Tryg
Annual Report 2013

Plain-text annual report

Annual report 2013 Contents Download pdf version of Annual report 2013 Management’s review 1 Income overview 16 Tryg’s results 20 Private 40 Corporate governance 46 Supervisory Board 2 Introduction by the Chairman 22 Commercial 48 Group Executive Management 3 Introduction by the Group CEO 24 Corporate 50 Corporate Social Responsibility in Tryg 4 Events in 2013 26 Sweden 8 Targets and strategy 28 Investment activities Financial statements 54 Financial statements 12 Strategic initiatives 2014 34 Capital and risk management 137 Group chart 13 Financial outlook and targets 36 Shareholder information 138 Glossary 140 Products Tryg is the second-largest insurance company in the Nordic region. We are the largest player in Denmark and the third-largest in Norway. In Sweden, we are the fifth-largest company in the market. We offer a broad range of insurance products to both private individuals and businesses. Our 3,700 employees provide peace of mind for 2.7 million customers. 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Editors Investor Relations | Publication 30 January 2014 | Design e-types | Layout amo design | Print Centertryk A/S | Paper Munken Polar Income overview DKKm Q4 2012 Q4 2013 2012 2013 Gross premium income Technical result Investment return after insurance technical interest Profit/loss before tax Profit/loss on continuing business Profit/loss Run-off gains/losses, net of reinsurance Key figures Total equity Return on equity after tax (%) Number of shares 31 December (1,000) Earnings per share of 25 DKK Net asset value per share (DKK) Dividend per share (DKK) Price/Earnings Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Combined ratio on business areas Private Commercial Corporate Sweden a) Proposed dividend 5,076 648 5 638 394 404 237 4,737 546 154 639 564 565 247 -0.5 70.2 0.9 71.1 16.3 87.4 92.1 -4.7 4.3 2.2 86.8 82.6 90.7 87.5 -2.4 74.9 -1.2 73.7 15.4 89.1 94.3 -5.2 1.1 8.8 87.7 92.2 88.7 88.2 20,314 2,492 585 3,017 2,180 2,208 1,015 10,979 22.1 60,695 36.5 180.9 26.0 11.8 -0.1 72.2 -0.4 71.8 16.4 88.2 93.2 -5.0 2.3 1.8 87.7 83.7 87.7 95.3 19,504 2,496 588 2,993 2,373 2,369 970 11,107 21.5 59,374 39.4 187.1 27.0 a) 13.3 -2.7 73.9 -1.8 72.1 15.6 87.7 92.7 -5.0 2.1 3.2 86.0 87.9 88.9 91.2 Income overview | Annual report 2013 | Tryg A/S | 1 Chairman of the Supervisory Board: Focus on strategic and financial targets tributing 60-90% of the profit. In 2013, Tryg acquired own shares totalling DKK 800m, and with reference to the policy of not maintaining un- necessary capital surplus cover, we initiated a new DKK 1,000m share buy back programme on 2 January 2014. Corporate governance Corporate governance is an important foundation for all businesses, and the Supervisory Board stresses the importance of complying with the Recommendations on Corporate Governance. Transparency about the composition, skills and work of the Supervisory Board is one issue which is particularly important for us. In 2013, we also established a better understanding of the risks which the company must address. This is important, among other things when Tryg is a well-run business with a strong position in the Nordic countries determining the adequacy of the capital base. The Supervisory Board is and an ambition of creating peace of mind and value for customers, em- responsible for ensuring that the capital resources are fully adequate in ployees and shareholders. This has been a natural focus point in my first relation to risks and regulations, while on the other hand making sure year as Chairman of the Supervisory Board. In the next strategy period, that they are not inappropriately high. this ambition will be supplemented with a number of new initiatives designed to strengthen customer experience and create an even stronger Tryg is a listed company, and it is important that decisions to invest culture with a view to delivering on our ambitious targets. Providing long- in the Tryg share can be made on an informed basis. A high priority is term peace of mind for customers is at the core of everything we do, and therefore given to having an open and ongoing dialogue with sharehold- this must be clear to our customers in their daily dealings with Tryg. ers. The management holds regular meetings with investors and par- ticipates in conferences; also, shareholders can meet the Supervisory Results for the year and financial targets Board at the annual general meeting. Tryg’s many talented employees and strong management ensured that the combined ratio target set back in 2010 was attained. Despite two Peace of mind and value severe storms at the end of 2013, results were satisfactory. The Supervisory Board attaches importance to ensuring the right balance between customer satisfaction and value creation for shareholders. This In 2013, Tryg defined a set of more specific financial targets. The aim is the only way of guarding the long-term interests of these stakeholders. is a return on equity after tax of 20%. This must be achieved through Together with the Group Executive Management, we have decided on the a combined ratio of 90 or less. The return on equity target was met, strategic themes for the next few years; our focus is on new initiatives and constituting a satisfactory 21.5% in 2013. benefits for customers as the foundation for good and stable earnings. Distribution to shareholders Tryg is characterised by stability, and the company’s strong position At the end of 2012, we adopted a new dividend policy, the overall ob- must be maintained. As Chairman, I aim to ensure that Tryg continues jective being to ensure a stable dividend for our shareholders, while at to create long-term peace of mind and value for customers, employees the same time maintaining a solid capital base, which is deemed key and shareholders. to customer and shareholder confidence. Based on the satisfactory results for 2013, the Supervisory Board proposes a dividend of DKK 27 per share, corresponding to the distribution of DKK 1,656m. This represents a nominal increase compared with the dividend distributed last year, which is in line with the policy. The dividend equates to 70% Jørgen Huno Rasmussen of the net profit for the year, which is also in line with the aim of dis- Chairman 2 | Tryg A/S | Annual report 2013 | Introduction by Chairman of the Supervisory Board Group CEO: Our customers – our most important asset Customer journey & success culture Tryg’s ambition is to be the best in the industry at insurance, people and earnings. In recent years, we have worked hard to strengthen our profitability. In future, we want to further strengthen and balance all three ambitions. In the coming years, we will continue the development of price- differentiated products as well as the ongoing improvements of our benefits programmes. However, the relationship between price and risk can also be improved through claims prevention measures. Claims costs can be reduced both by preventing damage and by mitigating the effects of any damage. Consequently, prevention will be integrated into our products to a larger extent. The customer survey conducted in 2013 (EPSI) for the Private market The results for 2013 were satisfactory and lived up to the agreed targets. showed a stable and high level of satisfaction in Denmark, and the highest In the coming years, we will build on these results by further strengthen- level of satisfaction ever in Norway. Our ambition is an even higher level ing customer experience and create an even stronger culture. Basically, of customer satisfaction and higher loyalty than our competitors, which it is about ensuring that customer experience is so strong that our our initiatives must reflect. We have therefore decided that in 2014 we customers are confirmed in their choice of insurance company every will consolidate our work with customer experience across the Group, time they contact Tryg. while at the same time working with our culture. We have named this ‘Customer journey & success culture’. It involves a number of initiatives Efficiency improvements must benefit customers to strengthen customer experience and enhance customer satisfaction In 2011 and 2012, Tryg’s results were improved in particular through and loyalty. We will also strengthen our culture by focusing on giving our higher insurance prices. The improvements seen in 2013 were attribut- employees better opportunities for continuous improvement of per- able especially to efficiency improvements, cost cuts and better procure- formance and development. This is an important precondition for ment. At the end of 2013, we were hit by two severe storms, resulting in our employees successfully meeting their own ambitious targets and 45,000 claims. The claims handling organisation had an extremely busy knowing how they contribute to realising Tryg’s targets and success. time providing swift and efficient assistance to customers. Importantly, we made a decision to help customers before the events had officially been Corporate social responsibility in Tryg recognised as floods. This left our customers in no doubt that Tryg, can In Tryg, we integrate corporate social responsibility into our practice in a make a difference and provide instant peace of mind. way that creates results – for the climate, for people and financially. It is important for us to show our customers, employees, suppliers, investors Despite the storm claims, the combined ratio was 87.7 in 2013 against 88.2 and other partners that we comply with UN’s Global Compact principles on in 2012. Our internal programmes contributed 2 percentage points to this protection of the climate, human rights, labour rights and anti-corruption, improvement. The aim of the internal efficiency programme is a total re- demonstrating tangible action in areas which are relevant to our business. duction in claims costs and expenses of DKK 1bn in the period leading up to 2015. At the end of 2013, a reduction of DKK 557m had been realised. Through all these steps, we want to become better and better – at insurance, at people, and at earnings. Our ambition is to create peace The expense ratio was 15.6 against 16.4 in 2012, representing a of mind and value for customers, employees and shareholders. significant improvement, which was achieved mainly through efficiency improvements and fewer employees in staff functions. The lower expense ratio is in line with the aim of an expense ratio below 15 in 2015. Efficiency improvements and lower costs will Morten Hübbe contribute to offering better concepts and benefits for our customers. Group CEO Introduction by Group CEO | Annual report 2013 | Tryg A/S | 3 Events in 2013 New Group EVP, Claims New programme for Private customers Birgitte Kartman stepped down as Group In Denmark, Tryg launched the Tryg Plus Executive Vice President (EVP), Claims. special benefits programme comprising: Jesper Joensen, Director of Tjeneste- Tryg Home Alarm, Tryg Backup, Tryg Safe mænd enes Forsikring and Partneraftaler in Life and Tryg ID. Read about the Privat, was appointed Acting Group EVP, benefits programme on page 14. Share buy back initiated Claims. Later in December, he was On 15 March, Tryg initiated an extraor- appointed Group EVP, Claims. New holiday home insurance The pricing of Tryg’s New Holiday Home dinary share buy back which was com- pleted on 19 December 2013. Under the programme, Tryg acquired own shares for an amount of DKK 800m. New Chairman of the Supervisory Board Insurance is based on 15 parameters as Michael Olufsen was succeed by Jørgen opposed to only two. Read about Huno Rasmussen as new Chairman of the New Holiday Home Insurance on page 6. Supervisory Board. Jørgen Huno Rasmussen has been a member of the Supervisory Board since 2012 and is former Group CEO of FLSmidth & Co. Tryg’s ‘A-’ rating maintained Standard & Poor’s reconfirmed Tryg’s and Tryg Garanti’s ‘A-’ rating. January February March April May June July August September October November December New home insurance Tryg launched the New Home Insurance in Norway. Premium is based on several criteria to more accurately reflect risk. Read more about New Home Insurance at tryg.no. Sustainability prize Tryg was no. 2 in the Sustainability Brand Index among Danish enterprises. New workers’ compensation insurance Tryg launched the New Workers’ Com- pensation Insurance for the Commercial and Corporate segments, a modernised product with price matching risk. Read about New Workers’ Compensation at tryg.dk and tryg.no. 4 | Tryg A/S | Annual report 2013 | Events in 2013 Tryg and Falck new partners Tryg and Falck formed a new partnership aimed at delivering peace of mind for Nordic customers. The partnership differentiates Tryg in the market, strengthens profitability and the strategic focus on prevention. New annual travel insurance Tryg launched the New Annual Travel Insurance for Private customers which is much more tailored to the individual customer’s actual needs and risks. Read about the new annual travel insurance at tryg.dk. High customer satisfaction maintained Storm hit Denmark and Sweden According to the EPSI customer satisfaction survey, Tryg’s customer On 5 December, the second severe storm of the year, named Bodil, satisfaction remained high in the private market, up slightly by 0.2 hit Denmark and Sweden. Tryg decided to help and provide peace points in Denmark and up by 1.8 points in Norway. of mind for customers immediately and before the events were Tryg launched new van insurance officially recognised as floods on 10 December. Tryg launched the New Van Insurance for the Commercial and Cor- New share buy back programme porate segments. The insurance provides several new types of cover Tryg announced that a new extraordinary share buy back pro- which customers can select to suit their requirements. gramme totalling DKK 1,000m would run from 2 January 2014 Read about the New Van Insurance at tryg.dk. until the end of 2014. Moderna launched new product covers Tryg entered IT operating contract with TCS Moderna, Tryg’s branch in Sweden, launched new types of product Tryg terminated the IT operating contract with CSC from 1 August 2014 cover. Customers can choose between three different types of cover: and entered a new agreement with TCS (Tata Consultancy basis, medium and large, depending on level of cover. Services Limited) on 29 January 2014. Read about the new product structure at modernaforsakringar.se. January February March April May June July August September October November December Next Level Sourcing won prestigious prize Tryg/Next Level Sourcing and Efficio won the prize for the Best Procurement Consultancy Project of the Year. The prize is awarded annually by the Chartered Institute of Purchasing and Supply (CIPS) and is regarded as the most prestigious Denmark hit by storm international prize within procurement On 28 October, a severe storm crossed Denmark. Tryg received approximately and logistics. 28,000 claims, a large part of which were processed in 2013. New Group Executive Vice President, New special benefits programme in Norway Commercial Trond Bøe Svestad took up the position of Group EVP, Commercial. Trond came from a position as Deputy Head of the Tryg launched the new Tryg Pluss benefits programme for private customers in Norway. The special benefits programme comprises three new and unique elements: Tryg Home Alarm, Tryg Backup and Tryg ID. Read about the benefits programme on page14. Nordic private area in If. Furthermore, Moderna concluded strategic partnership agreement with Danske Bank Trond has more than 10 years of experi- Moderna Försäkringar, Tryg’s branch in Sweden, entered into a strategic partnership ence within the commercial area in If. agreement with Danske Bank concerning general insurance in Sweden. Events in 2013 | Annual report 2013 | Tryg A/S | 5 New Holiday Home Insurance In 2013, Tryg launched a new holiday home insurance product in which both product content and pricing are tailored to our focus on customers and price differentiation. The new product includes two new types of cover, while the existing types of cover have been adjusted to suit ‘modern holiday homes’. Previously, pricing was based on only two parameters which customers have to answer. We have developed a – type of roof and size of holiday home. Thus, it was not product that provides considerable peace of mind and possible to ensure genuine product differentiation. With value for customers; it has been welcomed by the market, the new product, pricing is determined on the basis of resulting in improved rates of sales. Approximately one 15 parameters for each individual holiday home. The in three new customers choose the new extended cover, additional parameters are largely obtained from external which increases Tryg’s business volume. data sources, which minimises the number of questions Targets and strategy Financial targets and strategic initiatives 2013 Improved price differentiation Tryg’s financial targets were specified and announced in June 2012. Having been reluctant to differentiate prices relative to customer risk The overall financial target is a return on equity of 20% after tax and for a number of years, Tryg decided to work intensively with price dif- a combined ratio of 90 or less. Also, the expense ratio must be under ferentiation. This decision was made at a time when other companies 15 from 2015. With a combined ratio of 87.7 and a return on equity in the markets also embarked on increasing price differentiation. As of 21.5%, the financial targets were met in 2013. the largest player in the Danish market, and the third-largest in the Key Performance Indicators 2013 √ Return on equity √ Combined ratio √ Expense ratio √ Customer satisfaction ÷ Employee satisfaction Norwegian market, Tryg has very extensive data on which to base the pricing of products to most accurately reflect risks. In 2013, differenti- ated prices were developed for 13 of our insurance products in Den- mark, Norway and Sweden; this is more price differentiation in just one year than had been introduced in the previous seven years altogether. Together with an improved risk selection, the launch in 2013 has significantly increased the rate of sales for these products. Based on a significantly improved financial standing, five strategic Commercial back on track initiatives were defined to ensure that the financial targets were Improved profitability in the Commercial segment was of the utmost achieved. Strategic initiatives 2013 √ Improved price differentiation √ Commercial back on track √ Solid foundation in Sweden √ Competitive level of expenses and claims costs √ Simplification of products and systems importance to meeting the financial targets, and it was therefore de- fined as a strategic initiative. The implementation of risk-adjusted pric- ing, segmentation, efficiency improvements and structural measures within distribution have significantly improved performance in this business area, as expressed in a combined ratio of 87.9 for 2013. Solid foundation in Sweden At the beginning of 2013, Tryg’s Swedish business was still dominated very distinctly by bank insurance on the one hand, and on the other by Price-differentiated products launched in 2013 Country Launched Q1-Q3 2013 Launched Q4 2013 Denmark Contents Camp. Workers’ Compensation Travel Holiday Home Van Norway Workers’ Compensation House Illness Houseowner Motor Sweden Contents Boat 8 | Tryg A/S | Annual report 2013 | Targets and strategy Moderna, which was acquired in 2009. In 2013, we therefore focused different from the products which Tryg is currently offering customers. on creating a shared foundation through the standardisation of products Consequently, special efforts have gone into substituting these older and processes and the use of a shared IT system. Also, many initiatives products with more up-to-date products. In the course of the year, have been introduced to improve profitability and optimise distribu- two thirds of the older Private products have been phased out. This tion through structural changes. At the end of the year, the Swedish slightly exceeds the original target for the year. The number of IT business has some of the best products in the market, has partly systems has also been reduced during the year, especially in Sweden, implemented the future distribution structure and has entered into where the number of core systems was reduced from two to one. a new bank insurance partnership with Danske Bank in Sweden, Thus, now each country has one core system. following termination of the contract with Nordea. With a combined ratio of 91.2, the financial results for the year are very satisfactory. Insurance market The Nordic insurance market is characterised by consumers and busi- Competitive level of expenses and claims costs nesses having largely covered their insurance needs. At the same time, A high level of efficiency is important to realising the financial targets, the situation is one of relatively low economic growth and a continued and, in addition, low costs are also important to improving competi- net transfer of workplaces to countries with lower labour costs. All in all, tiveness. Compared with other insurance companies in the Nordic these factors are leading to low growth in the demand for insurance in countries, Tryg’s expense ratio is relatively low, and it will fall further the Nordic market. In the long term, the growth in insurance revenue is towards the target ratio of below 15 in 2015. Tryg’s cost level is mark- expected to equate to the development in the gross domestic product. edly lower than those of companies outside the Nordic region. The efficiency programme which has been launched with the ambition The Nordic insurance market is characterised by pan-Nordic com- of reducing costs by DKK 1bn in 2015 has progressed according to panies aiming for a combined ratio of about 90, calculated according plan, and cost reductions of DKK 382m were realised in 2013 against to Danish accounting principles. Low market growth is resulting in a target for the year of DKK 320m. This initiative has significantly intensified competition. The larger companies focus on profitability, impacted the results for 2013. especially through efficiency improvements and price differentiation. This is to ensure that financial targets are realised and that competi- Simplification of products and systems tiveness is improved. In recent decades, Tryg has acquired companies which are now fully integrated parts of Tryg. Tryg’s portfolio includes products which In addition to the large pan-Nordic companies, the market is char- were taken over in connection with these acquisitions and which are acterised by a number of large local companies and many smaller Targets – expenses Targets – claims DKKm 300 250 200 150 100 50 0 300 125 137 125 50 Expense savings 2013 2013 2014 2015 DKKm 800 700 600 500 400 300 200 100 0 700 100 120 250 300 250 100 Claims savings 2012 2012 2013 2013 2014 2015 Target Achieved 2012 Achieved 2013 Target Achieved Targets and strategy | Annual report 2013 | Tryg A/S | 9 companies. The smaller companies, of which there are many in the economy was thought to be picking up compared to previous years.a) Danish market in particular, very often have special local knowledge and In 2013, the Norwegian market was characterised by unchanged eco- are characterised by high levels of customer loyalty and less ambitious nomic growth of approximately 1.8%, which resulted in growth in the in- financial targets, paired, on the other hand, with higher costs and fewer surance market for both private and business customers. Sales of private opportunities for entering into purchasing agreements than in the larger cars were 3% higher in 2013 than in 2012. Pay increases averaged about companies. Nordic insurance companies are generally both profitable 3.6%, and house prices also increased in the course of the year. This de- and efficient. velopment meant that Tryg was particularly aware of claims inflation and the need to adjust prices to reflect the increased insurance risk. Towards Tryg believes that Tryg’s low costs compared with other insurance provid- the end of the year, there was concern that the dramatically increasing ers in the European market have been a significant reason why only few house prices would have a negative effect on the Norwegian economy.a) new players have chosen to establish themselves in the Nordic market within the Private and Commercial sectors. Most new players are seen Tryg’s ambition within Corporate insurance, with distribution through insurance brokers. Tryg’s ambition is to create peace of mind and value, and this must be As new players generally attract customers by offering lower prices, com- at the core of everything we do. It means that we must be the best in panies with a strong focus on profitability sometimes experience periods the industry when it comes to insurance, people and earnings. All three of declining sales. In 2013, a number of companies tried to establish elements are fundamental to creating peace of mind and value for our themselves in the Danish market through online sales. customers, employees and shareholders. The economic climate naturally affects the insurance market. For the Danish market, 2013 was characterised by low economic growth of approximately 0.3%, among other things due to low levels of private spending, to which small and medium-sized businesses tend to be particularly sensitive. The Corporate market is affected, in particular, by It’s all about creating peace of mind We create peace of mind and value for customers, employees and shareholders. economic developments for our most important trading partners, espe- Customers cially Germany and Sweden. The Private market is impacted by gener- Our customers are fundamental to our company, and are therefore at ally low economic growth and increasing sales of small cars, resulting the core of everything we do in Tryg. Tryg wants to build and maintain in diminishing insurance requirements. Towards the end of the year, the close customer relations. Best at insurance, people and earnings Customer satisfaction Index 120 110 100 90 80 2009 2010 2011 2012 2013 Best at people B e s t a t e a r nin g s Peace of mind Value Best at insurance a) Source: Nordea Markets, Economic Outlook (December 2013). 10 | Tryg A/S | Annual report 2013 | Targets and strategy In spite of the price increases which were implemented in the period Tryg wants a higher level of employee satisfaction than the bench- up until 2012, and which were necessary to ensure a sustainable mark for the Nordic financial sector. The strong focus on costs and balance between risk and profitability, in 2013 Tryg achieved increas- the significant changes which have been implemented and which ing customer satisfaction. However, some parts of the market saw a have affected many employees were expected to adversely affect greater increase in customer satisfaction. employee satisfaction in the short term. This was in fact seen in Tryg wants to increase customer satisfaction and, in addition to had a negative impact on employee satisfaction include staff cuts, the initiatives currently being implemented within price differentia- the outsourcing of tasks and a new office structure. A turnaround in tion, selection, benefits programmes and efficient claims handling employee satisfaction is expected in the coming years. the employee satisfaction survey in 2013. The changes which have and prevention, in 2014 we will launch a new strategic initiative aimed at supporting greater customer focus. Moreover, the efficiency Further focus on and the creation of a success culture will also help programme will contribute to enhancing customer satisfaction to reverse the negative employee satisfaction trend seen in 2013. through a strengthened competitive position and thereby a reduced need for general price increases. Shareholders Tryg’s shareholders must see Tryg as a company which sets ambi- In Denmark, the Tryg Plus programme was launched in Q2 2013. In tious targets and achieves them. This is the background against addition to multiple-policy discounts, the programme comprises which Tryg has defined the above-mentioned targets. Tryg’s share- Tryg ID, Tryg Safe in Life, Tryg Home Alarm and Tryg Backup (read holders naturally expect the company to focus on efficiency. This is more on pages 14-15). In the second half of 2013, a similar benefits important, not just from the point of view of achieving the financial programme was introduced in Norway, and a new type of motor insur- targets, but also in terms of strengthening the company’s competi- ance cover was introduced which means that customers no longer tive position. In this light, Tryg has set an expense ratio target of less lose bonus points in connection with damage to their parked car, even than 15 from 2015. if it is not known who caused the damage. In Sweden, a new subdivi- sion of the most commonly used private insurance products – motor, In accordance with the financial targets, Tryg decided at the end of contents, house and holiday home – was launched, and a benefits 2012 to amend its dividend policy, so that shareholders can expect programme similar to the Danish and Norwegian ones was developed. a steadily increasing dividend. This policy is well in line with the ambition of continually improving the insurance business and an Tryg has a strong focus on claims prevention, which is reflected in our investment policy which is primarily designed to support insurance customer-oriented activities such as Tryg Basement Check and Tryg operations. See more in the section on Shareholder information Burglary Check. We are generally keen to integrate claims prevention on page 36. in our products, for example by offering discounts to customers who install Tryg Home Alarm or water seals. CSR Employees In Tryg, we integrate CSR into our practice in a way that creates results – for the climate, for people and financially. We have achieved It is Tryg’s ambition to be best at people. To realise this ambition, we good results in relation to healthy, green and efficient transport, and believe that it is important that all employees feel that they have an we are improving well-being and customer service through our com- opportunity to be successful. This means that individual employees mitment to diversity. This benefits our customers, employees and must feel that they are continuously developing and becoming better shareholders, and has a positive effect on society. See more in at their job. Clear and ambitious targets must be set for each individu- the section on Corporate Social Responsibility in Tryg on page 50. al employee and linked to Tryg’s ambitious targets, and regular feed- back must be provided so that everybody knows how they contribute. Targets and strategy | Annual report 2013 | Tryg A/S | 11 Strategic initiatives 2014 Strategic initiatives 2014 • Price differentiation • Customer journey & success culture • Cost and claims reduction • IT stability Customer journey & success culture In step with Tryg’s development of better products and customer concepts, it is important that the customer experience is strengthened accordingly in order to establish ever stronger relations with Tryg. To do this, we must focus even more on customer experience in the entire Group and build an even stronger culture, both with regard to customer experience but also to ensure that our employees constantly improve and experience success by being able to deliver on increas- ingly ambitious personal targets. We will, among other things, achieve this by focusing more on motivating individual feedback, by celebrating In order to provide peace of mind and create value for customers, and honouring success and by ensuring that the individual front-line employees and shareholders, Tryg must be a financially well-run employee has the widest possible authority to help the customer. business. The targets still include a return on equity of 20% after tax and a combined ratio of 90 or less. Cost and claims reduction Tryg is reducing its cost and claims level through its efficiency pro- Our customers are our most important asset, which is why we are gramme. The programme will be the chief initiative to improve results implementing a number of initiatives designed to strengthen customer and will also contribute to strengthening Tryg’s competitiveness. experience in the coming years. Our goal is to strengthen customer As part of the overall target of DKK 1bn, the sub-target is to achieve experience and make it so strong that our customers are confirmed improvements totalling DKK 850m by the end of 2014, comprising in their choice of insurance company every time they contact Tryg DKK 250m in cost reductions and DKK 600m in claims reductions. and are willing to actively recommend us to others. Therefore we We will follow up on the programme in each quarter in connection also want to measure to what extent our customers are willing to with the external result reporting. recommend us to others. IT stability In order to strengthen customer experience while at the same time IT stability is important to offering our customers efficient service in maintaining consistently high earnings, Tryg has defined a number claims handling, sales, service and policy renewal. Consequently, IT of strategic initiatives for 2014. stability has an impact on customer satisfaction and on the productivity Price differentiation and job satisfaction of the individual employee. IT stability was not satisfactory in 2013 and affected productivity, customer service and Price differentiation and improved pricing relative to the customer’s employee satisfaction negatively during the year. risk was a strategic initiative for Tryg in 2013 and will continue to be so in 2014. A number of price-differentiated products were developed Since 2003, Tryg ’s IT operations have been outsourced, and in 2013 in 2013, and the aim is for Tryg to reach or exceed the level of the it was decided to change suppliers. Tryg intends to follow up on this majority of our competitors by 2015 for most of our products. agreement and other agreements with external partners, which is a For 2014, the objective is that Tryg’s pricing relative to the risk will IT stability to be improved with the help of our new external supplier. testament to Tryg’s focus on performance. In 2014, the objective is for be at the same or above the level of our competitors for 75% of the products by the end of the year. 12 | Tryg A/S | Annual report 2013 | Strategic initiatives 2014 Financial targets and outlook Tryg’s financial targets • Combined ratio of 90 or less. • Expense ratio below 15 in 2015. • Return on equity of 20% after tax. In 2014, price differentiation remains key to strengthening Tryg’s earnings. Tor Magne Lønnum Group CFO The investment portfolio is generally divided into a match portfolio corresponding to the technical provisions and a free portfolio. The target is for the return on the match portfolio and changes in the technical provisions due to interest changes to be neutral when taken together. The return on bonds in the free portfolio will vary, but considering the current interest rate level, a low current return is expected. For equities and property, the expectations are a return of 7% and 6%, respectively. Investment activities include other types of investment income and expenses, especially the costs of managing In order to ensure the realisation of Tryg’s financial targets, Tryg the investments, gains and losses on foreign currency hedges and announced in 2012 an efficiency programme, with an aim to reduce interest paid on loans. costs and claims by a total of DKK 1bn in the period up to 2015. Tryg has not set up any targets for premium income growth, but Norway. In Denmark, the tax rate will be reduced from 25% in 2013 expects it to be slightly negative in 2014 due to the measures that to 24.5% in 2014, and then gradually reduced further to 22% in Tax rate adjustments have been adopted both in Denmark and in have been implemented. 2016. In Norway, the tax rate has been reduced from 28% in 2013 to 27% in 2014. When calculating the total tax payable by Tryg, it should As regards the claims level in 2014, weather claims net of reinsur- also be taken into account that gains and losses on shareholdings ance are expected to total DKK 500m, and large claims DKK 550m. in Norway are not taxed. All in all, the tax changes will cause the Tryg has taken out a sideways cover for situations where the net expected tax payable for an average year to be reduced from around costs for weather claims exceed DKK 300m and up to DKK 900m. 24-25% to 23-24% for 2014. The agreement runs from 1 July 2013 to 30 June 2014, and as a result of the high level of weather claims in the second half of 2013, Tryg will only to a limited degree be exposed to weather claims in the first half of 2014. As a consequence of a legislative amendment in Denmark, the payroll tax will gradually increase in the coming years from the current level of 10.9% to 11.4% in 2014, followed by a gradual increase up to 2020, when the payroll tax will have reached 15.2%. This amendment will not affect Tryg’s target of bringing its expense ratio down below 15 by 2015. Financial targets and outlook | Annual report 2013 | Tryg A/S | 13 Tryg Plus I In June 2013, Tryg launched a new special benefits programme for private customers, Tryg Plus in Denmark and Tryg Pluss in Norway. The purpose of the programme is to ensure that we become even better at creating peace of mind and value for our customers. To become a Tryg Plus customer in Denmark, the customer must have contents insurance and at least one of our newest insurance products or a pension in Nordea Liv & Pension. In Norway, the customer must have house, contents or motor insurance and at least two other insurance products. Read more about Tryg Plus at tryg.dk and about Tryg Pluss at tryg.no. Watch the Tryg Plus film Watch the Tryg Pluss film The four elements of the Danish programme are: Tryg ID, Tryg Backup, Tryg Home Alarm and Tryg Safe in Life. Tryg Home Alarm Apart from burglary protection, Tryg Home Alarm also in- In Norway, the programme comprises Tryg ID, Tryg Backup cludes the possibility of preventing water and fire damage. and Tryg Home Alarm. Tryg ID Tryg ID offers customers advice and help to prevent, discover and limit misuse of the customer’s identity. Tryg Backup Tryg Backup offers customers easy, inexpensive and Tryg Home Alarm is always connected to an emergency response centre and is offered in cooperation with Falck. Customers only pay a low, monthly subscription fee, depending on the size of their home. Tryg Safe in Life Tryg Safe in Life is a health and crisis hotline. The customer can pick up the phone and ask for help if suffering from continuous automatic backup of photos, videos, docu- problems such as serious illness, stress and divorce. ments and other valuable content on their computers. The call is anonymous for Tryg. The customer will speak Tryg Backup includes access to unlimited online backup to therapists from Falck Healthcare. All therapists are on two computers. health professionals such as nurses, health visitors, social workers, midwives or addiction counsellors. Tryg’s results Financial highlights • The profit after tax for the year was DKK 2,369m (DKK 2,208m), and the return on equity after tax was 21.5% (22.1%). • Technical result of DKK 2,496m (DKK 2,492m). • Combined ratio of 87.7 (88.2). • Gross premiums reduced by 2.7%. • Higher weather claims level, corresponding to 3.2% (1.8%). • Expense ratio improved from 16.4 to 15.6. • Investment return, after transfer to insurance, of DKK 588m (DKK 585m). • Proposed dividend of DKK 27 per share. As mentioned above, many differentiated products with a better cor- relation between price and risk were developed in 2013. So far, these have primarily been offered to new customers. In general, the rate of sales for these products has been higher than for the old products. In the coming years, there will be a gradual conversion of policies to these products, which will provide a portfolio with a better balance between price and risk. The investment return totalled DKK 588m and was especially affected by rising share prices and a consistently low interest rate level. The primary purpose of the investment business is to support the insurance business, and the aim is to have a low risk profile. In this respect, the investment return in 2013 was extraordinarily high and must, given the low interest rate levels, be expected to be lower in the coming years. • Share buy back of DKK 1,000m in 2014 initiated on 2 January. Premiums Premium income was DKK 19,504m (DKK 20,314m), which rep- resents a drop in premium income of 2.7% in local currencies. The premium income was affected by the sound profitability of partner With a return on equity of 21.5% and a combined ratio of 87.7, 2013 agreements, which provides a higher level of profit sharing for these was a satisfactory year for Tryg. The results are thus in line with the agreements and thus a reduction of premium income. This has defined targets of a return on equity of 20% and a combined ratio impacted premium growth negatively by 0.9%, which means that of 90 or lower. The good results were achieved despite a generally growth excluding this impact would be negative by 1.8%. higher level of weather claims and large claims in 2013 than in 2012, and than expected for an average year. In Q4 in particular, the level of The development in premium income was expected based on the above- storm claims was high, with more than 45,000 claims processed. mentioned initiatives to improve profitability in Commercial and Sweden. These areas saw a decline of 3.2% and 4.9%, respectively. Private expe- The good results were achieved especially by means of the ongoing rienced a fall of 2.2%, or 0.5% excluding profit sharing. The low growth efficiency programme, which improved results by DKK 382m, corre- in Private was expected as a result of the profitability initiatives taken in sponding to an improvement of the combined ratio by 2.0 percent- previous years, which reduced the number of unprofitable customers, in age points. In 2013, price adjustments have generally only been particular. In addition, the Danish part of Private was affected by both low effected to counter claims inflation. Despite a high level of weather economic growth and a continuing increase in the sales of small cars. claims in 2013, no extraordinary price increases are planned for Corporate saw negative growth of 2.8%, but Tryg is prepared to accept 2014. If segments and products develop in an unsatisfactory larger fluctuations for this business area due to the competitive situation direction, selective price measures will still be taken. and the objective of having a profitable portfolio. The competition in Corporate was particularly intense in the Norwegian part. The controlled All business areas generated strong results, and the balance in terms expansion of the portfolio continued in the Swedish part of Corporate. of earnings is thus satisfactory in the general portfolio. A few years ago, profitability in the business areas of Sweden and Commercial Tryg is continuously adapting its distribution to the customers’ chang- was not satisfactory, and strategic initiatives were put in place to ing requirements. This is the reason why Tryg has chosen to reduce improve it. Against this background, it is particularly satisfactory that the local representation and make targeted selections of distribution Commercial and Sweden achieved very good results in 2013 with channels for the different customer segments in connection with new combined ratios of 87.9 and 91.2, respectively. sales, upselling, renewals and service. 