest rate risk, equity risk, foreign exchange risk and liquidity risk. Handled by the Investment risk committee Strategic risk The risk of changes to the conditions under which we operate, including changed legislation, competition, partnerships or market conditions. determining provisions across national borders and insurance Handled by the Risk management committee lines at all times. This implies that it is based on an underlying model analysis, and that internal control calculations and evalu- Operational risk ations are made. Provisions for claims relating to annuities in Danish work- ers’ compensation insurance are discounted using the current market rate and are also revalued by the wage inflation rate each year. This exposes Tryg to explicit inflation risk in case of changes in Danish wage inflation. Tryg hedges such risk using an inflation swap. The risk of errors, fraud or failures in internal procedures, systems and processes. Handled by the Operational risk committee Tryg A/S | Annual report 2010 | 49 Provisions for claimsa) (gross) Expected cash flow 0-1 year 1-2 year 2-3 year > 3 year Total DKKm 8,044 3,866 2,439 9,906 24,255 expenses in the same currencies, and thus, only the profit for the period is exposed to currency risk. Tryg uses currency derivatives to hedge the risk of a loss of value of balance sheet items due to exchange rate fluctuations Exchange rate adjust- ments and hedging of foreign entities are taken directly to equity. Credit risk a) The provisions for claims are excluding Finland and Tryg Garanti. Credit risk is the risk of incurring a loss if counterparties fail to meet their obligations. In connection with the investment activi- Investment and interest rate risk ties, the primary counterparties are bond issuers and counter- Investment risk is the risk that volatility in the financial parties in other financial instruments. Tryg uses limits and rating markets will impact the results of operations and thus the requirements to manage credit risk and concentration risk. financial position of the company. Investment assets as well as provisions for claims are exposed to interest rate changes. See the section Investment activities for Tryg aims to match the disbursement profile for discounted an overview of the bond portfolio by rating. provisions for claims with corresponding interest-bearing as- sets as closely as possible. If interest rates fall, this structure Liquidity risk would cause a similar increase in the provisions for claims and Many businesses, in particular financial businesses, have the value of the bond portfolio, thereby reducing Tryg’s overall had their access to liquidity significantly impaired during the exposure to changes in interest rates considerably. financial crisis. Tryg is not exposed to the same risk of a lack of In 2010, Tryg divided the investment activities to be paid out. Most of the payments received are placed in into two investment portfolios. Read more in cash accounts or liquid securities ensuring that Tryg will be able the section Investment activities. to procure the necessary liquidity at all times. liquidity since premiums are due for payment before claims have Equity and real estate risk Operational risk The equity and real estate portfolios are exposed to changes Operational risk relates to errors or failures in internal proce- in equity markets and real estate markets, respectively. At 31 dures, fraud, breakdown of infrastructure, IT security and similar December 2010, the equity portfolio accounted for 5.4% of factors. As operational risks are mainly internal, Tryg focuses the total investment assets. In 2008, Tryg bought the head on establishing an adequate controlling environment for the office in Ballerup, thereby increasing the proportion of real Group’s operations. In practice, this work is organised through estate significantly. This proportion is expected to be reduced a structure of procedures, controls and guidelines that cover over time. In addition to the owner-occupied properties, the various aspects of the Group’s operations, including the IT Tryg’s real estate portfolio consists of office and rental proper- security policy. Tryg has also set up a security and investigation ties, which account for 9.6% of total investment assets. unit to handle fraud, IT security, physical security and contin- Currency risk gency plans. Currency risk is kept at a very low level. The Group’s premium Tryg has prepared contingency plans to handle the most impor- income in foreign currency is mostly matched by claims and tant areas, such as the contingency plans in the individual parts 50 | Annual report 2010 | Tryg A/S of the business to handle an event of a prolonged IT break- down. The Group has also set up a crisis management structure should Tryg be hit by a major crisis. Sensitivity on selected changes in underwriting, reserving and market conditions Strategic risk Strategic risk relates to Tryg’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputation as well as changed market conditions. The management of strategic risk closely involves the Super- visory Board. Overall risk exposure Tryg considers strategic risk and insurance risk (underwriting and provisions) to be the most important types of risk expo- sure. Both types of risk are closely related to Tryg’s operations as a general insurer. Investment risk is at a satisfactory level due to the current investment strategy. Operational risk is consid- ered to be less important than the other risk types. Insurance risk Underwriting risk Increase in claims expenses of 1% Decrease in premium rates of 1% Weather claims of DKK 5.5bn (Retention plus reinstatement fee) Reserving risk Increase in social inflation of 1% Estimation error of e.g. 10% on workers’ compensation and motor Market risk Investment risk Interest rate market – increase in interest rates of 1%: Impact on fixed interest securities Higher discounting of provisions for claims Impact on Norwegian pension liability Equity market 15% decline in equity markets Effect arising from derivatives Real estate market 15% decline in real estate markets Currency market Decline of 15% of exposed currency relative to DKK Impact derivatives DKKm -156 -195 -254 -614 -1,189 -795 706 225 -290 37 -584 -435 420 Tryg A/S | Annual report 2010 | 51 Tryg’s managers must create strong results by communicating clearly, sharing knowledge and having a readiness to change. Corporate governance Supervisory Board Mikael Olufsen Bodil Nyboe Andersen Jørn Wendel Andersen Paul Bergqvist Christian Brinch Mikael Olufsen a) Chairman Born 1943. Joined the Supervisory Board in 2002. Nationality: Danish. Number of shares held: 100. Change in portfolio in 2010: 0. Number of shares held: 100. Change in portfolio in 2010: 0. Ms Nyboe Andersen has special skills within Mr Bergqvist has international management the areas of management, governance, trea- and board experience in M&A, strategic Professional board member. Former CEO of sury, financial business and risk management development, marketing, branding and finan- Toms Chokolade-fabrikker A/S. from her former positions as Chairman of the cial management. Being a Swedish citizen, Educational background: MSc (Forestry), PMD Harvard Business School. Chairman: TryghedsGruppen smba, Tryg A/S, Tryg Forsikring A/S, Egmont Fonden, Egmont International Holding A/S, Ejendomsselskabet Gothersgade 55 ApS, Ejendomsselskabet Vognmagergade 11 ApS, Malaplast Co. Ltd. Bangkok, Advisory Board of CareWorks Africa Ltd and the Danish Rheumatism Association. Board member: WWF in Denmark and Danmark-Amerika Fondet. Committee memberships: Remuneration committee of Tryg A/S (chairman). Number of shares held: 3,018. Change in portfolio in 2010: 0. Mr Olufsen has experience from managing international companies, including strategic development, and experience as a board mem- ber of Danish and international companies. Bodil Nyboe Andersen b) Deputy Chairman Born 1940. Joined the Supervisory Board in 2006. Nationality: Danish. Former Chairman of the Board of Governors, Danmarks National- Board of Governors of Danmarks Nationalbank Mr Berggvist has special insight into Swedish and Managing Director of Andelsbanken. market conditions. Jørn Wendel Andersen a) Born 1951. Joined the Supervisory Board in Christian Brinch b) Born 1946. Joined the Supervisory Board in 2002. Nationality: Danish. Professional board 2007. Nationality: Norwegian. Senior Advisor member and interim management projects. of HitecVision and professional board member. Former CFO, Arla Foods amba. Former President and CEO of Helicopter Services Educational background: MSc (Business Economics), IMD Executive Development Group ASA and Executive Vice President of ABB Norge. Programme and Strategy in Action Programme, Educational background: Norway’s naval Leadership Assessment – Heidrick & Struggles. academy; PMD Harvard Business School. Board member: TryghedsGruppen smba, Tryg Chairman: Apply Group AS, Subsea Technology A/S and Tryg Forsikring A/S, Nordea Liv & Pension. Group AS, HV IV Invest Alfa AS, Helicopter Committee memberships: Audit committee of Tryg A/S and Risk committee of Tryg A/S. Number of shares held: 1,078. Change in portfolio in 2010: 0. Mr Wendel Andersen has experience in international management, insurance business, finance, treasury and risk management. Network AS, Fortissimo AS, Line Consult AS, Gluteus AS and Røa Invest AS. Deputy chairman: Norges Statsbaner AS and Prosafe SE. Board member: Tryg A/S, Tryg Forsikring A/S, Kjell A. Østnes AS, Thor Dahl Management AS and Thor Dahl Shipping AS. Committee memberships: Election committee of Prosafe SE. Paul Bergqvist b) Born 1946. Joined the Supervisory Board in Number of shares held: 500. Change in portfolio in 2010: 0. bank (Danish Central Bank) and Managing 2006. Nationality: Swedish. Professional board Director of Andelsbanken. member. Former CEO of Carlsberg A/S. Educational background: MSc (Economics) Educational background: Economist, engineer. Chairman: The Laurids Andersen Foundation. Chairman: Sverige Bryggerier AB, East Capital Explorer AB, HTC Group AB, Pieno Zvaigzdes AB, Returpack Svenska AB, Norrköpings Segel- sällskap and Östkinds Häradsallmänning. Board member: Tryg A/S, Tryg Forsikring A/S, Lantmännen and Björk Eklund Group AB. Mr Brinch has experience in the areas of M&A, treasury, communication and business de- velopment. Being a Norwegian citizen, Mr Brinch has special insight into Norwegian market conditions. John R. Frederiksen a) Born 1948. Joined the Supervisory Board in 2002. Nationality: Danish. CEO, Fortunen A/S Committee memberships: Remuneration and Berco ApS. Former chief executive of Jacob committee of Tryg A/S, Audit committee of Holm & Sønner A/S and Bastionen A/S. East Capital Explorer AB (spokesman) and Nomination committee of East Capital Explorer AB (chairman). Educational background: Business training. Chairman: Hellebo Park P/S, RenHold A/S, Renoflex-Gruppen A/S, Renholdningsselskabet Deputy chairman: Tryg A/S and Tryg Forsikring A/S. Board member: TV2, The Villum Kann Rasmussen Foundation and The Energy Technological Development and Demonstra- tion Programme. Committee memberships: Audit committee of Tryg A/S (chairman), Risk committee of Tryg A/S (chairman), Advisory Board of the Nordic Investment Bank and the Committee of Corporate Governance. 54 | Annual report 2010 | Tryg A/S Tina Snejbjerg Bill-Owe Johansen John R. Frederiksen Jesper Hjulmand Rune Torgeir Joensen Lene Skole Berit Torm af 1898, Rådgivningsselskabet af 1. september Committee memberships: Chairman of 2009 A/S, SBS Byfornyelse smba, Sjælsø Gruppen Dansk Energi Direktørudvalg and member of A/S, Ejendomsforeningen Danmark, Komple- Dansk Energi Fælles Forum. mentarselskabet Uglen ApS and Grundejernes Investeringsfond. Board member: TryghedsGruppen smba, Tryg A/S, Tryg Forsikring A/S, Fortunen A/S, Freja Ejendomme A/S (Statens Ejendomssalg A/S), Højgård Ejendomme A/S, C.W. Obel A/S, C.W. Obel Ejendomme A/S, C.W. Obel Projekt A/S, Obel-LFI Ejendomme A/S, Ejendoms- aktieselskabet Knud Højgaards Hus, SSG A/S, BERCO Deutschland GmbH, Invista Foundation Holding Company Limited, SIPA (Scandinavian International Property Association), Invista Foundation Property Trust Limited, Invista Foundation Property Limited, Invista Foundation Property No. 2 Limited and Invista European Real Estate Trust SICAF. Committee memberships: Remuneration committee of Tryg A/S, Audit committee of Invista Foundation Property Trust Ltd., Invista European Real Estate Trust Sicaf, Audit committee of Sjælsø Gruppen A/S and European Property Federation, Brussels (president). Number of shares held: 280. Change in portfolio in 2010: 0. Mr Frederiksen has mangement and board and treasury. Jesper Hjulmand a) Born 1963. Joined the Supervisory Board in 2010. Nationality: Danish. CEO of SEAS-NVE A.m.b.a. Former CFO and CEO of i NVE A.m.b.a. and head of budgets and chief accountant of Rockwool A/S. Educational background: MSc (Economic and Business Administration) and Lieutenant of the reserve, Danish Air Force. Number of shares held: 0. Change in portfolio in 2010: 0. From his positions with SEAS-NVE and his former work with the Danish Air Force, Mr Hjulmand has experience within M&A, strategy, organisational development, Tina Snejbjerg Elected by the employees Born 1962. Joined the Supervisory Board in 2010. Nationality: Danish. Administrative officer, Tryg’s staff association. Employed since 1987. Educational background: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: DFL’s general communication and business development. council. Number of shares held: 86. Change in portfolio in 2010: 0. Bill-Owe Johansson Elected by the employees Born 1959. Joined the Supervisory Board in 2010. Nationality: Swedish. Claims handler with Atlantica/Moderna (Swedish subsidiary). Employed in 2002. Rune Torgeir Joensen Elected by the employees Born 1956. Joined the Supervisory Board in 2008. Nationality: Norwegian. Project worker Educational background: Various insurance with Tryg. Employed since 1984. training courses. Educational background: Printer, market Board member: Tryg A/S and Tryg Forsikring A/S. economist, HMS adviser. Number of shares held: 140. Change in portfolio in 2010: +140. Lene Skole b) Born 1959. Joined the Supervisory Board President, Coloplast A/S 2005. Former CFO of The Maersk Company Ltd., UK. Educational background: The A.P. Møller Group international shipping education, BSc (Finance) and various international manage- ment programmes. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit committee of Tryg A/S, Risk committee of Tryg A/S and Advisory Board of Tryg Norge. Number of shares held: 45. Change in portfolio in 2010: 0. Berit Torm Elected by the employees Born 1959. Joined the Supervisory Board in 2008. Nationality: Danish. Quality assurance manager with Tryg. Employed since 1985. Educational background: LL.M. Board member: Tryg A/S, Tryg Forsikring A/S and DFDS A/S. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit committee Committee memberships: Furesø local council. of Tryg A/S and Risk committee of Tryg A/S. Number of shares held: 86. Change in portfolio in 2010: 0. Chairman: Danske Energi- og Forsyningssel- skabers Arbejdsgiverforening (DEA), Energi Number of shares held: 410. Change in portfolio in 2010: 0. Danmark A/S, ChoosEV A/S and CAT Invest I A/S. Ms Skole has experience from international a) Dependent board member; that is, affiliated with corporations, including her work with Coloplast the principal shareholder, TryghedsGruppen. Board member: TryghedsGruppen smba, Tryg A/S, Tryg Forsikring A/S, DI general council, DI Energibranchen, Waoo! A/S and Forskerparken and The Maersk Company Ltd., UK. Ms Skole has skills within strategy, financing and communication. b) Independent board member; that is, without any affiliation with Tryg or the principal shareholder, TryghedsGruppen. CAT A/S. Tryg A/S | Annual report 2010 | 55 experience within M&A, strategy, finance in 2010. Nationality: Danish. Executive Vice Executive Management Morten Hübbe CFO/Group Executive Vice President until 31 January 2011 Christine (Stine) Bosse CEO/Group CEO. Resigned effective 31 January 2011 Group CEO as of 1 February 2011 Born 1960. Joined Tryg in 1987. Joined the Executive Management Born 1972. Joined Tryg in 2002. Joined the Group Executive in 1999. Management in 2003. Member of the Executive Management of Tryg A/S. Member of the Executive Management of Tryg A/S. Member of the Executive Management of Tryg Forsikring A/S. Member of the Executive Management of Tryg Forsikring A/S. Educational background: LL.M., several management training Educational background: BSc (International Business programmes at INSEAD, Wharton and Harvard. Administration and Modern Languages), MSc (Finance and Accounting), management training at Wharton. Board member: Høyteknologisentret AS. Number of shares held: 4,801. Change in portfolio in 2010: 0 Chairman: BØRNEfonden. Board member: Nordea, Amlin Plc., Forsikring og Pension, Geneva Association, Rendex-vous de September and INSEAD Danish Council. Committee memberships: Risk committee of Nordea, Remuneration committee of Amlin Plc, UN Millinium Development Goals Advocacy Group. Number of shares held: 6,264. Change in portfolio in 2010: 0 Lars Bonde Group Executive Vice President, Customer Service & Sales – Martin Bøge Mikkelsen Group Executive Vice President, Strategy & Human Direct, and Country Manager Denmark. Joined the Executive Competencies Management of Tryg A/S as of 1 February 2011 Born 1962. Joined Tryg in 1989. Joined the Group Executive Born 1965. Joined Tryg in 1998. Joined the Group Executive Management in 2009. Management in 2006. Member of the Executive Management of Tryg Forsikring A/S. Member of the Executive Management of Tryg Forsikring A/S. Educational background: Graduate Diplomas in Organisation, Mar- Educational background: Insurance training, LL.M. keting Management and Accounting and management training pro- Board member: Danish Employers’ Association for the Financial Sector Number of shares held: 1,643. Change in portfolio in 2010: 0 grammes at Wharton, Ashridge and London Business School. Number of shares held: 1,911. Change in portfolio in 2010: 0 56 | Annual report 2010 | Tryg A/S Kjerstin Fyllingen Group Executive Vice President, Customer Service & Sales Truls Holm Olsen Group Executive Vice President, Corporate – Partners, and Country Manager Norway Born 1964. Joined Tryg in 1998. Joined the Group Executive Born 1958. Joined Tryg in 2006. Joined the Group Executive Management in 2009. Management in 2006. Member of the Executive Management of Tryg Forsikring A/S. Member of the Executive Management of Tryg Forsikring A/S. Educational background: Bachelor of Business Administration and Master of Management. Board member: Finansnæringens Hovedorganisation and TSS Marine ASA. Committee memberships: Audit committee of TTS Marine ASA. Number of shares held: 2,462. Change in portfolio in 2010: 0 Educational background: LL.M. Board member: Energon AS. Number of shares held: 17. Change in portfolio in 2010: 0 Birgitte Kartman Group Executive Vice President, Claims Born 1960. Joined Tryg in 1996. Joined the Group Executive Jens Stener Group Executive Vice President, Corporate Branding & Business Centres Management in 2009. Born 1966. Joined Tryg in 2006. Joined the Group Executive Member of the Executive Management of Tryg Forsikring A/S. Management in 2009. Educational background: LL.M. Number of shares held: 619. Change in portfolio in 2010: 0 Member of the Executive Management of Tryg Forsikring A/S. Educational background: BSc Business Economics and management training programmes at INSEAD and IMD. Board member: Leroy Design A/S and Forsikringsakademiet. Number of shares held: 809. Change in portfolio in 2010: 0 Tryg A/S | Annual report 2010 | 57 Corporate governance On 8 April 2010, the Corporate Governance Committee pub- Shareholders may propose items to be included in the agenda lished new corporate governance recommendations and recom- of the general meeting, and may ask questions at the gen- mended that they be incorporated as from the financial year eral meeting. Shareholders may vote in person at the general beginning on 1 January 2010. The Supervisory Board believes meeting, vote by correspondence, or appoint the Supervisory that Tryg complies with the recommendations apart from two Board or a third party as their proxy. The proxy form and form recommendations. See an explanation of these deviations last for voting by correspondence will be available on tryg.com on or in the chapter. before 23 March 2011. A complete review of the Statutory report on The Supervisory Board has resolved that general meetings will corporate governance with respect to each indi- be held by physical attendance as the Supervisory Board em- vidual recommendation can be downloaded on phasises the oral dialogue with shareholders. The Supervisory tryg.com > Download. Board and the Executive Management will participate in general meetings where possible, and this has a high priority. Annual general meeting Tryg holds its annual general meeting of shareholders each year The dialogue between Tryg and its shareholders before the end of April. The Supervisory Board convenes the an- Tryg issues press releases and company announcements on a nual general meeting in accordance with the Danish Companies regular basis and publishes annual and interim reports, which Act and the company’s articles of association, giving not less are available on tryg.com. Furthermore, Tryg publishes regu- than three weeks’ notice, by way of a company announcement, lar IR newsletters on topical issues to shareholders and other on tryg.com and in at least one national newspaper. Sharehold- stakeholders. This material enables all stakeholders to get a ers may elect to receive the notice by mail or as an electronic reasonable impression of the Group’s position and performance. notice of the general meeting, or they may download the no- The financial statements are prepared in accordance with IFRS, tice on tryg.com. The notice includes relevant information about and all company announcements and financial statements are the time and place of the meeting and sets out the agenda, published in Danish and English. On tryg.com, stakeholders may which as a minimum comprises the following items: receive the latest news as e-mail and RSS feeds. • Report of the Supervisory Board on the activities of the com- The Group has a number of in-house guidelines to ensure that pany during the past financial year disclosures of price-sensitive information are made in accord- • Presentation of the annual report for approval and discharge ance with the stock exchange rules of ethics. of the Supervisory Board and the Executive Management, including determination of the Supervisory Board’s remu- Investor Relations maintain regular contact to equity analysts neration and investors. Investor Relations also organise investor presen- • Adoption of a resolution as to the distribution of profit or tations, teleconferences and webcasts with the Group Execu- covering of loss, as the case may be, according to the annual tive Management and participate in conferences in Denmark report as approved, including proposed payment of dividend and abroad. The Supervisory Board is regularly informed of the for the past financial year dialogue with investors and other stakeholders. • Any proposals from the Supervisory Board or from shareholders • Election of members to the Supervisory Board Capital and share structures • Appointment of auditors • Any other business The Supervisory Board monitors that Tryg’s capital structure is in line with the needs of the Group and its shareholders, and that the capital structure is in compliance with the requirements All shareholders are urged to attend the annual general meeting. applicable to Tryg as a financial undertaking. Tryg has adopted General meetings are also webcast, enabling stakeholders to view a capital plan and a contingency capital plan that are reviewed the general meeting on tryg.com during and after the meeting. each year by the Supervisory Board. 