Tryg
Annual Report 2011

Plain-text annual report

A n n u a l r e p o r t 2 0 1 1 Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark +45 70 11 20 20 tryg.com CVR-no. 26460212 Annual report 2011 Content tryg.com Management’s report About Tryg Preface Financial highlights Outline of Tryg Highlights of the year Results Tryg’s financial performance Private Nordic Commercial Nordic Corporate Nordic Investment activities Outlook Strategy and the insurance market Strategy KPI – (Key Performance Indicators) The insurance market Customers and products Capital management and risk management Capital management and risk management Management Supervisory Board Group Executive Management Employees Corporate governance Corporate Social Responsibility – CSR The Tryg share Accounts Statement by the Supervisory Board and the Executive Management Independent auditor’s report Independent auditor’s report on TRYG A/S’ CSR data for 2011 Financial highlights and key ratios Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes – Tryg Group Income statement (parent company) Statement of financial position (parent company) Statement of changes in equity (parent company) Notes (parent company) Fourth quarter of 2011 | Quarterly outline Fourth quarter of 2011 | Geographical segments Other key figures Glossary Disclaimer Group chart 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 2011. In case of any discrepancy between the Danish and the English version of the annual report 2011, the Danish version shall apply. Page 1 4 6 7 8 10 12 16 20 22 24 27 28 30 32 34 36 38 40 44 46 48 50 52 60 63 66 68 69 70 71 72 73 74 76 77 78 136 137 138 139 144 146 148 149 151 152 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. Tryg A/S | Annual report 2011 | 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 Annual report 2011 | 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 2011, our 4,300 employees ensured peace of mind for more than 2.7 million private customers and over 140,000 businesses. Tryg is the second-largest insurance company in the Nordic region present in Denmark, Norway, Sweden and Finland. We are the largest player in Denmark and the third largest in Norway. In Sweden and Finland, however, we have smaller market shares. 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. Preface 2011 was characterised by both change and continuity at Tryg. In January, the Supervisory Board appointed Morten Hübbe as CEO after Stine Bosse resigned. Morten Hübbe assumed the leadership of Tryg following a 2010 that had been characterised by extraordinary events and declining profitability. A major part of Morten Hübbe’s task was therefore to improve profitability in the insurance business during a period of difficult conditions on the investment markets. At the beginning of 2011, the Supervisory Board and the Execu- tive Management set a target of achieving a medium-term return on equity of 20%, corresponding to a combined ratio of 90. The target underlines the Supervisory Board’s focus on profitability, ahead of growth, as the fundamental strategy for the coming years. The Supervisory Board is pleased to announce that, in 2011, Tryg made a significant step towards achieving this target. The financial result for 2011 therefore supports the view that the target is ambitious yet realistic. The strategy for achieving the financial medium-term targets is an- chored in focusing on profitability in the insurance business, to be achieved via risk-appropriate prices, supported by high customer satisfaction, efficient processes, and skilled and committed staff. In 2011, the Supervisory Board continued focusing on maintaining Tryg’s financial strength. In a period characterised by turbulence on the financial markets and in many financial companies, it is vital that Tryg retains strong capitalisation and a solid funding At the beginning of 2011, the Supervisory Board and the Executive Management set a target of achieving a medium-term return on equity of 20%, corresponding to a combined ratio of 90. The financial result for 2011 supports the view that this target is ambitious yet realistic. Mikael Olufsen 2011 was a good year for Tryg improved in the insurance base, which will ensure that Tryg can implement its strategy. In results in all business areas. This was extremely positive in a view of the forthcoming regulations governing capital require- year which, in many ways, was characterised by uncertainty. The ments, it is also vital that Tryg retains a strong capital base. debt situation in Southern Europe, in particular, had a negative impact on the national economy and led to severe turbulence In order to strengthen Tryg’s focus on profitability, in 2011 the on the financial markets, adversely affecting economic condi- Supervisory Board reviewed all guidelines relating to the opera- tions in the Nordic region and Tryg’s investment results. At the tion of the insurance business. The guidelines describe in detail same time, it was a year when the climate once again proved the distribution of work between the Supervisory Board and the very significant. In 2010, the winter in particular had a negative Executive Management, and this forms part of Tryg’s structure impact on Tryg’s business, while 2011 was characterised for good corporate governance. This is an important area for the by cloudbursts and storms. Supervisory Board and helps ensure Tryg’s continued develop- ment and profitable operations. In spite of these external challenges, in 2011, Tryg achieved a profit after tax of DKK 1,140m. This result is a satisfactory im- Overall, 2011 marked a significant step forward for Tryg, and with provement of DKK 547m compared with 2010 and must be seen the initiatives that have been implemented, Tryg is well equipped in the light of the systematic efforts made to improve profitability. to continue this good progress over the coming years. 4 | Annual report 2011 | Tryg A/S Morten Hübbe majority of the claims, and more than 20,000 claims in total were Tryg is a well-run company with a strong brand, and every day filed. Before reinsurance, claims expenses were DKK 1.2bn, but more than 4,300 employees ensure that Tryg provides peace of due to reinsurance, Tryg’s total expenses were DKK 196m. A claim mind to more than 2.7 million customers in Denmark, Norway, event of this kind puts Tryg’s claims handling under a great deal of Sweden and Finland. pressure, hence it was very gratifying to see the large amount of positive feedback from our customers about their satisfaction with The foundations for Tryg achieving the ambitious financial the way in which claims were handled. With regard to Tryg’s cus- objectives are thus in place. After my appointment as CEO in tomers, it was particularly pleasing to observe that the retention February 2011, it did, however, become clear that there was rate remained high in 2011, a year of premium increases, and that, a need to create more of a culture where the focus was on during the course of the year, Tryg came out well in a number of profitability and which had a clearly defined allocation of areas, including the European customer satisfaction index EPSI. responsibilities as to how the objectives should be achieved. The evident improvement in the financial result of 2011 over It was in this context that one of my first major decisions was to 2010 is in no small degree due to Tryg’s employees, who made change the organisational structure at Tryg. The outcome was an very great efforts in 2011. The implementation of premium organisation which, with the business areas Private, Commercial, increases, changes to processes and organisational change Corporate and Sweden/Finland, is based on how customers are has made many everyday tasks more challenging. When we served. The changes meant that the responsibility for profitability add to this the great work put in by Tryg’s claims department in the individual business areas became clearly defined, ensuring in connection with the handling of the many cloudburst claims that the whole Tryg organisation focuses on profitability. over the summer, it is clear that 2011 was a demanding year At the same time, it was a great pleasure to welcome me that the annual employee index survey, conducted in the Tor Magne Lønnum as the new CFO. Tor Magne Lønnum has autumn of 2011, generally indicated clear improvements on vast experience in the insurance industry, and with him and my what was already a high level of employee satisfaction. It also other colleagues in the Group Executive Management, Tryg is showed that Tryg was retaining a high level of satisfaction in well equipped to ensure continued positive development. comparison to the financial sector as a whole. for all Tryg employees. In light of this, it was very pleasing for During 2011, work was intensified on implementing the initia- As stated, Tryg is focusing on profitability, and an essential pre- tives designed to ensure realisation of Tryg’s target of a return requisite for this is that our customers are offered products of on equity of 20%. These involve the adjustment of premiums on high quality at a risk-appropriate price. Tryg will therefore con- a range of insurance types, claims reduction and a number of tinue the work on further segmentation and appropriate pricing, other initiatives, such as better procurement of repairs, rationali- as well as developing products that meet our customers’ needs. sation of work processes and general restraint in terms of costs. For Tryg, profitability and social responsibility go hand in hand. CSR The combined ratio for 2011 was 93.5, as against 98.8 in 2010, is a focus area at Tryg and part of the way Tryg does business. For representing a major step towards a combined ratio of 90 in this reason, the reporting of Tryg’s CSR activities is incorporated the medium term. The technical result rose from DKK 375m in with the reporting of other results in the annual report. 2010 to DKK 1,534m in 2011, but, although the technical result evolved along positive lines, the investment result was only DKK 66m due to the turbulence on the financial markets. An insurance result at this level is positive in a year when the Copenhagen area was hit by one of the greatest cloudbursts in Mikael Olufsen Morten Hübbe history. As the largest company in Denmark, Tryg received the Chairman Group CEO Tryg A/S | Annual report 2011 | 5 Financial highlights DKKm Q4 2010 Q4 2011 2010 2011 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 year 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 ratio 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 period (1,000) 5,049 -3,900 -871 278 -56 39 261 266 -15 512 -144 368 1 369 286 32,031 1,588 8,458 50,591 77.2 1.1 78.3 17.2 95.5 5,100 -4,031 -877 192 19,475 -15,617 -3,304 554 44 35 271 163 13 447 -129 318 26 344 331 34,257 2,067 9,007 53,221 79.0 -0.9 78.1 17.4 95.5 -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 4.00 23.8 60,634 20,572 -16,299 -3,430 843 507 184 1,534 66 -31 1,569 -455 1,114 26 1,140 944 34,257 2,067 9,007 53,221 79.2 -2.5 76.7 16.8 93.5 16.7 92.6 13.1 4.0 4,318 112 18.4 149.2 6.52 17.3 60,373 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. 6 | Annual report 2011 | Tryg A/S Outline of Tryg Group Executive Management CEO Morten Hübbe Executive Management Private Commercial Corporate Sweden/Finland Claims Group Finance Lars Bonde Executive Management Kjerstin Fyllingen Truls Holm Olsen Per Fornander Birgitte Kartman Tor Magne Lønnum Executive Management The new organisation As of 1 June 2011, Tryg was organised in four business areas, each Sweden/Finland | sells insurance products to private individuals in Sweden and to private individuals and corporate customers with a clear, unambiguous responsibility for profitability, including in Finland. The business area represents 13% of Tryg’s total product development, sales and administration. These four areas are: earned premiums. Private | sells insurance products to private individuals in These business areas are supplemented by a cross-functional Denmark and Norway. Sales are made through call centres, Claims organisation and shared business functions including the Internet, tied agents, franchisees (Norway), interest groups, Group Finance. car dealers, real-estate agents and Nordea. The business area represents 44% of Tryg’s total earned premiums. Along with Morten Hübbe, the Group Executive Vice Presidents of the six areas (Private, Commercial, Corporate, Sweden/Finland, Commercial | sells insurance products to small and medium- Claims and Group Finance) are members of the Group Executive sized companies in Denmark and Norway. This business area Management, which is responsible for general management represents 20% of Tryg’s total earned premiums. activities at Tryg. Morten Hübbe, Tor Magne Lønnum and Corporate | sells insurance products to corporate customers under the ‘Tryg’ brand in Denmark and Norway and the ‘Moderna’ Business areas in the annual report 2011 brand in Sweden. This area serves customers who pay annual The annual report 2011 is divided according to the previous premiums of more than DKK 900,000 or have more than 50 em- division of Tryg’s business into Private Nordic, Commercial Lars Bonde form Tryg’s Executive Management. ployees. All sales through brokers are written in Corporate Nordic Nordic and Corporate Nordic. regardless of the customer’s size. About one quarter of Corporate’s customers pay annual premiums of more than DKK 10m. Tryg As from the first quarter in 2012, financial statements will reflect Garanti is included in the financial results of Corporate Nordic. The the new organisation within the four business areas: Private, business area represents 23% of Tryg’s total earned premiums. Commercial, Corporate and Sweden/Finland. Tryg A/S | Annual report 2011 | 7 Highlights of the year January New CEO On 11 January, Stine Bosse announces that she will stand down as CEO after 24 years at Tryg, eight of them as CEO. On 12 January, the Supervisory Board announces that CFO Morten Hübbe will take over as CEO as from 1 February. May February Tryg launches new medium-term target Tryg launches a target of achieving a medium-term return on equity of 20% after taxes, corresponding to a combined ratio of 90. April Tryg launches new travel app As an extension of the Help 24/7 customer promise, Tryg launches a new travel app: Tryg on the go. This app provides answers to a number of the most frequently asked questions when bad luck strikes on travels. The app is available to all. Additional cover for caravans Tryg concludes partnership agreements with a number of se- lected, high-quality workshops and launches a new concept for customers with Tryg Caravan. Tryg Caravan gives customers more benefits in the form of high quality, safety checks and an extended waranty on repairs. Alongside these customer Tryg concludes new, extended contract with CSC benefits, the concept reduces the costs of claims and supports Tryg renews and extends the IT outsourcing contract with CSC Tryg’s CSR strategy by focusing on responsible procurement. until the end of 2015. The partnership with CSC now covers Tryg’s insurance activities in all four Nordic countries. Tryg wins 2011 Customer Service Prize in Norway Tryg wins the Customer Service Prize ’Best in Test’ 2011 in June Norway. The test was conducted by SeeYou, and is Norway’s biggest, most comprehensive customer service survey. On a scale of 0-100, Tryg scores 87.6 points. May Tryg changes the organisation On 1 June, Tryg implements an organisational change that aims to guarantee a greater focus on profitability in the individual business areas. The new organisation has a simpler structure, with clear allocation of roles and responsibilities and short decision-making processes. Read about Tryg’s business areas on page 7. New, extended reinsurance Tryg enters a new agreement extending the reinsurance cover for weather claims by ac quiring lateral cover that limits Tryg’s expenses in the event of a large number of minor insurance Tryg around the clock – Help 24/7 customer promise events. While traditional reinsurance cover applies to each event, Tryg launches Help 24/7, a customer promises. The idea is to this cover will take effect if Tryg has incurred claims costs of more make customers aware that they can safely phone and find than DKK 400m for weather claims distributed across a number help any-where at any time, regardless of a claims’ urgency. of insurance events. The agreement will be affective 1 July 2011. 8 | Annual report 2011 | Tryg A/S July Cloudburst hits Denmark On 2 July, a violent cloudburst hits Denmark. This cloudburst leads to claims of DKK 1.2bn, as a result of reinsurance, Tryg’s expenditure totals DKK 196m. September New CFO November Tryg improves in image survey In the annual EPSI image survey, Tryg sees the biggest increase in customer satisfaction. Tryg improves from an index of 75.3 to 76.4. By comparison, the industry average falls by 0.3 index points. Tor Magne Lønnum takes up the position of CFO. Tor Magne Read about the EPSI survey on page 36. Lønnum comes from a position of CFO and Deputy CEO of Gjensidige Forsikring ASA. NLS – Next Level Sourcing Tryg launches the Next Level Sourcing project, which aims to secure efficient procurement and thus enhance profitability by reducing costs in Tryg. The project involves both claims costs through Tryg’s purchases of claims handling at, for example, car workshops and craftsmen, and Tryg’s own costs. Peace-of-mind conference In partnership with the Norwegian Ministry of Justice, the Norwegian National Police Directorate, Kristiansand Municipality and the Norwegian National Crime Prevention Council, Tryg organises regional Peace-of-mind Conferences, which put focus on collaboration between municipalities and the police in order to secure a good, safe framework. The first conference focuses on stimulating better coordination and collaboration between the police, municipalities, trade and industry and the voluntary sector in efforts to create secure, sustainable local environments. Sweden’s best insurance and pensions website Modernaforsakringar.se is voted Sweden’s best insurance and pensions website in Internetworld’s prestigious ranking of Swedish websites. October December Tryg launches new environmental insurance policy Climate partnership Tryg launches a new environmental insurance policy for com- In anticipation of more climate-related claims and increased mercial and corporate customers, covering the liability which a payment of claims, Tryg is a part of a Nordic insurance partner- company assumes in connection with an environmental claim. ship with If, Gjensidige, Trygg Hansa/Codan, and the Nord-Star Read more about the policy on page 37. insurance centre. Through this Nordic climate partnership, the companies want to work actively on claims reduction – both Tryg creates claims reduction department individually and together. Furthermore, the companies want Tryg creates a new unit that has as its objective to increase focus to support climate research with a view to developing a web- on claims reduction and to develop claims handling, and to assume based tool that customers can use to investigate the climate ultimate responsibility for preventive activities to reduce claims. risks in the area where they live. Tryg A/S | Annual report 2011 | 9 The result underlines the fact that Tryg is on course to achieve the target of a return on equity of 20%. Results Tryg’s financial performance Highlights • Profit after tax for the year was DKK 1,140m, compared to DKK 593m in 2010. • Technical result of DKK 1,534m, compared to DKK 375m in 2010. • Combined ratio of 93.5, compared to 98.8 in 2010. • The year was impacted by storm and cloudburst claims, which amounted to DKK 1.6bn, as against DKK 291m in 2010. • The cloudburst in the Copenhagen area on 2 July resulted in expenses before reinsurance of DKK 1.2bn and affected the result by DKK 196m. combined ratio of 5 percentage points, whereas inflation in claims expenses had an inverse effect of approximately 3 percentage points, resulting in a net improvement of about 2 percentage points. The level of winter claims was closer to normal in 2011 than in 2010, but on the other hand, storms and cloudbursts costs were consid- erably higher, primarily due to the cloudburst in the Copenhagen area. As can be seen from the graph on page 13, the total weather claims costs, including winter claims, were somewhat higher in 2011 than in 2010 before reinsurance, but are lower when the effects of reinsurance are included in the calculation. Altogether, the effect of weather claims on the combined ratio was 2.3 percentage points in 2011 compared to 1.0 percentage point in 2010. Furthermore, large claims were at a slightly higher level than in 2010 and amounted • Higher level of large claims than in 2010: DKK 858m, to DKK 858m gross, as against DKK 813 in 2010. 2011 also had as against DKK 813m. a slightly higher level of run-off gains, amounting to DKK 944m, • The expense ratio improved from 17.0 to 16.8. as against DKK 824m in 2010. • Return on equity after tax of 13.1%, as against 6.6% in 2010. Premiums Gross earned Premiums rose to DKK 20,572m, as against DKK 19,475m in 2010, corresponding to growth of 5.6% (3.7% measured in local currency). The development is due in particular Tryg’s profit after tax for the year was DKK 1,140m, as to the effect of the premium increases implemented in all business against DKK 593m in 2010. The improvement consisted areas. Gross earned premiums increased the most in Private Nordic, of an increase of DKK 1,159m in the technical result and by 6.8% measured in local currency. Growth in the commercial and a reduction in the investment result of DKK 504m. The corporate market was 0.2% and 0.8%, respectively, measured in result was achieved in spite of the developments on the local currency, and was affected on the one hand by the premium financial markets and a higher level of storm and cloud- increases implemented, and, on the other, by the negative economic burst claims, particularly in Denmark. conditions prevailing on the Danish market in particular. The combined ratio was 93.5, as against 98.8 in 2010. The Since 2009, Tryg has initiated significant premium increases positive development was due to profitability-enhancing in a number of sectors and within all business areas. The premium measures, as well as storm and cloudburst claims being increases came after a period where the value of claims progressed at a lower level than the winter claims of 2010. The result at a greater rate than that of the premiums, resulting in a gap. underlines the fact that Tryg is on course to achieve the Because premium increases only have an effect from the annual target of a return on equity of 20% after tax, correspond- date of renewal of the insurance, some of the profitability- ing to a combined ratio of 90. enhancing effects will only occur some time after the increases Result are implemented. 2012 will therefore still see an impact of around DKK 600m due to premium increases implemented in 2010 and The result was achieved in a year impacted by major events 2011. Tryg believes that premiums are now at a level where, in resulting in claims and difficult economic conditions, which both future, normal premium adjustments that are in line with general affected the insurance business and resulted in volatile financial price trends will prevail to a greater extent. markets. The improvement is due mainly to the effect of the profitability-enhancing initiatives of DKK 1bn implemented in Tryg continously monitors developments in claims costs levels, and, recent years. In 2011, profitability initiatives had an impact on accordingly, in 2011 decided to introduce premium increases in sec- 12 | Annual report 2011 | Tryg A/S tors and customer segments where profitability was unsatisfactory. December. In total, the weather claims mentioned amounted to This includes, among other things, measures that have their basis DKK 1.6bn before reinsurance and DKK 556m after reinsurance, in claims arising from storm and cloudburst claims. The premium having an impact of 2.7 percentage points on the combined ratio. increases implemented in 2012 will have an impact of around The development in terms of more weather claims, particularly DKK 400m in 2012 and, when added to the impact of previous as a result of storm and cloudburst, is expected to continue in measures of DKK 600m, the total impact will therefore be DKK 1bn, the future. Especially, the development in terms of cloudbursts corresponding to approximately 5% of Tryg’s total portfolio. has been significant in Denmark, and meteorologists anticipate in Claims costs future an increase in the number of extremely heavy cloudbursts in particular. This development will increase the claims costs and The claims ratio, which includes both the claims costs and therefore also the expenses relating to reinsurance to cover this the result of reinsurance as a percentage, was 76.7, as against type of risk. To counteract this development, Tryg will continue 81.8 in 2010. The improvement in the claims ratio covers both to work on adapting products and pricing, and actively work on the milder winter and the higher level of weather claims and claims reduction for the benefit of both customers and Tryg alike. large claims costs. Weather claims amounted to DKK 1.6bn in total, of which the cloudburst in the Copenhagen area ac- The cloudburst in the Copenhagen area differed from previous counted for DKK 1.2bn. The claims from the cloudburst were cloudbursts in that commercial customers were more widely af- covered by Tryg’s reinsurance, which limits the value of claims to fected. Many companies experienced flooding in basements and DKK 100m, to which is added DKK 96m from renewal premiums storerooms, and since the concentration of value is high in the to reinstate the cover. The cloudburst therefore had an impact case of commercial customers, this type of claim is more expen- of DKK 196m on the result and a negative impact on the claims sive than for private customers. At the same time, the propor- ratio of 0.9 percentage points. In addition to the July cloudburst, tion of very large claims was also significantly higher, and the Denmark also experienced a series of small cloudbursts during 50 largest claims represented around 30% of total expenses. the summer. This was mirrored in June by flooding in Norway as the result of heavy rain. In addition to claims due to rain, Tryg As a result of the anticipated increase in cloudburst claims, was affected by storms in both Denmark and Norway, as well Tryg’s Danish business within both Private and Commercial as the storm Dagmar, which hit Norway, Sweden and Finland in implemented a series of initiatives to reduce future expenses Weather claims Large claims DKKm 2,000 1,600 1,200 800 400 0 DKKm 1,000 800 600 400 200 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Extraordinary winter claims Reinstatement Storm and cloudburst, gross a) Storm and cloudburst, net b) Expected level for 2011 (DKK 300-350m) Large claims, gross Large claims, net Expected level 2011 (400-500 DKKm) a) Claims costs before reinsurance b) Claims costs after reinsurance Tryg A/S | Annual report 2011 | 13 for this type of claim. These include, among other things, ad- 2011 saw a range of initiatives implemented in terms of reducing vice in connection with reconstruction after the claim, but also the level of future costs. In the spring, Tryg accordingly signed requirements governing the installation of claims-reducing meas- an agreement with Danish tied agents, resulting in a reduction ures, such as perimeter drainage and high water sealing drains, in salary of an average of 5% with effect from November 2011, as well as changes in terms of the cover provided. Tryg has also with no adjustment over the next two years. Furthermore, Tryg introduced additional rules for underwriting new business. established the ‘Next Level Sourcing’ project, which includes a The general premium increases for buildings insurance already large number of initiatives focusing on systematically reviewing implemented also contribute to countering the anticipated processes and leveraging Tryg’s size on the procurement side. development in terms of cloudburst claims. The project includes claims expenses through Tryg’s procurement of claims handling at, for example, car workshops and craftsmen, As additional security against weather claims, Tryg extended as well as Tryg’s own costs. In addition, work is continuing on its reinsurance cover in July 2011 by acquiring lateral cover that optimising internal processes in both administration and claims limits Tryg’s expenses in the event of a large number of minor handling, as well as on optimising the use of a variety of sales events resulting in claims. While traditional reinsurance cover channels. applies for each event, this cover comes into force if Tryg has incurred claims expenses of more than DKK 400m for weather Result for discontinued activities claims distributed across a number of events. As a result of the The result for discontinued activities was DKK 26m. The result is many storm and cloudburst events in the second half of 2011, due to a positive run-off on provisions for claims from the marine the cover is close to coming into force and will therefore limit business, which Tryg discontinued underwriting in 2010. the risk of weather claims costs in the first half of 2012. Investment result At DKK 858m, the level of large claims before reinsurance was In 2011, Tryg’s total investment portfolio of DKK 43.0bn produced slightly higher in 2011 than in 2010, when they amounted to a gross return of DKK 2,010m, which corresponds to a return of DKK 813m. As can be seen from the graph on page 13, 2010 4.8% on average invested capital over the period. and 2011 both had high levels of large claims. Tryg believes that there is an underlying trend behind this and has increased the Tryg’s investment portfolio is divided into a match portfolio and expected level of large claims. As a result of reinsurance cover, a free portfolio. The match portfolio accounted for DKK 33.2bn, the impact of large claims on the total result for 2011 was consisting of bonds that match the insurance provisions, so that, DKK 546m. Costs as far as possible, any fluctuation as a result of interest changes is offset. The remaining part of the assets is called the free portfolio and is a diversified portfolio of property assets, equities The expense ratio was 16.8 as against 17.0 in 2010. The and bonds. The free portfolio accounted for DKK 9.8bn. Overall, improvement has come about in spite of increased expenses dividing the investment portfolio leads to a low financial risk and relating to payroll tax in Denmark and redundancy costs in con- reflects Tryg’s focus on the insurance business. nection with organisational changes. The expense ratio was also affected by expenses for the Tryg Transition project, the aim of The return on the match portfolio was DKK 1,706m before trans- which is to design and implement new processes for Tryg’s sales, fer to technical interest and DKK 94m after transfer in 2011. customer services and claims handling. Tryg Transition focuses on a number of issues, including developing use of the Internet as a The return on the free investment portfolio was DKK 304m. The platform for serving customers and enabling customers to serve result was affected by the negative developments on the financial themselves to a greater extent than is currently the case. On markets in 2011 due to the economic situation, particularly in the one hand, this will streamline processes to the benefit of the Eurozone, and, more specifically, the debt crisis in Southern the customers, and, on the other, give Tryg the opportunity of Europe. The equity portfolio, which is a globally diversified port- focusing even more on areas that create value for customers. folio, showed a negative return of 4.2%. Other bond investments 14 | Annual report 2011 | Tryg A/S were affected by interest rate trends in Europe and generated a return of 4.1%. On the whole, the make-up of the free portfolio remained unchanged in 2011, and the portfolio continues to be a diversified portfolio of property assets, equities and bonds. After deduction of other financial expenses, the net investment result for 2011 was DKK 66m. Highlights Q4 2011 • Profit after tax of DKK 344m. • Technical result of DKK 271m. • Combined ratio of 95.5. Tax • The quarter was effected by claims costs arising from storms Berit and Dagmar, with weather claims totalling DKK 305m. Tax on profit for the year was DKK 455m, corresponding to 29%. • A high level of large claims totalling DKK 398m. The slightly higher effective tax rate was affected by the loss on • Expense ratio of 17.4. equitiy investments, which is not tax-deductible. Capital position Tryg’s equity stood at DKK 9,007m at the end of 2011, and, Profit after tax was DKK 344m for the fourth quarter of 2011, once subordinated loan capital of DKK 1,589m was added, Tryg’s as against DKK 369m for the same period of 2010. The result total capital base was DKK 10,596m. The capital base must be was made up of a technical result of DKK 271m and an invest- viewed from a number of angles, including in the light of Tryg’s ment result of DKK 163m due to a good return on equities. goal of achieving a capital level corresponding to a rating of ‘A-’ The technical result was affected by a high level of large claims from Standard & Poor’s. In this regard, Tryg had a buffer of 9% at in the industrial area, a comparatively high run-off level and the end of 2011. Moreover, in accordance with Danish Financial storms Berit and Dagmar, which hit Norway in particular. Supervisory Authority guidelines, Tryg calculates an individual solvency requirement. The individual solvency requirement at 31 In the course of the fourth quarter 2011, expenses relating December 2011 was determined at DKK 6,320m. The individual to the July cloudburst in the Copenhagen area also increased, solvency requirement must be seen in comparison to the capital making total expenses before reinsurance of DKK 1.2bn, and base, which is DKK 8,190m, and so, compared to that, Tryg has expenses after reinsurance, including reinstatement of cover, solvency of DKK 1,870m. DKK 196m. As a result of the lower interest rate level, the effect of discounting on combined ratio was 0.6 percentage points In 2011, as a result of the lower interest rate levels, an adjust- lower than in the fourth quarter 2010. ment of DKK 399m was made to the Norwegian pension liability. This adjustment is not included in Tryg’s result, but is entered In the fourth quarter, the level of premium in local currency was directly under equity in the accounts. In the event of a return to on a par with the same period of 2010, mainly due to a higher a higher interest rate level, the provision will fall, with an accord- level of bonus and premium discounts and negative growth in ingly positive effect on Tryg’s equity. Return on equity after tax the commercial and corporate market. Growth in the private was 13.1% in 2011, compared to 6.6% in 2010. market continued to be at a high level, but it was adversely affected by profit sharing due to a good period for several In light of Tryg’s capital level target, it is proposed that group agreements. DKK 400m be distributed in the form of a cash dividend. Events after the balance sheet date In the opinion of management, from the balance sheet date to the present date, no other matters of major significance have arisen that are likely to materially influence the assessment of the company’s financial position. Tryg A/S | Annual report 2011 | 15 Private Nordic Highlights • Technical result improved from DKK 446m to DKK 886m in 2011. • Combined ratio improved from 96.4 to 93.0 in 2011. • Gross premiums rose 6.8%, driven by premium increases. • Increase in customer satisfaction in both Denmark and Norway. Result work was undertaken during the year involving the implemen- tation of a number of claims-reducing measures, such as high water sealing drains and perimeter drainage, as well as changes in terms of the cover provided, e.g. increases in policy excesses and limitations in respect of contents cover in basement areas. In recent years, significant premium increases have been implemented in order to improve profitability. The need for any further measures is assessed on an ongoing basis; the rising expenses relating to weather claims and repair cost trends are closely monitored. Since this affects the entire insurance market, the premium levels in the markets have experienced an across the board rise. Along with the clear increase in expenses Private Nordic’s technical result of DKK 886m was almost double relating to weather claims, Tryg’s premium increases have been its result for 2010 and was due, in particular, to the effects of met with relatively high acceptance among customers, which is premium measures. reflected in a high and stable retention rate. In 2011, customer satisfaction surveys were conducted by EPSI, an independent In 2011, Private Nordic focused on continuing the implementa- organisation. The survey showed that customer satisfaction tion of the premium increases initiated in 2009 and 2010, and had risen in both Denmark and Norway. This is a good starting this contributed to the improvement in the technical result. The point, which testifies to a strong customer relationship in a year positive development in the result was also helped by a return where the premiums have increased. to more normal winter conditions. The improvement in the re- sult was achieved in spite of the heavy cloudburst in the Copen- The development of Tryg’s new websites, launched in Denmark hagen area in July and a number of smaller storms in Denmark and Norway in 2011, has also focused on the relationship and Norway. To reduce the risk of cloudburst claims, systematic the company has with customers. A large proportion of Tryg’s Result 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 16 | Annual report 2011 | Tryg A/S Q4 2010 Q4 2011 2010 2011 2,654 -2,040 -448 166 -26 22 162 153 76.9 1.0 77.9 16.9 94.8 2,766 -2,130 -463 173 -8 19 184 47 77.0 0.3 77.3 16.7 94.0 10,181 -8,223 -1,627 331 11,097 -8,784 -1,786 527 38 77 446 399 80.8 -0.4 80.4 16.0 96.4 253 106 886 159 79.2 -2.3 76.9 16.1 93.0 customers use the websites to search for information about private business implemented premium increases chiefly for their insurance policies and insurance needs. Similarly, many use house and contents insurance, whereas the increases in the the websites to report smaller claims. Another initiative was the Norwegian private business were chiefly for house and motor launch of Tryg’s travel app, which has a number of features, in- insurance. cluding allowing travellers to securely store copies of travel docu- ments, passport and credit cards, etc., on their mobile phones. The effect of premium increases was clearly manifested in Premiums the average premium for Danish private customers, which rose by 5.7% during 2011, whereas the equivalent for Norwegian Overall, gross premiums rose by 6.8% in local currency. The private customers rose by 2.9%. Danish private business was a major contributor, with a growth of 8.3%, driven by the premium increases that had been imple- Customers’ reactions to the higher premiums can be seen in the mented. This was further augmented by growth in the Norwegian customer retention development, which shows how many, out private business of 4.4% and continued growth in Sweden and of 100 customers, opt to renew their policies. In Denmark, after Finland, but at a lower level than in previous years. The Danish falling slightly in 2010, the retention rate rose during 2011, Combined ratio – Sweden and Finland Customer retention in Denmark and Norway 150 140 130 120 110 100 90 2008 2009 2010 2011 % 94 92 90 88 86 84 82 2007 2008 2009 2010 2011 Sweden Finland Denmark Norway Average premiums – House Average premiums – Motor Index 150 140 130 120 110 100 90 Index 120 110 100 90 80 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 Denmark Norway Denmark Norway Tryg A/S | Annual report 2011 | 17 ending the year at 90.5. It was mainly single-product customers For a number of customers, however, it was not the first time who left Tryg after the premium increases. Tryg generally tries they had reported claims as a result of a cloudburst. Tryg and to attract customers who take out all their policies with Tryg. Tryg’s customers share a common interest in reducing future This gives Tryg the possibility of offering a better product in a cloudburst claims, and Tryg has therefore approached these number of ways, including via the Tryg Family concept. This type customers with views to reduce and limit future claims. The of customer also has a higher retention rate and is therefore measures include installing preventive measures such as high more profitable. water sealing drains and perimeter drainage, as well as changes such as increases in policy excesses and limitations on contents In Norway, the retention rate remained relatively steady at 86 cover in basement areas. Tryg has set up a dedicated department throughout the year. Overall, these high levels testify to a high responsible for claims reduction, whose role is to ensure existing degree of acceptance and customer satisfaction, which is an claims-reducing measures are clearly defined and that new ones important and enduring cornerstone of Tryg’s business model. be developed. In Sweden and Finland, the focus in 2011 was on creating The Norwegian part of Private Nordic was also hit by several better balance between growth and profitability. A number large claims during 2011, mainly as a result of flooding and of measures were implemented, including premium increases landslides. Overall, weather claims accounted for DKK 647m within selected segments, and the possibility of giving discounts before reinsurance and DKK 237m after reinsurance, as against was reduced. In the Swedish business, niche areas Bilsport DKK 31m after reinsurance in 2010 in Private Nordic. & MC, Product Insurance and Atlantica Yacht delivered good results, with the combined ratio being below 90. Overall, Claim inflation is another focus area, where, in Norway in Sweden experienced growth of 9.0% in 2011. particular, there is evidence of a growing tendency in the area The Finnish part of Private Nordic is approaching profitability, their increased frequency. This is linked to the growth in the but is still not at a satisfactory level. Growth in Finland in 2011 Norwegian economy, where average wage increases of 4% of house insurance due to higher repair costs for claims and was 5.6%. Claims costs mean that anticipated inflation in Norway is higher than in the other Nordic countries. It is therefore important to maintain a focus on the inflation risk. One of the activities that support The biggest single event of 2011 was without doubt the this is the ‘Next Level Sourcing’ project, which, as stated earlier, cloudburst that hit the Copenhagen area on 2 July. More than is focused on achieving better leveraging of Tryg’s procurement 20,000 claims, most of which were from private customers, power and on streamlining processes. were reported within a few days and put claims handlers and claims assessor under pressure to help the many customers In motor insurance, average claims expenses rose, including who had reported a claim. For Tryg, it is crucial to be able expenses resulting from glass claims. To mitigate this, Tryg to quickly help limit the extent of the claim and provide has taken initiatives, in respect of workshops, to increase the dehumidification equipment. Subsequently, the focus is on proportion of repairs offered as opposed to full replacement repairing the damage in the most effective way. of a damaged windscreen or window. 