16 | Tryg A/S | Annual report 2013 | Tryg’s results Bank insurance is an important distribution channel, and Tryg has a As mentioned above, weather claims impacted the combined ratio by sound agreement with Nordea on bank insurance in Denmark and Nor- 3.2% (1.8%) and are particularly related to the October and December way, while Tryg sells to and services Nordea Liv & Pension customers. storms in the Danish business. The total weather claims expenses In connection with the decision to terminate the cooperation with amounted to DKK 875m, but since Tryg has a reinsurance agreement, Nordea in Sweden, it was a positive development that a referral agree- the impact on profit was only DKK 620m, which also includes expenses ment was concluded with Danske Bank in Sweden in October 2013. for repurchase of a reinsurance agreement. However, to give the 45,000 Claims customers with claims the best possible service, temporary staff was employed. Telephone hours were extended, and the staff did everything The claims ratio, net of ceded business, which covers both claims they could to live up to Tryg’s values of being best at insurance and and business ceded as a percentage of gross premiums, was 72.1 people. The Danish Storm Council recognised the claims after the (71.8). The claims level includes an improvement due to the claims December storm as flood claims, but even before this had been deter- initiatives of DKK 300m, corresponding to 1.5%, and a higher mined, Tryg elected to give its customers the best possible service. weather claims level of 3.2% (1.8%) due to the storms in Denmark in Q4, in particular. In 2013, the large claims level was approximately Tryg has concluded a sideway reinsurance agreement running 2.1% (2.3%), and the run-off level was unchanged at 5.0%, which from 1 July 2013 to 30 June 2014. When the total weather claims reflects a solid level of provisions. expenses exceed DKK 300m, the agreement will cover the next DKK 600m. To be covered by the agreement, a claims event must The claims measures implemented have first and foremost included exceed DKK 20m. With this agreement, Tryg’s exposure to storm improved agreements with car repair shops, but 2013 also saw initia- and cloudburst claims will be limited in the first half of 2014. tives that have improved the procurement of claims services within contents insurance, among other things in the form of the agreement The large claims level was 2.1% (2.3%). The large claims level is ex- with Scalepoint, which benefits both customers and Tryg. The cus- pected to fluctuate over the years. The largest individual claim of tomers are offered freedom of choice among claims products, and the year of DKK 0.7bn related to an insolvent contractor insured in Tryg has access to favourable purchasing agreements and updated Tryg Garantiforsikring. However, due to a considerable reinsurance prices for similar products, which is particularly important in the field cover for this type of business, the effect on Tryg’s results was only of electronics claims. In addition, the claims initiatives are affected by DKK 30m. In step with the expansion of the Swedish part of the the efficiency improvements implemented in the claims organisation. Corporate segment, a higher large claims level must also be expected Weather claims Large claims DKKm 2,000 1,600 1,200 800 400 0 Expected level, net for 2013: DKK 500m 2009 2010 2011 2012 2013 DKKm 1,500 1,200 900 600 300 0 Expected level, net for 2013: DKK 450m 2009 2010 2011 2012 2013 Weather claims, gross Weather claims, net Large claims, gross Large claims, net Tryg’s results | Annual report 2013 | Tryg A/S | 17 here, and, in combination with a slightly less favourable agreement with the reinsurance companies within guarantee insurance, based With an intensified customer focus in the coming years, it is also on the above-mentioned claim, this is the main reason why the important that the efficiency programme allows investments that sup- expectations for the level of large claims, net of reinsurance, have port this focus, with regard to both internal employee development increased from DKK 450m to DKK 550m. and technological development. The run-off level was 5.0% (5.0%), which underlines Tryg’s solid pro- roll taxes in Denmark, which will increase further in 2014 from 10.9% visions coverage. The run-off gain was highest in Corporate, because to 11.4%. The tax will gradually increase from 2014 and will stand at the share of long-term business in the form of workers’ compensa- 15.2% in 2020. This increase will not affect Tryg’s expense ratio target tion, in particular, is larger than for the other business areas. of less than 15 from 2015. In recent years, the cost level has been impacted by increases in pay- Claims prevention activities in the form of Tryg Basement Check and Profit/loss on discontinued business Tryg Burglary Check, among others, were also important in 2013. The profit/loss on discontinued business was DKK -4m. Tryg will continue its claims prevention activities, but also strives to integrate them in products and benefits programmes. This has Investment return already been done in the benefits programmes launched on the The investment return was DKK 588m (DKK 585m) in 2013. Tryg’s in- Danish and Norwegian markets in 2013. vestment portfolio is divided into a match portfolio and a free portfolio. Expenses The match portfolio totalled DKK 30bn, and was made up of bonds which The expense ratio was 15.6 (16.4). This very large improvement was es- match the insurance provisions so that fluctuations resulting from interest pecially achieved through the ongoing efficiency programme and should rate changes are offset to the greatest possible extent. be seen in the light of the expense ratio target of less than 15 in 2015. The free portfolio is a diversified portfolio of real estate, equities and The efficiency programme contributed DKK 82m in 2013, corre- bonds which reflect the company’s total equity. At 31 December sponding to an impact on the expense ratio of 0.4 percentage points. 2013, the value of the free portfolio totalled DKK 13bn. The initiatives were especially targeted at reducing the staff functions, focusing on simplification and efficiency as well as an assessment of In general, the division of the investment portfolio entails a low finan- what Tryg’s core competencies should be, and what should be out- cial risk and reflects Tryg’s focus on the insurance business. sourced. The simplification has resulted in fewer management levels, and the number of managers relative to the number of employees has The return on the match portfolio was DKK 40m (DKK 75m) after been significantly reduced. These measures have reduced the number transferred return of technical provisions. of managers by 10% since the beginning of the efficiency programme. The number of employees was reduced from 3,913 to 3,703 in 2013. The return on the free investment portfolio was DKK 891m (DKK 1,130m). The return was impacted by price increases for equi- IT costs account for a considerable share of the total costs, and in ties, in particular. The equity portfolio, which is a globally diversified light of the unsatisfactory operations during the year, a process was portfolio, generated a positive return of 23.0% (13.0%). Bond invest- initiated to determine what will be outsourced and which partners ments were impacted by the development in interest rates in Europe Tryg will use. As a result of this process, Tryg concluded a four-year and produced a return of 3.3% and, for high-yield and emerging mar- agreement with TCS (Tata Consultancy Services Limited) on IT ser- ket bonds in particular, there was a high return in 2013. The composi- vices in January 2014. tion of the free portfolio was basically unchanged in 2013. In light of the lower premium income, it has also been necessary Other financial income and expenses were negative by DKK 343m, to continuously streamline cost levels in addition to the above- particularly due to the write-down of owner-occupied property of mentioned efficiency programme. DKK 76m. 18 | Tryg A/S | Annual report 2013 | Tryg’s results Tax Tax on profit for the year totalled DKK 620m, or 21% of the profit before tax. The low tax rate in 2013 is attributable to a high return on equities, which is exempt from taxation in Norway, and to the reduc- tion of income tax in the coming years in both Denmark and Norway, Financial highlights for Q4 2013 • Profit after tax of DKK 565m (DKK 404m). • Technical result of DKK 546m (DKK 648m). which has reduced deferred tax. In 2013, Tryg paid DKK 1,017m in • Combined ratio of 89.1 (87.4). income tax as well as various payroll taxes totalling DKK 342m, making the total payment DKK 1,359m in 2013. Capital position • • Weather claims impacted the combined ratio by 8.8 percentage points, especially due to storms during the quarter. Large claims impacted the combined ratio by 1.1 percentage points (4.3). Tryg’s equity totalled DKK 11,107m (DKK 10,979m) at 31 December • Expense ratio of 15.4 (16.3). 2013. According to the Danish Financial Supervisory Authority’s guidelines, an individual solvency requirement of DKK 6,366m as at year-end 2013 was calculated, based on a capital base of DKK 9,578m after proposed dividend. Tryg thus has surplus cover • Investment return of DKK 154m (DKK 5m). of DKK 3,212m, corresponding to 50.5%. division will be included in the finacial reporting from H1 2014. Results for Q4 2013 Dividend policy The profit after tax totalled DKK 565m for Q4 2013 (DKK 404m). According to Tryg’s dividend policy, the aim is to pay out a share of The technical result was DKK 546m (DKK 648m), and this was the profit for the year in the range of 60-90% and for the nominal affected by costs for the storms of approximately DKK 400m. dividend to be steadily increasing. For 2013, a dividend of DKK 27 The investment return was DKK 154m (DKK 5m), which was per share is proposed, corresponding to DKK 1,656m, which mainly due to a high return on equities. amounts to 70% of the profit for the year. In 2013, a share buy back of DKK 800m was completed, and October and December storms, which in combination with the winter in December, Tryg announced that from 2 January 2014 and effect impacted the combined ratio by 8.8 (2.2), a low large claims throughout the year, an additional extraordinary share buy back level corresponding to 1.1 (4.3) and a higher run-off level by 5.2 (4.7). of DKK 1,000m will be initiated. In connection with the October and December storms, Tryg’s claims organisation rallied to help the many customers who were affected. The combined ratio was 89.1 (87.4), and this was impacted by the Events after the statement of financial position date On 29 January, Tryg published a company announcement concerning The premium level in local currencies fell in Q4 by 2.4% (0.5%), sourcing agreements with TCS (Tata Conlsultancy Services Limited) and exclusive of the impact of profit sharing, the premium growth on IT operations and Accenture on parts of the IT development. The was negative by 1.5%. agreements are entered to ensure more modern and future-orien- tated IT oprations and as part of Tryg’s target to reduce the expense ratio to below 15 in 2015. At the end of January 2014, Tryg changed the portfolio division of the Commercial and Corporate business areas. The purpose of the new subdivision is to make Corporate more focused on major customers, while placing customers with more standardised insurance require- ments in Commercial. With this change, almost DKK 1bn worth of busi- ness will be moved from Corporate to Commercial. The new portfolio Tryg’s results | Annual report 2013 | Tryg A/S | 19 Private Financial highlights • Technical result improved by DKK 102m to DKK 1,335m (DKK 1,233m), despite the storms in Q4. • Combined ratio improved by 1.7 percentage points to 86 (87.7). • Claims ratio, net of ceded business, improved by 1.1 percentage points to 70.9 (72). • Gross premiums reduced by 2.2% against growth of 1.5% in 2012. through efficiency improvements, which more than compensated for a considerably higher level of weather claims. Very few extraordinary price increases were implemented in 2013, only to counter infla- tion. The expense ratio was reduced considerably from 15.7 to 15.1 in 2013, which was achieved concurrently with a falling premium income. Premiums Gross premiums fell by 2.2% against growth of 1.5% in local curren- cies in 2012. Development in Denmark was negative at 3.8%, and the • Significant reduction of the expense ratio from 15.7 to 15.1. premium income was largely unchanged in Norway. The develop- ment in Denmark is partly attributable to the sound profitability of partner agreements with profit sharing. Adjusted for the higher Private encompasses the sale of insurance products to private in- level of profit sharing, growth in Denmark was negative by 1.1%. In dividuals in Denmark and Norway. Sales are effected via call centres, the addition, growth is affected by the increase in Denmark in the sale of Internet, Tryg’s own agents, franchisees (Norway), interest organisa- small cars, which involve a lower risk and thus a lower price level due tions, car dealers, estate agents and Nordea’s branches. The business to their size and safety features. The development was also affected area accounts for 48% of the Group’s total premium income. by the price measures implemented in previous years, which have Results brought down the number of customers. The zero growth in Norway can be ascribed to a combination of several factors: a Norwegian The technical result was DKK 1,335m (DKK 1,233m), with a com- economy with solid growth, a retention rate which remains high and bined ratio of 86 (87.7). The improvement was achieved mainly a highly competitive market, which led to a fall in sales. Key figures – Private DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 20 | Tryg A/S | Annual report 2013 | Private Q4 2012 Q4 2013 2,449 -1,717 -383 2,290 -1,731 -334 349 -27 4 326 40 0.6 70.1 1.1 71.2 15.6 86.8 88.4 -1.6 0.6 2.5 225 57 4 286 72 -1.7 75.6 -2.5 73.1 14.6 87.7 90.8 -3.1 0.4 8.0 2012 9,733 -7,084 -1,524 1,125 81 27 1,233 326 1.5 72.8 -0.8 72.0 15.7 87.7 91.0 -3.3 0.1 2.4 2013 9,366 -6,596 -1,418 1,352 -43 26 1,335 310 -2.2 70.4 0.5 70.9 15.1 86.0 89.3 -3.3 0.1 3.2 Price differentiation and new customer benefits were the main focus of 2013. Lars Bonde, Group Executive Vice President, Private Tryg’s retention rate remained high, which is supported by customer surveys from EPSI for 2013 which show that customer satisfaction in Tryg, in both Denmark and Norway, increased. Private has focused on introducing new price-differentiated products, and introduced eight new products in 2013. The combination of such products and Financial highlights for Q4 2013 • Technical result of DKK 286m (DKK 326m). a targeted selection of customers led to a considerably higher rate of • Combined ratio of 87.7 (86.8). sales than for the old products. • The quarter was characterised by claims resulting from storms in October and December. Claims • Expense ratio of 14.6 (15.6). The gross claims ratio amounted to 70.4 (72.8), and the claims ratio, net of ceded business, was 70.9 (72.0). The improvement is attribut- able to the efficiency programme implemented, which led to lower claims costs despite a higher level of weather claims in connection Results for Q4 2013 with the storms which hit Denmark in October and December. The technical result totalled DKK 286m (DKK 326m) and was Private focused strongly on providing advice to and helping customers mainly affected by the October and December storms in Denmark. in connection with the 32,000 claims. In addition, the run-off gains were at a high level of 3.1 (1.6), and, all Run-off gains/losses affected the combined ratio positively by programme. The combined ratio was 87.7 (86.8) in Q4 2013. Gross in all, the results were positively affected by the ongoing efficiency 3.3 percentage points (3.3). Expenses premiums fell by 1.7% in Q4, representing a lower reduction than for the full year. The retention rate in Denmark was 89.2 (90.2), which was still high, while the retention rate in Norway was 87.2 The expense ratio was 15.1 (15.7). This considerable reduction was (86.8). The gross claims ratio was 75.6 (70.1) and the claims ratio, achieved through a reduction of staff costs as part of the efficiency net of ceded business, was 73.1 (71.2). The expense ratio was programme as well as through continued optimisation of the distri- 14.6 (15.6). The considerable fall is due to the ongoing efficiency bution costs, in particular. The number of employees was increased programme, but was also affected by the usual fluctuations in costs from 887 in 2012 to 923 in 2013. between the quarters. Customer retention – Private % 94 92 90 88 86 84 82 2008 2009 2010 2011 2012 2013 Denmark Norway Private | Annual report 2013 | Tryg A/S | 21 Commercial Financial highlights • Good technical result of DKK 439m (DKK 604m). • Combined ratio of 87.9 (83.7). • The gross premiums were reduced by 3.2% (2.0%) as a result of profitability measures and the economic situation for businesses in Denmark. • Significant reduction in the expense ratio to 19.3 (20.3). initiative to ensure a profitable and sustainable business. The result was that the segment achieved satisfactory results both in 2012 and in 2013. The higher combined ratio in 2013 is due to the storms in Q4. The technical result was DKK 439m (DKK 604m), with a combined ratio of 87.9 (83.7). These results reflect that Commercial has reached a satisfactory level, contributing positively to the Group’s overall profit. This was achieved through efficiency improvements and the implemented profitability and segmentation measures. Commercial also developed price-differentiated products in 2013, Commercial encompasses the sale of insurance products to small and it has been particularly important to introduce a new workers’ and medium-sized businesses in Denmark and Norway. Sales are compensation product which reflects the risk far better than before. effected by Tryg’s own sales force, franchisees (Norway), customer This resulted in a higher rate of sales for this product. centres as well as through group agreements. The business area accounts for 18% of the Group’s total premium income. Cost reductions have been vital to improve the competitive situation Results and to contribute to strengthening results. Against this background, it is very satisfactory that the expense ratio was reduced by 1 per- The results of Commercial have historically been unsatisfactory, centage point to 19.3, and that this was achieved at the same time which spurred the decision to define the segment as a strategic as the premium level was reduced. Key figures – Commercial DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 22 | Tryg A/S | Annual report 2013 | Commercial Q4 2012 Q4 2013 906 -542 -181 183 -25 -2 156 29 -3.3 59.8 2.8 62.6 20.0 82.6 85.8 -3.2 5.0 4.0 862 -691 -158 13 54 3 70 30 -1.5 80.2 -6.3 73.9 18.3 92.2 95.7 -3.5 0.2 17.2 2012 3,687 -2,372 -748 567 32 5 604 212 -2.0 64.3 -0.9 63.4 20.3 83.7 89.4 -5.7 1.5 1.9 2013 3,528 -2,438 -680 410 19 10 439 176 -3.2 69.1 -0.5 68.6 19.3 87.9 92.9 -5.0 2.2 5.2 With yet another strong year, Commercial has built a solid foundation for continued customer focus. Trond Bøe Svestad , Group Executive Vice President, Commercial Premiums A combined fall in premium income of 3.2% (2.0%) was realised, when measured in local currencies. The fall was based on negative growth in Denmark of -4.7% and in Norway of -0.3%. The negative development in Denmark was expected due to selective measures taken against unprofitable customers and segments to improve profitability. The negative development in Norway is also attribut- able to profitability measures, but the very competitive market also played a part. In the last half of the year, specialisation of customer Financial highlights for Q4 2013 • Technical result of DKK 70m (DKK 156m). • Combined ratio of 92.2 (82.6). • Claims ratio, net of ceded business, of 73.9 (62.6) characterised by a high level of weather claims, mainly due to the October and December storms in Denmark. sales and service was introduced. This has, among other things, • Run-off gains of 3.5 (3.2). involved increased automation, the development of sales channels • Expense ratio of 18.3 (20.0). and the optimisation of the booking of meetings, which is expected to contribute positively in future. Results for Q4 2013 Claims A technical result of DKK 70m (DKK 156m) was posted, and was The gross claims ratio amounted to 69.1 (64.3), and the claims ratio, affected by the storms in Denmark, in particular, and a high level of net of ceded business, was 68.6 (63.4). The low level is attributable run-off gains. to the profitability measures and the efficiency programme. Com- mercial was also affected by the October and December storms, and The combined ratio was 92.2 (82.6), and was affected by the above- as the level of medium-sized claims was also higher, the claims ratio, mentioned storm claims which caused weather claims to have an net of ceded business, was slightly higher than in 2012. Extensive ef- effect of 17.2 (4.0). Against this background, the combined ratio forts were also directed at consulting and helping the many affected was satisfactory. commercial customers. At 2.2 (1.5), the large claims level was slightly higher than the ment seen in 2013. The retention rate in Denmark was 86.1 (84.6), previous year. Run-off gains stood at 5.0 (5.7), and the high level is while it was 87.6 (87.4) in Norway. The gross claims ratio was 80.2 mainly attributable to run-off gains within workers’ compensation (59.8), the claims ratio, net of ceded business, was 73.9 (62.6), and The gross premiums fell by 1.5% (3.3%) in Q4, halting the develop- insurance. Expenses the expense ratio was 18.3 (20.0). The expense ratio was 19.3 (20.3), which was a satisfactory develop- ment achieved despite the reduction in premium income. The lower Customer retention – Commercial cost level is attributable to the efficiency programme and the above- mentioned structural measures in relation to distribution. Commer- cial will continue to focus on cost reduction in the coming years, as this is important to strengthen competitiveness and results. % 92 90 88 86 84 82 2008 2009 2010 2011 2012 2013 Denmark Norway Commercial | Annual report 2013 | Tryg A/S | 23 Corporate Financial highlights • Technical result of DKK 573m (DKK 650m). • Combined ratio of 88.9 (87.7). • Gross premiums reduced by 2.8% (2.0%) primarily due to profitability measures. • Expense ratio of 12.5 (12.3). more personal business, in particular, the capital requirement has in- creased, for which reason Corporate should have a lower combined ratio than the other business areas. The technical result for 2013 was DKK 573m (DKK 650m), with a combined ratio of 88.9 (87.7). These results are not satisfactory for certain areas when considering the capital requirement. Because of this, individual measures have been implemented for unprofitable customers in Denmark, Norway and Sweden. Premiums Corporate sells insurance products to corporate customers under the All in all, gross premiums fell by 2.8% (2.0%) in local currencies. The ‘Tryg’ and ‘Tryg Garanti’ brands in Denmark and Norway and under the negative development was a combination of a negative development ‘Moderna’ brand in Sweden. Sales are effected both via Tryg’s own sales of 2.8% in Denmark and 5.3% in Norway, and positive growth in force and via insurance brokers. Moreover, customers with international Sweden of 9%. The development in both Denmark and Norway can insurance needs are served by Corporate through its cooperation with be ascribed to price increases, adjustments to the customer portfolio the AXA Group. Tryg Garanti is also included in Corporate results. The and lower sales. A characteristic of the corporate market is that a few business area accounts for 26% of the Group’s total premium income. customers can have a significant effect on premium development. Results New players will often compete on price, which means that premium income will fluctuate more here than in the other business areas. The Corporate business area is focused on generating results which Throughout the year, Corporate continued its work on developing are satisfactory relative to the capital attributable to the area. Due to customer benefits targeted at the various customer groups. The Key figures – Corporate DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 24 | Tryg A/S | Annual report 2013 | Corporate Q4 2012 Q4 2013 1,330 -1,035 -162 133 -9 -3 121 169 -1.4 77.8 0.7 78.5 12.2 90.7 103.4 -12.7 11.8 0.8 1,243 -875 -159 209 -68 5 146 123 -1.9 70.4 5.5 75.9 12.8 88.7 98.6 -9.9 3.1 6.3 2012 5,258 -3,929 -648 681 -37 6 650 506 -2.0 74.7 0.7 75.4 12.3 87.7 97.3 -9.6 7.6 0.6 2013 5,041 -4,201 -630 210 348 15 573 464 -2.8 83.3 -6.9 76.4 12.5 88.9 98.1 -9.2 6.3 2.3 A future model for corporate customer service was an important focus area for Corporate. Truls Holm Olsen, Group Executive Vice President, Corporate requirements vary considerably between the different customers, for example between the very big industrial groups and the medium- sized businesses that are served by brokers. Financial highlights for Q4 2013 Claims • Technical result of DKK 146m (DKK 121m). The gross claims ratio amounted to 83.3 (74.7), and the claims ratio, • Combined ratio of 88.7 (90.7). net of ceded business, was 76.4 (75.4). Gross claims were affected by a large claim of DKK 0.7bn in Tryg Garanti, related to an insolvent • Gross premiums reduced by 1.9% (1.4%) primarily due to profitability measures. contractor, which after reinsurance affected the claims by DKK 30m. • Expense ratio of 12.8 (12.2). Adjusted for run-off level, weather and large claims, the claims ratio, net of ceded business, was at the same level as in 2012. The develop- ment in the Swedish part of the Corporate segment, in particular, Results for Q4 2013 was not quite satisfactory, and measures were taken to improve The technical result was DKK 146m (DKK 121m), which was satis- profitability. The action taken included pruning of customers and factory in light of the high level of weather claims, in particular. The measures across the portfolio. Run-off gains/losses impacted the combined ratio was 88.7 (90.7). The lower level can be attributed to combined ratio positively by 9.2 percentage points. a positive development in claims. The gross premiums fell by 1.9% Expenses in Q4, which was expected considering the development in the rest of the year. The claims ratio was 70.4 (77.8), and the claims ratio, net The expense ratio was 12.5 (12.3) in 2013, which is satisfactory in of ceded business, was 75.9 (78.5), despite the above-mentioned light of the reduced premium levels. The reduction was achieved higher level of weather claims. The expense ratio was 12.8 (12.2), through the ongoing efficiency programme as well as through a re- which was slightly higher, due, in particular, to a reduction in pre- duction in cost levels effected to adapt to the lower business volume. mium income. Corporate | Annual report 2013 | Tryg A/S | 25 Sweden Financial highlights plemented in 2013, and with the results achieved in recent years, the profitability target has been fulfilled. • Technical result improved by DKK 47m to DKK 149m. • • Combined ratio improved by 4.1 percentage points to 91.2 (95.3). Gross premiums reduced by 4.9% (0.7%) as a result of profit- ability measures and termination of Nordea bank distribution. A profit of DKK 149m (DKK 102m) was posted. This has been achieved through improved profitability within the broad private market. The improvement was also helped by reducing the bank insur- ance business volume, where profitability has been unsatisfactory. The niche areas comprising leisure boats, motorcycles and product insurance in connection with electronics purchases continue to be very profitable. Sweden comprises the sale of insurance products to private Premiums customers under the ‘Moderna’ brand. Sales are effected via Tryg’s Premium income was reduced by 4.9% against growth of 0.7% in own salespeople, call centres and the Internet. The business area 2012. The negative development is due to Tryg’s focus on profitability accounts for 8% of the Group’s total premium income. and the considerable price increases in recent years within the Private segment, just as the number of partner agreements has been signifi- Results cantly reduced to ensure profitability. In recent years, improving earnings in the business area in Sweden has been an important strategic initiative to improve Tryg’s results. In addition, as expected, premium income is affected by the termin- Key initiatives have included pricing improvements and integrating ation of the distribution agreement with Nordea. Instead an agreement the original bank insurance business and the acquired Moderna. was concluded in 2013 with Danske Bank in Sweden to supplement Significant structural measures in relation to distribution were im- the existing agreement with ICA Bank. Key figures – Sweden DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Weather claims, net of reinsurance (%) 26 | Tryg A/S | Annual report 2013 | Sweden Q4 2012 Q4 2013 399 -268 -84 47 3 4 54 -1 0.9 67.2 -0.8 66.4 21.1 87.5 87.2 0.3 1.3 348 -250 -67 31 10 3 44 22 -10.6 71.8 -2.9 68.9 19.3 88.2 94.5 -6.3 2.3 2012 1,654 -1,267 -306 81 -3 24 102 -29 0.7 76.6 0.2 76.8 18.5 95.3 93.5 1.8 1.2 2013 1,587 -1,178 -280 129 9 11 149 20 -4.9 74.2 -0.6 73.6 17.6 91.2 92.5 -1.3 1.4 Structural changes in relation to distribution were in focus in 2013. Per Fornander Group Executive Vice President, Sweden Claims The gross claims ratio amounted to 74.2 (76.6), and the claims ratio, net of ceded business, was 73.6 (76.8). This improvement is the result of price increases and a reduction of unprofitable customer groups. In addition, improved tariffs within both motor and house insurance and new customer benefits have had a positive effect. Financial highlights for Q4 2013 • Technical result of DKK 44m (DKK 54m). • Combined ratio of 88.2 (87.5). The claims ratio is otherwise positively affected by major efficiency • Expense ratio of 19.3 (21.1). improvements in claims handling, and the fact that a very large pro- portion of claims are being registered and finalised on the same day, which, from experience, results in high customer satisfaction and a positive effect on the claims level. Results for Q4 2013 Expenses The technical result was DKK 44m (DKK 54m), and the combined ratio was 88.2 (87.5 ), which was very satisfactory. Gross premiums An improved expense ratio of 17.6 (18.5) was achieved in 2013, fell by 10.6% in Q4, a high level which, among other things, resulted which is very satisfactory and was achieved concurrently with from the termination of the bank distribution cooperation with negative premium growth. To ensure further growth, Moderna has Nordea. implemented a number of structural initiatives, which has resulted in cost level improvements and will contribute further in the coming The claims ratio was 71.8 (67.2), and the claims ratio, net of ceded years. The initiatives have, among other things, included a central- business, was 68.9 (66.4). isation of functions within distribution, claims handling and staff services. The customer service and telemarketing functions were The expense ratio was 19.3 (21.1), which was satisfactory in light of gathered in Malmö, and a similar function was closed down in Luleå the falling premium level. in northern Sweden. In the course of 2013, Moderna converted to using only one IT system, which will contribute to further cost reductions. Sweden | Annual report 2013 | Tryg A/S | 27 Investment activities Financial highlights • Investment return of DKK 588m (DKK 585m). • Return on match portfolio after transfer to insurance of DKK 40m (DKK 75m). • Gross return on free portfolio of DKK 891m (DKK 1,130m). At 31 December 2013, the investment portfolio totalled DKK 43.0bn. It is divided into a match portfolio and a free portfolio of DKK 30bn and DKK 13bn, respectively. The sole purpose of the match portfolio is to hedge fluctuations in the discounting of insurance provisions and to reduce the interest risk attaching to the claims provisions. The free investment portfolio generally corresponds to equity and is invested in bonds, property and equities. • Write-down of owner-occupied property of DKK 76m. Investment return 2013 was in many ways the year when optimism returned, and the equity markets developed positively. In 2013, Tryg’s total investment Tryg mainly invests in bonds, equities and property. The investment portfolio yielded a gross return of DKK 1,116m (DKK 2,205m). The activities are regulated by legislation and by the policies and return for the year totalled 2.5% of the average invested capital. guidelines adopted and issued by the Supervisory Board. The insurance activities provide the basis for the Tryg Group being equity markets. The same was true for bonds, where credit spreads able to generate good and stable earnings, while the purpose of developed favourably, not least for high-yield bonds. The satisfactory results were achieved in particular due to positive the investment business is to support the insurance business. This has been adopted in the strategy for the investment area, 2013 was also impacted by concerns relating to the American monetary where the objective is to minimise the effect of interest rate changes and fiscal policy. It was characterised by speculations concerning the and to drive the investments with as low a risk as possible and with Federal Reserve’s possible gradual tapering of bond purchases, and the as low a capital requirement as possible. politicians’ disagreements on the US budget and the so-called debt ceiling. Key figures for the year – Investments DKKm Bonds, cash deposits etc. a) Equities Real estate Total Value adjustments, changed discount rate Transferred to insurance technical interest Total investment return before other financial items Other financial income and expenses, investment b) Total investment return Other financial income and expenses, non-investment b) Investment return Investment assets 31.12.13 31.12.12 40,802 2,444 2,081 38,339 2,656 2,022 45,327 43,017 Free 247 564 80 891 891 Return 2012 Total Return 2013 Match 225 225 298 -483 40 1,731 269 205 2,205 -475 -525 1,205 -70 1,135 -550 585 472 564 80 1,116 298 -483 931 -40 891 -303 588 a) Bonds, cash deposits etc. at 31 December 2012 has been adjusted. Bonds from the Finnish branch have been removed. b) The item comprises interest on operating assets and bank debt, exchange rate adjustments of insurance items, writedown of owner-occupied property and costs of investment activities. 28 | Tryg A/S | Annual report 2013 | Investment activities Tryg achieved a satisfactory free portfolio return of DKK 891m. The return on the match portfolio must thus cover price adjustments of To this should be added a mismatch of DKK 40m, as described the claims provisions and the insurance technical interest. below. All in all, this yielded a gross return after transfer to technical interest of DKK 931m. Tryg’s aim of reducing deviations as much as possible yielded an overall positive mismatch of DKK 40m, although the year was characterised The value of Tryg’s owner-occupied property in Ballerup was by major interest rate fluctuations. adjusted to the market rent level through a write-down of DKK 76m, which affected other financial expenses and income negatively. For example, in May, the 10-year Danish swap rate fell to a historically low level of 1.6%, subsequently increasing to a level of 2.6% at the After transfer of insurance technical interest to insurance and other beginning of September. At the end of 2013, the interest rate had fallen financial expenses and income, the total investment return totalled again to 2.4%. The European interest rates fluctuated less, and, all in DKK 588m (DKK 585m). all, the local hedging in Denmark, Norway and Sweden was satisfactory with a positive mismatch of DKK 40m. This corresponded to a deviation The match portfolio of approximately 0.2% of the value of the match portfolio. The interest rate risk for the claims provisions is hedged by Danish, Norwegian and Swedish interest rate swaps. Thereby Tryg avoids The match portfolio totalled DKK 30bn at the end of the year. fluctuations in the fair value of its long-term liabilities in the respec- tive countries. Fluctuations in swap rates, which are sometimes The free investment portfolio greater or smaller than the Danish Financial Supervisory Authority’s The free investment portfolio generated a total gross return of rates, may cause a mismatch to arise. In addition, a mismatch may DKK 891m, corresponding to 7.5% of the average invested capital. arise from other risks which are not interest rate risks and which The free portfolio amounted to approximately DKK 13bn at the end of cannot be hedged accurately. 