Tryg
Annual Report 2014

Plain-text annual report

Annual report 2014Menu – Management’s review MANAGEMENT’S REVIEW 16 Commercial 34 Group Executive Management 3 Income overview 18 Corporate 36 Corporate Social Responsibility in Tryg 4 Introduction: World-class insurance 20 Sweden 5 Events in 2014 22 Investment activities FINANCIAL STATEMENTS 6 Targets and strategy 24 Capital and risk management 38 Financial statements 10 Financial targets and outlook 26 Shareholder information 105 Group chart 11 Tryg’s results 14 Private 28 Corporate governance 106 Glossary 32 Supervisory Board 107 Products Learn more Reference to further information at tryg.com. Reference to further information in the annual report. Reference to menu. This is a translation of the Danish annual report 2014. In case of any discrepancy between the Danish and the English versions of the annual report 2014, the Danish version shall apply. 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 3,600 employees provide peace of mind for 2.7 million customers and handle more than 850,000 claims on a yearly basis. Our ambition is to become the world’s best insurance company. Editor Investor Relations | Publication 28 January 2015 | Layout amo design Annual report 2014 | Tryg A/S | 2 Income overview DKKm Q4 2014 Q4 2013 2014 2013 2012 2011 2010 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 DKK 25 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 | Menu – Management’s review 4,646 775 13 768 633 640 338 11,119 23.0 57,824 -0.1 64.1 4.7 68.8 14.9 83.7 91.0 -7.3 4.3 2.6 82.4 74.5 90.4 98.3 4,737 546 154 639 564 565 247 11,107 20.5 59,374 -2.4 74.9 -1.2 73.7 15.4 89.1 94.3 -5.2 1.1 8.8 87.7 85.8 94.7 88.2 18,652 3,032 360 3,302 2,547 2,557 1,131 11,119 23.0 57,824 43.7 192.3 29.0 a) 15.8 -1.1 67.8 1.8 69.6 14.6 84.2 90.3 -6.1 3.1 2.4 82.5 79.4 89.8 92.0 19,504 2,496 588 2,993 2,373 2,369 20,314 2,492 585 3,017 2,180 2,208 19,948 1,572 61 1,603 1,148 1,140 970 1,015 944 11,107 21.5 59,374 39.4 187.1 27.0 13.3 -2.7 73.9 -1.8 72.1 15.6 87.7 92.7 -5.0 2.1 3.2 86.0 85.4 91.7 91.2 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 81.3 91.4 95.3 9,007 13.1 60,373 18.9 149.2 6.5 16.8 3.6 79.1 -2.5 76.6 16.6 93.2 97.9 -4.7 2.7 3.6 92.7 89.6 93.6 102.9 18,894 460 550 1,006 741 593 824 8,458 6.6 60,634 9.5 139.5 4.0 21.7 3.9 80.0 1.6 81.6 16.7 98.3 102.7 -4.4 3.8 6.3 97.5 99.0 96.3 105.7 3 Annual report 2014 | Tryg A/S | World-class insurance even quicker and better at launching new products price, the Supervisory Board will propose to the in the coming years. upcoming annual general meeting that the share be split in the ratio 1:5. Efficient risk management Risk management is an essential part of running an Success culture yields results insurance business in relation to both customers In recent years, Tryg has seen many major changes, and shareholders. For this reason, risk management and we appreciate the positive effect they have had constitutes a central element of our strategy, and in on our results. It is also important to emphasise that our day-to-day operations we focus on streamlining this journey has only been possible because of the Our ambition is to make Tryg the world’s best insur- use our strong position to integrate these in and continuously optimising it. The Supervisory hard work that our employees put in every day. We ance company. However, this will only be possible our business. For this reason, acquisitions are Board defines the overall framework for our risk are well on the way to creating the success culture if we have our customers’ support and maintain something that we will continue to focus on in exposure – both in terms of our core business, the that is necessary to ensure that everyone in our our positive financial development. With this end in the coming years. Group’s investments and the overall capital level, organisation contributes to realising our ambitious mind, in 2014 we continued our work to implement which must strike the right balance between risk targets – and we have positive expectations for the a number of important initiatives to strengthen Tryg’s Positive customer experience yields results and rules on the one hand and Tryg’s general targets work to be undertaken in the coming year. We will insurance operations in a permanent way. We have We will step up our efforts to become even better on the other. streamlined our internal processes across the organi- at guiding and servicing our customers. The aim is focus fully on the many initiatives that are to ensure that we will be able to offer a positive customer sation and made structural changes to ensure that for our customers to be so satisfied with our ser- Higher returns for shareholders experience and achieve world-class financial results the machine driving the entire business is geared to vices that they will stay with Tryg, buy more – and It must be attractive to be a shareholder in Tryg – and – and thereby create peace of mind and value for supporting our most important mission – to deliver a recommend us to others. This is the ambition be- we strive to ensure that our increasing returns will customers, employees and shareholders. world-class customer experience. At the same time, hind the many strategic customer initiatives we are also benefit our shareholders. The improved result these initiatives have led to substantial improve- currently working on, and we have set up concrete combined with Tryg’s low investment risk allows us ments in our financial results. The profit for the year and ambitious targets for this work. to offer our shareholders an attractive distribution totalled DKK 2,557m, equivalent to a return on equity while still maintaining a solid capital base. For this of 23.0%, while the combined ratio was 84.2. An important aspect of the customer experience reason, the Supervisory Board proposes a dividend of is that the price customers pay for their insurance DKK 29 per share in accordance with our dividend In 2014, we managed to realise considerable is fair and competitive. For this reason, another policy of distributing 60-90% of the profit for the year savings, which means that we are now close to strategic focus area is that we must become even and having an increasing dividend in nominal terms. achieving our targets for 2015. We have raised the better at developing and pricing products to fulfil bar for 2017, and will strive for further efficiency our customers’ needs and to reflect the individual We also see share buy back as an effective way of improvements of DKK 750m (see page 8). In risk. In 2014 we launched a number of price- increasing value creation for our shareholders. In addition, we will optimise our customer service differentiated products which have been very well 2014, we completed a share buy back programme business procedures. received by our customers. This boosts our sales, of DKK 1bn, and in 2015 we have initiated another reduces our claims ratio and ultimately results in DKK 1bn programme. The share price also reflected In 2014, we acquired three smaller companies more satisfied customers. We expect that our con- the previous year’s value creation with a return of Jørgen Huno Rasmussen Morten Hübbe and portfolios, as we believe that we will be able to tinued focus on this area will enable us to become 36.5%, including dividend. Based on the high share Chairman Group CEO | Menu – Management’s review 4 Annual report 2014 | Tryg A/S | Events in 2014 Share buy back programme initiated On 2 January, Tryg initiated New motorcycle insurance Tryg launched a new motorcycle insurance product in Denmark, where customers are now able to take out separate cover in addition an extraordinary share buy to third-party liability insurance. Another extension option requested back, which was completed by customers is Roadside Assistance. Customers now have the on 19 December 2014. Tryg opportunity to tailor this new insurance far better to their needs. acquired own shares for an amount totalling DKK 1bn. Read more about motorcycle insurance at tryg.dk. The fewest complaints The Insurance Complaints Board published its annual state- ment of com plaints, showing that Tryg once again had the fewest complaints relative to market share within motor, house and contents insurance. Acquisition of pet portfolio Tryg’s branch in Sweden, Moderna, acquired the renewal right for Optimal Djuförsäkring’s portfolio of pet insurance products. Capital Markets Day Tryg held its Capital Markets Day in London, where the Executive Mana gement presented, among other things, new financial targets and customer targets up to 2017. The aim is a return on equity for 2017 of 21% or more, a combined ratio of 87 or less and an expense ratio of 14 or less. The customer targets aim for an increase in the retention rate of 1 percentage point, an increase in the share of customers with three or more products of 5 percentage points and a doubling of the Net Promoter Score (NPS). January February Marts April May June July August September October November December Automatic claims handling Tryg’s Swedish branch, Mod- erna, launched an automatic Moderna, insurance broker of the year For the second year running, Tryg’s branch Tryg’s ‘A-’ maintained The credit rating agency Standard & Poor’s re- Acquisition of Securator Tryg acquired Securator, IT transition Tryg migrated to a new IT thereby further consolidat- platform, and the change to claims handling system. The in Sweden, Moderna, was confirmed Tryg and Tryg ing its position in the Nordic its new IT operations pro- customer registers a claim named insurance broker Garanti’s ‘A-/stable’ rating. countries as a market-lead- vider TCS was implemented online, and the entire claims of the year within the Cor- handling process is perform- porate brokerage business. ing provider of additional successfully. In January, Tryg cover for electronic equip- concluded a five-year agree- Tryg acquired agricultural portfolio Tryg acquired the renewal ed automatically, including claims payment. When the process is completed, it is right to Codan’s agricultural notified with a text message. portfolio of approximately 1,600 smaller agricultural customers. More than 80% of the former Codan customers opted to be covered by Tryg’s insurance products. Three new price-differenti- ated products Tryg launched three new price-differentiated products in Norway: leisure boat, group life and com- pany car insurances. The products were well-received, with high sales rates and improved risk selection. Extended annual travel insurance On 1 August, the new blue EU health insurance card was introduced in Denmark, replacing the old yellow public health card. The blue card does not provide the same cover when travelling in the EU as the yellow card. Tryg extended its annual travel insurance to ‘all inclusive’, offering our customers the same cover as before. Read more about annual travel insurance at tryg.dk. Cloudburst in Copenhagen On 30 August, central Copenhagen was hit by a heavy cloudburst. Approx. 2,300 claims were reported, primarily by business owners. As a result of claims prevention measures, the extent of damage was much less than after the cloudburst in 2011. ment. ment, which will provide better operational reliability and reduce costs. Four new price-differentiated products in Private As part of its price differentiation project, Tryg launched new house, short-term travel, dog and cat insurance policies. Prices are adjusted according to the customer’s risk. Read more about Tryg’s products at tryg.dk. Floods hit Norway On 30 October, the western part of Norway was hit by floods. Tryg received 120 claims, the majority of which were processed in 2014. | Menu – Management’s review 5 Annual report 2014 | Tryg A/S | Targets and strategy employee will be able to resolve and close the financial targets for the period up until 2015. Tryg vast majority of cases. is well on its way to achieving these targets, which Tryg believes that loyal customers and solid finan- new and equally ambitious targets, which were cial results are deeply intertwined. Loyal customers presented in connection with the Capital Markets meant that it was natural to set out a range of have a high retention rate. This means that the Day in November 2014. cost of attracting new customers can be kept low, which contributes to a low expense ratio. Like Tryg strives for a shareholder-friendly dividend Tryg’s efficiency programme, a high retention rate policy, and has in recent years paid out a steadily Our purpose value for customers, employees and shareholders, results and competitive position and reduces the Tryg’s ambition is to create peace of mind and is of value to customers because it strengthens our increasing dividend combined with share buy back. We create peace of mind and value for The Nordic insurance market is characterised customers, employees and shareholders. Tryg’s ambition is to become the world’s best insur- Our employees – our most important resource by consumers and businesses who have largely and this must be at the core of everything we do. need to increase prices. Stable Nordic insurance market ance company. This ambition lies at the heart of all Our employees are our most important resource covered their insurance needs, combined with the strategic measures implemented in Tryg. and will ensure that our vision to become the relatively low economic growth. Profitability in the Our ambition world’s best insurance company becomes a reality. insurance industry is generally high due to the fact To become the world's best insurance company, which will help us meet our targets and employees feel that they have an opportunity to earnings instead of growth. However, competition company. support the company’s ambition. be successful. Clear and ambitious targets must is fierce and intensified in 2014, especially in the Tryg has identified the fundamental values of our An important part of achieving this is that all that the vast majority of the companies focus on Our values Our customers – our most important asset feedback must be provided. market in the form of price portals offering com- Our customers are our most important asset. Tryg parisons of insurance prices. Tryg generally recom- strives to continuously strengthen our customer Tryg wants a higher level of employee satisfaction mends that customers use Tryg’s own website, or be set for each individual employee, and regular Danish market where new players entered the Our values are highly integrated in our relationship through advice, products, concepts, compared to the financial sector in the Nordic alternatively one of the insurance industries’ own culture and consistent with our purpose. claims handling and claims prevention. In 2014, region. Tryg’s employee satisfaction survey 2014 comparison sites, which are not required to pay we focused on customer-oriented initiatives and showed that employee satisfaction had increased the suppliers of the comparison portals. • We meet people with respect, will intensify this focus further in the coming markedly since 2013 and was now on a level with openness and trust. years. Tryg’s target is to offer world-class service the Nordic financial sector. The target is for em- The market situation in Denmark and Norway has • We show initiative, share knowledge in all dealings with our customers. A very import- ployee satisfaction to surpass that of the Nordic been stable for most of 2014. Consumer optimism and take responsibility. ant part of achieving this objective is that our financial sector in 2015. • We deliver solutions based on quality customers’ issues are resolved quickly at all times. in Denmark increased slightly, reflected in increas- ing real estate prices, especially for flats. Unem- and simplicity. This must be