18 | Annual report 2011 | Tryg A/S Total claims inflation is around 3%, with Norway higher and Denmark lower than this. An assessment of claims inflation is essential when determining the size of premium increases. Highlights Q4 2011 Change of ownership policies in Denmark has been a focus area in recent years, as the claims cost level has been exces- sive. The premium for new change of ownership policies was therefore increased during both 2010 and 2011, and a more restrictive underwriting policy was introduced. In 2011, the claims level for change of ownership was significantly improved compared to preceding years, and profitability is expected to gradually improve in the coming years. In Sweden, there was an improvement in the claims ratio from 84.7 to 83.2. In Finland, the claims ratio improved by 1.8 percentage points to 75.8. Overall, the claims ratio for Private Nordic was 76.9, • Technical result improved from DKK 162m to DKK 184m in the fourth quarter of 2011. • Combined ratio improved from 94.8 to 94.0. • Run-off gains DKK 106m lower than for the same quarter of 2010. • Storms Berit and Dagmar respectively had a negative impact of DKK 74m on the result. • Gross premiums rose 2.8%, driven by premium increases. • Weather claims accounted for DKK 106m, as against DKK 138m for the same period in 2010. • Expense ratio improved from 16.9 to 16.7. compared to 80.4 in 2010. The technical result was improved in the fourth quarter, which Costs was mainly a result of the premium increases and higher ac- ceptance from customers. This was manifested in the retention Costs continued to be in focus in Private Nordic during 2011. rate of 90.5, as against 89.5 for the same quarter of 2010 Work is currently underway to optimise the use of various dif- in Denmark, whereas the 2011 retention rate in Norway has ferent sales channels and thereby bring down the costs associ- remained stable at around 86. ated with sales. One example of this is the systematic work undertaken to increase the sales and delivery of service via the Gross premiums rose 2.8% in the fourth quarter, but the growth Internet. Existing customers, in particular, who want additional in premiums was lower than anticipated, due chiefly to profit cover or make simple changes to their policy will be able to sharing on a number of group agreements at the end of the serve themselves via the Internet to an even greater extent. year, this being a result of the improved profitability. Higher payroll tax on Danish employees, as well as redundancy The fourth quarter was affected by a number of weather claims. costs, had a negative impact on costs, but if these effects are Storms Berit and Dagmar respectively ravaged the Norwegian disregarded, the development d in the expense ratio from part of the business in particular, causing extensive damage, 16.0 to 16.1 in 2011 was satisfactory. which had an overall impact on the quarter of DKK 74m, or 2.7 percentage points. Run-off gains amounted to DKK 47m in the fourth quarter 2011, compared to DKK 153m for the same period of 2010. The run-off from the previous year’s claims was less in the fourth quarter of 2011 and, taken in isolation, resulted in a rise in combined ratio of 4 percentage points. Tryg A/S | Annual report 2011 | 19 Commercial Nordic Highlights • The technical result improved from a loss of DKK 474m in 2010 to a profit of DKK 117m in 2011. • Combined ratio improved from 112 in 2010 to 98.1 in 2011. • Gross premiums rose 0.2%, driven by premium increases. Result in the long term, increasing customer retention. The Danish part of the commercial area continues to be most adversely affected by the recession. This was manifested in a number of ways, including the fact that the number of bankruptcies in Denmark once again rose in the second half of 2011. The fluctuations in the economy result in difficult conditions for commercial customers, which influence the companies’ insurance needs. The result improvements indicate that the measures initiated are having a beneficial effect on the result. However, the combination of measures and an economic situation that remains difficult for Commercial Nordic’s technical result of DKK 117m was an im- many medium-sized and smaller business, in Denmark in particular, provement on 2010 of DKK 591m, due both to profitability initia- resulted in difficult conditions for insurance policy sales in 2011, tives and the weather conditions, which as a whole were more why growth was relatively limited. favourable in 2011. Premiums The implemented profitability initiatives had a positive impact, Gross premiums rose to DKK 4,237m in 2011, corresponding to a which manifested in an improved underlying development in the growth of 0.2% in local currency. The low growth was adversely result. In 2010, Commercial Nordic was particularly hard hit by affected by the recession, particularly in Denmark, and boosted by winter claims, and the significant improvement was due mainly the premium measures implemented, which passed off with the an- to the absence of extraordinary winter claims in 2011. How- ticipated minor impact on retention rate. The retention rate only fell by ever, the Danish part of Commercial Nordic was affected by the around one percentage point to 85.5 in the Danish part of Commercial cloudburst that hit in the Copenhagen area in July. The expense Nordic and, on the whole, remained unchanged in Norway at 88.4. ratio improved from 24.2 in 2010 to 23.6 in 2011. Cost levels are However, there are still areas where profitability is not satisfactory. still too high, and focus is on reducing these via process improve- For example, premiums on agricultural policies are being increased in ments, optimising the use of different distribution channels and, Denmark in 2012, and Tryg is also working towards further segmenta- Result 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 20 | Annual report 2011 | Tryg A/S Q4 2010 Q4 2011 2010 2011 1,066 -818 -250 -2 0 7 5 46 76.7 0.0 76.7 23.5 100.2 1,039 -711 -249 79 -19 6 66 95 68.4 1.8 70.2 24.0 94.2 4,183 -3,732 -1,014 -563 59 30 -474 99 89.2 -1.4 87.8 24.2 112.0 4,237 -3,297 -1,001 -61 141 37 117 155 77.8 -3.3 74.5 23.6 98.1 tion of commercial customers in the light of the customers’ differing process improvements are being carried out, and use of the various characteristics. This may result in more differentiated pricing as well distribution channels will also be optimised. In spring 2011, Tryg as more differentiated service for various customer groups. entered into a new agreement with the company’s tied agents in Claims costs Denmark. The agreement resulted in a reduction in total salary pay- ments of almost 5% during 2011 and with no increase during the The claims ratio was 74.5 in 2011, as against 87.8 in 2010, which next two years. The agreement will therefore reduce the cost level. was a significant improvement and mainly due to the premium As a result of transitional arrangements, the effect was limited in measures implemented. In 2011, Commercial Nordic was hit by 2011, but will be noticeable in 2012. higher cloudbursts claims payments, which had a negative impact on the claims ratio of approximately 2.5 percentage points. Large claims accounted for DKK 90m in 2011, compared to DKK 407m in 2010, and affected the claims ratio by almost 2.1 percentage points. Highlights Q4 2011 In Commercial Nordic too, claims-reducing measures were imple- • Technical result improved from DKK 5m to DKK 66m during mented as a result of increasing cloudburst claims. The measures the fourth quarter of 2011. include instructions to customers to locate stocks and inventories in basements at least 40 cm above floor level and requirements on reconstruction using materials capable of withstanding water. Premium increases and changes in terms of cover are also being implemented, such as increases in policy excesses and adjust- ment of cover and acceptance rules. Industries and segments that are particularly exposed to claims will see customised changes to their price rates and covers. Commercial Nordic was boosted by fewer large claims, but was also severely affected by the cloudburst in July, which mainly affected central Copenhagen, home to many commercial customers. The cloudburst had an impact of approximately DKK 300m before reinsurance. Agriculture has been a challenging area in recent years, and in 2011 as well. The sector is generally under pressure from falling • Combined ratio improved from 100.2 to 94.2. • Run-off gains amounted to DKK 95m in the fourth quarter of 2011, compared to DKK 46m in the same quarter of 2010. • Gross premiums fell by 3.5% in local currency, and were af- fected by a decrease in number of customers as a result of the premium increases and a challenging economic climate in Denmark in particular. • Weather claims amounted to DKK 51m, compared to DKK 39m during the same quarter of 2010. • Large claims of DKK 40m, compared to DKK 86m during the same quarter of 2010. • The expense ratio rose from 23.5 to 24.0 and was under pressure from the lower premium level. land and property prices, creating a number of challenges, even The improved technical result was aided by premium increases and for strong agricultural businesses who find it difficult to secure a higher run-off result. The mild winter also helped the financial finance for the necessary investments and expansion projects. result during the fourth quarter of 2011 compared to the extra- This also has a negative knock-on effect on the insurance busi- ordinarily tough winter at the end of 2010. On the other hand, ness. In 2011, as mentioned, a number of measures to improve the fourth quarter of 2011 was affected by two storms, Berit and profitability were initiated, but further measures may prove neces- Dagmar, which in particular hit Norway. Weather claims costs sary, as the claims ratio for agriculture continues to be too high. totalled DKK 51m. Gross premiums were lower during the fourth Costs quarter of 2011 compared to the same quarter of 2010. The many premium measures were implemented as planned during the year, The expense ratio was improved from 24.2 in 2010 to 23.6 in but with a decrease in number of customers. This is reflected in 2011. The improvement is due partly to cost restraint and partly the retention rate, which fell in both the Danish and the Norwegian to lower sales, resulting in a reduction in sales costs. However, part of Commercial Nordic. This negative impact was reinforced the cost level remains too high and is to be reduced through a by the continuing challenging economic climate in Denmark in series of measures. In order to reduce the cost level, a number of particular, with an increase in the number of bankruptcies. Tryg A/S | Annual report 2011 | 21 Corporate Nordic Highlights • Technical result improved from DKK 403m in 2010 to DKK 531m. • Combined ratio improved from 92.6 in 2010 to 90.7. • Gross premiums rose by 0.8% driven by premium increases. Result response and production times, among other things. Corporate Nordic implemented premium measures during 2011 and also focused on retaining profitable customer relations without reducing premiums in an otherwise competitive market. This proved very successful. As in 2010, interest rates were low during 2011, which was of particular importance for Corporate Nordic due to a high proportion of per- sonal injury business with a long duration. The corporate market was characterised by competition during 2011, but Tryg believes there is also a focus on profitability among the major players on the Danish and Norwegian markets. This focus In 2011, Corporate Nordic recorded a good result, which was on profitability must be viewed in context with the fact that capital achieved despite claims relating to cloudbursts and a high level models will generally impose a more demanding requirement for of large claims. However, the financial result was also affected by capital for the corporate area. This is particularly due to the propor- run-off on previous years’ provisions. tion of personal injury lines, including workers’ compensation, as Premium income amounted to DKK 5,275m, equivalent to growth contents, buildings and motor insurance for example. Over time, of 0.8%. In Denmark and Norway, growth was negative at 0.8% this factor is expected to increase the focus on profitability rather there is a far higher capital requirement for these areas than for and composed of premium increases for existing customers and a than growth for the market as a whole. decrease within personal injury insurance in particular. Customers served by Tryg’s own sales team in particular have a high reten- The Swedish business is continuing to grow. The Swedish part of tion rate, due to the use of service concepts and the ongoing risk Corporate Nordic is divided into a smaller corporate portfolio with advicing. These are areas which Tryg will work to develop further premium income of SEK 150m, which is still in a development phase, in the coming years. In relation to the agents, Corporate Nordic and an agent-served commercial portfolio of SEK 400m. For both will work with an improved service concept focusing on improved portfolios, there is a strong focus on profitability compared to both Result 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 22 | Annual report 2011 | Tryg A/S Q4 2010 Q4 2011 2010 2011 1,332 -1,044 -173 115 -31 10 94 87 78.4 2.3 80.7 13.0 93.7 1,312 -1,197 -165 -50 61 10 21 189 91.2 -4.6 86.6 12.6 99.2 5,124 -3,666 -663 795 -419 27 403 326 71.5 8.2 79.7 12.9 92.6 5,275 -4,251 -643 381 109 41 531 630 80.6 -2.1 78.5 12.2 90.7 the existing portfolio and new business, which also contributed yet been closed. Excluding run-off gains from previous years, moderate growth in 2011. the claims level of workers’ compensation has however remained Claims costs at too high a level in recent years, taking into account the capital requirement for this type of business. Corporate Nordic will there- The claims ratio for 2011 amounted to 80.6, and was affected fore continue to focus on improving profitability within this area by cloudbursts, large claims and a high level of run-off gains. through a combination of premium measures and segmentation. The corporate area is not normally affected by weather claims to such an extent, but many large businesses were affected by the Costs cloudburst in the Copenhagen area. In addition, 2011 was a year The cost level within Corporate Nordic was further improved in with a relatively high level of large claims compared to an average 2011, with an expense ratio of 12.2 compared to 12.9 in 2010. year. Large claims amounted to DKK 636m gross, compared to A low cost level is important in the corporate market, in order DKK 357m in 2010. to offer a competitive price and deliver a satisfactory result for return on capital, which must be included in this business area. The variation in expenses for weather claims and large claims does The lower cost level in 2011 was partly achieved through restraint not in itself give cause to implement premium measures. Given in the filling of job vacancies. In the future, Corporate Nordic will the actual course of events in 2011, the assessment is however also be affected by a reduction in salary payments to the sales that for both weather claims and large claims, there is a nega- team, as described under Commercial Nordic. tive underlying trend which must be matched in the pricing within buildings and contents insurance in particular. For this reason, Corporate Nordic is implementing premium increases for products and segments with an unsatisfactory trend. This applies for exam- Highlights Q4 2011 ple to buildings insurance in the Norwegian part and within power plant insurance, as this area has experienced particularly unsatis- factory levels of profitability. In both the Danish and the Norwe- gian part of the portfolio, measures are also being implemented on the basis of the customers’ individual claims development over time. In the Swedish part of the corporate portfolio, the selective development of the business is continuing alongside the imple- mentation of profitability measures within motor in surance in the agent-served part of the portfolio in particular. The development of workers’ compensation was also a focus area in 2011. Tryg’s provisions for this area give particular con- • Technical result of DKK 21m, compared to DKK 94m during the same period of 2010. • Combined ratio of 99.2 compared to 93.7 during the fourth quarter of 2010. • Very high claims level due to large claims of DKK 287m, compared to DKK 149m during the fourth quarter of 2010. • Weather claims amounted to DKK 148m, compared to DKK 19m during the same period of 2010. sideration to the long-term nature of the workers’ compensation The result for the fourth quarter amounted to DKK 21m and was business, and the fact that legislation and changes in practice in particularly affected by a high level of large claims and run-off connection with awards of workers’ compensation could result in gains, which can especially be attributed to the personal injury higher claims costs with retrospective effect. In 2011, this trend business. Large claims affected the combined ratio by 17.2%, improved and claim provisions concerning previous years could compared to 8.7% in 2010. The higher level of weather claims be released as a result. This also included a reduction in the ex- during the quarter was influenced by the two storms Berit and traordinary provision of DKK 200m, which was carried out during Dagmar in Norway and the adjustment of cloudburst claims in the the third quarter of 2010. The total run-off gains amounted to Copenhagen area in July 2011. Premium growth was negative at DKK 630m in 2011 against DKK 326m in 2010. The run-off gains approximately 3%, primarily as a result of profit sharing between reflect the fact that the provisions must be sufficient in order to a number of schemes due to a good claims ratio and a reduction take account of a negative development in claims that have not in the net loss of customers following the premium measures. Tryg A/S | Annual report 2011 | 23 Investment activities Tryg’s investment activity encompasses both investment in correspond to the company’s capital base. This is invested investment assets such as bonds, shares and property, as well broadly in a portfolio of bonds, shares and property, with the as the management of Tryg’s liquidity. The investment activity is aim of achieving the best possible return with limited risk. regulated both by applicable legislation and by the Supervisory The principles for subdivision are described in more detail in the Board’s policies and guidelines. Risk management report, which can be found at tryg.com. The investment portfolio Investment result in 2011 Tryg’s primary focus is to run a profitable insurance business, In 2011, Tryg’s collective investment portfolio of DKK 43.0bn and Tryg’s investment activities must therefore support this aim generated a gross return of DKK 2,010m, corresponding to a insofar as is possible. This means that the investment strategy return of 4.8% on average invested capital during the period, is based on low investment risk and that the majority of the compared to 4.3% during 2010. investment assets are secure investment assets, primarily bonds. Within the established framework, the aim is to maximise the The result was negatively affected by declining share prices, but return from the investment portfolio. In accordance with Tryg’s positively affected by price gains on bonds due to a significant investment strategy, in 2010 Tryg split the investment portfolio decline in interest rates and a property return which overall was into two sub-portfolios, a match portfolio and a free portfolio. also positively influenced by the slightly rising property market Thus, the match portfolio is invested so that it matches the in Norway. insurance provisions. As the provisions are discounted, they are, The combined investment result before other financial income like the investment assets, influenced by changes in interest and expenses not related to investment was DKK 340m in 2011, rates. The aim of the match portfolio is to neutralise these fluc- compared to DKK 722m in 2010. After the adjustment of insur- tuations insofar as is possible, so that the impact on Tryg’s net ance items and other financial items, the net investment return income from interest rate changes is minimised. The free invest- amounted to DKK 66m and was on a par with expectations ment portfolio consists of the other investment assets, which despite the difficult market conditions. Result of investment activities DKKm Bonds, cash deposits, etc. Equities a) Real estate b) Total Value adjustment, changed discount rate Transferred to technical interest Return on investment activities before other financial items Other financial income and expenses, investment Return on investment activities Other financial income and expenses, non-investment c) Total return on investment activities Return FY 2010 Return 2011 Match Total Investment assets Free 31.12.10 31.12.11 1,706 1,706 -760 -852 94 152 -87 239 34,317 2,179 3,897 37,232 1,816 3,954 304 40,393 43,002 304 1,185 261 300 1,746 -227 -752 767 -45 1,858 -87 239 2,010 -760 -852 398 -58 722 340 -152 570 -274 66 a) DKK -44m sold on futures contracts is included in the equity portfolio. b) Return on properties includes a calculated return on owner-occupied property. 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 and bank debt, exchange rate adjustment of insurance items, costs of investment activities and offsetting of return on owner-occupied property. 24 | Annual report 2011 | Tryg A/S The overwhelming majority of the combined bond portfolio, 80%, less notable fluctuations around 0. During 2011, the daily and has been invested in bonds with an AAA rating, 10% in AA-rated monthly fluctuations have however been larger than is normally and 9% in A-rated. Norwegian money market instruments without the case. The uncertainty in the Euro zone resulted in declining any rating, but with good credit quality, amount to 1%. interest rates in Denmark and elsewhere. The Danish Financial Supervisory Authority made it possible for the insurance sector to The match portfolio use an alternative discount rate. Tryg declined this option in order In 2011, the match portfolio, which consists exclusively of bonds to reduce complexity, despite the possibility of a short-term gain. and deposits, generated a return of DKK 1,706m. This return must be compared to the DKK 1,612m that concerns transferred techni- 3.4% return in the free investment portfolio cal interest and price adjustments resulting from a change in the The free investment portfolio primarily consists of shares, discount rate. The total mismatch during 2011 was DKK 94m, or property and bonds and generated a total gross return of 0.3% of the total match holding. DKK 304m during the period, corresponding to 3.4% of the average invested capital. At the end of 2011, the free port - For the discounting of provisions, Tryg uses an yield curve set by folio amounted to approximately DKK 9.8bn. the Danish Financial Supervisory Authority based on the interest rate level in the Euro area. Tryg matches most risk factors that The equity portfolio, which is globally diversified, generated influence the yield curve, but as the costs of matching precisely in a negative return of DKK 87m, which was satisfactory compared Euro bonds are significantly higher than they are for Nordic bonds, to the trend in the global equity markets, but significantly Tryg has primarily hedged in the local interest rate markets, below our expectations at the beginning of 2011. particularly in Denmark and Norway. As a result of the unease in the bond markets in 2011, there was strong demand for Nor- The property portfolio, which consists of Danish and Norwegian dic bonds, particularly during the third quarter of 2011, resulting properties, generated a return of DKK 239m, or 6.3%, which was in a positive deviation. Other than this extraordinary influence, slightly better than anticipated and a little below the result for 2010. Tryg largely achieved a complete matching of the insurance provi- Although the interest rate declined considerably during 2011, it did sions during 2011, as the other three quarters had the anticipated not have such a major impact as in 2010 due to developments in the Result of investment activities DKKm Bonds, cash deposits, etc. Equities a) Real estate b) Total Value adjustment, changed discount rate Transferred to technical interest Return on investment activities before other financial items Other financial income and expenses, investment Return on investment activities Other financial income and expenses, non-investment c) Total return on investment activities Return Q4 2010 Return Q4 2011 Match Total 366 366 -196 -176 -6 -162 171 123 132 380 -188 324 -18 306 -40 266 432 103 68 603 -196 -176 231 -16 215 -52 163 Investment assets 31.12.2011 37,232 1,816 3,954 43,002 Free 66 103 68 236 a) DKK -44m sold on futures contracts is included in the equity portfolio. b) Return on properties includes a calculated return on owner-occupied property. 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 and bank debt, exchange rate adjustment of insurance items, costs of investment activities and offsetting of return on owner-occupied property. Tryg A/S | Annual report 2011 | 25 property market. The bond portfolio was influenced by the significant interest rate change in 2011 and generated a return of DKK 152m, which corresponds to a return of 4.1%. Overall, the portfolio, which has an approximate average duration of just one year and encom- passes holdings of global high-interest bonds, has thus performed satisfactorily. All asset classes have contributed a positive perfor- mance and collectively the portfolio allocation has made an impor- tant contribution to the investment result being largely as expected. Other financial items The item ‘Other financial items’ consists of many elements which are included in the investment result. Some of these elements are relatively predictable, while other vary more. As an example, interest expenses on Tryg’s subordinate loans, rent for domicile properties and interest income on operating cash are predictable. Other items Responsible investment Tryg’s investment activity follows international guidelines for responsible investments. If funds are invested in a company that breaches human rights, damages the environment or is involved in child labour, corrup- tion or the manufacture of cluster bombs, a dialogue is initiated with the company with the aim of altering its behaviour or disposing of the investment concerned. Read more at tryg.com > CSR with greater variation include currency adjustments and mismatch Investment activity during the fourth quarter of 2011 on the inflation hedging of workers’ compensation provisions. Net income from investment activity before other financial income and expenses amounted to DKK 215m, compared In 2011, other financial items amounted to DKK -333m, of which to DKK 306m during the fourth quarter of 2010. The match DKK -274m does not concern investment. The currency hedging portfolio had a mismatch of DKK 6m and thus closely corre- in particular deviated from the norm and was approx. DKK 100m sponded to the targets for this part of the portfolio. higher in 2011 than in 2010. This fluctuation is particularly due to higher interest rates in Norwegian kroner. During the fourth quarter, the free portfolio achieved a net income of DKK 236m, of which the net income from shares From 2012, Tryg will no longer recognise the return on domicile amounted to DKK 103m, primarily as a result of shares rising property and the corresponding reversal under other financial 8% globally. Net income from bonds etc. in the free portfolio income and expenses. Net income from inflation swaps will in amounted to DKK 66m and was influenced by declining future also be recognised under claims costs. interest rates, particularly in Denmark. The total investment portfolio The free investment portfolio The match portfolio 13 5 9 17 1 Percent 55 20 40 Percent 28 7 5 20 16 Percent 64 26 | Annual report 2011 | Tryg A/S Outlook Tryg’s target remains a return on equity of 20%, which corresponds The expense ratio is expected to fall in 2012. This is partly to a combined ratio of around 90 including any run-off result and expected to be achieved through the optimisation of processes assuming the same interest rate level as in 2010. Tryg expects to in the commercial market, distribution and within staff areas. have a combined ratio of around 90 in 2013 providing that the level of large claims and weather claims is as expected. During 2010, Tryg divided the investment portfolio into two – a match portfolio, which is exclusively intended to match the For 2012, further improvements in the combined ratio and technical insurance provisions, and a free investment portfolio. In the event result are anticipated given the significant measures that have of interest rate changes, price fluctuations in the match portfolio are been implemented in recent years, as well as the measures that balanced by a corresponding interest rate effect on the discounted are planned for 2012. provisions, hence the immediate effect on the financial result is The isolated effect of the premium measures is estimated at approxi- neutral. mately DKK 1.0bn in 2012, made up of DKK 600m relating to the On the other hand, a rise in interest rates will give a higher, ongoing results of previously implemented measures and DKK 400m relating insurance result as a result of higher discounting of claims costs. to measures to be taken in 2012. The effetct of the measures will be counteracted by the increase in claims costs. In recent years, The anticipated returns from the equity and property portfolio are the claims costs were in the level of 2-3% per year. expected to be 7% and 6% respectively. The bond portfolio is ex- pected to generate a return of 1.4% on the free portfolio, while the Tryg expects premium growth at a lower level than in 2011 match portfolio is expected to generate a return of approx. 2.3%. – growth which will be particularly driven by premium measures and influenced by the economic developments in the commercial As in previous years, Tryg’s capital is once again in 2012 expected and corporate market in particular. to be considerably in excess of the capital requirements that will be imposed on the insurance sector under the impending Solvency Given recent experiences, the level of both weather and large II rules. Tryg’s own capital target is based on Standard & Poor’s claims is expected to be higher in 2012 compared to what Tryg has ‘A-‘ rating, in connection with which Tryg has established a safety previously assumed for a normal year. More frequent and violent margin of 5%. cloudbursts in particular are the reason for the higher anticipated level of weather claims. Tryg A/S | Annual report 2011 | 27 Our vision involves developing the correct customer deliveries, securing an efficient organisation and achieving ambitious financial objectives. Strategy and the insurance market Strategy Tryg’s vision is to be perceived as the leading peace-of- Tryg aims to achieve a high level of customer satisfaction. Customer mind provider in the Nordic region. This vision involves experience is key, and focus will continue to be on claims handling, both retaining and developing the correct customer claims reduction and high-quality products and services. Customers deliveries, securing a skilled, efficient organisation and must be informed about claims reducing measures and experience achieving ambitious financial targets. To achieve this, short response times when a claim occurs. The customer must also the strategic initiatives must be targeted and focused. be guaranteed the correct premium, and there will be an increased As a peace-of-mind provider, Tryg offers a complete focus on price differentiation and faster premium adjustments when package of products and services, which places tough the level of risk changes. demands on distribution, processes, IT systems and claims handling. Customer communication is increasingly taking place online and via mobile phones and social media. It is important that Profitable insurance business Tryg meets customers on their terms by further exploiting Tryg has an ambitious financial target of a return on equity digital communication channels and delivering services that of 20%. One necessary prerequisite for delivering profitability are accessible wherever the customers happen to be. at this level is a strong focus on profitable operation of the insurance business. Tryg’s primary business is general insurance, and it is from this business that Tryg’s financial results are achieved. The invest- ment business is an integral part of the operations and is run with a focus on supporting the insurance business. This is done We are available to our customers around the clock online and in our emergency call centre, where we offer our customers urgent assistance if the worst happens. primarily by investing in assets with stable returns and low risk, Tryg’s Corporate Social Responsibility (CSR) commitment covers which correspond to insurance obligations. four areas: climate, inclusion, well-being and prevention. CSR activities at Tryg are an integral part of both the insurance Profitable insurance products are dependent on the correct business and investment activities. relationship between price and risk. Tryg improves and updates tariffs and segmentation models on an ongoing basis, and Efficient value creation will place special focus on improving its ability to act quickly Tryg focuses on efficiency improvements and on reducing the ex- in response to developments in the risk profile in 2012. pense level. Over the next few years, the Tryg Transition programme The relationship between price and risk is also affected by the work on claims reducing initiatives. Claims reducing initiatives aim to reduce Tryg’s claims expenses both by means of preventive work so that they do not arise and by Tryg’s focus areas limiting the effects after the claim has happened. Loyal customers with a preference for Tryg Delivery of the right products is a prerequisite for Tryg to Focus areas in Tryg’s strategy to achieve the Group’s vision and objectives: achieve the targets. Tryg must satisfy the needs of customers to feel peace of mind from the very first day, and must do so in such a way that they continue to prefer Tryg as a peace- • Improve profitability in Commercial Nordic by means of product development, segmenting and efficient processes. • Improve profitability in Sweden and Finland. • Improve Time to Market – act more quickly in response of-mind provider. The joint Nordic brand platform that was to developments in the risk profile. introduced in 2010 provides Tryg with a basis on which to develop its position in the Nordic insurance markets. • Reduce costs by streamlining processes, IT operations and procurement. 