58 | Annual report 2010 | Tryg A/S  See Tryg’s Statutory report on corporate social responsibility on tryg.com > Download. Furthermore, the Supervisory Board performs an annual review of or adjust the Group’s strategy. The Supervisory Board cooperates dividend distribution and share buy back. In 2010, the sharehold- with the Executive Management to ensure follow-up on and develop- ers at the annual general meeting authorised the Supervisory ment of the Group’s strategies. The Supervisory Board ensures that Board to let Tryg acquire own shares within 10% of the share the required skills and financial resources are available for the Group capital in the period up to 14 April 2015. to achieve its strategic targets. The framework is discussed at the Su- Takeover bids pervisory Board’s annual strategy seminar and budget meeting. The activities of the Supervisory Board are defined in the Group’s rules of The Supervisory Board intends to consider any public takeover procedure and annual cycle as approved by the Supervisory Board. bid as prescribed by legislation and, depending on the nature of such bid, to convene an extraordinary general meeting of share- Rules of procedure holders in accordance with applicable requirements and rules. The Supervisory Board makes an annual review of and approves Stakeholders and the Group’s corporate social responsibility Management with guidelines and instructions describing report- Identification of stakeholders is an integral part of the strategy ing requirements and requirements for communication with the rules of procedure for the Supervisory Board and the Executive review at the Supervisory Board’s annual strategy seminar, which Executive Management. always focuses on investors, customers, society and employees. Furthermore, the Supervisory Board receives regular reports The financial legislation governing Tryg furthermore defines about Tryg’s largest investors and employee and customer requirements with respect to reporting by the Executive Man- satisfaction reports. agement to the Supervisory Board on developments in the most The Group has a number of policies adopted by the Supervisory Board and describing Tryg’s relationship with its shareholders. The Chairman and Deputy Chairman The Group is committed to corporate social responsibility, and of the Supervisory Board important areas of activity. the Supervisory Board adopted the latest CSR policy on 5 October The Supervisory Board is headed by its Chairman and Deputy 2010. In addition, Tryg has an Investor Relations policy and a Chairman. The Deputy Chairman will act in the Chairman’s absence Communication policy. and has the role as a sparring partner for the Chairman. See Tryg’s Investor Relations policy on tryg.com > The tasks of the Chairman and the Deputy Chairman are defined in Investor > Contact IR > IR policy. the rules of procedure for the Supervisory Board. The tasks of the See Tryg’s Communication policy on tryg.com > Press > Communication policy. Chairman of the Supervisory Board include chairing and assessing the work of the Supervisory Board, organising, convening and chair- ing Board meetings and being in charge of the collaboration with the See Tryg’s CSR policy on tryg.com > CSR > CSR strat- Group Executive Management. The Chairman also acts as spokesman egy > CSR policy. for the Supervisory Board for external purposes. Tasks and responsibilities of the Supervisory Board The Chairman and Deputy Chairman hold preparatory meetings with The Supervisory Board is responsible for the overall management the Executive Management before all Board meetings and before and financial control of Tryg. In this work, the Supervisory Board Board material is distributed. The Chairman and the Deputy Chairman uses targets and framework management based on regular and furthermore plan the future composition of the Supervisory Board. systematic consideration of strategies and risks. The Executive Management reports to the Supervisory Board on strategies and According to the rules of procedure for the Supervisory Board, no action plans, market developments and the Group’s performance, Board member may perform work for Tryg without a prior decision funding issues, capital resources and special risks. The Super- to that effect by the Supervisory Board. Furthermore, such task visory Board holds an annual strategy seminar to define and/ must be of a one-off nature. Tryg A/S | Annual report 2010 | 59 Composition and organisation of the Supervisory Board Independence of the Supervisory Board The Supervisory Board makes an annual assessment of the skills Eight members of the Supervisory Board are elected by the sharehold- required for the Supervisory Board to perform its duties in the ers atthe general meeting for a term of one year. Four of the eight best possible way. The Group focuses on skills within financial members elected by the shareholders are independent members. business, IT, marketing and management. The description of skills is available on visory Board members are considered to be independent members. tryg.com and in the notice convening This is also described in the notice convening the annual general the annual general meeting. meeting, including in connection with election of new Supervisory The section Supervisory Board and tryg.com describe which Super- The Articles of Association provide that the Chairman of the Supervisory Board of TryghedsGruppen smba should also act New Supervisory Board members Board members. as Chairman of the Supervisory Board of Tryg A/S. In addition, The process of selecting new Supervisory Board members is com- the Supervisory Board of TryghedsGruppen smba elects three prehensive and transparent for the Board members. The Chairman members to the Supervisory Board of Tryg A/S from among the and Deputy Chairman are in charge of selecting candidates for the members of TryghedsGruppen smba’s Supervisory Board. four independent seats on the Supervisory Board and submit the recommendation for choice of candidate to the Supervisory Board. The Supervisory Board includes members from Denmark, Sweden and Norway and has four female members. Prior to the election of new members, the Supervisory Board prepares a description of the candidates’ background, professional See the CVs and competency descriptions of the qualifications and experience. A balanced distribution with respect Supervisory Board on tryg.com > Governance > to, among other things, age, gender and nationality is sought in the Management > Supervisory Board composition of the Supervisory Board, and the need for integrating See the CVs of all Board members in the section Supervisory Board. new talent is considered. When taking up office, new Supervisory Board members are given an introduction to the Group. Supervisory Board members elected by the employees Skills of the Supervisory Board members Under the Danish Companies Act, employees are entitled to elect The Supervisory Board performs an annual self-assessment a number of representatives to the Supervisory Board, equal to of the Supervisory Board’s work and its members’ skills to half the number of other members at the time employee elections assess whether the Supervisory Board has the required skills, are held. Tryg has agreed with the Group’s staff organisations that or whether the skills and expertise of its members need to be two Supervisory Board members are elected among the employees updated in any respects. in Denmark, one member among the employees in Norway, and one member among the employees in Sweden. The most recent Number of Supervisory Board members election of a Swedish employee representative was held in 2010. The Supervisory Board comprises 12 members, and the Supervi- The next ordinary election of the four employee representatives will sory Board deems the number of members adequate to ensure be held in 2012. Pursuant to the applicable legislation, employee a constructive debate, sufficient diversification and an efficient representatives have the same rights, duties and responsibilities as decision-making process. any other members of the Supervisory Board. The Supervisory Board discusses the number of Supervisory Board Meeting frequency members each year when preparing the annual general meeting. The Supervisory Board holds at least seven annual meetings and an annual strategy seminar to discuss and define strategies and 60 | Annual report 2010 | Tryg A/S goals for the years ahead. In 2010, the Supervisory Board held Information about the Board committees includes descriptions eight Board meetings and the annual strategy seminar. The of members, meeting frequency, responsibilities and the activi- Supervisory Board discusses the Supervisory Board’s tasks on a ties of the committee during the year. Furthermore, the special regular basis, and no later than at the last meeting of the year, it qualifications of each Supervisory Board member are described schedules the meetings of the coming year. separately on the website. Number of other directorships Two out of four members of the Audit committee and the The Supervisory Board and the individual Board members deem Risk committee, including the chairman of the committees, that each member has adequate time and resources to perform are independent. In the Remuneration committee, one of four their office as a Supervisory Board member of Tryg in a satisfac- members is independent, while one of the Chairman and the tory manner. Deputy Chairman in their joint role as Nomination committee is See the Supervisory Board members’ CVs, independent. including position, directorships and holding Board committee members are primarily elected on the basis of of Tryg shares and changes in portfolios in the their special skills. It is also considered important to involve the section Supervisory Board and on tryg.com > employee representatives in the committees. The committees Governance > Management > Supervisory Board. solely prepare matters for decision by the entire Supervisory Retirement age Board. To ensure replacement on the Supervisory Board, members Evaluation of the work of the Supervisory Board and the elected by the shareholders may hold office for a maximum of Executive Management nine years. Furthermore, members of the Supervisory Board must The Supervisory Board has defined an evaluation procedure for retire at the first general meeting following their 70th birthday. assessing the composition of the Supervisory Board and the work and results of the Supervisory Board and its individual members. The age of each Supervisory Board member is disclosed in the section Supervisory Board. The Chairman is in charge of the evaluation and holds individual Term of office assessment interviews with each member of the Supervisory Board at the beginning of the year, which are discussed at the Board members elected by the shareholders at the annual gen- first Board meeting of the year. eral meeting are elected for terms of one year. See when the Supervisory Board members joined the Board, were the work and results of the Executive Management according re-elected and when their term expires in the section Supervisory to clearly defined criteria determined in advance and of the The Supervisory Board carries out an annual evaluation of Board. Board committees cooperation between the Supervisory Board and the Executive Management. In addition, the Supervisory Board reviews and approves the rules of procedure of the Supervisory Board and Tryg’s Supervisory Board has set up an Audit committee, a Remu- the Executive Management each year to ensure they are neration committee and a Risk committeee. No formal Nomina- aligned with Tryg’s requirements. tion committee has been set up. The Chairman and the Deputy Chairman of the Supervisory Board perform the duties generally Remuneration of the Supervisory Board handled by a Nomination committee. and the Executive Management The terms of reference of the Board committees Board and the Executive Management, including guidelines for are available on tryg.com. incentive pay. Tryg has adopted a policy for remuneration of the Supervisory Tryg A/S | Annual report 2010 | 61 Board committees Audit committee Tryg set up an Audit committee in 2006 covering Tryg A/S and its sub- sidiaries Tryg Forsikring A/S and Tryg Garantiforsikring A/S. The com- mittee has four members and is chaired by an independent Supervi- sory Board member who is also Deputy Chairman of the Supervisory Board. Members • Mikael Olufsen, chairman • John R. Frederiksen • Paul Bergqvist (independent) • Berit Torm Responsibilities The framework for the Audit committee’s work is defined in terms of reference. The committee is solely a preparatory body, supporting the Supervisory Board in its work. The Audit committee has knowledge of and experience in financial matters as well as accounting and audit matters in listed companies. The Audit committee held four meetings in 2010, reporting to the Su- pervisory Board on a regular basis. The Audit committee made an as- sessment of the preceding year’s work in August 2010, evaluating the need for changes to its terms of reference. Members • Bodil Nyboe Andersen, chairman (independent) • Lene Skole (independent) • Jørn Wendel Andersen • Rune Joensen Responsibilities • Review the Group’s technical provisions. • Review the methodology for and calculation of the Group’s Individ- ual Solvency Need. • Review the efficiency of the Group’s contingency plans. • Assess the Group’s internal control procedures to prevent fraud. • Supervise annual and interim financial statements. • Supervise the audit work performed by the external auditors. • Review and discuss the results of the work of the internal and ex- ternal auditors and to supervise management’s follow-up on the recommendations reported by the internal and external auditors. • Ensure that the Group is being monitored by independent auditors and by internal auditors. Remuneration committee The Remuneration committee has four members elected by the Super- visory 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 independent member of the Supervisory Board. At pres- ent, the committee has one independent member. The Remuneration committee’s work is based on Tryg’s remuneration policy and guidelines for incentive pay. • Recommend the remuneration policy (including general guidelines for incentive pay) to the Supervisory Board for approval prior to ap- proval by the shareholders. • Prepare recommendations to the Supervisory Board as to which employees the company considers to be risk-takers. • Prepare recommendations to the Supervisory Board about ele- ments that should be included in the remuneration of the Super- visory Board and the Executive Management as well as the amount of the specific remuneration. • Ensure compliance with the adopted remuneration policy (including guidelines for incentive pay). • Monitor that the information in the annual report on remuneration of the Supervisory Board, the Executive Management and risk- takers is correct, true and adequate. • Ensure that the Supervisory Board is kept informed of the market level of remuneration paid to the supervisory boards and executive managements of the company’s peers, and, on behalf of the Supervisory Board, to follow practice in the area to ensure that any new forms of remuneration are discussed and considered by the Supervisory Board. Risk committee In 2010, Tryg established a Risk committee. The purpose of the Risk committee is to support the Supervisory Board in its work with and supervision of capital management and risk management. The overall responsibility rests with the Supervisory Board, while the Risk commit- tee monitors the risk management environment and the related pro- cesses. In 2011, the Supervisory Board will determine whether the risk committee should be made permanent. The committee held three meetings in 2010. Members • Bodil Nyboe Andersen, chairman (independent) • Lene Skole (independent) • Jørn Wendel Andersen • Rune Joensen Responsibilities • Monitor the company’s risk management systems. • Review the Group’s risk assessment. • Assess and monitor the efficiency of the risk management environment. The committee held four meetings in 2010. • Monitor the implementation of Solvency II in the Group. 