evaluated from the customer’s Value creation for our shareholders ployment was stable at a level of around 5%. • We create sustainable results. perspective, and for Tryg this means that we will Tryg’s shareholders must see Tryg as a company Total car sales in 2014 were 3.8% higher than in have to introduce far-reaching changes in our which sets ambitious targets and achieves them. 2013, and characterised in particular by increased internal business procedures so that the first-line In 2012, Tryg presented a number of ambitious sales of small cars. Norway’s economy was also | Menu – Management’s review 6 Annual report 2014 | Tryg A/S | relatively stable with an unemployment rate at erable focus on customers through, among other initiatives planned for 2015 are all a natural exten- Next level pricing around 3.5% and a low interest rate level. Car sales things, the strategic initiative Customer journey sion of the initiatives for 2014. In other words, we Price differentiation was an important initiative in in Norway increased by 1.4% in 2014. Towards the & success culture. Based on the progress realised are building on the foundations laid during the both 2013 and 2014. Up to the end of 2014, more end of the year, the financial situation in Norway in the individual areas and the new activities in previous strategy period. than 20 new price-differentiated products were deteriorated due to a sharp decline in oil prices the pipeline, the financial targets have now been developed, which also shows that the time it takes leading to a drop in the value of the Norwegian upgraded for the period up to 2017. The custom- Strategic initiatives 2014 to develop new products has been significantly krone. This development has reduced expectations er-related targets were established on the basis • Price differentiation reduced, down by almost 50% since 2012. for economic growth and employment with the of the experience gained in connection with the • Customer journey & success culture risk of a recession in Norway in 2015. work throughout the year with Customer journey • Cost and claims reduction At the end of 2014, 75% of the tariffs are assessed & success culture. • IT stability to be on a par with those of our major competitors Targets against less than a third at the start 2013. Tryg has worked hard to realise its targets for 2015, Tryg is looking to offer a customer experience that Strategic initiatives 2015 which were announced in 2012. 2014 saw consid- makes our customers feel they can recommend • Next level pricing The new price-differentiated products proved their Financial targets 2015 the end of 2017. The NPS shows the likelihood • IT stability and digitisation means that our pricing is more correct and better us to others. For this reason, we have set a target • Customer journey & success culture worth, with improved rates of sales to new custom- of doubling the Net Promoter Score (NPS) up to • Leading in efficiency ers and a lower claims ratio. For our customers this • Return on equity of 20% after tax • Combined ratio ≤90 • Expense ratio <15 Financial targets 2017 • Return on equity of ≥21% after tax • Combined ratio ≤87 • Expense ratio ≤14 Customer targets 2017 • NPS + 100% • Retention rate + 1 pp of customers recommending Tryg in general. The NPS for 2014 was 15; however, with considerable variation between the different areas, from -11 in Commercial Norway to 25 in Private Denmark. The target for the end of 2017 is 30. The retention rate is generally high in Tryg. It expresses the extent to which customers will re- select Tryg as their insurance company. However, Tryg wishes to raise the retention rate further by 1 percentage point between now and 2017. Customers with multiple insurance products are generally more satisfied and contribute to profit- reflects the individual risk. How is the NPS defined? The basic principle of the recommendation rate, the Net Promoter Score (NPS)®, is that each customer can be divided into three categories: Promoters, Passives and Detractors. The NPS is based on the fol- lowing question: Would you recommend Tryg to a friend or colleague? The NPS is expressed as a value between -100 and 100. Example: If we ask 100 customers, and we score 9-10 with 50 customers and 1-6 with 40 customers, our NPS will be: 50-40 = 10 ability. For this reason, Tryg is keen to increase the NPS = Promoters share of customers with three or more products by 5 percentage points. 1 2 3 – 4 Detractors 5 6 7 8 9 10 Strategic initiatives Detractors Passives Promoters • Customers ≥3 products + 5 pp Tryg has set up four strategic initiatives to support the financial and customer targets. The strategic | Menu – Management’s review 7 Annual report 2014 | Tryg A/S | In the coming years, Tryg will continue its work Customer journey & success culture more than 4,500 days of teaching, where the focus customers are given wider authority, and that to improve pricing and the use of its own and Customer journey & success culture was a new stra- is on improving our customers’ experience of Tryg. procedures are adjusted to streamline customer external data. Also, we will still be focusing on time tegic initiative in 2014. The objective is to improve Also, in 2015, an executive for customer experi- service. In this way, we aim to ensure that the first- to market. The ambition is to further reduce de- customer experience and thus loyalty by strength- ence is appointed for each of the main business line employee will be able to resolve and close the velopment time to five months, and in connection ening the customer culture within Tryg. areas. with this to update the pricing of the individual case 90% of the time. The target of increasing the number of customers with three or more products products annually. In order to find out more about how customers We performed several NPS surveys of the degree also has a direct bearing on the NPS, as these perceive Tryg, we introduced SMS follow-ups after to which customers recommend the company customers have higher NPS scores. More differentiated pricing will also strengthen the customer contact. In 2014, more than 144,000 in 2014. The results gradually improved over the business areas’ scope for performing segmenta- SMS text messages were sent to request feedback year from 10 in the first surveys to 15 by the end Leading in efficiency tion and subsequent selection. This will be based from customers, and we then followed up on the of 2014, which shows that the initiatives had an The most important initiative to improve results in on a comparison of own data with external data customers’ reactions. The results were generally effect. and then selecting the customers that we believe very satisfactory. To gain a common understanding, 2013 and 2014 was the measures to reduce expens- es and claims. In 2012, we set up an overall target of to be the most profitable. This selection will the Group Executive Management also took their Up to 2017, we will continue to focus on initiatives saving DKK 1,000m by year-end 2015. At the end of reduce the claims level and ensure more efficient turn at calling both satisfied and dissatisfied custom- to improve our customers’ perception of Tryg with 2014, claims costs were down by approximately use of our distribution channels, which will also ers as part of following up on the SMS messages. the aim of achieving a significant increase in the DKK 700m, while expenses had been reduced by have a positive impact on the cost level. Tariffs All dissatisfied customers are contacted in order to NPS. Experience from customer interviews and DKK 250m. This means that savings of approximately must be improved further, and the objective is obtain valuable input to improve customer service. surveys shows that quickly processing a customer DKK 50m are yet to be realised. that, from 2017, Tryg will have tariffs which for enquiry is the most important factor in terms 25% of the portfolio are more advanced than To enhance the internal customer culture, an inter- of giving customers a positive experience. This In November 2014, we set new targets for the those of our major competitors. nal training course was initiated. This has involved requires that the employees engaged in servicing efficiency programme corresponding to a total of 2013 2014 Denmark Contents Camp. Workers’ compensation Travel Holiday home Van Motor- cycle House Cat Dog Short-term travel Building - commercial Norway Workers’ compensation House Illness House- owner Motor Group life Boat Company car Sweden Contents Accident Boat Holiday home DKK 750m by 2017, namely DKK 500m related to the procurement of claims services and administra- tion and DKK 250m related to expenses. With only DKK 50m remaining for the 2015 expense targets, the additional savings to be achieved by 2017 will be DKK 700m, bringing the total target for the two efficiency programmes to DKK 1,700m. Expense reduction will be achieved by a continued focus on outsourcing, improvement of the retention rate and efficiency gains deriving from more efficient customer service, for which the target, as men- tioned above, is for 90% of all customer enquiries to be processed and closed by the first-line employee. | Menu – Management’s review Annual report 2014 | Tryg A/S | 8 Annual report 2014 | Tryg A/S | M&A In 2014, Tryg acquired three smaller com- panies and portfolios, as we will be able to use our strong position to integrate these in our business. This is something that we will continue to focus on in the coming years. Claims reductions will be realised by continuing ture, which will give Tryg a more flexible develop- to streamline procurement of claims services. The ment model and access to new competencies. number of suppliers has been reduced significantly Together, the new agreements will ensure better in recent years, and it is possible to reduce this operational stability, while reducing costs. figure even further, which will contribute to reducing claims. In addition, the use of new process manage- It is important for customers that we are able to ment systems for repairing building damage, in offer a digital service. To accommodate this, Tryg particular, will lead to a reduction in claims, just is continuously developing new solutions to meet as efficiency improvements in staff functions and customer needs. The target for 2017 is that 80% the claims organisation will also make a positive of claim notifications are handled digitally, and that contribution. 50% of all other transactions with customers are effected digitally. This will require the development IT stability and digitisation of an improved digital platform and integrating the IT stability is important for being able to offer our work on digital solutions in Tryg’s culture. customers efficient service in claims handling, sales, service and policy renewal. IT stability was not sat- Corporate Social Responsibility isfactory in 2013, for which reason Tryg launched a In Tryg, Corporate Social Responsibility is an strategic initiative to strengthen this area. As a result, integrated part of our core business which is to an agreement with a new IT operations provider, Tata create peace of mind and value for our customers, Consultancy Services Limited (TCS), was concluded employees and shareholders. This means that Cor- in 2014. This will provide Tryg with a more modern porate Social Responsibility is always taken into IT platform. The change of IT providers in 2014 account in our business decisions, when we im- has been completed, and it was a demanding but prove and develop products and services, optimise successful process. Also in 2014, an IT development our operations and otherwise contribute positively outsourcing agreement was concluded with Accen- to society at large through our activities. Targets – claims procurement 2015-2017 Targets – expenses 2015-2017 DKKm 500 400 300 200 100 0 250 500 150 100 2015 2016 2017 Total target DKKm 250 200 150 100 50 0 125 250 75 50 2015 2016 2017 Total target | Menu – Management’s review 9 Annual report 2014 | Tryg A/S | Financial targets and outlook Financial targets 2015 DKK 250m related to expenses, in the period up hedged in the financial markets. of claims services and administration and kroner and Swedish kronor is continuously to and including 2017. • Return on equity of 20% after tax • Combined ratio ≤90 • Expense ratio <15 Tryg expects that the development in gross large claims are expected to be unchanged at premium income will be slightly negative to DKK 500m and DKK 550m, respectively. In 2015, weather claims net of reinsurance and Financial targets 2017 • Return on equity of ≥21% after tax • Combined ratio ≤87 • Expense ratio ≤14 unchanged in 2015 and on a par with the growth in GDP in 2016. The investment portfolio is generally divided into a match portfolio corresponding to the technical Tryg has a solid reserve position, which was also provisions and a free portfolio. The objective is for confirmed in connection with an external review the return on the match portfolio and changes in by KPMG in 2014. This review has strengthened the technical provisions due to interest changes Tryg's assessment of its reserve position, and it is to be neutral when taken together. therefore deemed likely that the run-off level in the coming years will be higher than that realised in The return on bonds in the free portfolio will vary, previous years. but considering the current interest rate level, a low current return is expected. For shares and We will strive to become even more efficient up to 2017. Tor Magne Lønnum | Group CFO With the results for 2014, we are close to having The interest rate used for discounting Tryg’s tech- property, the expectations are a return of 7% and Denmark, the tax rate was 24.5% in 2014 and will delivered on the 2015 financial targets announced nical provisions is historically low, and we do not 6%, respectively. in 2012. We have raised the bar for the period up expect any significant interest rate increases in the be reduced to 22% up to 2016. The Norwegian tax rate was 27%, while the Swedish rate was 22%. to 2017, and have presented new and ambitious short term. A higher interest rate level will have a Investment activities include other types of invest- financial targets and customer targets. positive effect on Tryg’s results. ment income and expenses, especially the costs When calculating the total tax payable, it should To ensure that we realise these financial targets, Earnings in 2015 foreign currency hedges and interest paid on loans. on shareholdings are not taxed in Norway. All in Tryg is launching a new efficiency programme. The The value of the Norwegian krone fell in 2014, all, this will cause the expected tax payable for an aim is to reduce expenses and claims by a total of which had a negative impact on Tryg’s operating Tax rates have gradually been lowered in Den- average year to be reduced from around 23-24% DKK 750m, DKK 500m related to the procurement profit. The share of equity held in Norwegian mark, Norway and Sweden in recent years. In to 22-23% for 2015. of managing the investments, gains and losses on also be taken into account that gains and losses | Menu – Management’s review Annual report 2014 | Tryg A/S | 10 Annual report 2014 | Tryg A/S | Tryg’s results In 2014, many price-differentiated products were retention rate was improved in 2014, particularly developed, primarily for new customers. However, in the Danish part, but there is a general need to a large part of the portfolio was converted in 2014 boost sales to achieve a positive development of to ensure that all customers have the most up-to- the portfolio. The Swedish business also required date products. This conversion is also contributing significant structural measures within both