2013, up DKK 2.2bn (DKK 10.8bn). Key figures for investments Q4 DKKm Bonds, cash deposits etc. a) Equities Real estate Total Value adjustments, changed discount rate Transferred to insurance technical interest Total investment return before other financial items Other financial income and expenses, investment b) Total investment return Other financial income and expenses, non-investment b) Investment return Return Q4 2012 Return Q4 2013 Total Match Investment assets 31.12.13 Free 38,339 2,656 2,022 43,017 140 140 18 -120 38 111 163 9 283 283 374 67 43 484 -104 -105 275 -20 255 -250 5 251 163 9 423 18 -120 321 -14 307 -153 154 a) Bonds, cash deposits etc. at 31 December 2012 has been adjusted. Bonds from the Finnish branch have been removed. b) The item comprises interest on operating assets and bank debt, exchange rate adjustments of insurance items, writedown of owner-occupied property and costs of investment activities. Investment activities | Annual report 2013 | Tryg A/S | 29 In 2013, investor confidence largely returned, and the positive devel- worry about investments in the developing countries, in particular, opment on the equity markets, where the world index only developed and also in high-yield bonds. All in all, the bonds in the free portfolio negatively in two of the 12 months, provided a positive return on Tryg’s yielded a return of 3.3%. equity portfolio of DKK 564m, corresponding to 23.2%. Tryg’s equity portfolio is globally diversified, and the Japanese equites in particular, The real estate portfolio, comprising Danish and Norwegian invest- but also American and Nordic equities, contributed positively to the ment properties, generated a return of DKK 80m, which was below return on Tryg’s equity portfolio. By comparison, the Japanese Nikkei the expected level of 6% due to property write-downs. index yielded a return of approximately 57%, but also American and Nordic equities yielded a return of more than 20%. Other financial income and expenses Other financial income and expenses, which are included in the The exposure to credit bonds has also contributed satisfactorily to investment return, were negative at DKK 343m in total (DKK 620m). the return on the free bond portfolio of DKK 247m. This has been This item comprises a number of elements, including the expense of achieved in spite of uncertainty regarding the US Federal Reserve’s hedging the currency risk of Tryg’s own equity in Sweden and Norway. gradual tapering of bond purchases in Q2, which caused investors to Another element is related to the expenses of DKK 89m due to Tryg’s subordinate loans. In addition, Tryg effected a write-down on its owner- occupied property of DKK 76m. Total investment portfolio 7 5 3 3 9 Per cent 76 Mortgage bonds High-yield bonds Government bonds Real estate Equities Bank deposits Match portfolio Free investment portfolio 6 Per cent 94 Mortgage bonds Bank deposits 17 36 Per cent 22 15 9 1 Mortgage bonds High-yield bonds Government bonds Real estate Equities Bank deposits 30 | Tryg A/S | Annual report 2013 | Investment activities Financial highlights for Q4 2013 • Investment return of DKK 154m (DKK 5m). • Return on match portfolio of DKK 38m (DKK 19m). • Return on free portfolio of DKK 283m (DKK 256m). • Write-down of owner-occupied property of DKK 76m. Investment activities in Q4 2013 In Q4, Tryg’s investment portfolio yielded a gross return of DKK 423m, where the bond portfolio contributed a return of DKK 251m, and the equity portfolio DKK 163m. The return on the real estate portfolio was DKK 9m. After transfers to insurance technical interest, the net return totalled DKK 321m The match portfolio yielded a positive mismatch of DKK 38m, while the free portfolio yielded a return of DKK 283m. In Q4, other financial income and expenses were impacted by DKK 76m relating to the above-mentioned write-down of Tryg’s owner-occupied property. After other financial income and expenses totalling DKK 167m, the total return on Tryg’s investment activities was DKK 154m in Q4. Investment activities | Annual report 2013 | Tryg A/S | 31 Tryg ID I Identity theft is one of the fastest-growing crimes in the world and is also a growing problem in Denmark. Tryg offers free access to identity protection for our Tryg Plus customers. The identity protection service helps customers reduce the risk of identity theft and handle cases of suspected or confirmed identity theft. Are you receiving unexpected bills? Or are you suddenly Investigating identity theft and getting your life back is no longer receiving post? Then you may be the victim of an overwhelming and time-consuming task. We therefore identity theft. Each year, more than 70,000 Danes are advise on ways of minimising the risk of theft, and help affected by identity theft. with all the practicalities in cases of misuse of personal information. In this way, we hope to provide more peace We hear from increasing numbers of customers who are of mind for our customers. concerned about the issue. Capital and risk management Read more about Tryg’s risk management and risk types in Note 1 on page 67. Credit ratings At 31 December 2013 Tryg Forsikring A/S Tryg Garantiforsikring A/S Standard & Poor’s ‘A-’/stable ‘A-’/stable The main concept of insurance is that of spreading risk. By pooling among other things, of a calculation of the capital requirements, and risks from a large number of customers, an insurance company’s against this background an annual review is made of the company’s risks are spread more evenly and are also more predictable, thereby risk appetite and limits. redu cing the capital required to cover negative fluctuations. The assessment and management of the company’s aggregate risk and To support the company’s risk management, the Supervisory Board the associated capital requirements therefore constitute a central has appointed a Risk Committee consisting of representatives of the element in the management of an insurance company. Supervisory Board and the day-to-day executive management. The Risk Committee monitors Tryg’s risk scenario at all times. Risk profile and appetite Tryg’s Supervisory Board defines the company’s risk appetite and Capital requirement and management thereby also the capital which must be available to cover any losses. Capital management is based on Tryg’s internal capital model which The risk appetite is described in the company’s policies via exposure is based on the risk profile, and which thus takes account of the limits for different types of risk. Examples of this is the management of composition of the insurance portfolio, the geographical spread, the investment risk via exposure limits within different asset classes the provision profile, the reinsurance programme, the investment (equities, property etc.) and the management of the total interest risk portfolio and Tryg’s profitability in general. The model calculates the via the company’s match strategy. This prescribes that the company’s statutory capital requirement (Individual Solvency Requirement) with investment assets corresponding to the technical provisions must be a 99.5% certainty level, meaning that Tryg would statistically be able invested in interest-related assets, the interest rate sensitivity of which to honour claims in 199 out of 200 years. precisely matches and thereby hedges the interest rate sensitivity of the discounted provisions. At the end of 2013, the Individual Solvency Requirement totalled DKK 6,366m (DKK 6,410m). The capital required to meet the Indi- The fundamental insurance risk is managed via limits for the size of vidual Solvency Requirement is called the capital base. At the end of single large commitments and via the use of reinsurance, thereby 2013, the capital base totalled DKK 9,578m after dividend, corres- limiting the maximum cost of large claims, expenses due to a storm, ponding to a surplus cover of DKK 3,212m. cloudburst or another event which affects a number of insurances simultaneously. Moreover, the insurance risk is managed through The Supervisory Board regularly assesses the need for capital adjust- geographical limitations and by refraining from offering certain types ments. Any adjustments are effected once a year in connection with of insurance such as aviation and marine insurance. Operating within the distribution of dividend. Extraordinary adjustments are made these limits, the company’s risk will depend on the decisions made by through share buy backs. The assessments are made in the com- the company as well as the development in the underlying risk factors pany’s capital plan, in which the the Individual Solvency requirement such as share prices, the price of reinsurance, claims frequencies etc. is projected based on Tryg’s budgets, seeking to realise a number of the identified risks through various scenarios. Good risk management requires the ongoing identification and quanti- fication of these risk factors, subsequent reduction of undesired risks In the light of the expected satisfactory results for 2013 and the solid and reporting of the whole risk scenario. The quantification consists, capital position, a decision was made in December 2013 to implement 34 | Tryg A/S | Annual report 2013 | Capital and risk management Download dividend and capital management brief an extraordinary share buy back totalling DKK 1bn. The buy back panies (Bekendtgørelse om solvens og driftsplaner for forsikringssel- will take place between 2 January 2014 and the end of the year. skaber) with effect from 1 January 2014. The executive order contains Moreover, at the annual general meeting to be held on 3 April 2014, provisions for the uniform calculation of the solvency requirement the Supervisory Board will propose that dividend of DKK 27 per based on either a predefined standard formula or an internal model. share be paid, corresponding to the distribution of DKK 1,656m. Tryg’s capital model is based on the Solvency II principles, and the re- In conjunction with the capital plan, a contingency plan has been pre- the company’s Individual Solvency Requirement. The executive order pared which describes specific measures which may be introduced contains a transitional provision on the calculation of the capital base in the short term, should the company’s desired capital position be which results in a moderate increase in Tryg’s solvency surplus cover. vised executive order therefore does not noticeably impact the size of threatened. Capital structure The executive order also contains requirements for a specific risk assess- ment, the form and scope of which are very similar to the assessment Tryg’s capital base consists of equity and subordinate loan capital. known as the Own Risk and Solvency Assessment (ORSA) under the The relative sizes of these two categories are subject to ongoing Solvency II rules. Tryg has for several years prepared ORSA reports, which assessment with a view to maintaining an optimum structure which assess the general risk profile and propose improvements. In 2013, such takes account of the target return on equity, the capital costs for the a risk assessment was also carried out and considered by the company’s two categories and the desired financial flexibility. day-to-day management and Supervisory Board, which are consequently entering 2014 with a fully updated view of Tryg’s risk profile. Read Based on such an assessment, in 2013 Tryg repaid a subordinate more about Tryg’s risk management under Note 1 on page 67. loan from TryghedsGruppen of EUR 65m, replacing it with a new sub- ordinate loan of NOK 800m. Unlike the old loan, the new sub ordinate Standard & Poor’s loan is for a perpetual term, which therefore means that the loan Tryg has achieved an ‘A-’ rating from Standard & Poor’s and aims to is included in the capital base in full, which thus increased by NOK maintain this rating. 800m. Against this background, in 2013 an extraordinary distribution was made through the acquisition of own shares for an amount of DKK 800m. All in all, the distribution and the new sub ordinate loan did not change the size of the capital base, but the equity share was reduced, which in isolation makes a positive contribution to the future Capital return on equity, for the benefit of Tryg’s shareholders. Moreover, the new subordinate loan is expected to qualify for inclusion as Tier 2 capital under the new capital solvency rules (Solvency II). Read more about Tryg’s subordinate loan under Note 2 on page 79. At the end of 2013, Tryg’s subordinate loan capital corresponded to 16% of equity, with total interest expenses of DKK 89m. New individual solvency and Solvency II The forthcoming joint European rules providing uniform protection for policyholders (Solvency II) are now expected to take effect on 1 January 2016. The implementation date has been postponed several DKKm 12,000 10,000 8,000 6,000 4,000 2,000 0 Individual Solvency Solvency II a) Capital requirement Buffer times, and the Danish Financial Supervisory Authority has therefore decided to implement the most important elements via the revised Executive Order on Solvency and Operating Plans for Insurance Com- a) Tryg’s expectations as regards the future Solvency II standard model are based on the Danish Financial Supervisory Authority’s revised Executive Order on Solvency and Operating Plans for Insurance Companies, which came into force on 1 January 2014. Capital and risk management | Annual report 2013 | Tryg A/S | 35 Shareholder information ‘Investor Relations’ (IR) is responsible for communication with the equity market. It is important for Tryg that investors, shareholders, Financial calendar 2014 analysts and other stakeholders are able to form a true and fair view of developments, including the financial results. For this reason, we emphasise openness and transparency to ensure that stakeholder information requirements are accommodated best possible. 3 April 2014 4 April 2014 9 April 2014 Annual general meeting Tryg shares trade ex-dividend Payment of dividend IR is also responsible for contact to rating agencies and bond investors. 10 April 2014 Interim report for Q1 2014 Tryg’s IR policy is available at tryg.com > Investor. 10 July 2014 Interim report for H1 2014 10 October 2014 Interim report for Q1-Q3 2014 Following the publication of interim reports, IR heads out on a road- show with Tryg’s Executive Management to discuss the company’s development with investors and analysts. In addition, Tryg participates accounted for 41.8% of the turnover of the Tryg share. In addition, in a number of financial conferences. In 2013, we held investor meet- 13% of trading in 2013 was carried out on alternative exchanges ings in the financial centres in Europe, the USA and Canada, and we (MTF trades), led by BATS Chi-X as the largest alternative exchange. visited Asia twice. These were the first investor meetings in Asia and Nasdaq OMX is still the most important trading platform for the Tryg were arranged following increased interest in the Tryg share. The Tryg share, where most of the trading takes place, and where the price of share is followed closely by 22 analysts, who continuously update the Tryg share is determined. Other trading platforms such as OTC their expectations for and views on the share. See a list of analysts (over-the-counter) and dark pools represent a large share of the re- and their recommendations of Tryg at tryg.com > Investor. maining trade, but it takes place outside of the established exchanges and MTFs and thus does not have a direct impact on the price of The Tryg share and the liquidity in the share. The Tryg share is listed on Nasdaq OMX Copenhagen and is covered by the OMX C20 index (OMX C20 CAP), comprising the 20 most In 2013, a share buy back programme totalling DKK 800m, correspond- traded shares on the exchange. In accordance with the recommenda- ing to 1.6 million shares, was completed. This had a positive impact on tions issued by Nasdaq OMX Copenhagen, Tryg does not comment the turnover of the Tryg share. The total turnover (including OTC trades) on financial results or outlook two weeks before the publication of of the share increased from 34 million shares in 2012 to 43 million interim reports and four weeks before the publication of the annual shares in 2013. report. All financial information is published on tryg.com in Danish and English. It is possible to order annual reports and subscribe for news Share capital and ownership and RSS feeds on the website. It is also possible to follow @Tryg IR on Tryg has a total share capital of DKK 1,532,902,575, comprising a Twitter. The company announcements issued in 2013 are avail- single share class (61,316,103 shares with a nominal value of DKK 25), able at tryg.com > Investor > News. and all shares rank pari passu. The principal shareholder, Trygheds- The Tryg share started the year at a price of 426.50 and ended 2013 only shareholder owning more than 5% of the company’s shares. at 524.50. Including a dividend of DKK 26, the share rose by 29.1% TryghedsGruppen invests in peace of mind and healthcare providers during 2013 (23% excluding dividend). By comparison, the OMX C20 in the Nordic region, and supports non-profit-making activities. Gruppen, smba, Denmark, owns 60% of the issued shares and is the CAP index rose by 24.1% in 2013. The index of insurance shares in Europe, the Euro STOXX Insurance Index, rose by 28.9% in 2013. The At the end of 2013, there was a free float of 40% of the shares, divided positive development of the Tryg share in 2013 was affected by the among 25,951 registered shareholders. The 200 largest shareholders development in results, driven by the improvements resulting from owned 88% of the shares. At the end of 2013, and after the share buy Tryg’s efficiency programme. back programme, Tryg held 1,942,142 own shares, corresponding to 3.2% of the share capital. At Tryg’s general meeting on 3 April 2014, Nasdaq OMX in Copenhagen is still the primary exchange where most the Supervisory Board intends to propose to nullify the 1.6 million of the trading in the Tryg share takes place. In 2013, Nasdaq OMX shares that have been repurchased. 36 | Tryg A/S | Annual report 2013 | Shareholder information Distribution DKKm Dividend Dividend per share (DKK) Payout ratio Extraordinary share buy back 2009 991 15.5 49% 799 2010 256 4 43% 0 2011 400 6.52 35 % 0 2012 1,594 26 72 % 800 2013a) 1,656 27 70 % 1,000 a) Dividend proposed by the Supervisory Board for adoption by the annual general meeting. Dividend policy Based on Tryg’s dividend policy and the satisfactory 2013 results, the Tryg’s dividend policy aims to achieve a higher degree of stability in the Supervisory Board will propose a dividend of DKK 1,656m, corres- annual distribution. The dividend policy reflects our expectations of ponding to DKK 27 per share, at the 2014 annual general meeting. high earnings in the insurance business and a low risk profile within the This corresponds to payment of 70% of the profit after tax. In addition, investment activities, as well as the requirement to have a solid capital in December 2013, it was decided to initiate an extraordinary share position based on Tryg’s internal capital model (Individual Solvency). buy back of DKK 1bn starting on 2 January 2014. This decision was Tryg’s internal capital model provides the framework for the company’s made against the background of Tryg’s solid capital position and capital requirement until this is replaced in accordance with the Solvency II expected earnings. rules. Tryg’s dividend policy is based on the following assumptions: • A general objective of creating long-term value for the Annual general meeting company’s shareholders. Tryg’s annual general meeting will be held on 3 April 2014 at 14:00 at • A competitive dividend policy in comparison with those Falkoner Centret, Falkoner Allé 9, 2000 Frederiksberg, Denmark. The of our Nordic insurance competitors. notice will be advertised in the daily press in March 2014 and will be • • Distribution of 60-90% of the profit after tax. sent to shareholders, if requested. The annual general meeting will Aspiration to distribute a dividend which is steadily increasing also be announced on tryg.com, where shareholders not able to at- in nominal terms. tend can follow proceedings live via webcast. • The capital level must at all times reflect the objective of a 20% return on equity as well as the Group’s strategic plans. • The capital level may extraordinarily be adjusted through a share buy back. Shareholders At 31 December 2013 12 Per cent 60 16 12 TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders Free float – geographical distribution At 31 December 2013 11 5 15 Per cent 51 18 Denmark UK United States Nordic region Others a) Shareholders holding more than 10,000 shares. Free float is exclusive of TryghedsGruppen. Shareholder information | Annual report 2013 | Tryg A/S | 37 Floods I Many residents in Jyllinge Nordmark were hit by Bodil, the storm which swept Denmark in December 2013. Tryg took mobile site huts to the most exposed areas, including Jyllinge Nordmark, to answer questions and help house owners with practical issues. Because Bodil was a flood, insurance companies were not obliged to be on site. However, residents were very positive about the assistance and help provided by Tryg. Tryg has many customers in the affected area and decided ‘We were rather overwhelmed by the extent of the damage to go there, even though the Danish Storm Council was not when we first arrived, but we soon got a grip on the situation, due to meet until the week following the storm. Claims as- and we stayed for as long as customers needed us there. sessors went round to all the houses to answer questions The Danish Storm Council covers some of the costs, but and help the owners take steps to mitigate the damage. we are the ones who know how to tackle such a situation. That's why we were there to help anybody who needed it.’ Peter Sylvester Iversen | Tryg claims assessor Corporate governance Tryg focuses on managing the company in accordance with the meeting, which as a minimum includes the following items: principles for good corporate governance and generally complies with • Report by the Board on the company’s activities during the the recommendations prepared by the Committee on Corporate Gov- past financial year. ernance, most recently updated in 2013. The recommendations can • Presentation of the annual report for adoption, including be found at corporategovernance.dk. Tryg has published its statutory remuneration for the Board and discharge from liability corporate governance report based on the ‘comply or explain’ principle of the Board and Executive Management. at tryg.com. Download Tryg’s report at tryg.com > Investor • Resolution concerning the appropriation of profits or the > Download. cover of losses in accordance with the annual report. • Proposals from the Board or from shareholders. Dialogue between Tryg, shareholders and other stakeholders • Election of members to the Board. The Investor Relations (IR) department maintains regular contact • Appointment of auditors. with analysts and investors. Together with the Executive Management, • Any other business. IR organises investor meetings, conference calls and webcasts and attends conferences in Denmark and abroad. IR also communicates All shareholders are encouraged to attend the annual general meeting. with stakeholders in the social media via Twitter, @TrygIR. The The annual general meeting is transmitted, allowing stakeholders to Supervisory Board (the Board) is informed regularly of the dialogue watch it at tryg.com both during and after the meeting. with investors and other stakeholders. According to Tryg’s IR policy, all company announcements and the annual general meeting and may ask questions before and at the financial statements are published in Danish and English, and Tryg annual general meeting. Shareholders may vote in person at the annual publishes quarterly interim financial statements. Moreover, Tryg general meeting, by post or appoint the Board or a third party as their prepares quarterly investor presentations for use in the dialogue proxy. Shareholders may consider each item on the agenda. The proxy with investors and analysts. All announcements, financial state- form and form for voting by post are available at tryg.com prior to the Shareholders may propose items to be included on the agenda for ments and presentations are available at tryg.com. This provides all annual general meeting. stakeholders with a comprehensive picture of Tryg’s position and development. The consolidated financial statements are presented The annual general meeting is held by personal attendance as the in accordance with IFRS. At tryg.com, stakeholders can order printed Board values oral dialogue with the shareholders. annual reports and subscribe to press releases and company an- nouncements as well as insider trading announcements. A number Takeover bids of internal guidelines ensure that the disclosure of price-sensitive The Board will consider any public takeover bid as prescribed by information complies with the stock exchange codes of conduct. legislation and, depending on the nature of such bid, convene an extra ordinary general meeting. Tryg has a number of policies which describe the relationship between different stakeholders. See IR policy at tryg.com > Investor Duties and responsibilities of Supervisory Board > IR contacts > IR policy, and CSR policy at tryg.com > CSR > CSR The Board is responsible for the central strategic management and strategy > CSR policy. Annual general meeting financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and frameworks based on regular and systematic review of the strategy and risks. Tryg holds its annual general meeting each year before the end of April. The Executive Management reports to the Board on strategies and As required by the Danish Companies Act and the Articles of Associa- action plans, market developments and group performance, funding tion, the annual general meeting is convened via a company announce- issues, capital resources and special risks. The Board holds one annual ment and at tryg.com subject to at least three weeks’ notice. Share- strategy seminar to decide on and/or adjust the Group’s strategy with holders may also opt to receive the notice by post or email. The notice a view to sustaining the value creation in the company. The Executive contains information about time and venue as well as an agenda for the Management works with the Board to ensure that the Group’s strategy 40 | Tryg A/S | Annual report 2013 | Corporate governance Download Statutory corporate governance report is developed and monitored. The Board ensures that the necessary ment levels. Tryg has prepared an action plan which sets out specific skills and financial resources are available for Tryg to achieve its targets to ensure diversity and equal opportunities and access to manage- strategic targets. The Board specifies its activities in a set of rules of ment positions for qualified men and women. Tryg aims to increase the procedure and an annual cycle for its work. total number of women in management positions by 2% by the end Share and capital structure Tryg’s share capital comprises a single share class, and all shares of 2014. In 2013, the proportion of women at management level was 34.6%, up from 34.0% in 2012. See action plan at tryg.com > CSR. rank pari passu. The principal shareholder, TryghedsGruppen smba, Corporate social responsibility owns 60% of the issued shares and is the only shareholder holding Corporate social responsibility (CSR) constitutes an integral part of the more than 5% of the company’s shares. way in which Tryg operates its business. The Board has adopted a CSR policy, and Tryg has joined several voluntary initiatives. Read more The Board ensures that Tryg’s capital structure is in line with the at tryg.com > CSR. needs of the Group and the interests of its shareholders and that it complies with the requirements applicable to Tryg as a financial Chairman and Deputy Chairman of Supervisory Board undertaking. Tryg has adopted a capital plan and a contingency The Board is headed by a Chairmanship consisting of a Chairman and capital plan, which are reviewed annually by the Board. a Deputy Chairman. The Deputy Chairman will act in the Chairman’s absence and serves as a discussion partner for the Chairman. Depending on the development in results, the Board each year proposes a dividend and possibly an extraordinary share buy back, The tasks of the Chairman and Deputy Chairman are defined in the if further adjustment of the capital structure is required. In 2010, the Board’s rules of procedure. The tasks of the Chairman include chair- annual general meeting authorised the Board to allow Tryg to acquire ing and evaluating the work of the Board and being in charge of the own shares amounting to up to 10% of the share capital until 14 April cooperation with the Executive Management. The Chairman also acts 2015. On 15 March 2013, Tryg initiated a share buy back programme as spokesman for the Board. which ran until 19 December 2013. Under the programme, Tryg ac- quired own shares for an amount of DKK 800m. On 2 January 2014, The Chairman and Deputy Chairman hold preparatory meetings with Tryg initiated a new share buy back programme totalling DKK 1bn, the Executive Management before all board meetings. According to which runs until the end of 2014. the Board’s rules of procedure, no board member may perform work for Tryg without a prior decision to that effect by the Board. Further- Duties and composition of Executive Management more, such work must be of a non-recurring nature. Each year, the Board reviews and adopts the rules of procedure of the Board and the Executive Management with relevant policies, Composition and organisation of Supervisory Board guidelines and instructions describing requirements for reporting The Board performs an annual evaluation of its work and skills to and communication with the Executive Management. Financial ensure that it possesses the expertise required to perform its duties in legislation also requires the Executive Management to disclose all the best possible way. The Board focuses, in particular, on expertise relevant information to the Board and report on compliance with within management experience, financial insight, kowledge on insur- limits defined by the Board and in legislation. ance matters, accounting insight, financial knowledge and experience, The Board considers the composition, development, risks and suc- See the description of skills at tryg.com and the notice convening M&A experience, market insights and international experience. cession plans of the Executive Management in connection with the the annual general meeting. annual evaluation of the Executive Management and regularly in connection with Board meetings. New board members Each year, the Board discusses Tryg’s activities to guarantee diversity at transparent for members. The Articles of Association stipulate that management levels. Tryg attaches importance to diversity at all manage- the Chairman of TryghedsGruppen’s Board must also be Chairman of The process of selecting new board members is thorough and Corporate governance | Annual report 2013 | Tryg A/S | 41 Tryg’s Board. Furthermore, TryghedsGruppen’s Board recommends Board members elected by employees three members to Tryg’s Board from among the members of Trygheds - Under the Danish Companies Act, employees are entitled to elect a Gruppen’s Board. The Nomination Committee selects new candidates number of representatives to the Board, equal to half the number of for the four other board posts and presents its recommendation to other members at the time employee elections are held. Tryg has agreed the Board. Seven members of the Board are women, including three with Tryg’s staff organisations that two board members are elected employee representatives, and the requirement for equality is thus met. among employees in Denmark, one among employees in Norway and The Board has members from Denmark, Sweden and Norway. one among employees in Sweden. The next ordinary election will be Prior to the election of new members, the Board prepares a descrip- same rights, obligations and responsibilities as other board members. held in 2016. Under Danish law, employee representatives have the tion of the candidates’ background, directorships, professional qualifications and experience. A balanced composition of the Board Meeting frequency in terms of, e.g., age, gender and nationality is sought, and the need The Board holds at least seven meetings a year and an annual strategy for integrating new talent and different skills is considered. New seminar to discuss and define the strategy and targets for the years board members are given an introduction to Tryg. See pages 46-47 ahead. In 2013, the Board held seven meetings and the annual seminar. and tryg.com > Governance > Management > Supervisory Board. Board committees Retirement age and election period Tryg’s Board has set up an Audit Committee, a Risk Committee, a Nomi- Board members elected by the annual general meeting are up for nation Committee and a Remuneration Committee. The board election each year at the annual general meeting. See pages 46-47 committees’ terms of reference can be seen at tryg.com > Governance for information on when members joined the Board, were re-elected > Management > Supervisory Board > Board committees, including and when their current election period expires. To integrate new descriptions of members, meeting frequency, responsibilities and talent on the Board, members elected by the annual general meeting activities during the year. The special skills of all members are may hold office for a maximum of nine years. Furthermore, members also described at tryg.com. of the Board must retire at the first general meeting following their 70th birthday. See pages 46-47 and tryg.com > Governance Three out of four Audit Committee and Risk Committee members, > Management > Supervisory Board. including the committees’ Chairman, are independent persons. Of the four members of the Remuneration Committee, one member is an Independence of Supervisory Board independent person, while one out of two members of the Nomination Eight members of the Board are elected by the annual general meeting Committee is independent. Board committee members are elected for one year at a time. Of the eight members elected at the annual primarily based on special skills that are considered important by the general meeting, four are independent persons as stated in recommen- Board. Involvement of the employee representatives in the committees dation 3.2.1. in the Recommendations on Corporate Governance, while is also considered important. The committees exclusively prepare mat- the other four members are not independent persons as they are ap- ters for decision by the entire Board. pointed by the principal shareholder TryghedsGruppen. See pages 46-47 and tryg.com > Governance > Management > Supervisory Board. Audit Committee This is also described in the notice convening the general meeting. The framework of the Audit Committee’s work is defined in its terms of reference. The committee has four members with knowledge and Board members and other directorships and executive functions experience of financial matters as well as accounting and auditing in The Board and the individual board members deem that all members publicly listed companies. The Audit Committee held five meetings in have adequate time and resources to perform their duties as board 2013 and reported regularly to the Board. In August 2013, the Audit members of Tryg in a satisfactory manner. Information about the Committee carried out an evaluation of the preceding year’s work. board members’ position, directorships and executive functions, See the Audit Committee’s tasks in 2013 at tryg.com > Governance shareholding and changes in portfolio can be found under their CVs. > Management > Supervisory Board > Board committees. See pages 46-47 and tryg.com > Governance > Management > Supervisory Board. 42 | Tryg A/S | Annual report 2013 | Corporate governance Risk Committee and approves the rules of procedure of the Board and the Executive The Risk Committee supervises capital and risk management and Management each year to ensure alignment with Tryg’s requirements. monitors the risk management environment and related processes. The Risk Committee has five members and held five meetings in Remuneration of Management 2013. See the Risk Committee’s tasks at tryg.com > Governance Tryg has adopted a remuneration policy for the Board and the Execu- > Management > Supervisory Board > Board committees. tive Management, including general guidelines for incentive pay. The Nomination Committee Tryg has a Nomination Committee which ensures the correct compos- remuneration policy for 2013 was adopted by the Board in Decem- ber 2012 and by the annual general meeting on 18 April 2013. ition and size of the Executive Management and the Board. The Nomin- Information about remuneration policy ation Committee consists of the Chairmanship and held two meetings The Chairman of the Board reports on Tryg’s remuneration policy each in 2013. See the Nomination Committee’s tasks at tryg.com > year in connection with the consideration of the annual report at the an- Governance > Management > Supervisory Board > Board committees. nual general meeting. The Board’s proposal for the remuneration of the Remuneration Committee Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting. The remuneration policy The Remuneration Committee carries out preparatory work for the also covers Tryg employees whose activities have a significant influence Board relating to remuneration of the Board, the Group Executive on the Group’s risk profile, known as risk-takers, as well as employees Management and significant risk-takers. The Remuneration Committee in control functions such as compliance and internal audit. See has four members, and the Chairman of the Board is Chairman of the remuneration policy at tryg.com > Governance > Remuneration. committee. Moreover, the committee must consist of one member of TryghedsGruppen and at least one independent Board member. The Remuneration of Supervisory Board committee has one independent member at the present time. The Members of Tryg’s Board receive a fixed fee and are not comprised Remuneration Committee held four meetings in 2013. The Remuner- by any form of incentive or severance programme. Their remuner- ation Committee’s work is carried out with reference to Tryg’s remuner- ation is based on trends in peer companies, taking into account board ation policy. See the Remuneration Committee’s tasks at tryg.com > members’ required skills, efforts and the scope of the board’s work, Governance > Management > Supervisory Board > Board committees. including the number of meetings. The remuneration received by the Chairman of the Board is triple that received by ordinary members, Evaluation of Supervisory Board and Executive Management while the Deputy Chairman’s remuneration is double that received by The Board has adopted an evaluation procedure involving an annual ordinary members of the Board. The Board has no pension scheme. evaluation of the composition, skills, contributions and results of the Board as a whole as well as its individual members, and its coopera- Remuneration of Executive Management tion with the Executive Management. The Chairman oversees the Members of the Executive Management are employed on a contractual evaluation of the Board, and the outcome is subsequently discussed basis, and all terms of their remuneration are established by the Board. at a Board meeting. In 2014, an external consultant will be involved The Board fixes the remuneration of the Executive Management for one in the process. year at a time. This is based on the work and results of the individual members of the Executive Management and on the need to attract and The Board has 12 members and deems the number of members ad- retain the most highly qualified members of the Executive Management. equate to ensure a constructive debate, sufficient diversification and The fixed pay element must be competitive and appropriate for the mar- efficient decision-making. The Board considers the number of board ket and provide sufficient motivation for all members of the Executive members each year when preparing the annual general meeting. Management to do their best to achieve the company’s defined targets. The Board carries out an annual evaluation of the work and performance The Executive Management’s remuneration consists of a fixed pay of the Executive Management and of the cooperation between the element, pension and a variable pay element. The variable pay constitutes Board and the Executive Management. In addition, the Board reviews only a limited part of the overall remuneration. The Board can decide Corporate governance | Annual report 2013 | Tryg A/S | 43 that the fixed pay be supplemented with a variable pay element of up Financial reporting, risk management and auditing to 10% of the fixed basic pay including pension at the time of allocation. Being an insurance business, Tryg is subject to the risk management The variable pay element consists of a matching shares programme. requirements of the Danish Financial Business Act. In policies, the Four years after the purchase by a member of the Executive Manage- Board defines Tryg’s risk management framework as regards insur- ment of a specified number of shares, such member is allocated a ance risk, investment risk and operational risk, as well as IT security. corresponding number of free shares in Tryg. The allocation of matching Guidelines are issued by the Board to the Executive Management. A shares is not dependent on performance. The purpose of the pro- Risk Management Committee comprising the Group CFO, Head of gramme is both to retain members of the Executive Management, and to Group Risk and Head of Investments monitors the risk management create a joint financial interest between the Executive Management and environment. shareholders. Read more at tryg.com > Governance > Remuneration. Risks associated with relevant new and expected financial reporting Some members of the Executive Management still have unexercised rules and accounting policies are monitored and considered by the Audit share options, which were allocated under a previous programme. Committee, the finance management and the internal auditors. Material See Note 7 on page 88. legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis. Other risks associated with financial Each member of the Executive Management is entitled to 12 months’ reporting are described on page 34 and in Note 1 on page 67. notice of termination and 12 months’ severance pay. However, the Group CEO is entitled to 12 months’ notice and to 18 months’ sever- Tryg engages in ongoing risk identification, mapping insurance risks ance pay plus pension contributions during this period. and other risks related to realising the Group’s strategy or which Each member of the Executive Management has 25% of the basic position. The process involves registering and quantifying the risks salary paid into a pension scheme. However, the Group CEO receives identified. In 2013, Tryg undertook an Own Risk and Solvency Assess- a defined-benefit pension, disbursed from the retirement date. ment (ORSA) in preparation of the statutory requirements soon to be The pension is determined by the period of employment and consti- introduced for insurance companies. The purpose of the ORSA is to tutes a percentage of the pay received at the time of retiring. link strategy, risk management and solvency with the aim of ensuring may have a potentially substantial impact on the Group’s financial Total remuneration of the Supervisory Board in 2013 DKK Jørgen Huno Rasmussen Torben Nielsen Paul Bergqvist Anya Eskildsen Vigdis Fossehagen Ida Sofie Jensen Bill-Owe Johansson Lone Hansen Jesper Hjulmand a) Lene Skole Tina Snejbjerg b) Mari Thjømøe Mikael Olufsen c) Jens Bjerg Sørensen c) Fee Audit Committee Risk Remuneration Committee Committee 793,833 660,000 330,000 231,917 330,000 231,917 330,000 330,000 330,000 330,000 330,000 330,000 294,250 98,084 225,000 150,000 105,416 150,000 44,583 105,417 70,278 100,000 100,000 47,849 44,583 29,722 94,875 90,000 63,250 90,000 26,750 40,125 Total 888,708 1,035,000 420,000 295,167 420,000 231,917 330,000 330,000 532,444 580,000 474,583 483,266 334,375 172,389 a) New member of the Audit Committee and the Risk Committee and resigned from the Remuneration Committee b) Resigned from the Audit Committee c) Resigning members of the Supervisory Board 44 | Tryg A/S | Annual report 2013 | Corporate governance Total remuneration of the Executive Management in 2013 DKK Morten Hübbe Tor Magne Lønnum Lars Bonde a) At time of allocation. Basic salary Pension Car/ car allowance Total fixed salary 8,584,825 4,824,291 4,265,838 2,146,206 900,840 1,066,460 255,000 154,564 255,000 10,986,031 5,879,695 5,587,298 Value of matching shares a) 850,000 550,000 400,000 Total fee 11,836,031 6,429,695 5,987,298 a sensible correlation between the strategy for assuming risks and Audit the available capital over a period of three to five years. In December The Board ensures monitoring by competent and independent auditors. 