62 | Annual report 2010 | Tryg A/S The Chairman of the Supervisory Board reports on the Group’s re- In 2010, the Executive Management, Group Executive Manage- muneration policy each year in connection with the presentation ment and senior executives were offered a performance-related of the annual report at the annual general meeting. The Supervi- bonus of up to three months’ salary including pension (four sory Board’s proposal for remuneration to the Supervisory Board months for the Group CEO). The bonus was linked to the achieve- of Tryg for the current financial year is also submitted for approval ment of pre-defined benchmarks and paid out in cash. The as- by the shareholders at the annual general meeting of each year. sessment of benchmark achievement included the Group’s overall Tryg intends to present a new remuneration policy and new tive areas of responsibility. Specific benchmarks for 2010 were guidelines for incentive pay at the upcoming annual general defined within all four perspectives of the balanced scorecard meeting to be held on 14 April 2011 based, among other things, (financial, customer, processes and learning), reflecting the strate- on legislation changes. gic focus areas of the Group and the individual business areas or performance as well as individual performance within the respec- Remuneration of the Supervisory Board customer satisfaction, customer loyalty, image, processes, com- Members of Tryg’s Supervisory Board receive a fixed fee and are munication, employee satisfaction and development, and innova- not part of any form of incentive programme. The Board mem- tion. The variable pay components would constitute a maximum bers’ remuneration (basic fee) is fixed on the basis of trends in of 50% of the fixed annual salary including pension in 2010. organisational units, including growth, profitability, cost reduction, a peer group, taking into account Board members’ required skills and efforts and the scope of the Board work, including number Share option programme of meetings. The Chairman of the Supervisory Board receives In order to build loyalty and motivation, Tryg had a share option a triple basic fee and the Deputy Chairman receives a double programme in 2010 for the Executive Management, Group Execu- basic fee. tive Management, senior executives and employees to reward outstanding performance. The options, which entitle the holders Remuneration of the Executive Management to buy one share per option, cannot be exercised earlier than Members of the Executive Management are employed under three years and not later than five years after grant. The strike service contracts, and all terms of their remuneration are fixed by price is the market price on grant plus 10%. The exercise price is the Supervisory Board. The Supervisory Board reviews the remu- the strike price less dividend payouts in the period. Options can neration of the members of the Executive Management annually only be exercised during the open trading windows in connection based on the requirements for attracting and retaining the best with profit announcements. Own shares are bought to cover the qualified Executive Management members. share option programme. Total remuneration of the Supervisory Board in 2010 DKK Mikael Olufsen Bodil Nyboe Andersen Jørn Wendel Andersen Christian Brinch John Rene Frederiksen Paul Bergqvist Jesper Hjulmand Lene Skole Tina Snejbjerg Bill-Owe Johansson Rune Torgeir Joensen Berit Torm Fee Audit Remuneration committee committee 900,000 600,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 225,000 150,000 150,000 150,000 75,000 50,000 50,000 50,000 Total 975,000 825,000 450,000 300,000 350,000 350,000 300,000 450,000 300,000 300,000 450,000 350,000 Tryg A/S | Annual report 2010 | 63 In 2010, the share options entitled the holders to acquire shares in risk policies that define detailed guidelines for the Group’s at the average price of Tryg shares (all trades) as quoted on OMX risk management. A Risk committee comprising the Group CEO, Copenhagen on 23 February 2010 plus a 10% premium, equal to Group CFO and Group CRO monitors the risk management envi- a strike price of DKK 352.04. ronment. Retention and severance schemes Tryg performs an annual risk identification process mapping Each member of the Executive Management is entitled to 12 insurance risk and other risks related to the achievement of the months’ notice of termination and to 12 months’ severance pay. Group’s strategy or which may have a potential substantial im- However, the Group CEO is entitled to 12 months’ notice and to pact on the Group’s financial position. In this process, identified 18 months’ severance pay plus pension contributions during such risks are recorded and quantified. The risk mapping is included period. in the annual risk reporting to the Supervisory Board, and the quarterly quantification of identified risks is included in the The going concern assumption calculation of the individual solvency need. When discussing and adopting the annual report for 2010, the Supervisory Board considers whether the financial statements The Executive Management reports to the Supervisory Board on have been prepared on the assumption that the business is a go- the Group’s risk management work. The overall responsibility ing concern, including assumptions and uncertainties. for the Group’s internal controls and risk management systems in connection with the financial reporting process rests with Risk management and internal control the Supervisory Board and the Executive Management. The Being an insurance business, Tryg is subject to the risk manage- Supervisory Board and the Executive Management approve and ment requirements of the Danish Financial Business Act. In its monitor the Group’s general policies, procedures and controls in capital and risk management instructions, the Supervisory Board key areas in relation to the financial reporting process, including defines the framework for risk management in Tryg with respect compliance with relevant legislation and regulations, internal to insurance risk/reinsurance, investment risk and operational business procedures, limits and segregation of responsibilities, risk, including IT security. This framework is then implemented continuous monitoring of significant risks. A compliance status Total remuneration of the Executive Management in 2010 DKK Basic salary Bonus Pension Car I alt Stine Bosse Morten Hübbe Peter Falkenham (resigned September 2010) 6,188,280 3,822,000 3,244,500 1,031,380 637,000 270,375 1,547,070 955,000 811,125 255,000 255,000 255,000 9,021,730 5,669,500 4,581,000 Share option programme Options 2006 2007 2008 2009 2010 Total Stine Bosse Morten Hübbe Peter Falkenham Other option programme participants 20,960 7,860 0 53,710 13,527 7,101 5,072 112,990 24,597 15,916 11,575 183,003 18,066 11,690 8,502 137,576 22,690 14,682 10,678 178,849 99,840 57,249 35,827 666,128 Total no. of outstanding share options 82,530 138,690 235,091 175,834 226,899 859,044 64 | Annual report 2010 | Tryg A/S is reported annually to the Supervisory Board in connection with meetings for the purpose of assessing the auditors’ observations approval of the Group’s risk management instructions. However, and conclusions. The internal and external auditors’ long-form any non-compliance with limits and guidelines that may occur is reports are reviewed by the Supervisory Board. reported immediately to the Supervisory Board. The audit agreement with the external auditors, including the In connection with major acquisitions, a general risk analysis is auditors’ fees, is concluded between the Audit committee and performed, and the significant business procedures and internal the auditors. The Audit committee reviews the limits for the controls are reviewed. The Executive Management has estab- external auditors’ performance of non-audit services each year. lished a formal Group reporting process which comprises monthly reporting, including budget reporting and deviation reporting. In at least one Audit committee meeting each year, the internal The Group’s internal control systems are based, among other and external auditors have a dialogue without the presence of things, on clear organisational structures and guidelines, general the Executive Management. The Audit committee will handle any IT controls and segregation of duties, which are supervised by matters that need to be reported to the Supervisory Board. the internal auditors. Internal audit Whistleblowing scheme Tryg has set up an internal audit department in compliance with Tryg is in the process of setting up an Ethical Line through which the Danish Financial Business Act. The internal audit depart- employees, customers or business partners may report on serious ment regularly reviews the quality of the Group’s internal control matters related to breach of law or internal guidelines. The line systems and business procedures. The department is responsible will come into effect when it has been approved by the Danish for planning, performing and reporting the audit work to the data protection agency. Supervisory Board. Openness about risk management Deviations and explanations Risk management is an integral part of Tryg’s business opera- The Supervisory Board believes that Tryg complies with the tions. The Group continuously seeks to minimise the risk of recommendations apart from: unnecessary losses in order to optimise return relative to the company’s capital. Recommendation 5.10.2 in that a majority of the members of the board committees cannot be considered to be independent Read more about the Group’s risk management members. Board committee members are primarily elected on in the section Risk management. the basis of their special skills. It is also considered important to involve the employee representatives in the committees. Audit The Supervisory Board ensures that the Group is monitored by Recommendation 6.1.8 in that the service contracts with the competent and independent auditors. The Group’s internal audi- Executive Management do not include a right to reclaim variable tor participates in all Board meetings. The external auditors par- components of remuneration in exceptional cases. The variable ticipate in the annual Board meeting at which the annual report component of the Executive Management’s remuneration is is presented. deemed to be modest, and the Supervisory Board has therefore deemed that a claw-back provision would not be necessary. Each year, the annual general meeting appoints external auditors recommended by the Supervisory Board. In connection with the Supervisory Board’s review of the annual report, it discusses the accounting policies, among other issues. The results of the audit are discussed with the Audit committee and in Supervisory Board Tryg A/S | Annual report 2010 | 65 Shareholder information Financial calendar 2011 14 April 2011 at 14:00 15 April 2011 20 April 2011 11 May 2011 after 17:00 17 August 2011 after 17:00 9 November 2011 after 17:00 Annual general meeting 2011 Tryg shares trade ex-dividend Payment of dividend Interim report for Q1 2011 Interim report for H1 2011 Interim report for Q1-Q3 2011 Tryg emphasises openness, transparency and accommodation Share price performance in 2010 of stakeholder information requirements, thereby providing Tryg shares opened 2010 at DKK 351.5 and ended the year at investors, equity analysts and other stakeholders with a good DKK 257.5. Including dividends of DKK 15.5, the share thus fell basis for forming a correct picture of the Group’s financial posi- 22.3% in 2010. Tryg shares underperformed the market in gen- tion, its performance and its opportunities and risks. eral in 2010, with the OMX C20 increasing by 35.9% while the DJ Euro Insurance Index was at the same level as in 2009. The Group’s Investor Relations strive to maintain a high level of information by The performance of Tryg shares in 2010 was affected by a lower- • being available and proactive, and answering queries from than-expected earnings level. This was to a large extent attribut- investors and other stakeholders as promptly as possible able to several extraordinary events as described earlier in the • having in-depth insight into and knowledge of the Group as sections on performance, which reduced earnings by DKK 1.4bn. well as relevant external trends • preparing plain and relevant written communication and Turnover of Tryg shares and share buy back presentation material Tryg shares had an average daily turnover of DKK 43.1m in • having a website that is of relevance to professional and 2010 compared with DKK 27m in 2009. The total turnover private investors alike of Tryg shares for all of 2010 on Nasdaq OMX Copenhagen Information that may influence the pricing of Tryg shares is pub- lished in accordance with the rules applicable to the distribution of news in the EU. The Group’s website is updated simultane- Most active stockbrokers a) ously with the release of new information. In addition, informa- tion is distributed directly to the London Stock Exchange, the press, equity analysts, investors and other stakeholders. All financial information may be downloaded on tryg.com/investor, where stakeholders may also order reports and subscribe for news, reports and RSS feeds. In accordance with the recommendations issued by Nasdaq OMX Copenhagen, Tryg refrains from commenting on matters 1. Danske Bank 2. Carnegie 3. Nordea 5. SEB Enskilda 6. Credit Suisse Securities 7. Morgan Stanley 8. Deutsche Bank 11.5% 10.9% 10.5% 7.4% 6.9% 5.3% 5.2% relating to financial performance or forecasts during a period of a) In terms of percentage of turnover on Nasdaq OMX Copenhagen. four weeks prior to the release of financial reports. 66 | Annual report 2010 | Tryg A/S was DKK 12.1bn including OTC transactions (over the counter) At 31 December 2010, the 40% free float was distributed among compared with DKK 6.7bn in 2009. New trading platforms such 28,608 registered shareholders. The 200 largest shareholders as Chi-X, Turqouise and Burgundy accounted for around 5% of held 73.2% of the free float. At 31 December 2010, Tryg held own all trades in Tryg shares in 2010. In addition MTF transactions shares corresponding to 5.2% of the share capital. accounted for DKK 4.4bn. MTF transactions account for 22% of all Tryg share transactions. Dialogue with investors The Executive Management and Investor Relations meet with On 16 April 2010, Tryg initiated a share buy back programme institutional investors and equity analysts each quarter after the running until 7 February 2011. During the period, Tryg bought publication of financial statements. In 2010, Tryg held around 285 2,615,470 own shares at a total price of DKK 799m. Tryg holds a investor meetings and participated in 12 investor conferences. Tryg total of 3,495,322 shares as own shares, corresponding to 5.8%. also participated in five events for private shareholders in Denmark. The total number of shares is 63,931,573. The acquired shares will be cancelled in June 2011. The Group’s performance is followed by 21 equity analysts, six of Share capital and ownership tions with respect to Tryg shares are available on tryg.com. The Tryg has a total share capital of DKK 1,598,289,325 comprised of website, which is available in a Danish and an English version, a single class of shares (63,931,573 shares of DKK 25 nominal is being updated and developed on an ongoing basis, making it value each), and all shares rank pari passu. The principal share- an important source for providing information about the Group’s holder, TryghedsGruppen smba, Kgs. Lyngby, Denmark, holds 60% performance to interested investors. whom are based in London. The equity analysts’ recommenda- of the issued shares. TryghedsGruppen is the only shareholder besides Tryg with an letter about winter losses in the year. Newsletters are issued ownership of more than 5%. TryghedsGruppen invests in Nordic when deemed appropriate and deal with topical issues in order to businesses that promote peace of mind and health, and supports create a better understanding of factors of importance to Tryg’s benevolent activities. performance. In 2010, Tryg’s Investor Relations department issued an IR news- Read more about TryghedsGruppen The newsletter can be downloaded on tryghedsgruppen.dk. on tryg.com > Investor. Shareholders At 31 December 2010 10 Percent 17 13 60 Equities by geography At 31 December 2010 12 1 8 6 Percent 73 Denmark UK USA Nordic Other TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders a) Shareholders with more than 10,000 shares. Tryg A/S | Annual report 2010 | 67 Annual general meeting Tryg’s annual general meeting will be held on 14 April 2011 at Queries relating to the annual general meeting Bjarne Lau Pedersen, Chief Legal Adviser 14:00 CET at Falkoner Centret, Falkoner Alle 9, 2000 Freder- +45 21 71 30 28 iksberg, Denmark. The invitation to attend the meeting will be bjarne.lau@tryg.dk advertised in the daily press in March 2011 and will be sent to shareholders who so request. Notice of the meeting will also be Ole Søeberg, Investor Relations Director posted on tryg.com. Shareholders unable to attend the annual +45 40 30 00 04 general meeting may follow it live via webcast on tryg.com. ole.soeberg@tryg.dk Read about dividends for 2010 in the section Capital management and profit distribution. Company announcements published in 2010 Date No. a) Company announcement 25.02.2010 25.02.2010 25.02.2010 11.03.2010 15.03.2010 18.03.2010 25.03.2010 29.03.2010 1 2 3 4 5 6 7 8 Fourth quarter 2009 results Annual report 2009 TrygVesta Forsikring AS Annual report 2009 TrygVesta sells marine hull business TrygVesta changes name to Tryg Notice of the annual general meeting of TrygVesta A/S TryghedsGruppen’s candidates for TrygVesta’s Supervisory Board Election of Swedish employee representative 09.04.2010 9 Effect of winter claims in Q1 2010 15.04.2010 16.04.2010 29.04.2010 21.05.2010 01.07.2010 10.08.2010 17.08.2010 23.08.2010 06.09.2010 15.10.2010 10.11.2010 15.11.2010 10 11 13 17 24 30 32 34 36 43 48 50 Resolutions from annual general meeting TrygVesta initiates share buy back programme Sale of marine hull business completed First quarter 2010 report Moderna becomes a branch of Tryg Historical financial data in new reporting structure Q2 and H1 2010 report Financial calendar 2011a Management change Market update prior to Q3 2010 report Revised financial calendar for 2010 and 2011 Interim report for Q1-Q3 2010 a) After implementing the share buy back programme on 16 April 2010, Tryg issued a company announcement on the weekly share buy backs each week in 2010 until 8 February 2011. 68 | Annual report 2010 | Tryg A/S Tryg A/S | Annual report 2010 | 69 Tryg’s financial statements are prepared in accordance with IFRS and published in Danish and English. Contents – Accounts Accounts 2010 Note Tryg Group Statement by the Supervisory Board and the Executive Management Independent auditors’ report Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cashflows Notes Insurance operating expenses, net of reinsurance 1 Accounting policies 2 Earned premiums, net of reinsurance 3 Technical interest, net of reinsurance 4 Claims incurred, net of reinsurance 5 6 Operatingegments 6 Technical result, net of reinsurance, by line of business 7 8 Value adjustment 9 Tax Interest and dividends Intangible assets Investment property Investments in associates 10 Profit/loss on discontinued and divested business 11 12 Property, plant and equipment 13 14 15 Total other financial investment assets 16 Reinsurer’s share 17 Current tax 18 Shareholders’ equity 19 Capital adequacy 20 Subordinate loan capital 21 Provisions for claims 22 Pensions and similar obligations 23 Deferred tax 24 Other provisions 25 Debt to credit institutions 26 Other debt 27 Earnings per share 28 Contractual obligations, contingent liabilities and collateral 29 Acquisition of subsidiary 30 Related parties 31 Financial highlights Tryg A/S (parent company) Income statement (parent company) Statement of financial position (parent company) Statement of changes in equity (parent company) Notes (parent company) Geographical segments Other key figures Glossary Disclaimer Group chart Page 72 73 74 75 76 78 80 81 92 92 92 92 98 100 102 102 103 103 104 106 108 109 110 115 115 115 116 117 118 122 124 125 125 125 125 126 127 128 129 130 131 133 133 138 140 141 143 144 Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Management have to- and the parent company’s assets, liabilities and financial posi- day considered and adopted the annual report for 2010 of Tryg tion at 31 December 2010 and of the results of the Group’s A/S and the Tryg Group. and the parent company’s operations and the cash flows of the Group for the financial year 1 January – 31 December 2010. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards Furthermore, in our opinion the Management’s report gives a as adopted by the EU, and the financial statements of the par- true and fair view of developments in the activities and financial ent company have been prepared in accordance with the Danish position of the Group and the parent company, the results for Financial Business Act. In addition, the annual report has been the year and of the Group’s and the parent company’s financial presented in accordance with additional Danish disclosure re- position in general and describes significant risk and uncertainty quirements for the annual reports of listed financial enterprises. factors that may affect the Group and the parent company. In our opinion, the accounting policies applied are appropriate, We recommend that the annual report be adopted by the share- and the annual report gives a true and fair view of the Group’s holders at the annual general meeting Ballerup, 9 february 2011 Executive Management Morten Hübbe Group CEO Bestyrelse Lars Bonde Group Executive Vice President Mikael Olufsen Chairman Bodil Nyboe Andersen Deputy Chairman Jørn Wendel Andersen John R. Frederiksen Lene Skole-Sørensen Jesper Hjulmand Paul Bergqvist Christian Brinch Bill-Owe Johansson Rune Torgeir Joensen Tina Snejbjerg Berit Torm 72 | Annual report 2010 | Tryg A/S Independent auditor’s report To the shareholders of Tryg A/S cedures to obtain audit evidence about the amounts and disclosures We have audited the consolidated and parent financial statements in the consolidated and parent financial statements and the man- of Tryg A/S for the financial year 1 January to 31 December 2010, agement’s report. The procedures selected depend on the auditor’s which comprise the income statement, balance sheet, statement of judgment, including the assessment of the risks of material misstate- changes in equity and notes, including the accounting policies as ment of the consolidated and parent financial statements and the well as the management’s report, for the Group and the Parent, and management’s report, whether due to fraud or error. In making those the statement of comprehensive income and cash flow statement risk assessments, the auditor considers internal controls relevant to for the Group. The consolidated financial statements have been the entity’s preparation and fair presentation of consolidated and prepared in accordance with International Financial Reporting Stand- parent financial statements and to the fair review of a management’s ards as adopted by the EU, and the parent financial statements have report in order to design audit procedures that are appropriate in been prepared in accordance with the Danish Financial Business Act. the circumstances, but not for the purpose of expressing an opinion In addition, the consolidated and parent financial statements have on the effectiveness of the entity’s internal control. An audit also been prepared in accordance with additional Danish disclosure re- includes evaluating the appropriateness of accounting policies used quirements for listed companies. The management’s report has been and the reasonableness of the entity’s accounting estimates made prepared in accordance with the Danish Financial Business Act. by Management, as well as evaluating the overall presentation of the consolidated and parent financial statements and the management’s Management’s responsibility for the consolidated and report. We believe that the audit evidence we have obtained is suf- parent financial statements and the management’s report ficient and appropriate to provide a basis for our audit opinion. Our Management is responsible for the preparation and fair presenta- audit has not resulted in any qualification. tion of consolidated and parent financial statements in accordance with International Financial Reporting Standards as adopted by the Opinion EU in respect of the consolidated financial statements, in accord- In our opinion, the consolidated financial statements give a true and ance with the Danish Financial Business Act in respect of the parent fair view of the Group’s financial position at 31 December 2010, and financial