pricing to making Tryg’s processes more efficient, as old and distribution, which, in combination with the products may be discontinued. It also ensures that termination of the distribution agreement with staff will only have one product to consider in their Nordea, caused the premium income to fall in advisory and claims work. 2014. For Corporate, growth was positive at 1.1% Financial highlights 2014 ratio of 84.2, Tryg once again delivered a The investment return was DKK 360m, and was area, Tryg is prepared for larger fluctuations in With a return on equity of 23.0% and a combined (-2.9%), which is satisfactory. For this business satisfactory result in line with the defined targets especially affected by increasing equity prices, a premium income due to the competitive situation • The profit after tax for the year was of a return on equity of 20% and a combined low interest rate level and a domicile write-down and the focus on having a profitable portfolio. DKK 2,557m (DKK 2,369m). ratio below 90. This result was achieved despite of DKK 106m in Q4 2014. The primary purpose • The return on equity after tax was 23.0% a slightly higher total level of weather claims of the investment business is to support the Bank insurance is an important distribution (21.5%). and large claims in 2014 than in 2013. The insurance business, and the aim is to have a low channel, and Tryg has a sound agreement with • Technical result improved to DKK 3,032m improvement of the technical result was mainly the risk profile. The investment return for 2014 was Nordea on bank insurance in Denmark and (DKK 2,496m). • Combined ratio of 84.2 (87.7). • Premium income reduced by 1.1% (-2.7%). • Claims ratio, net of ceded business, of 69.6 (72.1). • Expense ratio improved to 14.6 (15.6) and 15.3, excluding one-off effects. • Investment return, after transfer to insurance, of DKK 360m (DKK 588m). • Proposed dividend of DKK 29 per share. • Share split in the ratio 1:5 to be approved at the annual general meeting in 2015. • Share buy back of DKK 1bn in 2015. result of Tryg’s efficiency programme, but is also thus higher than what was generally expected. Norway, while Tryg sells to and services Nordea’s attributable to the effect of the many new price- differentiated products launched in recent years. Premiums Liv & Pension customers. In Sweden, Tryg has a distribution agreement with Danske Bank, which Premium income totalled DKK 18,652m has distributed insurance for Tryg on the Swedish 2014 saw intensive work on increasing customer (DKK 19,504m), representing a fall of 1.1% when market since the spring of 2014. loyalty in the different business areas. Together measured in local currencies. The development with the improved products and the targeted in premium income was expected in view of the In 2014, Tryg acquired a number of small selection, this had a positive impact on results. initiatives implemented to improve profitability companies and portfolios, including Securator, in recent years. In 2014, Private saw an improved a market-leading provider of additional cover for The efficiency programme affected results development trend, accounting for about 50% electronic equipment in Denmark. In addition, Tryg positively by DKK 395m, corresponding to of the Group’s premium income. Both the acquired the renewal right for Codan’s agricultural an improvement of the combined ratio by development in the number of customers and portfolio, which has been successfully integrated approximately 2 percentage points. In 2014, the the development in sales for the new price- in Tryg’s agricultural portfolio. Also, Tryg acquired efficiency programme once again made it possible differentiated products, in particular, improved in a small Swedish portfolio within pet insurance. to avoid any major general price increases, and 2014 relative to 2013. The improvements in both These acquisitions have shown that Tryg is capable the prices have largely only been adjusted to 2013 and 2014 were primarily due to efficiency of successfully integrating portfolios and achieving take account of claims inflation. If unsatisfactory improvements and a strengthened customer synergies that support Tryg’s objectives and create development of products or segments is identified, focus, which had a significant positive effect on the value for its shareholders. This is also something selective price measures may of course be taken. development in premium income. Commercial’s that Tryg will focus on in the coming years. | Menu – Management’s review 11 Annual report 2014 | Tryg A/S | Claims price agreements were introduced for a number of reason for this was the many preventative measures Expenses The gross claims ratio was 67.8 (73.9), and the defined standard house and building repairs. At the launched after the cloudburst in 2011. After this The expense ratio was 14.6 (15.6). Adjusted for claims ratio, net of ceded business, which covers end of 2014, Tryg started using the IN4MO system cloudburst, Tryg offered customers an inspection one-off effects related to the Norwegian pension both claims and business ceded as a percentage of for the management of all processes and deliveries of their homes and required them to place their scheme and the change of IT suppliers in Q2 2014, gross premiums, was 69.6 (72.1). The claims level in connection with building claims. This system belongings in basements above floor level. In the expense ratio was 15.3. The improvement of 0.3 is due to a combination of better procurement of will contribute to reducing claims expenses in the addition, in case of repeated claims, Tryg required percentage points was achieved through the ongoing claims services and administration of DKK 282m, coming years, and allows all stakeholders to follow customers to install an anti-flooding device. efficiency programme and should be seen in the light corresponding to 1.5%, and an overall higher level the progress when damage is being repaired, which Moreover, the limit of cover for basement rooms of the expense ratio target of less than 15 in 2015 of weather and large claims of 5.5% (5.3%). The will improve customer experience. was reduced, and a higher excess was introduced. and 14 or less in 2017. run-off level was slightly higher at 6.1% (5.0%), which reflects a solid level of provisions. The gross claims ratio improved to 67.8 (73.9), Tryg has concluded a lateral reinsurance agreement The efficiency programme contributed DKK 113m in which is especially attributable to better running from 1 July 2014 to 30 June 2015. When 2014, corresponding to an impact on the expense The claims measures implemented have first and procurement of claims services and administration the total storm and cloudburst claims expenses ratio of 0.6 percentage points. The initiatives comprised foremost included improved agreements with of DKK 282m, particularly related to purchasing exceed DKK 300m, the agreement will cover the a reduction in the number of employees, particularly car repair shops, but 2014 also saw initiatives agreements within contents insurance, web next DKK 600m. To be covered by the agreement, in the staff functions, but also in the business areas. that have improved the procurement of claims auctions for extensive damage repairs and the a claims event must exceed DKK 20m. Storm and Tryg has generally focused on reducing complexity, services within contents insurance, among introduction of fixed-price agreements for a cloudburst claims amounted to approximately just as the number of offices has been reduced. other things in the form of the agreement with number of house and building repairs. DKK 220m in the second half of 2014, which means Sourcing has also been an im portant initiative in Scalepoint, which benefits both customers and that after another approximately DKK 80m of claims, 2014, which was demonstrated in particular in the Tryg. Customers are offered freedom of choice Tryg’s focused work on claims prevention bore this agreement will provide cover in the first half of change of IT suppliers from CSC to TCS, while IT among claims products, and Tryg has access to fruit when we received several cloudburst claims in 2015. This is one example of how Tryg strives to development was outsourced to Accenture. Sourcing favourable purchasing agreements and updated Q3 2014. The extent of damage was considerably achieve stability in the results of the insurance business. will continue to contribute to reducing the expense prices for similar products, which is particularly lower than in connection with the cloudburst in level in the years to come. In 2014, the number of important in the field of electronics claims. Fixed- the Copenhagen area in July 2011. A significant Large claims amounted to 3.1% in 2014 (2.1%) employees was reduced from 3,703 to 3,599. Weather claims Large claims DKKm 2,000 1,600 1,200 800 400 0 Expected level, net for 2014: DKK 500m 2010 2011 2012 2013 2014 DKKm 1,500 1,200 900 600 300 0 Expected level, net for 2014: DKK 550m and weather claims 2.4% (3.2%). The level of large claims and weather claims was DKK 1,021m, which The expense level is also affected by increases in largely corresponds to the level of DKK 1,050m the payroll tax in Denmark, from 10.9% to 11.4% in which is expected for an average year. 2014. The tax will gradually increase and will stand The run-off level stood at 6.1% (5.0%), which target of an expense ratio of below 15 in 2015 and of at 12.3% in 2021. However, this will not affect Tryg’s underlines Tryg’s solid provisions coverage, as was 14 or less in 2017. announced on the Capital Markets Day in November 2014. The run-off gain was highest in Corporate, Profit/loss on discontinued business 2010 2011 2012 2013 2014 because the share of long-term business in the form The profit on discontinued business was DKK 10m Gross Net Gross Net of workers’ compensation, in particular, is larger in 2014, and comprised gains on provisions, than for the other business areas. primarily relating to the marine run-off business. | Menu – Management’s review 12 Annual report 2014 | Tryg A/S | Investment return of the Norwegian and Swedish currencies. Foreign included in the capital adequacy calculation. Results for Q4 2014 The investment return was DKK 360m (DKK 588m) currency hedging is aligned with Tryg’s objective of Tryg’s capital adequacy calculation includes about The profit after tax totalled DKK 640m for Q4 2014 in 2014. Tryg’s investment portfolio is divided into having a generally low risk profile. NOK 1.2bn from the Norwegian Natural Perils Pool (DKK 565m) based on a technical result of DKK 775m a match portfolio and a free portfolio. and the Norwegian guarantee scheme after tax. This (DKK 546m), an improvement of 42%. The investment Tax matter has not been clarified further in Q4 2014. return was DKK 13m (DKK 154m), and this was The match portfolio totalled DKK 29.5bn, Tax on profit for the year totalled DKK 755m, affected by a write-down of DKK 106m relating to the and was made up of bonds which match the or 23% of the profit before tax. In 2014, Tryg In relation to Solvency II, final clarification of the domicile in Ballerup. The combined ratio was 83.7 insurance provisions so that fluctuations resulting paid DKK 512m in income tax as well as various expected future profit and the future recognition of (89.1), and was only slightly impacted by weather from interest rate changes are offset to the payroll taxes totalling DKK 332m, making the total subordinate loan capital is still pending; this will have claims, which stood at 2.6 (8.8). The large claims greatest possible extent. The free portfolio is a payment DKK 844m in 2014. a positive impact on Tryg’s capital. The final Solvency level was 4.3 (1.1) and was affected by a higher large diversified portfolio of real estate, equities and II rules will take effect from 1 January 2016. claims level in both Commercial and Corporate. At bonds which largely reflect the company’s total Capital position equity. At 31 December 2014, the value of the Tryg’s equity totalled DKK 11,119m (DKK 11,107m) Dividend policy free portfolio totalled DKK 12.4bn. The return on at the end of 2014. Tryg determines the individual According to Tryg’s dividend policy, the aim is 7.3 (5.2), the run-off level was considerably higher, which reflects Tryg’s solid level of provisions. the match portfolio was DKK 181m (DKK 40m) solvency requirement according to the Danish to pay out 60-90% of the profit for the year, and The premium level in local currencies fell by 0.1% after transfer to insurance technical interest. Financial Supervisory Authority’s guidelines. The for the dividend to be steadily increasing. For (-2.4%) and was affected by premiums relating to individual solvency requirement was DKK 6,560m 2014, a dividend of DKK 29 (DKK 27) per share is Securator of DKK 24m. The return on the free investment portfolio at the end of 2014, and is measured based on the proposed, corresponding to a total of DKK 1,731m was DKK 548m (DKK 891m). The return was adequate capital base, which amounted to (DKK 1,656m), which amounts to 68% of the profit impacted by price increases for equities, in DKK 9,938m. After recognition of a share buy for the year. particular. The return on the equity portfolio back, Tryg’s surplus cover is DKK 3,378m, Financial highlights Q4 2014 was positive at 10.0%. Bonds produced a corresponding to 51%. In 2014, a share buy back of DKK 1bn was • Profit after tax of DKK 640m return of 2.1% and, for high-yield and emerging completed, and on the Capital Markets Day on 5 (DKK 565m). market bonds in particular, there was a high In Q2 2014, the Danish Financial Supervisory November, Tryg announced that from 2 January • Technical result of DKK 775m return in 2014. Authority performed an ordinary inspection. The 2015 and throughout the year, an additional share (DKK 546m). Other financial income and expenses were opinion on risk management, reserve and capital negative (net) by DKK 369m, partly due to the position. Events after the balance sheet inspection confirmed the authority’s favourable buy back of DKK 1bn will be initiated. • Combined ratio of 83.7 (89.1). • Weather claims impacted the combined ratio by 2.6 percentage points (8.8). usual interest expenses relating to subordinate In the opinion of Management, from the balance • Large claims impacted the combined loans, foreign currency hedging and expenses for On 19 June 2014, the Financial Supervisory sheet date to the present date no other matters investment activities, and partly due to a write- Authority of Norway made an announcement of major significance have arisen that are likely down of owner-occupied property of DKK 106m. concerning issues associated with Solvency II. In the to materially influence the assessment of the announcement, the Financial Supervisory Authority company’s financial position. Gains on foreign currency hedges relating to of Norway estimates that the Norwegian Natural equity and intercompany balances stood at Perils Pool and the Norwegian guarantee scheme in approximately DKK 260m due to a fall in the price their current form should only to a limited extent be ratio by 4.3 percentage points (1.1). • Expense ratio of 14.9 (15.4). • The investment return was DKK 13m (DKK 154m), and was affected by a write-down of DKK 106m relating to the domicile in Ballerup. | Menu – Management’s review 13 Annual report 2014 | Tryg A/S | Private in line with inflation, this meant that the retention rate was high. The increased customer focus in combination with improved price-differentiated products and selection had a positive impact on the development in sales in both Denmark and Norway. The improved price-differentiated products in combination with improved selection have made Tryg more attractive to