30 | Annual report 2011 | Tryg A/S will be developing a new Nordic business platform, which aims to Attractive workplace improve efficiency and reduce product complexity. This will take Qualified employees with a high level of commitment are an place by such means as significantly improving self-service facilities essential part of ensuring high customer satisfaction, and Tryg for customers, both in a claim situation and when servicing their wants its employees to enjoy a very high level of job satisfac- policies. At the same time, the new platform aims to contribute to tion. The ability to attract the best employees and new talent improve customer experience and to increase customer retention. is an important factor in terms of achieving ambitious targets. Tryg therefore wants to be an attractive workplace and to be The claims costs will be reduced by means of process improve- able to attract qualified employees. ments, a focus on claims reduction and procurement. The Next Level Sourcing project initiated in 2011 is part of this effort, and in the next few years, it will result in a number of efficiency improvements. Costs per sale will be reduced by focusing on partnership agree- Tryg focuses on employees’ well-being and development, and strives to continuously develop as an attractive workplace. ments, geographical representation, outsourcing and online sales. Tryg must make sure that the management and the employees’ Distribution costs must be reduced through the introduction of qualifications are developed in line with the changing necessary additional self-service solutions in Private Nordic and Commercial skill requirements. Tryg also considers diversity in the workforce Nordic, including partnership agreements. Tryg will improve the to be a competitive advantage. annual expense ratio by means of a more intensive focus on efficiency improvements and by continuously increasing the portfolio per employee. Tryg A/S | Annual report 2011 | 31 KPI – (Key Performance Indicators) Retention rate Expense ratio Combined ratio Customer satisfaction Employee satisfaction Return on equity (index) 2007: 16.8 2007: 101.4 2008: 17.1 2008: 101.5 2009: 17.2 2009: 100,9 2010: 17.0 2010: 100.4 2007: 84.4 2008: 88.2 2009: 92.2 2010: 98.8 (index) 2009: 100 2010: 102 2007: 100 2008: 100 2009: 103 2010: 102 2007: 22.8 2008: 9.3 2009: 22.5 2010: 6.6 2011: 100.3 2011: 16.8 2011: 93.5 2011: 104 2011: 103 2011: 13.1 Number of Administrative Calculated as Index of custom- Index of employee Profit for the customers that expenses and the sum of the ers satisfaction satisfaction year of the renew their in- selling costs as gross claims ratio, for customers measured in an average equity surance policies a percentage the net result of having experi- annual survey. in percentage. annually. of earned premiums. business ceded enced claims as a percentage handling. T r e n d D e s c r i p t i o n of gross earned premiums and the gross expense ratio. Tryg has established a number of targets concerning perfor- are clear and easy to communicate to the organisation. The mance and results known as KPIs (Key Performance Indicators), choice of KPIs is an ongoing process and they can be replaced which give an indication of the direction and speed of fulfilment or revised. In connection with the change in management of the strategic objectives, whilst at the same time ensuring during 2011, the strategy was revised, and this is reflected in an appropriate balance between short- and long-term targets the selected KPIs. The primary focus is placed on the profitable and between performance and results. Compared to 2010, the operation of Tryg, while the ambition of top line growth has number of KPIs has been reduced, so that the targets for Tryg diminished. 32 | Annual report 2011 | Tryg A/S Tryg A/S | Annual report 2011 | 33 The insurance market The Nordic insurance market is characterised by a high will be extended. At the same time, workers’ compensation is level of concentration. The sector is dominated by a being levied a duty of 13.5%. This duty will presumably mean small number of companies with relatively high market that insurance companies will have to increase premiums and shares and a presence in a number of Nordic countries. at the same time strengthen their reserves for future claims The four largest companies have a joint Nordic market payments. Finally, the proposal to remove the right to deduct share of 47%, while the four largest companies in each health insurance premiums will make it more difficult for of the Nordic countries cover between 62% and 79% companies to sell health insurance policies in the future. of the respective markets. In 2011, total premium income for the entire Nordic market was approximately In Norway, established insurance companies have in recent DKK 170bn. years experienced competition from smaller, newly-established companies. Companies such as Frende, DnBNOR and Storebrand 2011 was affected by the ongoing debt crisis in the Eurozone have applied comprehensive marketing and pricing strategies and the general economic recession. International investors and have contributed to an increased competition and pressure are increasingly looking towards the Nordic markets, resulting on prices, especially in the private market. in declining interest rate levels. This has not, however, made it any easier for companies to obtain financing for operations Tryg in the market and investments. 2011 was characterised by a growing num- As the second largest general insurance company in the Nordic ber of bankruptcies, which had a particular effect on insur- region, Tryg is obviously affected by developments in the Nordic ance companies in the commercial, agricultural and industrial insurance market, but at the same time also contributes to segments. impact these developments. Many of the Nordic countries, especially Denmark and Norway, The current trend towards better pricing compared to risk will were hit by extreme weather in 2011, including major cloud- continue, and Tryg will, like many other companies, investigate bursts and floods, resulting in large numbers of claims. Most opportunities more fully in order to take into account more spe- insurance companies, especially Danish ones, have already cific risk factors in price setting, including, for example, changes implemented premium increases, but the high number of in the weather. The work to improve the balance between price weather claims has contributed to continuing reflections about and risk will take place while continuing to offer customers the the price to risk relationship – especially in relation to possible best products covering their needs and ensuring that customers future climate changes. experience peace of mind and service in their contact with Tryg – both in day-to-day counselling and in a claims situation. The Nordic market continued to have a pronounced focus on profitability in the underlying business. This behaviour will In 2011, the financial crisis hit Europe particularly hard, and had presumably continue for the next few years. a negative impact on the general economic situation. However, the insurance industry – and in particular the very mature Nordic In Denmark, a number of proposed changes to legislation market – was not very vulnerable to economic fluctuations. might affect the conditions for insurance companies. A couple Especially in the private segment, the needs of customers for of these relate to the latest Danish Finance Act. In the area insurance and peace of mind in everyday life were not notably of workers’ compensation, the proposal for an increase in the affected by economic fluctuations; quite the opposite in fact. retirement age means that insurance companies will have to Thus, Tryg did not suffer to any great extent from the economic strengthen their reserves, as the duration of ongoing services trend in 2011. 34 | Annual report 2011 | Tryg A/S Market shares in Denmark Market shares in Norway 26.8 20.8 Percent 5.9 10 5.3 18 13.2 Tryg Alm. Brand IF Codan Topdanmark Gjensidige Other 20.7 16.5 Percent 26.5 25.1 11.2 Market shares in Sweden Market shares in Finland 3.8 17.4 15.5 15.8 Percent 28.8 18.7 Moderna Folksam Länsforsäkringar IF Codan Other 2.4 17.8 18.5 Percent 9.5 27.6 24.2 Tryg Gjensidige Sparbank 1 IF Other Tryg a) Tapiola Fennia IF Pohjola Other Source: The official market statistics from the countries concerned. a) Estimated market share of the private market is above 5%. In addition to the work in pricing compared to risk, there was Tryg enjoys a strong position in the Nordic market and will con- also a focus on efficiency improvements of internal processes, tinue to improve and develop existing sales channels so that a especially in connection with claims handling. In this context, high level of service and effective access to Tryg’s products are it is expected that the Tryg Transition and Next Level Sourcing guaranteed. Despite increased competition in certain markets, projects will contribute to efficiency and process improvements, it is therefore expected that Tryg will be able to retain its market which will in turn contribute to improved earnings in the under- share in the four Nordic countries. lying business and ensure that Tryg can continue to run an efficient insurance business in a changing market. Tryg A/S | Annual report 2011 | 35 Customers and products Being one of the largest insurance companies in the Nordic region, • Product benefits (for example free travel companion Tryg offers a broad range of insurance products to both private insurance policy) individuals and businesses. Tryg develops new products on a • Discount on various products offering peace of mind regular basis and continuously adapts existing peace-of-mind (for example burglar alarm, antivirus programme) solutions to customer requirements and developments in society. Tryg views work on innovation as an important strategic tool for At tryg.dk users can compile their insurance needs, calculate growth and enhancement of its position as the Nordic region’s prices, take advantage of special offers and submit claims. At leading peace-of-mind provider. Results achieved through innova- tryghedsraadgiveren.dk, visitors can test their knowledge of tive measures renew and develop Tryg. Tryg wants to be perceived burglary, fire and water claims, as well as find good advice about as a forward-looking company. Customers must feel that their how to secure their home, their family and their valuables. basic need for peace of mind are covered – also in future society. ‘Help 24/7’ customer promise Tryg sells insurance products through its own sales channels In recent years, Tryg has been working to highlight the peace- and through partners such as Nordea. It is an important element of-mind deliveries with a view to clearly positioning Tryg as a of Tryg’s distribution strategy to be available in places where provider of peace of mind. In 2011, Tryg launched the Help 24/7 customers want it and that most distribution takes place via the customer promise, under which customers can phone Tryg’s company’s own sales channels. emergency centre and receive assistance 24 hours a day. Initially, Customer segmentation the customer who performs the judgement, and customers now It is important for Tryg that customers are offered high-quality have the opportunity to contact Tryg whenever they want, which products at a price that matches the risk and customer require- is an important parameter in good customer service. urgent claims will be processed by the emergency centre, but it is ments. This is an area where there has been greater focus in the past year. Tryg wants to use several relevant parameters in pric- Customer satisfaction ing, so that price better reflects risk. It is important to follow up continuously on customers’ percep- As a peace-of-mind provider, Tryg also aims to deliver total solutions EPSI, an independent non-profit organisation. Customer loyalty to customers. The need for insurance policies changes throughout is measured on a scale of 1-100, and both customer loyalty and life, which is why private customers, for example, are treated differ- customer satisfaction in the area of insurance are generally high ently according to the phase of life they happen to be in. in the Nordic countries compared with other countries in Europe. tions of the overall service provided by Tryg. This is conducted by The phases of life are characterised by differences in the level of In 2011, customer satisfaction and customer loyalty surveys in activity, form of cohabitation, work, finances and need for peace the Nordic region revealed that the industry as a whole rose from of mind. Segmentation enables Tryg to the greatest extent to 73.0 in 2010 to 73.6 in 2011, with Finland and Denmark having offer advice and solutions that match customers’ actual needs, the highest level of customer satisfaction. tailored to the various phases and situations in life. At the same time, this targeted advice and individual service creates even In Denmark, Tryg had the highest level of customer satisfaction more satisfied customers and improves sales opportunities. It among the four largest companies, seeing customer satisfac- must also be clear to the customer that it can be worthwhile tion rise from 75.3 in 2010 to 76.4 in 2011. By comparison, the to have all their insurance policies with us. industry average fell by 0.3 percentage points to 75. In terms of The customer benefit programme consists of the following: to 74.8, compared with the industry average of 73.4. In Norway, • • Discount on insurance policies customer satisfaction rose from 68.0 in 2010 to 72.0 in 2011, Benefits (for example Tryg Roadside Assistance, psychological which is above the industry average of 71.0, which rose 3 per- crisis assistance, underinsurance guarantee) centage points compared with the 2010 survey. image, Tryg also recorded a significant score increase from 70.7 36 | Annual report 2011 | Tryg A/S Product overview Motor insurance Workers’ compensation insurance Motor insurance accounts for 33% of total premium income, and comprises mandatory third party liability insurance providing cover for injuries to a third party or damage to a third party’s property, and a voluntary comprehensive insurance policy that provides cover for damage to the customer’s own vehicle from collision, fire or theft. In Denmark, motor insurance taken out by concept customers includes Tryg’s roadside assistance, such as towing and battery jump-start. Fire & contents – Private Fire & contents insurance represents 23% of total premium income and includes for exsamble house and contents insurance. House insurance covers damage to houses caused by, among others, fire, storm or water claims, legal assistance and the custom- er’s liability as owner of the house. Contents insurance, however, covers loss of or damage to private contents and contains a num- ber of additional features such as cover for valuables that are temporarily outside the home, legal assistance and the custom- er’s liability as user of the house. Personal accident insurance Personal accident insurance accounts for 9% of total premium in- come and covers 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 accident, thereby easing the strain of a change to everyday life. Fire & contents – Commercial Commercial fire & content insurance, which includes building in- surance, represents 14% of total premium income and covers the loss of or damage to the buildings, stock or equipment of com- mercial customers. Tryg also provides cover for business interrup- tion in connection with covered claims. Workers’ compensation insurance accounts for 6% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occupational deseases). Workers’ compen- sation insurance is mandatory and covers a com pany’s employees (except for public sector employees and persons working as sole traders). Tryg works with the concept of proactive claims handling, pursuing a close dialogue with the claimant to op timise claims handling. Our proactive claims handling team consists of claims handlers, social counsellors, legal experts, occupational health pract- itioners, orthopaedic surgeons and a network of psy chologists. Proactive claims handling has three winners: the company, the claimant and Tryg in the form of shorter periods of sick leave, en- hanced self-esteem for the injured person and reduced expenses. Professional liability insurance Professional liability insurance represents 4% of total premium income and covers various types of liability, including claims in- curred by a company arising from the conduct of its business or in connection with its products and professional liability incurred by professionals. Transport insurance Transport insurance represents 2% of total premium income and covers damage to goods in transit due to collision, capsizing or crash of the means of transport. Health insurance Health insurance represents 2% of total premium income. This pol- icy covers the costs of examinations, treatment, medicine, opera- tions and rehabilitation at a private health facility. In recent years, increasing health costs and waiting times in the public system have generated a significant demand for health insurance. The growth in health insurance is expected to decline, as the new government has removed the tax deduction from schemes funded by employers. Examples of new products ship satisfies the needs of large corporate customers to be able to In 2011, Tryg was the first company to launch a European insurance issue insurance policies locally and thus comply with local legisla- policy, which is offered primarily to businesses who have their main tion, as well as local rules on taxes and duties. Environmental activities in Scandinavia, but with small subsidiaries abroad. This in- Impairment insurance was another initiative launched for commer- surance meet the needs of small and medium-sized companies and cial and corporate customers in 2011 that covers any liability that is adapted according to local insurance conditions in each country. a company incurs in connection with environmental Impairment The insurance is characterised by simplicity ensuring the customer claims. Companies can be held liable for emissions of pollutants, a good overview. For large industrial companies that operate on a regardless of whether the company is guilty. This Impairment insur- global scale, Tryg has an exclusive partnership with AXA Corporate ance provides the customer with extra peace of mind and covers, Solutions, which is represented in about 90 countries. This partner- among others, the costs of restoring the natural environment. Tryg A/S | Annual report 2011 | 37 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 risk management Credit ratings At 31 December 2011 Tryg Forsikring A/S Tryg Garantiforsikring A/S Standard & Poor’s Moody’s ‘A-’/stable ‘A-’/stable A2 n.a. Tryg’s capital base and financial strength are essential for rating institution within insurance, Tryg has decided solely to Tryg’s ability to take over and spread risks from its customers. use Standard & Poor’s from 2012. The basis for this is that the capital planning is adapted to Tryg’s risk profile taking into account natural growth. Tryg aims In addition to the requirements imposed by the credit rating to have the necessary capital, but no more. This fundamental agencies, the Danish authorities impose requirements concerning view therefore also determines the dividend policy. active capital management through the determination of an Risk-based capital management precursor to the future Solvency II rules. Tryg’s determination Through capital and risk management, Tryg aims to secure of the individual Solvency requirement is based on Tryg’s inter- financial strength and flexibility. The capital management is nal capital model, which calculates the required capital, taking individual Solvency requirement. These requirements are a based on: into consideration the actual composition of the business, profitability, provision profile, reinsurance protection, investment • Tryg’s internal capital model composition and scenarios for the additional risk that could be • The impending Solvency II standard model experienced in particularly stressful situations. The determina- • Standard & Poor’s standard model (‘A-’ level) tion takes into account the geographic diversification effect and the effect of the chosen investment policy, where interest rate All three models determine the capital requirement based on risk on the bond holdings matches the corresponding interest Tryg’s current risk profile. The capital requirement is determined rate risk on the discounted provisions, so that Tryg’s net interest with a 99.5% level of certainty, which corresponds to the rate risk is for practical purposes insignificant. The individual chosen capital level statistically being insufficient once in a solvency requirement is determined quarterly and reported to the 200-year period. Danish Financial Supervisory Authority. The individual solvency requirement was DKK 6,320m at the end of 2011, compared Tryg has decided to commission an external credit rating by to DKK 6,077m at the end of 2010. With a capital base of DKK credit rating agency Standard & Poor’s, which conducts an 8,190m, Tryg has excess cover compared to this of DKK 1,870m. annual interactive credit rating. The introduction of Solvency II will impose stricter requirements Tryg’s capital target is currently determined in relation to the ca- on the way in which insurance companies work with and control pital that is necessary to support the company’s ‘A-’ credit rating risks, including the Supervisory Board’s involvement in risk and by Standard & Poor’s. Tryg also currently adds a target buffer of capital management. Tryg has been working for many years to 5% as a minimum. At the end of 2011, Tryg had an actual buffer adapt the company to these requirements. This means that the of 9% compared to the requirement for an ‘A-’ credit rating, and Supervisory Board actively determines the risk aversion and the after the recommended dividend, the buffer will amount to 5%. framework for risk management, and continually assesses the combined risk within Tryg and the derived capital requirement, Tryg has also commissioned a credit rating by credit rating through follow-up and reporting. In the autumn of 2011, agency Moody’s. As Standard & Poor’s is the leading credit the Supervisory Board also commissioned a so-called ORSA 40 | Annual report 2011 | Tryg A/S Download the Risk management report Subordinated loans Amount EUR 150m EUR 65m a) Untill 30 June 2012. For further details see note 1 on page 89. Maturity Repayment profile Interest rate 2025 2032 Interest-only 4.50% Interest-only 5.13% above EURIBOR 3 M a) (Own Risk and Solvency Assessment), which is a systematic and 215m. In total, debt amounted to 18% of equity at the end of comprehensive self-assessment of Tryg’s risk and solvency. Such 2011, and interest expenses during 2011 amounted to DKK 83m. an assessment will be a requirement under Solvency II. Reinsurance The Executive Management’s responsibility for the total risk and Reinsurance is an important tool for protecting Tryg’s capital base. capital management is managed on a daily basis through a risk The requirement for reinsurance is assessed on an ongoing basis management environment where the areas of underwriting and based on Tryg’s internal capital model, where the reinsurance pre- reinsurance, provisions, investment risk and operational risk are mium is compared to the reduction in the capital requirement that managed by separate sub-committees. could be achieved, and the price of capital. See also the Risk management report, An example of such an assessment is the establishment of side- which can be found at tryg.com > Download ways reinsurance cover in 2011. This cover covers the coincidence of nature claim events, such as winter claims and cloudbursts, Capital structure with aggregated retention of DKK 400m and aggregated cover of Tryg’s capital base consists of equity and subordinated loan DKK 500m. capital. The relationship between these is evaluated on an ongoing basis in order to maintain an optimal structure which Nature disasters, large claims and, for example, terrorist incidents takes into account the return on equity, the capital cost and represent the primary threat to the capital base as a result of flexibility. The actual capital is assessed differently by authorities insurance events. As a result of this, catastrophe reinsurance and credit rating agencies. The authorities impose a require- has been taken out with a capacity of DKK 5.5bn. In the event ment that companies must determine the base capital, which of claims in the range DKK 100-175m, retention increases from primarily consists of equity minus intangible assets, discount ef- DKK 100m to DKK 141m. In the event of claims in excess of fect and other statutory corrections plus subordinated loan capi- DKK 175m, the maximum retention is DKK 141m. tal in the amount of up to 25% of the Solvency I requirement. Standard & Poor’s uses the term ‘Total Adjusted Capital’ (TAC), where intangible assets are also deducted from the capital base, and where the subordinated loan capital must generally not Capital relief exceed 25% of the total capital. DKKm Retention Capacity Capital relief In 2005, Tryg took out a 20-year subordinated bond loan of EUR 150m listed on the London Stock Exchange. In 2009, in connection with the acquisition of Moderna, Tryg took out a subordinated loan with expiry in 2032 of EUR 65m from TryghedsGruppen, which owns 60% of Tryg. Tryg’s total holding Catastrophe Sideways cover Building/contents (Per risk) 141 400 5,500 1,212 a) 500 agg. 50 Unlimited 193 a) Including sideways cover. of subordinated debt subsequently amounted to approx. EUR The table shows capital relief for selected reinsurance programmes. Tryg A/S | Annual report 2011 | 41 The capacity is determined through modelling so that it statisti- pricing in the reinsurance market. Additional cover corres- cally would prove insufficient in less than one occasion every ponding to the programme in 2010 would largely have 250 years. In addition, catastrophe hedging has been purchased the same price as the additional cover. for personal injury claims originating from the same event, including terrorism. The capacity amounts DKK 1.5bn with Financial flexibility retention of DKK 50m. Terrorist incidents are also covered The financial flexibility must take into account strategic assess- by a national guarantee scheme on the Danish market. ments and safeguard the scope for additional capital invest- Reinsurance is also purchased for individual risks, so that capital plan, as part of which a test is performed to determine retention does not exceed DKK 125m for the first claim and the extent to which the capital can support Tryg’s strategy. The DKK 50m for subsequent claims. scope for additional capital investment is described in Tryg’s ment. Every year, the strategic assessments are considered in a contingency capital plan, which describes measures which can The increases in Tryg’s own holdings within catastrophe be implemented in the short term in order to improve Tryg’s rein surance and individual risks from DKK 100m to DKK 140m solvency if it should prove necessary. and DKK 125m respectively was approved on the basis of the 42 | Annual report 2011 | Tryg A/S There is also scope to increase the capital base through the Solvency II, the aim is for Tryg to use a partial internal model further take out of subordinated loan capital. Compared to the in its capital planning, rather than the standard model re- local Danish solvency rules, the full potential for subordinated ferred to above. The partial internal model will thus be based loan capital has already been utilised by DKK 848m. Compared on the insurance module in Tryg’s current model supplement- to Standard & Poor’s capital model, the subordinated loan capi- ed by the other modules (investment, operational risk, etc.) tal at the end of 2011 can be increased by approximately DKK from the standard model. 879m after dividends. In addition, there is scope to increase the actual capital through capital increases. In addition to the way in which capital is determined, the impending Solvency II rules will alter the authorities’ require- Solvency II implementation ments concerning capital structure. Under Solvency II, the During 2011, uncertainty has arisen concerning the implemen- capital will be subdivided into Tiers (1-3), which indicate the tation date for Solvency II, which determines the future solvency quality of the company’s capital. It is Tryg’s belief that 73% of rules within the insurance area. In many quarters, there is now the capital will be approved as Tier 1, 22% as Tier 2, while the a belief that early 2014 is the most likely implementation date remainder will be classified as Tier 3. Tryg is closely monitoring for the Solvency II Directive, which imposes both quantitative developments and will include this factor in its deliberations and qualitative requirements on insurance companies and will when the dividend for the year is determined. require extensive revision of existing legislation. Since 2005, Tryg has been participating in the trial calcula- Read more about Tryg’s dividend policy in the tions for a standard model under Solvency II. Compared to the section The Tryg share on page 65. current specification of the capital requirement in the stand- ard model, Tryg had excess cover of DKK 1,865m as of 31 December 2011. If this calibration of the capital requirements is maintained through to Solvency II, it is considered that many companies will need to strengthen their capital base in order to comply with the new capital requirements. Based on the internal capital model, the capital requirement for Tryg will be somewhat lower than that according to the standard model. Solvency II gives scope to use internal models either fully or partially. Tryg’s approach is to use the existing internal model for areas where the risk is different from that determined using the standard model. Within the area of insurance risk, the belief is that Tryg will be able to model its own risk more accurately. For example, the standard model does not take into account geographic diversification between the Nordic countries, which is a significant aspect of Tryg’s Nordic expo- sure. On the other hand, the existing internal model’s treat- ment of investment risks is very similar to that of the standard Composition of partial capital model Standard model Partial model Internal model model, which must be viewed in the light of the homogenous Insurance risk Operational risk Credit risk investment risk, which is generally secured across national borders by effective financial markets. In the future under TAC Market risk Tryg A/S | Annual report 2011 | 43 Tryg focuses on employee well-being and development, and continuously strives to develop as an attractive workplace. At the same time, job satisfaction is reflected in customer satisfaction and retention. Management Supervisory Board Mikael Olufsen a) Chairman Born 1943. Joined: 2002. Nationality: Danish. Professional board member. Former CEO of Toms Chokoladefabrikker A/S. Educational background: M.Sc. (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 Vognmagersgade 11 ApS, Mala- plast Co. Ltd and the Danish Rheumatism Association. Board member: WWF in Denmark and The Denmark-America Foundation. Committee memberships: Remuneration Committee of Tryg A/S (Chairman). Number of shares held: 3,018 Change in portfolio in 2011: 0 Mr Olufsen has experience from managing interna- tional companies, including strategic development, and experience as a board member of Danish and international companies. Committee memberships: Audit Committee Educational background: Economist, engineer. of Tryg A/S (Chairman) and Risk Committee of Chairman: Sverige Bryggerier AB, East Capital Tryg A/S (Chairman). Explorer AB, HTC Group AB, Pieno Zvaigzdes AB, Number of shares held: 1.500 Svenska Returpack AB, Norrköpings Segelsällskap Change in portfolio in 2011: +1.500 and Östkinds Häradsallmänning. Mr Nielsen has special skills within the areas of Board member: Tryg A/S, Tryg Forsikring A/S management, governance, treasury, financial and Björk Eklund Group AB. business and risk management from his former Committee memberships: Remuneration role as Governor of Danmarks Nationalbank as Committee of Tryg A/S, Audit Committee of East well as several board positions. Capital Explorer AB (Spokesman) and Nomination Committee of East Capital Explorer AB (Chairman). Number of shares held: 100 Change in portfolio in 2011: 0 Mr Bergqvist has international management and board experience in M&A, strategic development, marketing, branding and financial management. Being a Swedish citizen, Mr Bergqvist has special insight into Swedish market conditions. Jørn Wendel Andersen a) Born 1951. Joined: 2002. Nationality: Danish. Professional board member. Acting CEO of Trygheds- Gruppen smba. Former CEO/CFO, Arla Foods amba. Educational background: M.Sc. (Business Eco- nomics), IMD Executive Development Programme and Strategy in Action Programme, Leadership Assessment – Heidrick & Struggles. Chairman: PreviaSundhed A/S and Sahva A/S. Christian Brinch b) Board member: Tryg A/S, Tryg Forsikring A/S, Born 1946. Joined: 2007. Nationality: Norwegian. Nordea Liv & Pension, livsforsikringsselskab A/S, Senior Advisor at HitecVision and professional board Kærkommen Holding ApS, Kærkommen Hovedstaden member. Former President and CEO of Helicopter A/S, Kærkommen København ApS, Kærkommen Services Group ASA and Executive Vice President Vest ApS, KærkommenUdvikling ApS, Health & of ABB Norge. Fitness Nordic AB, AB Previa and Quick Care A/S. Educational background: Norway’s naval Committee memberships: Audit Committee of academy; PMD Harvard Business School. Tryg A/S and Risk Committee of Tryg A/S. Chairman: Apply Group AS, Tampnet AS, Align AS, Number of shares held: 1,078 Change in portfolio in 2011: 0 HV IV Invest Alfa AS, Helicopter Network AS, Fortissimo AS, Line Consult AS, Gluteus AS and Mr Wendel Andersen has experience in inter- Røa Invest AS. national management, insurance business, finance, Deputy Chairman: Prosafe SE. Torben Nielsen b) Deputy Chairman Born 1947. Joined: 2011. Nationality: Danish. Professional board member. Assistant Professor, Copenhagen Business School. Former Governor, Danmarks Nationalbank (Danish Central Bank). Educational background: Savings bank training, Graduate Diplomas in organisation and work sociology as well as credit and finance. Chairman: Investeringsforeningen Sparinvest, Eik bank p/f, Plass Data A/S, VP Lux S.