statements, as well as in accordance with additional Danish of its financial performance and its cash flows for the financial year disclosure requirements for listed companies, and for the preparation 1 January to 31 December 2010 in accordance with International of a management’s report that contains a fair review in accordance Financial Reporting Standards as adopted by the EU and additional with the Danish Financial Business Act. This responsibility includes Danish disclosure requirements for listed companies. Furthermore, designing, implementing and maintaining internal control relevant in our opinion, the parent financial statements give a true and fair to the preparation and fair presentation of consolidated and parent view of the Parent’s financial position at 31 December 2010, and of financial statements and a management’s report that are free from its financial performance for the financial year 1 January to 31 De- material misstatement, whether due to fraud or error; selecting and cember 2010 in accordance with the Danish Financial Business Act applying appropriate accounting policies, and making accounting and additional Danish disclosure requirements for listed companies. estimates that are reasonable in the circumstances. Moreover, in our opinion, the management’s report contains a fair review in accordance with the Danish Financial Business Act. Auditor’s responsibility and basis of opinion Our responsibility is to express an opinion on these consolidated and Ballerup, 9 February 2011 parent financial statements and this management’s report is based on our audit. We conducted our audit in accordance with Danish Deloitte and International Standards on Auditing. Those standards require Statsautoriseret Revisionsaktieselskab that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated and parent financial statements and the management’s report are Lars Kronow Lone Møller Olsen free from materiel misstatement. An audit involves performing pro- State Authorised Public Accountant State Authorised Public Accountant Tryg A/S | Annual report 2010 | 73 Income statement DKKm Notes General insurance Gross premiums written Ceded insurance premiums Change in provisions for unearned premiums Change in reinsurers’ share of provisions for unearned premiums 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 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 2009 2010 17,883 -824 91 -62 19,939 -1,054 -382 47 17,088 18,550 158 134 -13,148 253 266 32 -14,809 391 -808 211 -12,597 -15,015 -112 -82 -2,214 -842 -3,056 81 -2,406 -898 -3,304 92 -2,975 -3,212 1,562 375 0 136 1,287 734 -116 -110 -5 128 1,133 238 -96 -76 Total return on investment activities 1,931 1,322 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 74 | Annual report 2010 | Tryg A/S -845 1,086 123 -161 2,610 -625 1,985 23 2,008 31.3 31.7 31.7 -752 570 162 -166 941 -265 676 -83 593 10.8 9.5 9.5 Statement of comprehensive income DKKm 2009 2010 Notes Adjustment beginning of year cf note 1 Change in equalisation provision 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 Deferred tax on provision for contingency funds 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 -35 0 9 -2 505 -474 119 0 28 -7 143 2,008 2,151 0 1 19 -5 330 -328 82 68 -228 63 2 593 595 Tryg A/S | Annual report 2010 | 75 Statement of financial position DKKm Notes 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 2009 2010 934 968 83 1,358 172 1,613 118 1,385 353 1,856 2,364 2,158 17 17 381 2,143 29,410 2,938 13 13 184 2,268 34,643 2,755 Total other financial investment assets 34,872 39,850 Deposits with ceding undertakings, receivable 15 15 15 Total investment assets 37,268 42,036 16 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 195 1,125 1,320 967 967 271 1,190 154 1,434 1,588 1,110 1,110 211 862 2,428 2,183 0 86 512 4 602 417 158 575 196 104 857 21 1,178 609 173 782 Total assets 44,740 50,591 76 | Annual report 2010 | Tryg A/S Statement of financial position DKKm Notes Liabilities 18 Shareholders’ equity 20 Subordinate 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 Total liabilities and equity 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 2009 2010 9,631 8,458 1,586 1,591 6,208 22,470 364 6,819 24,883 329 29,042 32,031 496 1,330 6 1,832 383 168 611 303 989 671 1,387 1 2,059 419 187 30 106 5,353 2,454 6,095 195 357 44,740 50,591 Tryg A/S | Annual report 2010 | 77 Statement of changes in equity DKKm Share capital Revalua- Reserve for tion- exchange rate adj. reserves Equali- sation- reserve Other Retained Proposed reserves earnings dividents Total Shareholders’ equity at 31 Dec. 2008 1,700 7 -134 58 749 5,422 442 8,244 2009 Adjustment beginning of year cf note 1 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 Total equity entries in 2009 -102 Shareholders’ equity at 31 Dec. 2009 1,598 Shareholders’ equity at 31 Dec. 2009 1,598 2010 Profit for the period Change in equalisation provision Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Actuarial gains and losses on pension obligation Tax on equity entries Total comprehensive income 0 Dividend paid Dividend own shares Purchase of own shares Exercise of share options Issue of share options 9 -2 7 7 14 14 19 -5 14 201 0 201 487 -474 119 132 132 -2 0 58 201 950 -35 816 18 28 -7 820 102 32 -418 19 30 15 600 6,022 991 -35 2,008 9 505 -474 28 110 991 2,151 -442 0 -442 32 -418 19 30 15 549 991 1,387 9,631 -2 58 950 6,022 991 9,631 128 209 256 1 330 -328 82 84 1 128 256 -991 -228 131 112 14 -816 9 16 593 1 19 330 -328 -228 208 595 -991 14 -816 9 16 Total equity entries in 2010 0 Shareholders’ equity at 31 Dec. 2010 1,598 14 28 84 82 1 59 128 -665 -735 -1,173 1,078 5,357 256 8,458 78 | Annual report 2010 | Tryg A/S Statement of changes in equity Proposed dividend per share DKK 4.00 (in 2009 DKK 15.50) 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 Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of DKK 2,887m (in 2009 DKK 2,599m) Tryg Forsikring A/S’ Swedish branch, has in its branch financial statements included provisions for con- tingency funds in the amount of DKK 194m (in 2009 DKK 369m). In Tryg Forsikring A/S, these provisions, due to their nature as additional provisions, are included in shareholders’ equity (retained earnings), net of deferred tax. Tryg Forsikring A/S’ option to pay dividend to Tryg 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 Tryg Forsikring A/S. Tryg Garantiforsikring A/S has a similar contingency amounting to DKK 139m, which is also in- cluded in the company’s shareholders’ equity. Tryg A/S | Annual report 2010 | 79 Statement of cashflows DKKm Notes 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 and refurbishment 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 Total investments Funding Purchase of own shares Subordinated loan capital Dividend paid Change in debt to credit institutions Funding, continuing business Total funding Change in cash and cash equivalents, net Price adjustment of cash and cash equivalents, beginning of year Change in cash and cash equivalents, gross Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 80 | Annual report 2010 | Tryg A/S 2009 2010 18,011 -13,170 -529 -2,946 -191 19,911 -14,801 -552 -3,172 -314 1,175 1,072 1,573 -173 14 -349 -42 2,198 -2 2,196 -203 1 14 1,411 -1,850 -166 -939 605 -474 -1,601 -1,601 -334 485 -442 -98 -389 -389 206 24 230 282 512 1,132 -96 10 -482 -5 1,631 -20 1,611 -210 339 441 593 265 -31 0 0 -328 1,069 1,069 -807 0 -991 -581 -2,379 -2,379 301 44 345 512 857 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 2010 and in accordance with the Danish Statutory Order on Adoption of IFRS. The annual report of the parent company is prepared in accord- ance with the executive order on financial reports presented by in- surance companies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement re- quirements 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 adjust- ments and changes in actuarial assumptions to be taken to equity. Actuarial gains and losses will therefore be recognised in the parent company’s income statement. • The Danish FSA’s executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the equity of the parent company have been adjusted accordingly on the transition to IFRS. • Amendments to IFRS 8 ’Operating Segments’ • Amendments to IAS 1 ’Presentation of Financial Statements’ • Amendments to IAS 7 ’Statement of Cashflow’ • Amendments to IAS 17 ’Leases’ • Amendments to IAS 31 ’Interests in Joint Ventures: consequential amendments arising from amendments to IFRS 3’ • Amendments to IAS 32 ‘Financial Instruments: Presentation –classification of right issues’ • Amendments to IAS 36 ’Impairment of Assets’ • Amendments to IAS 39 ‘Financial Instruments: recognition and measurement – Embedded derivatives when reclassifying financial instruments’ Amendments to IFRIC 16 ‘Hedges of a net Investment in a foreign Operation’ • IFRIC 17 ‘Distributions of Non-cash Assets to Owners’, IFRIC 18 ‘transfer of Assets from Customers’ The implementation of the new standards and interpretations has not affected recognition and measurement in 2010, 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 In- ternational Financial Reporting Interpretations Committee (IFRIC) has issued a number of interpretations that have not yet come into force. The interpretations are approved by EU but are not yet been effective. Corrections The method to calculate holiday-pay obligations, etc., under IFRS has been adjusted over the recent years and Tryg has decided to adopt the latest and most generally accepted method. This has resulted in a DKK 35m increase in holiday-pay obligations and recognised in equity. • Amendments to IFRS 7 ’Financial Instruments: Disclosure’ • Amendments to IAS 1 ’Presentation of Financial Statements’ • Amendments to IAS 24 ‘Related Party Disclosures: Revised definition of related parties’ • Amendments to IAS 27 ‘Consolidated and separate financial Changes in accounting policies From 1 January 2010, the operating business segments in Tryg are Private Nordic, Commercial Nordic and Corporate Nordic. • Amendments to IAS 34 ‘Interim Financial Reporting’ • Amendments to IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 14 ‘The Limit on a Defined Benefit Asset’ statements’ The comparative figures are restated to reflect the disposal of the renewal rights of the Marine Hull portfolio. The total result of the Marine Hull portfolio is presented in Profit/loss on discontinued and divested business. Accounting policies are unchanged from the annual report 2009. Implementation of accounting standards in 2010 In 2010, the Group implemented the following standards and interpretations: • IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ The changes will be implemented going forward from 2011. Accounting estimates and judgements The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires manage- ment to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and esti- mates are significant to the consolidated financial statements, are: • Amendments to IFRS 2 ’Share-based Payments’ • Amendments to IFRS 3 ’Business Combinations’ • Amendments to IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets • Measurement of goodwill Tryg A/S | Annual report 2010 | 81 Notes A more detailed description of primary assumptions about the future and other primary sources of estimation uncertainty is given in the risk management section in the management’s report. Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions in- volve 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 Tryg Group’s knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other effects that might influence the future development of the liabilities. The Tryg 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 Tryg 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 occurred up to the balance sheet date even if they have not yet been reported to the Tryg Group. The projection for claims provisions is therefore inherently uncer- tain and, by necessity, relies upon the making of certain assump- tions as to factors such as court decisions, changes in law, social inflation and other economic trends, including inflation. The Tryg Group’s actual liability for losses may therefore be subject to mate- rial positive or negative deviations relative to the initially estimated provisions for claims. Provisions for claims are discounted. As a result, initial changes in discount 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’ compensa- tion and personal accident classes, in particular. For discounting of provisions for claims, the Group generally applies a risk-free market rate composed of a risk-free eurodenominated inter- est rate and a country-specific spread to the German government bond yield. As a result of the adoption of the temporary ‘Package to ensure financial stability’, from the end of October the Group has ap- plied a synthetic interest rate that includes a certain mortgage yield spread, for liabilities denominated in Danish kroner. Liabilities in Nor- wegian kroner are still discounted using a Norwegian risk-free interest rate composed as described above. Liabilities in Swedish kroner and euro are discounted using a Danish risk-free interest rate. Several assumptions and estimates underlying the calculation of the provisions for claims are mutually dependent. This has the greatest impact on assumptions with respect to interest rates and inflation. 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 assumptions include discount rate, salary adjustment and mortality.’ In 2010, the rules relating to AFP (flexible pension scheme in Norway) were changed to the effect that AFP will be treated as a defined con- tribution plan in future. This change resulted in a total change of esti- mates of DKK 40m, which amount has been recognised as income. 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 con- sideration to credit and liquidity premiums. Measurement of goodwill Goodwill was acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least annually. Impairment testing involves estimates of future cash flows and is affected by a number of fac- tors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. Basis of presentation Recognition and measurement The annual report has been prepared under the historical cost convention, 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 finan- cial assets and financial liabilities (including derivative instruments) at fair value through the income statement. Assets are recognised in the statement of financial position 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 statement of financial position 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. 82 | Annual report 2010 | Tryg A/S Notes 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 de- scribed 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 re- corded in the income statement unless otherwise described below. All amounts in the notes are shown in millions of DKK, unless otherwise stated. Consolidation The consolidated financial statements comprise the financial state- ments of Tryg A/S (the parent company) and subsidiaries controlled by the parent company. Control is achieved where the parent com- pany 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 consolidation method. Using pro rata consolidation, the Group’s share of joint venture assets and liabilities is recognised in the statement of financial position. 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 con- trol, respectively. Profit and loss in divested subsidiaries and profit and loss on discontinued activities are included under discontinued and divested business in the income statement. Unrealised gains on transactions between consolidated companies (including 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. Business combinations Newly acquired companies are recognised in the consolidated financial statements from the date of acquisition. Comparative figures are not restated to reflect acquisitions. The purchase method is applied on acquisitions if the Tryg Group gains control of the company acquired. Identifiable assets, liabili- ties and contingent liabilities in companies acquired are measured at the fair value at the date of acquisition. The tax effect of revalu- ations is taken into account. The date of acquisition is the date on which control of the acquired company actually passes to the Tryg Group. The cost of a company is the fair value of the agreed consideration paid plus costs directly attributable to the acquisition. If the final amount of the consideration is conditional on one or more future events, these adjustments are only recognised in cost if the event in question is likely to occur and its effect on cost can be reliably measured. Any excess of the cost of acquisition of the enterprise over the fair value of the acquired identifiable assets, liabilities and contingent liabilities is recognised as goodwill under intangible assets. Good- will 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. Transactions in currencies other than the functional currency are transactions in foreign currencies. On initial recognition, transactions in foreign currencies are trans- lated into the functional currency at the exchange rate ruling at the transaction date. Assets and liabilities denominated in foreign cur- rency are translated at the exchange rates at the balance sheet date. Translation differences are recognised in the income state- ment under value adjustments. On consolidation, the assets and liabilities of the Group’s foreign operations are translated at exchange rates of the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising on translation are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. All other currency translation gains and losses are recognised in the income statement. The presentation currency in the annual report is DKK. Tryg A/S | Annual report 2010 | 83 Notes Segment reporting Segment information is based on the Group’s management and in- ternal financial reporting system and is prepared in accordance with the Group’s accounting policies. 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 accord- ing to the expected run-off pattern of the provisions. The operational business segments in the Tryg Group are Private Nordic, Commercial Nordic and Corporate Nordic. Technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Geographical information is presented on the basis of the eco- nomic environment in which the Tryg Group operates. The geo- graphical areas are Denmark, Norway, Finland and Sweden. Segment income and segment costs as well as segment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment ac- tivity 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 2010” issued by the Danish Society of Financial Analysts and the executive 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 premiums to the risk period of the policies, and in the reinsurers’ share of the provision for unearned premiums. Premiums are recognised as earned premiums according to the ex- posure of risk over the period of coverage, computed separately for each insurance contract using the pro rata method, and ad- justed if necessary 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 un- expired risks at the balance sheet date is reported under provisions for unearned premiums. The portion of premiums paid to reinsurers that relates to unex- pired 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 li- ability provisions, net of reinsurance. The calculated interest return 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 pre- vious years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to technical interest. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and contain claims incurred and other direct and indirect costs associated with the handling of claims incurred. Changes in claims provisions due to changes in the yield curve and exchange rates are recognised as a market value adjustment. Tryg hedges the risk of changes in future wage and price figures for provisions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustment of these swaps is included in claims incurred, thereby reducing the effect of changes to inflation expectations under claims incurred. Bonus and premium rebates Bonus and premium rebates represent anticipated and reimbursed premiums where the amount reimbursed depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the business was written. Insurance operating expenses Insurance operating expenses represent acquisition costs and ad- ministrative expenses less reinsurance commissions received. Ex- penses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs and is ac- crued over the term of the policy. Administrative expenses are all other expenses attributable to the administration of the insurance portfo- lio. Administrative expenses are accrued to match the financial year. Leasing Leases are classified either as operating or finance leases. The as- sessment of the lease is made on the basis of criteria such as ownership, right of purchase when the lease term expires, consid- erations as to whether the asset is custom-made, the lease term and the present value of the lease payments. 84 | Annual report 2010 | Tryg A/S Notes Assets held under operating leases are not recognised in the statement of financial position, but the lease payments are recog- nised in the income statement over the term of the lease, corre- sponding to the economic life of the asset, while assets held un- der finance leases are recognised at fair value and depreciated according to the same accounting policy as the Group applies for similar owned assets. For assets held under finance leases, a lease liability is recognised at amortised cost. Share-based payment The Tryg Group’s incentive programmes comprise share option pro- grammes and employee shares. Share option programme The value of services received as consideration for options granted is measured at the fair value of the options. 