profitable customers, which will also result in a slight increase in premiums. Private encompasses the sale of insurance Results products to private individuals in Denmark and The technical result for 2014 was DKK 1,612m The development in premium income in Denmark Norway. Sales are effected via call centres, the (DKK 1,335m), with a combined ratio of 82.5 is still affected by the sale of small cars which Internet, Tryg’s own agents, franchisees (Norway), (86.0). The improvement was achieved mainly generally have more safety features. This leads interest organisations, car dealers, estate agents through Tryg’s efficiency programme, but there to a reduction in both premiums and claims. In and Nordea’s branches. The business area was also a positive impact from the many new addition, competition on the Danish car market accounts for 49% of the Group’s total premium price-differentiated products in combination with Emphasis was on customer focus, and this will be intensified further in the coming years. Lars Bonde | Group Executive Vice President, Private income. Financial highlights 2014 • Technical result improved by DKK 277m to DKK 1,612m (DKK 1,335m). • Combined ratio improved by 3.5 percentage points to 82.5 (86.0). • Gross premiums in local currencies were unchanged (-2.2%). • Significant reduction of the expense ratio to 14.5 (15.1). | Menu – Management’s review improved selection. The improved profitability, which resulted from better pricing and selection, meant that only limited extraordinary price increases were implemented in 2014. Also, the claims level was positively affected by a lower level of weather claims and a considerably higher run-off level than in 2013. The expense ratio was reduced considerably from 15.1 to 14.5, which was achieved concurrently with a largely unchanged premium income. Premiums The development in gross premium income was significantly improved in 2014. Premium income was maintained, while 2013 saw a reduction of 2.2% in local currencies. The improved development was expected, and is the result of many years of focusing on improving profitability. In 2014, significant efforts were directed at improving customers’ perception of Tryg, and combined with the fact that the prices were only increased Key figures – Private DKKm Q4 2014 Q4 2013 Gross premium income Gross claims Gross expenses 2,249 -1,468 -337 2,290 -1,731 -334 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 (%) 444 -48 4 400 47 -0.2 65.3 2.1 67.4 15.0 82.4 84.5 -2.1 0.0 2.6 225 57 4 286 72 -1.7 75.6 -2.5 73.1 14.6 87.7 90.8 -3.1 0.4 8.0 2014 9,051 -6,129 -1,311 1,611 -23 24 1,612 357 0.0 67.7 0.3 68.0 14.5 82.5 86.4 -3.9 0.1 2.5 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 14 Annual report 2014 | Tryg A/S | in particular was more intense, which resulted in 15.3. The nominal expenses were considerably a reduction of the premium level for the market reduced as a result of a reduction in staff costs as as a whole. In that connection, Tryg has been able part of the efficiency programme and continued to capitalise on the enhanced competitiveness optimisation of the distribution costs, in particular. achieved through the efficiency programme. The number of employees was reduced from The reduction in premium income in Private in 923 at the end of 2013 to 903 in 2014, reflecting Denmark was 1.4% (-3.8%). an increase in distribution and a reduction in administration. Developments in Norway were affected by competition from small market players, while the new price-differentiated products and improved selection also had a positive impact. Growth in Private in Norway was 1.5% (-0.3%), and generally developed positively throughout the year. Claims The gross claims ratio amounted to 67.7 (70.4), and the claims ratio, net of ceded business, was 68.0 (70.9). The underlying improvement amounted to 1.6 percentage points, and is attributable in particular to the efficiency programme implemented Financial highlights Q4 2014 • Technical result of DKK 400m (DKK 286m). • Combined ratio of 82.4 (87.7). • Claims ratio, net of ceded business, of 67.4 (73.1). • Expense ratio of 15.0 (14.6). as well as the initial effects of the price differentiation Results for Q4 2014 and improved selection. The level of weather claims The technical result totalled DKK 400m (DKK 286m) was largely unchanged, with a higher level in the and was positively affected by a low level of first three quarters and a considerably lower level weather claims. In addition, the run-off gains in Q4 relative to 2013. The expenses for weather were at a lower level at 2.1 (3.1), and, all in all, the claims amounted to 2.5 (3.2). Run-off gains/losses results were positively affected by the efficiency Peace of mind on holiday In 2014, public health insurance cover was reduced for travel in Europe. With Tryg’s annual travel insurance, our customers can still feel safe while on holiday. improved the combined ratio by 3.9 (3.3) and were programme. The combined ratio was 82.4 (87.7) When Jan Koch’s father had a stroke in Without his travel insurance, Jan Koch’s thus slightly higher than in 2013. in Q4 2014. Gross premiums were reduced by Spain last August, Tryg’s annual travel insur- father would have had to be treated in a Expenses 0.2% (-1.7%). The retention rate in Denmark was increased to 89.6 (89.2), while the retention rate ance covered the expenses for his stay in a public hospital in Spain and pay for his treat- private hospital and home transport, and ment. “My advice is that everyone should The expense ratio was 14.5 (15.1). The expense in Norway was 87.0 (87.2). The gross claims ratio the Danish emergency call centre provided take out travel insurance. It provides peace level was affected by the one-off effects of the was 65.3 (75.6), and the claims ratio, net of ceded extra peace of mind. “I felt safe knowing that of mind now that the yellow health card no Norwegian pension scheme and the change of IT business, was 67.4 (73.1). The expense ratio was my father was in good hands, and I received longer covers,” says Jan Koch. Read suppliers. Adjusted for this, the expense ratio was 15.0 (14.6). regular updates on the situation from a more about Tryg’s annual travel insurance dedicated contact at Tryg,” says Jan Koch. at tryg.dk. | Menu – Management’s review Annual report 2014 | Tryg A/S | 15 Commercial the important measures implemented in previous years as well as the fact that the smaller Danish companies are still struggling financially. The growth in the Norwegian business has been achieved through, among other things, a significant increase in sales from the franchise distribution channel, which is attributable to a number of factors, including sales and service Commercial encompasses the sale of insurance This shows that the efforts to improve the results training for commercial products. The change products to small and medium-sized businesses in in Commercial have borne fruit, and that the area in the setup of Commercial and Corporate led Denmark and Norway. Sales are effected by Tryg’s contributes positively to achieving the Group’s to an increase in premiums of approximately own sales force, brokers, franchisees (Norway), objectives. The improvement in results was DKK 900m. The new additions have now been fully customer centres as well as through group agree- achieved through both the efficiency programme integrated and included in Commercial’s service ments. The business area accounts for 23% of and the impact of previous profitability measures. concepts. Similarly, the acquisition of the renewal Integration of customers from Cor- porate and an acquired agricultural portfolio were important focus areas. Trond Bøe Svestad | Group Executive Vice President, Commercial the Group’s total premium income. In addition, new price-differentiated products were Results introduced in Commercial. These increased the rate of sales and reduced the need for discounts to In 2014, Commercial continued its positive adjust the price based on the risk. development and improved the results significantly Key figures – Commercial DKKm Q4 2014 Q4 2013 relative to 2013. The technical result was improved It has been very important to reduce the expense to DKK 875m (DKK 654m), with a combined ratio level to improve the competitive situation. Against Gross premium income Gross claims Gross expenses of 79.4 (85.4). Financial highlights 2014 this background, it is very satisfactory that the expense ratio has been reduced to 15.8 (18.6), which was achieved concurrently with a reduction of the premium level. Adjusted for one-off effects related to the Norwegian pension scheme and the change of IT suppliers, the expense ratio was 16.9. • Technical result of DKK 875m Premiums (DKK 654m). • Combined ratio of 79.4 (85.4). • • Gross premiums reduced by 3.0% (-2.9%). Significant improvement of the expense ratio to 15.8 (18.6). A combined fall in premium income of 3.0% (-2.9%) was realised, when measured in local currencies. The largely unchanged development comprised a reduction in the Danish business of 4.5% and growth in the Norwegian business of 0.6%. The reduction in Denmark is attributable to 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 (%) 1,050 -580 -164 306 -39 3 270 126 -1.8 55.2 3.7 58.9 15.6 74.5 86.5 -12.0 4.2 2.6 1,080 -797 -193 90 64 3 157 76 -1.2 73.8 -5.9 67.9 17.9 85.8 92.8 -7.0 0.3 15.7 | Menu – Management’s review 2014 4,190 -2,673 -664 853 8 14 875 310 -3.0 63.8 -0.2 63.6 15.8 79.4 86.8 -7.4 4.3 1.9 2013 4,411 -2,978 -820 613 29 12 654 265 -2.9 67.5 -0.7 66.8 18.6 85.4 91.4 -6.0 4.5 4.5 16 Annual report 2014 | Tryg A/S | right for Codan’s agricultural portfolio progressed structure and synergies in connection with the very satisfactorily with considerable positive integration of the business transferred from support and full integration in Commercial. Corporate. Reducing the expense level will continue to be an important focus area for Commercial in the The retention rate improved significantly to 87.0 coming years, which will contribute to improving (86.1) in 2014 in the Danish part of Commercial, competitiveness and supporting the Group’s while the Norwegian part saw a small improve- expense ratio reduction target. ment to 87.8 (87.6). For Commercial, improving sales is thus the most important factor for improving premium development. Claims The gross claims ratio amounted to 63.8 (67.5), and the claims ratio, net of ceded business, was 63.6 (66.8). The low level is attributable to both the historic profitability measures, the implementation of price-differentiated products and the efficiency Financial highlights Q4 2014 • Technical result of DKK 270m (DKK 157m). • Combined ratio of 74.5 (85.8). • Claims ratio, net of ceded business, of 58.9 (67.9). • Expense ratio of 15.6 (17.9). programme. The level of weather claims was 1.9 Results for Q4 2014 (4.5), and was positively affected by mild winter A technical result of DKK 270m (DKK 157m) was weather in Q4 in both Denmark and Norway. posted, and this was primarily affected by milder weather in Q4, a high level of large claims and a At 4.3 (4.5), the level of large claims was largely high level of run-off gains. unchanged relative to 2013, while the run-off level was somewhat higher at 7.4 (6.0). The combined ratio was 74.5 (85.8), and was Back to work in no time Anja Holt’s claim was processed smoothly and quickly, which meant that she was able to get back to work soon after suffering a slipped disc. affected by the lower level of weather claims, a When Anja Holt suffered a slipped disc, her ensured that she was able to get back to Expenses higher level of large claims and a high run-off level. Norwegian employer’s treatment insurance work quickly. In addition to easing Anja’s dis- The expense ratio was 15.8 (18.6), and adjusted with Tryg provided cover. “I was treated by comfort, the short treatment time minimised for one-off effects related to the Norwegian Gross premiums fell by 1.8% (-1.2%) in Q4, which the best experts, which ensured that I was the loss suffered by her employer. “The time pension scheme and the change of IT suppliers, was a positive development relative to 2014 as a quickly back on my feet,” says Anja Holt. from reporting the injury to the operating the expense ratio was 16.9. This development is whole. The retention rate in Denmark was 87.0 table was very short, and I was back at work very satisfactory and was achieved by means of the (86.1), while it was 87.8 (87.6) in Norway. The The treatment insurance guarantees short after only six weeks. This meant that my efficiency programme and structural adjustments gross claims ratio was 55.2 (73.8), the claims ratio, treatment times and covers, among other employer did not have to manage without in the Commercial organisation. This comprises, net of ceded business, was 58.9 (67.9), and the things, costs relating to diagnosis, surgery me for long,” says Anja Holt. among other things, changes in the distribution expense ratio was 15.6 (17.9). and rehabilitation. For Anja, the insurance | Menu – Management’s review Annual report 2014 | Tryg A/S | 17 Corporate when large customers are added to or removed from the portfolio. As part of the change in the setup of Corporate and Commercial, small customers with a total premium of approximately DKK 900m were moved. Against this background, Corporate has been able to continue its work on developing focused advisory concepts for large customers Corporate sells insurance products to corporate 2013 in total. Adjusted for this, the underlying in a more targeted way. customers under the brand ‘Tryg’ in Denmark and development in results was positive; among other Norway, ‘Moderna’ in Sweden and ‘Tryg Garanti’. things due to a lower level of medium-sized claims. Claims Sales are effected both via Tryg’s own sales force The gross claims ratio amounted to 71.2 (88.0), and via insurance brokers. Moreover, customers with The Corporate portfolio comprises a higher share and the claims ratio, net of ceded business, was international insurance needs are served by Corporate of long-tailed business than the other areas, for 78.7 (79.9). Adjusted for run-off level, weather The focus was on implementing a new organisation and enhanced concepts for international customers. Truls Holm Olsen | Group Executive Vice President, Corporate through its cooperation with the AXA Group. The which reason the capital requirement is higher. business area accounts for 21% of the Group’s total For this reason, Corporate should have a lower premium income. Results combined ratio over time than the other business areas to contribute to Tryg’s financial targets. Key figures – Corporate DKKm Q4 2014 Q4 2013 The technical result improved to DKK 427m Premiums (DKK 358m), and the combined ratio amounted to As a matter of course, the Corporate market 89.8 (91.7). The result was affected by a significantly comprises large single customers. As the market is higher overall level of large claims and weather also highly competitive, focus in Corporate will be claims, approximately DKK 200m higher than in on maintaining profitability, which means that the Financial highlights 2014 • Technical result of DKK 427m (DKK 358m). • Combined ratio of 89.8 (91.7). • Increase in gross premiums of 1.1% (-2.9%). • Expense ratio of 11.1 (11.8). | Menu – Management’s review premium income will fluctuate more than for the other business areas. In 2014, premium income increased by 1.1% (-2.9%). This is especially attributable to the Swedish part of Corporate, which is still being built up with a focus on profitability. In Sweden, growth amounted to 8.6%, and growth was positive at 0.8% for the Danish part and negative at 0.8% for the Norwegian part. The development in Denmark and Norway is attributable to normal fluctuations 