2013, the Board adopted an individual solvency policy which provides The Group’s internal auditor attends all board meetings. The independ- a specific framework for calculating capital requirements and prepar- ent auditor attends the annual board meeting at which the annual ing a capital contingency plan and ORSA. The policy took effect on report is presented. 1 January 2014. Each year, the annual general meeting appoints an independent auditor The Board and the Executive Management approve and monitor the recommended by the Board. In 2013, a call for tenders for the provision Group’s overall policies and guidelines, procedures and controls in of independent auditing services was launched. The recommendation important risk areas. They receive reports about developments and was that Deloitte be reappointed. In connection with the Board’s review about the ways in which the frameworks are used. The Board checks of the annual report, it discusses accounting policies and other issues. that the risk management and internal controls are effective. Non- The audit results are discussed by the Audit Committee and at board compliance with the frameworks and guidelines is reported to the meetings to assess the auditor’s observations and conclusions. The Board. The Risk Committee monitors risk management on an internal and independent auditors’ long-form audit reports are reviewed ongoing basis and reports quarterly to the Board. by the Board. The audit agreement and associated audit fee are agreed between the Board and the auditor based on a recommendation from The Group’s internal control systems are based on clear organisa- the Audit Committee. Each year, the Audit Committee reviews the scope tional structures and guidelines, general IT controls and segregation of the independent auditors’ non-audit services. of functions, which are supervised by the internal auditors. Tryg has a decentralised set-up; risk managers in the business areas carry out At least once a year, the internal and independent auditors meet with controlling tasks for the risk management environment and Tryg’s the Audit Committee without the presence of the Executive Manage- compliance function. The Executive Management has established ment. The Chairman of the Audit Committee deals with any matters a formal process for the Group comprising monthly reporting, that need to be reported to the Board. including budget and deviation reports etc. Internal audit Risk management is an integral part of Tryg’s business operations. Tryg has set up an internal audit department which regularly reviews the The Group seeks at all times to minimise the risk of unnecessary quality of the internal control systems and business procedures. It is respon- losses in order to optimise returns on the company’s capital. sible for planning, performing and reporting the audit work to the Board. Read more on page 34 and in Note 1 on page 67. Deviations and explanations Whistle-blowing scheme Tryg follows the Recommendations on Corporate Governance with the Tryg’s Ethical Hotline is managed by an external operator and allows exception of the recommendation for the number of independent employees, customers or business partners to report any serious members of the board committees, with which Tryg complies partially, wrongdoing or suspected irregularities. Reporting is confidential. see item 3.4.2 of the Recommendations on Corporate Governance. Read more at tryg.com > Governance > Ethical Hotline. See statutory corporate governance report at tryg.com > Download. Corporate governance | Annual report 2013 | Tryg A/S | 45 Supervisory Board Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. The next election of employee representa- tives will be held in 2016. Jørgen Huno Rasmussen a) Chairman Born 1952. Joined: 2012. Nationality: Danish. Professional member of the Supervisory Board. Adjunct Professor, CBS. Former Group CEO of the FLSmidth Group. Education: Graduate Diploma in Organisation and Graduate Engineer and Lic.techn. Chairman: Tryg A/S, Tryg Forsikring A/S, TryghedsGruppen smba, the Lundbeck Foundation and LundbeckFond Invest A/S. Board member: Vestas Wind Systems A/S, Bladt Industries A/S, Terma A/S and Haldor Topsøe A/S. Committee memberships: Remuneration Com- mittee (Chairman) and Nomination Committee (Chairman) in Tryg A/S. Number of shares held: 366 Change in portfolio in 2013: 0 As former CEO of FLSmidth, Jørgen Huno Ras- mussen has experience in international manage- ment of listed companies and special compe- tencies within strategy, business development, communication, risk management and finance. Torben Nielsen b) Deputy Chairman Born 1947. Joined: 2011. Nationality: Danish. Professional board member. Adjunct Professor, CBS. Former Governor of Danmarks Nationalbank. Education: Savings bank training, Graduate Diplomas in Organisation and Work Sociology as well as Credit and Financing. Chairman: Investeringsforen. Sparinvest, Inves- teringsforen. Sparinvest Sicav, Luxembourg, EIK banki p/f, VP Lux S.a.r.l., Capital Market Partners, Museum Southeast Denmark. Deputy Chairman: Tryg A/S, Tryg Forsikring A/S and VP Securities a/s. Board member: Sampension KP Livsforsikring A/S, Sydbank A/S, Dansk Landbrugs Realkredit and member of the Executive Board of Bombebøssen. Committee memberships: Audit Committee and Risk Committee (Chairman) and Nomination Committee in Tryg A/S. Number of shares held: 3,500 Change in portfolio in 2013: 0 Torben Nielsen has special skills in management, governance, finance, financial ser vices and risk management from his former role as Governor of Danmarks Nationalbank and several board positions. Paul Bergqvist b) Born 1946. Joined: 2006. Nationality: Swedish. Professional board member. Former CEO of Carlsberg A/S. Education: Economist and engineer. Chairman: Sverige Bryggerier AB, East Capital Explorer AB, Pieno Zvaigzdes AB, Norrköpings Segel Sällskap, Östkinds Häradsallmänning. Board member: Tryg A/S, Tryg Forsikring A/S. Committee memberships: Remuneration Committee in Tryg A/S. Number of shares held: 100 Change in portfolio in 2013: 0 Paul Bergqvist has international management and board experience within M&A, strategic development, marketing, branding and financial management. Being a Swedish citizen, Paul Bergqvist has special insights into Swedish market conditions. Vigdis Fossehagen Employee representative Born 1955. Joined: 2012. Nationality: Norwegian. Chairman of Finance Sector Union of Norway, Tryg. Employed in 1996. Education: Educated in the area of agricultural mechanics. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Remuneration Committee in Tryg A/S. Number of shares held: 0 Lone Hansen Employee representative Born 1966. Employed in 1990. Joined: 2012. Nationality: Danish. Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 86 Change in portfolio in 2013: 0 Anya Eskildsen Born 1968. Joined: 2013. Nationality: Danish. Presi- dent of Niels Brock Copenhagen Business College. Education: MSc in Political Science, the certified IoD Board Program. Board member: Tryg A/S, Tryg Forsikring A/S and TryghedsGruppen smba. Committee memberships: Remuneration Com- mittee in Tryg A/S. Member of the Danish Growth Council, Nykredits Regionsråd, Confederation of Danish Labour Unions’ forum for the promotion of education, Copenhagen Rotary and NOCA. Number of shares held: 0 Anya Eskildsen has experience within financial management, strategic management, communi- cation and marketing, innovation and ideas gener - ation and international system exports. 46 | Tryg A/S | Annual report 2013 | Supervisory Board a) Dependent member of the Supervisory Board b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. 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. Education: MSc in Economics and Business Administration and Lieutenant-Colonel of the Danish Air Force Reserve. Chairman: Association of Danish Energy and Distribution Companies (DEA), Energi Danmark A/S, CLEVER. Deputy Chairman: TryghedsGruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S, DI General Council. Committee memberships: Audit Committee and Risk Committee in Tryg A/S, Chairman of Executive Director Committee of Dansk Energi and member of Dansk Energi Fælles Forum, Danish Intelligent Energy Alliance and Chairman of the Green Committee in Region Zealand. Number of shares held: 1,750 Change in portfolio in 2013: 0 From his positions with SEAS-NVE and his former work with the Danish Air Force, Jesper Hjulmand has experience within the fields of M&A, strategy, organisational and management development, communication and business development. Ida Sofie Jensen Born 1958. Joined: 2013. Nationality: Danish. Director General of Lif (Danish Association of the Pharmaceutical Industry). Director General of the subsidiary DLI (Dansk Lægemiddel Information A/S). Education: MSc in Political Science, European Health Leadership Programme INSEAD, Executive Management Programme INSEAD. Board member: Tryg A/S and Tryg Forsikring A/S, TryghedsGruppen smba, Plougmann & Vingtoft A/S and Den Erhvervsdrivende Fond Hans Knudsen Instituttet. Number of shares held: 94 Change in portfolio in 2013: +94 Ida Sofie Jensen has experience from business operations and the health sector as well as management, strategy, politics and finance. Mari Thjømøe b) Joined: 2012. Nationality: Norwegian. Professional board member and independent advisor. Former CFO of KLP. Education: Master of Economics and Business Administration, Financial Analyst (CFA) and management programme from London Business School. Chairman: Onshore Petroleum Company AS and Seilsport Maritimt Forlag AS. Board member: Tryg A/S, Tryg Forsikring A/S, Argentum Fondsinvesteringer AS, Nordic Mining ASA, Forskningskonsernet Sintef, E-CO Energi, Infratek ASA and Sevan Marine ASA. Committee memberships: Audit Committee and Risk Committee in Tryg A/S. Number of shares held: 300 Change in portfolio in 2013: +100 Mari Thjømøe has experience from international management and competencies within strategy, finance, capital management, Investor Relations, branding and special knowledge of the insurance market. Being a Norwegian citizen, Mari Thjømøe has special insights into Norwegian market conditions. Bill-Owe Johansson Employee representative Born 1959. Joined: 2010. Nationality: Swedish. Claims handler, Moderna (Swedish branch). Employed in 2002. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 200 Change in portfolio in 2013: 0 Tina Snejbjerg Employee representative Born 1962. Joined: 2010. Nationality: Danish. Head of Section in Tryg’s HR Department. Employed since 1987. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Risk Committee in Tryg A/S. Number of shares held: 86 Change in portfolio in 2013: 0 Lene Skole b) Born 1959. Joined: 2010. Nationality: Danish. Executive Vice President of Coloplast A/S. Former CFO of The Maersk Company Ltd., UK. Education: A.P. Møller Group international shipping education, Graduate Diploma in Financing and various international management programmes. Board member: Tryg A/S, Tryg Forsikring A/S and DFDS A/S. Committee memberships: Audit Committee and Risk Committee in Tryg A/S. Number of shares held: 745 Change in portfolio in 2013: 0 Lene Skole has experience from international companies through her work in Coloplast and Maersk, UK. Lene Skole has competencies within strategy, finance, financing and communication. Supervisory Board | Annual report 2013 | Tryg A/S | 47 Standing from left Tor Magne Lønnum, Lars Bonde, Morten Hübbe. Seated Rikke Larsen, Truls Holm Olsen, Trond Bøe Svestad, Per Fornander, Jesper Joensen. Group Executive Management Morten Hübbe CEO/Group CEO Tor Magne Lønnum CFO/Group CFO Born 1972. Employed in 2002. Joined the Group Executive Management in 2003. Member of the Executive Management and the Group Executive Management. Born 1967. Employed in 2011. Joined the Group Executive Management in 2011. Member of the Executive Management and the Group Executive Management. Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton. Education: State-authorised public accountant, Executive Master of Business and Administration, University of Bristol and Ecole Nationale des Ponts et Chaussées. Board member: Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj 2008 A/S and Tjenestemændenes Forsikring. Board member: Tryg Garantiforsikring A/S, Thermopylae AS (Chairman), Finansnæringens Fellesorganisasjon and TGS Nopec ASA. Lars Bonde Group Executive Vice President, Private, Country Manager in Denmark and COO Born 1965. Employed in 1998. Joined the Group Executive Management in 2006. Member of the Executive Management and the Group Executive Management. Education: Insurance training, LL.M. Board member: The Danish Employers’ Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet and the Danish Insurance Association. Number of shares held: 11,760 Change in portfolio in 2013: +1,850 Number of shares held: 4,910 Change in portfolio in 2013: +1,400 Number of shares held: 4,605 Change in portfolio in 2013: +918 Per Fornander Group Executive Vice President and Country Manager in Sweden Born 1963. Employed in 2011. Joined the Group Executive Management in 2011. Education: Marketing DIHM, IHM Business School in Stockholm. Board member:Tryg Garantiforsikring A/S, Svensk Försäkring, Försäkringsbranschens Arbetsgivarorganisation and Försäkrings- branschens Pensionskassa. Number of shares held: 2,990 Change in portfolio in 2013: +880 Jesper Joensen Group Executive Vice President, Claims Born 1963. Employed in 1992. Joined the Group Executive Management in 2013. Education: Agricultural economist, certified insurance agent. Board member: Procea. Number of shares held: 1,086 Change in portfolio in 2013: 0 Rikke Larsen Group Executive Vice President, People and Reputation Born 1971. Employed in 2000. Joined the Group Executive Management in 2012. Education: LL.M. and lawyer. Number of shares held: 781 Change in portfolio in 2013: +746 Truls Holm Olsen Group Executive Vice President, Corporate and Country Manager in Norway Trond Bøe Svestad Group Executive Vice President, Commercial Born 1964. Employed in 1998. Joined the Group Executive Management in 2009. Born 1967. Employed in 2013. Joined the Group Executive Management in 2013. Education: LL.M. Board member: Tryg Garantiforsikring A/S, Norsk Naturskadepool and Tryg Almen - nyttige Stiftelse. Number of shares held: 2,707 Change in portfolio in 2013: +690 Education: Master of Management, Business/Commerce and Bachelor of Commerce. Number of shares held: 193 Change in portfolio in 2013: +193 Group Executive Management | Annual report 2013 | Tryg A/S | 49 Corporate Social Responsibility in Tryg Tryg’s ambition is to create peace of mind and value for customers, In 2014, we are launching a web-based tool, VisAdapt, which will en- employees and shareholders. This obviously implies that we must be able our customers to establish their vulnerability and risk with regard responsible members of society. to climate-related damage in the area where their homes or commer- cial buildings are located. This tool has been developed in a cooperation We make our knowledge of insurance, customer requirements and risk between four Nordic insurance companies and a team of researchers management available in areas where we see challenges for society. under NORDSTAR, the Nordic Council’s Nordic Centre of Excellence. For this reason, we focus on climate-related damage, diversity, sustainable sourcing and responsible investments. Our preventive measures comprise good customer advice on the handling of fires, floods and storm damage. Read about damage The CSR measures involve transforming the UN Global Compact prevention after storms and cloudbursts (in Danish) at tryg.dk principles into processes and practices that make protection of > Prevent damage See our advice and checklists for the the climate and the environment, human rights, labour rights and prevention of fire (in Danish) at tryghedsraadgiveren.dk > fire. anti-corruption tangible and relevant. We would like to show our customers, employees, suppliers, investors and society at large that Mobility Management CSR contributes to value creation – for them and for us. Read In the past year, Tryg continued its cooperation with Formel M, our CSR policy at tryg.com > CSR > CSR strategy > CSR Policy. the Municipality of Ballerup and the neighbouring companies in Climate Lautrupgård on Mobility Management. The project is about how to get from your home to the office and to meetings in a sustainable Prevention of climate-related damage is high on our agenda. In our way, which will benefit both the environment and health and bring day-to-day contact with our customers and suppliers, we use our down transport costs and local traffic congestion. knowledge and experience of the consequences of cloudbursts, storms and landslides to help them prevent, minimise and handle Activities during the year included two campaigns supporting the use the damage these cause. For this purpose, are engaged in co- of green transport for work and for commuting. Employees are able operation and partnerships with public authorities and researchers to define and set their own targets for their contribution to intelligent on the development of contingency plans, prevention and tools to transport. The project is supported by a workshop concept and adapt areas, buildings and processes to climate changes. materials available on Tryg’s intranet. CO2 emissions Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 Electricity Heating oil Air travel Motor 2012 2013 Waste Kg 120,000 100,000 80,000 60,000 40,000 20,000 0 In 2013, Air travel also includes trips to and from Sweden. 50 | Tryg A/S | Annual report 2013 | Corporate Social Responsibility in Tryg Paper & corrugated cardboard It, batteries & light sources Bio waste Iron & metal Residual When the project started in 2011, Tryg carried out a survey of its em- Human rights ployees’ transport habits. In 2013, a follow-up survey was conducted in It is a key objective for Tryg to respect and promote the human rights Ballerup. This showed an increase in the number of employees cycling to and labour rights that are relevant for our business and the areas in work of 6 percentage points from 11% to 17% . The share of employees which we operate. This applies both internally and in our relations using their own car fell during the same period by 8 percentage points with our customers, suppliers, investors and partners. For this reason, from 80% to 72%. Futhermore, there has been an increase in the use of we have focused our efforts on the human rights which we are most public transport and the combination of means of transportation. at risk of infringing, including the right not to be discriminated against, the right to data protection and the rights of workers. Our local Ballerup network was selected as one of nine winning pro- jects in a campaign run by the Danish Broadcasting Corporation and Inclusion the newspaper Information called ‘What do we do now? Our transition Tryg attaches great importance to diversity, protects against discrimi- to a sustainable society’. Sustainable domiciles Tryg’s CO2 emissions come from the consumption of electricity, heat and transport as well as from waste. In 2013, Tryg markedly reduced its CO2 emissions, down 49.7% relative to 2007. The reduction is attributable primarily to the replacement of a cooling plant in Ballerup nation and guarantees equal treatment of our employees, regardless of gender, age, ethnic origin, disability, sexual orientation, faith or religion. Our diversity and our different competencies, perspectives and experience contribute to job satisfaction and enable us to better understand our customers and their needs. The share of women in management was 34.6% in 2013, compared and a restructuring of the car fleet to include fewer and fuel-saving to 34% in 2012. Tryg aims to increase the total number of women in vehicles. The emissions reduction target is 25% in 2014. In 2013, management positions by 2 % by the end of 2014. Tryg came second in the top 10 of the most sustainable brands in Denmark in the Sustainability Brand Index. Read more about Tryg’s focus on women in management is often mentioned as an Tryg’s climate action at tryg.com > CSR > Thematic areas > Climate. example of good practice, and in 2013 it was presented at seven Employee mix No. 2,000 1,600 1,200 800 400 0 Men Women Age <30 yrs Age 30-49 yrs Age >50 yrs Flexi job Non- western background a) (a) Non-Western background has been compiled by Statistics Denmark. events in Denmark and the EU. See our plan of action for women in management 2013 at tryg.com > CSR > CSR strategy > Plans of action. For almost 20 years, Tryg has endeavoured to include employees with a different ethnic origin than Danish and Norwegian in our organisation. Through our cooperation with ambisjoner.no, The Association New Dane (Nydansker) and ONE Danmark, we promote our efforts and share our experience with diversity in our day-to-day work. Our target of 4% of our employees having a non-Western background was met in 2013. Read more about our inclusion activities at tryg. com > CSR > Thematic areas > Inclusion. Read more about labour rights at tryg.com > CSR > Thematic areas > Well-being > Labour rights. Corporate Social Responsibility in Tryg | Annual report 2013 | Tryg A/S | 51 The staff turnover was 11.8% in 2013, corresponding to 448 em- Anti-corruption ployees (221 women and 227 men). The gender distribution is even An important prerequisite for creating peace of mind is that our in all age groups. Most of the employees who left Tryg were evenly employees have high moral standards and conduct themselves in distributed in the 30-49 and 50+ age groups. Only a small number an ethically correct manner and in accordance with the law. In 2013, of employees in the under-30 age group left Tryg. Tryg’s general rules and guidelines in these areas were codified in the ‘Tryg Code of Conduct’, which all employees must know and observe. Data protection To earn our customers’ trust, it is pivotal that we treat personal In 2011, Tryg set up an Ethical Hotline, which allows all employees information correctly in our day-to-day customer contact and claims and other stakeholders to confidentially report any wrongdoing or handling. To teach our employees about the significance and import- attempts to circumvent Tryg’s rules. The Ethical Hotline was used ance of obtaining consent for the use and disclosure of information once in 2013. on insurance affairs and claims ratios, we held 24 workshops on data protection in both business areas and support functions in 2013. Sourcing This work will be continued in 2014. Read more about our work In 2013, another 136 new suppliers in the Motor area were asked to at tryg.com > CSR > Thematic areas > Prevention > Data protection. Children’s rights report their CSR performance. These obligations include CO2 emis- sions from heating, electricity and waste, the number of discrimin- ation cases and equality initiatives, human rights screening Tryg also contributes to promoting the rights of the child through a of sub-suppliers and anti-corruption initiatives. financial training course offered in cooperation with Youth Town and Nordea. Eighty-nine Year 8 and Year 9 school classes completed the Responsible investments course in 2013. In the first half of 2014, 30 courses will be offered. Tryg’s equity investments are handled by a number of investment companies. They are all members of the UN Principle for Respon- sible Investments (PRI) and control the risk of a negative climate impact, human rights violations and corruption in connection with investments. In this way, Tryg’s fund managers ensure that our investments respect the relevant international standards on responsible invest- ments, for which reason Tryg has chosen to discontinue its own membership of UN PRI. In 2013, Tryg was entered on the STOXX Sustainability Index: Global ESG Leaders, which comprises the leading global companies in terms of environmental, social and governance criteria (ESG). The international index includes around 1,800 companies, of which five are Danish. Employee turnover Number of employees 120 100 80 60 40 20 0 < 30 years 30-49 years >50 years Men Women 52 | Tryg A/S | Annual report 2013 | Corporate Social Responsibility in Tryg 53 Xxx | Annual report 2013 | Tryg A/S | Tryg’s Group consolidated financial statements are prepared in accordance with IFRS and published in Danish and English. Contents – Financial statements Financial statements 2013 Note Tryg Group Statement by the Supervisory Board and the Executive Management Independent auditor’s reports Financial highlights Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Cash flow statement 1 Risk management 2 Capital management 3 Operating segments 3 Geographical segments 3 Technical result, net of reinsurance, by line of business 4 Premium income, net of reinsurance 5 6 Claims, net of reinsurance 7 8 Interest income and dividends etc. 9 Value adjustments Insurance technical interest, net of reinsurance Insurance operating costs, net of reinsurance Intangible assets Investment property 10 Tax 11 Profit/loss on discontinued and divested business 12 13 Property, plant and equipment 14 15 Equity investments in associates 16 Financial assets 17 Reinsurers’ share 18 Current tax 19 Assets held for sale and associated liabilities 20 Equity 21 Premium provisions 21 Claims provisions 22 Pensions and similar liabilities 23 Deferred tax 24 Other provisions 25 Amounts owed to credit institutions 26 Debt relating to unsettled funds transactions and repos 27 Earnings per share 28 Contractual obligations, collateral and contingent liabilities 29 Related parties 30 Financial highlights 31 Accounting policies Tryg A/S (parent company) Income statement – Tryg A/S (parent company) Statement of financial position – Tryg (parent company) Statement of changes in equity (parent company) Notes (parent company) Q4 2013 Q4 2013 | Quarterly outline Q4 2013 | Geographical segments Other key ratios Group chart Glossary Product overview Disclaimer Page 56 57 59 60 61 62 64 66 67 78 80 82 84 86 86 86 86 91 91 92 92 93 95 97 98 99 102 103 103 104 104 105 106 109 110 110 110 110 111 113 114 115 126 127 128 129 132 134 136 137 138 140 141 Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Management have today parent company’s assets, liabilities and financial position at 31 Decem- considered and adopted the annual report for 2013 of Tryg A/S and ber 2013 and of the results of the Group’s and the parent company’s the Tryg Group. operations and the cash flows of the Group for the financial year 1 January-31 December 2013. The consolidated financial statements have been prepared in accord- ance with the International Financial Reporting Standards as adopted Furthermore, in our opinion the Management’s report gives a true and by the EU, and the financial statements of the parent company have fair view of developments in the activities and financial position of been prepared in accordance with the Danish Financial Business Act. the Group and the parent company, the results for the year and of the In addition, the annual report has been presented in accordance with Group’s and the parent company’s financial position in general and additional Danish disclosure requirements for the annual reports of describes significant risk and uncertainty factors that may affect the listed financial enterprises. Group and the parent company. In our opinion, the accounting policies applied are appropriate, and We recommend that the annual report be adopted by the shareholders the annual report gives a true and fair view of the Group’s and the at the annual general meeting. Ballerup, 30 January 2014 Executive Management Morten Hübbe Group CEO Supervisory Board Tor Magne Lønnum Group CFO Lars Bonde Group Executive Vice President and COO Jørgen Huno Rasmussen Chairman Torben Nielsen Deputy Chairman Paul Bergqvist Anya Eskildsen Vigdis Fossehagen Lone Hansen Jesper Hjulmand Ida Sofie Jensen Bill-Owe Johansson Lene Skole Tina Snejbjerg Mari Thjømøe 56 | Tryg A/S | Annual report 2013 | Statement by the Supervisory Board and the Executive Management Independent auditor’s reports To the shareholders of Tryg A/S statements, whether due to fraud or error. In making those risk assess- Report on the consolidated financial statements ments, the auditor considers internal control relevant to the entity’s and parent financial statements preparation of consolidated and parent financial statements that give a We have audited the consolidated and parent financial statements of true and fair view in order to design audit procedures that are appropri- Tryg A/S for the financial year 1 January to 31 December 2013, page ate in the circumstances, but not for the purpose of expressing an opin- 59-131, which comprise the income statement, statement of compre- ion on the effectiveness of the entity’s internal control. An audit also hensive income, statement of financial position, statement of changes includes evaluating the appropriateness of accounting policies used in equity and notes, including the accounting policies, for the Group as and the reasonableness of accounting estimates made by manage- well as for the parent company, and the consolidated cash flow state- ment, as well as the overall presentation of the consolidated and parent ment. The consolidated financial statements are prepared in accord- financial statements. We believe that the audit evidence is sufficient and ance with International Financial Reporting Standards as adopted by appropriate to provide a basis for our audit opinion. Our audit has not the EU and the parent financial statements are prepared in accordance resulted in any qualification. with the Danish Financial Business Act. In addition, the consolidated and parent financial statements are prepared in accordance with Danish Opinion disclosure 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 2013, and Management’s responsibility for the consolidated of the results of its operations and cash flows for the financial year financial statements and parent financial statements 1 January to 31 December 2013 in accordance with International Management is responsible for the preparation of consolidated Financial Reporting Standards as adopted by the EU and Danish disclo- financial statements that give a true and fair view in accordance with sure requirements for listed financial services companies. Moreover, in International Financial Reporting Standards as adopted by the EU and our opinion, the parent financial statements give a true and fair view of Danish disclosure requirements for listed financial services companies the parent company’s financial position at 31 December 2013, and of the as well as for the preparation of parent financial statements that give results of its operations for the financial year 1 January to 31 December a true and fair view in accordance with the Danish Financial Business 2013 in accordance with the Danish Financial Business Act and Danish Act and Danish disclosure requirements for listed financial services disclosure requirements for listed financial services companies. companies, and for such internal control as management determines is necessary to enable the preparation and fair presentation of con- Statement on the mangement’s review solidated and parent financial statements that are free from material Pursuant to the Danish Financial Business Act, we have read the misstatement, whether due to fraud or error. mangement’s review. We have not performed any further procedures in Auditor’s responsibility addition to the audit of the consolidated and parent financial state- ments. On this basis, it is our opinion that the information provided in Our responsibility is to express an opinion on the consolidated and the mangement’s review is consistent with the consolidated and parent parent financial statements based on our audit. We conducted our financial statements. audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform Ballerup, 30 January 2014 Deloitte the audit to obtain reasonable assurance about whether the con- Statsautoriseret Revisionspartnerselskab solidated and parent financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and parent financial statements. The procedures selected depend Lars Kronow on the auditor’s judgement, including the assessment of the risks of State Authorised material misstatements of the consolidated and parent financial Public Accountant Lone Møller Olsen State Authorised Public Accountant Independent auditor’s reports | Annual report 2013 | Tryg A/S | 57 58 | Tryg A/S | Annual report 2013 | NotesFinancial highlights DKKm 2009 2010 2011 2012 2013 Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Investment return after insurance technical interest Other income and costs Profit/loss before tax Tax Profit/loss on continuing business Profit/loss on discontinued and divested business after tax a) Profit/loss for the year Run-off gains/losses, net of reinsurance Statement of financial position Total provisions for insurance contracts Total reinsurers’ share of provisions for insurance contracts Total equity Total assets Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Gross expense ratio without adjustment Operating ratio Relative run-off gains/losses Return on equity after tax (%) Solvency ratio (Solvency I) 17,390 -12,467 -2,861 18,894 -15,111 -3,136 19,948 -15,783 -3,271 20,314 -14,675 -3,295 19,504 -14,411 -3,008 2,062 -518 145 1,689 1,083 -38 2,734 -625 2,109 -101 2,008 692 29,042 1,320 9,631 44,762 71.7 3.0 74.7 16.6 91.3 16.5 90.4 3.6 22.5 97 647 -311 124 460 550 -4 1,006 -265 741 -148 593 824 32,031 1,588 8,458 50,591 80.0 1.6 81.6 16.7 98.3 16.6 97.6 3.9 6.6 125 894 507 171 1,572 61 -30 1,603 -455 1,148 -8 1,140 944 34,220 2,067 9,007 53,362 79.1 -2.5 76.6 16.6 93.2 16.4 92.2 4.0 13.1 112 2,344 86 62 2,492 585 -60 3,017 -837 2,180 28 2,208 1,015 34,355 2,317 10,979 55,022 72.2 -0.4 71.8 16.4 88.2 16.2 87.8 4.1 22.1 90 2,085 349 62 2,496 588 -91 2,993 -620 2,373 -4 2,369 970 32,939 2,620 11,107 53,371 73.9 -1.8 72.1 15.6 87.7 15.4 87.2 3.9 21.5 90 The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. 