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 di- rectly 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 con- cerning sickness and death and in case of change to the Group’s capital position, etc. The share option agreement entitles the employee to the options un- less 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 quar- terly reports and in accordance with Tryg’s in-house rules on trad- ing in the Group’s shares. The options are settled in shares. A part of the Group’s holding of treasury shares is reserved for settle- ment of the options allocated. uity. The discount is calculated at the grant date as the difference be- tween 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 sharehold- er’s death or disability. Investment activities Income from associates includes the Group’s share of the associ- ates’ net profit. Income from investment properties before fair value adjustment represents the profit from property operations less property man- agement expenses. Interest and dividends represent interest earned and dividends received during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjust- ment 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 Tryg’s insurance portfolio or investment as- sets, 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. 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. Recognition of the balance sheet items in respect of the discontin- ued 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 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 ex- pense in staff costs. The balancing item is recognised directly in eq- The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested business in the income statement in- cludes the profit/loss after tax of the sale of the right to renew the marine hull business in 2010. Discontinued business also com- prises the Tryg Forsikring A/S run-off business and the divestment of the subsidiary Chevanstell Ltd. UK (2006). Tryg A/S | Annual report 2010 | 85 Notes Statement of financial position Intangible assets Goodwill Goodwill was acquired in connection with acquisition of business. Goodwill is calculated as the difference between the cost of the undertaking and the fair value of acquired identifiable assets, liabili- ties and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the investment and is recognised under intangible assets. Trademarks and customer relations Trademarks and customer relations have been identified as intangi- ble 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 soft- ware. These costs are amortised on the basis of the expected use- ful 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 recognised as intangible assets. Direct costs include the software development 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 maximum period of four years. The basis of amortisation is re- duced by any impairment writedowns. Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributa- ble to the acquisition 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 trans- ferred to retained earnings. Land and buildings Land and buildings are divided into owner-occupied property and investment property. The Tryg 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 in- vestment 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 revalua- tion, less any subsequent accumulated depreciation and subse- quent accumulated impairment writedowns. Revaluations are per- formed regularly to avoid the carrying amount differing materially from the owner-occupied 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 characteris- tics, corresponding to the present value of a perpetual annuity. Increases in the revalued carrying amount of owner-occupied properties are credited to the properties’ revaluation reserve in eq- uity. Decreases 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 recognised 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. Or- dinary 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 prop- erties, costs to be capitalised are recognised at cost under owner- occupied property. On completion of the project, depreciation will be made on a straight-line basis over the expected useful life, up to the number of years stated under the individual categories. 86 | Annual report 2010 | Tryg A/S Notes Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. Net revaluation of investments in subsidiaries is taken to reserve for net revaluation under the equity method if the carrying amount exceeds cost. 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 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. The fair value is calculated on the basis of market-specific rental in- come per property and typical operating expenses for the upcom- ing year. The resulting operating income is divided by the percent- age return requirement of the property, which has been adjusted to reflect market interest rates and property characteristics, corre- sponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on pre- payments and deposits 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 writ- ten down to the recoverable amount if the carrying amount of the asset is higher than the recoverable amount. Balance sheet items of foreign subsidiaries are translated at the exchange rate ruling at the balance sheet date. Investments in associates Associates are enterprises over which the Group has significant in- fluence but not control, generally accompanying an ownership in- terest of between 20% and 50% of the voting rights. Investments in associates are measured according to the equity method of ac- counting so that the carrying amount of the investment represents the Group’s proportionate 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 associate’s negative balance, such obligation is recognised un- der liabilities. The recoverable amount is generally calculated as the present value of the future cash flows expected to be derived from the ac- tivity to which the asset belongs. Investments in subsidiaries The parent company’s investments in subsidiaries are recognised and measured under the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unre- alised intra-group profits and losses is recognised in the income statement. In the statement of financial position, 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 receivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the remaining amount is recognised under provisions if the parent company has a legal or constructive obligation to cover the liabilities of the rele- vant enterprise. Investments Investments include financial assets at fair value through the in- come 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. Financial assets at fair value through income Financial assets are classified as financial assets available for trad- ing at inception if acquired principally for the purpose of selling in the short term, or if they form part of a portfolio of financial as- sets in which there is evidence of short-term profit-taking. Deriva- tives are also classified as financial assets available for trading un- less they are designated as hedges. Tryg A/S | Annual report 2010 | 87 Notes 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 included in the income statement in the period in which they arise. The fair values of quoted investments are based on stock ex- change 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 trans- actions, reference to other instruments that are substantially the same and a discounted cash flow analysis. Derivative financial instruments and hedge accounting The Group’s activities expose it to financial risks, including changes in share prices, foreign currency exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance balance sheet items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks re- lated 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 statement of financial position. Positive fair values of derivatives are recognised as bonds and shares or other receiv- ables if they cannot unambiguously be attributed to the former. Negative fair values of derivatives are recognised under other pay- ables. Positive and negative values are only offset when the com- pany is entitled or intends to make net settlement of more finan- cial instruments. The valuation is performed in securities systems with data usually provided by Nordea, and the valuation is verified using own valua- tion 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 na- ture of the item being hedged. The Group designates certain deriv- atives 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 hedging 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 require- ments of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign operation. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts is- sued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provi- sions 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 contracts 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 ex- change 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 reinsur- ance asset to its recoverable amount. Impairment write-downs are recognised in the income statement. Receivables Receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market other than receivables that the Group intends to sell in the short term. Receivables arising from insurance contracts are classified in this category and are reviewed for impairment as part of the im- pairment review of receivables. On initial recognition, receivables are measured at fair value, and they are subsequently measured at amortised cost. Appropriate al- lowances 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 dif- ference between the asset’s carrying amount and the present value of estimated future cash flows. 88 | Annual report 2010 | Tryg A/S Notes 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 fi- nancial years and interest receivable. Accrued underwriting com- mission relating to the sale of insurance is also included. Equity Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributa- ble to the issue of equity instruments are shown in equity as a de- duction 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 re- lates primarily to owner-occupied properties. Exchange adjustment reserve Assets and liabilities of foreign entities are recognised at the ex- change rate at the balance sheet date. Income and expense items are recognised at the average exchange rates for the period. Any resulting exchange 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 for- eign entities is also offset in shareholders’ equity in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of retained earn- ings 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. Dividends Proposed dividend is recognised as a liability at the time of adop- tion by the shareholders at the annual general meeting (the date of declaration). Treasury shares The purchase and sale sums of treasury shares and dividends ther- eon are taken directly to retained earnings under equity. Treasury shares include shares acquired for employee shares and the share option programmes and share buyback programme. Proceeds from the sale of treasury shares in connection with the exer- cise of share options or employee shares are taken directly to equity. Subordinate loan capital Subordinate loan capital is recognised initially at fair value, net of transaction costs incurred. Subordinate loan capital is subse- quently stated at amortised cost; any difference between the pro- ceeds (net of transaction costs) and the redemption value is rec- ognised 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 premi- ums) proportionally over the period of coverage and, where neces- sary, adjusted to reflect any time variation of the risk. The portion of premiums received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as unearned premium provisions. Unearned premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period. However, as a minimum to the part of the pre- mium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any variations in the risk. This applies to gross as well as ceded business. Claims and claims handling costs are charged to income as in- curred 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 affected 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 pay- ments from the provision. Discounting affects the motor liability, professional liability, workers’ compensation and personal accident classes, in particular. Provisions for bonus and premium rebates represent amounts ex- pected to be paid to policyholders in view of the claims experience during the financial year. 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-Fergu- Tryg A/S | Annual report 2010 | 89 Notes son, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for business lines with a stable run-off pattern. The Bornhuetter-Ferguson method, and some- times the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the fu- ture 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. The provision for annuities in workers’ compensation insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis (official mortality table). In some instances, the historic data used in the actuarial models is not necessarily predictive of the 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 increase in claims. For legislative changes this estimate is used also in determining the level of claims. Subsequently, this es- timate is maintained until new loss history materialises for re-esti- mation. Several assumptions and estimates underlying the calculation of the provisions for claims are mutually dependent. Most impor- tantly, this can be expected to be the case for interest rate and in- flation assumptions. Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-ad- ministered funds. In Norway, the Group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retire- ment, dependent on age, years of service and compensation. In Denmark, the Group operates a defined contribution plan. A de- fined 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 contribu- tions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. The FTP plan is primarily a defined benefit plan in terms of the future pension benefits. Försäkringsbran- schens Pensionskassa (FPK) is unable to provide sufficient informa- tion for the Group to use defined benefit accounting. The plan is therefore accounted for as a defined contribution plan. The liability recognised in the statement of financial position in re- spect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. Expectations of returns on plan assets are based on the return within each asset class and the current allocation thereof. Market expectations of future returns are taken into consideration. Workers’ compensation is an area in which explicit inflation as- sumptions are used, with annuities for the insured being indexed with the workers’ compensation index. An inflation curve that re- flects the market’s inflation expectations plus a real wage spread is used as an approximation to the workers’ compensation index. 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 esti- mated future cash outflows by a duration that matches the condi- tions of the underlying pension obligation. For other lines of business, the inflation assumptions, because present only implicitly in the actuarial models, will cause a certain lag in predicting the level of future losses when a shift in inflation occurs. On the other hand, the effect of discounting will show im- mediately as a consequence of inflation changes to the extent that this change affects the interest rate. Other correlations are not deemed to be significant. Liability adequacy test Tests are continuously performed to ensure the adequacy of the technical provisions. In performing these tests, current best esti- mates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency is charged to the in- come statement by raising the relevant provision and the adjust- ment is recognised in the income statement. The actuarial gains and losses arising from experience adjustments and changes in actuarial estimates is recognised in equity. 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. 90 | Annual report 2010 | Tryg A/S Notes 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 cur- rent tax receivables are recognised in the statement of financial position as estimated tax on the taxable income for the year, ad- justed 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 us- ing tax rules and tax rates that apply in the relevant countries by the balance 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 carried forward, are recognised to the extent that it is probable that future taxable profit will be available against which the tem- porary differences can be utilised. Deferred income tax is provided on temporary differences concern- ing investments, except where Tryg controls when the temporary difference will be realised, and it is probable that the temporary difference 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 legal or constructive obligation, and it is likely that an out- flow of resources will be required to settle the obligation. Provi- sions are measured 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 raising of the loan as the proceeds received less transaction costs. In the subsequent periods, financial liabilities are measured at am- ortised cost, applying the ’effective interest rate method’, to the effect that the difference between the proceeds and the nominal value is recognised in the income statement under financial ex- penses over the term of the loan. Transaction costs in connection with floating-rate loans or floating-rate credit facilities are amor- tised over the loan period using straight-line amortisation. Other liabilities are measured at net realisable value. Cash flow statement The statement of cashflows 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 equiva- lents at the beginning and the end of the financial year. No sepa- rate statement of cashflows has been prepared for the parent company because it is included in the consolidated statement of cashflows. 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 statement of cashflows 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 dis- closed. Cash flows from investing activities comprise payments in connec- tion 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 Tryg’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. Tryg A/S | Annual report 2010 | 91 Notes DKKm 2 Earned premiums, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance 2009 2010 17,925 31 17,956 18 17,974 -852 -34 19,627 36 19,663 -106 19,557 -941 -66 17,088 18,550 Direct insurance, by location of risk 2009 2010 Denmark Other EU countries Other countries Gross 9,414 1,581 6,948 17,943 Ceded -466 -52 -334 -852 Gross 9,610 2,918 6,993 19,521 Ceded -501 -104 -336 -941 3 Technical interest, net of reinsurance Interest on insurance provisions Transferred from provisions for claims concerning discounting 4 Claims incurred, net of reinsurance Claims incurred Run-off previous years, gross Reinsurance recoveries Run-off previous years, reinsurers’ share Under claims incurred, the value adjustment of inflation swaps to hedge the inflation risk concerning annuities on workers’ compensation insurance totals DKK -83m (2009 DKK 62m). 