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 (%) 1,015 -682 -108 225 -128 1 98 162 1.5 67.2 12.6 79.8 10.6 90.4 106.4 -16.0 15.4 2.9 1,025 -769 -124 132 -78 5 59 77 -2.1 75.0 7.6 82.6 12.1 94.7 102.2 -7.5 3.6 5.5 2014 4,033 -2,872 -446 715 -304 16 427 421 1.1 71.2 7.5 78.7 11.1 89.8 100.2 -10.4 9.4 3.0 2013 4,158 -3,661 -490 7 338 13 358 375 -2.9 88.0 -8.1 79.9 11.8 91.7 100.7 -9.0 4.7 2.5 18 Annual report 2014 | Tryg A/S | claims and large claims, the claims ratio, net of ceded business, was significantly better than in 2013, which underlines the profitability focus in Corporate. However, at the same time, it Financial highlights Q4 2014 • Technical result of DKK 98m (DKK 59m). must be concluded that the claims level for the • Combined ratio of 90.4 (94.7). Swedish part was less satisfactory towards the • Claims ratio, net of ceded business, of end of the year. 79.8 (82.6). • Expense ratio of 10.6 (12.1). Providing advice on risks is an integral part of Corporate’s advisory concept, and this has been extended further in recent years, which has had a positive impact on the claims level. Results for Q4 2014 Expenses The technical result was DKK 98m (DKK 59m), and the combined ratio was 90.4 (94.7). The The expense ratio was 11.1 (11.8), and adjusted improved result is especially attributable to the for one-off effects related to the Norwegian claims level, but also to a significantly lower pension scheme and IT operating expenses, expense level. the expense ratio was 11.6. Gross premiums rose by 1.5% (-2.1%) in Q4, The development in the expense level is almost corresponding to the level for the full year. satisfactory viewed in the context of the efforts The claims level was 67.2 (75.0), and the claims to improve competitiveness and the financial ratio, net of ceded business, was 79.8 (82.6) and results. The coming years will see a focus on was affected by both a high level of large claims streamlining the handling of large customers even and a high run-off level. more and reducing the expense level further. The number of employees was reduced from 365 improvement, adjusted for run-off, large claims at the end of 2013 to 279 at the end of 2014. Of and weather claims. The expense ratio was this, approximately 60 positions were moved in 10.6 (12.1), which was a satisfactory low level, Also, the claims ratio reflected a good underlying Tryg and Tivoli prevent cloudburst damage After the cloudburst in Copenhagen in 2011, Tivoli suffered a double-digit million kroner loss. The preventive measures proved their worth when a cloudburst hit again in 2014. During the cloudburst in August 2014, twice “After the cloudburst in 2011, we teamed connection with the new division of Corporate underlining Corporate’s focus on having a as much rain fell on Copenhagen as in the up with Tryg to prepare an emergency plan and Commercial. competitive expense level. cloudburst in July 2011. Nevertheless, Tivoli’s and implement preventive measures to loss was only one third of that suffered in 2011, ensure that we are fully prepared for such which was the result of preventive measures cloudbursts,” says Mogens Ramsløv, Vice initiated by Tivoli and Tryg that year. President of Tivoli. | Menu – Management’s review | Menu – Management’s review 19 Annual report 2014 | Tryg A/S | Sweden including ICA and Villaägerne (The house owners) in Sweden, to ensure profitability. This development was countered through the continued development of the cooperation with Danske Bank and the acquisition of the company Securator, which is a market-leading provider of extended guarantee insurance for electronic equipment in Denmark, as well as the acquisition of a small portfolio within insurance for pets. Sweden comprises the sale of insurance products in 2013, and was achieved in a year which saw to private customers under the ‘Moderna’ brand. an expected gradual reduction of the Nordea Towards the end of the year, it could be con- Moreover, insurance is sold under the brands portfolio as a result of terminating the partner cluded that the level of sales was now generally Atlantica, Bilsport & MC, Securator and Moderna agreement in Sweden. In 2014, the cooperation higher than before the agreement with Nordea Djurförsäkringar. Sales are effected via Tryg’s own with Danske Bank in Sweden was gradually was terminated. This was achieved through the salespeople, call centres and the Internet. The expanded, and new, small portfolios were establishment of one call centre in Malmö. business area accounts for 7% of the Group’s total acquired. In addition, the important agreement Cross-selling, automatic claims handling and the integration of Securator were focus areas. Per Fornander | Group Executive Vice President, Sweden premium income. Results with Elkjöp on product insurance distribution has been extended. At the same time, significant structural measures were also implemented in The results of this business area have improved 2014 with regard to distribution, as a result of significantly in recent years. The combined which the call centre in Luleå was closed, with ratio for 2014 was largely at the same level as only one call centre remaining based in Malmö. Financial highlights 2014 The technical result was DKK 118m (DKK 149m). This was achieved through a continued focus on profitability within the broad private market and the usual sound results in the niche areas comprising leisure boats, motorcycles and • Technical result of DKK 118m (DKK product insurance. 149m). • Combined ratio of 92.0 (91.2). • Gross premiums reduced by 7.4% (-4.9%) as a result of the termination of the agreement with Nordea. • Expense ratio of 19.2 (17.6). | Menu – Management’s review Premiums Premium income was reduced by 7.4% (-4.9%). This reduction was primarily due to the mentioned termination of the partner agreement with Nordea, just as the number of partner agreements in general was reduced, Key figures – Sweden DKKm Q4 2014 Q4 2013 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 (%) 338 -252 -75 11 -5 1 7 3 1.6 74.6 1.5 76.1 22.2 98.3 99.2 -0.9 1.5 348 -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 2014 1,399 -998 -268 133 -21 6 118 43 -7.4 71.3 1.5 72.8 19.2 92.0 95.1 -3.1 1.5 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 20 Annual report 2014 | Tryg A/S | Claims The gross claims ratio amounted to 71.3 (74.2), and the claims ratio, net of ceded business, was 72.8 (73.6). The largely unchanged claims ratio, net of Financial highlights Q4 2014 • Technical result of DKK 7m (DKK 44m). ceded business, is satisfactory and positively affected • Combined ratio of 98.3 (88.2). by the gradual reduction of the Nordea portfolio, while it is negatively affected by a few mid-sized • Claims ratio, net of ceded business, of 76.1 (68.9). claims and an increasing claims frequency within • Expense ratio of 22.2 (19.3). contents insurance. Claims handling in Moderna is characterised by a high degree of efficiency, and the introduction of automatic claims handling without claims handlers continues. The claims handling is telemarketing in Malmö was completed in 2014, determined by the type of claim, the customer’s which means that the corresponding function in claims history and a number of other factors. Tryg Luleå has now finally been closed. sees great potential in this kind of claims handling for the Group as a whole. This is also a very efficient form Results for Q4 2014 of claims handling for customers, as a large portion The technical result was DKK 7m (DKK 44m), of claims are registered and finalised on the same and the combined ratio was 98.3 (88.2). day, which results in high customer satisfaction and a positive effect on the claims level. Gross premiums increased by 1.6% in Q4 and were positively affected by the inclusion of the premium Run-off amounted to 3.1% (1.3%), which reflects income from Securator. Securator accounted for that the Swedish part of the business has now also DKK 24m in Q4. built a solid reserve position. Expenses The claims ratio was 74.6 (71.8), and the claims ratio, net of ceded business, was 76.1 (68.9). The The expense ratio was 19.2 (17.6), or 18.8 higher claims ratio compared to the same period in excluding one-off effects. The higher expense level 2013 is attributable to a lower level of run-off gains is related to the reduction in premium income. and the run-off gains achieved in Q4 2013 on the It was expected that the expense ratio would provisions made during the year. increase, as it was not possible to adapt to a considerably lower premium level in the short term. The expense ratio was 22.2 (19.3), and the number of Accordingly, in the coming years, initiatives will be employees was increased from 356 to 382. Excluding implemented to ensure a reduction in expenses. employees associated with the portfolios acquired, The centralisation of customer service and the number of employees was reduced by 22. | Menu – Management’s review Annual report 2014 | Tryg A/S | 21 Investment activities Key figures – investments DKKm Q4 2014 Q4 2013 2014 2013 Free portfolio, gross return Match portfolio, regulatory deviation and performance Other financial income and expenses Total investment return 154 39 -180 13 283 38 -167 154 548 181 -369 360 891 40 -343 588 The purpose of the investment activities is At 31 December 2014, the investment portfolio and intercompany balances, equity in 2014 would demonstrations in Hong Kong and the new primarily to support the insurance business totalled DKK 41.9bn. The investment portfolio is be approximately DKK 260m lower. tensions in the Middle East. by minimising the impact of interest and divided into a match portfolio and a free portfolio exchange rate fluctuations and by managing of DKK 29.5bn and DKK 12.4bn, respectively. Financial markets in 2014 Investment return 2014 the investments in the best possible way while The sole purpose of the match port-folio is to Activity in the global economy gradually gained The investment return was affected by both taking account of market risk and capital use. hedge fluctuations in the discounting of insurance momentum in the course of 2014, especially in positive equity and credit markets and falling provisions and thus reduce the interest rate risk the USA and the UK. However, growth in Europe interest rates as well as good performance. attaching to Tryg’s claims provisions. In addition was a little more restrained, while the Chinese The return on the free portfolio was DKK 548m, to transferring the change in the value of the and Japanese economies also slowed down. The while the return on the match portfolio was commitments, the match portfolio will also central banks also had a bearing on the agenda DKK 181m. After financial income and expenses provide interest on the provisions to transfer in 2014. While the American central bank cut of DKK -369m, the total investment return insurance technical interest. The free investment back its monetary easing by reducing its monthly amounted to DKK 360m. portfolio generally corresponds to equity and is acquisition of bonds, the European central bank invested in bonds, real estate and equities. eased its monetary policy on several occasions The result of the match portfolio comprises to boost the economy. In the Nordic countries, performance of DKK 104m and a regulatory Another purpose of the investment activities is to the Norwegian central bank’s interest rate cut deviation of DKK 77m. The positive performance Financial highlights 2014 This is done by means of hedging, which in terms driven by the marked fall in oil prices. The doing well relative to the local market. reduce the impact of exchange rate fluctuations. was particularly noteworthy, and was primarily was primarily due to the selected local bonds of expenses is included under other financial general impression of 2014 is a global economy • Investment return of DKK 360m income and expenses. with historically low inflation, interest rates and The regulatory deviation is explained by the fact (DKK 588m). commodity prices plus growth which is still low that the commitments are primarily calculated on • Return on match portfolio of DKK 181m Hedging covers the currency risk in the Norwegian and which is primarily being driven by America. the basis of euro swaps, while hedging is local. The (DKK 40m). • Gross return on free portfolio of DKK 548m (DKK 891m). and Swedish branches, and especially towards difference between euro swaps and Norwegian the end of 2014, it protected against fluctuations The uncertainty in the financial markets has swaps, in particular, explains most of the regulatory due to a significant drop in the Norwegian krone. primarily been due to one-off events such deviation. The interest rate difference between, for Without this hedging, which relates to Tryg's equity as Russia’s annexation of the Crimea, the example, the two-year European and Norwegian | Menu – Management’s review 22 Annual report 2014 | Tryg A/S | Return – match portfolio DKKm Return, match portfolio Value adjustments, changed discount rate Transferred to insurance technical interest Match, regulatory deviation and performance Hereof: Match, regulatory deviation Match, performance Return Q4 2014 340 -217 -84 39 31 8 Return 2014 1,336 -741 -414 181 77 104 Investment activities in Q4 2014 The gross return on Tryg’s free investment portfolio in Q4 was DKK 154m. The return on Financial highlights Q4 2014 the bond portfolio was DKK 29m for the quarter, • Investment return of DKK 13m while the equity portfolio contributed a return of (DKK 154m). DKK 75m. The return on the real estate portfolio • Return on match portfolio of DKK 39m was DKK 50m. (DKK 38m). • Return on free portfolio of DKK 154m The match portfolio yielded a positive regulatory (DKK 283m). deviation of DKK 31m in Q4 2014 after transfer to • Write-down of owner-occupied property insurance, while the result of match performance of DKK 106m. was DKK 8m. swap rates is now only 1 percentage point, which is number of elements, of which the largest are the the lowest level since 2009. expense relating to Tryg’s hedging of the currency After other financial income and expenses of risk of DKK 95m, as mentioned above, and the DKK 180m, the total return on Tryg’s investment In addition, the development in the financial expenses relating to Tryg’s subordinate loan of activities was DKK 13m in Q4. markets resulted in positive returns on equities, DKK 90m. The value of Tryg’s domicile in Ballerup credit exposure and the bond position in the was wrote down by DKK 106m. free portfolio. The return was DKK 548m, corresponding to 4.4% on the average invested capital for the period. The return on Tryg’s equity portfolio was DKK 250m, or 10.0%. The reduction Return – free portfolio of the interest rate level in 2014 combined with the DKKm positive return on high-yield bonds and emerging market bonds resulted in a return of DKK 168m, or 2.1%. Real estate investments contributed positively with DKK 130m. The value of the properties in Norway increased slightly, while the situation is largely unchanged in Denmark. Other financial income and expenses Other financial income and expenses totalled Government bonds Covered bonds Emerging market bonds High-yield bonds Other a) Interest rate and credit exposure Equity exposure Investment property Total gross return Return Q4 2014 Return (%) Q4 2014 Return 2014 Return (%) 2014 Investment assets 31.12.2014 31.12.2013 9 24 -3 4 -5 29 75 50 154 3.3 0.5 -0.6 0.5 -0.5 0.4 3.2 2.4 1.2 15 78 23 35 17 168 250 130 548 4.7 1.6 5.9 5.2 1.4 2.1 10.0 6.4 4.4 279 5,188 410 910 1,085 7,872 2,470 2,099 501 4,736 387 802 1,944 8,370 2,966 2,022 12,441 13,358 DKK -369m in 2014. This item comprises a a) Bank deposits and derivative financial instruments hedging interest