á.r.l., Investe ringsforeningen Sparinvest SICAV, Luxembourg and Museerne, Vordingborg. Deputy Chairman: Tryg A/S, Tryg Forsikring A/S, treasury and risk management. Paul Bergqvist b) VP Securities A/S and Bankernes Kontantservice A/S. Born 1946. Joined: 2006. Nationality: Swedish. Board member: Nets Holding A/S (formerly PBS), Professional board member. Former CEO of member of Executive Management at Bombebøssen. Carlsberg A/S. 46 | Annual report 2011 | Tryg A/S 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. Number of shares held: 500 Change in portfolio in 2011: 0 Mr Brinch has experience in the areas of M&A, treasury, communication and business development. Being a Norwegian citizen, Mr Brinch has special insight into Norwegian market conditions. Ms Skole has experience from international corpo- rations, including her work with Coloplast and The Maersk Company Ltd., UK. Ms Skole has skills in the fields of strategy, financing and communication. Jesper Hjulmand a) Born 1963. Joined: 2010. Nationality: Danish. CEO of SEAS-NVE A.m.b.a. Former CFO and CEO of NVE A.m.b.a. and Budget Manager and Chief Accountant of Rockwool A/S. Educational background: M.Sc. (Economic and Business Administration) and Lieutenant-Colonel of the Danish Air Force Reserve. Chairman: Danske Energi- og Forsyningsselskabers Arbejdsgiverforening (DEA), Energi Danmark A/S, ChoosEV A/S and CAT Invest A/S. Board member: TryghedsGruppen smba, Tryg A/S, Tryg Forsikring A/S, DI General Council, Waoo! A/S and Forskerparken CAT A/S. Committee memberships: Remuneration Committee of Tryg A/S, Chairman of Dansk Energi Direktørudvalg and Member of Dansk Energi Fælles Forum. Number of shares held: 1,750 Change in portfolio in 2011: +1,750 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, communication and business development. Jens Bjerg Sørensen a) Born 1957. Joined: 2011. Nationality: Danish. CEO of Aktieselskabet Schouw & Co and Dutch Consul. Former CEO of BioMar A/S. Educational background: Academy economist from Niels Brock Copenhagen Business College, Graduate Diplomas in Marketing Management from Copenhagen Business School and IEP – Insead Executive Programme, from Insead in France. Chairman: Dovista A/S. Chairman or Deputy Chairman of all Schouw & Co’s own companies. Board member: Tryg A/S, Tryg Forsikring A/S, Tryg- hedsGruppen smba, VKR Holding A/S and Aida A/S Number of shares held: 118 Change in portfolio in 2011: 0 Mr Sørensen has experience of international management and skills in the fields of strategic development, finance, M&A and branding. a) Dependent board member. b) Independent board member, see the definition in the corporate governance recommendations. Bill-Owe Johansson Elected by the employees Born 1959. Joined: 2010. Nationality: Swedish. Claims Handler at Atlantica/Moderna (Swedish branch). Employed in 2002. Educational background: Insur. training courses. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 200 Change in portfolio in 2011: +60 Tina Snejbjerg Elected by the employees Born 1962. Joined: 2010. Nationality: Danish. Administrative Officer. Employed since 1987. Educational background: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: DFL’s general council. Number of shares held: 86 Change in portfolio in 2011: 0 Lene Skole b) Rune Torgeir Joensen Born 1959. Joined: 2010. Nationality: Danish. Elected by the employees Executive Vice President, Coloplast A/S. Born 1956. Joined: 2008. Nationality: Norwegian. Former CFO of The Maersk Company Ltd., UK. Project worker with Tryg. Employed since 1984. Educational background: The A.P. Møller Group Educational background: Printer, market Berit Torm international shipping education, B.Sc. (Finance) and economist and HMS advisor. Elected by the employees various international management programmes. Board member: Tryg A/S and Tryg Forsikring A/S. Born 1959. Joined: 2008. Nationality: Danish. Quality Board member: Tryg A/S, Tryg Forsikring A/S Committee memberships: Audit Committee of Insurance Manager with Tryg. Employed since 1985. and DFDS A/S. Tryg A/S, Risk Committee of Tryg A/S and Advisory Educational background: LL.M. Committee memberships: Audit Committee Board of Tryg Norge. Board member: Tryg A/S and Tryg Forsikring A/S. of Tryg A/S, Risk Committee of Tryg A/S and Number of shares held: 45 Committee memberships: Remuneration Commit- Audit Committee of DFDS A/S. Number of shares held: 410 Change in portfolio in 2011: 0 Change in portfolio in 2011: 0 tee of Tryg A/S and Member of Furesø Local Council. Number of shares held: 86 Change in portfolio in 2011: 0 Tryg A/S | Annual report 2011 | 47 Group Executive Management From left to right: Per Fornander, Birgitte Kartman, Lars Bonde, Morten Hübbe, Tor Magne Lønnum, Kjerstin Fyllingen, Truls Holm Olsen The Group Executive Management handles the day- to-day management of Tryg and in addition to the CEO consists of the VPs of the business areas, Claims and Group Finance. Morten Hübbe, Tor Magne Lønnum and Lars Bonde form the Executive Management. 48 | Annual report 2011 | Tryg A/S COO CEO CFO Lars Bonde Group Executive Vice President, Private, Country Manager in Denmark and COO Morten Hübbe CEO/Group CEO Tor Magne Lønnum CFO/Group CFO Born 1972. Employed in 2002. Joined the Born 1967. Employed in 2011. Joined the Group Executive Management in 2003. Group Executive Management in 2011. Born 1965. Employed in 1998. Joined the Member of the Executive Management Member of the Executive Management Group Executive Management in 2006. and the Group Executive Management. and the Group Executive Management. Member of the Executive Management and the Group Executive Management. Educational background: Insurance training, LL.M. Board member: Educational background: B.Sc. (International Business Educational background: State authorised accountant, Executive Administration and Modern Languages), Master of Business and Administration, M.Sc. (Finance and Accounting) and University of Bristol and Ecole Nationale management training at Wharton. des Ponts et Chaussées. The Danish Employers’ Association for the Board member: Board member: Financial Sector and Tjenestemændenes Forsikring & Pension (The Danish Tryg Garantiforsikring A/S (Chairman) Forsikring. Insurance Association). and Thermopylae AS (Chairman). Number of shares held: 2,954 Number of shares held: 7,090 Number of shares held: 1,700 Change in portfolio in 2011: +1,311 Change in portfolio in 2011: +2,289 Change in portfolio in 2011: +1,700 Other Group Executive Management members Per Fornander Group Executive Vice Birgitte Kartman Group Executive Vice Kjerstin Fyllingen Group Executive Vice President, Truls Holm Olsen Group Executive Vice President of Sweden President, Claims Commercial and Country President, Corporate and Finland and Country Manager Sweden Born 1960. Employed in 1996. Manager Norway Born 1964. Employed in 1998. Joined the Group Executive Born 1958. Employed in 2006. Joined the Group Executive Born 1963. Employed in 2011. Management in 2009. Joined the Group Executive Management in 2009. Joined the Group Executive Management in 2011. Educational background: Management in 2006. Educational background: LL.M. Educational background: LL.M. Educational background: Master of Management and Marketing DIHM IHM Business Board member: Bachelor in Business Administration School in Stockholm. Forsikringsakademiet at Handelshøyskolen BI. Board member: Tryg Garantiforsikring A/S. Number of shares held: 1,607 Change in portfolio in 2011: +988 Number of shares held: 1,100 Change in portfolio in 2011: +1,100 Board member: Tryg Almen- nyttige Stiftelse (Chairman). Finans- næringens Hovedorganisation and TSS Marine ASA. Committee memberships: Audit Committee of TTS Marine ASA. Number of shares held: 3,428 Change in portfolio in 2011: +966 Board member: Tryg Garanti- forsikring A/S, Energon AS and Norsk Naturskadepool. Number of shares held: 1,017 Change in portfolio in 2011: +1,000 Tryg A/S | Annual report 2011 | 49 Employees Tryg focuses on employees’ well-being and development, and Performance management strives to continuously develop as an attractive workplace. The Tryg places considerable emphasis on customer experience. It ambition is to be the most attractive workplace in the Nordic is therefore crucial that employees have the right skills, attitudes financial sector. and framework to enable them to perform their jobs in the best way possible. To this end, we have implemented a new Employee survey employee appraisal discussion concept. During the discussion, The employees are Tryg’s most important asset in the com- manager and employee review and evaluate the most important pany’s efforts to achieve and adhere to the ultimate vision of deliveries from the past year. This evaluation is conducted with being the Nordic region’s leading peace-of-mind provider. A reference to the results that have been achieved and the way in high level of job satisfaction and a perception of well-being help which they have been achieved. The right values, attitudes and to develop and maintain qualified employees. At the same time, conduct are crucial for Tryg to be a peace-of-mind provider. employees’ job satisfaction is reflected in customer satisfaction and customer retention. The discussion also includes a confirmation of targets for the Every year, Tryg conducts an employee satisfaction survey in the ability of employees to achieve the defined targets and next year as well as a development plan, which will support order to monitor on an ongoing basis our employees’ evaluation to develop skills for future needs. of Tryg as a workplace. The status survey for 2011 revealed a rise in job satisfaction by one index point compared with 2010 Since 2007, Tryg has worked with Lean, the key elements of and two index points higher than other financial companies in which are optimisation of processes, increased customer value the Nordic region. The parameter ’The physical working environ- and quality. Work with Lean involves keeping a close eye on ment’ saw a significant improvement in all points in the survey. defined targets and guaranteeing continuous improvements ‘The Living House’ project appears to have borne fruit. This with the aid of numerous good suggestions received from project was launched in 2008, and by 2011 the head offices in employees. A new feature developed by Tryg in 2011 is an Denmark and Norway had undergone not only a physical change, electronic notice board to help the high number of employees but also a cultural change. Tryg is a workplace that encourages who drive out every day on customer visits. activity and creativity, and that generates energy and inspiration. In addition to cafe areas, innovation rooms, meeting rooms and In 2011, Tryg developed a method of evaluating the effect of quiet rooms, all employees have two PC monitors, laptops and training activities. Using a goal-oriented questionnaire, the wireless Internet, as an element of a mobile, paperless office. employee’s knowledge is measured several months after the At Tryg, we consider it important that all employees have a completion of the training course. This gives us an opportunity development plan to continuously develop qualifications and set to guarantee the optimal use of our training resources, to professional and personal targets. In 2011, 84% had an updated conduct follow-ups and to make sure that training is targeted development plan compared with 81% in 2010. The results are and is only offered to those employees who need it. satisfactory, not least in the light of the fact that 2011 was characterised by a wide-ranging organisational change at Tryg. Manager development – The Journey 2011 Tryg is reliant on having good managers. The company’s Journey Qualification development (Rejsen) programme seeks to challenge and develop managers Qualified motivated employees are Tryg’s most important asset and employees as they interact with people from totally differ- and a prerequisite for achieving our long-term targets. Training, ent backgrounds and from cultures other than their own. It is development and the sharing of knowledge aim to contribute important that our organisation reflects the diversity in society to the creation of job satisfaction, well-being and peace of around us. We believe that greater diversity is fundamental to mind for our employees. Tryg’s employees are therefore offered ensuring innovation, more business and the development of continuous qualification development. good solutions. 50 | Annual report 2011 | Tryg A/S In 2011, the programme took five managers and four young The reflection room is a measure within the CSR initiative of Danes with a non-Danish ethnic background to the Norwegian inclusion and diversity at Tryg. Tryg has a targeted approach mountains. This interaction with people from a totally different to employee diversity work, offering a spacious workplace in background in terms of their early years, education, experiences which diversity actively contributes to the creation of value. and religion forced the managers to work hard to listen, notice, At Tryg, we want to make room for faith and religion in every- reflect, question, challenge, and be open and inclusive. This is day life, and to immerse oneself or recharge one’s batteries exactly the sort of thing expected of Tryg’s managers, especially in meditation and relaxation. when employees’ skills and resources have to be brought into play. Managers develop their abilities to inspire and maintain Read more about the inclusivity in CSR a presence. Diversity on page 61 and at tryg.com > CSR Nordic Graduate Programme Tryg values diversity in the workforce. Tryg sees the benefits of Tryg’s Nordic Graduate Programme is designed for recent having a workforce that stretches beyond the established limits graduates from a university or a business school. The pro- of ethnicity, gender, age, disability, sexual orientation, faith and gramme was launched in 2006, with new graduates being religion, but at the same time one that is in line with the usual recruited every other year. requirements of high quality when employing people. The Graduate Programme runs over 19 months and consists of Women in management an introductory course and three practical placement periods, Tryg is committed to bringing women into managerial posi- each lasting six months. The placements take place in various tions. This commitment serves to increase the potential pool departments throughout the company, with one period being of talented women at all levels by focusing on the recruitment spent in administration and one in another Nordic country. This process, working with women at the ’pre-manager’ level as gives graduates a broad experience and insight into the work- well as current female managers at all levels within Tryg. To this ings of Tryg, and provides a solid foundation for a subsequent end, 2011 saw the company’s Supervisory Board set a concrete career in the company. During the process, there is an oppor- target to increase the total number of women in management tunity to take part in various courses in areas such as insurance by 2% by 2013. studies, negotiation and presentation techniques, and project In January 2012, Tryg signed the ‘Charter for more women management. in management’. We support the charter, one of the aims of Tryg’s graduates have different educational backgrounds and which is to guarantee men and women equal managerial career nationalities. This diversity creates an interesting discussion opportunities and to launch concrete, measurable initiatives in forum with opportunities to highlight problems from different companies to increase the proportion of women in managerial perspectives. roles at all levels. Find out more about diversity at Tryg Programme at tryg.com > Careers > in Corporate Governance on page 53. Nordic Graduate Programme Read more about our Nordic Graduate Reflection room Tryg places great emphasis on the well-being of employees, and during a hectic day there may be a need to reflect on the events of the day, to pray, to meditate or to have a little peace and quiet. The reflection rooms in Ballerup and Bergen provide an opportunity for this. Tryg A/S | Annual report 2011 | 51 Corporate governance The Corporate Governance Committee published new Every year, the Supervisory Board proposes a dividend payment recommendations for corporate governance in 2010. In 2011, and a possible share buy back. In 2010, the Annual General the Committee added another recommendation on diversity. Meeting mandated the Supervisory Board to allow Tryg to acquire The Supervisory Board believes that Tryg is complying with all its own shares within 10% of the share capital up to 14 April recommendations, except point 5.10.2, as most members of 2015. In the light of the financial result for 2010, no share the board committees cannot be considered to be independent. buy back programme was executed in 2011. See page 59 for an explanation of this deviation. Annual general meeting A complete copy of the Statutory report on Tryg holds its annual general meeting each year before the end of corporate governance with respect to each April. The Supervisory Board convenes the annual general meeting individual recommendation can be downloaded in accordance with the Danish Companies Act and the company’s from tryg.com > Download Articles of Association, giving not less than three weeks’ notice, by way of a company announcement and at tryg.com. Share- Dialogue between Tryg and its shareholders holders also have the opportunity to receive the notice by post, Tryg issues regular press releases and company announce- electronically or to download it from tryg.com. The notice contains ments, and publishes annual and interim reports, which are relevant information about the time and venue, as well as an available on tryg.com. Tryg issues regular IR newsletters about agenda, which as a minimum includes the following items: current topics to shareholders and other stakeholders, and every quarter updates Tryg’s expectations for the future. This • Report of the Supervisory Board on the activities of the material enables all stakeholders to get a reasonable impression company during the past financial year of Tryg’s position and performance. The financial Group state- • Presentation of the annual report for approval, including ments are prepared in accordance with IFRS, and all company determination of the Supervisory Board’s remuneration announcements and financial statements are published in and discharge from liability of the Supervisory Board and Danish and English. At tryg.com, stakeholders have the option the Executive Management to order printed annual reports and to subscribe to news via • Decision on the use of any surplus or coverage of any e-mail and RSS feeds. Tryg has a number of in-house guidelines loss in accordance with the approved annual report to ensure that disclosures of price-sensitive information are made in accordance with the stock exchange rules of ethics. Investor Relations maintains regular contact with equity analysts and investors. The Executive Management and Investor Relations • • • • Any proposals from the Supervisory Board or from shareholders Election of members to the Supervisory Board Appointment of auditor Any other business also organise investor meetings, teleconferences and webcasts, All shareholders are urged to attend the annual general meeting. and participate in conferences in Denmark and abroad. The The annual general meeting is also webcasted, enabling stake- Supervisory Board is regularly informed of the dialogue with holders to view the annual general meeting at tryg.com both investors and other stakeholders. during and after the meeting. Shareholders may propose items to be included in the agenda of the annual general meeting, and Capital and share structure may ask questions at the actual meeting. Shareholders may vote The Supervisory Board ensures that Tryg’s capital structure is in in person at the annual general meeting, vote by post, or appoint line with the needs of Tryg and its shareholders, and that the the Supervisory Board or a third party as their proxy. The proxy capital structure is compliant with the requirements applicable form and form for voting by post will be available at tryg.com on to Tryg as a financial undertaking. Tryg has adopted a capital 28 March 2012. plan and a contingency capital plan that are reviewed each year by the Supervisory Board. The Supervisory Board has resolved that annual general meet- ings will be held by physical attendance, as the Supervisory Board 52 | Annual report 2011 | Tryg A/S Download Statutory report on corporate governance emphasises the oral dialogue with shareholders. The Supervisory ensures that the required skills and financial resources are avail- Board and the Group Executive Management will participate in an- able for Tryg to achieve the strategic targets. The framework is nual general meetings where possible, and this has a high priority. discussed at the Supervisory Board’s annual strategy seminar Takeover bids The Supervisory Board intends to consider any public takeover and budget meeting. The Supervisory Board specifies its activi- ties in the company’s rules of procedure and annual cycle. bid as prescribed by legislation and, depending on the nature of Diversity at management levels such bid, to convene an extraordinary general meeting of share- Every year, the Supervisory Board discusses the company’s holders in accordance with applicable rules. activities to guarantee diversity at management levels. Tryg places great emphasis on diversity at management levels, and in Stakeholders and Tryg’s corporate social responsibility January 2012 the company signed the ‘Charter for more women Identification of stakeholders is an integral part of the strategy in management’. Tryg supports the charter, the aims of which review at the Supervisory Board’s annual strategy seminar, which include guaranteeing that men and women have equal career always focuses on investors, customers, society and employees. opportunities. Tryg launches concrete, measurable initiatives in Furthermore, the Supervisory Board receives regular reports about the business to increase the proportion of women in manage- Tryg’s largest investors and employee and customer satisfaction. ment at all levels. Tryg has produced an action plan for this, the aim of which is to guarantee equal opportunities for qualified The Supervisory Board has adopted a number of policies for men and women in access to managerial positions. The number Tryg, which describe Tryg’s relationships with various stakehold- of women at management level in 2011 was 37.5%. The Super- ers. Tryg places an emphasis on social responsibility, and Tryg’s visory Board sets concrete targets to secure diversity. In 2011, CSR strategy is described in the CSR policy. Tryg also has an the Supervisory Board confirmed an objective to increase the Investor Relations policy and a Communication policy. total number of women in management by 2% by 2013. See the Investor Relations policy at tryg.com > The action plan is available at Investor > IR contacts > IR policy tryg.com > CSR See the Communication policy at tryg.com > Press > Communication policy Rules of procedure See the CSR policy at tryg.com > CSR > CSR strategy > CSR policy The Supervisory Board performs an annual review of and if nec- essary updates the rules of procedure for the Supervisory Board and the Executive Management with guidelines and instructions describing reporting requirements and requirements for com- Tasks and responsibilities of the Supervisory Board munication with the Executive Management. The Supervisory Board performs overall strategic management and makes sure that there is a sound organisation of the com- The financial legislation governing Tryg also defines require- pany, and also performs financial control of Tryg. In this work, ments with respect to reporting by the Executive Management the Supervisory Board uses targets and limit management based to the Supervisory Board on developments in the most impor- on regular and systematic consideration of strategies and risks. tant areas of activity. The Executive Management reports to the Supervisory Board on strategies and action plans, market developments and Tryg’s The Chairman and Deputy Chairman of performance, funding issues, capital resources and special risks. the Supervisory Board The Supervisory Board holds an annual strategy seminar to The Supervisory Board is headed by its Chairman and Deputy define and/or adjust the Group’s strategy. The Supervisory Board Chairman. The Deputy Chairman will act in the Chairman’s absence cooperates with the Executive Management to ensure follow-up and in general serves as a discussion partner for the Chairman. on and development of Tryg’s strategy. The Supervisory Board Tryg A/S | Annual report 2011 | 53 The tasks of the Chairman and the Deputy Chairman are defined Prior to the election of new members, the Supervisory Board in the rules of procedure for the Supervisory Board. The tasks of prepares a description of the candidates’ background, director- the Chairman of the Supervisory Board include chairing and as- ships, professional qualifications and experience. A balanced sessing the work of the Supervisory Board, organising, conven- distribution with respect to, among other things, age, gender ing and chairing Board meetings and being in charge of collabo- and nationality is sought in the composition of the Supervisory ration with the Executive Management. The Chairman also acts Board, and the need for integrating new talent is considered. as spokesman for the Supervisory Board for external purposes. When taking up office, new Supervisory Board members are The Chairman holds preparatory meetings with the Executive given an introduction to Tryg. Management before all meetings of the Supervisory Board. The Chairman and the Deputy Chairman also plan the future compo- The CVs and descriptions of skills of the Super- sition of the Supervisory Board. visory Board are available in the section Super- visory Board on pages 46-47 and at tryg.com> According to the rules of procedure for the Supervisory Board, Governance > Management > Supervisory board no Board member may perform work for Tryg without a prior decision to that effect by the Supervisory Board. Furthermore, Skills of the Supervisory Board members such tasks must be of a one-off nature. The Supervisory Board performs an annual self-assessment of the Supervisory Board’s work and its members’ skills to Composition and organisation of the Supervisory Board assess whether the Supervisory Board has the required skills, The Supervisory Board performs an annual assessment of the or whether the skills and expertise of its members need to be skills required for the Supervisory Board to perform its duties updated in any respects. in the best possible way. Tryg focuses on skills in the fields of financial operations, IT, marketing and management. The de- Number of Supervisory Board members scription of skills is available at tryg.com and is included in the The Supervisory Board comprises 12 members, and the Supervi- notice of the annual general meeting. sory Board deems the number of members adequate to ensure a constructive debate, sufficient diversification and an efficient The Articles of Association provide that the Chairman of the decision-making process. Supervisory Board of TryghedsGruppen smba should also act as Chairman of the Supervisory Board of Tryg A/S. Furthermore, The Supervisory Board discusses the number of Supervisory Board the Supervisory Board of TryghedsGruppen smba elects three members each year when preparing the annual general meeting. members to the Supervisory Board of Tryg A/S from among the members of TryghedsGruppen smba’s Supervisory Board. The Independence of the Supervisory Board Supervisory Board includes members from Denmark, Sweden Eight members of the Supervisory Board are elected by the and Norway and has three female members, including two shareholders at the annual general meeting for a term of one female employee representatives. year. Of the eight members elected at the annual general meet- ing, four are independent, cf. recommendation 5.4.1 in Recom- New Supervisory Board members mendations for Corporate Governance. The process of selecting new Supervisory Board members is formal, comprehensive and transparent for the Board members. The section Supervisory Board on page 46 and at tryg.com The Nomination Committee selects new candidates for the four describes which Supervisory Board members are considered to Board posts, which are not selected from members of Trygheds- be independent members. This is also described in the notice of Gruppen’s Supervisory Board, and presents a recommendation the annual general meeting. of the selection of candidates for the Supervisory Board. 54 | Annual report 2011 | Tryg A/S Supervisory Board members elected by employees Term of office Under the Danish Companies Act, employees are entitled to Board members elected by the shareholders at the annual general elect a number of representatives to the Supervisory Board, meeting are elected for terms of one year. See page 46 for when equal to half the number of other members at the time em- the Supervisory Board members joined the Board, were re-elected ployee elections are held. Tryg has agreed with the Tryg’s staff and when their term expires in the section Supervisory Board. organisations that two Supervisory Board members are elected from employees in Denmark, one member from employees in Board committees Norway, and one member from employees in Sweden/Finland. Tryg’s Supervisory Board has set up an Audit Committee, a Remu- The next regular election of the four employee representatives neration Committee, a Risk committee and a Nomination Committee. will be held in 2012. Pursuant to legislation, employee repre- sentatives have the same rights, obligations and responsibilities Tryg publishes the terms of reference for the Board committees as the other Supervisory Board members. at tryg.com. Information about the Board committees includes descriptions of members, meeting frequency, responsibilities and Meeting frequency the activities of the committee during the year. Furthermore, The Supervisory Board holds at least seven annual meetings and the special qualifications of each Supervisory Board member are an annual strategy seminar to discuss and define strategies and described separately at tryg.com. goals for the years ahead. In 2011, the Supervisory Board held seven Board meetings and the annual strategy seminar. The Two out of four members of the Audit Committee and the Supervisory Board discusses the Supervisory Board’s tasks on a Risk Committee, including the chairman of the committees, are regular basis, and no later than at the last meeting of the year, independent. One out of four members of the Remuneration it schedules the meetings and work for the coming year. Committee is independent, and one out of two members of the Nomination Committee is independent. Number of other directorships The Supervisory Board and the individual Board members deem Board committee members are elected primarily on the basis of that each member has adequate time and resources to perform their special skills that are considered by the Supervisory Board their office as a Supervisory Board member of Tryg in a satisfac- to be most important. It is also considered important to involve tory manner. The Board members’ position, directorships and the employee representatives in the committees. The committees holding of Tryg shares and changes in portfolios can be found work exclusively on the preparation of matters for decisions by in the Board members’ CVs. the full Supervisory Board. The CVs can be found in the section Supervisory Audit Committee Board and at tryg.com > Governance > Manage- In 2006, Tryg set up an Audit Committee for Tryg A/S. The framework ment > Supervisory Board of the Audit Committee’s work is defined in its terms of reference. Retirement age The committee consists of four members and is led by an inde- To ensure replacement on the Supervisory Board, members pendent Board member, who is at the same time the Deputy elected by the shareholders may hold office for a maximum Chairman of the Supervisory Board. Torben Nielsen was appointed of nine years. Furthermore, members of the Supervisory Board Chairman of the Audit Committee of Tryg A/S in 2011. The mem- must retire at the first annual general meeting in the year bers of the Audit Committee have knowledge and experience of following their 70th birthday. financial conditions as well as accounting and audit experience in The ages of the individual Supervisory Board Committee consists of Lene Skole (independent), Jørn Wendel members are described in the section Super- Andersen and Rune Joensen (employee representative). The Audit visory Board and at tryg.com > Governance > Committee held four meetings in 2011, reporting to the Supervi- publicly listed companies. In addition to Torben Nielsen, the Audit Management > Supervisory Board Tryg A/S | Annual report 2011 | 55 sory Board on a regular basis. The Audit Committee performed an Remuneration Committee evaluation of the previous year’s work in August 2011. The Remuneration Committee carries out preparatory work on The Audit Committee’s work in 2011 is described Supervisory Board, the Group Executive Management and signifi- behalf of the Supervisory Board relating to remuneration for the in the terms of reference, which can be down- cant risk takers. loaded at tryg.com > Governance > Management > Supervisory board > Board committees The Remuneration Committee’s work is described Risk Committee in the terms of reference at tryg.com > Governance > Management > Supervisory board > Tryg set up a Risk Committee in 2010 in accordance with the Board committees Supervisory Board’s rules of procedure. The purpose of the Risk Committee is to support the Supervisory Board in its work and The Remuneration Committee consists of four members. The supervision of asset management and risk management. The Chairman of the Supervisory Board is Chairman of the Remunera- ultimate responsibility rests with the Supervisory Board, while tion Committee. Furthermore, the committee must be represented the Risk Committee monitors the risk management environment by at least one member of TryghedsGruppen’s Supervisory Board as well as associated processes. and at least one independent Board member. The committee has The committee consists of four members and is led by an independ- members are elected primarily on the basis of their special skills ent Board member, who is at the same time the Deputy Chairman that are considered by the Supervisory Board to be most impor- of the Supervisory Board. In addition to Torben Nielsen (Chairman, tant. It is also considered important that an employee representa- independent), the Risk Committee consists of Lene Skole (independ- tive is included in the Remuneration Committee. one independent member at the present time. Board committee ent), Jørn Wendel Andersen (dependent) and Rune Joensen (em- ployee representative). The committee held four meetings in 2011. The Remuneration Committee held four meetings in 2011. The The committee’s work is described in the terms policy. The members of the Remuneration Committee are Mikael of reference at tryg.com > Governance > Manage- Olufsen (Chairman), Jesper Hjulmand, Paul Bergqvist (independ- ment > Supervisory board > Board committees ent) and Berit Torm (employee representative). Remuneration Committee’s work is based on Tryg’s remuneration Nomination Committee Evaluation of the work of the Supervisory Board In accordance with the Supervisory Board’s rules of procedure, and the Executive Management Tryg has set up a Nomination Committee. The purpose of the The Supervisory Board has defined an evaluation procedure for Nomination Committee is primarily tasked with ensuring the assessing the composition of the Supervisory Board and the work correct composition and size of the Executive Management and and results of the Supervisory Board and its individual members. the Supervisory Board. The committee consists of the Chairman, Mikael Olufsen (Chairman) and Deputy Chairman Torben Nielsen The Chairman is in charge of the evaluation and holds assessment (independent). The committee holds meetings as needed, interviews with each member of the Supervisory Board at the be- however, at least two meetings each year. ginning of the year, according to an agenda agreed in advance by the Supervisory Board. The outcome is discussed at the first Board The Nomination Committee’s work is described in meeting of the year. the terms of reference at tryg.com > Governance > Management > Supervisory board > Board com- The Supervisory Board carries out an annual evaluation of the mittees work and results of the Executive Management in accordance with clearly defined criteria determined in advance and of cooperation between the Supervisory Board and the Executive Management. 