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 92 | Annual report 2010 | Tryg A/S 2009 2010 845 -687 158 752 -618 134 -13,534 652 -12,882 254 31 -16,500 883 -15,617 661 -59 -12,597 -15,015 -439 -1,775 -2,214 -842 -3,056 81 -492 -1,914 -2,406 -898 -3,304 92 -2,975 -3,212 Notes DKKm 2009 2010 5 Insurance operating expenses, net of reinsurance (continued) 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. In the calculation of the expense ratio costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner- occupied property based on a calculated market rent of DKK 11m. (in 2009 DKK 12m) Insurance operating expenses, gross, classified by type Commissions 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 expenses for leases amounts to DKK 37m (2009 DKK 35m) Insurance operating expenses and claims include the following staff expenditure: Salaries and wages Commision Allocated share options Pensions Other social security costs Payroll tax Remuneration for the Supervisory Board and Executive Management is disclosed in note 30 ‘Related parties’. -8 -8 -1 -1 -9 -9 -2 -2 -448 -1,750 -274 -453 -228 -140 237 -492 -1,827 -269 -682 -255 -163 384 -3,056 -3,304 -2,026 -32 -15 -318 -9 -273 -2,211 -19 -16 -288 -40 -258 -2,673 -2,832 Average number of full-time employees during the year 4,364 4,301 Share option programmes In 2010, Tryg awarded share options to the Executive Management (3 persons), senior employees (96 persons) and other employees (38 persons). At 31 December 2010, the share option plan comprised 859,044 share options (at 31 December 2009 681,861 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 1.4 % of the share capital in Tryg A/S if all share options are exercised. In 2010, the fair value of share options recognised in the consolidated income statement amounted to DKK 16m (2009: DKK 15m). As at 31 December 2010, a total amount of DKK 56m was recognised for share option programmes issued in 2006-2010. Fair values at the time of allocation are based on the Black & Scholes option pricing formula. Tryg A/S | Annual report 2010 | 93 Notes TOTAL NUMBERS FAIR VALUE Group Executive Other senior Other Management employees employees Total fair value Per Total fair Per option per option option at value at 31 Dec. DKKm at grant Total date DKK date DKKm 31 Dec. DKK at grant 5 Share option programmes Spec. of outstanding options: 2010 Allocation 2006-2008 Allocated in 2006-2008, beginning of year Exercised Cancelled Expired Outstanding options from 2006-2008 allocation 106,608 0 0 0 353,882 -31,820 -4,646 0 39,427 -5,240 -1,900 0 499,917 -37,060 -6,546 0 64/99/69 64/99/69 64/99/69 0 39 -3 0 0 5/0/3 5/0/3 5/0/3 0 31 Dec 2010 106,608 317,416 32,287 456,311 - 36 - Allocation 2009 Allocated in 2009, beginning of year Exercised Cancelled Expired Outstanding options from 2009 allocation 38,258 0 0 0 123,016 0 -5,580 0 20,670 0 -530 0 181,944 0 -6,110 0 94 0 94 0 17 0 -1 0 17 0 17 0 31 Dec 2010 38,258 117,436 20,140 175,834 - 16 - Allocation 2010 Allocated in 2010 Exercised Cancelled Expired Outstanding options from 2010 allocation 48,050 0 0 0 154,838 0 -1,335 0 25,346 0 0 0 228,234 0 -1,335 0 75 0 75 0 31 Dec 2010 48,050 153,503 25,346 226,899 - Number of options exercisable end of 2010 54,520 166,700 0 221,220 64/99 17 0 0 0 17 19 17 0 17 0 - 5/0 1 0 0 0 1 3 0 0 0 3 4 0 0 0 4 0 94 | Annual report 2010 | Tryg A/S Notes TOTAL NUMBERS FAIR VALUE Group Executive Other senior Other Management employees employees Total fair value Per Total fair Per option per option option at value at 31 Dec. DKKm at grant Total date DKK date DKKm 31 Dec. DKK at grant 5 Share option programmes Spec. of outstanding options: 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 Exercised Cancelled Expired Outstanding options from 2008 allocation 52,088 0 0 0 167,203 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 31 Dec 2009 52,088 162,883 28,000 242,971 - 17 - 11 Allocation 2009 Allocated in 2009 Exercised Cancelled Expired Outstanding options from 2009 allocation 38,258 0 0 0 124,076 0 -1,060 0 21,200 0 -530 0 183,534 0 -1,590 0 94 0 94 0 17 0 0 0 82 0 82 0 15 0 0 0 31 Dec 2009 38,258 123,016 20,670 181,944 - 17 - 15 Number of options exercisable end of 2009 28,820 82,910 2,620 114,350 64 7 73 8 Tryg A/S | Annual report 2010 | 95 Notes 5 Share option programmes Year of allocation 2006 2007 2008 2009 2010 Outstanding options 31 December 2010 Years of exercise 2009-2011 2010-2012 2011-2013 2012-2014 2013-2015 1 Jan. 2010 Exercised Cancelled Expired 31 Dec. 2010 119,590 141,676 238,651 181,944 228,234 -37,060 0 0 0 0 0 -2,986 -3,560 -6,110 -1,335 910,095 -37,060 -13,991 0 0 0 0 0 0 82,530 138,690 235,091 175,834 226,899 859,044 The assumptions by calculating the marketvalue at time of allocation Years Year of allocation of exercise Average share price (DKK) at time of allocation Expected Volatility Expected maturity Average exercise Share price interest rate 31 dec. 2010 31 dec. 2010 Average term to maturity Risk-free 2006 2007 2008 2009 2010 2009-2011 2010-2012 2011-2013 2012-2014 2013-2015 355.85 456.76 378.24 313.51 320.04 17.90% 24.10% 20.30% 37.70% 29.20% 4 år 4 år 4 år 4 år 4 år 3.30% 3.90% 3.60% 2.80% 2.70% 0.08 0.58 1.15 2.17 3.16 262.83 430.44 377.06 322.86 367.54 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 Tryg shares. The expected maturity is 4 years, corresponding to the average of the exercise period of 3 to 5 years. The risk-free interest rate is based on a bullet loan with the same 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 assumptions for calculating the market value at the end of the period are based on the same principles as for the market value at the time of allocation. 96 | Annual report 2010 | Tryg A/S Notes 5 Employee shares 2010 Tryg did not grant employee shares at a discount to the market price to the employees in 2010. 2009 In 2009, Tryg 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 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. Tryg A/S | Annual report 2010 | 97 Notes DKKm 6 Operating segments 2010 Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result Total return on investment activities after technical interest Other income and expenses Profit before tax Tax Private Nordic Commercial Nordic Corporate Nordic Other Group 10,181 -8,223 -1,627 38 77 446 4,263 -3,768 -1,029 39 30 -465 5,044 -3,630 -648 -399 27 394 -13 4 0 9 0 0 19,475 -15,617 -3,304 -313 134 375 570 -4 941 -265 676 -83 593 824 13 154 1,434 48,990 50,591 6,819 24,883 329 10,102 42,133 Profit on continuing business Profit/loss on discontinued and divested business Profit Run-off gains/losses, net of reinsurance 399 100 325 Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets 14 232 0 312 140 890 Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 3,883 6,824 196 1,480 6,280 20 1,456 11,779 113 Other liabilities Total liabilities 0 13 0 0 48,990 0 0 0 10,102 98 | Annual report 2010 | Tryg A/S Notes DKKm 6 Operating segments 2009 Gross premiums earned Gross claims Gross operating expenses Profit/loss on business ceded Technical interest, net of reinsurance Technical result Total return on investment activities after technical interest Other income and expenses Profit before tax Tax Private Nordic Commercial Nordic Corporate Nordic Other Group 8,962 -6,751 -1,477 -87 85 732 3,777 -2,797 -925 -98 39 -4 5,127 -3,348 -610 -325 34 878 -4 14 -44 -10 0 -44 17,862 -12,882 -3,056 -520 158 1,562 1,086 -38 2,610 -625 1,985 23 2,008 683 17 195 1,125 43,403 44,740 6,208 22,470 364 6,067 35,109 Profit on continuing business Profit/loss on discontinued and divested business Profit Run-off gains/losses, net of reinsurance 134 192 357 Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets 48 93 0 118 147 914 Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 3,430 6,265 206 1,404 5,444 21 1,374 10,752 137 Other liabilities Total liabilities Description of segments 0 17 0 0 43,403 0 9 0 6,067 Please refer to ‘Results’ for a description of our operating segments. Amounts relating to Tryg A/S, Tryg Ejendomme A/S and elimi- nations are included in ‘Other’. Other assets and liabilities are managed at Group level and are therefore not allocated to the indi- vidual segments. These amounts are thus included under ‘Other’. Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. The distribution on segments in Moderna has been altered during Q2 as to medium sized enterprise. Comparative figures have been restated accordingly. A presentation of segments broken down by geography is provided in ‘Geographical segments.’ Tryg A/S | Annual report 2010 | 99 Notes DKKm 6 Technical result, net of reinsurance, by line of business Accident and health 2009 2010 Gross premiums written 1,665 1,830 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 1,644 - 863 - 250 - 13 5 523 1,820 - 1,136 - 245 - 20 11 430 Health care Worker’s compensation Motor TPL Motor comprehensive Marine, aviation and cargo 2009 258 263 - 220 - 26 0 3 20 2010 325 311 - 206 - 33 0 2 74 2009 1,402 1,432 - 702 - 169 - 47 23 537 2010 1,317 1,352 - 1,220 - 178 - 23 1 - 68 2009 2010 2009 2010 2,413 2,650 3,372 3,830 2,405 - 1,365 - 449 - 36 11 566 2,646 - 1,624 - 434 - 27 16 577 3,317 - 2,673 - 554 - 12 32 110 3,679 - 3,098 - 616 - 11 24 - 22 Claims Frequency a) Average claims DKK b) Total claims 3.7% 39,044 31,112 3.4% 43,342 31,833 80.1% 7,409 33,700 72.6% 7,567 32,987 19.6% 78,086 13,800 18.9% 83,801 14,395 6.1% 18,421 91,489 5.1% 25,374 80,073 19.7% 10,428 241,946 20.5% 11,554 264,675 28.6% 51,719 3,171 20.8% 83,551 3,122 Fire & contents (Private) Fire and contents (Commercial) Change of ownership Liability Credit & guarantee insurance Tourist assistance insurance Gross premiums written 3,919 4,599 2,537 2,768 2009 2010 2009 2010 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 3,876 - 3,328 - 698 - 70 36 - 184 4,435 - 4,026 - 845 65 33 - 338 2,570 - 1,868 - 476 - 255 16 - 13 2,751 - 2,437 - 502 - 114 18 - 284 2009 90 86 - 234 - 8 0 4 - 152 2010 86 - 21 - 196 - 8 0 3 - 222 2009 757 745 - 518 - 153 31 5 110 2010 827 815 - 449 - 147 - 56 3 166 2009 187 181 - 38 - 54 - 39 2 52 2010 225 211 - 64 - 52 - 31 2 66 Claims Frequency a) Average claims DKK b) Total claims 7.6% 9,973 319,222 7.3% 13,150 310,832 22.2% 45,981 40,925 21.9% 62,951 40,462 9.8% 18,193 6,186 9.3% 22,919 6,141 10.3% 51,511 9,422 10.1% 55,335 9,252 1.4% 1.5% 843,571 1,567,033 45 58 13.3% 6,876 50,274 10.8% 8,059 49,862 2009 293 282 - 164 - 32 - 33 6 59 2009 431 455 - 400 - 70 - 1 4 - 12 2010 378 367 - 251 - 50 - 47 2 21 2010 488 480 - 407 - 72 - 1 4 4 Other insurance Total Norwegian Group Life One-year policies 2009 2010 2009 2010 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 65 74 - 59 - 48 - 43 7 - 69 68 17,389 19,391 69 - 19 - 69 - 44 5 - 58 17,330 - 12,432 - 2,987 - 518 154 18,915 - 15,133 - 3,251 - 309 124 1,547 346 2009 494 532 - 450 - 69 - 2 4 15 2010 548 560 - 484 - 53 - 4 10 29 Claims Frequency a) Average claims DKK b) Total claims 17,897 1,306 11,315 1,329 a) The claims frequency is calculated as the number of claims incurred in proportion to the average number of insurance contracts. b) Average claims are total claims before run-off relative to the number of claims incurred. 100 | Annual report 2010 | Tryg A/S Notes Accident and health 2009 2010 Gross premiums written 1,665 1,830 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 1,644 - 863 - 250 - 13 5 523 1,820 - 1,136 - 245 - 20 11 430 2009 258 263 - 220 - 26 0 3 20 2010 325 311 - 206 - 33 0 2 74 2009 1,402 1,432 - 702 - 169 - 47 23 537 2010 1,317 1,352 - 1,220 - 178 - 23 1 - 68 Health care Worker’s compensation Motor TPL Motor comprehensive Marine, aviation and cargo 2009 2010 2009 2010 2,413 2,650 3,372 3,830 2,405 - 1,365 - 449 - 36 11 566 2,646 - 1,624 - 434 - 27 16 577 3,317 - 2,673 - 554 - 12 32 110 3,679 - 3,098 - 616 - 11 24 - 22 2009 293 282 - 164 - 32 - 33 6 59 2010 378 367 - 251 - 50 - 47 2 21 Claims Frequency a) Average claims DKK b) Total claims 3.7% 39,044 31,112 3.4% 43,342 31,833 80.1% 7,409 33,700 72.6% 7,567 32,987 19.6% 78,086 13,800 18.9% 83,801 14,395 6.1% 18,421 91,489 5.1% 25,374 80,073 19.7% 10,428 241,946 20.5% 11,554 264,675 28.6% 51,719 3,171 20.8% 83,551 3,122 Fire & contents (Private) Fire and contents (Commercial) Change of ownership 2009 2010 2009 2010 Gross premiums written 3,919 4,599 2,537 2,768 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 3,876 - 3,328 - 698 - 70 36 - 184 4,435 - 4,026 - 845 65 33 - 338 2,570 - 1,868 - 476 - 255 16 - 13 2,751 - 2,437 - 502 - 114 18 - 284 - 152 - 222 Liability Credit & guarantee insurance Tourist assistance insurance 2009 757 745 - 518 - 153 31 5 110 2010 827 815 - 449 - 147 - 56 3 166 2009 187 181 - 38 - 54 - 39 2 52 2010 225 211 - 64 - 52 - 31 2 66 2009 431 455 - 400 - 70 - 1 4 - 12 2010 488 480 - 407 - 72 - 1 4 4 Claims Frequency a) Average claims DKK b) Total claims 7.6% 9,973 319,222 7.3% 13,150 310,832 22.2% 45,981 40,925 21.9% 62,951 40,462 9.8% 18,193 6,186 9.3% 22,919 6,141 10.3% 51,511 9,422 10.1% 55,335 9,252 1.4% 843,571 45 1.5% 1,567,033 58 13.3% 6,876 50,274 10.8% 8,059 49,862 2009 90 86 - 234 - 8 0 4 2009 494 532 - 450 - 69 - 2 4 15 2010 86 - 21 - 196 - 8 0 3 2010 548 560 - 484 - 53 - 4 10 29 Other insurance Total Norwegian Group Life One-year policies 2009 2010 2009 2010 Gross premiums written 68 17,389 19,391 Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result 65 74 - 59 - 48 - 43 7 - 69 69 - 19 - 69 - 44 5 - 58 17,330 - 12,432 - 2,987 - 518 154 1,547 18,915 - 15,133 - 3,251 - 309 124 346 Claims Frequency a) Average claims DKK b) Total claims 17,897 1,306 11,315 1,329 a) The claims frequency is calculated as the number of claims incurred in proportion to the average number of insurance contracts. b) Average claims are total claims before run-off relative to the number of claims incurred. Tryg A/S | Annual report 2010 | 101 Notes DKKm 2009 2010 7 Interest and dividends Interest income and dividends Dividends Interest income cash in hand and at bank Interest income bonds Interest income other Interest expenses Interest expenses subordinated loan capital and credit institutions Interest expenses others 8 Value adjustment 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 or liabilities that cannot be attributed to IAS39 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 52m (2009 DKK 1.4m) Under market value adjustment the adjustment of inflation swaps totals DKK 27m (in 2009 DKK 13m). 14 67 1,197 9 1,287 -90 -26 -116 10 43 1,054 26 1,133 -88 -8 -96 1,171 1,037 62 485 -38 532 -23 1,018 19 1 -294 -10 -284 734 1,606 -872 734 61 233 5 78 3 380 74 0 -227 11 -142 238 907 -669 238 102 | Annual report 2010 | Tryg A/S Notes DKKm 9 Tax Tax on profit for the year Difference 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 Difference 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 See ‘The Group’s financial performance in 2010’ in the Management report for further information regarding the tax expense. 10 Profit/loss on discontinued and divested business Earned premiums, 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 Profit/loss on discontinued and divested business is excluded in ‘Marine, aviation and cargo’ in the accounts broken down by line of business. 2009 2010 -653 -43 -4 58 55 -37 -1 -625 % 25 2 0 -2 -2 1 24 333 -265 -37 31 31 -8 23 -235 -28 9 18 -26 0 -3 -265 % 25 3 -1 -2 3 0 28 224 -291 -44 -111 -111 28 -83 Claims Frequency Average claims DKK Total claims 16.3% 331,288 978 27.8% 310,702 954 Tryg A/S | Annual report 2010 | 103 Notes DKKm 11 Intangible assets 2010 Cost Balance 1 January Exchange rate adjustment 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 Trademarks and customer relations Goodwill Software Total 329 48 0 0 377 0 0 0 0 0 0 148 20 0 0 168 -12 -2 -18 0 0 -32 804 12 134 -49 901 -335 -8 -144 -3 44 -446 1,281 80 134 -49 1,446 -347 -10 -162 -3 44 -478 Carrying amount 31 December 377 136 455 968 2009 Cost Balance 1 January Exchange rate adjustment Addition on acquisition of subsidiary a) 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 -12 645 18 17 143 -19 804 -195 -18 -121 -10 9 -335 645 46 466 143 -19 1,281 -195 -18 -133 -10 9 -347 Carrying amount 31 December 329 136 469 934 a) 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 115m in the total software (in 2009 DKK 114m). Additions for in- ternally developed software expenses amount to DKK 30m (DKK 28m in 2009). Amortisation is recognised in the income state- ment under insurance operating expenses and claims incurred. 104 | Annual report 2010 | Tryg A/S Notes DKKm 11 Intangible assets (continued) Impairment test Goodwill As at 31 December 2010, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit. Assumptions for impairment test: The Value-in-use method is used. 2010 Moderna Försäkringar MF Bilsport & MC Specialförsäkringar 2009 Moderna Försäkringar Sak AB MF Bilsport & MC Specialförsäkringar AB Assumed annual growth > 5 years 2.5% 2.5% 2.5% 2.5% Return require- ment before tax 14.9% 14.9% 15.4% 15.4% Insurance activities in Sweden In 2009, Tryg acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB and MF Bilsport & MC specialfösäkringar. The in- surance activities were incorporated into the Tryg Group’s business structure in 2009 and are reported under Sweden. In 2010 the companies were merged into Tryg Forsikring A/S as Moderna Försäkringar, branch of Tryg Forsikring A/S. The assumed growth during the terminal period has been estimated based on expectations for general economic growth. The re- turn requirement 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. Software The impairment charges are recognised in the income statement in total insurance operating expenses . 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. Tryg A/S | Annual report 2010 | 105 Notes DKKm 12 Property, plant and equipment 2010 Cost Balance 1 January Exchange rate adjustment 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 Reversed depreciation Depreciation for the year Balance 31 December Operating Owner-occup- Assets under construction ied property equipment Total 225 7 62 -66 228 0 0 0 0 0 -142 -3 55 -20 -110 1,378 19 0 0 1,397 -2 0 0 19 17 -18 0 0 -11 -29 258 7 176 0 441 -86 -2 0 0 -88 0 0 0 0 0 1,861 33 238 -66 2,066 -88 -2 0 19 -71 -160 -3 55 -31 -139 Carrying amount 31 December 118 1,385 353 1,856 106 | Annual report 2010 | Tryg A/S Notes DKKm 12 Property, plant and equipment (continued) Operating Owner-occup- Assets under construction ied property equipment Total 2009 Cost Balance 1 January Exchange rate adjustment Addition on acquisition of subsidiary a) 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 185 6 11 45 -22 225 0 0 0 0 0 -139 -6 -18 21 -142 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 1,572 55 12 244 -22 1,861 -63 -7 -29 11 -88 -148 -7 -26 21 -160 Carrying amount 31 December 83 1,358 172 1,613 a) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 Amortisation is recognised in the income statement under insurance operating expenses and claims incurred. External experts were involved in valuing some of the owner-occupied properties. 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 operating 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 2010 Office property 2009 Office property Lowest % Average % Highest % 6.0 % 6.0 6.4 % 6.8 7.8 % 7.8 Tryg A/S | Annual report 2010 | 107 Notes DKKm 13 Investment property Fair value at the end of the previous financial year Exchange rate adjustment Additions during the year Disposals during the year Value adjustment for the year Reversed on sale Fair value at 31 december 2009 2010 2,246 76 32 -2 17 -5 2,364 33 23 -261 68 -69 2,364 2,158 Total rental income for 2010 is DKK 166m (DKK 173m in 2009). Total expenses for 2010 are DKK 37.8m (DKK 37.3m in 2009). Of this amount, not-hired property is DKK 0.9m. (DKK 0.8m in 2009) why the total expenses at the income leading investment property are DKK 36.9m (DKK 36.5m in 2009). External experts were involved in valuing the majority of the investment property. In establishing the market value of the properties, the following return percentages were used for each property category: Return percentages 2010 Business property Office property Residential property 2009 Business property Office property Residential property Lowest percentage Average percentage Highest percentage 7.0 5.8 3.8 7.0 6.0 3.8 7.3 6.7 5.2 7.3 6.8 5.3 7.5 7.8 6.0 7.5 7.8 6.0 108 | Annual report 2010 | Tryg A/S Notes DKKm 14 Investments in associates Cost Balance 1 January Balance 31 December Revaluations at net asset value Balance 1 January Exchange rate adjustment Reversel of additions Balance 31 December Carrying amount 31 December 2009 2010 0 0 14 3 0 17 17 0 0 17 1 -5 13 13 Shares in associates according to the latest financial statements: Name and registered office Assets Liabilities Equity Revenue Profit/Loss of the year Ownership share in % 2010 Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker, Norway 2009 Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker Norway 0 5 47 0 5 39 0 0 6 0 1 3 0 5 41 0 4 36 0 2 18 0 1 14 0 0 6 0 0 2 50 30 28 50 30 28 A individual estimate of the degree of influence referring to the agreed contracts are made. Tryg A/S | Annual report 2010 | 109 Notes DKKm 15 Total other financial investment assets Fair value hierarchy for financial instruments measured at fair value in the balance sheet 2010 Financial assets at fair value with value adjustment in the income statement Bonds Shares Unit trust units Derivatives Cash in hand and deposits in credit institutions 2009 Financial assets at fair value with value adjustment in the income statement Bonds Shares Unit trust units Derivatives Cash in hand and deposits in credit institutions Quoted market prices Observable Unobservable input input Total 20,808 0 2,268 0 3,612 26,688 16,337 200 2,143 0 3,450 22,130 13,770 0 0 -49 0 13,721 12,947 0 0 6 0 12,953 43 184 0 -29 0 198 126 181 0 31 0 338 34,621 184 2,268 -78 3,612 40,607 29,410 381 2,143 37 3,450 35,421 2009 2010 121 10 90 117 0 0 338 338 4 -47 0 -100 3 198 96 -54 Financial instruments measured at fair value in the balance sheet on the basis of non-observable input: Carrying amount 1 January Exchange rate adjustment Gains/losses in the income statement Purchases Sales Transfers to/from the group ‘non-observable input’ Carrying amount 31 December Gains/losses in the income statement for assets held at the balance sheet date recognised in value adjustments Bonds measured 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. Non-observable input, total result DKK -47m (DKK 96m in 2009), mainly comprises inflation derivatives of DKK -60m hedging (DKK 75m in 2009) inflation risk on technical provisions which recorded an accounting loss of DKK 83m (DKK -62m in 2009). The risk of the non-observable input group is moderate since the inflation derivatives aim at hedging the by market conditions such as inflation risk of the technical provisions 100 percent, while the unquoted shares and bonds, which are influenced the development in interest rates and expected earnings, is a limited amount. 110 | Annual report 2010 | Tryg A/S Notes DKKm Bonds Shares Property Total 15 Financial assets at fair value with value adjustment in the income statement 2010 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. Repo debt Owner-occupied property Equity investments Investment assets according to balance sheet Unit trust units Deposits 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 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. 