rate risk and credit risk. | Menu – Management’s review 23 Annual report 2014 | Tryg A/S | Capital and risk management The main concept of insurance is that of spreading limits, Tryg’s risk will depend on the company’s risk. By pooling risks from a large number of cus- choice of exposure within different segments and tomers, an insurance company’s risks are spread industries in the insurance market. more evenly and are also more predictable, there- by reducing the capital required to cover negative Another example of the operationalisation of risk ap- fluctuations. The assessment and management of petite is the management of the investment risk via Tryg’s aggregate risk and the associated capital re- exposure limits within different asset classes (shares quirements therefore constitute a central element and property etc.) and the management of the total in the management of an insurance company. interest risk via Tryg’s match strategy. This prescribes that Tryg’s investment assets corresponding to the Risk profile and appetite technical provisions must be invested in interest- Tryg’s Supervisory Board defines the framework for bearing assets, the interest rate sensitivity of which the company’s target risk appetite and thereby also precisely matches and thereby hedges the interest the capital which must be available to cover any rate sensitivity of the discounted provisions. losses. The risk appetite is described in Tryg’s pol- icies via exposure limits for different types of risk. Good risk management requires, among other things, the ongoing identification and quantifi- The fundamental insurance risk is managed via cation of risk factors, subsequent reduction of limits for the size of single large commitments and undesired risks and the reporting of the whole risk via the use of reinsurance, thereby limiting the scenario. The quantification consists, among other maximum cost of large claims, expenses due to a things, of a calculation of the capital requirements storm, cloudburst or other event which affects a and, against this background, an annual review is number of insurance customers simultaneously. made of the framework for Tryg’s risk appetite. Moreover, the insurance risk is managed through geographical limitations and by refraining from To support the work with risk management, the offering certain types of insurance such as aviation Supervisory Board has appointed a special Risk and marine insurance. Operating within these Committee, whose task is to focus on the Board’s | Menu – Management’s review Annual report 2014 | Tryg A/S | 24 responsibility in terms of capital and risk equity and capital buffer) and its dividend policy. Tryg’s capital base consists of equity and subordinate • Norwegian Natural Perils Pool, which may have management. Against the background of the expected satisfactory loan capital. The relative sizes of these two categories a negative effect of DKK -1 to 0bn. Tryg expects results for 2014 and the solid capital position, a de- are subject to ongoing assessment with a view to that Norwegian Natural Perils Pool will still Capital requirement and management cision was made in November 2014 to implement maintaining an optimum structure which takes ac- be available as a tier 2 capital element when Capital management is based on Tryg’s internal an extraordinary share buy back totalling DKK 1bn. count of the target return on equity, the capital costs Solvency II has entered into force. capital model. The capital model is based on the The share buy back takes place between 2 January and the desired financial flexibility. In 2015, this will • Norwegian warranty provision, which may risk profile, and thus takes account of the compo- 2015 and the end of the year. Moreover, at the an- be reassessed in connection with the refinancing of have a negative effect of DKK -0.2 to 0bn. Tryg sition of the insurance portfolio, the geographical nual general meeting to be held on 25 March 2015, Tryg’s subordinate loan of EUR 150m. This refinan- expects that the warranty provision will still be spread, the provision profile, the reinsurance the Board will propose that dividend of DKK 29 per cing will take the future Solvency II rules into account. available as a tier 1 or tier 2 capital element programme, the investment portfolio and Tryg’s share be paid, corresponding to the distribution of under Solvency II. profitability in general. The model calculates the DKK 1,731m. Looking ahead, Tryg has decided to At the end of 2014, Tryg’s total subordinate loan • The Solvency II assessment of premium provi- statutory capital requirement (Individual Solvency start paying dividend twice a year, the first time be- capital amounted to 16% of equity, with total inter- sions will contribute positively with DKK 0.5 to Requirement) with a 99.5% certainty level, such ing in connection with the half-year report 2015. est expenses of DKK 90m. Read more about 0.7bn to the own funds statement (expected that Tryg would statistically be able to honour Tryg’s subordinated loan in Note 1 on page 47. future profit). claims in 199 out of 200 years. In conjunction with the capital plan, a contingency plan has been prepared which describes specific Towards Solvency II • An increased possibility for raising subordinate loan capital amounts from DKK 1.5 to 2.5bn. At the end of 2014, the Individual Solvency Re- measures that may be introduced in the short The coming European solvency rules, Solvency II, quirement totalled DKK 6,560m (DKK 6,366m in term, should the company’s desired capital posi- will enter into force on 1 January 2016. Tryg thus expects an overall positive capital effect 2013). The capital required to meet the Individual tion be threatened. Both the capital plan and the in connection with the transition to Solvency II. Solvency Requirement is called the adequate contingency plan have been approved by Tryg’s Under Solvency II, a company is allowed to calcu- The Solvency II provisions also introduce a require- capital base. At the end of 2014, this totalled DKK Supervisory Board. late its capital requirement using an internal model ment for an Own Risk and Solvency Assessment 9,938m after dividend, corresponding to a surplus cover of DKK 3,378m or 51%. The Supervisory Board regularly assesses the need for capital adjustments. In practice, extraordinary adjustments are made through share buy backs. The assessments are made in the company’s capital plan, in which the Individual Solvency Requirement is projected on the basis of Tryg’s budgets. The Capital DKKm 10,000 8,000 6,000 4,000 2,000 0 3,378 6,560 1,662 8,276 approved by the Financial Supervisory Authority. (ORSA). Tryg has for several years prepared ORSA Tryg expects its internal model to be approved so reports, which assess the general risk scenario that it can continue to be used by the company. If and propose improvements. In 2014, such a risk the approval process takes longer than expected, assessment was also carried out and considered it will be necessary to use the Solvency II standard by the company’s day-to-day management and model for a period, which will result in a lower Supervisory Board, which are consequently enter- solvency surplus. ing 2015 with a fully updated view of Tryg’s risk profile. Read more about Tryg’s risk manage- Individual Solvency Solvency II a) When Solvency II enters into force, the concept ment in Note 1 on page 47. projection is partly based on whether it will accom- Capital requrement Buffer of ‘adequate capital base’ will be replaced by the modate the initiatives addressed in the company’s strategy for the coming three years, and also on the most significant risks from the company’s risk iden- tification. Adequacy is measured in relation to Tryg’s strategic targets (including in respect of return on 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. Solvency II concept of ‘own funds’. There are still Standard & Poor’s some unresolved issues as to the interpretation of In 2014, Tryg achieved an ‘A-’ rating from the credit this capital calculation method, which may have a rating agency Standard & Poor’s, and aims to significant impact on Tryg’s capital situation. The maintain this rating. capital elements still to be clarified are: | Menu – Management’s review 25 Annual report 2014 | Tryg A/S | Shareholder information the liquidity of the share, and thereby determines capital. TryghedsGruppen invests in peace-of-mind the price of the Tryg share. Other trading platforms and healthcare providers in the Nordic region, and such as OTC (over-the-counter) and dark pools supports non-profit-making activities. represent a large share of the remaining trade, but it takes place outside of the established exchanges At Tryg’s annual general meeting on 25 March and MTFs and thus does not have a direct impact 2015, it will be proposed to split each share of on the price of and the liquidity in the share. DKK 25 into five shares of DKK 5. The reason for In 2014, shares totalling DKK 1bn, corresponding velopment, bringing the price up to more than DKK this is that the Tryg share has seen a positive de- Tryg is a listed company, and it is important that exchange. In accordance with the recommenda- to approximately 1.8 million shares, were repur- 600, which makes it the second-most expensive decisions to invest in the Tryg share can be made tions issued by NASDAQ Copenhagen, Tryg does chased. This had a positive impact on the turnover share in the C20 index. In addition, the share split on an informed basis. A high priority is therefore not comment on financial results or outlook two of the Tryg share. The total turnover (including is expected to increase the liquidity of the share. given to having an open and ongoing dialogue with weeks before the publication of interim reports OTC trades) of the share increased from 43 million shareholders, analysts and other stakeholders. and four weeks before the publication of the shares in 2013 to 49 million shares in 2014. At the end of 2014, there was a free float of 40% of annual report. All financial information is published the shares, divided among approximately 27,000 Investor Relations (IR) is responsible for communi- on tryg.com in both Danish and English. It is pos- Share capital and ownership registered shareholders. The 200 largest share- cation with the equity market as well as for contact sible to subscribe to interim and annual reports, Tryg had a total share capital of DKK 1,492,387,900 holders owned 89% of the shares. to rating agencies and bond investors. news and RSS feeds on the website. It is also on 31 December 2014. This comprised one share possible to follow @Tryg IR on Twitter. class (59,695,516 shares with a nominal value At the end of 2014, and after the share buy back After publication of interim and annual reports, of DKK 25), and all shares rank pari passu. The programme, Tryg held 1,871,579 own shares, Tryg’s management and IR hold investor meetings In 2014, the Tryg share rose from 524.5 to 689.0. majority shareholder, TryghedsGruppen smba, corresponding to 3.1% of the share capital. At the to discuss the company’s development with inves- Including a dividend of DKK 27 per share, the share Denmark, owns 60% of the shares and is the only coming annual general meeting, the Supervisory tors and analysts. In addition, Tryg participates in a rose by 36.5% (31.4% excluding dividend). By com- shareholder owning more than 5% of the share Board will propose to cancel the repurchased shares. number of financial conferences. In 2014, investor parison, the OMX C20 CAP index rose by 20.9% in meetings were held in the financial centres in 2014, while the index of insurance shares in Europe, Europe, the USA, Canada and Asia. Euro STOXX Insurance, rose by 9.8%. The Tryg share is followed closely by 21 analysts, NASDAQ in Copenhagen is still the primary ex- who continuously update their expectations for and change where most of the trading in the Tryg share views on the share. See a list of analysts and their takes place. In 2014, NASDAQ Copenhagen ac- Shareholders At 31 December 2014 17 recommendations of Tryg at tryg.com > Investor. counted for 50% of the turnover of the Tryg share. 14 Per cent The Tryg share In addition, 15% of trading in 2014 was carried out on alternative exchanges (MTF trades), led by 9 The Tryg share is listed on NASDAQ Copenhagen BATS Chi-X as the largest alternative exchange. This and is covered by the C20 index (OMX C20 CAP), means that NASDAQ and the alternative exchanges TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders 60 Free float – geographical distribution At 31 December 2014 6 14 14 14 Per cent 52 Denmark UK USA Nordic region Others comprising the 20 most traded shares on the account for two-thirds of the trading that impacts a) Shareholders holding more than 10,000 shares. Free float is excluding TryghedsGruppen. | Menu – Management’s review 26 Annual report 2014 | Tryg A/S | Distribution DKKm Dividend Dividend per share (DKK) Payout ratio Extraordinary share buy back 2014a) 1,731 29 68% 1,000 2013 1,656 27 70% 1,000 2012 1,594 26 72% 800 2011 2010 400 6.52 35% 0 256 4 43% 0 a) Dividend proposed by the Supervisory Board for adoption by the annual general meeting. • • Distribution of 60-90% of the profit after tax. Falkoner Allé 9, 2000 Frederiksberg, Denmark. Aspiration to distribute a dividend which is steadily The notice will be advertised in the daily press in increasing in nominal terms on a full-year basis. February 2015 and will be sent to shareholders, • The capital level must at all times reflect the if requested. The annual general meeting will return on equity targets and the statutory also be announced on tryg.com. capital requirements. • The capital level may extraordinarily be The company announcements issued in 2014 adjusted through a share buy back. are available at tryg.com > Investor > News. The Supervisory Board encourages all shareholders to participate at the annual general meeting, where they have the opportunity to ask questions to the Chairman of the Supervisory Board and the Group CEO. Based on Tryg’s dividend policy and the satisfactory 2014 results, the Supervisory Board will propose a dividend of DKK 29 per share, corresponding to DKK 1,731m, at the 2015 annual general meeting. Semi-annual dividend from 2015 within the investment activities, as well as the This corresponds to payment of 68% of the profit In connection with Tryg’s Capital Markets Day in requirement to have a solid capital position after tax. November 2014, it was announced that the Super- based on Tryg’s internal capital model (Individual Financial calendar 2015 25 March 2015 Annual general meeting 26 March 2015 Tryg shares trade ex-dividend visory Board has decided to pay out semi-annual Solvency). Tryg’s internal capital model provides In connection with the Capital Markets Day, it was 30 March 2015 Payment of dividend based on dividend from the second half of 2015. This means the framework for the company’s capital require- announced that it had been decided to initiate an annual results 2014 that the next payout in March 2015 will be based ment until this is replaced by the Solvency II rules. extraordinary share buy back of DKK 1bn starting on the profit for 2014, after which time all future Tryg’s dividend policy is based on the following on 2 January 2015. This decision was made against payouts will be based on the half-year results. assumptions: the background of Tryg’s solid capital position and Tryg’s dividend policy aims to achieve stability in • A general objective of creating long-term value the distribution on a full-year basis. The dividend for the company’s shareholders. Annual general meeting policy reflects our expectations of high earnings • A competitive dividend policy in comparison Tryg’s annual general meeting will be held on in the insurance business and a low risk profile with those of our Nordic competitors. 