56 | Annual report 2011 | Tryg A/S The Supervisory Board also reviews and approves the rules Remuneration of the Supervisory Board of procedure of the Supervisory Board and the Executive Members of Tryg’s Supervisory Board receive a fixed fee and are not Management each year to ensure they are aligned with part of any form of incentive or severance programme. The Board Tryg’s requirements. members’ remuneration (basic fee) is fixed on the basis of trends in a peer group, taking into account Board members’ required skills, Management’s remuneration efforts and the scope of the Board’s work, including the number of Tryg has adopted a policy for remuneration of the Supervisory meetings. The Chairman of the Supervisory Board receives a triple Board and the Executive Management, including general guide- basic fee and the Deputy Chairman receives a double basic fee. The lines for incentive pay. The remuneration policy was adopted by Supervisory Board is not part of any pension scheme. the Supervisory Board in February 2011 and approved by the annual general meeting on 14 April 2011. Remuneration of the Executive Management Members of the Executive Management are employed under The Chairman of the Supervisory Board reports on Tryg’s remu- service contracts, and all terms of their remuneration are fixed by neration policy each year in connection with the presentation of the Supervisory Board. The Supervisory Board defines the remu- the annual report at the annual general meeting. The Superviso- neration of the Executive Management on an annual basis. There ry Board’s proposal for remuneration to the Supervisory Board of is an annual review based on the requirements for attracting and Tryg for the current financial year is also submitted for approval retaining the best qualified Executive Management members. by the shareholders at the annual general meeting of each year. The fixed salary must be competitive and appropriate for the market in order to provide correct, sufficient motivation for the The remuneration policy also covers employees of Tryg whose Director to do his or her best in order to achieve the company’s activities have a significant influence on Tryg’s risk profile, defined targets. The Excutive Management’s remuneration con- known as risk takers, as well as employees in control functions sists of fixed salary, pension and a variable salary. Variable salary such as compliance and internal audit. constitutes only a limited part of overall remuneration. The Su- See the remuneration policy at tryg.com > ed with a variable salary of up to 10% of the fixed basic salary Governance > Remuneration including pension at the time of allocation at a corresponding current value. The Supervisory Board has decided that the vari- pervisory Board can decide that the fixed salary be supplement- Total remuneration of the Supervisory Board in 2011 DKK Mikael Olufsen Torben Nielsen a) Jørn Wendel Andersen Christian Brinch Jens Bjerg Sørensen a) Paul Bergqvist Jesper Hjulmand Lene Skole Tina Snejbjerg Bill-Owe Johansson Rune Torgeir Joensen Berit Torm Bodil Nyboe Andersen b) John R. Frederiksen b) Audit Remuneration Committee Committee Fee 900,000 428,958 300,000 300,000 213,308 300,000 300,000 300,000 300,000 300,000 300,000 300,000 172,638 86,662 160,000 150,000 150,000 150,000 65,000 103,125 68,750 53,334 68,750 15,417 Total 1,003,125 588,958 450,000 300,000 213,308 368,750 353,334 450,000 300,000 300,000 450,000 368,750 237,638 102,079 a) Elected on the annual general meeting on 14 April 2011. b) Withdrew from the Supervisory Board on the annual general meeting on 14 April 2011. Tryg A/S | Annual report 2011 | 57 Total remuneration of the Executive Management in 2011 DKK Basic salary Pension Car Total salary Matching shares value Total Morten Hübbe Tor Magne Lønnum (Employed 1 Sep. 2011) Lars Bonde 7,203,342 1,557,868 3,853,286 1,800,835 222,863 963,322 255,000 51,095 255,000 9,259,178 1,831,826 5,071,608 700,000 400,000 400,000 9,959,178 2,231,826 5,471,608 Stine Bosse (Resigned 31 January 2011) 7,586,572 1,547,070 148,750 9,282,392 0 9,282,392 Furthermore, the members of the Executive Management received a bonus from 2010: Morten Hübbe DKK 637,000, Lars Bonde DKK 463,834 and Stine Bosse DKK 1,031,380. a) On the time of allocation. able salary consists of a matching shares programme. Four years The going concern assumption after a Director’s purchase of a subsequently defined number When discussing and adopting the annual report for 2011, the of shares, the Director is allocated a corresponding number of Supervisory Board considers whether the financial statements have free shares in Tryg. The allocation of matching shares at the been prepared on the assumption that the business is a going time of allocation is not dependent on results. The purpose of concern, including assumptions and uncertainties. the matching shares programme is partly to make sure that the Director is retained, and partly to secure a joint financial interest Risk management and internal control between the Director and the company’s shareholders. Being an insurance business, Tryg is subject to the risk manage- ment requirements of the Danish Financial Business Act. The Read more about the matching shares pro- Supervisory Board uses policies to define the framework for risk gramme in the remuneration policy at tryg.com > management in Tryg in the areas of insurance risk, investment Governance > Remuneration risk and operational risk, as well as IT security. These frameworks then result in guidelines for Tryg’s risk management. A Risk Man- Some members of the Executive Management still have agement Committee comprising the Group CEO, Group CFO and unexercised stock options, which were allocated under a Group CRO monitors the risk management environment. previously adopted stock option programme. Please refer to note 6 on page 98 for further details. Tryg performs an annual risk identification process, mapping insurance risk and other risks related to the achievement of Retention and severance schemes Tryg’s strategy or which may have a potential substantial impact Each member of the Executive Management is entitled to 12 on Tryg’s financial position. In this process, identified risks are re- months’ notice of termination and to 12 months’ severance pay. corded and quantified. Risk identification is included in the annual However, the Group CEO is entitled to 12 months’ notice and to risk report to the Supervisory Board. Quantification of the risks 18 months’ severance pay plus pension contributions during the identified is included in the statement of the individual solvency same period. requirement that the Supervisory Board considers every quarter. Each member of the Executive Management has 25% of basic In 2011, Tryg performed an assessment of the company’s risk salary paid into a pension scheme. Group CFO Tor Magne Løn- and solvency (Own Risk and Solvency Assessment, also known as num, however, receives a defined benefit pension, which was ‘ORSA’) as a preparation for future requirements for insurance com- calculated at DKK 222,863 in 2011. The calculation is based on panies under EU law. The purpose of the ORSA is to prepare the risk an actuarial assumption of the current value of the expected management process by means ensuring that insurance companies pension benefits. The current value is calculated on the basis of, are proactive in managing risk and solvency. among other things, expectations of future salary and interest trends, date of retirement and mortality. 58 | Annual report 2011 | Tryg A/S The Executive Management reports to the Supervisory Board on Audit the Group’s risk management work. The overall responsibility for The Supervisory Board ensures that the Group is monitored the Group’s internal controls and risk management systems rests by competent and independent auditors. The Group’s internal with the Supervisory Board and the Executive Management. The auditor participates in all Board meetings. The external auditors Supervisory Board and the Executive Management approve and participate in the annual Board meeting at which the annual monitor Tryg’s general policies and guidelines, procedures and report is presented. controls of significant risk areas, and receive reports on trends in these areas as well as on application of the defined frameworks. Each year, the annual general meeting appoints external auditors The status of compliance with this is reported to the Supervisory recommended by the Supervisory Board. In connection with the Board on an annual basis. Any non-compliance with limits and Supervisory Board’s review of the annual report, it discusses the guidelines are reported to the Supervisory Board if they occur. accounting policies and other issues. The results of the audit The Supervisory Board’s Risk Committee monitors the company’s are discussed at the Audit Committee and at Supervisory Board work on risk management and control on an ongoing basis and meetings for the purpose of assessing the auditors’ observations reports on this quarterly to the Supervisory Board. and conclusions. The internal and external auditors’ long-form In connection with major acquisitions, a general risk analysis is performed, and the significant business procedures and internal The audit agreement and associated auditors’ fee are agreed controls are reviewed. The Executive Management has estab- between the Supervisory Board and the auditors on the basis of lished a formal Group reporting process, which comprises monthly a recommendation from the Audit Committee. The Audit Commit- reporting, including budget reporting and deviation reporting. tee reviews the limits for the external auditors’ performance of reports are reviewed by the Supervisory Board. Tryg publishes interim accounts on a quarterly basis. Tryg’s inter- non-audit services each year. nal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, In at least one Audit Committee meeting each year, the internal which are supervised by the internal auditors. and external auditors have a discussion without the presence of Whistleblowing scheme any matters that need to be reported to the Supervisory Board. the Executive Management. The Audit Committee will deal with In October 2011, Tryg set up an Ethical Hotline, which is managed by an external partner, Global Compliance. This allows employees, Internal audit customers or business partners to report any serious breaches or Tryg has set up an internal audit department in compliance with suspicions of such. Reporting takes place in confidence to the Chair- the Danish Financial Business Act. The internal audit department man of the Audit Committee and Tryg’s internal Audit Manager. regularly reviews the quality of Tryg’s internal control systems and Read more about Tryg’s Ethical Hotline performing and reporting the audit work to the Supervisory Board. business procedures. The department is responsible for planning, at tryg.com > Governance > Ethical Hotline Deviations and explanations Openness about risk management The Supervisory Board considers that Tryg is following the Risk management is an integral part of Tryg’s business opera- recommendations for corporate governance apart from point tions. Tryg continuously seeks to minimise the risk of unnecessary 5.10.2, as most members of the Board committees cannot be losses in order to optimise returns relative to the Tryg’s capital. considered to be independent. Board committee members are Read more about Tryg’s risk management in the considered by the Supervisory Board to be most important. section Capital management and risk management It is also considered important to involve employee representa- and in the Risk Management Report at tryg.com > tives in the committees. elected primarily on the basis of their special skills that are Downloads Tryg A/S | Annual report 2011 | 59 Corporate Social Responsibility – CSR At Tryg, CSR is integrated into the business. This means that in A new initiative involves our measuring the volume of our waste all of our activities, we strive to unite sound business activities with the role of a good coporate citizen. It is quite natural for us to assume responsibility for our stakeholders. Through our CSR initiatives, we focus on socially responsible solutions for customers, suppliers, employees, investors and society in general. We formulate our responsibility with reference to the Global Compact principles in four general areas: Climate, Prevention, as well as the CO2 emissions associated with disposal, including incineration and recycling of our sorted waste. Tryg saved DKK 11m in air transport in 2011 and achieved a 20% CO2 reduction from 2007 to 2011. Inclusion and Well-being. Objective Read Tryg’s CSR policy at tryg.com > CSR Our target for 2012 is to achieve a total CO2 reduction of 18% compared with 2007. Prevention Climate Claims reduction has a positive effect, not only for our customers and It is decisive for Tryg to create and promote sustainable solutions investors, but also for society as a whole. Prevention must simultane- that deal with climate-related challenges that our customers ously enhance customers’ perceived peace of mind and reduce costs continue to experience. As a peace-of-mind provider, we offer by means of avoiding and limiting claims. Prevention must not only products and advice that help to prevent climate- and environment- enhance customer loyalty, but also contribute to making Tryg a more related claims and reduce vulnerability when claims have occurred. attractive peace-of-mind provider for potential customers. It is also important for us that we reduce our own CO2 emissions. In 2011, Tryg’s total CO2 emissions were 6,036 tonnes. This is a reduction of 1.101 tonnes from 2010, corresponding to 15%. As a peace-of-mind provider, we therefore offer advice on effec- tive claims reduction in connection with: climate-related challenges Our biggest reduction was in air travel, 417 tonnes. such as snow, rain and storms, and also the prevention of claims Read more about our climate accounts and in cases involving personal injury we also work actively to limit the initiatives in the climate area at tryg.com > CSR course of illness by means of treating injuries quickly and effec- after fires, in association with building projects and in traffic, and Sold environmental insurances and reports CO2 Emissions Pcs. 1,400 1,200 1,000 800 600 400 200 0 Environmental insurance Environmental reports Electric car insurance Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 Electricity Natural gasa) Heating oil Air travel Car 2010 2011 2010 2011 60 | Annual report 2011 | Tryg A/S a) Tryg went from natural gas to district heating in 2011. tively. Our work includes practical advice to private, commercial dialogue with customers on prevention, including such means as and corporate customers in the form of general information, a number of seminars and more advice in 2012, and Tryg also personal contact and in seminars and presentations. wants to work more on the implementation of a conceptualisa- We use the insight that we gain from contact with customers in new kinds of risks to develop our business. We are also happy Inclusion tion of peace of mind. to share the knowledge we gain with authorities and research We work in a targeted way to create an inclusive society that institutions. In 2011, we participated as a partner in a number of is open to diversity. This is an approach that is commonplace conferences and dialogues on the handling of cloudbursts, and in the Nordic countries, and likewise in Tryg. Tryg is therefore contributed DKK 1.1m to research into a new visualisation tech- constantly launching new initiatives that ensure diversity among nology that can help home owners to avoid climate-related claims. our employees and promote equal opportunity for all, regardless Read more about our preventive work at religion. This contributes to innovation and development of tryg.com > CSR products and solutions that are attractive to our customers. of gender, age, ethnicity, disability, sexual orientation, faith or Night Owls and lifebuoys As of 31 December 2011, there were 373 active groups of ’Night Owls’ in Norway. With about 50 people in each group, this cor- responds to just under 19,000 volunteers in 2011. The red and 3.7% of Tryg’s emloyees have a non-western background. white lifebuoy has become a symbol of reassurance in the Nordic Objectives countries. In addition to the more than 33,000 lifebuoys that cur- In 2012, Tryg’s new action plan for women in management rently hang along the Norwegian coast, a further 300 lifebuoys was implemented, including mentoring programmes for female were set up along the coast of south west Finland during 2011. managerial talents and a target of 2% more women in man- Objectives agement. Tryg wants to continue to maintain a focus on the recruitment of employees with a non-western background, and In 2012, Tryg will extend its preventive initiative at both the is making special efforts to make Tryg accessible for employees strategic and the practical level. Tryg aims to maintain a closer with disabilities. Waste Kg. 200,000 160,000 120,000 80,000 40,000 0 Paper waste Corrugated cardboard Biowastea) Other Denmark Norway Composition of employees Number 2,000 1,600 1,200 800 400 0 Men Women Age 17-39 year Age 40-54 year Age 55-70 year Non- western background a) Flexible job a) Only calculated in Norway. a) Non-western background estimated by Statistics Denmark. Tryg A/S | Annual report 2011 | 61 Well-being with our suppliers, we make sure that compliance with Tryg’s CSR Tryg wants to contribute to greater well-being for our employees, standards is maintained. Tryg has been including a CSR clause in and we actively work to promote quality of life and create a healthy, our contracts for many years, requiring compliance with Global safe working environment. This results in improved well-being and Compact and environmental standards. In 2011, this initiative was reduces levels of sick leave. It is crucial that our products help im- extended to include a programme that requires suppliers to draw prove the welfare of our customers in the Nordic countries. For ex- up an action plan and produce an annual report on their CSR work. ample, we have instituted a programme of initiatives aimed at young people, seeking to create an understanding that insurance is a key This requirement includes targets and reporting on CO2 reductions, protection of human rights and employees’ rights, as well as anti- element of a responsible life. This is part of our social responsibility corruption and supplier management. and supports Tryg’s position as a leading peace-of-mind provider. Read more about our measures to promote connection with new contracts in the area of cars. A new partnership well-being at tryg.com > CSR agreement with the caravan workshops that repair claims for Tryg’s The CSR in procurement programme was introduced in 2011 in Objectives customers was thus extended to incorporate CSR requirements. Cor- responding CSR requirements were introduced into indirect purchases In 2012, we will continue to focus on our employees’ health and and IT procurement. Tryg organised 22 workshops during the year, at access to sporting activities. In 2011, Tryg extended the partner- which the CSR programme was introduced to suppliers. ship with the Youth Town in Rødovre. This means that in 2011 we held 75 ‘Get to Grips with Finances’ courses, 30 more than Objectives in 2010. The target is that 82 classes will complete the course The target for 2012 is to cover all new contracts under market- before the end of 2012. ing, consultancy services and cleaning, and to convert earlier CSR clauses of the car area on an ongoing basis to a requirement of CSR in procurement suppliers to participate in CSR in the procurement programme. At Tryg, we make demands of ourselves and our business part- ners when it comes to responsible, sustainable solutions for our The annual report and tryg.com/csr comprise Tryg’s customers. Through CSR in procurement, Tryg contributes to the COP report in compliance with UN Global Compact development of healthy, robust companies that benefit society in and comprise Tryg’s CSR reporting in compliance financial, social and environmental terms. By engaging in dialogue with the Danish Financial Statement Act, section 99a. Motor procurement IT procurement 24 2 1 Percent 73 Car, covered by CSR clause Mobile home DK, covered by CSR programme Roadside assistance NO, covered by CSR programme Others, not covered by CSR clause 20 Percent 80 IT consultants, covered by CSR clause IT license, not covered by CSR clause 62 | Annual report 2011 | Tryg A/S The Tryg share Financial calendar 2012 19 April 2012 at 14:00 CET 20 April 2012 25 April 2012 14 Maj 2012 after 17:00 CET 14 August 2012 after 17:00 CET Annual general meeting 2012 Tryg shares trade ex-dividend Payment of dividend Interim report for Q1 2012 Interim report for H1 2012 7 November 2012 after 17:00 CET Interim report for Q1-Q3 2012 Tryg emphasises openness, transparency and accommodation Share price performance in 2011 of stakeholder information requirements, thereby providing The Tryg share closed at a price of DKK 257.5 in 2010 and DKK 319 investors, equity analysts and other stakeholders with a good in 2011. Including a dividend of DKK 4, the share rose by 25% during basis for forming an accurate picture of the Group’s financial 2011. Measured excluding dividends, the share performance in 2011 position, its performance and its opportunities and risks. was the best of the twenty shares in the OMX C20 index that had The Group’s Investor Relations department strives to maintain an average yield of -15% in 2011. The index of insurance shares in a high level of information by Europe, the STOXX Euro Insurance Index, fell by 14% in 2011. The • being available and proactive, and answering queries from lence in the financial markets, which generated increased demand investors and other stakeholders as promptly as possible, for insurance shares, which are regarded as stable investments. Tryg share’s performance in 2011 was characterised by the turbu- • having in-depth insight into and knowledge of Tryg as well as relevant external trends, Trading in the Tryg share • preparing plain and relevant written communication and Nasdaq OMX Copenhagen continues to be the primary exchange for presentation material, trading in the Tryg share. The share is, however, increasingly being • having a website that is relevant to professional and traded on alternative exchanges and trading platforms (known as private investors alike. MTFs) and OTC (over-the-counter). The total annual turnover at Nasdaq OMX Copenhagen fell from 44 million in 2010 to 33 million Information that may influence the pricing of Tryg shares is in 2011. But at the same time there was an increase in trading of published in accordance with the rules applicable to the distribu- the Tryg share on the alternative trading platforms, which now ac- tion of news in the EU. As the Tryg share is listed at Nasdaq OMX counts for a notable proportion of trading in the Tryg share. Copenhagen, new information is published there in accordance with the current rules. Tryg.com is updated simultaneously with the publication of new information. Information is also distributed directly to the London Stock Exchange, the press, equity analysts, investors and other stakeholders. All financial information may be downloaded at tryg.com/ Investor, where stakeholders may also order annual reports and subscribe to news and RSS feeds. In accordance with the recommendations issued by Nasdaq OMX Copenhagen, Tryg does not comment on financial results or expectations four weeks before the publication of financial reports. Turnover in the Tryg share 2011 (’000 shares) Market share 2011 Market share 2010 Nasdaq OMX Chi-X BATS Turqoise Burgundy Other Total 33,074 3,278 1,467 875 30 8,979 47,704 68% 7% 3% 2% 0% 20% 72% 4% 1% 1% 0% 22% Tryg A/S | Annual report 2011 | 63 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 (%) 2007 2,266 1,156 17 5% 1,405 21 38 2,561 113% 5.0% 2008 2009 2010 2011a) 846 442 6.5 52% 0 0 6.5 442 52% 16.0% 2,008 991 15.5 49% 799b) 12.5 28 1,790 89% 7.7% 593 256 4 43% 0 0 4 256 43% 5.2% 1,140 400 6.52 35% 0 0 6.52 400 35% 5.1% a) Dividend proposed by the Supervisory Board for approval on the annual general meeting. b) 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. Share capital and ownership Dividend policy Tryg has a total share capital of DKK 1,532,902,575, comprising a The dividend is determined on the basis of Tryg’s profit distribu- single class of share (61,316,103 shares of DKK 25 nominal value tion policy. Tryg intends to pursue a risk-based, transparent each), and all shares rank pari passu. The principal shareholder, policy for asset management, and thus also for dividend distri- TryghedsGruppen smba, Kgs. Lyngby, Denmark, holds 60% of bution. At 31 December, a capital requirement was determined the issued shares. TryghedsGruppen is the only shareholder with based on Standard & Poor’s model, corresponding to the level ownership of more than 5%. TryghedsGruppen invests in Nordic of an ’A-’ rating plus a buffer of 5% as a minimum. Surplus companies in the field of peace of mind and healthcare, and capital is distributed as a combination of cash dividend and provides support to charitable activities. As of 31 December 2011, share buyback. The relationship between cash dividend and there was a free float of 40% of the shares, divided among 27,194 share buy back is determined by the Supervisory Board. registered shareholders. The 200 largest shareholders held 71% of the free float. At 31 December 2011, Tryg held 942,834 of its own shares, corresponding to 1.54% of the share capital. Equities by geography At 31 December 2011 1 6 8 12 Percent 73 Denmark UK USA Nordic Other Shareholders At 31 December 2011 12 Percent 17 11 60 TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders 64 | Annual report 2011 | Tryg A/S a) Shareholders with more than 10,000 shares. Dividend for the 2011 financial year The company’s website is available in Danish and English, In accordance with Standard & Poor’s capital model, the capital and is continuously updated and developed, making it an requirement is DKK 10,097m, while TAC (before dividend) is DKK important means of keeping interested investors informed 11,012m. With earnings in 2011 of DKK 1,140m, The Supervi- about Tryg’s performance. In 2011, Tryg’s Investor Relations sory Board proposes to distribute DKK 400m in the form of a department issued an IR newsletter about the Norwegian pool cash dividend, equivalent to DKK 6.52 per share. scheme for natural claims. The newsletter was issued when On the basis of the annual results 2011, Tryg has decided not to create a better understanding of factors of importance to to initiate a share buy back programme in 2012. Tryg’s performance. deemed appropriate and deals with topical issues in order Dialogue with investors Annual general meeting The Executive Management and Investor Relations meet with Tryg holds the annual general meeting on 19 April 2012 at institutional investors and equity analysts each quarter after the 14:00 at Falkoner Centret, Falkoner Allé 9, 2000 Frederiksberg, publication of financial statements. In 2011, Tryg held around 250 Denmark. The notice will be advertised in the daily press in investor meetings and participated in nine investor conferences. March 2012 and will be sent to shareholders who so request. Tryg also participated in events for private shareholders in Den- The annual general meeting will also be announced at tryg. mark. The Group’s performance is followed by 24 equity analysts, com. Shareholders who are unable to attend the annual gener- nine of whom are based in London. At tryg.com it is possible to al meeting can follow it live via a webcast at tryg.com. monitor the equity analysts’ recommendations of the Tryg share. Company announcements published in 2011 Date No. a) Company announcement 11.01.2011 12.01.2011 27.01.2011 08.02.2011 09.02.2011 09.02.2011 14.02.2011 01.03.2011 17.03.2011 24.03.2011 14.04.2011 11.05.2011 16.05.2011 14.06.2011 11.08.2011 17.08.2011 09.11.2011 3 4 7 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Stine Bosse resigns Tryg appoints new Group CEO Bodil Nyboe Andersen leaves Tryg’s Supervisory Board Tryg ends share buy back programme Annual report 2010 Fourth quarter 2010 report Tryg AGM New IR Director at Tryg Notice of the annual general meeting TryghedsGruppen’s candidates for Tryg’s Supervisory Board Resolutions from Tryg’s AGM First quarter 2011 report Tryg employs new CFO and changes the organisation Tryg capital reduction Tryg financial calendar 2012 Q2 and H1 report 2011 Q1-Q3 report 2011 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 until 8 February 2011. Tryg A/S | Annual report 2011 | 65 Tryg’s Group financial statements are prepared in accordance with IFRS and published in Danish and English. Contents – Accounts Accounts 2011 Note Tryg Group Statement by the Supervisory Board and the Executive Management Independent auditor’s reports CSR report Financial highlights and key ratios Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows 1 Risk management 2 Operating segments 2 Geographical segments 2 Technical result, net of reinsurance, by line of business 3 Earned premiums, net of reinsurance 4 Technical interest, net of reinsurance 5 Claims incurred, net of reinsurance 6 7 Interest and dividends 8 Value adjustment 9 Tax Insurance operating expenses, net of reinsurance 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 financial 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 Debt relating to unsettled fund trading and repos 27 Earnings per share 28 Contractual obligations, contingent liabilities and collateral 29 Related parties 30 Financial highlights 31 Accounting policies 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) Fourth quarter of 2011 Fourth quarter of 2011 | Quarterly outline Fourth quarter of 2011 | Geographical segments Other key figures Glossary Disclaimer Group chart Page 68 69 70 71 72 73 74 76 77 78 90 92 94 96 96 96 96 102 102 103 103 104 106 108 109 110 114 115 115 116 116 117 118 120 121 121 121 121 122 123 124 125 136 137 138 139 144 146 148 149 151 152 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 2011 of Tryg tion at 31 December 2011 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 2011. 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, 8 February 2012 Executive Management Morten Hübbe Group CEO Supervisory Board Tor Magne Lønnum Group CFO Lars Bonde Group Executive Vice President Mikael Olufsen Chairman Torben Nielsen Deputy Chairman Jørn Wendel Andersen Paul Bergqvist Christian Brinch Jesper Hjulmand Lene Skole Jens Bjerg Sørensen Rune Torgeir Joensen Bill-Owe Johansson Tina Snejbjerg Berit Torm 68 | Annual report 2011 | Tryg A/S Independent auditor’s reports To the shareholders of Tryg A/S financial statements, whether due to fraud or error. In making those Report on the consolidated financial statements and parent risk assessments, the auditor considers internal control relevant financial statements. We have audited the consolidated and parent to the entity’s preparation of consolidated and parent financial financial statements of Tryg A/S for the financial year 1 January statements that give a true and fair view in order to design audit to 31 December 2011, page 71-143, which comprise the income procedures that are appropriate in the circumstances, but not for the statement, statement of comprehensive income, balance sheet, purpose of expressing an opinion on the effectiveness of the entity’s statement ‘of changes in equity and notes, including the ac- internal control. An audit also includes evaluating the appropriateness counting policies, for the Group as well as for the Parent, and of accounting policies used and the reasonableness of accounting the consolidated cash flow statement. The consolidated financial estimates made by Management, as well as the overall presentation statements are prepared in accordance with International Financial of the consolidated and parent financial statements. We believe that Reporting Standards as adopted by the EU and the parent financial the audit evidence is sufficient and appropriate to provide a basis for statements are prepared in accordance with the Danish Financial our audit opinion. Our audit has not resulted in any qualification. Business Act. In addition, the consolidated and parent financial statements are prepared in accordance with Danish disclosure Opinion requirements for listed financial services companies. In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2011, Management’s responsibility for the consolidated and of the results of its operations and cash flows for the financial financial statements and parent financial statements year 1 January to 31 December 2011 in accordance with Interna- Management is responsible for the preparation of consolidated tional Financial Reporting Standards as adopted by the EU and Dan- financial statements that give a true and fair view in accordance ish disclosure requirements for listed financial services companies. with International Financial Reporting Standards as adopted by the Moreover, in our opinion, the parent financial statements give a EU and Danish disclosure requirements for listed financial services true and fair view of the Parent’s financial position at 31 December companies as well as for the preparation of parent financial state- 2011, and of the results of its operations for the financial year ments that give a true and fair view in accordance with the Danish 1 January to 31 December 2011 in accordance with the Danish Financial Business Act and Danish disclosure requirements for listed Financial Business Act and Danish disclosure requirements for financial services companies, and for such internal control as Man- listed financial services companies. agement determines is necessary to enable the preparation and fair presentation of consolidated and parent financial statements that Statement on the management commentary are free from material misstatement, whether due to fraud or error. Pursuant to the Danish Financial Business Act, we have read the management commentary. We have not performed any further Auditor’s responsibility procedures in addition to the audit of the consolidated and parent Our responsibility is to express an opinion on the consolidated and financial statements. On this basis, it is our opinion that the in- parent financial statements based on our audit. We conducted our formation provided in the management commentary is consistent audit in accordance with International Standards on Auditing and with the consolidated and parent financial statements. additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the con- Ballerup, 8 February 2012 Deloitte solidated and parent financial statements are free from material Statsautoriseret Revisionsaktieselskab misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consoli- dated and parent financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of Lars Kronow Lone Møller Olsen the risks of material misstatements of the consolidated and parent State Authorised Public Accountant State Authorised Public Accountant Tryg A/S | Annual report 2011 | 69 CSR report To the Management of TRYG A/S We believe that our work provides an appropriate basis We have reviewed TRYG A/S’ CSR data for 2011 which are for us to conclude with a limited level of assurance on the evident from the annual report, pages 60-62. The CSR data subject matter. Such an assurance engagement provides for 2011 are the responsibility of and have been approved by less assurance than an audit. Management. Our responsibility is to draw a conclusion based on our review. Conclusion We have based our review on best practice and applicable causes us to conclude that TRYG’s CSR data for 2011 do not standards for issuing an independent auditor’s report on CSR comply with the reporting practice stated and have not been data, including ISAE 3000, ”Assurance Engage-ments other than appropriately presented. Based on our work, nothing has come to our attention which Audits or Reviews of Historical Financial Information”, issued by the International Auditing and Assurance Standards Board. The objective and scope of the engagement were agreed with Ballerup, 8 February 2012 Management. Based on an assessment of materiality and risks, our work in- Statsautoriseret Revisionsaktieselskab Deloitte cluded analytical pro-cedures and interviews as well as a review on a sample basis of evidence supporting the subject matter. We have compared the CSR data with the Company’s reporting practice as can be seen on tryg.com/CSR/xxx. Additionally, we Lars Kronow Preben Johan Sørensen have made a general comparison with the presentation of the State Authorised State Authorised CSR data in the annual report. Public Accountant Public Accountant (CSR) 70 | Annual report 2011 | Tryg A/S Financial highlights and key ratios DKKm 2007 2008 2009 2010 2011 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 employees, end of period Solvency ratio 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 period (1,000) 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 17.00 10.8 67,638 16,976 -11,473 -2,964 2,539 -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 6.50 24.7 64,378 17,862 -12,882 -3,056 1,924 -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 15.50 11.0 63,228 19,475 -15,617 -3,304 554 -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 4.00 23.8 60,634 20,572 -16,299 -3,430 843 507 184 1,534 66 -31 1,569 -455 1,114 26 1,140 944 34,257 2,067 9,007 53,221 79.2 -2.5 76.7 16.8 93.5 16.7 92.6 13.1 4.0 4,318 112 18.4 149.2 6.52 17.3 60,373 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. Tryg A/S | Annual report 2011 | 71 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 3 Earned premiums, net of reinsurance 4 Technical interest, net of reinsurance Claims paid Reinsurance recoveries Change in provisions for claims Change in the reinsurers’ share of provisions for claims 5 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 6 Insurance operating expenses, net of reinsurance 2 Technical result 14 Investment activities Income from associates Income from investment properties Interest income and dividends 7 8 Value adjustment Interest expenses 7 Investment management charges Total return on investment activities 4 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 72 | Annual report 2011 | Tryg A/S 2010 2011 19,939 -1,054 -382 47 20,822 -1,124 -102 45 18,550 19,641 134 184 -14,809 391 -808 211 -15,693 1,142 -606 355 -15,015 -14,802 -82 -148 -2,406 -898 -3,304 92 -2,461 -969 -3,430 89 -3,212 -3,341 375 1,534 -5 128 1,133 238 -96 -76 1,322 -752 570 162 -166 941 -265 676 -83 593 10.8 9.5 9.5 1 117 1,260 -255 -113 -92 918 -852 66 136 -167 1,569 -455 1,114 26 1,140 18.4 18.9 18.9 Statement of comprehensive income DKKm Profit for the year Other comprehensive income 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 Other comprehensive income 2010 2011 593 1,140 1 19 -5 330 -328 82 68 -228 63 2 0 20 -6 29 -27 7 -22 -399 111 -287 Total comprehensive income 595 853 Tryg A/S | Annual report 2011 | 73 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 Derivative financial instruments Total other financial investment assets 15 Total investment assets 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 Receivables from subsidiaries Other receivables 15 Total receivables 17 Current tax assets 23 Deferred tax assets 15 Cash in hand and at bank Total other assets Accrued interest and rent earned Other prepayments and accrued income Total prepayments and accrued income 2010 2011 968 952 118 1,385 353 1,856 102 1,745 10 1,857 2,158 2,199 13 13 184 2,268 34,621 2,755 298 14 14 187 2,378 38,400 1,635 651 40,126 43,251 42,297 45,464 154 1,434 1,588 1,110 1,110 211 0 601 192 1,875 2,067 1,158 1,158 317 1 189 1,922 1,665 196 104 857 1,157 609 194 803 93 0 402 495 497 224 721 Total assets 50,591 53,221 74 | Annual report 2011 | Tryg A/S Statement of financial position DKKm Notes Liabilities 18 Shareholders’ equity 20 Subordinated loan capital 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 26 Debt relating to unsettled fund trading and repos 15 Derivative financial instruments 17 Current tax liabilities Other debt Total debt Accruals and deferred income Total liabilities and equity 1 Risk management 19 Capital adequacy 27 Earnings per share 28 Contractual obligations, contingent liabilities and collateral 29 Related parties 30 Financial highlights 31 Accounting policies 2010 2011 8,458 9,007 1,591 1,589 6,819 24,883 329 6,932 26,941 384 32,031 34,257 671 1,387 1 2,059 419 187 30 3,947 376 106 1,030 1,026 1,191 11 2,228 410 191 11 4,161 35 260 740 6,095 5,808 357 332 50,591 53,221 Tryg A/S | Annual report 2011 | 75 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. 