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 34,317 2,179 3,897 40,393 -80 1,795 -532 0 -2,753 1,896 0 0 34,643 0 0 -1,736 -246 0 0 0 -13 184 0 0 0 0 0 0 -1,739 0 2,158 -80 1,795 -2,268 -246 -2,753 1,896 -1,739 -13 36,985 2,268 2,755 42,008 13 15 42,036 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 Tryg A/S | Annual report 2010 | 111 Notes DKKm 2009 2010 15 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 19,198 11,875 2,869 306 15,143 16,645 1,904 625 34,248 34,317 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 mort- gage institution at any point in time. Maturity of the Group’s interest-bearing financial assets and debt 2010 Bonds Cash in hand and at bank Debt Receivables 2009 Bonds Cash in hand and at bank Debt Receivables 0-1 year 1-5 years > 5 years 3,920 777 -30 2,183 22,947 0 0 0 6,850 22,947 10,084 462 -611 2,428 13,004 0 0 0 7,450 0 -1,591 0 5,859 11,160 0 -1,586 0 Total 34,317 777 -1,621 2,183 35,656 34,248 462 -2,197 2,428 12,363 13,004 9,574 34,941 Effective interest rate Adjusted duration 2.2 0.8 5.2 - 3.3 0.9 4.1 - 1.9 0 0 - 2.0 0 0 - The duration of interest-bearing debt is stated at zero as such debt is measured at amortised cost and is not subject to value adjustment. The note should be seen in connection with the expected cash flow from the Group’s provisions for unearned premiums and provisions for claims, see note 21. Please refer to the section on ‘Investment and interest rate risk’ in ‘Capitalisation and risk mangement’ in the ‘Management’s report’. Listed shares Scandinavia United Kingdom Rest of Europe United States Asia etc. Total The portfolio of unlisted shares totals Unlisted equity investments are measured at estimated fair value, see ‘Accounting policies’ 2009 2010 348 134 336 354 219 1,391 198 350 83 579 647 336 1,995 184 112 | Annual report 2010 | Tryg A/S Notes DKKm Properties Bonds Shares Insurance Hedge Exposure 15 Exposure to exchange rate risk 2010 USD EUR GBP NOK SEK Other Total 2009 USD EUR GBP NOK SEK Other Total 0 0 0 823 1 0 0 0 0 852 1 0 0 50 1 11,773 2,056 0 0 128 0 11,952 1,673 361 799 513 74 0 113 229 479 418 126 359 72 231 -159 -1,551 0 -9,270 -944 -21 -162 -1,610 4 -10,457 -578 -18 -518 1,139 -76 -3,266 -1,197 -196 -261 1,210 -122 -2,678 -1,241 -565 122 151 1 60 29 16 379 56 146 8 28 -73 9 320 Please refer to the section on ‘currency risk’ in ‘Capitalisation and risk mangement’ in the ‘Management’s report’. Sensitivity information 2009 2010 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% 26 -42 -191 -336 -12 -218 -75 13 -262 -334 -12 -315 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 ‘Capitalisation and risk mangement’ for an elaboration of risk management and risk exposure. Tryg A/S | Annual report 2010 | 113 Notes DKKm 2009 2010 Gross Net Gross Net 15 Derivative financial instruments Derivatives with value adjustment in the income statement according to IAS 39 at fair value: Interest derivatives Share derivatives Inflation derivatives Exchange rate derivatives Due within one year Due within one to five years 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 during the year Gains and losses on hedges charged to equity at 31 December 3,659 125 3,623 7,240 11,024 0 3,623 7 0 31 -4 34 0 0 25,373 246 3,248 11,972 30,751 3,709 6,379 Gains Losses 850 133 983 -819 -461 -1,280 13 0 -29 -62 -19 -8 -51 Net 31 -328 -297 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 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 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 ‘Capitalisation and risk mangement’ in the ‘Management’s report’. Receivables in connection with insurance contracts include overdue recievables totalling: Falling due: Within 90 days After 90 days Including writedowns of due amounts 114 | Annual report 2010 | Tryg A/S 2009 2010 -510 487 -23 1,238 27 1,051 112 -23 330 307 1,321 305 0 557 2,428 2,183 120 6 -2 124 271 110 381 124 124 3 8 135 197 161 358 135 Notes DKKm 16 Reinsurer’s share Reinsurers’ share Writedowns after impairment test Balance at 31 December Impairment test As at 31 December 2010, management performed a test of the carrying amount of total reinsurers’ share of provisions for insurance contracts. The impairment test resulted in impairment charges totalling DKK 17m (DKK 17m in 2009). Writedowns during the year include reversed writedowns totalling DKK 1m (DKK 3m in 2009). Please refer to the section on ‘Reinsurance’ in ‘Capitalisation and risk mangement’ in the ‘Management´s report’. 17 Current tax Current tax, beginning of year Exchange rate adjustment Addition on acquisition of subsidiary a) 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 a) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 2009 2010 1,337 -17 1,320 1,605 -17 1,588 -137 -25 -24 -576 118 -8 349 -303 0 -303 -303 -303 -15 0 -170 82 14 482 90 196 -106 90 18 Shareholders’ equity Share capital Numbers of shares Balance at 1 January Bought during the year Sold during the year 2009 2010 No. of shares 64,377,683 -1,286,817 136,784 Nominal value (DKK’000) 1,609,442 -32,170 3,420 No. of shares 63,227,650 -2,625,786 31,837 Nominal value (DKK’000) 1,580,692 -65,645 796 Balance at 31 December 63,227,650 1,580,692 60,633,701 1,515,843 Tryg A/S | Annual report 2010 | 115 Notes DKKm 18 Shareholders’ equity (continued) 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 2009 Nominal value (DKK’ 000) 90,558 32,170 No. of shares 3,622,317 1,286,817 % of share capital No. of shares 2010 Nominal value (DKK’ 000) % of share capital 5.32 2.01 703,923 2,625,786 17,598 65,645 -4,068,427 -101,711 -6.02 -70,354 -1,758 -0.11 0 -17 0 0 -66,430 -1,661 -0.1 -31,820 -796 1.10 4.11 0.00 0.00 -0.05 5.16 Balance at 31 December 703,923 17,598 1.10 3,297,872 82,447 Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital until the next annual general meeting in 2011. 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 2009 9,631 732 -991 -4,579 4,793 2010 8,458 804 -256 -5,031 3,975 4,966 3,188 97 125 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. Tryg manages its capital requirement as described in ‘Capitalisation and risk management’ in the Management’s report’ 116 | Annual report 2010 | Tryg A/S Notes DKKm 20 Subordinated loan capital Loan terms: Subordinated bond loan a) Subordinated loan capital b) Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure 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. og min. until 30 June 2012) 5% above EURIBOR 3M (interest from 1 July 2012-30 June 2019) 6% above EURIBOR 3 M (interest from 1 July 2019) a) In December 2005, Tryg Forsikring A/S raised a subordinated bond loan with no option for the creditor to call the loan before maturity or otherwise terminate the loan agreement with Tryg Forsikring A/S. The loan is automatically accelerated upon the liquidation or bankruptcy of Tryg Forsikring A/S. b) Tryg 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 2009 893 80 14 51 2010 950 85 12 50 Tryghedsgruppen smba 2010 2009 499 103 0 24 499 103 0 33 The share of subordinated capital included in the calculation of the capital base total DKK 804m (DKK 732m in 2009) The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. Tryg A/S | Annual report 2010 | 117 Notes DKKm 21 Provisions for claims – Estimated accumulated claims Gross 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Estimated accu- mulated claims 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 10 year later Cumulative pay- ments to date Discounting Reserves from 1999 and prior years Other reserves Gross provisions for claims, end of year 8,611 8,938 9,148 9,354 9,441 9,573 9,325 9,443 9,429 9,508 9,746 9,746 9,252 11,335 10,757 11,092 11,828 11,627 12,571 13,249 14,691 17,030 9,490 11,696 10,863 11,096 11,727 11,883 13,196 14,629 15,362 9,689 11,696 10,524 10,952 11,554 11,390 13,768 14,519 9,801 11,752 10,522 10,838 11,158 11,614 13,773 9,730 11,742 10,548 10,570 11,294 11,546 9,720 11,651 10,520 10,645 11,162 9,934 11,638 10,442 10,440 9,908 11,504 10,310 9,960 11,493 9,889 9,889 11,493 10,310 10,440 11,162 11,546 13,773 14,519 15,362 17,030 135,271 -8,995 -137 -9,230 -10,745 -135 -117 -9,468 -161 -9,439 -10,010 -195 -177 -9,916 -11,429 -11,245 -11,112 -438 -386 -250 -311 -8,262 -109,851 -2,920 -614 1,659 724 24,883 Ceded business 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Estimated accu- mulated claims 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 10 year later Cumulative pay- ments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, end of year 1,453 1,570 1,533 1,559 1,593 1,588 1,584 1,591 1,594 1,670 1,638 1,638 1,467 1,480 1,487 1,503 1,476 1,462 1,470 1,450 1,476 1,565 2,059 2,169 2,050 2,043 2,041 2,055 2,062 1,991 1,988 953 913 909 970 886 881 891 889 874 888 930 928 912 920 919 948 841 847 840 863 858 296 295 281 313 313 514 479 492 498 182 250 213 304 379 711 1,565 1,988 889 919 858 313 498 213 379 711 9,972 -1,588 -9 -1,435 -7 -1,859 -17 -844 -7 -842 -14 -806 -5 -296 0 -472 -3 -158 -2 -257 -4 -193 -13 -8,750 -80 191 101 1,434 118 | Annual report 2010 | Tryg A/S Notes DKKm 21 Provisions for claims – Estimated accumulated claims Net of reinsurance 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Estimated accu- mulated claims 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 10 year later Cumulative pay- ments to date Discounting Reserves from 1999 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year 7,158 7,368 7,615 7,795 7,849 7,985 7,742 7,852 7,835 7,838 8,108 8,108 7,785 8,010 8,201 8,298 8,254 8,258 8,464 8,458 8,484 8,325 9,276 9,527 9,646 9,709 9,702 9,596 9,575 9,514 9,505 9,805 10,218 10,881 11,331 12,057 13,067 14,387 16,318 9,950 10,208 10,887 11,588 12,717 14,379 14,983 9,615 10,022 10,707 11,110 13,276 14,307 9,909 10,318 11,302 13,274 9,552 9,658 10,431 11,233 9,662 9,725 10,304 9,638 9,521 9,551 9,422 8,325 9,505 9,422 9,521 10,304 11,233 13,274 14,307 14,983 16,318 125,299 -7,407 -128 -7,795 -109 -8,886 -119 -8,624 -154 -8,597 -163 -9,204 -189 -9,621 -10,956 -11,087 -10,855 -434 -384 -249 -308 -8,069 -101,101 -2,840 -601 1,468 622 23,449 Estimated accumulated claims regarding Moderna Försäkringar 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 I alt 45 44 99 97 117 117 133 131 243 241 348 343 426 409 520 591 646 849 760 1,102 0 1,444 3,336 5,367 The table consists of figures for Tryg Forsikring A/S, Tryg Forsikring, norwegian branch of Tryg Forsikring A/S, Enter Forsikring AS and Moderna Försäkringar, branch of Tryg Forsikring A/S. Other group units are included in the item ’Other reserves’, which comprises the provisions for claims for Tryg Garantiforsikring A/S and the Finnish branch. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2010 to prevent the impact of exchange rate fluctuation. Tryg A/S | Annual report 2010 | 119 Notes DKKm 21 Provisions for claims 2010 Total, beginning of year Market value adjustment of provisions, beginning of year 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 and exchange rate adjustment Provisions for claims, end of year a) Other b) 2009 Total, beginning of year Market value adjustment of provisions, beginning of year Addition on acquisition of subsidiary c) 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 and exchange rate adjustment Provisions for claims, end of year a) Other b) Gross Ceded Net 22,017 703 22,720 -8,273 -6,663 -14,936 16,502 -857 15,645 826 24,255 628 1,050 62 1,112 -195 -327 -522 757 -52 705 38 1,333 101 20,967 641 21,608 -8,078 -6,336 -14,414 15,745 -805 14,940 788 22,922 527 24,883 1,434 23,449 19,355 1,330 648 21,333 -7,175 -6,308 -13,483 13,742 -683 13,059 1,108 22,017 453 794 113 69 976 -152 -204 -356 355 35 390 40 1,050 75 18,561 1,217 579 20,357 -7,023 -6,104 -13,127 13,387 -718 12,669 1,068 20,967 378 22,470 1,125 21,345 a) The table consists of figures for Tryg Forsikring A/S, Tryg Forsikring, Norwegian branch of Tryg Forsikring A/S, Enter Forsikring AS and Moderna Försäkringar, branch of Tryg Forsikring A/S. Other units in the Group are included in ’Other’ b) Comprises provisions for claims for Tryg Garantiforsikring A/S, the Finnish branch of Tryg Forsikring A/S. c) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 120 | Annual report 2010 | Tryg A/S Notes DKKm 0-1 year 1-2 years 2-3 years > 3 years Expected cashflow Carrying amount Total 21 Provisions for claims 2010 Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 2009 Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 6,111 -138 8,044 -495 196 0 3,866 -201 177 0 2,439 -106 174 0 9,906 -531 6,658 -138 24,255 -1,333 13,522 3,861 2,510 9,549 29,442 5,615 -153 7,161 -292 158 -12 3,421 -134 152 -15 2,256 -99 156 -10 9,178 -525 6,081 -190 22,016 -1,050 12,331 3,433 2,294 8,799 26,857 The table consists of figures for Tryg Forsikring A/S, Tryg Forsikring, Norwegian branch of Tryg Forsikring A/S, Enter Forsikring AS and Moderna Försäkringer, branch of Tryg Forsikring A/S. The note should be seen in connection with the maturity of the Group’s interest-bearing financial assets and liabilities, see note 15. Please refer to the section on ‘Capitalisation and risk mangement’ for an elaboration of risk management and risk exposure. Tryg A/S | Annual report 2010 | 121 Notes DKKm 2009 2010 22 Pensions and similar obligations Jubilees, schemes for elderly employees etc. Recognised obligation, end of year Defined benefit persion 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 Acturial gains/losses Paid during the period Change in recognised employers’ nat. ins. contribution 48 48 144 1,160 1,304 856 448 1,123 206 55 47 -70 -57 0 50 50 108 1,464 1,572 951 621 1,304 81 52 58 181 -62 -42 Recognised pension obligation, end of year 1,304 1,572 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 Acturial gains/losses Paid during the period Carrying amount of plan assets, end of year Total pensions and similar abligations, end of year Total recognised obligation, end of year Specification of pension cost 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 years is estimated at: Estimated distribution of plan assets: Shares Bonds Property Average return on plan assets 122 | Annual report 2010 | Tryg A/S 628 118 149 40 -42 -37 856 448 496 45 47 -40 8 60 55 % 10 70 20 5.1 856 57 73 53 -47 -41 951 621 671 44 58 -53 6 55 66 % 12 69 19 4.5 Notes DKKm 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 Pension obligation Plan assets Surplus/deficit Actuarial gains/losses associated with the pension obligation Actuarial gains/losses associated with pension assets 2009 2010 % 4.6 5.8 4.0 4.0 4.0 7.0 14.1 20.0 Adj. K2005 % 3.8 4.5 4.0 3.8 3.8 6.0 14.1 0.0 Adj. K2005 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 2010 1,572 951 621 -181 -47 Moderna Försäkringar, branch of Tryg Forsikring A/S complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa - FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the c ollaboration, to pay the pensions of the individual employees in accordance with the applicable rules. The FTP plan is primarily a defined benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient informa- tion 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 2010 amounted to DKK 12m, which is about 2.6 % of the annual premium in FPK (2009). FPK writes in its half-year report for 2010 that it had a collective consolidation ratio of 112 at 30 June 2010 (cosolidation ration 113 at 30 June 2009). The collective consolidation ratio is defined as the market value of the plan assets relative to the total collective pension obligations. Tryg A/S | Annual report 2010 | 123 Notes DKKm 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 differences of shares Unaccrued timing differences of balance sheet items Reconcillation of deferred tax Deferred tax, beginning of year Exchange rate adjustment Addition on acquisition of subsidiary a) 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 2009 2010 56 161 91 308 134 176 46 1,196 1,552 1,244 134 68 949 133 97 -3 -80 138 10 37 213 70 320 121 206 14 1,261 1,602 1,282 0 25 1,244 70 0 0 34 53 -119 1,244 1,282 72 0 313 142 72 16 343 103 a) Addition on acquisition of subsidiary relates to the acquisition of Moderna Försäkringar, see note 29 The loss in Tryg 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 according to the rules in Sweden, losses may be carried for- ward 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 -208m. (DKK 110m in 2009). No deferred tax is associated with investments in subsidiaries (DKK 0m in 2009) 124 | Annual report 2010 | Tryg A/S Notes DKKm 2009 2010 24 Other provisions Other provisions, beginning of year Change in provisions Other provisions, end of year 25 Debt to credit institutions Bank loans Bank overdrafts Debt falling due within one year Debt falling due after more than five years From 2005 to july 2010 Tryg has had a loan facility with a consortium of banks for DKK 2,000m, of which DKK 600m was utilised at 31 December 2009. In 2010, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5 % p.a. The unutilised part of the loan facility was measured at amortised cost, and an amount of DKK 5m was deducted from the loan proceeds upon signing the loan agreement. The cost was depreciated linear until the loan facility expired in July 2010. The fair value of the loan is considered to be the utilised part of the facility of DKK 600m. Tryg A/S has established committed credit facilities totalling DKK 1,000m with af number of Danish banks. These credit facilities expire on 31 December 2011. In addition, Tryg Forsikring A/S has established committed repo facilities DKK 1,000m with at number of Danish banks. These repo facilities expire on 31 December 2011. None of the facilities had been utilised at 31 December 2010. 26 Other debt Unsettled transactions Interest derivatives Exchange and inflation rate derivatives Repo debt 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 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) 1 5 6 600 11 611 611 0 27 3 0 0 959 989 989 0 1,985 23 2,008 63,334 114 63,448 31.3 31.7 31.7 6 -5 1 0 30 30 30 0 2,051 9 367 1,896 1,030 5,353 5,353 0 676 -83 593 62,362 82 62,444 10.8 9.5 9.5 The company has not issued warrants, convertible debt instruments or the like. Tryg A/S | Annual report 2010 | 125 Notes DKKm <1 year 1-3 years Payment due by period 3-5 years > 5 years 28 Contractual obligations, contingent liabilities and collateral 2010 Operating leases Other contractual obligations 2009 Operating leases Other contractual obligations 149 811 960 231 429 660 215 43 258 99 143 242 106 36 142 49 16 65 112 38 150 67 0 67 Total 582 928 1,510 446 588 1,034 The amounts include the following: Tryg Forsikring A/S and Tryg Forsikring, norwegian branch of Tryg Forsikring A/S have signed an operating agreement with CSC for an amount of DKK 374m for a period of 5 years which cannot be cancelled within a year. The contract expires in 2011. Tryg Forsikring A/S has signed a portfolio management contract for DKK 143m. The contract expires in 2013. Tryg Forsikring A/S has signed a telephony service contract with Telenor for DKK 145m. The contract expires in 2015. Tryg Forsikring A/S has signed a car leasing contrakt with NF Fleet for DKK 30m. The contract expires in 2015. Tryg Forsikring A/S has signed a it leasing contrakt with IBM for DKK 7.5m. The contract expires in 2011. Tryg Forsikring A/S has signed a it leasing contrakt with a external company back up of the hard disk DKK 8.8m. The contract expires in 2013. Ejendomsselskaber af 8. Maj 2008 A/S has signed agreements for reburbishment of the property at Klausdalsbrovej 601, Ballerup. The remaining contract sum amounts to DKK 21.3m. The work i s expected to be finalised in 2011. Vesta Eiendom A/S has signed agreements for refurbishment of the property at Folke Bernadottesvei 50, Bergen. The remaining contract sum amounts to DKK 5m. The work is expected to be finalised in 2011. The Danish companies in Tryg group are jointly taxed with TryghedsGruppen smba. Assets to cover the technical provisions in Tryg Forsikring A/S have been registered in the total amount of Assets to cover the technical provisions in Tryg Garantiforsikring A/S have been registered in the total amount of 2009 2010 32,275 36,923 223 311 Most of the Danish companies in Tryg 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, Tryg Forsikring A/S issued few specific guarantees towards the buyer. Management believes that it is unlikely that these guarantees will result in a financial loss for Tryg Forsikring A/S. Companies of the Tryg Forsikring group are part of some disputes. Management believes that the outcome of these legal proceed- ings will not affect the Group’s financial position beyond those receivables and obligations recognised in the statement of financial position at 31 December 2010. DKK 1,896m (DKK 0 in 2009) of the company’s bond portfolio was sold in repo transactions and must be repurchased. The value of the bond portfolio remains recognised in the balance sheet and has been provided as security for financial liabilities concerning repo transactions. 126 | Annual report 2010 | Tryg A/S Notes DKKm 29 Acquisition of subsidiary 2010 There have been no acquisitions of subsidiaries during 2010. 2009 In 2009 Tryg Forsikring A/S acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB og MF Bilsport & MC Specialförsäkring AB in Sweden.The acquisitionprice is final. Acquired businesses Moderna Försäkringar Sak AB Modern Re S.A. Netviq AB MF Bilsport & MC Specialförsäkring AB Acquired interest 100% 100% 100% 100% Principal activity Non life insurance Intra group insurance Agency for Moderna Agency for Moderna Aquisition date 2 April 2009 2 April 2009 2 April 2009 2 April 2009 Acquired businesses 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 Carrying amount before takeover a) 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 a) The carrying amount prior to acquisition has been made up in accordance with the Tryg Group’s accounting policies. Tryg A/S | Annual report 2010 | 127 Notes Mio. DKK 30 Related parties Supervisory Board and Group Executive Management 2009 2010 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 Outstanding guarantees cover the policyholders’ financial obligations pursuant to the contract. Following an individual assessment, all guarantees with the exception of Sjælsø Gruppen A/S, 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: There are no leases with related parties. Specification of remuneration Supervisory Board Executive Management Remuneration includes pension contributions Supervisory Board Executive Management 0.3 0.6 115.8 0.7 0.2 6.2 1,470 538 7 -4 -19 -23 0 -3 -3 0.3 0.5 8.8 0.2 0.5 2.6 1,965 865 8 -5 -20 -25 0 -3 -3 Members of the Supervisory Board of Tryg A/S do not receive bonuses and are not participants in any severance plans. The Execu- tive 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 in Tryg Forsikring 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 Tryg Forsikring A/S 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 Employees Act, as such claims are included in the severance pay. 128 | Annual report 2010 | Tryg A/S Notes DKKm 30 Related parties Parent company Tryghedsgruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Intra-group trading involved - Subordinated loan capital - Interest expenses Transactions between TryghedsGruppen smba and Tryg A/S are on market terms 2009 2010 499 -24 499 -33 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 Tryg Group have entered into reinsurance contracts on market terms. Transactions with subsidiaries have been eliminated in the consolidated financial statements in accordance with the accounting policies. 