25 March 2015 at 14:00 at Falkoner Centret, expected earnings. 15 April 2015 Interim report for Q1 2015 10 July 2015 Half-year report 2015 13 July 2015 Tryg shares trade ex-dividend 15 July 2015 Payment of dividend based on half-year results 2015 9 October 2015 Interim report for Q1-Q3 2015 | Menu – Management’s review 27 Annual report 2014 | Tryg A/S | Corporate governance Annual general meeting Depending on the development in results, each Tryg holds an annual general meeting every year. year the Board proposes a dividend and possibly As required by the Danish Companies Act and the an extraordinary share buy back, if further adjust- Articles of Association, the annual general meeting ment of the capital structure is required. At the an- is convened via a company announcement and at nual general meeting on 25 March 2015, the Board tryg.com subject to at least three weeks’ notice. will propose a half-year dividend from the second Shareholders may also opt to receive the notice by half of 2015. In 2014, the annual general meeting post or email. The notice contains information about authorised the Board to allow Tryg to acquire own time and venue as well as an agenda for the meeting. shares amounting to up to 10% of the share capital Tryg focuses on managing the company in accordance journalists, where among other things, new finan- until 3 April 2019. On 2 January 2014, Tryg initi- with the principles for good corporate governance cial targets and customer targets for the period up All shareholders are encouraged to attend the an- ated a share buy back programme which ran until and generally complies with the recommendations. to 2017 were presented. nual general meeting. The annual general meeting 19 December 2014. Tryg acquired own shares for The Danish recommendations have been prepared by is held by personal attendance as the Board values an amount of DKK 1bn. On 2 January 2015, Tryg the Committee on Corporate Governance and most Tryg has adopted an Investor Relations policy which personal contact with the Group’s shareholders. initiated a new share buy back programme total- recently updated in 2014. The Recommendations states, among other things, that all company an- Shareholders may propose items to be included ling DKK 1bn, which runs until the end of 2015. on Corporate Governance can be found at corpo- nouncements and financial statements are published on the agenda for the annual general meeting, rategovernance.dk. At tryg.com, Tryg has published in Danish and English and that Tryg publishes interim and may ask questions before and at the meeting. Duties, responsibilities and composition the statutory corporate governance report based on financial statements each quarter. Moreover, Tryg Shareholders may vote in person at the annual of the Supervisory Board the ‘comply or explain’ principle for each individual prepares quarterly investor presentations which are general meeting, by post or appoint the Board The Board is responsible for the central strategic recommendation. This section on corporate govern- used in the dialogue with investors and analysts. All or a third party as their proxy. Shareholders may management and financial control of Tryg and for ance is an excerpt of the corporate governance report. announcements, financial statements, investor pres- consider each item on the agenda. The proxy ensuring that the business is organised in a sound Download Tryg’s statutory corporate governance entations and newsletters are available at tryg.com. form and form for voting by post are available at way. This is achieved by monitoring targets and report at tryg.com > Investor > Download. This material provides all stakeholders with a compre- tryg.com prior to the annual general meeting. framework on the basis of regular and systematic hensive picture of Tryg’s position and performance. reviews of the strategy and risks. The Executive Dialogue between Tryg, shareholders The consolidated financial statements are presented Share and capital structure Management reports to the Board on strategies and other stakeholders in accordance with IFRS. At tryg.com, stakeholders Tryg’s share capital comprises a single share and action plans, market developments and group The Investor Relations (IR) department main- are able to subscribe to press releases and company class, and all shares rank pari passu. The majority performance, funding issues, capital resources and tains regular contact with analysts and inves- announcements as well as insider trading announce- shareholder, TryghedsGruppen smba, owns 60% special risks. The Board holds one annual strategy tors. Together with the Executive Management, ments. A number of internal guidelines ensure that of the issued shares and is the only shareholder seminar to decide on and/or adjust the Group’s Investor Relations organises investor meetings and the disclosure of price-sensitive information com- owning more than 5% of the company’s shares. strategy with a view to sustaining value creation in conference calls and participates in conferences in plies with the stock exchange codes of conduct. The Board ensures that Tryg’s capital structure is in the company. The Executive Management works Denmark and abroad. IR also communicates with line with the needs of the Group and the interests with the Board to ensure that the Group’s strategy stakeholders in the social media via Twitter@TrygIR. Tryg has adopted a number of policies which describe of its shareholders and that it complies with the is developed and monitored. The Board ensures The Supervisory Board (Board) is informed of the the relationship between different stakeholders. requirements applicable to Tryg as a financial that the necessary competencies and financial re- dialogue with investors and other stakeholders See the IR policy at tryg.com > Investor > IR undertaking. Tryg has adopted a capital plan and sources are available for Tryg to achieve its strategic on a regular basis. In November 2014, Tryg held contacts > IR policy, and the CSR policy at tryg. a contingency capital plan, which are reviewed targets. The Board specifies its activities in a set of a Capital Markets Day for analysts, investors and com > CSR > CSR strategy > CSR policy. annually by the Board. rules of procedure and an annual cycle for its work. | Menu – Management’s review 28 Annual report 2014 | Tryg A/S | Board members elected by the annual general Board focuses on the following qualifications and opportunities and access to management positions Three out of four members of the Audit Com- meeting are up for election each year at the annual skills: management experience, financial insights, for qualified men and women. In 2014, the propor- mittee and the Risk Committee, including the general meeting. See pages 32-33 for information knowledge of insurance, including the organisation tion of women at management level was 36.5% chairman of the committees, are independent on when the individual members joined the Board, of insurance companies, product development of against 34.6% in 2013. It is Tryg’s target to increase persons. Of the four members of the Remunera- were re-elected and when their current election financial services, reinsurance, capital requirements the total proportion of women at management tion Committee, one member is an independent period expires. To ensure the integration of new and special accounting principles in insurance law, level to 38% in 2015. See the action plan at person, while one out of two members of the talent on the Board, members elected by the accounting insights, financial knowledge and experi- tryg.com > CSR. annual general meeting may hold office for a maxi- ence, M&A experience, market insights and interna- mum of nine years. Furthermore, members of the tional experience. See CVs and descriptions Board committees Nomination Committee is independent. Board committee members are elected primarily based on special skills that are considered important by Board must retire at the first annual general meet- of the skills in the section Supervisory Board on Tryg has an Audit Committee, a Risk Committee, the Board. Involvement of the employee repre- ing following their 70th birthday. The Board has 12 pages 32-33 and at tryg.com> Governance a Nomination Committee and a Remuneration sentatives in the committees is also considered members, five men and seven women (including > Management > Supervisory Board. Committee. The framework of the committees’ important. The committees exclusively prepare one male and three female employee representa- work is defined in their terms of reference. matters for decision by the entire Board. The tives). The Board has members from Denmark, Duties and composition of the Executive The board committees’ terms of reference can special skills of all members are also described Sweden and Norway. Women are thus not under- Management be found at tryg.com > Governance > Management at tryg.com. represented on Tryg’s Supervisory Board. Each year, the Board reviews and adopts the > Super visory Board > Board committees, includ- rules of procedure of the Board and the Executive ing descriptions of members, meeting frequency, Remuneration of Management Eight members of the Board are elected by the Management with relevant policies, guidelines and responsibilities and activities during the year. Tryg has adopted a remuneration policy for the annual general meeting for a term of one year. Of instructions describing reporting requirements and See the tasks of the board committees in 2014 at Board and the Executive Management, including the eight members elected at the annual general requirements for communication with the Execu- tryg.com > Governance > Management > Supervi- general guidelines for incentive pay. meeting, four are independent persons as stated tive Management. Financial legislation also requires sory Board > Board committees. in recommendation 3.2.1 in Recommendations on the Executive Management to disclose all relevant Corporate Governance, while the other four mem- information to the Board and report on compliance bers are dependent persons as they are appointed with limits defined by the Board and in legislation. by the majority shareholder TryghedsGruppen. See details about the independent board The Board considers the composition, develop- members in the section Supervisory Board on ment, risks and succession plans of the Executive pages 32-33 and at tryg.com> Governance Management in connection with the annual evalu- > Management> Supervisory Board. ation of the Executive Management, and regularly in connection with board meetings. The Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise re- Each year, the Board discusses Tryg’s activities to quired to perform its duties in the best possible way. guarantee diversity at management levels. Tryg at- In 2014, external assistance was brought in to taches importance to diversity at all management contribute to this, which resulted in the recruit- levels. Tryg has prepared an action plan which sets ment of a new member for the Board in 2015. The out specific targets to ensure diversity and equal | Menu – Management’s review Total remuneration of the Supervisory Board in 2014 Audit Fee Committee Committee DKK Risk Remuneration Committee Total Jørgen Huno Rasmussen Torben Nielsen Paul Bergqvist Anya Eskildsen Vigdis Fossehagen Ida Sofie Jensen Bill-Owe Johansson Lone Hansen Jesper Hjulmand Lene Skole Tina Snejbjerg Mari Thjømøe 990,000 660,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 225,000 150,000 150,000 150,000 150,000 100,000 100,000 100,000 100,000 90,000 90,000 90,000 135,000 1,125,000 1,035,000 420,000 420,000 420,000 330,000 330,000 330,000 580,000 580,000 430,000 580,000 29 Annual report 2014 | Tryg A/S | Total remuneration of the Executive Management in 2014 DKK Basic salary Car/ Pension car allowance Total fixed salary the Executive Management, and to create a joint Risks associated with new financial reporting rules Value of matching shares a) Total fee financial interest between the Executive Manage- and accounting policies are monitored and consid- ment and shareholders. Read more about the ered by the Audit Committee, the finance manage- matching shares programme in the remuneration ment and the internal auditors. Material legal and Morten Hübbe Tor Magne Lønnum Lars Bonde 8,928,218 5,022,283 4,385,281 2,232,055 1,184,610 1,096,320 255,000 11,415,273 6,361,457 154,564 5,736,602 255,000 850,000 12,265,273 6,911,457 550,000 6,136,602 400,000 a) At time of allocation. policy at tryg.com > Governance > Remuneration. tax-related issues and the financial reporting of such issues are assessed on an ongoing basis. Some members of the Executive Management Other risks associated with the financial still have unexercised share options, which were reporting are described in the section Capital and allocated under a previous programme. See risk management on pages 24-25 and in Note Note 6 on page 66. 1 Risk management on page 47. The remuneration policy for 2014 was adopted by Remuneration of Executive Management the Board in December 2013 and by the annual Members of the Executive Management are em- Each member of the Executive Management is Tryg engages in ongoing risk identification, map- general meeting on 3 April 2014. ployed on a contractual basis, and all terms of their entitled to 12 months’ notice of termination and ping insurance risks and other risks related to remuneration are established by the Board. This 12 months’ severance pay. However, the Group realising the Group’s strategy or which may have The Chairman of the Board reports on Tryg’s remu- is based on the work and results of the individual CEO is entitled to 12 months’ notice of termination a potentially substantial impact on the Group’s neration policy each year in connection with the con- members of the Executive Management and on the and 18 months’ severance pay. financial position. The process involves registering sideration of the annual report at the annual general need to attract and retain the most highly qualified and continually monitoring the risks identified. In meeting. The Board’s proposal for the remuneration members of the Executive Management. The fixed Each member of the Executive Management 2014, Tryg undertook an Own Risk and Solvency of the Board for the current financial year is also sub- pay element must be competitive and appropriate has 25% of the basic salary paid into a pension Assessment (ORSA). The purpose of the ORSA is to mitted for approval by the shareholders at the annual for the market and provide sufficient motivation for scheme. Up until 31 July 2014, the Group CFO link strategy, risk management and solvency, as the general meeting. See the remuneration policy at all members of the Executive Management to do received a defined-benefit pension, disbursed from aim of the ORSA is to ensure a sensible correlation tryg.com > Governance > Remuneration. their best to achieve the company’s defined targets. the retirement date. The benefit is determined by between the strategy for assuming risks and the the final salary and how long the Group CFO has available capital over a period of three to five years. Remuneration of Supervisory Board The Executive Management’s remuneration con- been covered by the defined-benefit pension. Members of Tryg’s Board receive a fixed fee and sists of a fixed pay element, pension and a variable On 1 August 2014, Tor Magne Lønnum changed The Board and the Executive Management ap- are not comprised by any form of incentive or pay element. The variable pay element constitutes to a Danish employment contract with a