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’ definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in recpect of 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, which was divested in 2010 and the Finnish branch of Tryg Forsikring, which was sold in 2012, with authority approval in May 2013. Financial highlights | Annual report 2013 | Tryg A/S | 59 Income statement DKKm Note General insurance Gross premiums written Ceded insurance premiums Change in premium provisions Change in reinsurers’ share of premium provisions 4 Premium income, net of reinsurance 5 Insurance technical interest, net of reinsurance Claims paid Reinsurance cover received Change in claims provisions Change in the reinsurers’ share of claims provisions 6 Claims, net of reinsurance Bonus and premium discounts Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers 7 Insurance operating costs, net of reinsurance 3 Technical result 15 Investment activities Income from associates Income from investment property Interest income and dividends 8 9 Value adjustments Interest expenses 8 Administration expenses in connection with investment activities Total investment return 5 Return on insurance provisions Total Investment return after insurance technical interest Other income Other costs Profit/loss before tax 10 Tax Profit/loss on continuing business 11 Profit/loss on discontinued and divested business Profit/loss for the year 27 Earnings per share of DKK 25 – continuing business Earnings per share of DKK 25 Diluted earnings per share of DKK 25 Earnings per share of DKK 25 – discontinued and divested business Diluted earnings per share of DKK 25 – discontinued and divested business 60 | Tryg A/S | Annual report 2013 | Income statement 2012 2013 20,128 -1,147 354 35 19,370 19,820 -1,220 36 24 18,660 62 62 -15,480 964 805 131 -13,580 -168 -2,490 -805 -3,295 103 -3,192 2,492 6 123 1,196 -16 -100 -99 1,110 -525 585 106 -166 3,017 -837 2,180 28 -14,059 1,034 -352 406 -12,971 -352 -2,227 -781 -3,008 105 -2,903 2,496 0 107 1,029 111 -112 -64 1,071 -483 588 100 -191 2,993 -620 2,373 -4 2,208 2,369 36.0 36.5 36.4 0.5 0.5 39.4 39.4 39.3 0.0 0.0 Statement of comprehensive income DKKm Profit/loss for the year Other comprehensive income Other comprehensive income which cannot subsequently be reclassified as profit or loss Revaluation of owner-occupied property for the year Tax on revaluation of owner-occupied property for the year Actuarial gains/losses on defined-benefit pension plans Tax on actuarial gains/losses on defined-benefit pension plans Other comprehensive income which can subsequently be reclassified as profit or loss Exchange rate adjustments of foreign entities for the year Hedging of currency risk in foreign entities for the year Tax on hedging of currency risk in foreign entities for the year Total other comprehensive income Comprehensive income 2012 2,208 2013 2,369 42 -12 -62 16 -16 193 -184 46 55 39 9 -3 179 -54 131 -326 305 -76 -97 34 2,247 2,403 Statement of comprehensive income | Annual report 2013 | Tryg A/S | 61 Statement of financial position DKKm Note Assets 12 Intangible assets Operating equipment Owner-occupied property Assets under construction 13 Total property, plant and equipment 14 Investment property 15 Equity investments in associates Total investments in associates Equity investments Unit trust units Bonds Deposits with credit institutions Derivative financial instruments Total other financial investment assets 2012 2013 759 758 138 1,443 11 1,592 122 1,304 0 1,426 2,081 2,022 21 21 199 3,261 38,862 949 1,256 44,527 18 18 150 3,741 36,971 1,301 692 42,855 16 Total investment assets 46,629 44,895 Reinsurers’ share of premium provisions 21 Reinsurers’ share of claims provisions 17 Total reinsurers’ share of provisions for insurance contracts Receivables from policyholders Total receivables in connection with direct insurance contracts Receivables from insurance enterprises Receivables from Group undertakings Other receivables 16 Total receivables 18 Current tax assets Cash at bank and in hand 19 Assets held for sale Total other assets Interest and rent receivable Other prepayments and accrued income Total prepayments and accrued income 237 2,080 2,317 1,149 1,149 227 1 612 1,989 0 504 742 1,246 369 121 490 237 2,383 2,620 1,088 1,088 299 0 1,033 2,420 145 553 0 698 406 148 554 Total assets 55,022 53,371 62 | Tryg A/S | Annual report 2013 | Statement of financial position Statement of financial position DKKm Equity and liabilities Note 20 Equity 2 Subordinate loan capital 21 Premium provisions 21 Claims provisions Provisions for bonuses and premium discounts Total provisions for insurance contracts 22 Pensions and similar obligations 23 Deferred tax liability 24 Other provisions Total provisions Debt relating to direct insurance Debt relating to reinsurance 25 Amounts owed to credit institutions 26 Debt relating to unsettled funds transactions and repos 16 Derivative financial instruments 18 Current tax liabilities 19 Liabilities associated with assets held for sale Other debt Total debt Accruals and deferred income Total equity and liabilities 1 Risk management 2 Capital management 28 Contractual obligations, collateral and contingent liabilities 29 Related parties 30 Financial highlights 31 Accounting policies 2012 2013 10,979 11,107 1,597 1,818 6,688 27,242 425 34,355 1,102 1,143 98 2,343 415 256 14 1,470 775 652 742 1,030 5,354 6,212 26,087 640 32,939 791 1,057 23 1,871 447 330 6 2,821 514 409 0 652 5,179 394 457 55,022 53,371 Statement of financial position | Annual report 2013 | Tryg A/S | 63 Statement of changes in equity DKKm Reserve for foreign exchange rate reserves adjustment Revalua- tion Equalisa- tion reserves Share capital Other reservesa) earnings Retained Proposed dividend Total Equity at 31 December 2011 1,533 42 92 59 1,089 5,792 400 9,007 2012 Profit/loss for the year Change in equalisation reserve for the year Revaluation of owner-occupied property for the year Exchange rate adjustment of foreign entities for the year Hedging of foreign currency risk in foreign entities for the year Actuarial gains and losses on pension obligation Tax on changes in equity Total comprehensive income 0 Dividend paid Dividend, own shares Purchase and sale of own shares Exercise of share options Issue of share options and matching shares 42 -12 30 192 -184 46 54 2,208 0 42 193 -184 -62 50 2 -44 658 -2 1,594 -1 2 2 -45 -62 16 612 6 66 44 9 1,594 2,247 -400 -400 6 66 44 9 Total changes in equity in 2012 Equity at 31 December 2012 0 1,533 30 72 54 146 2 61 -45 737 1,194 1,972 1,044 6,529 1,594 10,979 64 | Tryg A/S | Annual report 2013 | Statement of changes in equity Statement of changes in equity DKKm Reserve for foreign exchange rate reserves adjustment Revalua- tion Equalisa- tion reserves Share capital Other reservesa) earnings Retained Proposed dividend Total Equity at 31 December 2012 1,533 72 146 61 1,044 6,529 1,594 10,979 2013 Profit/loss for the year Revaluation of owner-occupied property Exchange rate adjustment of foreign entities for the year Hedging of foreign currency risk in foreign entities for the year Actuarial gains and losses on pension obligation Tax on changes in equity Total comprehensive income 0 Dividend paid Dividend own shares Purchase and sale of own shares Exercise of share options Issue of share options and matching shares 9 -3 6 -326 305 -76 -97 0 -156 -156 869 1,656 2,369 9 -326 305 179 -133 179 -54 994 15 -800 100 4 313 1,656 2,403 -1,594 62 -1,594 15 -800 100 4 128 6,842 1,656 11,107 Total changes in equity in 2013 Equity at 31 December 2013 0 1,533 6 78 -97 49 0 61 -156 888 a) Other reserves contains Norwegian Natural Perils Pool. Proposed dividend per share DKK 27 (in 2012 DKK 26) 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 at the end of the year (61,316,103 shares). The dividend is not paid until approved by the shareholders at the annual general meeting. The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 3,020 (DKK 3,363m in 2012). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured. Statement of changes in equity | Annual report 2013 | Tryg A/S | 65 Cash flow statement DKKm 2012 2013 Cash from operating activities Premiums Claims Ceded business Costs Change in other debt and other amounts receivable Cash flow from insurance activities Interest income Interest expenses Dividend received Taxes Other income and costs Cash from operating activities, continuing business Cash from operating activities, discontinued and divested business Total cash flow from operating activities Investments Purchase and refurbishment of real property Sale of real property Purchase/sale of equity investments and unit trust units (net) Purchase/sale of bonds (net) Deposits with credit institutions Purchase/sale of operating equipment (net) Hedging of currency risk Investments, continuing business Investments, discontinued and divested business Total investments Financing Exercise of share options/purchase of own shares (net) Subordinate loan capital Dividend paid Change in amounts owed to credit institutions Financing, continuing business Financing, discontinued and divested business Total financing Change in cash and cash equivalents, net Cash and cash equivalents – discontinued and divested business Exchange rate adjustment of cash and cash equivalents, beginning of year Change in cash and cash equivalents, gross Cash and cash equivalents 1 january Cash and cash equivalents 31 December 66 | Tryg A/S | Annual report 2013 | Cash flow statement 20,200 -15,105 42 -3,094 -137 1,906 1,340 -100 15 -425 -61 2,675 37 2,712 -53 278 -563 -1,897 163 -54 -184 -2,310 -74 -2,384 110 0 -400 3 -287 58 -229 99 -11 14 102 402 504 19,610 -14,048 -63 -3,032 -1 2,466 1,006 -142 19 -1,017 -91 2,241 25 2,266 -18 2 -128 657 -420 -6 305 392 -584 -192 -700 316 -1,594 -8 -1,986 0 -1,986 89 0 -39 50 504 553 Notes 1 Risk management Risk management in Tryg Risk management is a key element for an insurance business and an integral part of Tryg’s business model. Tryg’s Supervisory Board has the overall responsibility for risk management and determines Tryg’s risk appetite, which is laid down in policies and incorporated in the compa- ny’s business procedures. Danish law imposes important and labour-intensive obligations on the Supervisory Board in terms of capital and risk management, for which reason Tryg has chosen to set up a special sub-committee ‘the Super- visory Board’s Risk Committee’ with representatives from the Super- visory Board and the company’s executive management. This committee meets once every quarter and considers subjects relating to capital and risk management in detail. The risk management environment is administered by the Risk Manage- ment Committee and its sub-committees. This takes place at an operational level and involves establishing business procedures, contingency plans and control descriptions and ensuring that risks are hedged as appropriate. This work is supported by decen- tralised risk managers affiliated with the individual areas. The risk management function is a part of the second line of defence and ensures a consistent risk management approach across business areas. This function carries out measurements and assessments at Group level, and recommendations for capital management and general risk hedging (reinsurance, inflation swaps, currency hedging etc.) are made. The risk management function is charged with maintaining the general overview of the company’s most important risks and reporting on an ongoing basis on the development to the Supervisory Board and the management. In addition, the risk management function is responsible for calculating the company’s solvency requirement and proving that the basis for this cal- culation takes sufficient account of the identified risks. Risk management in Tryg is organised on the basis of three lines of de- fence: The first line of defence is the business managers, who manage and control all significant risks associated with their own activities. The third line of defence is the internal audit, the most important task of which is to carry out independent assessments of the control environ- ment etc. for the Supervisory Board. Line of defence Supervisory Board 1. Line of defence 2. Line of defence 3. Line of defence External audit • Operational control • Business controls • Risk management • Compliance • Aktuarial function • Internal audit Executive Management 67 Notes | Annual report 2013 | Tryg A/S | Notes Tryg's risk management environment Supervisory Board Executive Management Risk management environment • Risk appetite • Capital • Strategy • Crisis management Supervisory Board’s Risk Committee Policies Risk Management Committee Policies Risk reporting Recommen- dations Underwriting Reinsurance Committee Provisions Committee Investment Risk Committee Operational Risk Committee Systematic risk assessment Reporting • Contingency • Control • Risk identification • Risk management The company’s own risk assessment ‘ORSA’ (Own Risk and Solvency Assessment) ORSA is the company’s own risk assessment that is summarised in an annual report, which is subject to Tryg’s Supervisory Board’s approval. The risk assessment was incorporated in Danish law on 1 January 2014 through the revised Executive Order on Solvency and Operating Plans for Insurance Companies (Bekendtgørelse om solvens og driftsplaner for forsikringsselskaber). This risk assessment is based on the Solvency II principles, which implies that Tryg must assess all material risks that the company is or may be exposed to. In addition, the risk assessment must include a review of whether the solvency requirement calculated is sufficiently in line with Tryg’s risk profile. Finally, the risk assessment must comprise an estimate of the capital adequacy over the strategic planning period based on budgets and business plans taking into account the identified risks. In Tryg, the ORSA report has long been part of the risk management activi- ties, and it is supported by continuous processes. The risk assessment is thus performed continuously during the year, which means that the report provides an annual status of the work put into identifying, measuring, managing and monitoring risks, just as it describes the company’s general risk profile and proposes improvements. The Supervisory Board is also deeply involved in the ongoing ORSA processes through its board work. Capital management Tryg’s individual solvency requirement is calculated using a partial inter- nal model with a safety level of 99.5%, which means that Tryg is able to honour claims in 199 out of 200 years in compliance with the Executive Order on Solvency and Operating Plans for Insurance Companies. This model has been used for a number of years to calculate the individual solvency requirement, and it is envisaged that it will be used as a partial internal model under the coming Solvency II regime from 2016. ORSA-report Ongoing ORSA-processes Risk profile assessment • Strategy brief and business model • Risk appetite • Capital allocation • Risk reports Capital requirement assessment • Model documentation (description of the model, data, validation and model change policy) • Standard model assessment Available capital assessment • Capital plan • Contingent capital plan • Dividend & capital structure • Reserve reports 68 | Tryg A/S | Annual report 2013 | NotesNotes Major risk types Underwriting risk The risk relating to the conclusion of insurance contracts. The risk that claims at the end of an insurance contract deviate significantly from our pricing assumptions when concluding the contract. Handled by the Underwriting Reinsurance Committee Provisioning risk At the end of a financial period, the level of technical provisions are set to cover expected future payments in respect of claims already incurred. The provisioning risk is the risk that future payments deviate significantly from our assumptions when making the provisions. Handled by the Provisions Committee Investment risk The risk of volatility in the financial markets impacting the Group’s results. Investment risk includes elements such as interest rate risk, equity risk, currency risk, credit 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 Tryg operates, including changed legislation, competition, partnerships or market conditions. Handled by the Risk Management Committee Sensitivity analysis Insurance risk DKKm 2012 2013 Effect of 1% change in: Combined ratio (1 percentage point) Claim frequency (1 percentage point) Average claim Premium rates + / -200 +/- 1,599 +/-141 +/- 197 + / -192 +/- 1,437 +/-139 +/- 190 Provisioning risk 1% change in social inflation 10% error in the assessment of long-tailed lines of business (workers’ compensation, motor liability, accident) Investment risk Interest rate market Effect of 1% increase in interest curve: Impact of interest-bearing securities Higher discounting of claims provisions Net effect of interest rate rise Impact of Norwegian pension obligation a) Equity market 15 % decline in equity market Effect of derivatives Real estate market 15 % decline in real estate markets Currency market Equity: 15 % decline in exposed currency (exclusive of EUR) relative to DKK Impact of derivatives +/- 779 +/- 684 +/-1,870 +/-1,753 -851 864 13 291 -367 18 -849 755 -94 282 -398 -35 -530 -499 -851 868 -1,031 985 Technical result per year: Effect of 15% change in exchange rates of NOK and SEK relative to DKK +/- 175 +/- 195 a) additional sensitivity information in note 22 ‘Pensions and similar obligations’ 69 Notes | Annual report 2013 | Tryg A/S | Notes In Tryg’s partial internal model, insurance risks are modelled using inter- nal components, while investment risks, operational risks and other risks that are not part of Tryg’s primary business concept are described using the standard Solvency II model. ing Tryg’s internal capital model, in which the price of reinsurance is compared with the reduction in the capital requirement that can be achieved. The individual solvency requirement must be covered by the ‘adequate capital base’ (see Note 2). The purpose of capital management in Tryg is to support the key business objectives: • A solid capital base, supporting both the statutory requirements and the ambition of keeping the ‘A-’ rating from Standard & Poor’s • A steadily rising nominal dividend per share with a distribution of 60- 90% of the net profit for the year after tax • Return on the average equity of 20% after tax The two first objectives are met by means of a high capital buffer, while the last objective requires that the capital buffer is kept at a minimum, or that the capital base mainly consists of subordinate loan capital. This balance is assessed in the company’s capital plan and ORSA report and forms the basis of recommendations on dividend and any extraordinary share buy backs (see Note 2). Based on the higher frequency of weather claims, Tryg has adjusted its risk assessment associated with weather-related events upwards. As a consequence of this, Tryg has taken out what is known as lateral cover for combinations of nature-related claims. This covers a total amount of DKK 600m with a retention of DKK300m for all claims above DKK 20m. This means that for each nature-related claim above DKK 20m, Tryg will be indemnified if it has already paid the retention of DKK 300m, up to a maximum of DKK 600m. In the field of buildings and contents insurance, major events in 2014 are covered by catastrophe reinsurance cover of DKK 5.5bn with reten- tion of DKK 150m. 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 attacks, up to a maximum of DKK 4.0bn. Risks Underwriting risk The underwriting risk is the risk relating to the conclusion of insurance contracts and thus the risk that premium income does not adequately cover the claims that Tryg is obliged to pay when damage has occurred. This risk can to a certain extent be assessed based on statistical analy- ses of historical experience within various business sectors. For accident, workers’ compensation and Norwegian group life policies, Tryg has purchased catastrophe reinsurance with cover of up to DKK 1.5bn for claims originating from the same event, including terrorism. Accident and workers’ compensation, Norwegian group life, liability, auto, goods and fish farming have been joined under one cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. 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 things being equal, this means that insurance sectors or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium as these require a larger capital base. In Tryg, the ongoing assessment of the underwriting risk is based on the capital model, which defines the target premium levels for each area of the insurance business. This applies both when determining and updat- ing tariffs, and when individually pricing major agreements for the cor- porate and partner segments. The underwriting risk is managed by means of ongoing profitability monitoring, business processes, accept- ance policy, proxies and reinsurance. The overall management frame- work is defined by the Supervisory Board in Tryg’s insurance policy. 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 us- Denmark has established a national guarantee scheme to cover NBCR (Nuclear Biological Chemical Radioactive) terrorist attacks. Insurance companies in the Danish market pay claims of a total of up to DKK 500m for these types of events, and joint reinsurance then covers up to DKK 5bn. Claims above DKK 5bn will be covered by a government guar- antee of DKK 15bn. Tryg’s share of the total retention will be approxi- mately DKK 100m, which will be the maximum claim as a consequence of NBCR events. Property damage caused by natural disasters in Norway are covered under the Norwegian Natural Perils Pool (NNP). Insurance companies in the Norwegian market pay claims of up to NOK 1bn for these types of events, and joint reinsurance then covers up to NOK 12.5bn. Tryg pays a market share of this retention (approx. 12.2% in 2014), which is again covered by Tryg’s catastrophe programme. Tryg also utilises the option of member companies to act as reinsurers for NNP correspond- ing to its own share of the pool. The risk assumed is subsequently hedged through Tryg’s catastrophe programme, thereby reducing costs. 70 | Tryg A/S | Annual report 2013 | NotesNotes In addition, reinsurance is bought for a number of sectors which, from experience, are exposed to major claims. The largest single risks in Tryg’s corporate portfolio are in the area of buildings and contents in- surance, protected by reinsurance cover of DKK 1.7bn and with reten- tion of DKK 50m, but with additional annual retention. This means that, in practice, retention is DKK 100m for the first claim, DKK 75m for the second claim and DKK 50m for subsequent claims. If there are more than four major claims in the same year, additional frequency cover has been purchased, reducing retention to DKK 25m for subsequent claims. Tryg buys facultative reinsurance cover for buildings and con- tents risks with exposure above DKK 1.7bn. For Tryg’s subsidiary Tryg Garantiforsikring A/S, the maximum retention is limited to DKK 30m. In the event of a major insurance event covered by the reinsurance pro- gramme, receivables from reinsurers may increase, entailing a credit risk. This risk is managed through requirements to assess the reinsur- ers’ credit ratings and to spread reinsurance across several reinsurers. Provisioning risk At the end of the term of insurance, the insurance risk relates to the claims provisions made to cover future payments in respect of damage which has already occurred. When damage occurs, there may be a cer- tain delay before the customer submits a claim. Depending on the com- plexity 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 process, particularly for personal injuries. Even once the claim has been settled, there is a risk that it will be reopened at a later date, triggering further payments. In determining the claims provisions, both individual assessments and statistical calculations are used. At the end of 2013, claims provi- sions totalled DKK 28,087m. The duration of these provisions, that is, the average time until these amounts were disbursed to customers, was 3.4 years. Most of the claims provisions relate to personal injury claims. These provisions are exposed to changes in inflation, the dis- count rate, disbursement patterns, economic trends, legislation and court decisions. The calculation of claims provisions will always be subject to uncer- tainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from provision- ing risk, and this is also expected to be the case in future. The Supervi- sory Board defines the overall framework for managing provision risk in Tryg’s insurance policy. This implies, among other things, that the provisions assessments are based on underlying model analyses, that quarterly internal control cal- culations are performed, supplemented by periodic external reviews, and that a safety surcharge is charged to approximate market value. Claims provisions relating to annuities under Danish workers’ compen- sation insurance are discounted using the current market rate and si- multaneously increased based on 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 is exposed to interest rate changes as a result of its provisions under the Norwegian pension scheme, which is a defined-benefit plan covering approximately1,376 employees. This scheme was closed to new employees in 2008, and the total provision was DKK 723m at the end of 2013. The Norwegian pension provision is also sensitive to changes in the life expectancy as well as salary and pension adjustments. It is expected that a new bill on occupational pensions will be passed in Norway in 2014. It is not yet clear what the exact consequences of this legislation will be, but it will probably lead to a reduction of Tryg’s Nor- wegian pension provision. Changes in the pension provision are not recognised in the income statement, but are charged directly to equity. 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 establishing an ad- equate 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. The Supervisory Board defines the overall framework for managing op- erational risk in Tryg’s IT security policy and operational risk policy. These risks are managed via the Operational Risk Committee, which is a sub-committee of the Group’s Risk Committee. Tryg has set up a crisis management structure to deal with the eventual- ity that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and fi- nally business contingency in the individual areas. Tryg has prepared contingency plans to handle the most important areas, such as contin- gency plans for handling prolonged IT breakdowns in the individual ar- eas of the business. The contingency plans were tested in the autumn of 2013 in a major exercise with a satisfactory result. Strategic risk Strategic risk relates to Tryg’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputa- tion, as well as changed market conditions. The Supervisory Board is closely involved in the management of strategic risk. 71 Notes | Annual report 2013 | Tryg A/S | Notes DKKm Claims provisions – estimated accumulated claims Gross 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Estimated acc. claims, end of year 10,406 10,513 1 year later 10,191 2 years later 10,185 3 years later 10,218 4 years later 10,192 5 years later 10,120 6 years later 9,990 7 years later 9,904 8 years later 9,924 9 years later 9,829 10 years later 9,829 10,753 10,768 10,629 10,517 10,253 10,336 10,116 10,003 9,966 9,926 11,486 11,381 11,221 10,834 10,981 10,920 10,823 10,835 10,807 11,276 11,533 11,055 11,288 11,221 11,211 11,189 11,151 12,210 12,814 13,396 13,377 13,372 13,275 13,143 12,832 14,208 14,084 14,094 14,049 13,951 14,261 14,933 14,957 14,734 14,611 16,579 16,681 16,627 16,502 16,904 17,317 17,300 14,392 14,371 14,225 9,926 10,807 11,151 13,143 13,951 14,611 16,502 17,300 14,371 14,225 145,815 Cumulative payments to date Provisions before discounting, end of year Discounting Reserves from 2002 and prior years Other Gross claims pro- visions, end of year -9,395 -9,416 -10,099 -10,160 -11,936 -12,116 -12,614 -13,857 -14,097 -10,356 -6,570 -120,615 434 -55 510 -78 708 -112 990 -157 1,207 -154 1,835 -224 1,997 -214 2,646 -233 3,203 -234 4,015 -251 7,655 -279 25,201 -1,990 2,060 816 26,087 Ceded business 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 896 861 857 913 835 831 840 838 898 942 945 945 823 837 877 875 861 870 870 859 857 861 935 829 835 829 855 851 835 834 826 287 286 272 305 305 301 299 301 508 473 488 493 514 484 514 172 239 203 192 192 179 297 371 349 301 303 1,478 2,206 2,328 697 778 771 747 256 289 567 861 826 301 514 179 303 747 2,328 289 567 7,861 -856 -799 -804 -289 -483 -170 -275 -538 -1,821 -171 -44 -6,250 90 -5 61 -5 22 -2 12 -1 32 -2 9 -1 28 -1 209 -3 507 -16 118 -7 523 -5 1,610 -46 216 603 2,383 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 payments to date Provisions before discounting, end of year Discounting Reserves from 2002 and prior years Other Reinsurers’ share of claims provis- ions, end of year 72 | Tryg A/S | Annual report 2013 | Notes Notes DKKm Claims provisions – estimated accumulated claims Net of reinsurance 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 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 payments to date Provisions before discounting, end of year Discounting Reserves from 2002 and prior years Other Claims provisions, net of reinsurance, end of year 9,510 9,652 9,334 9,272 9,383 9,362 9,279 9,152 9,006 8,982 8,884 8,884 9,930 9,931 9,753 9,642 9,392 9,466 9,245 9,144 9,109 9,066 10,551 10,552 10,386 10,006 10,126 10,070 9,988 10,001 9,981 10,989 11,247 10,782 10,982 10,916 10,910 10,890 10,850 11,702 12,340 12,908 12,884 12,858 12,791 12,629 12,660 13,968 13,880 13,901 13,857 13,773 13,964 14,562 14,608 14,432 14,307 15,882 15,903 15,856 15,755 15,426 15,111 14,972 14,136 14,082 13,657 9,066 9,981 10,850 12,629 13,773 14,307 15,755 14,972 14,082 13,657 137,955 -8,539 -8,617 -9,295 -9,871 -11,454 -11,946 -12,339 -13,319 -12,275 -10,184 -6,526 -114,365 345 -50 449 -73 686 -111 979 -156 1,175 -152 1,826 -223 1,968 -213 2,437 -230 2,696 -218 3,898 -244 7,132 -274 23,591 -1,944 1,844 213 23,704 Other provisions comprise the claims provisions for Tryg Garantiforsikring A/S. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2013 to prevent the impact of exchange rate fluctuations. 73 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 0-1 year 1-2 years 2-3 years > 3 years Other Expected cash flow Claims provisions (continued) 2013 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 2012 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 5,765 -219 9,820 -842 14,524 6,107 -222 9,914 -941 14,858 136 0 4,442 -253 4,325 180 0 4,562 -387 4,355 131 0 2,805 -249 2,687 182 0 2,956 -190 2,948 144 0 8,204 -436 7,912 189 0 9,410 -375 9,224 36 -18 816 -603 231 30 -15 400 -187 228 Carrying amount Total 6,212 -237 26,087 -2,383 29,679 6,688 -237 27,242 -2,080 31,613 Other comprises Tryg Garantiforsikring A/S. Investment risk The overall framework for managing investment risk is defined by the Supervisory Board in Tryg’s investment policy. In overall terms, Tryg’s in- vestment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the discounted claims provisions and is designed to hedge the interest rate sensitivity of these to the widest possible extent. Tryg carries out daily monitoring, follow- up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net inter- est rate risk. In practice, it is not possible or expedient to aim for a complete match. The administration costs alone associated with a complete match mean that, in practice, a certain degree of mismatch is acceptable within an appropriate limit defined in the investment policy. Add to this that the provisions are discounted using a mathematical interest rate curve specified by the Danish Financial Supervisory Authority, which cannot be perfectly replicated in the market, for which reason a certain degree of mismatch must be accepted for regulatory reasons. In addition, the free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. Tryg’s largest invest- ment risk pertains to its shareholdings, the value of which is directly de- pendent on how the equity markets fare. At the end of 2013, the equity portfolio accounted for 6.2% of the total investment assets. This share is expected to be at a similar level in 2014. 74 Tryg’s property portfolio mainly comprises owner-occupied and invest- ment properties, the value of which is adjusted based on the conditions on the property market through property valuations. At the end of 2013, investment properties accounted for 4.7%, while owner-occu- pied properties accounted for 2.8% of the total investment assets. Property investments are expected to be at a similar level in 2014. Tryg’s does not wish to speculate in foreign currency, but since Tryg in- vests and operates its business in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to fluctua- tions in the other Scandinavian currencies due to its ongoing insurance activities. Premiums earned and claims paid in other currencies create a natural currency hedge, for which reason other risk mitigation meas- ures are not required in this area. However, the part of equity held in other currencies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using currency swaps. In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentration risk. These risks primarily relate to ex- posures in high-yield bonds, emerging market debt exposures as well as Tryg’s investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance pol- icy. For an insurance company like Tryg, liquidity risk is practically non- existent, as premium payments fall due before claims payments. | Tryg A/S | Annual report 2013 | Notes Notes DKKm Investment risk Bond portfolio Duration 1 year or less Duration 1 year – 5 years Duration 5 – 10 years Duration more than 10 years Total Duration 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. Listed shares Nordic countries United Kingdom Rest of Europe United States Asia etc. Total The portfolio of unlisted shares totals The share portfolio includes exposure from share derivaties of DKK 325m. ( in 2012 DKK -120m) Unlisted equity investments are based on an estimated market price 2012 2013 20,210 15,735 2,641 2,216 40,802 2.1 18,748 14,000 3,188 2,403 38,339 2.3 2012 2013 458 102 483 632 429 2,104 199 393 141 793 892 591 2,810 150 Exposure to exchange rate risk Property Bonds incl. derivatives Shares incl. derivatives Insurance Hedge Exposure 2013 USD EUR GBP NOK SEK Other Total 2012 USD EUR GBP NOK SEK Other Total 0 0 0 820 1 0 0 0 0 941 1 0 290 1,189 0 12,252 3,255 0 0 1,819 0 14,785 2,702 731 1,074 389 70 506 29 570 728 412 94 577 589 508 23 -1,054 11 -10,352 -1,979 -5 -15 -1,547 10 -12,950 -1,741 -87 -1,335 664 -91 -2,981 -1,280 -379 -700 -338 -104 -3,481 -1,546 -1,003 52 1,188 -10 245 26 186 1,707 13 346 0 -128 5 149 641 75 Notes | Annual report 2013 | Tryg A/S | Notes Impact of exchange rate fluctuations in SEK and NOK on technical result Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Impact of exchange rate fluctuations in SEK and NOK on technical result Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Impact of exchange rate fluctuations in SEK and NOK on statement of financial position Assets Intangible assets Total property, plant and equipment Investment property Investments in associates Other financial investment assets Reinsurers’ share of provisions for insurance contracts Receivables Other assets Prepayments and accrued income Total assets Equity and liabilities Equity Subordinate loan capital Provisions for insurance contracts Total provisions Other debt Accruals and deferred income Total equity and liabilities 76 2012 20,314 -14,675 -3,295 2,344 86 62 2,492 2011 19,948 -15,783 -3,271 894 507 171 1,572 2013 Change Currency Change excl. effect currency effect 19,504 -14,411 -3,008 2,085 349 62 2,496 -810 264 287 -259 263 0 4 -253 161 38 -54 11 -1 -44 -557 103 249 -205 252 1 48 2012 Change Currency Change excl. effect currency effect 20,314 -14,675 -3,295 2,344 86 62 2,492 366 1,108 -24 1,450 -421 -109 920 376 -274 -65 37 2 3 42 -10 1,382 41 1,413 -423 -112 878 2012 2013 Change Currency Change excl. effect currency effect 759 1,592 2,081 21 44,527 2,317 1,989 1,246 490 55,022 10,979 1,597 34,355 2,343 5,354 394 55,022 758 1,426 2,022 18 42,855 2,620 2,420 698 554 53,371 11,107 1,818 32,939 1,871 5,179 457 53,371 -1 -166 -59 -3 -1,672 303 431 -548 64 -1,651 128 221 -1,416 -472 -175 63 -1,651 -24 -75 -51 -3 -2,582 -146 -98 -34 -20 -3,033 -21 -90 -2,936 -238 -738 -10 -3,033 23 -91 8 0 910 449 529 -514 84 1,382 149 311 520 -234 563 73 1,382 | Tryg A/S | Annual report 2013 | Notes Notes Impact of exchange rate fluctuations in SEK and NOK on statement of financial position Assets Intangible assets Total property, plant and equipment Investment property Investments in associates Other financial investment assets Reinsurers’ share of provisions for insurance contracts Receivables Other assets Prepayments and accrued income Total assets Equity and liabilities Equity Subordinate loan capital Provisions for insurance contracts Total provisions Other debt Accruals and deferred income Total equity and liabilities Credit risk Bond portfolio by ratings AAA to A Other Not rated Total Reinsurance balances AAA to A Other Not rated Total 2011 2012 Change Currency Change excl. effect currency effect 952 1,857 2,199 14 43,392 2,067 1,665 495 721 53,362 9,007 1,589 34,398 2,228 5,808 332 53,362 759 1,592 2,081 21 44,527 2,317 1,989 1,246 490 55,022 10,979 1,597 34,355 2,343 5,354 394 55,022 2012 DKKm 37,900 716 246 38,862 1,578 9 136 1,723 -193 -265 -118 7 1,135 250 324 751 -231 1,660 1,972 8 -43 115 -454 62 1,660 2012 % 97.5 1.8 0.6 100.0 91.6 0.5 7.9 100.0 24 33 23 1 1,153 74 46 23 4 1,381 7 0 929 138 300 7 1,381 2013 DKKm 36,456 514 1 36,971 2,268 1 140 2,409 -217 -298 -141 6 -18 176 278 728 -235 279 1,965 8 -972 -23 -754 55 279 2013 % 98.6 1.4 0.0 100.0 94.2 0.0 5.8 100.0 77 Notes | Annual report 2013 | Tryg A/S | Notes Liquidity risk Maturity of the Group’s financial obligations including interest 2013 0-1 year 1-5 years > 5 years Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 2012 Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 89 6 2,821 219 1,838 4,973 541 14 1,470 85 3,095 5,205 356 0 0 199 0 555 201 0 0 160 0 361 2,558 0 0 125 0 2,683 1,514 0 0 694 0 2,208 Total 3,003 6 2,821 543 1,838 8,211 2,256 14 1,470 939 3,095 7,774 Interest on loans for a perpetual term has been recognised for the first fifteen years. 2 Capital management Tryg’s capital base consists of equity and subordinate loan capital. The relationship between these is evaluated on an ongoing basis in order to maintain an optimum structure which takes into account the return on equity, the capital cost and flexibility. The authorities impose a require- ment that companies must determine the capital base, which consists of equity minus intangible assets, discount effect and other statutory corrections plus subordinate loan capital. The additional capital can be included by up to 50% of the minimum requirement under Solvency I, although additional capital with a definite maturity may not exceed 25% of the minimum requirement. The new version of the Executive Order on Solvency and Operating Plans contains an annex on calculation of the ‘adequate capital base’. However, this is only a temporary measure of the companies’ individual solvency requirement until the entry into force of a new financial state- ments order (expected on 1 January 2015). For Tryg, the adequate capi- tal base will be slightly higher than the capital base for accounting pur- poses, as some of the above-mentioned corrections do not apply to the calculation of an adequate capital base. It is expected that a new finan- cial statements order, which will enter into force in 2015, will offer wider scope for including capital elements and for gearing. Given Tryg’s desire to optimise its capital structure in light of the currently favourable market conditions for core capital, Tryg refinanced a subordinate loan of EUR 65m with a definite maturity to a new sub- ordinate loan of NOK 800m with indefinite maturity in 2013. Due to its indefinite maturity, the new subordinate loan may be included in the capital base by up to 50% of the company’s minimum requirement under Solvency I. It is also expected that the subordinate loan may be included as Tier 2 capital under Solvency II. Tryg’s total subordinated debt is DKK 1,818m. In total, debt amounted to 16% of equity at the end of 2013, and interest expenses in 2013 amounted to DKK 89m. Based on its strong capital position, expectations for future earnings and the objective of achieving a return on equity of 20% after tax, Tryg initiated an extraordinary share buy back of DKK 1,000m on 2 January 2014. This will continue throughout 2014. 78 | Tryg A/S | Annual report 2013 | Notes Notes Mio. DKK Capital adequacy Equity according to annual report Proposed dividend Solvency requirements of subsidiaries – 50% Tier 1 Capital Subordinate loan capital Solvency requirements of subsidiaries – 50% Capital base Weighted assets Solvency ratio 2012 2013 10,979 -1,594 -2,406 6,979 873 -2,405 5,447 11,107 -1,656 -2,307 7,144 1,551 -2,307 6,388 6,048 7,111 90 90 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act.. Subordinary loan capital Tryghedsgruppen smba EUR 65m Bond loan EUR 150m Bond loan NOK 800m 2012 2013 2012 2013 2012 2013 The fair value of the loan at the statement of financial position date The fair value of the loan at the statement of financial position date is based on a price of Total capital losses and costs at the statement of the financial position date Interest expenses for the year Effective interest rate 490 101 0 30 0.4% - - - 6 - 1,119 1,127 100 7 50 4.4% 101 5 50 4.1% Loan terms: Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure Called in April 2013. Listed bonds EUR 150m 99.017 December 2005 2025 2015 Interest-only - - - - - 741 105 5 33 4.8% Listed bonds NOK 800m 100 March 2013 Perpetual 2023 Interest-only 4.5% (until 2015) 3.75 % above NIBOR 3M (until 2023) 2.1% above EURIBOR 3M (from 2015) 4.75 % above NIBOR 3M (from 2023) The share of capital included in the calculation of the capital base total DKK 1,551m ( in 2012 DKK 873m). The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. The loans are taken by Tryg Forsikring A/S.The creditors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liquidation or bankruptcy of Tryg Forsikring A/S. Prices used for determination of fair value in respect of both loans are based on actual traded prices from Bloomberg. 79 Notes | Annual report 2013 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other Group 3 Operating segments 2013 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Investment return after insurance technical interest Other income and costs Profit/loss before tax Tax Profit/loss on continuing business Profit/loss on discontinued and divested business Profit/loss Run-off gains/losses, net of reinsurance Intangible assets Equity investments in associates Reinsurers’ share of premium provisions Reinsurers’ share of claims provisions Assets held for sale Other assets Total assets Premium provisions Claims provisions Provisions for bonuses and premium discounts Liabilities associated with assets held for sale Other liabilities Total liabilities 9,366 -6,596 -1,418 -43 26 1,335 3,528 -2,438 -680 19 10 439 5,041 -4,201 -630 348 15 573 1,587 -1,178 -280 9 11 149 -18 2 0 16 0 0 310 176 464 8 265 9 404 219 1,641 2,727 6,377 507 1,281 5,992 29 1,374 11,961 94 20 463 1 73 830 1,757 10 0 295 18 0 0 0 49,975 0 0 0 0 9,325 19,504 -14,411 -3,008 349 62 2,496 588 -91 2,993 -620 2,373 -4 2,369 970 758 18 237 2,383 0 49,975 53,371 6,212 26,087 640 0 9,325 42,264 80 | Tryg A/S | Annual report 2013 | Notes Notes DKKm Private Commercial Corporate Sweden Other Group 3 Operating segments (continued) 2012 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Investment return after insurance technical interest Other income and costs Profit/loss before tax Tax Profit/loss on continuing business Profit/loss on discontinued and divested business Profit/loss Run-off gains/losses, net of reinsurance Intangible assets Equity investments in associates Reinsurers’ share of premium provisions Reinsurers’ share of claims provisions Assets held for sale Other assets Total assets Premium provisions Claims provisions Provisions for bonuses and premium discounts Liabilities associated with assets held for sale Other liabilities Total liabilities Description of segments 9,733 -7,084 -1,524 81 27 1,233 3,687 -2,372 -748 32 5 604 5,258 -3,929 -648 -37 6 650 1,654 -1,267 -306 -3 24 102 -18 -23 -69 13 0 -97 326 212 506 1 249 0 319 236 1,448 2,899 6,479 291 1,397 6,203 1,414 13,011 32 101 -29 502 0 64 978 1,549 0 0 257 21 0 0 742 51,183 0 0 1 742 8,946 20,314 -14,675 -3,295 86 62 2,492 585 -60 3,017 -837 2,180 28 2,208 1,015 759 21 237 2,080 742 51,183 55,022 6,688 27,242 425 742 8,946 44,043 Please refer to the accounting principles for a description of operating segments. Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments but are included under ‘Other’. Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. 81 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 2009 2010 2011 2012 2013 3 Geographical segments Danish general insurance a) Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio 9,533 1,190 423 71.4 2.5 73.9 14.6 88.5 9,648 195 615 81.6 0.7 82.3 16.2 98.5 10,019 1,033 770 83.3 -8.1 75.2 15.1 90.3 9,910 1,441 571 71.1 -0.2 70.9 14.5 85.4 9,534 1,202 566 79.5 -7.0 72.5 15.0 87.5 Number of full-time employees 31 December 2,296 2,349 2,315 2,187 2,046 Norwegian general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio 6,750 618 277 70.8 3.7 74.5 17.0 91.5 7,490 389 177 76.7 3.1 79.8 15.7 95.5 7,916 598 181 73.2 3.2 76.4 17.0 93.4 8,239 1,017 465 72.4 -1.0 71.4 16.8 88.2 7,819 1,258 387 65.1 4.1 69.2 15.3 84.5 Number of full-time employees 31 December 1,398 1,338 1,338 1,282 1,199 Swedish general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employees 31 December 1,111 -75 -8 80.6 1.8 82.4 25.1 107.5 425 1,769 -124 32 84.6 0.8 85.4 22.4 107.8 414 2,050 -59 -7 82.0 2.6 84.6 20.3 104.9 423 2,183 131 -21 75.3 1.5 76.8 18.6 95.4 444 2,169 36 17 80.6 0.7 81.3 17.6 98.9 458 82 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 2009 2010 2011 2012 2013 3 Geographical segments Other b) Gross premium income Technical result Tryg Gross premium income Technical result Investment return Other income and costs Profit/loss before tax Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio c) Combined ratio -4 -44 -13 0 -37 0 -18 -97 -18 0 17,390 18,894 19,948 20,314 19,504 1,689 1,083 -38 2,734 692 71.7 3.0 74.7 16.6 91.3 460 550 -4 1,006 824 80.0 1.6 81.6 16.7 98.3 1,572 61 -30 1,603 944 79.1 -2.5 76.6 16.6 93.2 2,492 585 -60 3,017 1,015 72.2 -0.4 71.8 16.4 88.2 2,496 588 -91 2,993 970 73.9 -1.8 72.1 15.6 87.7 Number of full-time employees, continuing business at 31 December 4,119 4,101 4,076 3,913 3,703 Number of full-time employees, discontinued and divested business at 31 December 217 191 242 189 0 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footer to Financial highlights. 83 Notes | Annual report 2013 | Tryg A/S | NotesNotes DKKm 3 Technical result, net of reinsurance, by line of business Accident and health Health care Workers’ compensation Motor TPL insurance Motor comprehensive insurance Marine, aviation and cargo insurance 2012 1,838 1,831 - 1,456 - 241 - 12 4 126 79.5 93.3 4.2% 39,432 36,243 2013 1,798 1,740 - 1,282 - 219 - 3 4 240 73.7 86.4 4.4% 36,905 36,480 2012 327 350 - 224 - 29 0 1 98 64.0 72.3 2013 324 326 - 209 - 29 0 1 89 64.1 73.0 106.3% 5,837 47,547 108.8% 4,918 45,694 2012 1,076 1,089 - 687 - 135 - 14 - 21 232 63.1 76.8 16.5% 97,258 9,582 2013 1,039 1,007 - 394 - 128 - 36 - 6 443 39.1 55.4 16.8% 89,638 9,209 Fire and contents (Private) Fire and contents (Commercial) Change of ownership Liability insurance Credit and guarantee insurance Tourist assistance insurance 2012 4,803 4,831 - 3,664 - 863 97 20 421 75.8 91.7 2013 4,739 4,693 - 3,405 - 794 - 21 18 491 72.6 89.9 7.8% 11,856 306,088 9.0% 10,508 348,296 2012 2,758 2,793 - 2,051 - 436 46 14 366 73.4 87.4 18.6% 58,678 32,471 2013 2,651 2,632 - 1,933 - 419 - 126 10 164 73.4 94.1 23.1% 56,519 38,033 2012 2013 35 89 - 81 - 7 0 0 1 91.0 98.9 7.2% 25,631 4,280 66 79 - 52 - 8 0 0 19 65.8 75.9 8.1% 25,531 4,349 Other insurance c) Total exclusive of Norwegian Group Life Norwegian Group Life, one-year policies 2012 114 100 - 127 - 159 30 0 - 156 127.0 256.0 34,658 512 2013 2012 2013 19,574 19,730 - 14,139 - 3,259 87 54 2,473 71.7 88.0 19,276 18,980 - 13,887 - 2,977 351 56 2,523 73.2 87.2 101 102 - 24 - 74 - 12 0 - 8 23.5 107.8 63,990 210 2012 554 584 - 536 - 36 - 1 8 19 91.8 98.1 2013 544 524 - 524 - 31 - 2 6 - 27 100.0 106.3 18.1% 11,244 240,070 19.4% 10,644 238,955 20.1% 84,256 2,659 21.0% 68,910 2,621 2012 4,013 4,011 - 2,617 - 641 - 4 16 765 65.2 81.3 2012 309 307 - 201 - 61 - 28 3 20 65.5 94.5 0.3% 83 2013 3,986 3,884 - 2,532 - 602 - 2 14 762 65.2 80.7 2013 336 326 - 888 - 47 629 2 22 272.4 93.9 0.3% 127 2012 392 386 - 158 - 39 - 25 0 164 40.9 57.5 2012 564 569 - 413 - 79 - 1 3 79 72.6 86.6 2013 359 344 - 167 - 39 - 91 1 48 48.5 86.3 2013 569 571 - 425 - 80 - 1 2 67 74.4 88.6 2,541,601 6,994,362 12.3% 8,889 53,491 14.0% 8,265 54,848 2012 2,400 2,456 - 1,742 - 430 - 12 14 286 70.9 88.9 5.1% 25,090 72,300 2012 945 918 - 718 - 139 10 0 71 78.2 92.3 2013 2,322 2,298 - 1,728 - 403 - 36 7 138 75.2 94.3 5.7% 24,059 73,973 2013 986 978 - 848 - 135 50 3 48 86.7 95.4 10.0% 76,535 8,927 11.6% 59,246 10,566 Total 2012 2013 20,128 20,314 - 14,675 - 3,295 86 62 2,492 72.2 88.2 19,820 19,504 - 14,411 - 3,008 349 62 2,496 73.9 87.7 Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Average claims DKK b) Total claims 84 | Tryg A/S | Annual report 2013 | Notes Notes Accident and health Health care Workers’ compensation Motor TPL insurance Motor comprehensive insurance Marine, aviation and cargo insurance 2012 2,400 2,456 - 1,742 - 430 - 12 14 286 70.9 88.9 5.1% 25,090 72,300 2013 2,322 2,298 - 1,728 - 403 - 36 7 138 75.2 94.3 5.7% 24,059 73,973 2012 4,013 4,011 - 2,617 - 641 - 4 16 765 65.2 81.3 2013 3,986 3,884 - 2,532 - 602 - 2 14 762 65.2 80.7 2012 392 386 - 158 - 39 - 25 0 164 40.9 57.5 2013 359 344 - 167 - 39 - 91 1 48 48.5 86.3 18.1% 11,244 240,070 19.4% 10,644 238,955 20.1% 84,256 2,659 21.0% 68,910 2,621 Fire and contents (Private) Fire and contents (Commercial) Change of ownership Liability insurance Credit and guarantee insurance Tourist assistance insurance 2012 945 918 - 718 - 139 10 0 71 78.2 92.3 2013 986 978 - 848 - 135 50 3 48 86.7 95.4 2012 309 307 - 201 - 61 - 28 3 20 65.5 94.5 2013 336 326 - 888 - 47 629 2 22 272.4 93.9 2012 564 569 - 413 - 79 - 1 3 79 72.6 86.6 2013 569 571 - 425 - 80 - 1 2 67 74.4 88.6 10.0% 76,535 8,927 11.6% 59,246 10,566 0.3% 2,541,601 83 0.3% 6,994,362 127 12.3% 8,889 53,491 14.0% 8,265 54,848 Total 2012 2013 20,128 20,314 - 14,675 - 3,295 86 62 2,492 72.2 88.2 19,820 19,504 - 14,411 - 3,008 349 62 2,496 73.9 87.7 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 in the year. c) Other insurance, gross claims and gross operating expenses include restructuring costs of DKK 28m and DKK 69m, respectively, in 2012 85 Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Average claims DKK b) Total claims 2012 1,838 1,831 - 1,456 - 241 - 12 4 126 79.5 93.3 4.2% 39,432 36,243 2012 4,803 4,831 - 3,664 - 863 97 20 421 75.8 91.7 2012 114 100 - 127 - 159 30 0 - 156 127.0 256.0 34,658 512 2013 1,798 1,740 - 1,282 - 219 - 3 4 240 73.7 86.4 4.4% 36,905 36,480 2013 4,739 4,693 - 3,405 - 794 - 21 18 491 72.6 89.9 101 102 - 24 - 74 - 12 0 - 8 23.5 107.8 63,990 210 2012 327 350 - 224 - 29 0 1 98 64.0 72.3 106.3% 5,837 47,547 2012 2,758 2,793 - 2,051 - 436 46 14 366 73.4 87.4 18.6% 58,678 32,471 19,574 19,730 - 14,139 - 3,259 87 54 2,473 71.7 88.0 2013 324 326 - 209 - 29 0 1 89 64.1 73.0 108.8% 4,918 45,694 2013 2,651 2,632 - 1,933 - 419 - 126 10 164 73.4 94.1 23.1% 56,519 38,033 19,276 18,980 - 13,887 - 2,977 351 56 2,523 73.2 87.2 2012 2013 2012 1,076 1,089 - 687 - 135 - 14 - 21 232 63.1 76.8 16.5% 97,258 9,582 35 89 - 81 - 7 0 0 1 91.0 98.9 7.2% 25,631 4,280 2012 554 584 - 536 - 36 - 1 8 19 91.8 98.1 2013 1,039 1,007 - 394 - 128 - 36 - 6 443 39.1 55.4 16.8% 89,638 9,209 66 79 - 52 - 8 0 0 19 65.8 75.9 8.1% 25,531 4,349 2013 544 524 - 524 - 31 - 2 6 - 27 100.0 106.3 7.8% 11,856 306,088 9.0% 10,508 348,296 Other insurance c) Total exclusive of Norwegian Group Life Norwegian Group Life, one-year policies 2013 2012 2013 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 2012 2013 4 Premium income, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance 20,395 60 20,455 27 20,482 -1,051 -61 19,370 Direct insurance, by location of risk 2012 2013 Denmark Other EU countries Other countries Gross 9,947 2,176 8,299 Ceded -541 -61 -449 Gross 9,709 2,162 7,902 19,740 83 19,823 33 19,856 -1,161 -35 18,660 Ceded -719 -39 -403 20,422 -1,051 19,773 -1,161 5 Insurance technical interest, net of reinsurance Return on insurance provisions Discounting transferred from claims provisions 6 Claims, net of reinsurance Claims Run-off previous years, gross Reinsurance cover received Run-off previous years, reinsurers’ share 7 Insurance operating costs, net of reinsurance Commission regarding direct insurance contracts Other acquisition costs Total acquisition costs Administration expenses Insurance operating costs, gross Commission from reinsurers 86 2012 525 -463 62 -14,958 283 -14,675 363 732 -13,580 -477 -2,013 -2,490 -805 -3,295 103 -3,192 2013 483 -421 62 -15,273 862 -14,411 1,332 108 -12,971 -379 -1,848 -2,227 -781 -3,008 105 -2,903 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 2012 2013 7 Insurance operating costs, 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 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 41m (DKK 46m in 2012). Insurance operating costs, gross, classified by type Commissions Staff expenses Other staff expenses Office expenses, fees and headquarter expenses IT operating and maintenance costs, software expenses Depreciation, amortisation and impairment losses and write-downs Other income Total lease expenses amount to DKK 30m (DKK 36m in 2012) Insurance operating costs and claims include the following staff expenses: Salaries and wages Commision Allocated share options and matching shares Defined-contribution pension plans Defined-benefit pension plans Other social security costs Payroll tax -6 -6 -6 0 0 -6 -477 -1,977 -206 -473 -218 -129 185 -3,295 -2,379 -10 -9 -295 -98 -5 -369 -3,165 -13 -13 -6 -1 -6 -13 -379 -1,802 -224 -411 -237 -110 155 -3,008 -2,122 -8 -4 -287 -75 -5 -355 -2,856 Remuneration for the Supervisory Board and Executive Management is disclosed in note 29 ‘Related parties’. Average number of full-time employees during the year (continuing business) 4,016 3,800 Restructuring costs In order to improve cost-efficiency and profitability, in 2012 Tryg planned to reduce the number of employees by approx. 400, of which a reduction of 294 employees was realised by the end of 2013. As at 31 December 2013, the restructuring provisions amounted to DKK 23m (DKK 97m in 2012). 87 Notes | Annual report 2013 | Tryg A/S | Notes 7 Share option programmes Spec. of outstanding options: 2013 Allocation 2008-2011 Allocated in 2008-2011, 1 January Exercised Cancelled Expired Outstanding options from 2008-2011 allocation 31 Dec. 2013 Number of options exercisable TOTAL NUMBERS MARKET VALUE Executive Manage- Other Other senior ment employees employees Total Per option Total value at time of at time of allocation allocation (DKKm) (DKK) at 31 Per option Total value at 31 December December (DKKm) (DKK) 238/226/238 238/226/238 238/226/238 238/226/238 60/118/115/137 60/118/115/137 60/118/115/137 60/118/115/137 60/118/115/137 42 -23 -1 -1 18 64 0 -10 0 -12 42 99 -43 -2 0 54 71 0 -10 -1 0 60 92,818 -43,777 391,877 -227,782 -7,525 -8,580 66,580 -28,201 -3,427 -2,100 551,275 -299,760 -10,952 -10,680 69/94/75/72 69/94/75/72 69/94/75/72 69/94/75/72 49,041 147,990 32,852 229,883 31 Dec. 2013 40,756 53,727 9,046 103,529 2012 Allocation 2007-2011 Allocated in 2007-2011, 31 December Category changes Exercised Cancelled Expired Outstanding options from 2007-2011 allocation 31 Dec. 2012 Number of options exercisable 121,638 -11,575 -17,245 581,090 18,859 -103,177 -4,883 -100,012 98,106 -18,859 -6,780 -1,887 -4,000 800,834 99/69/94/75/72 0 99/69/94/75/72 -121,532 99/69/94/75/72 -6,770 99/69/94/75/72 -121,257 99/69/94/75/72 92,818 391,877 66,580 551,275 31 Dec. 2012 51,165 153,305 18,670 223,140 88 | Tryg A/S | Annual report 2013 | Notes Notes 7 Share option programmes Specification of outstanding options: Year of allocation Years of exercise 1 Jan. 2013 Additions Exercised Cancelled Expired 31 Dec. 2013 2008 2009 2010 2011 2011-2013 2012-2014 2013-2015 2014-2016 Outstanding options 31 December 2013 124,978 98,162 194,532 133,603 551,275 0 0 0 0 0 -113,598 -57,254 -128,908 0 -700 0 -3,003 -7,249 -10,680 0 0 0 0 40,908 62,621 126,354 -299,760 -10,952 -10,680 229,883 Assumptions for calculation of market value at time of allocation Year of allocation 2008 2009 2010 2011 Average share price at time of allocation (DKK) Years of exercise Expected volatility Expected maturity Risk-free interest rate Average time to expiry, 31 Dec. 2013 Average exercise price, 31 Dec. 2013 2011-2013 2012-2014 2013-2015 2014-2016 378.24 313.51 320.04 295.83 20.30% 37.70% 29.20% 30.00% 4 years 4 years 4 years 4 years 3.60% 2.80% 2.70% 3.00% 0.00 0.08 0.58 1.11 0.00 286.34 300.02 288.90 Tryg did not allocate share options in 2013. At 31 December 2013, the share option plan comprised 229.883 share options (551,275 share options at 31 December 2012). Each share option entitles the holder to acquire one existing share with a nominal value of DKK 25 in Tryg A/S. The share option plan entitles the holders to buy 0.4% of the share capital in Tryg A/S if all share options are exercised. In 2013, the fair value of share options recognised in the consolidated income statement amounted to DKK 2m (DKK 7m in 2012). At 31 De- cember 2013, a total amount of DKK 78m was recognised for share option programmes issued in 2006-2011. Fair values at the time of allo- cation are based on the Black & Scholes option pricing formula. The Group Executive Management includes retired managers with a total of 8.285 units with a value of DKK 0,6m at the time of allocation. Risk-takers are included under ‘Other 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 term is 4 years, corresponding to the average 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 term are based on the same principles as for the market value at the time of allocation. 89 Notes | Annual report 2013 | Tryg A/S | Notes 7 Matching shares TOTAL NUMBERS MARKET VALUE 2013 Allocated in 2013 Matching shares allocated at 31. Dec. Allocated in 2012 Cancelled Executive Manage- ment Risk- takers Total 3,928 3,928 2,526 2,526 6,454 6,454 5,948 3,846 9,794 0 -1,005 -1,005 Matching shares allocated at 31. Dec. 5,948 2,841 8,789 Allocated in 2011 Cancelled Matching shares allocated at 31. Dec. 2012 Allocated in 2012 Matching shares allocated at 31. Dec. Allocated in 2011 Matching shares allocated at 31. Dec. 4,979 5,996 10,975 0 4,979 -988 5,008 -988 9,987 5,948 5,948 4,979 4,979 3,846 3,846 5,996 5,996 9,794 9,794 10,975 10,975 Average per matching Average per Total share at Total value matching share at at time of time of value 31 Dec. at 31 Dec. allocation allocation (DKKm) (DKKm) (DKK) (DKK) 457 457 301 301 301 302 302 302 301 301 302 302 3 3 3 0 3 4 0 4 3 3 4 4 525 525 525 525 525 525 525 525 427 427 427 427 3 3 5 0 5 5 0 5 4 4 5 5 In 2011, 2012 and 2013, Tryg entered into an agreement on matching shares for the Executive Management and selected risk-takers as a consequence of the Group’s remuneration 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 4-year maturation period. In 2013, the reported fair value of matching shares for the Group amounted to DKK 2m (DKK 2m in 2012). At 31 December 2013, a total amount of DKK 4m was recognised for matching shares. 90 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 2012 2013 8 Interest and dividends etc. Interest income and dividends Dividends Interest income cash at bank and in hand Interest income bonds Interest income, other Interest expenses Interest expenses subordinate loan capital and credit institutions Interest expenses, other 9 Value adjustments 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 statement of financial position items Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK -146m (DKK 37m in 2012) 15 26 1,133 22 1,196 -80 -20 -100 1,096 2 378 -2 202 263 0 843 82 -350 -475 -116 -859 -16 19 18 984 8 1,029 -89 -23 -112 917 -42 578 30 -250 -300 -5 11 -21 -76 298 -101 100 111 91 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 10 Tax Tax on accounting profit/loss Difference between Danish and foreign tax rates Tax adjustment, previous years Adjustment of non-taxable income and costs Change in valuation of tax assets Change in tax rate Other taxes Effective tax rate Tax on accounting profit/loss Difference between Danish and foreign tax rates Change in tax rate Adjustment of non-taxable income and costs Change in valuation of tax assets 11 Profit/loss on discontinued and divested business Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Total investment return after insurance technical interest Other income and costs Profit/loss before tax Tax Profit/loss on discontinued and divested business Run-off regarding discontinued Marine Hull insurance Divested finnish branch 2012 2013 -754 -57 2 49 -89 12 0 -837 % 25 2 0 -2 3 28 611 -484 -244 -117 -4 4 -117 32 113 28 0 28 1 27 -749 -58 -2 152 -20 58 -1 -620 % 25 2 -2 -5 1 21 202 -149 -55 -2 0 1 -1 0 1 0 -4 -4 11 -15 Profit/loss on discontinued and divested business includes Marine Hull insurance, which was divested in 2010 and the Finnish branch of Tryg Forsikring which was sold in 2012, with authority approval in May 2013. For the year 2013 there has been no line of business with premium income which exceed DKK 70m. 92 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 12 Intangible assets 2013 Cost Cost at 1 January Exchange rate adjustments Transferred to assets held for sale Transferred from assets under construction Additions for the year Disposals for the year Cost at 31 December Amortisation and write-downs Amortisation and write-downs at 1 January Exchange rate adjustments Transferred to assets held for sale Amortisation for the year Impairment losses and write-downs for the year Amortisation and write-downs at 31 December Carrying amount at 31 December 2012 Cost Cost at 1 January Exchange rate adjustments Transferred to assets held for sale Transferred from asset under construction Additions for the year Disposals for the year Cost at 31 December Amortisation and write-downs Amortisation and write-downs at 1 January Exchange rate adjustments Transferred to assets held for sale Amortisation for the year Impairment losses and write-downs for the year Reversed amortisation Amortisation and write-downs at 31 December Trademarks and customer relations Goodwill Assets under Software a) construction a) Total 397 -16 0 0 0 0 381 0 0 0 0 0 0 381 380 17 0 0 0 0 397 0 0 0 0 0 0 0 178 -7 0 0 0 0 171 -73 3 0 -19 0 -89 82 170 8 0 0 0 0 178 -51 -2 0 -20 0 0 -73 869 -26 0 77 16 0 936 -747 22 0 -81 -13 -819 227 -1 0 -77 121 0 270 -92 0 0 0 0 -92 1,671 -50 0 0 137 0 1,758 -912 25 0 -100 -13 -1,000 117 178 758 882 12 -4 14 13 -48 869 -632 -9 3 -143 -2 36 -747 257 0 0 -14 82 -98 227 -54 0 0 0 -38 0 -92 1,689 37 -4 0 95 -146 1,671 -737 -11 3 -163 -40 36 -912 Carrying amount at 31 December 397 105 122 135 759 a) In cost at 31 December is included developed in-house DKK 245m (DKK 134m at 31 December). 93 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 12 Intangible assets (continued) Impairment test Goodwill At 31 December 2013, 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, which consists of the total Swedish insurance activities. In 2009, Tryg acquired Moderna Försäkringar Sak AB, Modern Re S.A., Netviq AB and MF Bilsport & MC Specialförsäkringar. The insurance activities were incorporated into the Tryg Group’s business structure in 2009 and are reported under Sweden. In 2010, the companies, ex- cluding Modern Re S.A., were merged into Tryg Forsikring A/S as Moderna Forsäkringar, a branch of Tryg Forsikring A/S. Modern Re S.A. was discontinued in 2011. Assumptions for impairment test: The Value-in-use method is used. The cash flows appearing from the latest budgets approved by management for the next 5 financial years are used when calculating the value in use of the total Swedish activities acquired. The cash flows in the latest budget period have been extrapolated for financial years af- ter the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general eco- nomic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market’s expectations for the Group. The impairment test shows a calculated value in use of approximately DKK 1.4bn relative to a recognised equity of DKK 0.8bn and does not indicate any impairment. 2013 Moderna 2012 Moderna Assumed annual growth 0-10 years Assumed annual growth > 10 years Required return before tax 2.0% 0.0% 12.5% 2.0% 2.0% 12.4% Trademarks and customer relations As at 31 December 2013, management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the goodwill test. The test did not indicate any impairment. Software and assets under construction As at 31 December 2013, management performed a test of the carrying amounts of software and assets under construction. The impairment test compares the carrying amount with the estimated present value of future cash flows. The test indicated impairment of a small number of projects, resulting in impairment losses. The total impairment of intangible assets amounts to DKK 13m (DKK 138m in 2012). 94 | Tryg A/S | Annual report 2013 | Notes Operating Owner-occupied property equipment Assets under construction Total Notes DKKm 13 Property, plant and equipment 2013 Cost Cost at 1 January Exchange rate adjustments Transferred to assets held for sale Transferred from assets under construction Additions for the year Disposals for the year Cost at 31 December Accumulated value adjustments Accumulated value adjustments at 1 January Exchange rate adjustments Value adjustments for the year at revalued amount in income statement Value adjustments for the year at revalued amount in other comprehensive income Accumulated value adjustments at 31 December Accumulated depreciation Accumulated depreciation at 1 January Exchange rate adjustments Transferred to assets held for sale Reversed depreciation Depreciation for the year Accumulated depreciation at 31 December 228 -8 0 0 18 -1 237 0 0 0 0 0 -90 3 0 0 -28 -115 1,786 -60 0 10 2 0 1,738 -281 -11 -76 9 -359 -62 2 0 0 -15 -75 Carrying amount at 31 December 122 1,304 101 -6 0 -10 0 0 85 -90 5 0 0 -85 0 0 0 0 0 0 0 2,115 -74 0 0 20 -1 2,060 -371 -6 -76 9 -444 -152 5 0 0 -43 -190 1,426 95 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 13 Property, plant and equipment (continued) 2012 Cost Cost at 1 January Exchange rate adjustments Transferred to assets held for sale Transferred from assets under construction Additions for the year Disposals for the year Cost at 31 December Accumulated value adjustments Accumulated value adjustments at 1 January Exchange rate adjustments Value adjustments for the year at revalued amount in income statement Value adjustments for the year at revalued amount in other comprehensive income Accumulated value adjustments at 31 December Accumulated depreciation Accumulated depreciation at 1 January Exchange rate adjustments Transferred to assets held for sale Reversed depreciation Depreciation for the year Accumulated depreciation at 31 December Operating Owner-occupied property equipment Assets under construction Total 187 3 -8 0 55 -9 228 0 0 0 0 0 -85 -1 4 8 -16 -90 1,760 27 0 10 8 -19 1,786 27 0 -350 42 -281 -42 -1 0 0 -19 -62 98 2 0 -10 11 0 101 -88 -2 0 0 -90 0 0 0 0 0 0 2,045 32 -8 0 74 -28 2,115 -61 -2 -350 42 -371 -127 -2 4 8 -35 -152 Carrying amount at 31 December 138 1,443 11 1,592 External experts were involved in valuing the owner-occupied properties. Impairment test Property, plant and equipment A valuation of the owner-occupied property has been carried out, including the improvements made, and a revaluation of DKK 9m relating to the domicile in Bergen was subsequently included in other comprehensive income (DKK 42m in 2012) and impairment of DKK76m relating to the domicile in Ballerup in the income statement (DKK 350m in 2012). The impairment test performed for operating equipment did not indicate any impairment. In determining the fair value of the properties, not only publicly available market data are included, corresponding to the ‘non-observable input’ in the fair value hierarchy. No reclassifications have been made between this category and other categories in the fair value hierarchy during the year. The following return percentages have been applied: Return percentages weighted average Office property 2012 6.9 2013 6.7 96 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 14 Investment property Fair value at 1 January Exchange rate adjustments Additions for the year Disposals for the year Value adjustments for the year Reversed on sale Fair value at 31 December 2012 2013 2,199 24 35 -259 47 35 2,081 2,081 -52 16 -2 -21 0 2,022 Total rental income for 2013 is DKK 139m (DKK 152m in 2012). Total expenses for 2013 are DKK 32m (DKK 29m in 2012). Of this amount, expenses for non-let property total DKK 2m (DKK 2m in 2012); total expenses for the income-generating investment property are DKK 30m (DKK 27m in 2012). External experts were involved in valuing the majority of the investment property. In determining the fair value of the properties, not only publicly available market data are included, corresponding to the ‘non-observable input’ in the fair value hierarchy. No reclassifications have been made between this category and other categories in the fair value hierarchy during the year. The following return percentages were used for each property category: Return percentages weighted average Business property Office property Residential property Total 2012 2013 7.0 6.4 5.9 6.5 7.0 6.5 6.0 6.5 97 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 15 Equity investments in associates Cost Cost at 1 January Cost at 31 December Revaluations at net asset value Revaluations at 1 January Exchange rate adjustments Value adjustments for the year Revaluations at 31 December Carrying amount at 31 December 2012 2013 0 0 14 1 6 21 21 0 0 21 -3 0 18 18 Shares in associates according to the latest annual report: Name and registered office Assets Equity and liabilities Equity Revenue Profit/loss for the year Ownership share in % 2013 Komplementarselskabet af 1. marts 2006 ApS, Denmark Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker, Norway 2012 Komplementarselskabet af 1. marts 2006 ApS, Denmark Bilskadeinstituttet AS, Norway AS Eidsvåg Fabrikker, Norway 0 5 52 0 5 60 0 0 7 0 0 19 0 5 45 0 5 42 0 2 16 0 2 22 0 0 6 0 0 9 50 30 28 50 30 28 Individual estimates are made of the degree of influence under the contracts made. 98 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 16 Financial assets 2012 2013 Financial assets at fair value with value adjustments in the income statement 45,014 42,782 Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income Receivables measured at amortised cost with value adjustment in the income statement Total financial assets Financial assets at amortised cost only deviate to a minor extent from fair value. Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement Derivative financial instruments at fair value with value adjustments in other comprehensive income Financial liabilities at fair value with value adjustment in the income statement Total financial liabilities Information on valuation of subordinate loan capital at fair value is stated in note 2. Other financial liabilities measured at amortised cost only deviate to a minor extent from fair value. Fair value hierarchy for financial instruments measured at fair value in the statement of financial position. 0 2,634 47,648 737 38 6,176 6,951 2013 Equity investments Unit trust units Bonds Deposits with credit institutions Derivative financial instruments 2012 Equity investments Unit trust units Bonds Deposits with credit institutions Derivative financial instruments Assets held for sale Quoted market price Observable input Non-observ- able input 0 3,741 25,068 1,301 0 30,110 0 3,261 24,794 949 0 487 29,491 0 0 11,903 0 178 12,081 0 0 14,058 0 481 0 14,539 150 0 0 0 0 150 199 0 10 0 0 0 209 73 3,118 45,973 514 0 6,483 6,997 Total 150 3,741 36,971 1,301 178 42,341 199 3,261 38,862 949 481 487 44,239 Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: Carrying amount at 1 January Exchange rate adjustments Gains/losses in the income statement Purchases Sales Transfers to/from the group ‘non-observable input’ Carrying amount at 31 December Gains/losses in the income statement for assets held at the statement of financial position date recognised in value adjustments 2012 2013 217 5 -13 15 -10 -5 209 -13 209 -10 -48 3 -4 0 150 -42 Bonds measured on the basis of observable inputs mainly consist of Norwegian bonds issued by banks and to some extent Danish semi-liq- uid bonds, where no quoted prices based on actual trades are available. No significant reclassifications have been made between the cate- gories ‘Quoted prices’ and ‘Observable input’ in 2013. Inflation derivatives are measured at fair value on the basis of non-observable input and are included under claims provisions at a fair value of DKK -166m (DKK 3m in 2012). 99 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 16 Financial assets (continued) Reconciliation between investment assets as per ‘Investment Activities’ in the management’s review and the statement of financial position 2013 Investment assets as per the section ‘Investment activities’ in the management’s review Consisting of: Cash and cash equivalents allocated to portfolio management Debt and receivables relating to unsettled funds and property transactions Unit trust units Deposits with credit institutions Derivative financial instruments Repo debt and reverse receivables Accrued interest Associated shares Investment assets according to the statement of financial position Unit trust units Deposits with credit institutions Derivative financial instruments Associated shares Total investment assets according to the statement of financial position 2012 Investment assets as per the section ‘Investment activities’ in the Management’s report Consisting of: Cash and cash equivalents allocated to portfolio management Debt and receivables relating to unsettled funds and property transactions Unit trust units Deposits with credit institutions Derivative financial instruments Repo debt and reverse receivables Accrued interest Assets held for sale Associated shares Investment assets according to the statement of financial position Unit trust units Deposits with credit institutions Derivative financial instruments Associated shares Total investment assets according to the statement of financial position Bonds Shares Investment property Total 38,339 2,656 2,022 43,017 -253 148 -1,256 -1,301 -88 1,788 -406 0 36,971 0 0 -2,485 0 -3 0 0 -18 150 0 0 0 0 0 0 0 0 2,022 -253 148 -3,741 -1,301 -91 1,788 -406 -18 39,143 3,741 1,301 692 18 44,895 40,802 2,444 2,081 45,327 -61 0 905 -1,037 -949 -511 94 -369 -12 0 38,862 0 -2,224 0 0 0 0 0 -21 199 0 0 0 0 0 0 0 0 0 2,081 -61 905 -3,261 -949 -511 94 -369 -12 -21 41,142 3,261 949 1,256 21 46,629 100 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 16 Financial assets (continued) Sensitivity information Impact on equity from the following changes: Interest rate increase of 0.7-1.0 percentage point Interest rate fall of 0.7-1.0 percentage point Equity price fall of 12 % Fall in property prices of 8 % Exchange rate risk (VaR 99) Loss on counterparties of 8 % 2012 2013 112 -182 -279 -283 -19 -320 -18 -41 -349 -266 -25 -396 The impact on the income statement is similar to the impact on equity. The statement complies with the disclosure requirements set out in the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish FSA. Derivative financial instruments Derivatives with value adjustments in the income statement at fair value: 2012 2013 Market value in statement of financial position Nominal Market value in statement of financial position Nominal Interest derivatives Share derivatives Exchange rate derivatives Derivatives according to statement of financial position Inflation derivatives, recognised in claims provisions Total derivative financial instruments Due after less than 1 year Due within 1 to 5 years Due after more than 5 years Derivatives, repos and reverses are used continuously as part of the cash and risk management carried out by Tryg and its portfolio managers. 27,078 120 7,949 35,147 2,590 37,737 8,079 10,955 18,703 511 0 -30 481 3 484 -30 42 472 Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes Gains and losses on hedges charged to other comprehensive income: Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December Gains 1,256 191 1,447 2012 Losses -1,580 -375 -1,955 Net Gains -324 -184 -508 1,447 340 1,787 26,015 325 9,352 35,692 3,311 39,003 16,003 14,169 8,831 2013 Losses -1,955 -35 -1,990 88 3 87 178 -166 12 -58 55 15 Net -508 305 -203 101 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 16 Finansielle aktiver (forsat) Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January Value adjustment for the year Value adjustments at 31 December Receivables Receivables from insurance enterprises Receivables from Group undertakings Reverse repos Other receivables Specification of write-downs on receivables from insurance contracts: Write-downs at 1 January Exchange rate adjustments Transferred to assets held for sale and write-downs and reversed write-downs for the year Write-downs at 31 December Receivables are written down in full when submitted for debt collection. The write-down is reversed if payment is subsequently received from debt collection and amounts to DKK 43m in 2013 (DKK 48m in 2012). Receivables in connection with insurance contracts include overdue recievables totalling: Falling due: Within 90 days After 90 days Including writedowns of due amounts Other receivables do not contain overdue receivables 17 Reinsurer’s share Reinsurers’ share Write-downs after impairment test 2012 2013 337 192 529 1,376 1 326 286 1,989 143 2 -32 113 160 108 268 113 529 -326 203 1,387 0 885 148 2,420 113 -7 6 112 194 108 302 112 2,354 -37 2,317 2,647 -27 2,620 Impairment test As at 31 December 2013, 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 27m (DKK 37m in 2012). Write-downs for the year include reversed write-downs totalling DKK 0m (DKK 16m i 2012). There is no overdue reinsurers’ share other than the share already provided for. 102 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 18 Current tax Net current tax, 1 January Exchange rate adjustments Current tax for the year Current tax on equity entries Adjustment of current tax in respect of previous years Tax paid for the year Net current tax at 31 December Current tax is recognised in the statement of finansiel position as follows: Under assets, current tax Under liabilities, current tax Net current tax 19 Assets held for sale and associated liabilities Intangible assets Property, plant and equipment Investment assets and cash and cash equivalents Reinsurers’ share of claims provisions Receivables Assets held for sale Premium provisions Claims provisions Other debt Liabilities associated with assets held for sale Net assets held for sale In the statement of financial position at 31 December 2012 assets and liabilities related to the Finnish branch are classified as ‘Assets held for sale’ and ‘Liabilities associated with assets held for sale. The Group had no other assets held for sale and associated liabilites. The proceeds from the sale are equal to the carrying amount of the related assets and liabilities. The profit is unchanged in relation to the assessment per 31.12.2012 The activity which comprised assets and liabilities held for sale and constituted the Group’s activities in Finland was definitively disposed of on 1 May 2013. The sale can be specified as follows: Intangible assets Property, plant and equipment Investment assets, cash and cash equivalents Reinsurers’ share of claims provisions Receivables Premium provisions Claims provisions Other debt Carrying amount of net assets sold Total consideration 2012 2013 -167 -16 -949 46 9 425 -652 0 -652 -652 112 2 603 7 18 742 125 540 77 742 0 0 0 0 0 0 0 0 0 0 0 -652 64 -631 -76 14 1,017 -264 145 -409 -264 0 0 0 0 0 0 0 0 0 0 0 112 1 3 696 48 168 565 15 112 112 103 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 20 Equity Share capital Number of shares, exclusive of own shares Number of shares at 1 January Bought during the year Sold during the year Used in connection with exercise of incentive programme 2012 2013 Number of Nominal value (DKK ’000) shares Number of Nominal value (DKK ’000) shares 60,373,269 0 200,000 121,542 1,509,332 0 5,000 3,038 60,694,811 -1,620,637 0 299,787 1,517,370 -40,516 0 7,495 Number of shares at 31 December 60,694,811 1,517,370 59,373,961 1,484,349 Own shares Own shares at 1 January Bought during the year Sold during the year Cancellation in connection with buyback programme Used in connection with exercise of incentive programme Own shares at 31 December 2012 2013 Number of Nominal value (DKK ’000) shares % of share capital Number of Nominal value (DKK ’000) shares % of share capital 942,834 0 -200,000 23,571 0 -5,000 0 0 -121,542 621,292 -3,039 15,532 1.54 0.00 -0.33 0.00 -0.20 1.01 621,292 1,620,637 0 15,532 40,516 0 0 0 -299,787 1,942,142 -7,495 48,553 1.01 2.65 0.00 0.00 -0.49 3.17 Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 14 April 2015. Own shares are acquired for use in the Group’s incentive programme and as part of the share buyback programme. 21 Premium provisions Premium provision at 1 January Value adjustments of provisions, beginning of year Paid in the financial year Change in premiums in the financial year Exchange rate adjustments Premium provisions at 31 December Other a) 2012 6,770 185 20,139 -20,434 -2 6,658 30 6,688 2013 6,658 -335 18,740 -18,881 -6 6,176 36 6,212 104 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 21 Claims provisions 2013 Claims provisions at 1 January Value adjustments 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 adjustments Claims provisions at 31 December Other a) 2012 Total at 1 January Value adjustments 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 of reinsurance 26,842 -1,569 25,273 -6,571 -6,604 -13,175 13,902 -854 13,048 125 25,271 816 26,087 26,159 720 26,879 -7,442 -8,233 -15,675 14,978 -300 14,678 1,893 -126 1,767 -43 -628 -671 562 103 665 19 1,780 603 2,383 1,755 44 1,799 -92 -867 -959 268 740 1,008 24,949 -1,443 23,506 -6,528 -5,976 -12,504 13,340 -957 12,383 106 23,491 213 23,704 24,404 676 25,080 -7,350 -7,366 -14,716 14,710 -1,040 13,670 Discounting and exchange rate adjustment 960 45 915 Claims provisions at 31 December Other a) 26,842 400 27,242 1,893 187 2,080 24,949 213 25,162 a) Comprises premium and claims provisions for Tryg Garantiforsikring A/S. 105 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 22 Pensions and similar obligations Jubilees Recognised liability Defined-benefit pension plans: Present value of pension obligations funded through operations Present value of pension obligations funded through establishment of funds Pension obligation, gross Fair value of plan assets Pension obligation, net Specification of change in recognised pension obligations: Recognised pension obligation at 1 January Exchange rate adjustments Present value of pensions earned during the year Capital cost of previously earned pensions Acturial gains/losses Paid during the period Recognised pension obligation at 31 December Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January Exchange rate adjustments Investments in the year Estimated return on pension funds Acturial gains/losses Paid during the period Carrying amount of plan assets at 31 December Total pensions and similar obligations at 31 December Total recognised obligation at 31 December Specification of pension cost for the year: Present value of pensions earned during the year Interest expense on accrued pension obligation Expected return on plan assets Accrued employer contributions Total year’s cost of defined-benefit plans The premium for the following financial years is estimated at: Number of active persons and number of pensioners Estimated distribution of plan assets: Shares Bonds Property Average return on plan assets 106 2012 2013 60 60 106 2,045 2,151 1,109 1,042 1,990 120 81 52 -22 -70 2,151 1,013 58 130 41 -84 -49 1,109 1,042 1,102 69 51 -40 11 91 68 68 86 1,671 1,757 1,034 723 2,151 -278 63 39 -157 -62 1,756 1,109 -144 81 21 10 -44 1,033 723 791 56 42 -23 11 86 114 1,428 78 1,376 % 9 74 17 2.5 % 10 73 17 3.3 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 22 Pensions and similar obligations (continued) Assumptions used Discount rate Estimated return on pension funds Salary adjustments Pension adjustments G adjustments Turnover Employer contributions Mortality table Sensitivity information The sensitivity analysis is based on a change in one of the assumptions, assuming that all other assumptions remain constant. In reality, this is rarely the case, and changes to some assumptions may be subject to covariance. The sensitivity analysis has been carried out using the same method as the actuarial calculation of the pension provisions in the statement of financial position. Impact on equity from the following changes: Interest rate increase of 0.3 percentage point Interest rate decrease of 0.3 percentage point Pay increase rate, increase of 1 percentage point Pay increase rate, decrease of 1 percentage point Pension adjustment, increase of 0.5 percentage point pension adjustment, decrease of 0.5 percentage point Turnover, increase of 2.0 percentage point Turnover decrease of 2.0 percentage point 2012 2013 % % 2.4 2.5 3.5 3.3 3.3 7.0 14.1 Adj. K2005 3.3 3.3 3.8 3.5 3.5 7.0 14.0 Adj. K2013 84 -90 -105 86 -151 128 -77 99 80 -70 -65 69 -140 121 -66 84 107 Notes | Annual report 2013 | Tryg A/S | Notes 22 Pensions and similar obligations (continued) Description of the Norwegian plan In the Norwegian part of the group, 56 % of the employees have a defined-benefit pension plan. The plans are based on the employees’ ex- pected final pay, providing the members of the plan with a guaranteed level of pension benefits throughout their lives. The pension benefits are determined by the employees’ term of employment and salary at the time of retiring. Employees having made contributions for a full pe- riod of contribution are guaranteed a pension corresponding to 66% of their final pay. Pensions being disbursed are regulated in step with the basic amount of old-age pension paid in Norway (G regulation). Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children’s pension. In connection with new legislation on occupational pensions in Norway, adopted and applicable from 1 January 2014, changes are ex- pected to be made to the defined-benefit pension plan. These changes will affect the future recognition and measurement of the obligation. The pension funds are managed by Nordea Liv & Pension and regulated by local legislation and practice. Description of the Swedish plan Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agreement, the FTP plan, which is in- sured with Försäkringsbranschens Pensionskassa – FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules. The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30. This years premium paid to FPK amounted to DKK 16m, which is about 3% of the annual premium in FPK (2012). FPK writes in its interim report for 2013 that it had a collective consolidation ratio of 114 at 30 June 2013 (consolidation ratio 104 at 30 June 2012). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations. 108 | Tryg A/S | Annual report 2013 | Notes 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 Unaccrued timing differences of statement of financial position items Development in deferred tax Deferred tax at 1 January Exchange rate adjustments Change in deferred tax relating to change in tax rate Change in deferred tax previous years Change in capitalised tax loss Change in deferred tax taken to the income statement Change in valuation of tax asset Change in deferred tax taken to equity Deferred tax at 31 December Tax value of non-capitalised tax loss Denmark Sweden Finland 2012 2013 22 290 13 325 76 253 78 1,061 1,468 1,143 118 1,191 56 -12 7 65 -247 89 -6 1,143 18 4 0 14 105 6 125 75 227 45 835 1,182 1,057 122 1,143 -119 -50 16 5 -7 20 49 1,057 18 3 1 The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Loss determined according to Swedish and Finnish rules 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 offset the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the statement of financial position in the amount of DKK -133m. (2012 DKK 50m). 109 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 24 Other provisions Other provisions 1 January Change in provisions Other provisions 31 December Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. The provision for restructuring costs has been reassessed and amounts to DKK 23m at 31 December 2013. 25 Amounts owed to credit institutions Overdraft facilities 26 Debt relating to unsettled funds transactions and repos Unsettled fund transactions Repo debt Unsettled fund transactions include debt for bonds purchased in 2012 and 2013; however, with settlement in 2013 and 2014, respectively. 27 Earnings per share Profit/loss from continuing business Profit/loss on discontinued and divested business Profit/loss for the year Average number of shares (1,000) Diluted number of shares (1,000) Diluted average number of shares (1,000) Earnings per share, continuing business Earnings per share Diluted earnings per share Earnings per share, discontinued and divested business Diluted earnings per share, discontinued and divested business 2012 2013 11 87 98 14 14 98 -75 23 6 6 1,050 420 1,470 148 2,673 2,821 2,180 28 2,208 60,491 223 60,714 36.0 36.5 36.4 0.5 0.5 2,373 -4 2,369 60,155 104 60,259 39.4 39.4 39.3 0.0 0.0 110 | Tryg A/S | Annual report 2013 | Notes Notes DKKm <1 year 1-3 years Obligations due by period 3-5 years > 5 years 28 Contractual obligations, collateral and contingent liabilities Contractual obligations 2013 Operating leases Other contractual obligations 2012 Operating leases Other contractual obligations 150 298 448 136 397 533 182 12 194 215 86 301 75 0 75 65 0 65 73 0 73 57 0 57 Total 480 310 790 473 483 956 Tryg has signed the following contracts with amounts above DKK 50m: Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S, have signed a letter of intent concerning an outsourcing agreement with TCS. Telephony services contract with Telenor for DKK 98m, which expires after 2015. Lease contracts on premises for DKK 293m. The contracts expire after 5 years. Collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. As of 1. july 2012, the companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties and dividends in respect of the jointly taxed companies. Tryg Forsikring A/S and Tryg Garantiforsikring A/S have registered the following assets as having been held as security for the insurance provisions: Equity investments in associates Equity investments Unit trust units Bonds Deposits with credit institutions Receivables relating to reinsurance Bonds and cash and cash equivalents included in the item ‘Assets held for sale’ Interest and rent receivable Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements Total 2012 2013 21 199 3,261 37,458 949 1,614 587 365 2,128 46,582 18 150 3,741 34,867 1,301 585 0 403 1,944 43,009 111 Notes | Annual report 2013 | Tryg A/S | Notes 28 Offsetting and collateral in relation to financial assets and obligations 2013 Assets Reverse repos Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 2012 Assets Reverse repos Derivative financial instruments Inflation derivatives, recognised in claims provisions Liabilities Repo debt Derivative financial instruments Gross amount before offsetting Offsetting According to the statement of financial position Bonds as collateral for repos/ reverse repos Collateral in cash Net amount Collateral which is not offset in the statement of financial position 885 692 1,577 2,673 514 166 3,353 326 1,256 3 1,585 420 775 1,195 0 0 0 0 0 0 0 0 0 0 0 0 0 0 885 692 1,577 2,673 514 166 3,353 326 1,256 3 1,585 420 775 1,195 -885 0 -885 -2,673 0 0 -2,673 -326 0 0 -326 -420 0 -420 0 -553 -553 0 -433 -155 -588 0 -536 -9 -545 0 -230 -230 0 139 139 0 81 11 92 0 720 -6 714 0 545 545 Contingent liabilities Companies in the Tryg Group are party to a number of disputes. Tryg decided to initiate a transition of its IT-operation for implementation in 2014. In 2013 a letter of intent concerning an agreement on the outsourcing of oprations was signed with TCS. Costs may be incurred in connection with the transition in 2014. Management believes that the outcome of disputes and IT-transition will not affect the Group’s financial position significantly beyond the obligations recognised in the statement of financial position at 31 December 2013. 112 | Tryg A/S | Annual report 2013 | Notes Notes DKKm 29 Related parties The group has no related parties with a decisive influence other than the parent company, TryghedsGruppen smba and the subsidiaries of TryghedsGruppen smba (other related parties). Related parties with significant influence include the Supervisory Board, the Executive Management and their members’ family. 2012 2013 0.3 0.4 3.0 0.0 0.1 0.2 0.3 0.4 1.9 0.2 0.1 0.2 Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Parent company (TryghedsGruppen smba) - Key management - Other related parties Specification of remuneration 2013 Supervisory Board Executive Management Risk-takers Of which retired Supervisory Board Executive Management Risk-takers Number of persons Basic salary Variable salary Pension Total a) 0 1 0 1 0 4 5 9 7 23 25 55 14 3 10 27 7 18 20 45 Number of persons Severance pay 2 0 1 3 0 0 5 5 The maximum amount paid in severance pay to an individual is DKK 5m. 2012 Supervisory Board Executive Management Risk-takers Of which retired Supervisory Board Executive Management Risk-takers Number of persons Basic salary Variable salary Pension Total a) 0 1 2 3 0 4 5 9 6 23 29 58 16 3 11 30 6 18 22 46 Number of persons Severance pay 4 0 1 5 0 0 20 20 The maximum amount paid in severance pay to an individual is DKK 20m. a) Exclusive of severance pay 113 Notes | Annual report 2013 | Tryg A/S | Notes DKKm 29 Related parties (continued) Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 4 years and share options, which are recognised over 3 years. Reference is made to section Corporate governance’ of the management’s re- view on the corresponding disbursements. The Executive Management and risk-takers are included in incentive programmes. Please refer to note 7 for information concerning this. The members of the Supervisory Board in Tryg A/S are paid with a fixed remunaration and are not covered by the incentive schemes. The Ex- ecutive Management is paid a fixed remuneration and pension. The variable salary is awarded in the form of a matching share programme, see ‘Corporate governance’. Each member of the Executive Management is entitled to 12 months’ notice and severance pay equal to 12 months’ salary plus pension contribution (Group CEO is entitled to severance pay equal to 18 months’ salary). Members of the Executive Management can assert no fur- ther claims in this respect, for example claims for compensation pursuant to Sections 2a and/or 2b of the Dansih Salaried Employees Act, as such claims are regarded as being included in the severance pay. Risk-takers are defined as employees whose activities have a significant influence on the company’s risk profile. The Supervisory Board de- cides which employees should be considered to be risk-takers. Parent company Tryghedsgruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Intra-group trading involved: - Subordinate loan capital, called in April 2013 - Interest expenses 2012 490 30 2013 0 6 Transactions between TryghedsGruppen smba and Tryg A/S are conducted on an arm’s lenth basis. Intra-group transactions Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. The companies in the Tryg Group have entered into reinsurance contracts on market terms. Transactions with Group undertakings have been eliminated in the consolidated financial statements in accordance with the accounting policies. 30 Financial highlights Please refer to page 59. 114 | Tryg A/S | Annual report 2013 | Notes 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 2013 and in accordance with the Danish Statutory Order on Adoption of IFRS. The annual report of the parent company is prepared in accordance with the executive order on financial reports presented by insurance compa- nies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement requirements of IFRS are: • Investments in subsidiaries are valued according to the equity method, whereas under IFRS valuation is made at cost or fair value. Furthermore the requirements regarding presentation and disclosure are less comprehensive than under IFRS. • 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 transition to IFRS. Change in accounting policies A reclassification has been made in respect of derivative financial in- struments of DKK 709m in 2012 from the main items ‘Total other finan- cial investment assets’ and ‘Total debt’ due to the grossing-up of deriva- tive instruments at contract level. The comparative figures have been restated to reflect the above changes. Except as noted above, the accounting policies have been applied consistently with last year. Accounting regulation Implementation of changes to accounting standards and interpretation in 2013 The International Accounting Standards Board (IASB) has issued a num- ber of changes to the international accounting standards, and the Inter- national Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2013 that will have a significant impact on the group. New or amended standards and interpretations that have been implemented but have not significantly affected the group: • Amendments to IFRS 7 ‘Offsetting of assets and liabilities’ • IFRS 13 ‘Fair Value Measurement’ • Amendments to IAS 1 ‘Presentation of Items of Other Comprehensive Income’ • Amendments to IAS 1 ‘Annual Improvements 2009-2011 Cycle (Comparative information)’ • Amendments to IAS 16 ‘Annual Improvements 2009-2011 Cycle (Servicing Equipment)’ • IAS 19 (as revised in 2011) ‘Employee Benefits’ • Amendments to IAS 32 ‘Annual Improvements 2009-2011 Cycle (tax effect of equity distribution)’ Future orders, standards and interpretations that the group has not im- plemented and which have still not entered into force: • IFRS 7 ‘Deferral of mandatory effective dates’ b) • IFRS 9 ‘Financial Instruments’ b) • Reissue of IFRS 9 to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirements’ b) • Amendments to IFRS 9 ‘Deferral of mandatory effective dates’ b) • Amendments to IFRS 9 ‘Additional hedge accounting disclosures’ b) • Amendments to IAS 39 ‘Novations of derivatives’ a) • IFRS 10 ‘ Consolidated Financial Statements’ a) • IFRS 11 ‘Joint Arrangements’ a) • IFRS 12 ‘Disclosure of Interests in Other Entities’ a) • Amendments to IFRS 10, 11 and 12 ‘transitional guidance’ a) • IAS 27 (as revised in 2011) ‘Separate Financial Statements’ a) • IAS 28 (as revised in 2011) ‘Investments in Associates and Joint Ventures’ a) • IFRIC 21 ‘Levies’ a) • Amendments to IAS 19 ‘Clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service’ a) • Amendments to IAS 32 ‘Offsetting of assets and liabilities’ a) • Amendments to IAS 36 ‘Recoverable Amount Disclosures for Non-financial Assets’ a) a) enters into force for the accounting year commencing 1 January 2014 or later. b) enters into force for the accounting year commencing 1 July 2015 or later. The changes will be implemented going forward from 2013. The changes will not significantly affect the Group. Changes to accounting estimates The calculation of insurance technical interest was changed with effect from Q2 2013. Insurance technical interest is subsequently calculated based on the monthly average provision plus interest under the present yield curve for each individual group of risks taking into account the pro- visions’ expected run-off pattern. A co-weighted interest from the pre- sent yield curve was previously used for each individual group of risks. The change does not affect the net profit for the period as it concerns a redistribution between the technical result and the investment return net of insurance technical interest. It is estimated that the change has improved the technical result by as much as DKK 12m, with the invest- ment return being reduced by the same amount. 115 Notes | Annual report 2013 | Tryg A/S | Notes The reduction of the estimated tax rate from 25% to 23% in Q3 2013 is due to a change in the expected tax-free share gains in Norway as well as recog- nition of the reduction in the tax rate in Denmark in the coming years. also an option-adjusted mortgage interest rate spread, is used to dis- count Danish claims provisions. Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exer- cise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complex- ity, or areas where assumptions and estimates are significant to the consolidated financial statements are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets and liabilities • Valuation of property • Measurement of goodwill, Trademarks and Customer relations Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions involve a num- ber of uncertainty factors. Claims provisions are estimated based on actuarial and statistical pro- jections of claims and the administration of claims. The projections are based on Tryg’s knowledge of historical developments, payment pat- terns, reporting delays, duration of the claims settlement process and other factors that might influence future developments in the liabilities. The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that have been incurred, but not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the Group but have not been finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg. The calculation of the claims provisions is therefore inherently uncer- tain and, by necessity, relies upon the making of certain assumptions as regards factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation. The Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated claims provisions. Claims provisions are discounted. As a result, initial changes in discount rates or changes in the duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accident, in particular. The Financial Supervisory Authority’s adjusted discount curve, which is based on euro swap rates, national spreads and Danish swap rates, and The Norwegian and Swedish provisions are discounted based on euro swap rates, to which a country-specific interest rate spread is added that reflects the difference between Norwegian and Swedish govern- ment bonds and the interest rate on German government bonds. Finn- ish provisions are discounted using the Danish discount curve. Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. This has the greatest impact on assumptions regarding 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 salary. The net obligation with respect to the defined- benefit plan is based on actuarial calculations involving a number of assumptions. The assump- tions include discount interest rate, expected future salary and pension adjustments, turnover, mortality and disability. 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 accepted models with observable market data are not subject to material esti- mates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model calculation. The valua- tion models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration for credit and liquidity premiums. Valuation of property Property is divided into owner-occupied property and investment prop- erty. Owner-occupied property is assessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a deduc- tion for depreciation and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating ex- penses in proportion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a mar- ket- determined rental income as well as operating expenses in propor- tion to the property’s required rate of return. Measurement of goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations was acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generat- ing units under which management manages the investment. The carry- ing amount is tested for impairment at least annually. Impairment testing 116 | Tryg A/S | Annual report 2013 | NotesNotes involves estimates of future cash flows and is affected by a number of factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. achieved through direct or indirect ownership or control of more than 20% but less than 50% of the votes. Description of accounting policies Recognition and measurement The annual report has been prepared under the historical cost conven- tion, as modified by the revaluation of owner-occupied property, where increases are recognised in other comprehensive income, and revalua- tion of investment property, financial assets held for trading and finan- cial assets and financial liabilities (including derivative instruments) at fair value in the income statement. Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the Group, and the value of such assets can be measured reliably. 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 such liabilities can be measured reliably. On initial recognition, assets and liabilities are measured at cost, with the exception of financial assets, which are recognised at fair value. Measurement subsequent to initial recognition is effected as described below for each 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 statement of financial position 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 recognised in the in- come statement unless otherwise described below. All amounts in the notes are shown in millions of DKK, unless otherwise stated. Consolidation The consolidated financial statements comprise the financial state- ments of Tryg A/S (the parent company) and subsidiaries controlled by the parent company. Control is achieved where the parent company di- rectly or indirectly holds more than 50% of the voting rights or is other- wise 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 com- bining items of a uniform nature. The financial statements of subsidiar- ies that present financial statements under other legislative rules are re- stated with reference to the accounting policies applied by the Group. Undertakings in which the Group exercises significant influence but not control are classified as associates. Significant influence is typically Investments in joint ventures are recognised using the pro rata consolida- tion method. Using pro rata consolidation, the Group’s share of joint ven- ture assets and liabilities is recognised in the statement of financial posi- tion. The share of income and costs and assets and liabilities are presented on a line-by-line basis in the consolidated financial statements. On consolidation, intra-group income and costs, shareholdings, intra- group accounts and dividends, and gains and losses arising on transac- tions between the consolidated enterprises are eliminated. Newly acquired or divested subsidiaries are consolidated with the re- sults for the period subsequent to taking over or before surrendering control, respectively. Profit and loss in divested subsidiaries and profit and loss from discontinued activities are included under discontinued and divested business in the income statement. Unrealised gains on transactions between consolidated companies (in- cluding associates) are eliminated to the extent of the Group’s interest in the companies. Unrealised losses are eliminated in the same way as unrealised gains unless impairment has occurred. Business combinations Newly acquired undertakings are recognised in the consolidated finan- cial statements from the date of acquisition. Comparative figures are not restated to reflect new acquisitions. The purchase method is applied for new acquisitions if the Tryg Group gains control of the company acquired. Identifiable assets, liabilities and contingent liabilities in undertakings acquired are measured at fair value at the date of acquisition. The tax effect of revaluations is taken into account. The date of acquisition is the date on which control of the acquired company actually passes to Tryg. The cost of a company is the fair value of the agreed consideration paid plus, for acquisitions before 1 January 2010, 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 measured reliably. Any excess of the cost of acquisition of the enterprise over the fair value of the acquired identifiable assets, liabilities and contingent liabilities is recognised as goodwill under intangible assets. Goodwill is tested for impairment at least once a year. If the carrying amount of an asset ex- ceeds its recoverable amount, the asset is written down to the lower re- coverable amount. Currency translation A functional currency is determined for each of the reporting entities in the Group. The functional currency is the currency used in the primary 117 Notes | Annual report 2013 | Tryg A/S | Notes economic environment in which the reporting entity operates. Transac- tions in currencies other than the functional currency are transactions in foreign currencies. On initial recognition, transactions in foreign currencies are translated into the functional currency using the exchange rate applicable at the transaction date. Assets and liabilities denominated in foreign curren- cies are translated using the exchange rates applicable at the statement of financial position date. Translation differences are recognised in the income statement under price adjustments. On consolidation, the assets and liabilities of the Group’s foreign opera- tions are translated using the exchange rates applicable at the state- ment of financial position date. Income and expense items are trans- lated using the average exchange rates for the period. Exchange rate differences arising on translation are classified as other comprehensive income and transferred to the Group’s translation reserve. Such transla- tion differences are recognised as income or as expenses in the period in which the activities are divested. All other foreign currency transla- tion gains and losses are recognised in the income statement. The pres- entation currency in the annual report is DKK. Segment reporting Segment information is based on the Group’s management and internal financial reporting system and supports the management decisions on allocation of resources and assessment of the Group’s results divided into segments. The operational business segments in the Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individuals in Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized businesses, in Den- mark and Norway. Corporate sells insurances to industrial clients pri- marily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insur- ance products to private individuals in Sweden. Geographical information is presented on the basis of the economic en- vironment in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden. Segment income and segment costs as well as segment assets and liabili- ties comprise those items that can be directly attributed to each individ- ual segment and those items that can be allocated to the individual seg- ments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity managed at Group level. Key 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 for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Fi- nancial Supervisory Authority. Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium pro- visions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the premium provisions. Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual in- surance contract. The calculation is generally based on the pro rata method, although this is adjusted for an unevenly divided risk between lines of busi- ness with strong seasonal variations or for policies lasting many years. The portion of premiums received on contracts that relate to unexpired risks at the statement of financial position date is reported under pre- mium provisions. The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the rein- surers’ share of premium provisions. Technical interest According to the Danish FSA’s executive order, technical interest is pre- sented 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 an actual interest from the present yield curve for each individual group of risks. The interest is applied according to the expected run-off pattern of the provisions. Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Claims Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item in- cludes run-off gains/losses in respect of previous years. The portion of the increase in provisions which can be ascribed to unwinding is trans- ferred to insurance technical interest. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred. Changes in claims provisions due to changes in yield curve and ex- change rates are recognised as a price adjustment. Tryg hedges the risk of changes in future pay and price figures for provi- sions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the effect of changes to inflation expectations under claims. 118 | Tryg A/S | Annual report 2013 | NotesNotes Bonus and premium discounts Bonuses and premium discounts represent anticipated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been de- fined prior to the financial year or when the insurance was taken out. Insurance operating expenses Insurance operating costs represent acquisition costs and administra- tion expenses less reinsurance commissions received. Expenses relat- ing to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recog- nised when a legal obligation occurs and is accrued over the term of the policy. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year. Leasing Leases are classified either as operating or finance leases. The assess- ment of the lease is based on criteria such as ownership, right of pur- chase 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 recognised in the income statement over the term of the lease, corresponding to the economic life- time of the asset. The Group has no assets held under finance leases. Share-based payment The Tryg Group’s incentive programmes comprise share option pro- grammes 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 fair value at the time of alloca- tion and recognised under staff expenses over the period from the time of allocation until vesting. The balancing item is recognised directly in equity. The options are issued at an exercise price that corresponds to the market price of the Group’s shares at the time of allocation plus 10%. No other vesting conditions apply. Special provisions are in place concerning sick- ness and death and in case of change to the Group’s capital position etc. The share option agreement entitles the employee to the options un- less the employee resigns his position or is dismissed due to breach of the contract of employment. 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 13-day period, which starts the day after the publication of full-year, half-year and quarterly reports and in accordance with Tryg’s in-house rules on trad- ing in the Group’s shares. The options are settled in shares. A part of the Group’s holding of own shares is reserved for settlement of the options allocated. On initial recognition of the share options, the number of options ex- pected to vest for employees and members of the Executive Manage- ment is estimated. Subsequently, adjustment is made for changes in the estimated number of vested options to the effect that the total amount recognised is based on the actual number of vested options. The value for retired employees who retain their right to options is reported for the remaining period of the financial year in which the employee retires. 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 Members of Executive Management and risk takers have been allocated shares in accordance with the ‘Matching shares’ scheme. Under Match- ing shares, the individual management member or risk takers is allo- cated one share in Tryg A/S for each share the Executive management member or risk taker acquires in Tryg A/S at the market rate for certain liquid cash at a contractually agreed sum in connection with the Match- ing share programme. The holder acquires the shares in the open window following publication of the annual report for the previous year. The shares (matching shares) are provided free of charge, four years after the time of purchase. 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 is from the end of the month of acquisition un- der staff expenses with a balancing entry directly in equity. If an Execu- tive Management member or risk-taker retires during the maturation period but remains 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 associates’ net profit. Income from investment properties before fair value adjustment repre- sents 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 adjustment of investment property, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as price adjustments. Investment management charges represent expenses relating to the management of investments. 119 Notes | Annual report 2013 | Tryg A/S | Notes Other income and expenses Other income and expenses include income and expenses which can- not be ascribed to the Group´s insurance portfolio or investment assets, including the sale of products for Nordea Liv & Pension. Discontinued and divested business Discontinued and divested business is consolidated in one item in the income statement and supplemented with disclosure of the discontin- ued and divested business in a note to the financial statements. Discon- tinued and divested business includes gross premiums, gross claims, gross costs, profit/loss on ceded business, insurance technical interest net of reinsurance, investment return after insurance technical interest, other income and costs and tax in respect of the discontinued business. Any reversal of earlier impairment is recognised under other income and costs. The statement of financial position items concerning discontinued ac- tivities are reported unchanged under the respective entries whereas assets and liabilities concerning divested activities are consolidated un- der one item as assets held for sale and liabilities associated with assets held for sale. The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontin- ued and divested business in the income statement includes the profit/ loss after tax of the run-off for the marine hull business in 2010 and the divested activities in the Finnish branch in 2012. Discontinued business also comprises the Tryg Forsikring A/S run-off business. 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 under- taking and the fair value of acquired identifiable assets, liabilities and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the in- vestment and is recognised under intangible assets. Goodwill is not am- ortised but is tested for depreciation at least once per year. Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected economic lifetime of 5–12 years. Software Acquired computer software licences are capitalised on the basis of the costs incidental to acquiring and bringing to use the specific software. The costs are amortised based on an estimated economic lifetime of up to 4 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 rele- vant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses. After completion of the development work, the asset is amortised ac- cording to the straight-line method over the assessed economic life- time, though over a maximum of 4 years. The amortisation basis is re- duced by any impairment and write-downs. Assets under construction Group-developed intangibles are recorded under the entry ‘Assets un- der construction’ until they are put into use, whereupon they are reclas- sified as software and are amortized in accordance with the amortiza- tion periods stated above. Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumu- lated depreciation and any accumulated impairment losses. Cost en- compasses the purchase price and costs directly attributable to the ac- quisition of the relevant assets until the time when such assets are ready to be brought into use. Depreciation of operating equipment is calculated using the straight- line method over its estimated economic lifetime as follows: • IT, 4 years • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years Leasehold improvements are depreciated over the expected economic lifetime, however maximally the term of the lease. Gains and losses on disposals and retired assets are determined by comparing proceeds with carrying amounts. Gains and losses are rec- ognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserves are transferred to retained earnings. Land and buildings Land and buildings are divided into owner-occupied property and invest- ment property. The Group’s owner-occupied properties consist of the head office buildings in Ballerup and Bergen and a small number of holiday homes. The remaining properties are classified as investment property. Owner-occupied property Owner-occupied property is property that is used in the Group’s opera- tions. Owner-occupied properties are measured in the statement of fi- nancial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and im- 120 | Tryg A/S | Annual report 2013 | NotesNotes pairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occu- pied property at the statement of financial position date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property character- istics, corresponding to the present value of a perpetual annuity. Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic 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. Increases in the revalued carrying amounts of owner-occupied property are recognised in the revaluation reserve in equity. Decreases that offset previous revaluations of the same asset are charged against the revalu- ation reserves directly in equity; all other decreases are charged to the income statement. Costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, when it is probable that future eco- nomic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. Ordinary repair and mainte- nance costs are expensed in the income statement when incurred. Depreciation on owner-occupied property is calculated based on the straight-line method and using an estimated economic lifetime of up to 50 years. Land is not depreciated. Assets under construction In connection with the refurbishment of owner-occupied property, costs to be capitalised are recognised at cost under owner-occupied property. On completion of the project, it is reclassified as owner-occu- pied property, and depreciation is 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. Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not avail- able, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market. The fair value is calculated on the basis of market-specific rental in- come per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions. Changes in fair values are recorded in the income statement. Goodwill is tested annually for impairment, or more often if there are in- dications of impairment, and impairment testing is performed for each cash-generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments. Equity investments in Group undertakings The parent company’s equity investments in subsidiaries are recog- nised and measured using the equity method. The parent company’s share of the enterprises’ profits or losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the statement of financial position, equity investments are measured at the pro rata share of the enterprises’ equity. Subsidiaries with a negative net asset value are recognised at zero value. Any receivables from these enterprises are written down by the parent company’s share of such negative net asset value where the receivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the remaining amount is recognised under provisions if the parent company has a legal or constructive obligation to cover the liabilities of the relevant enterprise. Net revaluation of equity investments in subsidiaries is taken to reserve for net revaluation under equity if the carrying amount exceeds cost. The results of foreign subsidiaries are based on translation of the items in the income statement using average exchange rates for the period. Income and costs in domestic enterprises denominated in foreign currencies are translated using the exchange rates applicable on the transaction date. Statement of financial position items of foreign subsidiaries are trans- lated using the exchange rates applicable at the statement of financial position date. Equity investments in associates Associates are enterprises in which the Group has significant influence but not control, generally in the form of an ownership interest of between 20% and 50% of the voting rights. Equity investments in associates are measured using the equity method so that the carrying amount of the investment represents the Group’s proportionate share of the enter- prises’ net assets. 