2009 1,598 14 -2 58 950 6,022 991 9,631 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 Actuarial gains and losses on pension obligation Tax on equity entries Total comprehensive income Dividend paid Dividend own shares Purchase of own shares Exercise of share options Issue of share options Total equity entries in 2010 0 0 Shareholders’ equity at 31 Dec. 2010 1,598 2011 Profit for the period 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 share options 0 -65 19 -5 14 14 28 20 -6 14 128 209 256 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 84 82 1 59 128 -665 -735 -1,173 1,078 5,357 256 8,458 76 664 400 30 -27 7 10 0 76 -1 -399 89 353 65 14 -91 15 14 400 -256 1,140 20 29 -27 -399 90 853 0 -256 14 -91 15 14 549 9,007 Total equity entries in 2011 -65 Shareholders’ equity at 31 Dec. 2011 1,533 14 42 10 92 0 59 76 370 1,154 5,727 144 400 Proposed dividend per share DKK 6.52 (in 2010 DKK 4.00). 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 61,316,103. The dividend is not paid until approved by the shareholders at the annual general meeting. Tryg Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of DKK 2,430m (in 2010 DKK 2,887m). Tryg Forsikring A/S’ Swedish branch, has in its branch financial statements included provisions for contingency funds in the amount of DKK 144m (in 2010 DKK 143m) . 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. 76 | Annual report 2011 | Tryg A/S Statement of cash flows DKKm Cash generated from operations Premiums Claims paid Ceded business Expenses Change in other payables and other amounts receivable Cash flow from insurance operations Interest 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) Foreign currency hedging Investments, continuing business Total investments Funding Purchase of own shares Dividend paid Change in debt to credit institutions Funding, continuing business Total funding Change in cash and cash equivalents, net Exchangerate 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 2010 2011 19,911 -14,801 -552 -3,172 -314 20,619 -15,565 -26 -3,410 92 1,072 1,710 1,132 -96 10 -482 -5 1,631 -20 1,611 -210 339 441 593 265 -31 -328 1,069 1,069 -807 -991 -581 -2,379 -2,379 301 44 345 512 857 1,386 -109 10 -210 -31 2,756 -179 2,577 -50 2 -191 -3,523 1,125 -18 -27 -2,682 -2,682 -76 -256 -19 -351 -351 -456 1 -455 857 402 Tryg A/S | Annual report 2011 | 77 Notes 1 Risk management Risk management principles Risk management is an integral part of Tryg’s business operations. Tryg continuously seeks to minimise the risk of unnecessary losses in order to optimise returns relative to the capital available in the company at any time. This requires the proactive identification and control of all significant risks. The Supervisory Board defines the acceptable level of risk. Tryg wishes to take risks associated with business activities on the con- dition that they can be managed and can contribute an acceptable return on equity. Risk management at Tryg is organised on the ba- sis of three lines of defence: 1. Business managers are responsible for the management and control of all risks associated with their own activities. 2. A central risk management function, the actuarial function and a compliance function take care of coordinated risk manage- ment and guarantee the balance between Tryg’s overall risk and the capital available. 3. Internal audit performs an independent assessment of the risk environment, etc. for the Supervisory Board. Risk management environment For several years, Tryg has worked with risk management and modelling of the company’s risks by means of a risk management environment. The introduction of Solvency II will make stricter de- mands on the way in which insurance companies work with and control risks, including the Supervisory Board’s involvement in risk and asset management. The Supervisory Board has overall responsibility for the company’s risk management and proactively defines risk inclination and the limits for risk management, assessing the total risk and capital re- quirement within Tryg on an ongoing basis. This is achieved by means of policies and guidelines drawn up in accordance with Sec- tion 71 of the Danish Financial Business Act and by continuously taking a view on the calculation of the company’s capital require- ment. In order to be able to monitor the organisation’s risk man- agement work closely, the Supervisory Board has appointed a Risk Committee with representatives from the Supervisory Board, which reviews Tryg’s capital and risk status on a quarterly basis. Tryg’s risk management is administered through a risk management environment, in which the Risk Management Committee, with repre- sentatives from the Executive Management, monitors the whole risk and asset management process. The areas of underwriting and rein- surance, provisioning, investment risk as well as operational risk and security are administered by corresponding sub-committees. Risk management is underpinned by Tryg’s internal capital model. The control environment consists of a series of business processes that define controls of areas of activity and authorisation levels. To support the organisation’s work, a new structure was established in 2011, in which risk management activities in the business areas are coordinated by decentralised risk managers. Each business area will thus have its own risk manager with responsibility for matters including risk identification, risk control, event registration, contingency plans and compliance. The decentralised risk manag- ers are there to guarantee close interaction between the business and the risk management environment. Risk management Every year, Tryg carries out a risk mapping process, which aims to identify new risks that cannot be assessed using statistical analy- ses. These assessments are compiled in Tryg’s risk database and form the basis of ongoing risk reporting. Selected risk scenarios based on this work are incorporated directly into Tryg’s calculation of the necessary capital requirement (Individual Solvency Require- Lines of defence Supervisory Board 1st line of defence 2nd line of defence 3rd line of defence External audit • Operational control • Risk management • Internal audit • Business controls • Actuarial function • Compliance Executive Management 78 | Annual report 2011 | Tryg A/S Trygs lines of defense Bestyrelse Direktion 1st line of defense 2nd line of defense 3rd line of defense Ekstern revision • Operationelle styring • Risikostyring • Intern revision • Forretning kontroller • Aktuarfunktion • Compliance Notes ment) and in Tryg’s ’Own Risk and Solvency Assessment’ (ORSA). ORSA is one of the most important elements of compliance with the Solvency II regime. The ORSA is a top-down process, owned by the Supervisory Board, connecting strategy, risk management and capital planning. The most important purpose of the ORSA is that the business commits to assessing all risks in the business and de- cides its associated capital requirement. The result of the ORSA should guarantee that over a planning period of three to five years there is a reasonable balance between the company’s risk adop- tion strategy and the capital available to support the strategy. Description of risk types Underwriting risk Underwriting risk is the risk relating to entering into insurance con- tracts and thus the risk that premiums charged do not adequately cover the claims that Tryg is obliged to pay when a claim has oc- curred. This risk can be assessed and managed based on statistical analyses of historical experience within various business sectors. The insurance premium must be adequate to cover expected claims, but must also comprise a risk premium equal to the return on the part of Tryg’s capital that is used to protect against random fluctuations. All other things being equal, this means that insur- ance sectors or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium. The figures for Norwegian buildings/contents and liability insur- ance policies show how there can be major differences in practice in the fluctuations observed in different sectors and thus in the underwriting risk for the sectors in question. The ongoing assess- ment of the underwriting risk is based on Tryg’s internal capital model, which defines the target premium levels for each part of the insurance business. This applies partly when defining and up- dating tariffs, and partly when individually pricing major agree- ments for the corporate and partner areas. The underwriting risk is also managed by means of ongoing profitability monitoring, busi- ness processes, acceptance policy, proxies and reinsurance. Reinsurance is used to reduce the risk in areas where a special need for this exists. The need for reinsurance is assessed on an ongoing basis using Tryg’s internal capital model, in which the price of purchasing reinsurance is compared with the reduction in the capital requirement that can be achieved. In the light of the major cloudburst claims in Denmark in 2010 and 2011 and corre- sponding cloudburst claims in the rest of Europe, Tryg adjusted its risk assessment associated with weather-related events upwards in 2011. As a consequence of this, in 2011 Tryg purchased what is known as lateral cover for combinations of small or medium-sized events generating nature-related claims. This covers a total of DKK 500m, with an aggregated retention of DKK 400m. In the field of buildings and contents insurance, major events in 2011 were covered by catastrophe reinsurance cover of DKK 5.5bn. For gross claims in the range of DKK 100-175m, retention increases from DKK 100m to DKK 141m. For gross claims above DKK 175m, retention is a maximum of DKK 141m. The primary risk for individual events is storms, and the scope of the cover is defined using simulation models such that this cover will prove insufficient in statistical terms less than once every 250 years. The reinsurance programme for catastrophes also covers other disastrous events, including terrorist incidents, up to a maximum of DKK 4bn. For accident and workers’ compensation policies, Tryg has bought reinsurance with retention of DKK 50m and with coverage of up to DKK 1.5bn for claims that originate from the same event, including terrorism. Tryg’s risk mangement environment Supervisory Board • Risk appetite • Capital • Strategy • Crisis management Executive Manage- ment Policies and guidelines Risk management environment Organisation Risk Management Committee Business proceedures 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 2011 | 79 Notes Major risk types Underwriting risk The risk related to entering into insurance contracts. The risk that claims at the end of an insurance contract deviate significantly from our assumptions when pricing at inception of the contract. Handled by the Underwriting reinsurance committee Reserving risk We make technical provisions at the end of a financial period to cover expected future payments for claims already incurred. Reserving risk is the risk that future payments deviate signifi- cantly 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 Operational risk The risk of errors, fraud or failures in internal procedures, systems and processes. Handled by the Operational risk committee Strategic risk The risk of changes to the conditions under which we operate, including changed legislation, competition, partnerships or market conditions. Handled by the Risk management committee Sensitivity analyse Insurance risk DKKm Underwriting risk Effect of 1% change in: Combined ratio (1 percentage point) Claim frequency (1 percentage point) Average claim Premium rates Provisioning risk Effect of 1% change in: Social inflation Annual provision for long-tailed sectors (workers’ compensation, motor liability, liability, accident) Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities Discounting of provisions for claims Net effect of interest rate rise Impact of Norwegian pension liability Equity market 15% decline in equity market Effect of derivatives 2010 2011 +/- 191 +/- 202 +/- 1,761 +/- 151 +/- 189 +/- 1,706 +/- 158 +/- 200 -614 +/- 706 +/- 36 +/- 35 -795 706 -89 225 -290 37 -850 889 39 296 -279 7 Real estate market 15% decline in real estate markets -584 -593 Currency market 15% decline in exposed currency relative to DKK Impact of derivatives -655 647 -659 629 80 | Annual report 2011 | Tryg A/S Notes A national guarantee scheme was established in Denmark in 2010 to cover NBCR (Nuclear Biological Chemical Radioactive) terrorist attacks. This scheme involves the State providing a guarantee of up to DKK 15bn for the entire Danish market to cover the total claim expense over DKK 5bn with reinsurance cover of DKK 4.5bn after retention of DKK 500m. Tryg’s share of this will be approxi- mately DKK 100m, which will be the maximum claim as a conse- quence of NBCR events. Reinsurance is also bought for a number of sectors in which experi- ence has shown that claims vary considerably. The largest single risks in our corporate portfolio are in the area of buildings and con- tents insurance, protected by reinsurance cover of DKK 1.7bn and with retention of DKK 50m, but with additional annual retention of DKK 75m. Tryg buys facultative reinsurance for buildings and con- tents risks above this limit. Other sectors covered by reinsurance include liability, motor, fish farming and guarantee insurance. In the event of a major insurance event covered by the reinsurance programme, there may be major receivables from reinsurers and thus also a credit risk. This risk is managed through requirements to assess the reinsurers’ credit ratings and to spread reinsurance across several reinsurers. process, particularly for personal injuries. Even once the claim has been settled, there is a risk that it will be resumed at a later date, triggering further payments. The size of the provisions for claims is determined both through individual assessments and statistical calculations. As of 31 December 2011, provisions for claims totalled DKK 26.9bn. The duration of these provisions, i.e. the average time until these amounts are paid out to customers, was 3.5 years as of 31 De- cember 2011. Most of the provisions for claims relate to personal injury claims. These provisions are exposed to changes in wage developments, the discount rate, disbursement patterns, economic trends, legislation and court decisions. The calculation of provisions for claims will always be subject to uncertainty. Historically, many insurers have experienced sub- stantial positive as well as negative impacts on profit (run-off) resulting from provisioning risk, and this may also be expected to happen in future. Tryg manages the provisioning risk by pursuing a provisioning policy that guarantees an updated, uniform process for determining provisions at all times. This implies that it is based on an underlying model analysis, and that internal control calcula- tions and evaluations are performed. Provisioning risk When the term of insurance expires, insurance risk relates to the provisions for claims made to cover future payments of claims al- ready incurred. When a claim has occurred, there is a certain delay before the customer submits a claim. Depending on the complexity of the claim, a longer or shorter period of time may pass before the size of the claim is finally agreed. This may be a prolonged Provisions for claims relating to annuities in Danish workers’ compensation insurance are discounted using the current market rate and simultaneously revalued by the wage inflation rate each year. This exposes Tryg to an explicit inflation risk. To hedge this, Tryg uses a number of zero coupon inflation swaps in Danish kroner, in which Tryg receives a fixed amount in return for payment of an amount based on the trend in Danish consumer prices. Tryg A/S | Annual report 2011 | 81 Notes DKKm Provisions for claims – Estimated accumulated claims Gross 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 End of year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later 10 years later Cumulative pay- ments to date Provisions before discounting, end of year Discounting Reserves 2000 and prior years Other reserves Gross provisions for claims, end of year 9,277 11,365 10,785 11,119 11,856 11,655 12,600 13,282 14,733 17,081 17,391 9,516 11,728 10,891 11,122 11,755 11,910 13,226 14,669 15,408 17,181 9,715 11,728 10,550 10,977 11,580 11,417 13,803 14,536 15,437 9,828 11,783 10,549 10,863 11,183 11,644 13,784 14,544 9,757 11,774 10,574 10,596 11,323 11,576 13,774 9,746 11,683 10,546 10,672 11,258 11,564 9,961 11,669 10,469 10,452 11,158 9,935 11,536 10,337 10,339 9,987 11,524 10,253 9,917 11,417 9,762 9,762 11,417 10,253 10,339 11,158 11,564 13,774 14,544 15,437 17,181 17,391 142,818 -9,321 -10,856 -9,573 -9,565 -10,209 -10,172 -11,829 -11,796 -12,055 -12,430 -8,413 -116,219 441 -60 561 -77 680 -97 774 -117 949 -137 1,391 -189 1,944 -227 2,748 -282 3,382 -299 4,751 -340 8,977 -436 26,599 -2,261 1,858 745 26,941 Ceded business 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Estimated acc. claims End of year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later 10 years later Cumulative pay- ments to date Provisions before discounting, end of year Discounting Reserves 2000 and prior years Other reserves Prov. for claims, end of year 1,473 1,486 1,494 1,509 1,482 1,469 1,476 1,456 1,482 1,576 1,536 1,536 2,066 2,177 2,057 2,050 2,048 2,063 2,070 1,998 1,997 1,955 957 917 913 974 890 885 895 892 954 879 892 934 932 917 924 924 912 949 842 847 840 864 859 843 297 295 281 313 313 308 515 479 493 498 519 183 251 212 200 305 380 358 1,499 714 793 1,955 954 912 843 308 519 200 358 793 1,499 9,878 -1,463 -1,880 -853 -838 -810 -296 -481 -172 -259 -410 -750 -8,214 73 -4 75 -6 101 -10 74 -9 32 -2 12 0 38 -1 28 -1 99 -1 383 -7 749 -12 1,664 -56 147 120 1,875 82 | Annual report 2011 | Tryg A/S Notes DKKm Provisions for claims – Estimated accumulated claims Net of reinsurance 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Estimated acc. claims End of year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later 10 years later Cumulative pay- ments to date Provisions before discounting, end of year Discounting Reserves 2000 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year 7,804 8,030 8,222 8,319 8,275 8,278 8,484 8,479 8,505 8,341 8,226 8,226 9,299 9,552 9,671 9,733 9,726 9,620 9,600 9,538 9,527 9,461 9,828 10,240 10,907 11,358 12,085 13,099 14,428 16,367 15,892 9,974 10,230 10,913 11,615 12,747 14,417 15,027 16,388 9,638 10,043 10,733 11,136 13,310 14,324 15,079 9,931 10,343 11,331 13,286 14,343 9,574 9,679 10,459 11,263 13,255 9,684 9,748 10,399 11,255 9,660 9,528 10,315 9,574 9,446 9,427 9,299 9,461 9,299 9,427 10,315 11,255 13,255 14,343 15,079 16,388 15,892 132,940 -7,858 -8,976 -8,719 -8,726 -9,399 -9,876 -11,349 -11,623 -11,796 -12,020 -7,663 -108,005 368 -56 486 -71 580 -87 701 -108 916 -135 1,379 -189 1,906 -226 2,720 -281 3,283 -297 4,368 -333 8,229 -423 24,935 -2,205 1,711 625 25,066 Estimated accumulated claims regarding Moderna Försäkringar 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 End of year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later 10 years later 245 243 245 134 132 133 118 118 119 100 98 98 766 1.112 1.116 652 856 859 1.456 1.461 1.783 524 596 596 430 414 414 351 346 347 The acquisition of Moderna in April 2009 affects the diagonals with its share of the claims, net of reinsurance. As a consequence of the merger of Moderna and Tryg’s Swedish branch in Malmö in 2010 the diagonal is changed corresponding to its share of the claims, net of reinsurance. ’Other reserves’ comprises the provisions for claims for Tryg Garantiforsikring A/S and the Finnish branch of Tryg Forsikring A/S. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2011 to prevent the impact of exchange rate fluctuation. Tryg A/S | Annual report 2011 | 83 Notes DKK m 0-1 year 1-2 years 2-3 years > 3 years Other Expected cash flow Provisions for claims (continued) 2011 Provisions for unearned premiums, gross Provisions for unearned premiums, ceded Provisions for claims, gross Provisions for claims, ceded 6,175 -180 10,172 -995 204 0 4,452 -258 199 0 2,796 -176 192 0 8,776 -326 15,172 4,398 2,819 8,642 2010 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 13,522 3,861 2,510 9,549 Other comprises Tryg Garantiforsikring A/S, the Finnish branch of Tryg Forsikring A/S. Maturity of the Group’s financial assets and debt 2010 Bonds Cash in hand and at bank Receivables Debt 2010 Bonds Cash in hand and at bank Receivables Debt 0-1 year 1-5 years > 5 years 13,074 369 1,665 -1,612 19,520 0 0 0 13,496 19,520 3,920 777 2,183 -1,772 5,108 22,947 0 0 0 22,947 4,638 0 0 -1,589 3,049 7,450 0 0 -1,591 5,859 162 -12 745 -120 775 161 -16 628 -101 672 Total 37,232 369 1,665 -3,201 36,065 34,317 777 2,183 -3,363 33,914 Carrying amount Total 6,932 -192 26,941 -1,875 31,806 6,819 -154 24,883 -1,434 30,114 Effective interest rate 2.1 0.9 - - 2.2 0.8 - - 84 | Annual report 2011 | Tryg A/S Notes Investment risk Investment risk is the risk that volatility in financial markets im- pacts on results and thus on the company’s financial position. Interest rate risk Both investment assets and provisions for claims are exposed to interest rate changes. Tryg aims to match the disbursement profile for discounted provisions for claims with corresponding interest- bearing assets as closely as possible. If interest rates fall, this structure would cause a similar increase in the provisions for claims and the value of the bond portfolio, thereby considerably reducing Tryg’s overall exposure to changes in interest rates. Investment assets comprise not only assets corresponding to the technical provisions, but also Tryg’s equity. Tryg has divided invest- ment activities into two investment portfolios, the free investment portfolio and a match portfolio. The element that corresponds to technical provisions is invested exclusively in interest-related assets and serves solely to cover interest rate sensitivity in the discounted provisions. The remaining element, which corresponds to equity, is a free investment portfolio, the purpose of which is to generate the best possible return compared to the risk. Following this division, fluctuations in the match portfolio will in principle correspond in full to fluctuations in liabilities. In practice it will not be appropriate to strive to achieve a complete match, purely because of the administrative expenses that this would generate. In practice, Tryg expects that it will, as a general rule, be possible to keep the net interest rate in the match portfolio within a limit of DKK +/- 50m per quarter. Tryg is also exposed to interest rate changes in relation to obligations concerning the Norwegian pension scheme, which covers approximately 800 current employees. This scheme was closed to new employees in 2008, and the total provision was DKK 978m as of 31 December 2011. Changes in the pension provision are not included in the income statement, but are charged directly to changes in equity. The match portfolio and the free portfolio Denmark is one of the only countries in the world that requires insurance companies to discount their technical provisions using a discount (rate) curve specified by the Danish Financial Super- visory Authority. The introduction of Solvency II would mean that all European com- panies would have to discount provisions in relation to a solvency calculation, and would thus control the interest rate risk for both assets and liabilities. Tryg adjusts the bond portfolio on an ongoing basis, in order to minimise the net interest rate risk (price changes caused by interest rate changes) as far as possible. The Danish Financial Supervisory Authority’s interest curve for the relevant Nordic countries is designed in such a way that it is not possible in practice to invest precisely in accordance with it. Tryg has therefore designed a model portfolio that matches the individual countries’ regulatory interest curve as closely as possible. In the model port- folio, future interest payments match the disbursement profile of the insurance provisions as perfectly as possible in both economic and cost terms. This structure removes most of the market risks that impact the match portfolio, but the difference between the regulatory curve’s return and Tryg’s model portfolio’s return may still vary. There may also be deviations due to restructuring and investment costs, as well as ongoing changes in the size, time and hedging of provisions. A perfect match means that the match portfolio’s return (coupon and market value adjustment) is identical to the return on provisions (market value adjustment of provisions, taken from interest rate changes plus technical interest). On page 6 there is an illustration of the perfect match, the match achievable in practice (scenario 3), A strategy in which only the duration of assets and liabilities is matched and finally a situation in which no match is made at all. Equity and real estate risk The equity and real estate portfolios are exposed risks as a consequence of changes in equity markets and real estate 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 Duration 2010 2011 15,143 16,645 1,904 625 19,132 10,187 4,213 3,700 34,317 37,232 1.9 1.5 The option adjusted duration is used to measure duration. The option adjustment relates primarily to Danish mortgage bonds and reflects the expected duration-shortening effect of the borrower’s option to cause the bond to be redeemed through the mortgage institution at any point in time. Tryg A/S | Annual report 2011 | 85 Notes Scenario 1 | Unmatched Scenario 2 | Duration match DKKm 400 200 0 -200 -400 DKKm 400 200 0 -200 -400 Expected acceptable level Expected acceptable level Time Time Scenario 3 | Fully matched Scenario 4 | Theoretically perfect match DKKm 400 200 0 -200 -400 DKKm 400 200 0 -200 -400 Expected acceptable level Expected acceptable level Time Time A perfect match means that the match portfolio’s return (coupon and market value adjustment) is identical to the return on provisions (market value adjustment of provisions originating from interest rate changes plus technical interest). In practice, the perfect match cannot be achieved. The above illustrations show the differences in fluctuations in the deviation between the value of an interest rate portfolio and the value of a discounted provision portfolio: 1) A scenario in which no attempt is made to match the interst sensitivity of the provisions; 2) A scenario in which the durations of assets and liabilities are matched, providing protection against parallel changes in the interest curve; 3) A scenario in which the sensitivity of assets and liabilities to changes in specific interestpoints is matched; 4) Finally, a scenario in which all payments from the asset portfolio are matched with payments made from the provisions and are ‘invested’ in the regulatory interest curve. Tryg’s matching corresponds to scenario number 3. 86 | Annual report 2011 | Tryg A/S Notes DKKm 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’ 2010 2011 350 83 579 647 336 1,995 184 395 82 331 565 242 1,615 187 markets respectively. As of 31 December 2011, the equity portfolio accounted for 4.5% of the total investment assets. This proportion is expected to be in the range 2.3%-6.0% in 2012. In 2008, Tryg bought the head office in Ballerup, significantly increasing the pro- portion of real estate. This proportion is expected to be reduced over time. In addition to owner-occupied properties, Tryg’s real estate portfolio consists of office and rental properties, which ac- count for 17.8% and 22.3% respectively of total investment assets. Currency risk Currency risk is kept at a low level. Tryg’s premium income in foreign currency is mostly matched by claims and expenses in the same currencies, and it is therefore only the profit for the period that is exposed to currency risk. The risk of a loss of value in bal- ance sheet items as a consequence of exchange rate fluctuations is hedged by means of currency derivatives in accordance with a general hedging rate of 90-100% per currency. The aim is for the net carrying amount of the Norwegian entity to be hedged 98-100% over time. Exchange rate adjustments and hedging of foreign entities are charged directly to equity. The profit from currency derivatives is included in tax, while adjustments of equity are not included in the taxable amount. In years when there is a value increase in deriva- tives and a loss in the adjustment of equity, tax must be paid on the value increase without a deduction for the loss on the adjust- ment of equity. By the same token, in years where there is a loss on derivatives and a positive adjustment of equity, a tax deduction arises. Over time, it is expected that years when tax is paid and years when tax is deducted will balance one another. Exposure to exchange rate risk Properties Bonds incl. Share incl. derivatives derivatives Insurance Hedge Exposure 2011 USD EUR GBP NOK SEK Other Total 2010 USD EUR GBP NOK SEK Other Total 0 0 0 873 1 0 0 0 0 823 1 0 -7 1,845 -3 14,112 3,107 0 0 50 1 11,773 2,056 0 640 222 78 391 88 305 799 513 74 0 113 229 -74 -2,174 5 -12,470 -1,683 -16 -159 -1,551 0 -9,270 -944 -21 -566 1,450 -83 -3,013 -1,208 -186 -518 1,139 -76 -3,266 -1,197 -196 -7 1,343 -3 -107 305 103 1,866 122 151 1 60 29 16 379 Tryg A/S | Annual report 2011 | 87 Notes To manage currency risk, Tryg uses currency spots as well as for- ward exchanges and currency swaps (a spot and opposite term transaction) with a typical duration of one to three months. Credit risk Credit risk is the risk of incurring a loss if counterparties fail to meet their obligations. In connection with investment activities, the primary counterparties are bond issuers and counterparties in other financial instruments. Tryg uses limits and rating require- ments to manage credit risk and concentration risk. Tryg matches provisions, hence naturally has a high level of expo- sure to various forms of mortgages, including mortgage bonds in the Nordic region, not least in Demark, where the regulatory curve explicitly contains mortgage elements that must be hedged. In particular, we have exposure of this kind at the short end of the interest curve, partly because the use of derivatives here increases the investment requirement. The risk is primarily AAA, with an AA rated risk in exceptional circumstances, and is diversified with a broad range of issuers, ensuring that Tryg can comply comfortably with the rules of Solvency II for limited concentration risk. Credit risks from reinsurance counterparties are managed according to framework conditions, such as minimum rating requirements and through the Credit Committee, which monitors the quality of reinsurance counterparties on an ongoing basis. The minimum requirements include a BBB rating from Standard & Poor’s for short-tailed business and an ‘A-‘ rating from Standard & Poor’s for long-tailed business. Liquidity risk A general insurance company such as Tryg naturally has extremely good liquidity, as premium payments fall due before claims are paid. Payments received are largely invested in securities that can easily be realised and/or mortgaged (repos). Tryg also has access to fund- ing and liquidity from cash accounts and the bond market. Tryg con- tinuously monitors the liquidity requirement and adapts its contin- gency plans so that it can at all times obtain the necessary liquidity. Operational risk. Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal, Tryg focuses on establish- ing an adequate control environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines that cover the various aspects of Tryg’s operations, including the IT security policy. Tryg has also set up a security and investigation unit to handle internal fraud, IT security, physical security and contingency plans. Tryg has prepared contingency plans to handle the most important areas, such as the contingency plans in the individual parts of the business to handle an event of a prolonged IT breakdown. We have also set up a crisis management structure to deal with the eventuality that Tryg is hit by a major crisis. 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 Supervisory Board is closely involved in the management of strategic risk 88 | Annual report 2011 | Tryg A/S Notes Capital management Risk-based capital management Through capital and risk management, Tryg aims to secure finan- cial strength and flexibility. The capital management is based on: • Tryg’s internal capital model • The impending Solvency II standard model • Standard & Poor’s standard model (‘A-’ level) All three models determine the capital requirement based on Tryg’s current risk profile. The capital requirement is determined with a 99.5% level of certainty, which corresponds to the chosen capital level being insufficient once in a 200-year period on a statistical basis. Tryg has decided to commission an external credit rating by credit rating agency Standard & Poor’s, which conducts an annual interactive credit rating. Capital structure Tryg’s capital base consists of equity and subordinated loan capital. The relationship between these is evaluated on an on - going basis in order to maintain an optimal structure which takes into account the return on equity, the capital cost and flexibility. The actual capital is assessed differently by authorities and credit rating agencies. The authorities impose a requirement that compa- nies must determine the base capital, which primarily consists of equity minus intangible assets, discount effect and other statutory corrections plus subordinated loan capital in the amount of up to 25% of the Solvency I requirement. Standard & Poor’s uses the term ‘Total Adjusted Capital’ (TAC), where intangible assets are also deducted from the capital base, and where the subordinated loan capital must generally not exceed 25% of the total capital. In 2005, Tryg took out a 20-year subordinated bond loan of EUR 150m listed on the London Stock Exchange. In 2009, in connection with the acquisition of Moderna, Tryg took out a subordinated loan with expiry in 2032 of EUR 65m from TryghedsGruppen, which owns 60% of Tryg. Tryg’s total holding of subordinated debt sub- sequently amounted to approx. EUR 215m. In total, debt amounted to 18% of equity at the end of 2011, and interest expenses during 2011 amounted to DKK 83m. 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, Prices used for determination of fair value in respect of both loans are based on an assesment of the credit spread of the loans provided by Nordea. Tryg A/S | Annual report 2011 | 89 Notes DKKm 2 Operating segments 2011 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 11,097 -8,784 -1,786 253 106 886 4,237 -3,297 -1,001 141 37 117 5,275 -4,251 -643 109 41 531 -37 33 0 4 0 0 20,572 -16,299 -3,430 507 184 1,534 66 -31 1,569 -455 1,114 26 1,140 944 14 192 1,875 51,140 53,221 6,932 26,941 384 9,957 44,214 Profit on continuing business Profit/loss on discontinued and divested business Profit Run-off gains/losses, net of reinsurance 159 155 630 Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets 1 319 2 374 189 1,182 Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 3,971 7,383 238 1,487 6,742 23 1,474 12,816 123 Other liabilities Total liabilities 0 14 0 0 51,140 0 0 0 9,957 90 | Annual report 2011 | Tryg A/S Notes DKKm 2 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 4,183 -3,732 -1,014 59 30 -474 5,124 -3,666 -663 -419 27 403 -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 99 326 Investments in associates Reinsurers’ share of provision for unearned premiums Reinsurers’ share of provision for claims Other assets Total assets 14 232 0 289 140 913 Provisions for unearned premiums Provisions for claims Provisions for bonuses and premium rebates 3,883 6,824 196 1,477 6,231 20 1,459 11,828 113 Other liabilities Total liabilities Description of segments 0 13 0 0 48,990 0 0 0 10,102 Please refer to accounting principles for a description of operating segments Amounts relating to eliminations are included in ‘Other’. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments. These amounts are thus included under ‘Other’. Costs are allocated according to specific keys, which are believed to provide the best es- timate of assessed resource consumption. A presentation of segments broken down by geography is provided in ‘Notes 2 Geo- graphical segments.’ Tryg A/S | Annual report 2011 | 91 Notes DKKm 2007 2008 2009 2010 2011 2 Geographical segments 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 Combined ratio 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 9,999 1,023 770 83.5 -8.1 75.4 15.0 90.4 2,308 7,009 6,750 7,490 7,916 831 109 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 1,338 598 181 73.2 3.2 76.4 17.0 93.4 1,338 1,111 1,769 2,050 -75 -8 80.6 1.8 82.4 25.1 -124 32 84.6 0.8 85.4 22.4 -59 -7 82.0 2.6 84.6 20.3 104.9 423 194.5 144.4 107.5 107.8 Number of full-time employees, end of period 61 105 425 414 92 | Annual report 2011 | Tryg A/S Notes DKKm 2007 2008 2009 2010 2011 2 Geographical segments 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 Combined ratio 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 41.7 593 -56 0 80.9 0.8 81.7 29.3 125.1 117.3 126.5 111.0 Number of full-time employees, end of period 127 154 194 197 644 -28 0 79.8 0.8 80.6 25.6 106.2 249 Other a) Gross premiums earned Technical result Tryg 0 -23 -5 11 -4 -44 -13 0 -37 0 Gross premiums earned 16,262 16,976 17,862 19,475 20,572 Technical result Return on investment activities Other income and expenses Profit/loss before tax 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 c) Combined ratio Number of full-time employees, end of period 3,025 340 -51 3,314 792 64.2 3.4 67.6 16.8 84.4 3,788 2,432 -988 -49 1,395 800 67.6 3.5 71.1 17.1 88.2 4,065 1,562 1,086 -38 2,610 683 72.1 2.9 75.0 17.2 92.2 4,310 375 570 -4 941 824 80.2 1.6 81.8 17.0 98.8 4,291 1,534 66 -31 1,569 944 79.2 -2.5 76.7 16.8 93.5 4,318 a) Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 april 2009. b) Amounts relating to 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 2011 | 93 Notes DKKm 2 Technical result, net of reinsurance, by line of business Accident and health Health care Worker’s compensation 2010 2011 2010 2011 2010 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims 1,830 1,820 -1,136 -245 -20 11 430 62.4 77.0 3.4% 43,342 31,833 1,863 1,848 -1,220 -272 -16 12 352 66.0 81.6 4.4% 34,325 39,929 325 311 -206 -33 0 2 74 66.2 76.8 361 360 -279 -32 0 4 53 77.5 86.4 72.6% 7,567 32,987 109.0% 5,765 51,597 1,317 1,352 -1,220 -178 -23 1 -68 90.2 105.1 18.9% 83,801 14,395 2011 1,247 1,276 -476 -181 -89 1 531 37.3 58.5 18.4% 84,602 12,630 Fire & contents (Private) Fire and contents (Commercial) Change of ownership Liability Credit & guarantee insurance Tourist assistance insurance 2010 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims 4,599 4,435 -4,026 -845 65 33 -338 90.8 108.4 4,905 4,808 -4,315 -882 308 39 -42 89.7 101.7 7.3% 13,150 310,832 8.3% 12,391 352,479 2,768 2,751 -2,437 -502 -114 18 -284 88.6 111.0 21.9% 62,951 40,462 2,859 2,802 -3,113 -493 506 28 -270 111.1 110.6 23.6% 70,694 44,923 86 -21 -196 -8 0 3 -222 - - 9.3% 22,919 6,141 50 112 -178 -8 0 4 -70 158.9 166.1 9.5% 26,050 6,236 Other insurance Total Norwegian Group Life One-year policies 2010 2011 2010 2011 2010 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims 68 69 -19 -69 -44 5 -58 80 79 -6 -45 -58 1 -29 27.5 191.3 7.6 138.0 11,315 1,329 12,399 1,129 19,391 20,277 18,915 -15,133 -3,251 -309 124 346 80.0 98.8 20,016 -15,794 -3,366 509 173 1,538 78.9 93.2 548 560 -484 -53 -4 10 29 86.4 96.6 2011 545 556 -505 -64 -2 11 -4 90.8 102.7 94 | Annual report 2011 | Tryg A/S Motor TPL Motor comprehensive Marine, aviation and cargo 2010 2011 2010 2011 2010 19.6% 10,892 277,035 20.8% 83,551 3,122 23.2% 60,838 3,320 2,650 2,646 -1,624 -434 -27 16 577 61.4 78.8 5.1% 25,374 80,073 827 815 -449 -147 -56 3 166 55.1 80.0 2,608 2,638 -1,681 -458 -35 35 499 63.7 82.4 5.0% 24,871 78,499 921 859 -647 -150 -4 7 65 75.3 93.2 3,830 3,679 -3,098 -616 -11 24 -22 84.2 101.3 20.5% 11,554 264,675 225 211 -64 -52 -31 2 66 30.3 69.7 1.5% 4,195 4,060 -2,988 -653 -6 32 445 73.6 89.8 258 260 -169 -65 -21 2 7 65.0 98.1 1.1% 10.1% 55,335 9,252 6.6% 55,074 10,545 1,567,033 3,387,982 58 50 378 367 -251 -50 -47 2 21 68.4 94.8 488 480 -407 -72 -1 4 4 84.8 100.0 10.8% 8,059 49,862 2011 408 403 -205 -44 -75 3 82 50.9 80.4 2011 522 511 -517 -83 -1 5 -85 101.2 117.6 11.9% 8,379 55,938 Notes Accident and health Health care Worker’s compensation Motor TPL Motor comprehensive Marine, aviation and cargo 2010 2011 2010 2011 2010 2010 2011 2010 2011 2010 2011 2,650 2,646 -1,624 -434 -27 16 577 61.4 78.8 5.1% 25,374 80,073 2,608 2,638 -1,681 -458 -35 35 499 63.7 82.4 5.0% 24,871 78,499 3,830 3,679 -3,098 -616 -11 24 -22 84.2 101.3 4,195 4,060 -2,988 -653 -6 32 445 73.6 89.8 378 367 -251 -50 -47 2 21 68.4 94.8 408 403 -205 -44 -75 3 82 50.9 80.4 20.5% 11,554 264,675 19.6% 10,892 277,035 20.8% 83,551 3,122 23.2% 60,838 3,320 Fire & contents (Private) Fire and contents (Commercial) Change of ownership Liability Credit & guarantee insurance Tourist assistance insurance 2010 2011 2010 2011 2010 2010 2011 2010 2011 2010 827 815 -449 -147 -56 3 166 55.1 80.0 921 859 -647 -150 -4 7 65 75.3 93.2 225 211 -64 -52 -31 2 66 30.3 69.7 258 260 -169 -65 -21 2 7 65.0 98.1 10.1% 55,335 9,252 6.6% 55,074 10,545 1.5% 1,567,033 58 1.1% 3,387,982 50 488 480 -407 -72 -1 4 4 84.8 100.0 10.8% 8,059 49,862 2011 522 511 -517 -83 -1 5 -85 101.2 117.6 11.9% 8,379 55,938 a) The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance contracts in the year. b) Average claims are total claims before run-off in the year relative to the number of claims incurred in the year. Tryg A/S | Annual report 2011 | 95 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims 1,830 1,820 -1,136 -245 -20 11 430 62.4 77.0 3.4% 43,342 31,833 4,599 4,435 -4,026 -845 65 33 -338 90.8 108.4 1,863 1,848 -1,220 -272 -16 12 352 66.0 81.6 4.4% 34,325 39,929 4,905 4,808 -4,315 -882 308 39 -42 89.7 101.7 7.3% 13,150 310,832 8.3% 12,391 352,479 Gross premiums written Gross premiums earned Gross claims Gross operating expenses Profit/loss on ceded business Techn. interest net of reinsurance Technical result Gross claims ratio Combined ratio Claims Frequency a) Average claims DKK b) Total claims 68 69 -19 -69 -44 5 -58 80 79 -6 -45 -58 1 -29 27.5 191.3 7.6 138.0 11,315 1,329 12,399 1,129 72.6% 7,567 32,987 109.0% 5,765 51,597 325 311 -206 -33 0 2 74 66.2 76.8 2,768 2,751 -2,437 -502 -114 18 -284 88.6 111.0 21.9% 62,951 40,462 18,915 -15,133 -3,251 -309 124 346 80.0 98.8 361 360 -279 -32 0 4 53 77.5 86.4 2,859 2,802 -3,113 -493 506 28 -270 111.1 110.6 23.6% 70,694 44,923 20,016 -15,794 -3,366 509 173 1,538 78.9 93.2 1,317 1,352 -1,220 -178 -23 1 -68 90.2 105.1 18.9% 83,801 14,395 86 -21 -196 -8 0 3 -222 - - 9.3% 22,919 6,141 548 560 -484 -53 -4 10 29 86.4 96.6 2011 1,247 1,276 -476 -181 -89 1 531 37.3 58.5 18.4% 84,602 12,630 2011 50 112 -178 -8 0 4 -70 158.9 166.1 9.5% 26,050 6,236 2011 545 556 -505 -64 -2 11 -4 90.8 102.7 Other insurance Total Norwegian Group Life One-year policies 2010 2011 2010 2011 2010 19,391 20,277 Notes DKKm 3 Earned premiums, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance 2010 2011 19,627 36 19,663 -106 19,557 -941 -66 20,646 36 20,682 38 20,720 -1,009 -70 18,550 19,641 Direct insurance, by location of risk 2010 2011 Denmark Other EU countries Other countries Gross 9,610 2,918 6,993 19,521 Ceded Gross Ceded -501 -104 -336 -941 10,022 2,664 7,998 -573 -101 -335 20,684 -1,009 4 Technical interest, net of reinsurance Interest on insurance provisions Discounting transferred from provisions for claims 5 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 58m (in 2010 DKK -83m). 6 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 96 | Annual report 2011 | Tryg A/S 2010 2011 752 -618 134 852 -668 184 -16,500 883 -15,617 661 -59 -17,338 1,039 -16,299 1,592 -95 -15,015 -14,802 -492 -1,914 -2,406 -898 -3,304 92 -460 -2,001 -2,461 -969 -3,430 89 -3,212 -3,341 Notes DKKm 2010 2011 6 Insurance operating expenses, net of reinsurance (continued) Administative expenses include fee to the auditors appointed by the annual general meeting: Deloitte The fee is divided into: Statutory audit Other audit assignments Tax advice Other services 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 33m. (in 2010 DKK 11m) 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 39m (2010 DKK 37m) Insurance operating expenses and claims include the following staff expenditure: Salaries and wages Commision Allocated share options and matching shares Pensions Other social security costs Payroll tax -9 -9 -7 0 -1 -1 -9 -7 -7 -6 0 -1 0 -7 -492 -1,827 -269 -682 -255 -163 384 -460 -1,974 -218 -562 -246 -151 181 -3,304 -3,430 -2,211 -19 -16 -288 -40 -258 -2,335 -16 -14 -340 -39 -316 -2,832 -3,060 Remuneration for the Supervisory Board and Executive Management is disclosed in note 29 ‘Related parties’. Average number of full-time employees during the year 4,301 4,314 Tryg A/S | Annual report 2011 | 97 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. 31 Dec. DKKm at grant date DKK date DKKm at grant DKK Total 6 Share option programmes Spec. of outstanding options: 2011 Allocation 2006-2009 Allocated in 2006-2009, beginning of year Change between category Exercised Cancelled Expired Outstanding options from 2006-2009 allocation 31 Dec 2011 Allocation 2010 Allocated in 2010, beginning of year Change between category Exercised Cancelled Expired Outstanding options from 2010 allocation 31 Dec 2011 Allocation 2011 Allocated in 2011 Change between category Exercised Cancelled Expired Outstanding options from 2011 allocation 31 Dec 2011 Number of options 144,866 22,749 -10,480 -56,190 -20,960 434,852 -22,749 -45,850 -20,246 -5,240 52,427 0 0 -5,220 0 632,145 64/99/69/94 0 64/99/69/94 -56,330 64/99/69/94 -81,656 64/99/69/94 -26,200 64/99/69/94 52 0 -3 -7 -2 0/12/43 0/12/43 0/12/43 0/12/43 0/12/43 10 0 0 -2 0 79,985 340,767 47,207 467,959 - 40 - 8 48,050 8,008 0 -22,690 0 153,503 -8,008 0 -6,341 0 25,346 0 0 -667 0 226,899 0 0 -29,698 0 75 0 0 75 0 17 0 0 -2 0 53 0 0 53 0 12 0 0 -2 0 33,368 139,154 24,679 197,201 - 15 - 10 8,285 0 0 0 0 104,967 0 0 -3,798 0 27,600 0 0 -1,380 0 140,852 0 0 -5,178 0 72 0 0 72 0 10 0 0 0 0 70 0 0 70 0 10 0 0 0 0 8,285 101,169 26,220 135,674 - 10 - 10 exercisable end of 2011 53,417 236,068 28,666 318,151 Share option programmes In 2011, Tryg awarded share options to the Executive Management (1 person), senior employees (86 persons) and other employees (40 persons). At 31 December 2011, the share option plan comprised 800,834 share options (at 31 December 2010 859,044 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 1.3 % of the share capital in Tryg A/S if all share options are exercised. In 2011, the fair value of share options recognised in the consolidated income statement amounted to DKK 13m (2010: DKK 16m). As at 31 December 2011, a total amount of DKK 69m was recognised for share option programmes issued in 2006-2011. Fair values at the time of allocation are based on the Black & Scholes option pricing formula. 98 | Annual report 2011 | 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. 31 Dec. DKKm at grant date DKK date DKKm at grant DKK Total 6 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 31 Dec 2010 Allocation 2009 Allocated in 2009, beginning of year Exercised Cancelled Expired Outstanding options from 2009 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 0 106,608 317,416 32,287 456,311 - 36 - 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 17 0 0 0 17 0 17 0 31 Dec 2010 48,050 153,503 25,346 226,899 - 17 - Number of options exercisable end of 2010 54,520 166,700 0 221,220 1 0 0 0 1 3 0 0 0 3 4 0 0 0 4 Tryg A/S | Annual report 2011 | 99 Notes 6 Share option programmes Year of allocation of exercise 1. jan. 2011 Years 2006 2007 2008 2009 2010 2011 Outstanding options 31 Dec. 2011 2009-2011 2010-2012 2011-2013 2012-2014 2013-2015 2014-2016 82,530 138,690 235,091 175,834 226,899 0 Allocated in 2011 0 0 0 0 0 140,852 Exercised Cancelled Expired 31 Dec. 2011 -56,330 0 0 0 0 0 0 -17,433 -38,197 -26,026 -29,698 -5,178 -26,200 0 0 0 0 0 0 121,257 196,894 149,808 197,201 135,674 859,044 140,852 -56,330 -116,532 -26,200 800,834 The assumptions by calculating the marketvalue at time of allocation Year of allocation Average share price (DKK) at time of allocation Years of exercise Expected volatility Expected maturity Average exercise Share price interest rate 31 dec. 2011 31 dec. 2011 Average term to maturity Risk-free 2006 2007 2008 2009 2010 2011 2009-2011 2010-2012 2011-2013 2012-2014 2013-2015 2014-2016 355.85 456.76 378.24 313.51 320.04 295.83 17.90% 24.10% 20.30% 37.70% 29.20% 30.00% 4 år 4 år 4 år 4 år 4 år 4 år 3.30% 3.90% 3.60% 2.80% 2.70% 3.00% 0.00 0.08 0.58 1.17 2.16 3.11 0.00 426.44 373.06 318.86 332.54 321.42 Group Executive management includes retired managers with a total of 44,112 units at a value of DKK 4mill. upon allocation. Risk takers are included under ’Senior employees’. 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. 100 | Annual report 2011 | Tryg A/S Notes 6 Matching shares 2011 TOTAL NUMBERS FAIR VALUE Group Excecutive Management Risk- takers Average per matching share at grant date DKK Total Total fair Average per matching value per share at option at 31 Dec. grant date DKK DKKm Total fair Value at 31 Dec. DKKm Allocated in 2011 Total Allocated 4,979 5,996 10,975 4,979 5,996 10,975 302 302 4 4 319 319 4 4 In 2011 Tryg entered into an agreement on matching shares for the executive management and selected risk takers as a consequence of the Group’s wage policy. The executive management and selected risk takers are allocated one share in Tryg A/S for each share that the executive management member or risk taker acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum. The shares are reported at market value and are accrued over the four year maturation period. In 2011, the reported fair value of matching shares for the Group amounted to DKK 1m. Tryg A/S | Annual report 2011 | 101 Notes DKKm 2010 2011 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 Other loans Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property Owner-occupied property Discounting Other balance sheet items Value gains Value losses Value adjustment, net 10 43 1,054 26 1,133 -88 -8 -96 10 59 1,173 18 1,260 -83 -30 -113 1,037 1,147 61 233 5 78 3 0 380 74 0 -227 11 -142 238 907 -669 238 13 -100 16 160 465 1 555 15 -10 -760 -55 -810 -255 755 -1,010 -255 Exchange rate adjustments concerning financial assets or liabilities which cannot be valuated to market value is in total DKK 31m (2010 DKK 52m) Under value adjustment the adjustment of inflation swaps totals DKK 12m (in 2010 DKK 27m). 102 | Annual report 2011 | 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 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 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 2010 2011 -235 -28 9 18 -26 -3 -265 % 25 3 -1 -2 3 28 224 -291 -44 -111 -111 28 -83 -392 -22 32 -64 -7 -2 -455 % 25 1 -2 4 1 29 4 30 0 34 34 -8 26 Average claims DKK Total claims 310,702 954 114,733 15 Profit/loss on discontinued and divested business is excluded in ‘Marine, aviation and cargo’ in the accounts broken down by line of business. Tryg A/S | Annual report 2011 | 103 Notes DKKm 11 Intangible assets 2011 Cost Balance 1 January Exchange rate adjustment Transferred from asset under construction 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 Balance 31 December Trademarks and customer relations Goodwill Software Assets under construction Total 377 3 0 0 0 380 0 0 0 0 0 168 2 0 0 0 170 -32 0 -19 0 -51 786 1 74 22 -1 882 -446 -1 -172 -13 -632 115 0 -74 216 0 257 0 0 0 -54 -54 1,446 6 0 238 -1 1,689 -478 -1 -191 -67 -737 Carrying amount 31 December 380 119 250 203 952 2010 Cost Balance 1 January Exchange rate adjustment Transferred from asset under construction 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 329 48 0 0 0 377 0 0 0 0 0 0 148 20 0 0 0 168 -12 -2 -18 0 0 -32 685 10 92 48 -49 786 -335 -8 -144 -3 44 -446 119 2 -92 86 0 115 0 0 0 0 0 0 1,281 80 0 134 -49 1,446 -347 -10 -162 -3 44 -478 Carrying amount 31 December 377 136 340 115 968 104 | Annual report 2011 | Tryg A/S Notes DKKm 11 Intangible assets (continued) Impairment test Goodwill As at 31 December 2011, 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 2011 Moderna Försäkringar MF Bilsport & MC Specialförsäkringar 2010 Moderna Försäkringar MF Bilsport & MC Specialförsäkringar Assumed annual growth > 5 years 2.0% 2.0% 2.5% 2.5% Return require- ment before tax 12.7% 12.7% 14.9% 14.9% Insurance activities in Sweden In 2009, Tryg acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB and MF Bilsport & MC specialfösäkringar. The insurance activities were incorporated into the Tryg Group’s business structure in 2009 and are reported under Sweden. In 2010, the companies, excluding Modern Re S.A., were merged into Tryg Forsikring A/S as a branch of Moderna Försäkringar, branch of Tryg Forsikring A/S. Modern Re S.A. was discontinued in 2011. The activities in Modern Re have not affected the statement of the original goodwill, which is why the discontinuation of the company does not affect remaining goodwill. The assumed growth during the terminal period has been estimated based on expectations for general economic growth. The return 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. Trademarks and customer relations The impairment test performed for trademarks and customer relations did not indicate any impairment. 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. Tryg A/S | Annual report 2011 | 105 Notes DKKm 12 Property, plant and equipment 2011 Cost Balance 1 January Exchange rate adjustment Transferred from assets under construction 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 other comprehensive income 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 228 0 0 18 -59 187 0 0 0 0 0 -110 0 48 -23 -85 1,397 2 340 21 0 1,760 17 0 -10 20 27 -29 0 0 -13 -42 441 0 0 -3 -340 98 -88 0 0 0 -88 0 0 0 0 0 2,066 2 340 36 -399 2,045 -71 0 -10 20 -61 -139 0 48 -36 -127 Carrying amount 31 December 102 1,745 10 1,857 106 | Annual report 2011 | Tryg A/S Notes DKKm 12 Property, plant and equipment (continued) Operating Owner-occup- Assets under construction ied property equipment Total 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 other comprehensive income Balance 31 December Accumulated depreciation Balance 1 January Exchange rate adjustment Reversed depreciation Depreciation for the year Balance 31 December 225 7 62 -66 228 0 0 0 0 -142 -3 55 -20 -110 1,378 19 0 0 1,397 -2 0 19 17 -18 0 0 -11 -29 258 7 176 0 441 -86 -2 0 -88 0 0 0 0 0 1,861 33 238 -66 2,066 -88 -2 19 -71 -160 -3 55 -31 -139 Carrying amount 31 December 118 1,385 353 1,856 External experts were involved in valuing some of the owner-occupied properties. Impairment test Property, plant and equipment A valuation of owner-occupied property has been performed, including the improvements carried out, after which DKK 20m has been recognised in revaluation in other comprehensive income af DKK 10m in depreciation in the income statement. 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: Return percentages Office property 2010 6.4 2011 6.3 Tryg A/S | Annual report 2011 | 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 2010 2011 2,364 33 23 -261 68 -69 2,158 2 29 -1 12 -1 2,158 2,199 Total rental income for 2011 is DKK 156m (DKK 166m in 2010). Total expenses for 2011 are DKK 39m (DKK 38m in 2010). Of this amount, not-hired property is DKK 2m. (DKK 1m in 2010) why the total expenses at the income leading investment property are DKK 37m (DKK 37m in 2010). 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 Business property Office property Residential property Total 2010 2011 7.3 6.6 4.6 6.4 7.3 6.3 4.8 6.3 108 | Annual report 2011 | 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 Value adjustment for the year Balance 31 December Carrying amount 31 December 2010 2011 0 0 17 1 -5 13 13 0 0 13 0 1 14 14 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 % 2011 Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker, Norway 2010 Komplementarselskabet af 1. marts 2006 ApS, DK Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker, Norway 0 5 49 0 5 47 0 0 5 0 0 6 0 5 44 0 5 41 0 1 19 0 2 18 0 0 4 0 0 6 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 2011 | 109 Notes DKKm 15 Total financial assets Financial assets at fair value with value adjustment in the income statement Equity investments Unit trust units Bonds Deposits in credit institutions Derivative financial instruments Financial assets at fair value with value adjustment in the income statement Loans and receivables measured at amortised cost Total receivables in relation to direct insurance contracts Receivables from insurance enterprises Receivables from subsidiaries Other receivables Current tax assets Cash in hand and at bank Total loans and receivables measured at amortised cost 2010 2011 2010 184 2,268 34,621 2,755 298 40,126 1,110 211 0 601 196 857 2,975 2011 187 2,378 38,400 1,635 651 43,251 1,158 317 1 189 93 402 2,160 Total financial assets 43,101 45,411 Financial assets at amortized cost prices only deviate to a minor extent from fair value. Financial liabilities Financial liabilities at fair value with value adjustment in the income statement Derivative financial instruments Total financial liabilities at fair value with value adjustment in the income statement 376 376 35 35 Financial liabilities measured at amortised cost Subordinated loan capital Debt related to direct insurance Debt related to reinsurance Debt to credit institutions Debt to credit institutions Current tax liabilities Other debt Total financial liabilities measured at amortised cost 1,591 419 187 30 3,947 106 1,030 7,310 1,589 410 191 11 4,161 260 740 7,362 Total financial liabilities 7,686 7,397 Information on valuation of subordinated loan capital at fair value is stated in note 20. Other financial liabilities at amortized cost price only deviate to a minor extent from fair value. 110 | Annual report 2011 | Tryg A/S Notes DKKm 15 Total financial assets (continued) Fair value hierarchy for financial instruments measured at fair value in the balance sheet 2011 Equity investments Unit trust units Bonds Cash in hand and deposits in credit institutions Derivative financial instruments 2010 Equity investments Unit trust units Bonds Cash in hand and deposits in credit institutions Derivative financial instruments Quoted market prices Observable Unobservable input input Total 0 2,378 26,713 1,635 0 30,726 0 2,268 20,808 2,755 0 25,831 0 0 11,657 0 579 12,236 0 0 13,770 0 -49 13,721 187 0 30 0 37 254 184 0 43 0 -29 198 187 2,378 38,400 1,635 616 43,216 184 2,268 34,621 2,755 -78 39,750 2010 2011 338 4 -47 0 -100 3 198 -54 198 0 77 8 -29 0 254 77 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 based on actual trades are available. Unobservable input, total result DKK 75m (DKK -47m in 2010), mainly comprises inflation derivatives of DKK 70m hedging (DKK -56m in 2010) inflation risk on technical provisions which recorded an accounting result of DKK -58m (DKK 83m in 2010). The risk of the unobservable 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. Tryg A/S | Annual report 2011 | 111 Notes DKKm Bonds Shares Property Total 15 Total financial assets (continued) Reconciliation between investment assets as per ’Investment Activity’ in the Management’s report and the Statement of financial position 2011 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 and derivatives Repo debt Owner-occupied property Equity investments Investment assets according to balance sheet Unit trust units Deposits in credit institutions Derivative financial instruments Associated shares Total investment assets according to balance sheet 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 and derivatives Repo debt Owner-occupied property Equity investments Investment assets according to balance sheet Unit trust units Deposits in credit institutions Derivative financial instruments Associated shares Total investment assets according to balance sheet 112 | Annual report 2011 | Tryg A/S 37,232 1,816 3,954 43,002 -33 779 -719 0 -2,241 3,382 0 0 38,400 0 0 -1,659 44 0 0 0 -14 187 0 0 0 0 0 0 -1,755 0 2,199 -33 779 -2,378 44 -2,241 3,382 -1,755 -14 40,786 2,378 1,635 651 14 45,464 34,317 2,179 3,897 40,393 -80 1,795 -532 0 -2,775 1,896 0 0 34,621 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 -2,775 1,896 -1,739 -13 36,963 2,268 2,755 298 13 42,297 Notes DKKm 2010 2011 15 Total financial assets (continued) Sensitivity information Impact on shareholders’ equity from the following changes: Interest rate increase of 0.7-1.0 pct. point Interest rate fall of 0.7-1.0 pct. point Equity price fall of 12% Fall in property prices of 8% Exchange rate risk (VaR 99.5) Loss on counterparties of 8% 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. Derivative financial instruments Derivatives with value adjustment in the income statement at fair value: -75 13 -262 -334 -12 -315 -24 87 -223 -330 -23 -500 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 2010 2011 Fair value in the balance sheet 13 0 -29 -62 -78 -19 -8 -51 Nominal 23,477 246 3,248 11,972 38,943 28,855 3,709 6,379 Fair value in the balance sheet 606 0 37 -27 616 -57 -21 694 Nominal 16,971 44 2,931 8,131 28,077 10,288 3,656 14,133 Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes: Gains and losses on hedges charged to other comprehensive income at 1 January Gains and losses on hedges charged to other comprehensive income during the year Gains and losses on hedges charged to other comprehensive income at 31 December 2010 2011 Gains Losses Net Gains Losses Net 850 -819 31 983 -1,280 -297 133 -461 -328 273 -300 -27 983 -1,280 -297 1,256 -1,580 -324 Tryg A/S | Annual report 2011 | 113 Notes DKKm 2010 2011 15 Total financial assets (continued) Exchange rate adjustment Exchange rate adjustments of foreign entities recognised in other comprehensive income in the amount of: Balance at 1 January Exchange rate adjustment during the year Balance at 31 December Receivables Receivables from insurance enterprises Receivables from subsidiaries 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 DKK 52m (2010 DKK 45m) annually, but may vary due to major cases/disputes. Receivables in connection with insurance contracts include overdue recievables totalling: Falling due: Within 90 days After 90 days Including writedowns of due amounts 16 Reinsurer’s share Reinsurers’ share Writedowns after impairment test Balance at 31 December -23 330 307 1,321 0 601 1,922 124 3 8 135 307 30 337 1,475 1 189 1,665 135 0 8 143 197 161 358 135 170 151 321 143 1,605 -17 1,588 2,086 -19 2,067 Impairment test As at 31 December 2011, 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 19m (2010: DKK 17m) Writedowns during the year include reversed writedowns totalling DKK 1m (2010: DKK 1m).’ 114 | Annual report 2011 | Tryg A/S Notes DKKm 17 Current tax Current tax, beginning of year Exchange rate adjustment 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 18 Shareholders’ equity 2010 2011 -303 -15 -170 82 14 482 90 196 -106 90 90 0 -500 7 26 210 -167 93 -260 -167 Share capital 2010 2011 Numbers of shares Balance at 1 January Bought during the year Sold during the year No. of shares 63,227,650 -2,625,786 31,837 Nominal value (DKK’000) 1,580,692 -65,645 796 No. of shares 60,633,701 -316,792 56,360 Nominal value (DKK’000) 1,515,843 -7,920 1,409 Balance at 31 December 60,633,701 1,515,843 60,373,269 1,509,332 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 2010 Nominal value (DKK’ 000) 17,598 65,645 0 0 No. of shares 703,923 2,625,786 0 -17 -31,820 -796 Balance at 31 December 3,297,872 82,447 % of share capital No. of shares 2011 Nominal value (DKK’ 000) % of share capital 1.10 4.11 3,297,872 316,792 82,447 7,920 5.16 0.50 0 -2,615,470 -65,387 -4.03 0.00 -0.05 5.16 0 0 -56,360 -1,409 942,834 23,571 0.00 -0.09 1.54 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 2012. Treasury shares are acquired for use in the Group’s incentive programme and as part of the share buy back programme. Tryg A/S | Annual report 2011 | 115 Notes DKKm 19 Capital adequacy Shareholders’ equity according to annual report Proposed dividend Solvency requirements to subsidiary undertakings – 50% Tier 1 Capital Subordinate loan capital Solvency requirements to subsidiary undertakings – 50% Capital base Weighted assets Solvency ratio 2010 8,458 -256 -2,516 5,686 804 -2,515 3,975 2011 9,007 -399 -2,508 6,100 848 -2,507 4,441 3,188 3,953 125 112 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. 20 Subordinate loan capital 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 2010 950 85 12 50 2011 962 86 10 50 Tryghedsgruppen smba 2011 2010 499 103 0 33 464 96 0 33 The share of subordinated capital included in the calculation of the capital base total DKK 848 (in 2010 DKK 804m ) The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. Please refer to note 1 Risk management, which include the terms of the loans. 116 | Annual report 2011 | Tryg A/S Notes DKKm 21 Provisions for claims 2011 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 Gross Ceded Net 24,255 69 24,324 -8,413 -6,921 1,333 5 1,338 -750 -341 22,922 64 22,986 -7,663 -6,580 -15,334 -1,091 -14,243 16,660 -1,005 15,655 1,483 -34 1,449 15,177 -971 14,206 Discounting and exchange rate adjustment 1,551 59 1,492 Provisions for claims, end of year Other 1) 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 Other a) a) Comprises provisions for claims for Tryg Garantiforsikring A/S, the Finnish branch of Tryg Forsikring A/S. 26,196 745 1,755 120 24,441 625 26,941 1,875 25,066 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 Tryg A/S | Annual report 2011 | 117 Notes DKKm 2010 2011 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 Adjusted prior years regarding expected estimate change 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 50 50 108 1,464 1,572 951 621 1,304 0 81 52 58 181 -62 -42 49 49 122 1,868 1,990 1,013 977 1,572 57 13 49 58 310 -69 0 Recognised pension obligation, end of year 1,572 1,990 Change in carrying amount of plan assets: Carrying amount of plan assets, beginning of year Adjusted prior years regarding expected estimate change 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 118 | Annual report 2011 | Tryg A/S 856 0 57 73 53 -47 -41 951 621 671 44 58 -53 6 55 66 % 12 69 19 4.5 951 -17 9 88 41 -15 -44 1,013 977 1,026 40 57 -41 10 66 80 % 5 77 18 4.0 Notes DKKm 22 Pensions and similar obligations (continued) 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 Sensitivity information Impact on shareholders’ equity from the following changes: Interest rate increase of 0.3 pct. point Interest rate decrease of 0.3 pct. point Pension obligation Plan assets Surplus/deficit Actuarial gains/losses associated with the pension obligation Actuarial gains/losses associated with pension assets Actuarial gains/losses in other comprehensive income end of year 2007 1,292 932 360 104 -10 94 2008 1,123 628 495 -23 -173 -196 2009 1,304 856 448 70 -42 28 2010 2011 % % 3.8 4.5 4.0 3.8 3.8 6.0 14.1 0.0 Adj. K2005 2.7 4.0 4.0 3.8 3.8 6.0 14.1 0.0 Adj. K2005 68 -77 2010 1,572 951 621 -181 -47 -228 96 -89 2011 1,990 1,013 977 -367 -32 -399 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 collaboration, to pay the pensions of the individual employees in accordance with the applicable rules. The FTP plan is primarily a defined benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient 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. This years premium paid to FPK amounted to DKK xm, which is about 2 % of the annual premium in FPK (2010). FPK writes in its half-year report for 2011 that it had a collective consolidation ratio of 134 at 30 June 2011 (consolidation ration 112 at 30 June 2010). 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 2011 | 119 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 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 Tax value of non-capitalised tax loss Denmark Sweden Finland Luxembourg 2010 2011 37 213 70 320 121 206 14 1,261 1,602 1,282 0 25 1,244 70 0 34 53 -119 31 284 81 396 136 228 49 1,174 1,587 1,191 0 30 1,282 9 -10 0 -6 -84 1,282 1,191 18 4 89 32 18 4 96 0 The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely in Denmark. Under Finnish rules, losses may be carried forward for ten years and according to the rules in Sweden, losses may be carried forward indefinitely. Losses are not recognised as tax assets until it is likely that there will be sufficient future taxable income for the loss to be utilised. The total current and deferred tax relating to items recognised in equity is recognised in thebalance sheet in the amount of DKK 90m. (2010 DKK 208m). 120 | Annual report 2011 | Tryg A/S Notes DKKm 2010 2011 24 Other provisions Other provisions, beginning of year Change in provisions Other provisions, end of year Other provisions relate to provisions for the Group’s own insurance claims 25 Debt to credit institutions Bank overdrafts Debt falling due within one year Debt falling due after more than five years Tryg A/S has established committed credit facilities totalling DKK 800m with af number of Danish banks. These credit facilities expire on 31 December 2012. In addition, Tryg Forsikring A/S has established committed repo facilities DKK 1 mia. with at number of Danish banks. These repo facilities expire on 31 December 2012. 26 Debt relating to unsettled fund trading and repos Unsettled fund trading Repo debt Unsettled fund trading is debt for bonds purchased in 2010 and 2011, however with settlement in 2011 and 2012 respectively 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 Earnings per share – discontinuing business Diluted earnings per share – discontinuing business (DKK) Basic earnings per share Diluted basic earnings per share 6 -5 1 30 30 30 0 1 10 11 11 11 11 0 2,051 1,896 3,947 779 3,382 4,161 3,947 0 4,161 0 676 -83 593 62,362 82 62,444 10.8 -1.3 -1.3 9.5 9.5 1,114 26 1,140 60,401 0 60,401 18.4 0.4 0.4 18.9 18.9 Tryg A/S | Annual report 2011 | 121 Notes DKKm <1 year 1-3 years 3-5 years > 5 years Total Obligations due by period 28 Contractual obligations, collateral and contingent liabilities Contractual obligations 2011 Operating leases Other contractual obligations 2010 Operating leases Other contractual obligations 130 479 609 149 811 960 230 183 413 215 43 258 106 0 106 106 36 142 84 0 84 112 38 150 550 662 1,212 582 928 1,510 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 531m for a period of 5 years which cannot be cancelled within a year. The contract expires in 2015. Tryg Forsikring A/S has signed the following contracts with amounts above DKK 50m: Portfolio management contract for DKK 52m, which expires in 2015. Telephony service contract with Telenor for DKK 116m, which expires after 2015. Lease contracts on premises for DKK 347m. The contracts expire after 5 years. Collateral 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 2010 2011 36,923 41,382 311 332 DKK 66m (2010: DKK 51m) of the Group’s cash in hand and at bank is placed as collateral for futures contracts. DKK 3.382m (2010: DKK 1.896m) of the Group’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. Contingent liabilities 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 statement of financial position at 31 December 2011. 122 | Annual report 2011 | Tryg A/S Notes DKKm 29 Related parties The Group has no other closely related parties with a decisive influence other than the parent company, TryghedsGruppen Smba. Closely related parties with significant influence include the Supervisory Board, the Executive Management, and these persons’ related family. Supervisory Board and Group Executive Management Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims paid - Parent company (TryghedsGruppen smba) - Key management - Other related parties 2010 2011 0.3 0.5 1.3 0.2 0.5 0.1 0.3 0.6 2.9 0.1 0.0 1.4 No provisions have been made for non-performing guarantees and no expenses were incurred during the financial year. Specification of remuneration 2011 Supervisory Board Executive Management Risk takers 2010 Supervisory Board Executive Management Basic wage Variable wage Pension Total 5 25 31 61 5 18 23 0 0 1 1 0 2 2 0 4 7 11 0 3 3 5 29 39 73 5 23 28 Tryg A/S | Annual report 2011 | 123 Notes DKKm 29 Related parties Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over three years. The Board and Risk Takers are included in incentive programmes. Please refer to note 6 for information concerning this The number of persons in the categories are as follows; the Supervisory Board 14 persons, the Executive Management 5 persons, Risk Takers 14 persons. The Supervisory Board in Tryg A/S are paid with a fixed fee and are not included in the benefit schemes. The Management is paid with a fixed wage and pension. The variable wage is awarded in the form of a matching share programme; see the reference under ‘Management’. The Management’s compensation includes wages and pension to retired managers for a total of DKK 14m. Each member of the Executive Management is entitled to 12 months notice and cash severance pay equal to 12 months’. (Group CEO is entitled to cash severance pay equal to 18 months’). 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. Risk Takers are defined as employees, whose activities have a significant influence on the business’s risk profile. The Supervisory Board decides which employees shall be considered risk takers. Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Intra-group trading involved: - Subordinated loan capital - Interest expenses 2010 499 33 2011 464 33 Transactions between TryghedsGruppen smba and Tryg A/S are on market terms Intra-group trading involved Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The companies in 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. 30 Financial highlights cf page 71. 124 | Annual report 2011 | Tryg A/S Notes 31 Accounting policies The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 December 2011 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 other comprehensive income. 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 other comprehensive income of the parent company have been adjusted accordingly on the transi- tion to IFRS. Accounting policies are unchanged from the annual report 2010. • Amendments to IAS 27 ‘Consolidated and separate financial statements’ • Amendments to IAS 34 ‘Interim Financial Reporting’ • Amendments to IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 14 ‘The Limit on a Defined Benefit Asset’ • IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’ The Group has not applied the following new and revised executive orders, standards and interpretations that have been issued but not yet effective: • Amendments to IFRS 7 ’Disclosures – Transfers of Financial Assets’ a) • IFRS 9 ‘Financial Instruments’ b) • IFRS 10 ‘ Consolidated Financial Statements’ b) • IFRS 11 ‘Joint Arrangements’ b) • IFRS 12 ‘Disclosure of interests in Other Entities’ b) • IFRS 13 ‘Fair Value Measurement’ b) • Amendments to IAS 1 ‘Presentation of items of other Comprehensive Income’ c) • Amendments to IAS 12 ‘ Deferred Tax – Recovery of underlying Assets’ d) • IAS 19 (as revised in 2011) ‘Employee Benefits’ b) • IAS 27 (as revised in 2011) ‘Separate Financial Statements’ b) • IAS 28 (as revised in 2011) ‘Investments in Associates and Joint Ventures’ b) a) Effective for annual periods beginning on or after 1 July 2011. b) Effective for annual periods beginning on or after 1 January 2013. c) Effective for annual periods beginning on or after 1 July 2012. d) Effective for annual periods beginning on or after 1 January 2012. Accounting regulation Implementation of changes to accounting standards and interpretation in 2011 The International Accounting Standards Board (ISAB) has issued a number of changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations. The changes will be implemented going foreward from 2012. Significant accounting estimates and assessments 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: No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2011 that will have a significant impact on the Group. New or amended standards and interpretations that have been im- plemented but have not significantly affected the Group: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets and liabilities • Valuation of property • Measurement of goodwill • Amendments to IFRS 7 ’Financial Instruments: Disclosure’ • Amendments to IAS 1 ’Presentation of Financial Statements’ • Amendments to IAS 24 ‘Related Party Disclosures: Revised defi- nition of related parties’ Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions involve a number of uncertainty factors. Tryg A/S | Annual report 2011 | 125 Notes 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, du- ration of the claims settlement process and other effects that might influence the future development of the liabilities. The Group establishes claims provisions covering both known case reserves and estimated claims that have been incurred by its poli- cyholders 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 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. The Financial Supervisory Authority’s adjusted discount curve, which includes both euro swap rates, national differentials and Danish swap rates, and also an option adjusted real credit interest rate differential, is used to discount Danish provisions for out- standing claims. The Norwegian and Swedish provisions are discounted with euro swap rates, to which a country specific interest differential is added that reflects the difference between Norwegian and Swedish government bonds and the German government bond interest rate respectively. Finnish provisions are discounted using the Danish discount curve. The net obligation with respect to the defined benefit plan is based on actuarial calculations involving a number of assumptions. The preconditions are discounting interest rate, expected future wage and pension adjustment, turnover, mortality and expected future yield on pension funds. Fair value of financial assets and liabilities Measurements of financial assets and liabilities for which prices are quoted in an active market or which are based on generally ac- cepted models with observable market data are not subject to ma- terial estimates. For securities that are not listed on a stock ex- change, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model calculation. The valuation models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration to credit and liquidity premiums. Valuation of property Property is divided into owner-occupied property and investment property. Owner-occupied property is assessed at the reassessed value that is equivalent to the fair value at the time of reassess- ment, with a deduction for depreciations and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property’s re- quired rate of return percent. Investment property is calculated at fair value. The calculation of fair value is based on market prices, taking into consideration the property’s type, location and mainte- nance standards, and calculated based on a market determined rental income as well as operating expenses in proportion to the property’s required rate of return. 