31 Financial highlights cf ‘Introduction to Tryg’ page 2 Tryg A/S | Annual report 2010 | 129 Income statement (parent company) DKKm 2009 2010 Notes 2 Investment activities Income from subsidiaries Interest income Value adjustment Interest expenses Investment management charges Total return on investment activities 3 Other expenses Profit before tax 4 Tax Profit on continuing business Profit for the year Proposed distribution for the year: Dividend Transferred to Net revaluation as per equity method Transferred to Retained profits 2,079 2 -2 -14 -7 2,058 -46 2,012 17 2,029 2,029 991 1,470 -432 2,029 475 2 -1 -2 -8 466 -58 408 17 425 425 256 -1,965 2,134 425 130 | Annual report 2010 | Tryg A/S Statement of financial position (parent company) DKKm Notes Assets 5 Investments in subsidiaries Total investments in subsidiaries Total investment assets Receivables from subsidiaries Other receivables Total receivables Current tax assets 6 7 Deferred tax assets Total other assets Total prepayments and accrued income 2009 2010 10,138 10,138 8,339 8,339 10,138 8,339 65 0 65 17 1 18 39 59 4 63 17 1 18 55 Total assets 10,260 8,475 Liabilities Shareholders’ equity 8 Debt to credit institutions Debt to subsidiaries Total debt Total liabilities and equity 1 Accounting policies 9 Capital adequacy 10 Contractual obligations, contingent liabilities and collateral 11 Related parties 12 Reconciliation of differences in the profit and the shareholders’ equity 9,652 8,475 600 8 608 0 0 0 10,260 8,475 Tryg A/S | Annual report 2010 | 131 Statement of changes in equity (parent company) DKKm Share capital Revalua- tion reserves Retained earnings Proposed dividends Total Shareholders’ equity at 31 December 2008 1,700 1,559 4,564 442 8,265 -35 2,029 9 505 -474 117 2,151 0 -442 32 -418 19 30 15 1,387 9,652 425 1 19 330 -328 144 591 -991 14 -816 9 16 2009 Adjustment beginning of year cf note 1 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 -35 1,470 9 505 -474 117 1,592 0 -102 Total equity entries in 2009 -102 1,592 -432 991 -432 102 32 -418 19 30 15 -652 991 -442 549 991 Shareholders’ equity at 31 December 2009 1,598 3,151 3,912 2010 Profit for the year Change in equalisation provision Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities Hedge of foreign currency risk in foreign entities Tax on equity entries Total comprehensive income 0 Dividend paid Dividend own shares Purchase of own shares Exercise of share options Issue of share options -1,965 1 19 330 -328 144 -1,799 2,134 256 256 -991 2,134 14 -816 9 16 Total equity entries in 2010 0 -1,799 1,357 -735 -1,177 Shareholders’ equity at 31 December 2010 1,598 1,352 5,269 256 8,475 Proposed dividend per share DKK 4.00 (DKK 15.50 in 2009) . 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 un- til approved by the shareholders at the annual general meeting of the subsequent year. Tryg Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of DKK 2,887m (in 2009 DKK 2,599m) . In Tryg Forsikring A/S, these provisions, due to their nature as additional provisions, are included in shareholders’ equity (retained earnings), net of deferred tax. Tryg Forsikring A/S’ option to pay dividend to Tryg 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 Tryg Forsikring A/S. Tryg Garantiforsikring A/S has a similar contingency amounting to DKK 139m, which is also included in the company’s shareholders’ equity. 132 | Annual report 2010 | Tryg A/S Notes (parent company) DKKm 2009 2010 1 Accounting policies Please refer to Tryg Group’s ‘Accounting policies.’ 2 Income from subsidiaries Tryg Forsikring A/S 3 Other expenses Administrative expenses 2,079 2,079 -46 -46 475 475 -58 -58 Remuneration of the Executive Management is paid by Tryg Forsikring A/S and Tryg Forsikring, norwegian branch of Tryg Forsikring A/S and is charged to Tryg 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 -0.7 -0.7 0.0 0.0 17 17 % 25 25 -1.1 -1.1 -0.4 -0.4 17 17 % 25 25 Refer to the section ‘The Groups Financial performance 2010’ in the management report for further mention of the tax.’ Tryg A/S | Annual report 2010 | 133 Notes (parent company) DKKm 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 2009 2010 6,987 6,987 1,524 2,238 -611 3,151 6,987 6,987 3,151 641 -2,440 1,352 Carrying amount 31 December 10,138 8,339 Name and registered office 2010 Tryg Forsikring A/S, Ballerup 2009 Tryg 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 Tryg A/S Non-capitalised tax loss Tryg A/S Ownership shares in % Equity 100 100 100 100 18 17 -18 17 1 72 17 17 -17 17 1 72 The loss in Tryg A/S can only be utilised in Tryg 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. 134 | Annual report 2010 | Tryg A/S Notes (parent company) DKKm 8 Debt to credit institutions Bank loans From 2005 to july 2010 Tryg A/S has had a loan facility with a consortium of banks for DKK 2,000m, of which DKK 600m was utilised at 31 December 2009. In 2010, the loan carried interest at CIBOR plus a margin, totalling approximately 2.5 % p.a. Tryg has established committed credit facilities totalling DKK 1,000m with a number of Danish banks. These credit facilities expire on 31 December 2011. 9 Capital adequacy, etc. Shareholders’ equity according to annual report Subordinate loan capital Proposed dividend Solvency requirements to subsidiary undertakings Capital base Weighted items Solvency ptc. 10 Contractual obligations, contingent liabilities and collateral The Danish companies in Tryg group are jointly taxed with TryghedsGruppen smba. Most of the Danish companies in Tryg 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 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 2010. 2009 2010 600 600 0 0 9,687 732 -991 -4,579 4,849 8,475 804 -256 -5,031 3,992 5,022 3,309 97 121 Tryg A/S | Annual report 2010 | 135 Notes (parent company) DKKm 11 Related parties Supervisory Board and Executive Management Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Parent company (TryghedsGruppen smba) - 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 with some exceptions. 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 There are no leases with related parties. Specification of remuneration Supervisory Board Executive Management Remuneration includes pension contributions Supervisory Board Executive Management Members of the Supervisory Board of Tryg A/S do not receive bonuses and are not participants in any severance plans. The Executive Management has a bonus scheme for up to 3 months’ salary (Group CEO up to 4 months’ salary) and participate in the share option programme as mentioned in Corporate governance. Other than that, there are no incentive plans for the Supervisory Board and Executive Management. 136 | Annual report 2010 | Tryg A/S 2009 2010 0.3 0.6 115.8 0.7 0.2 6.2 1,470 538 7 0.3 0.5 8.8 0.2 0.5 2.6 1,965 865 8 -4 -19 -23 0 -3 -3 -5 -20 -25 0 -3 -3 Notes (parent company) DKKm 11 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Intra-group trading involved - 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 Tryg A/S controls Tryg 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. 12 Reconciliation of differences in the profit and the shareholders’ equity 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 of differences in the profit and equity. Profit reconciliation Profit - IFRS Current years effect of actuarial gains and losses on pension obligation after tax Change in the year in deferred tax provisions for contingency funds Profit - Danish FSA executive order Equity reconciliation Shareholders’ equity - IFRS Deferred tax provisions for contingency funds Change in the year in deferred tax provisions for contingency funds Equity - Danish FSA executive order 2009 2010 499 -24 499 -33 -49 65 -1 -61 76 2 2,008 21 0 2,029 9,631 21 0 9,652 593 -164 -4 425 8,458 21 -4 8,475 Tryg A/S | Annual report 2010 | 137 Geographical segments DKKm 2006 2007 2008 2009 2010 Danish general insurance Gross premiums earned Technical result Run-off gains/losses, net of reinsurance 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 employees, end of period Norwegian general insurance Gross premiums earned Technical result Run-off gains/losses, net of reinsurance 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 employees, end of period Swedish general insurance a) Gross premiums earned Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio 8,862 1,406 311 66.2 3.6 69.8 16.2 86.0 2,211 6,654 1,217 246 64.0 3.5 67.5 16.6 84.1 1,455 4 -41 0 144.9 0.4 145.3 1,003.8 9,105 1,805 579 64.6 2.4 67.0 15.4 82.4 2,221 6,816 1,374 213 63.0 4.9 67.9 15.9 83.8 1,379 90 -82 0 88.9 0.0 88.9 105.6 9,393 1,727 674 64.5 3.7 68.2 16.1 84.3 2,356 9,525 1,178 421 71.6 2.5 74.1 14.5 88.6 2,293 9,636 166 615 82.0 0.7 82.7 16.1 98.8 2,342 7,009 6,750 7,490 831 109 70.6 3.6 74.2 16.9 91.1 1,450 225 -93 0 95.1 0.9 96.0 48.4 618 277 70.8 3.7 74.5 17.0 91.5 1,398 389 177 76.7 3.1 79.8 15.7 95.5 1,338 1,111 1,769 -75 -8 80.6 1.8 82.4 25.1 -124 32 84.6 0.8 85.4 22.4 107.8 414 Combined ratio 1,149.1 194.5 144.4 107.5 Number of full-time employees, end of period 40 61 105 425 138 | Annual report 2010 | Tryg A/S Geographical segments DKKm 2006 2007 2008 2009 2010 Finnish general insurance Gross premiums earned Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio 198 -34 0 78.1 0.2 78.3 41.7 251 -49 0 74.9 0.4 75.3 49.8 354 -44 17 72.9 0.3 73.2 44.1 480 -115 -7 84.2 0.6 84.8 41.7 Combined ratio 120.0 125.1 117.3 126.5 Number of full-time employees, end of period 77 127 154 194 593 -56 0 80.9 0.8 81.7 29.3 111.0 197 Other b) Gross premiums earned Technical result Tryg -3 -4 0 -23 -5 11 -4 -44 -13 0 Gross premiums earned 15,715 16,262 16,976 17,862 19,475 Technical result Run-off gains/losses, net of reinsurance Return on investment activities Other income and expenses Profit/loss before tax Key ratios Gross claims ratio Business ceded as % of gross premiums Claims ratio, net of ceded business Gross expense ratio c) Combined ratio Number of full-time employees, end of period 2,544 561 1,228 -31 3,741 65.5 3.5 69.0 16.9 85.9 3,783 3,025 792 340 -51 3,314 64.2 3.4 67.6 16.8 84.4 3,788 2,432 800 -988 -49 1,395 67.6 3.5 71.1 17.1 88.2 4,065 1,562 683 1,086 -38 2,610 72.1 2.9 75.0 17.2 92.2 4,310 375 824 570 -4 941 80.2 1.6 81.8 17.0 98.8 4,291 a) Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 april 2009. b) Amounts relating to Tryg A/S, Tryg Ejendomme A/S and eliminations are included in ‘Other’. c) Adjustment to Gross expense ratio included only in the calculation of ‘Tryg’. Explanation of adjustment as a footnote to Financial Highlights Tryg A/S | Annual report 2010 | 139 Other key figures DKKm 2006 2007 2008 2009 2010 Claims ratio, net Expense ratio, net Combined ratio, net Expense ratio, net without adjustment Gross profit ratio Profit ratio, net of reinsurance Gross technical interest ratio Technical interest ratio, net of reinsurance Return on equity before tax on continuing business (%) Return on equity after tax on continuing business (%) Average provisions for unearned premiums Average provisions for claims Average reinsurers’ share of provisions for insurance contracts Reserve ratio, provisions for unearned premiums (%) Reserve ratio, provisions for claims (%) Reserve ratio, total Number of full-time employess, end of period, discontinued and divested business 67.9 17.2 85.1 17.2 16.2 17.2 2.1 2.3 41.3 34.4 5,178 20,887 2,096 32.9 130.2 163.1 66.5 17.1 83.6 17.1 18.6 19.6 3.0 3.2 33.3 24.3 5,288 20,808 1,574 33.2 130.1 163.3 70.1 17.5 87.6 17.9 14.3 15.0 2.9 3.0 15.3 9.7 5,252 20,454 1,312 30.0 116.3 146.3 74.2 17.6 91.8 17.5 8.7 9.2 0.9 0.9 29.3 22.3 5,654 21,110 1,178 34.8 125.8 160.6 81.3 17.4 98.7 17.4 1.9 2.0 0.7 0.7 10.4 7.5 6,514 23,677 1,454 35.0 127.8 162.8 25 26 26 26 1 Share performance Earnings per share (DKK) Diluted earnings per share (DKK) a) Average number of shares (1,000) Diluted average number of shares (1,000) a) Share price 31.12 (DKK) Quoted price/net asset value 47.3 33.5 12.8 67,824 67,648 66,184 431.5 3.0 388.0 2.6 328.0 2.6 31.7 31.7 63,334 63,448 342.8 2.3 9.5 9.5 62,362 62,444 257.5 1.8 a) There has been no dilution of earnings or equity in the period 2006-2008 The expense ratio, net without adjustment is calculated as the ratio of actual insurance operating expenses, net of reinsurance to earned premiums, net of reinsurance. Other key ratios are calculated in accordance with ‘’Recommendations & Financial Ratios 2010’’ issued by the Danish Society of Financial Analysts. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ defi- nition of expense ratio and combined ratio, involves the addition of a calculated expense (rent) concerning owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. 140 | Annual report 2010 | Tryg A/S Glossary The financial highlights and key ratios of Tryg have been prepared in accordance with the executive order issued by the Danish Financial Supervisory Authority on the presentation of financial reports by in- surance companies and profession-specific pension funds and also comply with “Recommendations & Financial Ratios 2010” issued by the Danish Society of Financial Analysts. Business ceded as a percentage of gross premiums Net result of business ceded x 100 Gross earned premiums Capital base Shareholders’ equity plus subordinated debt/subordinated loan capi- tal less intangible assets/goodwill and tax asset. Claims ratio, net of ceded business Gross claims ratio + business ceded as % of gross premiums. Combined ratio Calculated as the sum of the gross claims ratio, the net result of business ceded as a percentage of gross earned premiums and the gross expense ratio. Danish general insurance Comprises the legal entities Tryg Forsikring A/S (excluding the Norwegian, Finnish and Swedish branches) and Tryg Garantiforsikring A/S. Diluted earnings per share (continuing business) Earnings per share Equity margin Profit for the year x 100 Average number of shares Premiums earned, net of reinsurance x 100 Tier 1 capital Finnish general insurance Comprises Tryg Forsikring A/S, Finnish branch and the Finnish branch of Tryg Garantiforsikring A/S. Gross claims ratio 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 with adjustment to gross earned premiums. The adjustment involves the deduction of depreciation and operating costs on the owner-occu- pied property and the addition of a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent. Diluted earnings from continuing business after tax Diluted average number of shares Gross insurance operating expenses w. adjustment x 100 Gross earned premiums Diluted number of shares Average number of shares adjusted for number of share options which may potentially dilute. 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 de- pends on the market based discount rate applied and the expected time to payment. Dividends per share Gross expense ratio without adjustment Gross insurance operating expenses x 100 Gross earned premiums Gross insurance interest ratio Technical interest, net of reinsurance x 100 Gross premiums earned Gross profit margin Proposed dividend Number of shares year end Technical result x 100 Gross premiums earned Tryg A/S | Annual report 2010 | 141 Glossary Individual Solvency New Danish solvency requirements for insurance companies. With ef- fect from the 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 four times a year. Return on equity Profit for the year x 100 Average equity Net asset value per share Year-end equity number of shares year end Norwegian general insurance Comprises Tryg Forsikring A/S, Norwegian branch, Enter Forsikring AS and the Norwegian branch of Tryg 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 Quoted price Earnings per share Quoted price/net asset value Quoted price Net asset value per share Relative run-off gains/losses Run-off result relative to provisions for claims, beginning of year. Reserve ratio, provisions for claims Provisions for claims x 100 Gross premiums earned Reserve ratio, provisions for unearned premiums Provisions for unearned premiums x 100 Gross premiums earned Run-off result The difference between provisions for claims at the beginning of the financial 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 EU Commission. The new rules are expected to come into effect in 2012. Solvency margin Premiums earned, net of reinsurance x 100 Capital base Solvency ratio Ratio of capital base to capital requirement Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch and the Swedish branch of Tryg Garantiforsikring A/S. Tier 1 capital Shareholders’ equity less intangible assets/goodwill and tax asset Total reserve ratio Reserve ratio, provisions for claims + provisions for unearned premiums 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 pro- vision is not recognised under claims, but in technical interest in the income statement. 142 | Annual report 2010 | Tryg A/S Disclaimer Certain statements in this annual report are based on the Tryg urges readers to refer to the section on risk management beliefs of our management as well as assumptions made by for a description of some of the factors that could affect and information currently available to management. Statements the Group’s future performance or the insurance industri. regarding Tryg’s future results of operations, financial condition, cash flows, business strategy, plans and future objectives other Should one or more of these risks or uncertainties materialise than statements of historical fact can generally be identified or should any underlying assumptions prove to be incorrect, by terminology such as ”targets”, ”believes”, ”expects”, ”aims”, Tryg’s actual financial condition or results of operations ”intends”, ”plans”, ”seeks”, ”will”, ”may”, ”anticipates”, ”would”, could materially differ from that described herein as anticipart- ”could”, ”continues” or similar expressions. ed, believed, estimated or expected. A number of different factors may cause the actual performance Tryg 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, devel- opments in the financial markets, extra ordinary events such as natural disasters or terrorist atttacks, changes in legislation or case law and reinsurance. Tryg A/S | Annual report 2010 | 143 Group chart Tryg A/S Tryg Forsikring A/S Tryg Garanti- forsikring A/S (Dansk Kaution) Moderna Forsäkringar (Swedish branch) Tryg Forsikring Inclusive Enter (Norwegian branch) Respons Inkasso AS (Norway) Tryg (Finnish branch) Tryg Garanti (Norwegian branch) Modern Re S.A (Luxembourg) Moderna Garanti (Swedish branch) Atlantica Yacht Insurance S.à.r.l. (Luxembourg) Tryg Garanti (Finnish branch) Ejendoms- selskabet af 8. maj 2008 A/S Tryg Ejendomme A/S Vesta Eiendom AS (Norway) Komplementar- selskabet af 1. marts 2006 ApS (50%) Other real property companies (Norway) Ejendoms- selskabet af 1. marts 2006 P/S (50%) Group chart at 1 January 2011. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated. Company Branch 144 | Annual report 2010 | Tryg A/S Contents Management’s report About Tryg Preface Financial highlights and key ratios Group overview Highlights of 2010 Strategy and outlook Strategy KPI (Key performance Indictors) The insurance industry Customers and products Outlook Results The Group’s financial performance Private Nordic Commercial Nordic Corporate Nordic Investment activities Capital management and risk management Capital management and profit distribution Risk management Corporate governance Supervisory Board Group Executive Management Corporate governance Shareholder information Accounts Statement by the Supervisory Board and the Executive Management Independent auditor’s report Income statement and statement of financial position – Tryg Group Statement of changes in equity – Tryg Group Cash flow statement – Tryg Group Notes – Tryg Group Income statement – Tryg A/S (Parent company) Statement of financial position – (Parent company) Statement of changes in equity (Parent company) Notes (Parent company) Geographical segments Other key ratios Glossary Disclaimer Group chart Side 1 4 8 9 10 12 14 16 18 20 22 24 26 30 33 35 38 42 44 47 52 54 56 58 66 70 72 73 74 78 80 81 130 131 132 133 138 140 141 143 144 Editors Investor Relations Design Layout e-types amo design Printers Centertryk A/S Munken Polar Paper This is a translation of the Danish annual report 2010. In case of any discrepancy between the Danish and the English version of the annual report 2010, the Danish version shall apply. A n n u a l r e p o r t 2 0 1 0 Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark +45 70 11 20 20 tryg.com CVR-no. 26460212 Annual report 2010 

Continue reading text version or see original annual report in PDF format above