121 Notes | Annual report 2013 | Tryg A/S | Notes Profit after tax from equity investments in associates is included as a separate line in the income statement. Income is made up after elimi- nation 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 under liabilities. Investments Investments include financial assets at fair value which are recognised in the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this at every reporting date. Financial assets measured at fair value with recognition of value adjust- ments in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment via the income statement. Financial assets at fair value recognised in income statement Financial assets are recognised at fair value on initial recognition if they are entered in a portfolio that is managed in accordance with fair value. Derivative financial instruments are similarly classified as financial as- sets held for sale, unless they are classified as security. Realised and unrealised profits and losses that may arise as a result 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 assets have expired, or if they have been transferred, and the Group has also transferred substantially all risks and rewards of owner- ship. Financial assets are recognised and derecognised on a trade date ba- sis, the date on which the Group commits to purchase or sell the asset. The fair values of quoted securities are based on stock exchange prices at the statement of financial position 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 simi- lar recent arm’s length transactions, 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 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 statement of financial position items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to man- age cash flows and interest rate risks related to the portfolio of bonds and insurance provisions. Share derivatives in the form of futures and options are used from time to time to adjust share exposures. Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Posi- tive fair values of derivatives are recognised as derivative financial in- struments under assets. Negative fair values of derivatives are recog- nised under derivative financial instruments under liabilities. Positive and negative values are only offset when the company is entitled or in- tends 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 providers 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 instruments involving an expected future cash flow. Recognition of the resulting gain or loss depends on whether the deriv- ative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign entities. Changes in the fair value of deriva- tives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net invest- ment 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 accord- ing to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income state- ment. Gains and losses accumulated in equity are included in the in- come statement on disposal of the foreign entity. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets. The benefits to which the Group is entitled under its reinsurance con- tracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts. Amounts receivable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in ac- cordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in insurance technical inter- est. Changes due to changes in the yield curve or foreign exchange rates are recognised as price adjustments. The Group continuously assesses 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 re- coverable amount. Impairment losses are recognised in the income statement. 122 | Tryg A/S | Annual report 2013 | NotesNotes Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receiv- ables primarily contain accounts receivable in connection with property. Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Receiv- ables that arise as a result of insurance contracts are classified in this category and are reviewed for impairment as a part of the impairment test of accounts receivable. Receivables that are not derivative financial instruments are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when there is a clear indication of asset impair- ment. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected fu- ture cash flows. Assets held for sale and associated liabilities Assets held for sale comprise non-current assets and disposal groups held for sale. A disposal group is a group of assets which an entity in- tends to dispose of in a single transaction. Liabilities associated with as- sets held for sale are liabilities which are directly associated with these assets, which will be transferred as part of the transaction. Assets are classified as ‘held for sale’ when their carrying amount will be recovered primarily via a formally planned sale within a period of 12 months rather than through continued use. Impairment or reversal of earlier impairment arising in connection with the first classification as held for sale and gains or losses in connection with subsequent measurements at the lower of carrying amount and fair value less costs to sell are recognised in the income statement un- der the relevant items. Gains and losses are specified in the notes. As- sets and disposal groups held for sale are measured at the lower of car- rying amount at the time of classification as held for sale and fair value less costs to sell. Assets are not depreciated or amortised from the time of classification as held for sale. Equity Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the pro- ceeds, net of tax. Revaluation reserves Revaluation of owner-occupied property is recognised in other compre- hensive income unless the revaluation offsets a previous impairment loss. Foreign currency translation reserve Assets and liabilities of foreign entities are recognised using the ex- change rate applicable at the statement of financial position date. In- come and expense items are recognised using the average monthly ex- change rates for the period. Any resulting differences are recognised in equity. When an entity is wound up, the balance is transferred to the in- come statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive income in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of retained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Supervisory Authority and when it is for the benefit of the policyholders. The Norwegian contingency fund reserves include provisions for the Norwegian Natural Perils Pool, security reserve and guarantee reserve. The Danish and Swedish provisions comprise con- tingency fund provisions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated. Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration). Own shares The purchase and sale sums of own shares and dividends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buyback programme. Assets and associated liabilities are specified separately in the statement of financial position, and the main items are specified in the notes. Com- parative figures in the statement of financial position are not restated. Proceeds from the sale of own shares in connection with the exercise of share options or matching shares are taken directly to equity. Other assets Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date. Subordinate loan capital Subordinate loan capital is recognised initially at fair value, net of trans- action costs incurred. Subordinate loan capital is subsequently stated at amortised cost; any difference between the proceeds (net of transac- tion costs) and the redemption value is recognised in the income state- ment over the borrowing period using the effective interest method. Prepayments and accrued income Prepayments include expenses paid in respect of subsequent financial years and interest receivable. Accrued underwriting commission relat- ing to the sale of insurance products is also included. Provisions for insurance contracts Premiums written are recognised in the income statement (premium in- come) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premiums 123 Notes | Annual report 2013 | Tryg A/S | Notes received on in-force contracts that relates to unexpired risks at the state- ment of financial position date is reported as premium provisions. Pre- mium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a min- imum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any risk variations. This applies to gross as well as ceded business. Claims and claims handling costs are expensed in the income state- ment as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the policy- holders. They include direct and indirect claims handling costs that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions 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. Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability, workers’ compensation and personal accident and health insurance classes, in particular. Provisions for bonuses and premium discounts etc. represent amounts expected to be paid to policyholders in view of the claims experience during the financial year. Claims provisions are determined for each line of business based on ac- tuarial methods. Where such business lines encompass more than one business area, short-tailed claims provisions are distributed based on number of claims reported while long-tailed claims provisions are dis- tributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for lines of business with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder’s credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in sit- uations that call for the use of exposure targets other than premium volume, for example the number of insured. The provision for annuities under workers’ compensation insurance is calculated on the basis of a mortality corresponding to the G82 calcula- tion basis (official mortality table). In some instances, the historic data used in the actuarial models is not necessarily predictive of the expected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected in- crease in claims. In connection with legislative changes, the same esti- mate is used for determining the change in the level of claims. Subse- quently, this estimate is maintained until new loss history materialises which can be used for re-estimation. Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. Most importantly, this can be expected to be the case for assumptions relating to interest rates and inflation. Workers’ compensation is an area in which explicit inflation assump- tions are used, with annuities for the insured being indexed based on the workers’ compensation index. An inflation curve that reflects the market’s inflation expectations plus a real wage spread is used as an ap- proximation to the workers’ compensation index. For other lines of business, the inflation assumptions, because present only implicitly in the actuarial models, will cause a certain lag in predict- ing the level of future losses when a change in inflation occurs. On the other hand, the effect of discounting will show immediately as a conse- quence of inflation changes to the extent that such changes affect the interest rate. Other correlations are not deemed to be significant. Liability adequacy test Tests are continuously performed to ensure the adequacy of the insur- ance provisions. In performing these tests, current best estimates of fu- ture cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency results in an increase in the relevant pro- vision, and the adjustment is recognised in the income statement. Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Den- mark, the Group operates a defined-contribution plan. A defined- contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribu- tion plan. For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the group so far and which must be disbursed ac- cording to the plan. The capital value is calculated using the Projected Unit Credit Method. 124 | Tryg A/S | Annual report 2013 | Notes Notes The capital value of the pension obligations less the fair value of any plan assets is recognised in the statement of financial position under pension assets and pension obligations, respectively, depending on whether the net amount is an asset or a liability. In case of changes to assumptions concerning the discounting factor, inflation, mortality and disability or in case of differences between ex- pected and realised returns on pension assets, actuarial gains or losses ensue. These gains and losses are recognised under other comprehen- sive income. In case of changes to the benefits stemming from the employees’ em- ployment with the group so far,a change is seen in the actuarially calcu- lated capital value which is considered as pension costs for previous fi- nancial years. The change is recognised in the results immediately. 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 at the time of signing the contract of employment. In special instances, the employee can enter into a contract with the Group to receive compensation for loss of pension benefits caused by reduced working hours. The Group recognises this liability based on statistical models. Income tax and deferred tax The Group expenses current tax according to the tax laws of the juris- dictions in which it operates. Current tax liabilities and current tax re- ceivables are recognised in the statement of financial position as esti- mated tax on the taxable income for the year, adjusted for change in tax on prior years’ taxable income and for tax paid under the on-account tax scheme. Deferred tax is measured according to the statement of financial posi- tion liability method on all timing differences between the tax and ac- counting value of assets and liabilities. Deferred income tax is meas- ured using the tax rules and tax rates that apply in the relevant countries on the statement of financial position date when the deferred tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxa- ble profit will be realised against which the temporary differences can be offset. Deferred income tax is provided on temporary differences concerning 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 Provisions are recognised when the Group has a legal or constructive obligation as a result of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the best estimate by management of the expenditure required to settle the present obliga- tion. The measurement of provisions is based on a discounting of the costs necessary to settle the obligation if this has a significant effect on the measurement of the obligation. Provisions for restructurings are recognised as obligations when a de- tailed formal restructuring plan has been announced prior to or at the statement of financial position date at the latest to the persons affected by the plan. Own insurance is included under other provisions. The provisions apply to the Group’s own insurance claims and are reported when the damage occurs according to the same principle as the Group’s other claims pro- visions. Debt Debt comprises debt in connection with direct insurance and reinsurance, amounts owed to credit institutions, current tax obligations and other debt. Derivative financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are as- sessed at amortised cost based on the effective interest method. Cash flow statement The consolidated cash flow statement is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the Group’s cash and cash equivalents at the begin- ning and end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement. Cash flows from operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed. Cash flows from investing activities comprise payments in connection with the purchase and sale of intangible assets, property, plant and equip- ment as well as financial assets and deposits with 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 rais- ing of loans, repayments of interest-bearing debt and the payment of dividends. Cash and cash equivalents comprise cash and demand deposits. 125 Notes | Annual report 2013 | Tryg A/S | Income statement (parent company) DKKm Note 1 Investment activities Income from Group undertakings Interest expenses Administration expenses in connection with investment activities Total Investment return 2 Other expenses Profit/loss before tax 3 Tax Profit/loss on continuing business Profit/loss for the year Proposed distribution for the year: Dividend Transferred to reserve for net revaluation according to the equity method Transferred to retained profit Statement of comprehensive income Profit/loss for the year Other comprehensive income Other comprehensive income which cannot subsequently be reclassified as profit or loss Revaluation of owner-occupied property for the year Tax on revaluation of owner-occupied property for the year Actuarial gains/losses on defined-benefit pension plans Tax on actuarial gains/losses on defined-benefit pension plans Deferred tax on contingency fund provision Other comprehensive income which can subsequently be reclassified as profit or loss Exchange rate adjustments of foreign entities for the year Hedging of currency risk in foreign entities for the year Tax on hedging of currency risk in foreign entities for the year Total other comprehensive income Comprehensive income 126 | Tryg A/S | Annual report 2013 | Income statement (parent company) 2012 2013 2,265 0 -8 2,410 1 -6 2,257 2,405 -67 -52 2,190 2,353 18 14 2,208 2,367 2,208 2,367 1,594 1,865 -1,251 2,208 1,656 817 -106 2,367 2,208 2,367 42 -12 -62 16 0 -16 193 -184 46 55 39 9 -3 179 -54 0 131 -326 305 -76 -97 34 2,247 2,401 Statement of financial position (parent company) DKKm Note Assets 4 Equity investments in Group undertakings Total investments in Group undertakings Total investment assets Receivables from Group undertakings Total receivables 5 Current tax assets Cash at bank and in hand Total other assets Total assets Equity and liabilities Equity Debt to Group undertakings Other debt Total debt Total equity and liabilities 6 Deferred tax assets 7 Capital adequacy 8 Contractual obligations, contingent liabilities and collateral 9 10 11 Accounting policies Related parties Reconciliation of profit/loss and equity 2012 2013 10,889 10,889 11,740 11,740 10,889 11,740 85 85 24 1 25 0 0 14 1 15 10,999 11,755 10,996 11,122 0 3 3 629 4 633 10,999 11,755 Statement of financial position (parent company) | Annual report 2013 | Tryg A/S | 127 Statement of changes in equity (parent company) DKKm Share capital Revaluation reserves Retained earnings Proposed dividend Equity at 31 December 2011 1,533 1,998 5,093 400 2012 Profit/loss for the year Revaluation of owner-occupied properties Exchange rate adjustment of foreign entities for the year Hedging of currency risk in foreign entities for the year Actuarial gains and losses on pension obligation Tax on changes in equity Total comprehensive income Dividend paid Dividend, own shares Purchase and sale of own shares Exercise of share options Issue of share options Total changes in equity in 2012 Equity at 31 December 2012 1,865 42 193 -184 -62 50 1,904 0 0 1,533 1,904 3,902 2013 Profit/loss for the year Revaluation of owner-occupied property for the year Exchange rate adjustments of foreign entities for the year Hedging of currency risk in foreign entities for the year Actuarial gains and losses on pension obligation Tax on changes in equity Total comprehensive income 0 817 9 -326 305 179 -133 851 Dividend paid Dividend own shares Purchase and sale of own shares Exercise of share options Issue of share options and matching shares Total changes in equity in 2013 0 851 -1,251 1,594 -1,251 6 66 44 9 -1,126 3,967 1,594 -400 1,194 1,594 -106 1,656 -106 15 -800 100 4 -787 1,656 -1,594 62 Total 9,024 2,208 42 193 -184 -62 50 2,247 -400 6 66 44 9 1,972 10,996 2,367 9 -326 305 179 -133 2,401 -1,594 15 -800 100 4 126 Equity at 31 December 2013 1,533 4,753 3,180 1,656 11,122 Proposed dividend per share DKK 27 (in 2012 DKK 26) 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 at the end of the year (61,316,103 shares). The dividend is not paid until approved by the shareholders at the annual general meeting. The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 3,020m (DKK 3,363m in 2012). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured. 128 | Tryg A/S | Annual report 2013 | Statement of changes in equity (parent company) Notes (parent company) DKKm 1 Income from Group undertakings Tryg Forsikring A/S 2 Other expenses Administration expenses 2012 2013 2,265 2,265 2,410 2,410 -67 -67 -52 -52 Remuneration for the Executive Management is paid partly by Tryg A/S and partly by Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S and is charged to Tryg A/S via the cost allocation. Remuneration for the Supervisory Board, the Executive Management and risk-takers can be seen from note 29 concerning related parties of the Tryg Group. Refer to Note 7 of the consolidated financial statements for a specification of the audit fee. Average number of full-time employees for the year 11 11 3 Tax Reconciliation of tax costs Tax on accounting loss before profit/loss in subsidiaries and tax Tax adjustments, previous years Effective tax rate Tax on accounting profit Charge in respect of previous years 4 Equity investments in Group undertakings Cost Cost at 1 January Cost at 31 December Revaluation and impairment to net asset value Revaluation and impairment at 1 January Revaluations for the year Dividend paid Revaluation and impairment at 31 December Carrying amount at 31 December Name and registered office 2013 Tryg Forsikring A/S, Ballerup 2012 Tryg Forsikring A/S, Ballerup -19 1 -18 % 25 -1 24 6,987 6,987 1,998 2,304 -400 3,902 -14 0 -14 % 25 0 25 6,987 6,987 3,902 2,445 -1,594 4,753 10,889 11,740 Ownership share in % Equity 100 100 100 100 Notes (parent company) | Annual report 2013 | Tryg A/S | 129 Notes (parent company) DKKm 5 Current tax assets Tax payable at 1 January Current tax for the year Adjustment of current tax in respect of previous years Tax paid for the year Tax payable at 31 December 6 Deferred tax assets Capitalised tax losses Tryg A/S Non-capitalised tax losses Tryg A/S 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 offset the tax losses. 7 Capital adequacy Equity according to annual report Proposed dividend Solvency requirements of subsidiaries – 50% Tier 1 capital Subordinate loan capital Solvency requirements of subsidiaries – 50% Capital base Weighted items Solvency ratio 2012 2013 17 24 -7 -10 24 0 18 24 14 0 -24 14 0 18 10,996 -1,594 -2,406 6,996 873 -2,405 5,464 11,122 -1,656 -2,307 7,159 1,551 -2,307 6,403 6,078 7,126 90 90 8 Contractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are taxed jointly with TryghedsGruppen smba. As of 1 July 2012, the companies and the other jointly taxed companies are thus jointly and severally liable for any obligations to withhold tax deducted at source on interest, royalties and dividends in respect of the jointly taxed companies. Companies in the Tryg Group are party to a number of disputes. Management believes that the outcome of these legal proceedings will not affect the Group’s financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2013. 130 | Tryg A/S | Annual report 2013 | Notes (parent company) Notes (parent company) DKKm 9 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Management and their members’ related family. Related parties are the same as for the Tryg Group; please see Note 29 in the consolidated financial statements. 2012 2013 Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. Transactions with Group undertakings and associates Tryg A/S exercises full control over Tryg Forsikring A/S. Intra-group trading involved - Providing and receiving services - Intra-group accounts’ Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. 10 Reconciliation of profit/loss and 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 profit/loss and equity. Reconciliation of profit/loss Profit/loss – IFRS Change during the year of deferred tax provisions for contingency funds Profit/loss – Danish FSA executive order Reconciliation of equity Equity – IFRS Deferred tax provisions for contingency funds Change during the year of deferred tax provisions for contingency funds Equity – Danish FSA executive order 11 Accounting policies Please refer to Tryg Group’s accounting policies. -40 84 -23 -629 2,208 0 2,208 10,979 17 0 10,996 2,369 -2 2,367 11,107 17 -2 11,122 Notes (parent company) | Annual report 2013 | Tryg A/S | 131 Q4 2013 | Quarterly outline DKKm Private Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Gross premium income 2,373 2,401 2,405 2,478 2,449 2,384 2,363 2,329 2,290 Technical result 192 152 351 404 326 245 364 440 286 Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Commercial Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Corporate 76.0 0.3 76.3 16.3 92.6 94.4 916 133 64.2 2.1 66.3 19.4 85.7 95.9 80.4 -2.3 78.1 16.0 94.1 98.4 920 87 78.2 -7.1 71.1 20.0 91.1 95.7 71.8 -2.1 69.7 16.0 85.7 90.1 930 168 62.6 -1.4 61.2 21.1 82.3 90.4 69.0 -0.1 68.9 15.0 83.9 87.0 931 193 56.8 2.3 59.1 20.1 79.2 86.3 70.1 1.1 71.2 15.6 86.8 88.4 906 156 59.8 2.8 62.6 20.0 82.6 85.8 72.9 1.8 74.7 15.3 90.0 93.5 908 98 67.7 2.1 69.8 19.4 89.2 93.9 68.5 0.8 69.3 15.6 84.9 89.0 899 94 73.1 -2.1 71.0 18.9 89.9 93.0 64.7 1.7 66.4 15.1 81.5 84.0 859 177 55.3 4.1 59.4 20.5 79.9 88.6 75.6 -2.5 73.1 14.6 87.7 90.8 862 70 80.2 -6.3 73.9 18.3 92.2 95.7 Gross premium income 1,308 1,305 1,312 1,311 1,330 1,270 1,287 1,241 1,243 Technical result 29 150 284 95 121 134 198 95 146 Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio 90.0 -4.6 85.4 13.1 98.5 Combined ratio exclusive of run-off 112.9 78.9 -2.2 76.7 12.6 89.3 96.7 64.0 1.8 65.8 12.7 78.5 92.1 78.2 2.5 80.7 11.9 92.6 97.3 77.8 0.7 78.5 12.2 90.7 103.4 68.9 7.6 76.5 13.1 89.6 97.8 82.7 -9.6 73.1 11.8 84.9 95.5 111.8 -31.3 80.5 12.3 92.8 100.9 70.4 5.5 75.9 12.8 88.7 98.6 132 | Tryg A/S | Annual report 2013 | Q4 2013 | Quarterly outline DKKm Sweden Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Other a) Gross premium income Technical result Tryg Gross premium income Technical result Investment return Other income and costs Profit/loss before tax Profit/loss Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 370 -44 361 -28 88.1 0.5 88.6 24.9 113.5 115.1 87.5 0.6 88.1 21.9 110.0 107.8 417 28 77.7 -0.2 77.5 17.7 95.2 92.8 477 48 75.3 1.0 76.3 14.5 90.8 88.7 399 54 67.2 -0.8 66.4 21.1 87.5 87.2 377 23 75.6 -0.3 75.3 19.6 94.9 92.0 420 28 76.7 0.0 76.7 17.6 94.3 94.3 442 54 72.6 0.5 73.1 14.7 87.8 89.8 348 44 71.8 -2.9 68.9 19.3 88.2 94.5 -17 0 -2 0 -7 0 -1 -88 -8 -9 -1 0 -7 0 -4 0 -6 0 4,950 4,985 5,057 5,196 5,076 4,938 4,962 4,867 4,737 310 144 13 467 344 78.5 -0.9 77.6 16.9 94.5 361 353 -12 702 556 79.9 -2.7 77.2 16.6 93.8 98.5 831 -111 -19 701 515 68.7 -1.0 67.7 16.5 84.2 91.1 652 338 -14 976 733 70.3 1.0 71.3 16.4 87.7 91.5 648 5 -15 638 404 70.2 0.9 71.1 16.3 87.4 92.1 500 269 -10 759 575 71.2 3.1 74.3 16.0 90.3 94.8 684 13 -9 688 514 73.7 -2.6 71.1 15.6 86.7 91.9 766 152 -11 907 715 75.9 -6.6 69.3 15.5 84.8 89.8 546 154 -61 639 565 74.9 -1.2 73.7 15.4 89.1 94.3 Combined ratio exclusive of run-off 101.2 a) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. A more detailed version of the table can be found at tryg.com > investor > Downloads. Q4 2013 | Quarterly outline | Annual report 2013 | Tryg A/S | 133 Q4 2013 | Geographical segments DKKm Danish general insurance a) Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employees 31 December Norwegian general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employees 31 December Swedish general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employees 31 December 134 | Tryg A/S | Annual report 2013 | Q4 2013 | Geographical segments Q4 2012 Q4 2013 2012 2013 2,456 536 159 62.6 2.4 65.0 12.7 77.7 2,091 54 80 79.9 -0.6 79.3 18.5 97.8 537 67 -2 65.7 1.9 67.6 20.7 88.3 2,364 128 124 86.0 -6.6 79.4 15.4 94.8 1,885 412 117 59.4 5.3 64.7 13.9 78.6 494 6 6 80.0 0.8 80.8 18.8 99.6 9,910 1,441 571 71.1 -0.2 70.9 14.5 85.4 9,534 1,202 566 79.5 -7.0 72.5 15.0 87.5 2,187 2,046 8,239 1,017 465 72.4 -1.0 71.4 16.8 88.2 7,819 1,258 387 65.1 4.1 69.2 15.3 84.5 1,282 1,199 2,183 131 -21 75.3 1.5 76.8 18.6 95.4 444 2,169 36 17 80.6 0.7 81.3 17.6 98.9 458 DKKm Other b) Gross premium income Technical result Tryg Gross premium income Technical result Investment return Other income and costs Profit/loss before tax Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio c) Combined ratio Number of full-time employees, continuing business at 31 December Number of full-time employees, discontinued and divested business at 31 Dec. Q4 2012 Q4 2013 2012 2013 -8 -9 -6 0 -18 -97 -18 0 5,076 4,737 20,314 19,504 648 5 -15 638 237 70.2 0.9 71.1 16.3 87.4 546 154 -61 639 247 74.9 -1.2 73.7 15.4 89.1 2,492 585 -60 3,017 1,015 72.2 -0.4 71.8 16.4 88.2 3,913 189 2,496 588 -91 2,993 970 73.9 -1.8 72.1 15.6 87.7 3,703 0 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations, restructuring expenses and discontinued and divested business are included under ‘Other’. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights. Q4 2013 | Geographical segments | Annual report 2013 | Tryg A/S | 135 Other key figures Claims ratio, net Expense ratio, net with adjustment Combined ratio, net with adjustment 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 premium provisions Average claims provisions Average reinsurers’ share of provisions for insurance contracts Reserve ratio, premium provisions (%) Reserve ratio, claims provisions (%) Total reserve ratio Number of full-time employess, continued business, at 31 December Number of full-time employess, discontinued and divested business at 31 December Share performance Earnings per share (DKK) Diluted earnings per share (DKK) Earnings per share (DKK) of continuing business Number of shares, end of period (1,000) Average number of shares (1,000) Diluted average number of shares (1,000) Share price at 31 December (DKK) Net asset value per share (DKK) Market price/net asset value Dividend per share (DKK) Price/Earnings 2009 2010 2011 2012 2013 73.8 16.9 90.7 16.8 9.7 10.2 0.8 0.9 30.7 23.6 5,654 21,110 1,178 35.7 129.2 164.9 81.4 17.1 98.5 17.0 2.4 2.6 0.7 0.7 11.1 8.2 6,514 23,677 1,454 36.1 131.7 167.8 75.7 17.0 92.7 16.9 7.9 8.3 0.9 0.9 18.4 13.1 6,876 25,894 1,828 34.8 134.9 169.7 70.7 16.9 87.6 16.6 12.3 13.0 0.3 0.3 30.2 21.8 6,810 27,073 2,192 32.9 134.1 167.0 70.8 16.1 86.9 15.9 12.8 13.6 0.3 0.3 27.1 21.5 6,450 26,665 2,469 31.8 133.8 165.6 4,119 4,101 4,076 3,913 3,703 217 191 242 189 0 31.7 31.7 33.3 63,228 63,334 63,448 342.8 152.3 2.3 15.50 10.3 9.5 9.5 11.9 60,634 62,362 62,444 257.5 139.5 1.8 4.00 21.7 18.9 18.9 19.0 60,373 60,401 60,401 319.0 149.2 2.1 6.52 16.8 36.5 36.4 36.0 60,695 60,491 60,714 426.5 180.9 2.4 26.00 11.8 39.4 39.3 39.4 59,374 60,155 60,259 524.5 187.1 2.8 27.00 13.3 The expense ratio, net without adjustment, is calculated as the ratio of actual insurance operating costs, net of reinsurance to premium income, 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’ definitions of expence ratio and combined ratio, involves the addition of a calculated cost (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. 136 | Tryg A/S | Annual report 2013 | Other key figures Group chart Tryg A/S Tryg Forsikring A/S Tryg Garanti- forsikring A/S (Dansk Kaution) Moderna Försäkringar (Swedish branch) Tryg Forsikring (Norwegian branch) Respons Inkasso AS (Norway) Tryg Garanti (Norwegian branch) Moderna Garanti (Swedish branch) Tryg Garanti (Finnish branch) Ejendoms- selskabet af 8. maj 2008 A/S Vesta Eiendom AS (Norway) Tryg Ejendomme A/S 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 2014. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated. Company Branch Group chart | Annual report 2013 | Tryg A/S | 137 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 Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds and also comply with ‘Recommendations & Financial Ratios 2010’ issued by the Danish Society of Financial Analysts. Gross expense ratio Calculated as the ratio of gross insurance operating costs, including adjustment and gross premium income. The adjustment involves the deduction of depreciation and operating costs on the owner-occupied property and the addition of a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent. Capital base Equity plus share of subordinate loan capital and less intangible assets, tax asset, discounting, equalisation reserve and proposed dividend. Gross insurance operating costs with adjustment x 100 Gross premium income Claims ratio, net of ceded business Gross claims ratio + net reinsurance ratio Combined ratio The sum of the gross claims ratio, the net reinsurance ratio and the gross expense ratio. Danish general insurance Comprises the legal entities Tryg Forsikring A/S (excluding the Norwegian and Swedish branches) and Tryg Garantiforsikring A/S (including Finnish branch). Diluted average 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 pay- ments at a value below the nominal amount, as the recognised amount carries interest until payment. The size of the discount depends on the market-based discount rate applied and the expected time to payment. Dividend per share Earnings per share Proposed dividend Number of shares at year-end Profit or loss for the year x 100 Average number of shares Earnings per share of continuing business Gross expense ratio without adjustment Gross insurance operating costs x 100 Gross premium income Gross premium income Calculated as gross premium income adjusted for change in gross premium provisions, less bonuses and premium discounts. Gross profit ratio Technical result x 100 Gross premium income Gross technical interest ratio Insurance technical interest net of reinsurance x 100 Gross premium income Individual solvency New Danish solvency requirements for insurance companies comprising the companies’ own determination of their capital requirements calculated using their own methods. The rules entered into force on 1 January 2008, and the figures must be reported to the Danish Financial Supervisory Authority four times a year. Market price/net asset value Share price Net asset value per share Diluted earnings from continuing business after tax Diluted average number of shares Net asset value per share Gross claims ratio Gross claims x 100 Gross premium income Year-end equity Number of shares at year-end 138 | Tryg A/S | Annual report 2013 | Glossary Net reinsurance ratio Total reserve ratio Reserve ratio, claims provisions + premium provisions Solvency II New solvency requirements for insurance companies issued by the EU Commission. The new rules are expected to come into force in 2016, at the earliest. Solvency ratio (Solvency I) Ratio between capital base and weighted assets. Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch, and the Swedish branch of Tryg Garantiforsikring A/S. Unwinding Unwinding of discounting takes place with the passage of time as the expected time to payment is reduced. The closer the time of payment, the smaller the discount. This gradual increase of the provision is not recognised under claims, but under technical interest in the income statement. Profit or loss from reinsurance x 100 Gross premium income Norwegian general insurance Comprises Tryg Forsikring A/S, Norwegian branch, and the Norwegian branch of Tryg Garantiforsikring A/S. Operating ratio Calculated as the combined ratio plus insurance technical interest in the denominator. Claims + insurance operating costs + profit or loss from reinsurance x 100 Gross premium income + insurance technical interest Percentage return on equity after tax Profit for the year after tax x 100 Average equity Price/Earnings Share price Earnings per share Relative run-off gains/losses Run-off gains/losses net of reinsurance relative to claims provisions net of reinsurance, beginning of year. Reserve ratio, claims provisions Claims provisions x 100 Gross premium income Reserve ratio, premium provisions Premium provisions x 100 Gross premium income Run-off gains/losses The difference between the claims provisions at the beginning of the fi- nancial year (adjusted for foreign currency translation adjustments and discounting effects) and the sum of the claims paid during the financial year and that part of the claims provisions at the end of the financial year pertaining to injuries and damage occurring in earlier financial years. Tier 1 capital Equity less proposed dividend and share of capital claims in subsidiaries. Glossary | Annual report 2013 | Tryg A/S | 139 Product overview Being one of the largest insurance companies in the Nordic region, Tryg sells its products primarily via its own sales channels such as Tryg offers a broad range of insurance products to both private call centres, the Internet, tied agents, franchisees (Norway), interest individuals and businesses. Tryg continuously develops new organisations, car dealers, real estate agents, insurance brokers and products and adapts existing peace of mind solutions to customer Nordea branches. Moreover, Tryg engages in international cooperation requirements and developments in society. Also, Tryg focuses with the AXA Group. It is an important element of Tryg’s distribution strongly at all times on striking a better balance between price strategy to be available in places where customers want it and that and risk. most distribution takes place via the company’s own sales channels. Motor insurance Fire and contents – Commercial Motor insurance accounts for 32% 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. Commercial fire and contents insurance, which includes building insurance, represents 14% of total premium income and covers the loss of or damage to the buildings, stock or equipment of commercial customers. Moreover, Tryg provides cover for operating losses in connection with covered claims. In Denmark, motor insurance taken out by concept customers includes Tryg’s roadside assistance, such as towing and battery jump-start. Workers’ compensation insurance Fire and contents – Private Fire and contents insurance for private customers represents 24% of total premium income and includes, for example, house and contents insurance. House insurance covers damage to properties caused by, for example, fire, storm or water, legal assistance and the customer’s liability as owner of the property. The contents insurance covers loss of or damage to private household contents and covers in and outside of the home. Moreover, the insurance includes liability and legal assistance, to which can be added a number of supplementary covers, for example cover of sudden damage and damage to electronic equipment. Personal accident insurance Personal accident insurance accounts for 9% of total premium income and covers accidental bodily injury and death resulting from accidents. Workers’ compensation insurance accounts for 5% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occupational diseases). Workers’ compensation insurance is mandatory and covers a company’s employees (except for public sector employees and persons working for sole proprietors). General third-party liability insurance General third-party liability insurance represents 5% of total premium income and covers various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products, and third-party liability for professionals. Transport insurance Transport insurance represents 2% of total premium income and covers damage to goods in transit due to the collision, overturning or crashing of the means of transport. Compensation takes the form of a lump sum intended to help the customer cope with the financial consequences of an accident, thereby making their daily lives easier. The insurance can include a number of supple- mentary covers, including treatment by a physiotherapist or chiropractor. Health insurance Health insurance represents 2% of total premium income. The insurance covers the costs of examinations, treatment, medicine, surgery and rehabilitation at a private health facility. 140 | Tryg A/S | Annual report 2013 | Products Disclaimer | Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding Tryg’s future operating results, financial position, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by the use of words such as ‘targets’, ‘believes’, ‘expects’, ‘aims’, ‘intends’, ‘plans’, ‘seeks’, ‘will’, ‘may’, ‘anticipates’, ‘would’, ‘could’, ‘continues’ or similar expressions. events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. Should one or more of these risks or uncertainties materialise, or should any underlying assumptions prove to be incorrect, Tryg’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. Tryg is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. A number of different factors may cause the actual performance Read more in the chapter Capital and risk management in to deviate significantly from the forward-looking statements the annual report on page 34, and in Note 1 on page 67, for a in this annual report, including but not limited to general description of some of the factors which may affect the Group’s economic developments, changes in the competitive environ- performance or the insurance industry. ment, developments in the financial markets, extraordinary This is a translation of the Danish annual report 2013. In case of any discrepancy between the Danish and the English version of the annual report 2013, the Danish version shall apply. Produktoversigt | Årsrapport 2012 | Tryg A/S | 141 Xxx | Annual report 2013 | Tryg A/S | Tryg A/S Klausdalsbrovej 601 2750 Ballerup Denmark +45 70 11 20 20 tryg.com CVR-no. 26460212 

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