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 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. Recognition and measurement The annual report has been prepared under the historical cost con- vention, as modified by the revaluation of owner-occupied proper- ties, where increases are credited to other comprehensive income and revaluation of investment property, financial assets held for trading and financial assets and financial liabilities (including deriv- ative 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 126 | Annual report 2011 | Tryg A/S Notes 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. 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 con- trolled by the parent company. Control is achieved where the parent company directly or indirectly holds more than 50% of the voting rights or is otherwise able to exercise or actually exercises a controlling influence. The consolidated financial statements are prepared on the basis of the financial statements of the parent company and its subsidiaries by adding items of a uniform nature. The financial statements of subsidiaries that present financial statements under other legislative rules are restated to the accounting policies applied by the Group. Enterprises in which the Group exercises significant influence but not control are classified as associates. Significant influence is typi- cally 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. 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 ac- quired 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 currency are translated at the exchange rates at the balance sheet date. Translation differences are recognised in the income state- ment under value adjustments. Newly acquired or divested subsidiaries are consolidated at the re- sults for the period subsequent to achieving or surrendering con- 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 ex- Tryg A/S | Annual report 2011 | 127 Notes change rates for the period. Exchange differences arising on transla- tion are classified as other comprehensive income 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. each individual insurance contract. As a starting point, the calcula- tion uses the pro-rata method, although this is adjusted for an un- evenly divided risk between lines of business with strong seasonal variations or for policies lasting many years. 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. Segment reporting Segment information is based on the Group’s management and in- ternal financial reporting system supports the management’s deci- sions on allocation of resources and assessment of the Group’s re- sults divided into segments. The operational business segments in the Tryg Group are Private Nordic, Commercial Nordic and Corporate Nordic. Private Nordic en- compasses the sale of insurances to private individuals in Denmark, Norway, Sweden and Finland. Commercial Nordic encompasses the sale of insurances to small and medium sized businesses, primarily in Denmark and Norway. Corporate Nordic sells insurances to indus- trial clients primarily in Denmark, Norway and Sweden. In addition, Industri handles all business involving brokers. 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. This and 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 calculated as premium incomes in accordance with the risk exposure over the cover period, calculated separately for 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 liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions. Technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Claims incurred Claims incurred represent claims paid during the year and adjusted for changes in provisions for unpaid claims less the reinsurers’ share. In addition, the item includes run-off results regarding 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 to policy holders, where the amount reimbursed de- pends 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. 128 | Annual report 2011 | Tryg A/S Notes Insurance operating expenses Insurance operating expenses represent acquisition costs and admini strative expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting com- mission is recognised when a legal obligation occurs and is accrued over the term of the policy. Administrative expenses are all other expenses attributable to the administration of the insurance portfolio. Administrative expenses are accrued to match the financial year. On initial recognition of the share options, the number of options expected to vest for employees and members of the Executive Management is estimated. Subsequently, adjustment is made for changes in the estimated number of vested options to the effect that the total amount recognised is based on the actual number of vested options. The value for retired employees who hold the right to options is reported for the remaining period in the accounting year in which the employee retires. Leasing Leases are classified either as operating or finance leases. The assessment of the lease is made on the basis of criteria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custom-made, the lease term and the present value of the lease payments. Assets held under operating leases are not recognised in the 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. The Group has no assets held under finance leases. Share-based payment The Tryg Group’s incentive programmes comprise share option programmes, employee shares and matching 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 other comprehensive income. 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 unless the employee resigns his position or is dismissed due to breach of the employment relationship. In case of termination due to restructuring or retirement, the employee is still entitled to the options. The share options are exercisable exclusively during a 15 days pe- riod following the publication of full-year, half-year and quarterly reports and in accordance with Tryg’s in-house rules on trading in the Group’s shares. The options are settled in shares. A part of the Group’s holding of treasury shares is reserved for settlement of the options allocated. 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. Matching shares In 2011, members of Executive Management and risk takers have been allocated shares in accordance with the ’Matching shares’ scheme. Under Matching shares, the individual management mem- ber is allocated one share in Tryg A/S for each share the Executive management member or risk taker acquires in Tryg A/S at the mar- ket rate for certain liquid cash at a contractually agreed sum in connection with the Matching share programme. The shares are provided free of charge, four years after the time of purchase. The holder must acquire the shares in the open win- dow following publication of the annual report for the previous year. In 2011, however, the shares were traded in the first ’open window’ after the Tryg A/S annual general meeting. The holder may not sell the shares until six months after the matching time. The shares are recognised at market value and are accrued over the four-year maturation period, based on the market price at the time of acquisition. Recognition occurs from the end of the acqui- sition month and is recognised under personnel expenses with a contra entry directly in other comprehensive income. If a Executive management member or risk taker retires during the maturation period but is entitled to shares, the remaining expense is recog- nised in the current accounting year. 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 management 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. Tryg A/S | Annual report 2011 | 129 Notes 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 the Group´s insurance portfolio or investment assets, including the sale of products for Nordea Liv og Pension. Discontinued and divested business Discontinued and divested business is consolidated in one line item in the income statement and supplemented with disclosure of the dis- continued and divested business in a note to the financial statements. Recognition of the balance sheet items in respect of the 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 balance sheet items concerning discontinued activities are reported unchanged in the respective entries. 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. 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, lia- bilities and contingent liabilities at the time of acquisition. Good- will is allocated to the cash-generating units under which manage- ment manages the investment and is recognised under intangible assets. Goodwill is not amortised but is tested for depreciation at least once per year. sition programme, they are amortised over eight years. The Group’s transition programme is an internal IT project that will create a common infrastructure across the Nordic countries and thereby create significant efficiency savings. The project is ex- pected to run for the next six to eight years. Costs for group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continu- ously charged as expenses. After completion of the development work, the asset is amortized linearly over the assessed economic lifetime, though over a maxi- mum of eight years if the costs concern the Group’s transition pro- gramme. Other development projects are amortized over a maximum of four years. The amortization basis is reduced by any write downs. Assets under construction Group-developed intangibles are recorded under the entry ’Assets under construction’ until they are put into use, whereupon they are reclassified as software and are amortized in accordance with the amortization periods stated above. Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accu- mulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when the as- set is ready to be brought into use. Depreciation of plant and equipment is calculated using the straight- line method over their estimated economic lifetime, as follows: • IT, 4 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years 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 economic lifetime 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 eco- nomic lifetime of up to four years. However, if these are included as a part of group developed software relating to the Group’s tran- Leasehold improvements are depreciated over the expected eco- nomic lifetime, 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 130 | Annual report 2011 | Tryg A/S Notes 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 property is property that is used in the Group’s operations. Owner-occupied properties are measured in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated de- preciation and subsequent accumulated impairment writedowns. Revaluations are performed 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 characteristics, 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 equity. 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 economic lifetime up to 50 years. Land is not depreciated. Assets under construction In connection with the refurbishment of the owner-occupied properties, costs to be capitalised are recognised at cost under owner-occupied property. On completion of the project it is reclassified to owner-occupied property and depreciation will be made on a straight-line basis over the expected economic lifetime, up to the number of years stated under the individual categories. Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. 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, property and oper- ating equipment Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the de- preciation period that is used are connected to the expected eco- nomic lifetime. This also applies to the salvage value. Write-down is performed if depreciation has been demonstrated. A continuous assessment of owner-occupied property is performed using the same method as investment property. Goodwill is tested annually for depreciation, or more often if there are indications of depreciation, and is performed for each cash- generating unit to which the asset belongs. The present value is normally established using budgeted cash flow based on business plans. The business plans are based on previous experiences and expected market development. 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 un- realised 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 re- cognised under provisions if the parent company has a legal or con- structive obligation to cover the liabilities of the relevant enterprise. Net revaluation of investments in subsidiaries is taken to reserve for net revaluation under the equity method if the carrying amount exceeds cost. 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 Tryg A/S | Annual report 2011 | 131 Notes the date of the transaction. Balance sheet items of foreign subsid- iaries 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. 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 recognised at fair value when first reported, if they are entered in a portfolio that is managed in accordance with fair value. Derivative financial instruments are similarly classed as financial assets for commercial purposes, unless they are classified as security. Realized and unrealized profits and losses that may arise as a re- sult of changes in the fair value for the category financial assets at fair value are recognised in the income statement in the period in which they arise. 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. 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 de- rivates 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 derivatives if they cannot unambiguously be attributed to the former. Negative fair values of derivatives are recognised under derivatives. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments. Calculation of value is generally performed on the basis of rates sup- plied by Nordea with relevant information contractors and is checked by the Group’s valuation technicians. Discounting on the basis of market interest rates is applied in the case of derivative financial in- struments, where an expected future payment flow is included. Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain de- rivatives 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 effec- tive 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 re- quirements 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. Realised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through income are 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- 132 | Annual report 2011 | Tryg A/S Notes 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 receivables from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in technical interest. Changes due to changes in the yield curve or foreign currency exchange rates are recognised as value adjustments. The Group assesses continuously its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount. Impairment write- downs are recognised in the income statement. Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contain accounts receivable in connec- tion with property. Derivative financial instruments are reported from the trading date and are assessed in the balance at fair value. Receivables that arise as a result of insurance contracts are classified in this cate- gory and are reviewed for depreciation as a part of the write-down test of accounts receivable. Receivable that are not derivative financial instruments are recog- nised for the first time at fair value and are subsequently assessed at amortized cost price. The income statement includes an esti- mated reservation for an expected unobtainable sum when there is a clear indication that the asset has depreciated. The reservation entered is assessed as the difference between the asset’s balance sheet value and the present value of expected future cash flow. 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 other comprehensive income unless the revaluation offsets a previous im- pairment loss, and relates 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 monthly average exchange rates for the pe- riod. Any resulting exchange rate differences are recognised in other comprehensive income. When an entity is wound up, the balance is transferred to the income statement. The hedging of the exchange rate risk concerning foreign entities is also offset in shareholders’ equity in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of retained 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 policyhold- ers. The Norwegian security fund provisions include provisions for the Norwegian Natural Perils Pool, security reserve, administration reserve and guarantee reserve. The Danish and Swedish provisions comprise security fund provisions. Deferred tax from the Norwe- gian and Swedish security fund provisions is earmarked. 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 thereon are taken directly to retained earnings under equity. Treasury shares include shares acquired for incentive programmes and share buyback programme. Proceeds from the sale of treasury shares in connection with the exercise 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 subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the ef- fective interest method. Tryg A/S | Annual report 2011 | 133 Notes Provisions for insurance contracts Premiums are recognised in the income statement (earned premiums) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of pre- miums received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as unearned premium provi- sions. Unearned premium provisions are generally calculated ac- cording 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- 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 ex- pected increase in claims. For legislative changes this estimate is used also in determining the level of claims. Subsequently, this estimate is maintained until new loss history materialises for re-estimation. 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 inflation assumptions. 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. 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 immediately 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 income statement by raising the relevant provision and the adjust- ment is recognised in the income statement. Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee- administered funds. In Norway, the Group operates a defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent on age, years of service and compensation. In Denmark, the Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contribu- tions. In Sweden, the Group complies with the industry pension 134 | Annual report 2011 | Tryg A/S Notes 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. 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 temporary differences can be utilised. 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. 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. The actuarial gains and losses arising from experience adjustments and changes in actuarial estimates is recognised in other compre- hensive income. The plan is closed for new business. 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. Income tax and deferred tax The Group provides current tax expense according to the tax law of each jurisdiction in which it operates. Current tax liabilities and current tax receivables are recognised in the 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 using 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 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. Other provisions Own insurances are included under other provisions. The provi- sions apply to the Group’s own insurance claims and are reported when the damages occur, and are reported according to the same principle as the Group’s other claim provisions. Debt Debt comprises debt in connection with direct insurance and re- insurance, debt to credit institutions, current tax obligations and other debt. Derivative financial instruments are assessed at fair value accord- ing to the same practice that applies to financial assets. Other obligations are assessed at amortized cost price with application of ’the effective interest method’. 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 operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed. Cash flows from investing activities comprise payments in connec- tion with purchase and sale of intangible assets, property, plant and equipment as well as fixed asset investments and deposits in Credit institutions. 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 payment of dividends. Cash and cash equivalents comprise cash and demand deposits. Tryg A/S | Annual report 2011 | 135 Income statement (parent company) DKKm 2010 2011 Notes 1 Investment activities Income from subsidiaries Interest income Value adjustment Interest expenses Investment management charges Total return on investment activities 2 Other expenses Profit before tax 3 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 475 2 -1 -2 -8 466 -58 408 17 425 425 256 -1,965 2,134 425 901 0 1 0 -8 894 -57 837 15 852 852 400 623 -171 852 136 | Annual report 2011 | Tryg A/S Statement of financial position (parent company) DKKm Notes Assets 4 Investments in subsidiaries Total investments in subsidiaries Total investment assets Receivables from subsidiaries Other receivables Total receivables Current tax assets 5 6 Deferred tax assets Total other assets Total prepayments and accrued income 2010 2011 8,339 8,339 8,985 8,985 8,339 8,985 59 4 63 17 1 18 55 23 0 23 17 0 17 0 Total assets 8,475 9,025 Liabilities Shareholders’ equity Debt to subsidiaries Other debt Total debt 8,475 9,024 0 0 0 1 1 1 Total liabilities and equity 8,475 9,025 7 Debt to credit institutions 8 Capital adequacy 9 Contractual obligations, contingent liabilities and collateral 10 Related parties 11 Reconciliation of differences in the profit and the shareholders’ equity 12 Accounting policies Tryg A/S | Annual report 2011 | 137 Statement of changes in equity (parent company) DKKm Share capital Revalua- tion reserves Retained earnings Proposed dividends Total Shareholders’ equity at 31 December 2009 1,598 3,151 3,912 991 9,652 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 shareoptions Issue of share options -1,965 1 19 330 -328 144 -1,799 2,134 256 256 -991 2,134 14 -816 9 16 425 1 19 330 -328 144 591 -991 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 2011 Profit for the year Change in equalisation provision Change in revaluation reserves previous years 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 share options Issue of share options 623 -171 400 20 29 -27 1 646 0 -65 400 -256 -22 -193 65 14 -91 15 14 Total equity entries in 2011 -65 646 -176 144 852 0 0 20 29 -27 -21 853 0 -256 14 -91 15 14 549 Shareholders’ equity at 31 December 2011 1,533 1,998 5,093 400 9,024 Proposed dividend per share DKK 6.52 (in 2010 DKK 4.00). Dividend per share is calculated as the total dividend proposed by the Super visory Board after the end of the financial year divided by the number of shares, year end 61,316,103. The dividend is not paid until approved by the shareholders at the annual general meeting. Tryg Forsikring A/S’ Norwegian branch, has in its branch financial statements included provisions for contingency funds in the amount of DKK 2,430m (in 2010 DKK 2,887m) Tryg Forsikring A/S’ Swedish branch, has in its branch financial statements included provisions for contin- gency funds in the amount of DKK 144m (in 2010 DKK 143m). 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. 138 | Annual report 2011 | Tryg A/S Notes (parent company) DKKm 1 Income from subsidiaries Tryg Forsikring A/S 2 Other expenses Administrative expenses 2010 2011 475 475 -58 -58 901 901 -57 -57 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, Group Executive Management and risk-takers appears in note 10 ‘Related parties’. Refer to note 6 in the Tryg Group for a specification of the audit fee. Average number of full-time employees during the year 0 0 3 Tax Reconciliation of tax expenses Tax on financial loss before profit/loss in subsidiaries and tax Effective tax rate Tax on financial loss 17 17 % 25 25 15 15 % 23 23 Tryg A/S | Annual report 2011 | 139 Notes (parent company) DKKm 4 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 2010 2011 6,987 6,987 3,151 641 -2,440 1,352 6,987 6,987 1,352 902 -256 1,998 Carrying amount 31 December 8,339 8,985 Name and registered office 2011 Tryg Forsikring A/S, Ballerup 2010 Tryg Forsikring A/S, Ballerup 5 Current tax assets Current tax, beginning of year Current tax for the year Tax paid durring the year 6 Deferred tax assets Capitalised tax loss Tryg A/S Non-capitalised tax loss Tryg A/S Ownership shares in % Equity 100 100 100 100 17 17 -17 17 1 18 17 16 -16 17 0 18 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. 140 | Annual report 2011 | Tryg A/S Notes (parent company) DKKm 7 Debt to credit institutions Tryg A/S has established committed credit facilites totalling DKK 800m with a number of Danish banks. These credit facilities expire on 31 December 2012. 8 Capital adequacy Shareholders’ equity according to annual report Proposed dividend Solvency requirements to subsidiary undertakings – 50% Tier 1 Capital Subordinate loan capital Solvency requirements to subsidiary undertakings – 50% Capital base Weighted items Solvency pct. 2010 2011 8,475 -256 -2,516 5,703 804 -2,515 3,992 9,024 -400 -2,508 6,116 848 -2,507 4,457 3,309 3,970 121 112 9 Contractual obligations, contingent liabilities and collateral The Danish companies in Tryg Group are jointly taxed with TryghedsGruppen smba. 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. Tryg A/S | Annual report 2011 | 141 Notes (parent company) 10 Related parties The Group has no other closely related parties with a decisive influence other than the parent company, TryghedsGruppen Smba. Closely related parties with significant influence include the Supervisory Board, the Executive Management, and these persons’ related family. Related parties are the same as in Tryg Group, please refer to note 29 (in the Group) Parent company Tryghedsgruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. 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. 2010 2011 -61 76 2 -61 23 0 142 | Annual report 2011 | Tryg A/S Notes (parent company) DKKm 2010 2011 11 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 593 -164 -4 425 8,458 21 -4 8,475 1,140 -288 0 852 9,007 17 0 9,024 12 Accounting policies Please refer to Tryg Groups’ Accounting policy. Tryg A/S | Annual report 2011 | 143 Fourth quarter of 2011 | Quarterly outline DKKm Private Nordic Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Gross premiums earned 2,338 2,391 2,562 2,574 2,654 2,698 2,774 2,859 2,766 Technical result 99 -167 240 211 162 166 273 263 184 Key ratios Gross claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio 78.7 92.2 74.0 80.9 76.9 77.2 74.1 87.9 77.0 1.1 79.8 17.2 -0.7 91.5 16.3 1.7 75.7 15.5 -3.5 77.4 15.2 1.0 77.9 16.9 1.7 78.9 16.2 1.3 75.4 16.0 -11.9 76.0 15.5 0.3 77.3 16.7 Combined ratio 97.0 107.8 91.2 92.6 94.8 95.1 91.4 91.5 94.0 Commercial Nordic Gross premiums earned 947 1,019 1,046 1,052 1,066 1,063 1,060 1,075 1,039 Technical result 29 -376 -47 -57 5 -41 48 44 66 Key ratios Gross claims ratio Business ceded as a percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio 70.9 117.2 83.3 80.7 76.7 81.2 65.7 95.5 68.4 2.1 73.0 24.6 -2.5 114.7 23.0 -4.0 79.3 25.9 0.9 81.6 24.6 0.0 76.7 23.5 2.0 83.2 22.1 6.3 72.0 24.5 -23.1 72.4 23.9 1.8 70.2 24.0 Combined ratio 97.6 137.7 105.2 106.2 100.2 105.3 96.5 96.3 94.2 Corporate Nordic Gross premiums earned 1,335 1,240 1,286 1,266 1,332 1,286 1,317 1,360 1,312 Technical result 205 188 204 -82 94 151 175 184 21 Key ratios Gross claims ratio Business ceded as percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio 70.3 59.4 62.6 85.3 78.4 67.8 77.6 85.3 91.2 1.9 72.2 13.0 12.7 72.1 13.2 7.9 70.5 14.1 10.1 95.4 11.5 2.3 80.7 13.0 9.3 77.1 12.2 -2.9 74.7 12.7 -9.6 75.7 11.3 -4.6 86.6 12.6 Combined ratio 85.2 85.3 84.6 106.9 93.7 89.3 87.4 87.0 99.2 144 | Annual report 2011 | Tryg A/S DKKm Other a) Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Gross premiums earned Technical result -11 -16 0 1 -4 -3 -6 2 -3 0 -9 0 -6 0 -5 0 -17 0 Tryg Gross premiums earned 4,609 4,650 4,890 4,886 5,049 5,038 5,145 5,289 5,100 Technical result Return on investment activities Profit/loss before tax Profit/loss 317 210 527 448 -354 204 -113 -102 394 -208 173 128 74 308 369 198 261 266 512 369 276 105 361 271 496 3 487 362 491 -205 274 163 271 163 447 344 Key ratios Gross claims ratio Business ceded as percentage of gross premiums Claims ratio, net of ceded business Gross expense ratio 74.5 88.9 73.1 82.1 77.2 75.7 72.9 88.9 79.0 1.6 76.1 18.0 2.5 91.4 17.2 2.1 75.2 17.3 0.8 82.9 16.3 1.1 78.3 17.2 3.6 79.3 16.6 1.6 74.5 17.0 -13.7 75.2 16.3 -0.9 78.1 17.4 Combined ratio 94.1 108.6 92.5 99.2 95.5 95.9 91.5 91.5 95.5 a) Amounts relating to eliminations are included in ‘Other’ Tryg A/S | Annual report 2011 | 145 Fourth quarter of 2011 | Geographical segments DKKm 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 Combined ratio Q4 2010 Q4 2011 2010 2011 2,522 2,480 9,636 112 196 77.4 2.1 79.5 16.6 96.1 257 266 82.7 -6.1 76.6 13.1 89.7 166 615 82.0 0.7 82.7 16.1 98.8 2,342 9,999 1,023 770 83.5 -8.1 75.4 15.0 90.4 2,308 1,914 1,991 7,490 7,916 191 84 75.1 -0.3 74.8 16.1 90.9 463 -30 6 83.8 2.2 86.0 22.0 84 49 72.6 5.2 77.8 18.9 96.7 488 -47 16 83.4 2.9 86.3 25.8 389 177 76.7 3.1 79.8 15.7 95.5 1,338 598 181 73.2 3.2 76.4 17.0 93.4 1,338 1,769 2,050 -124 32 84.6 0.8 85.4 22.4 -59 -7 82.0 2.6 84.6 20.3 104.9 423 108.0 112.1 107.8 Number of full-time employees, end of period 414 146 | Annual report 2011 | Tryg A/S DKKm 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 Combined ratio Number of full-time employees, end of period Other b) Gross premiums earned Technical result Tryg Gross premiums earned Technical result Return on investment activities Other income and expenses Profit/loss before tax 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 c) Combined ratio Number of full-time employees, end of period Q4 2010 Q4 2011 2010 2011 153 -12 0 81.0 0.0 81.0 28.1 158 -23 0 84.2 0.0 84.2 31.0 593 -56 0 80.9 0.8 81.7 29.3 109.1 115.2 111.0 197 -13 0 -3 0 -17 0 644 -28 0 79.8 0.8 80.6 25.6 106.2 249 -37 0 5,049 5,100 19,475 20,572 261 266 -15 512 286 77.2 1.1 78.3 17.2 95.5 271 163 13 447 331 79.0 -0.9 78.1 17.4 95.5 375 570 -4 941 824 80.2 1.6 81.8 17.0 98.8 4,291 1,534 66 -31 1.569 944 79.2 -2.5 76.7 16.8 93.5 4,318 a) Moderna Försäkringar is included in ‘Swedish general insurance’ from 2 april 2009. b) Amounts relating to 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 2011 | 147 Other key figures 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 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 2007 2008 2009 2010 2011 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 75.9 17.8 93.7 17.9 7.5 7.9 0.9 0.9 18.0 12.8 6,876 25,912 1,828 33.7 131.0 164.7 26 26 26 1 0 33.5 12.8 67,648 66,184 388.0 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 18.9 18.9 60,401 60,401 319.0 2.1 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’ 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. 148 | Annual report 2011 | 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 Dividends per share Proposed dividend Number of shares year end Earnings per share Profit for the year x 100 Average number of shares Net result of business ceded x 100 Gross earned premiums Equity margin Capital base Shareholders’ equity plus subordinated debt/subordinated loan capi- tal less intangible assets/goodwill and tax asset. Premiums earned, net of reinsurance x 100 Tier 1 capital Claims ratio, net of ceded business Gross claims ratio + business ceded as % of gross premiums. Finnish general insurance Comprises Tryg Forsikring A/S, Finnish branch and the Finnish branch of Tryg Garantiforsikring A/S. 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. Gross claims ratio Gross claims incurred x 100 Gross earned premiums 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) Diluted earnings from continuing business after tax Diluted average number of shares 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. 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. Gross insurance operating expenses w. adjustment x 100 Gross earned premiums 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 Tryg A/S | Annual report 2011 | 149 Glossary Gross profit margin Reserve ratio, provisions for unearned premiums Technical result x 100 Gross premiums earned Provisions for unearned premiums x 100 Gross premiums earned 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 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 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 2013/2014. 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. Quoted price Net asset value per share Tier 1 capital Shareholders’ equity less intangible assets/goodwill and tax asset 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 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. 150 | Annual report 2011 | 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 by or should any underlying assumptions prove to be incorrect, terminology such as ’targets’, ’believes’, ’expects’, ’aims’, ’in- Tryg’s actual financial condition or results of operations tends’, ’plans’, ’seeks’, ’will’, ’may’, ’anticipates’, ’would’, ’could’, could materially differ from that described herein as anticipart- ’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 2011 | 151 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) Moderna Garanti (Swedish branch) 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 %) Thunesvei 2 AS 946 919 845 (Norway) Ejendoms- selskabet af 1. marts 2006 P/S (50 %) ANS Grensen 3 848 383 082 (99 %) (Norway) Group chart at 1 January 2012. Companies and branches are wholly-owned by Danish owners and placed in Denmark unless otherwise stated. Company Branch 152 | Annual report 2011 | Tryg A/S Content tryg.com Management’s report About Tryg Preface Financial highlights Outline of Tryg Highlights of the year Results Tryg’s financial performance Private Nordic Commercial Nordic Corporate Nordic Investment activities Outlook Strategy and the insurance market Strategy KPI – (Key Performance Indicators) The insurance market Customers and products Capital management and risk management Capital management and risk management Management Supervisory Board Group Executive Management Employees Corporate governance Corporate Social Responsibility – CSR The Tryg share Accounts Statement by the Supervisory Board and the Executive Management Independent auditor’s report Independent auditor’s report on TRYG A/S’ CSR data for 2011 Financial highlights and key ratios Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes – Tryg Group Income statement (parent company) Statement of financial position (parent company) Statement of changes in equity (parent company) Notes (parent company) Fourth quarter of 2011 | Quarterly outline Fourth quarter of 2011 | Geographical segments Other key figures Glossary Disclaimer Group chart 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 2011. In case of any discrepancy between the Danish and the English version of the annual report 2011, the Danish version shall apply. Page 1 4 6 7 8 10 12 16 20 22 24 27 28 30 32 34 36 38 40 44 46 48 50 52 60 63 66 68 69 70 71 72 73 74 76 77 78 136 137 138 139 144 146 148 149 151 152 A n n u a l r e p o r t 2 0 1 1 Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark +45 70 11 20 20 tryg.com CVR-no. 26460212 Annual report 2011 

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