pension prove and monitor the Group’s overall policies severance programme or pension scheme. Their only a limited part of the overall remuneration. The scheme of 25% of his basic salary. and guidelines, procedures and controls in remuneration is based on trends in peer com- Board can decide that the fixed pay be supple- important risk areas. They receive reports about panies, taking into account board members’ mented with a variable pay element of up to 10% Financial reporting, risk management and auditing developments in these areas and about the ways required skills, efforts and the scope of the Board’s of the fixed basic pay including pension at the time Being an insurance business, Tryg is subject to in which the frameworks are used. The Board work, including the number of meetings. The re- of allocation. The variable pay element consists of the risk management requirements of the Danish checks that the company’s risk management and muneration received by the Chairman of the Board a matching shares programme. Four years after Financial Business Act. In its policies, the Board internal controls are effective. Non-compliance is triple that received by ordinary members, while the purchase by a member of the Executive Man- defines Tryg’s risk management framework as with the frameworks and guidelines established the Deputy Chairman’s remuneration is double that agement of a specified number of shares, such regards insurance risk, investment risk and oper- by the Board is reported to the Board. The Risk received by ordinary members of the Board. member is allocated a corresponding number of ational risk, as well as IT security. Guidelines are Committee monitors the risk management on an free shares in Tryg. The purpose of the matching issued by the Board to the Executive Management. ongoing basis and reports quarterly to the Board. shares programme is both to retain members of | Menu – Management’s review 30 Annual report 2014 | Tryg A/S | The Group’s internal control systems are based attends all board meetings. The independent on clear organisational structures and guidelines, auditor attends the annual board meeting at general IT controls and segregation of functions, which the annual report is presented. which are supervised by the internal auditors. Tryg has a decentralised set-up whereby risk managers Each year, the annual general meeting appoints an in the business areas carry out controlling tasks independent auditor recommended by the Board. for the risk management environment and Tryg’s After a call where five external auditors were compliance function. evaluated, at the beginning of 2014 the Board The Executive Management has established a reappointed at the annual general meeting in April formal process for the Group comprising monthly 2014. At least once a year, the internal and inde- reporting, including for example budget and pendent auditors meet with the Audit Committee decided to recommend Deloitte, and Deloitte was deviation reports. without the presence of the Executive Manage- ment. The Chairman of the Audit Committee deals Risk management is an integral part of Tryg’s with any matters that need to be reported to the business operations. The Group seeks at all times Board. to minimise the risk of unnecessary losses in order to optimise returns on the company’s capital. Internal audit Read more about Tryg’s risk management Tryg has set up an internal audit department which in the section Capital and risk management on regularly reviews the quality of the Group’s internal pages 24-25 and in Note 1 on page 47. control systems and business procedures. It is responsible for planning, performing and reporting Whistleblowing scheme the audit work to the Board. Tryg has set up an Ethical Hotline (whistleblowing scheme), which allows employees, customers Deviations and explanations or business partners to report any serious wrong- Tryg complies with the Recommendations on doing or suspected irregularities. Reporting takes Corporate Governance with the exception of the place in confidence to the Chairman of the Audit recommendation for the number of independent Committee. Read more about Tryg’s Ethical members of the board committees, with which Tryg Hotline at tryg.com > Governance > Ethical complies partially; see item 3.4.2 of the Recom- Hotline. Audit mendations on Corporate Governance. The deviation is explained in Tryg’s statutory corporate governance report, which is available at tryg.com The Board ensures monitoring by competent and > Investor > Download. independent auditors. The Group’s internal auditor | Menu – Management’s review Annual report 2014 | Tryg A/S | 31 Tryg has published the statutory corporate governance report based on the ‘comply or explain’ principle for each individual recommendation. Download the report at tryg.com > Investor > Download.Supervisory Board Jørgen Huno Rasmussen a) Chairman Born 1952. Joined: 2012. Nationality: Danish. Profes- sional board member. Adjunct Professor, CBS. Former Group CEO of the FLSmidth Group. Educational background: Graduate Diploma in Organisa- tion, Graduate Engineer and Lic.techn. Chairman: Tryg A/S, Tryg Forsik - ring A/S, TryghedsGruppen smba, the Lundbeck Foundation and LundbeckFond Invest A/S. Board member: Rambøll Group A/S, Bladt Industries A/S, Terma A/S, Haldor Topsøe A/S, Otto Mønsted A/S and Thomas B. Thriges Fond. Committee memberships: Remuneration Committee (Chairman), Nomination Com- mittee (Chairman) in Tryg A/S. Number of shares held: 366 Change in portfolio in 2014: 0 As former CEO of FLSmidth, Jørgen Huno Rasmussen has experience in international management of listed com- panies and special skills within strategy, business development, communication, risk manage- ment and finance. Torben Nielsen b) Paul Bergqvist b) Anya Eskildsen a) Vigdis Fossehagen Lone Hansen Born 1946. Joined: 2006. Nationality: Swedish. Professional board member. Former CEO of Carlsberg A/S. Educational background: Economist and engineer. Chairman: Sveriges Bryggerier AB, East Capital Explorer AB, Pieno Zvaigzdes AB, Norrköpings Segel Sällskap and Östkinds Häradsallmänning. Board member: Tryg A/S, Tryg Forsikring A/S and Green carrier AB. Committee memberships: Remuneration Committee in Tryg A/S. Number of shares held: 100 Change in portfolio in 2014: 0 Paul Bergqvist has international management and board experi- ence within M&A, strategic development, marketing, brand- ing and financial manage- ment. Being a Swedish citizen, Paul Bergqvist has special knowledge of Swedish market conditions. Born 1968. Joined: 2013. Nationality: Danish. President of Niels Brock Copenhagen Business College. Education: MSc in Political Science, the certified IoD Board Program. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, California In- ternational Business University and Lær for Livet. Committee memberships: Remuneration Committee in Tryg A/S. Member of the Danish Growth Council, Nykredits Regionsråd, Danish Chinese Business Forum, minister- appointed GS coordinator, VL 21, Copen hagen Rotary and NOCA. Number of shares held: 0 Anya Eskildsen has experience within financial management, strategic management, commu- nication and marketing, innova- tion and ideas generation and international system exports. Deputy Chairman Born 1947. Joined: 2011. Nationality: Danish. Profession- al board member. Adjunct Pro- fessor, CBS. Former Governor of Danmarks Nationalbank. Education: Savings bank educated, Graduate Diplomas in Organisation and Work Sociology, Credit and Financing. Chairman: Investeringsforenin- gen Sparinvest, Investeringsfore- ningen Sparinvest Sicav, Luxem- bourg, EIK banki p/f, Færøerne, Capital Market Partners and Museum Sydøstdanmark. Deputy Chairman: Tryg A/S, Tryg Forsikring A/S and Sydbank A/S. Board member: Sampension KP Livsforsikring A/S, Dansk Land- brugs Realkredit and Executive Board of Bombebøssen. Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman), Nomi- nation Committee in Tryg A/S. Number of shares held: 3,500 Change in portfolio in 2014: 0 Torben Nielsen has special skills in the fields of management, finance, financial services and risk management as former Gover- nor of Danmarks Nationalbank. Employee representative Born 1955. Joined: 2012. Nationality: Norwegian. Chairman of Finansforbundet, Tryg Norway. 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 and Lay Judge in the District Court of Bergen. Number of shares held: 20 Change in portfolio in 2014: +20 Employee representative Born 1966. Joined: 2012. Nationality: Danish. Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Employed in 1990. Education: Certified commer- cial insurance agent. Various insurance and sales courses and negotiation training. Board member: Tryg A/S and Tryg Forsikring A/S. Other duties: Member of the Insurance Agent Committee of the Financial Services Union Denmark. Number of shares held:106 Change in portfolio in 2014: +20 Members of the 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 representatives will be held in 2016. a) Dependent member of the Supervisory Board. b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. | Menu – Management’s review 32 Annual report 2014 | Tryg A/S | Supervisory Board Jesper Hjulmand a) Ida Sofie Jensen a) Mari Thjømøe b) Lene Skole b) Tina Snejbjerg Bill-Owe Johansson Born 1958. Joined: 2013. Nationality: Danish. Director General of Lif (Danish Association of the Pharmaceuti- cal Industry). Director General of the subsidiary DLI (Dansk Lægemiddel Information A/S). Education: MSc in Political Science, European Health Leadership Programme IN- SEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, Plougmann & Vingtoft A/S and Den Erhvervs- drivende Fond Hans Knudsen Instituttet. Number of shares held: 173 Change in portfolio in 2014: +79 Ida Sofie Jensen has experience from business operations and the health sector as well as management, strategy, politics and finance. Born 1963. Joined: 2010. Nationality: Danish. CEO of SEAS-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 Com- panies (DEA), Energi Danmark A/S, Fibia P/S, SEAS-NVE Vind AB, SEAS-NVE Strømmen A/S. Deputy Chairman: Trygheds- Gruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S, DI General Council, Dansk Energi and Danish Intelligent Energy Alliance. Committee memberships: Audit Committee and Risk Committee in Tryg A/S, Executive Director Committee of Dansk Energi (Chairman) and Green Commit- tee, Region Zealand (Chairman). Number of shares held: 1,750 Change in portfolio in 2014: 0 From his positions with SEAS-NVE, Jesper Hjulmand has experience within M&A, strategy, organisa tional and management development, communication and business development. Born 1962. Joined: 2012. Nationality: Norwegian. Professional board member and independent advisor. Education: Master of Economics and Business Administration, Financial Analyst (CFA). Manage- ment programme, London and Harvard Business School. Chairman: Seilsport Maritimt Forlag AS. Board member: Tryg A/S, Tryg Forsikring A/S, Argentum Fondsinvesteringer as, Nordic Mining ASA, Forskningskonsernet Sintef, E-CO Energi, Scatec Solar ASA, Avinor, Sevan Marine ASA. Committee memberships: Audit Committee and Risk Committee, Tryg A/S. Audit Committee, Sevan Marine ASA and E-CO (Chairman), Audit Committee, Scatec Solar ASA and Remuneration Com- mittee, Argentum. Number of shares held: 300 Change in portfolio in 2014: 0 Mari Thjømøe has experience from international manage- ment, strategy, finance, capital management, investor relations, branding and special knowledge of the insurance market, and special insights into Norwegian market as a Norwegian citizen. Born 1959. Joined: 2010. Nationality: Danish. CEO of the Lundbeck Foundation. Education: A.P. Møller Group’s international shipping educa- tion, Graduate Diploma in Financing and various interna- tional management pro- grammes. Board member: Tryg A/S, Tryg Forsikring A/S and ALK. Committee memberships: Audit Committee and Risk Committee in Tryg A/S and Audit Commit- tee in ALK. Number of shares held: 745 Change in portfolio in 2014: 0 Lene Skole has experience from international companies, among other things through her previous work in Coloplast and The Maersk Company Ltd., UK. Lene Skole has skills within strategy, finance, financing and communication. Employee representative Born 1962. Joined: 2010. Nationality: Danish. Head of Section in Tryg’s staff association. Employed in 1987. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Risk Committee in Tryg A/S and DFL’s General Council. Number of shares held: 106 Change in portfolio in 2014: +20 Employee representative Born 1959. Joined: 2010. Nationality: Swedish. Claims handler in Moderna (Swedish branch). Employed in 2002. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 220 Change in portfolio in 2014: +20 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 representatives will be held in 2016. a) Dependent member of the Supervisory Board b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. | Menu – Management’s review 33 Annual report 2014 | Tryg A/S | Group Executive Management Standing from left: Trond Bøe Svestad, Tor Magne Lønnum, Jesper Joensen, Morten Hübbe, Per Fornander, Lars Bonde and Truls Holm Olsen. | Menu – Management’s review Annual report 2014 | Tryg A/S | 34 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. Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton. Board member: Tryg Ejendomme A/S, Ejendomsselskabet af 8. maj 2008 A/S and Tjenestemændenes Forsikring. Born 1967. Employed in 2011. Joined the Group Executive Management in 2011. Member of the Executive Management and the Group Executive Management. Education: State-authorised public accountant, Executive Master of Business and Administration, University of Bristol and École Nationale des Ponts et Chaussées. Board member: Tryg Garantiforsikring A/S, Thermo- pylae AS (Chairman) and Finansnæringens Felles- organisasjon, TGS Nopec ASA and P/f Bakkafrost. Number of shares held: 13,453 Change in portfolio in 2014: +1,693 Number of shares held: 6,000 Change in portfolio in 2014: +1,090 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, the Danish Insurance Association and Cphbusiness. Number of shares held: 5,411 Change in portfolio in 2014: +806 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, Stockholm. Board member: Tryg Garantiforsikring A/S, Svensk Försäkring, Försäkringsbranschens Arbetsgivarorganisation, Försäkringsbranschens Pensionskassa, Securator A/S (Chairman) and Moderna Djurförsäkring i Norr AB. Number of shares held: 3,372 Change in portfolio in 2014: +582 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. Number of shares held: 1,673 Change in portfolio in 2014: +587 Truls Holm Olsen Group Executive Vice President, Corporate and Country Manager in Norway Born 1964. Employed in 1998. Joined the Group Executive Management in 2009. Education: LL.M. Board member: Tryg Garantiforsikring A/S, Norsk Naturskadepool and Tryg Almennyttige Stiftelse. Member of the committee of shareholders of Livsforsikringsselskapet Nordea Liv Norge AS. Number of shares held: 3,305 Change in portfolio in 2014: +598 Trond Bøe Svestad Group Executive Vice President, Commercial Born 1967. Employed in 2013. Joined the Group Executive Management in 2013. Education: Master of Management, Business/ Commerce and Bachelor of Commerce. Number of shares held: 780 Change in portfolio in 2014: +587 Rikke Larsen, former Group Executive Vice President, People and Reputation left the Group Executive Management in October 2014. | Menu – Management’s review 35 Annual report 2014 | Tryg A/S | Corporate Social Responsibility in Tryg Statutory Corporate Social Responsibility report is possible to take preventive action and mitigate Human rights or avoid damage. In Tryg, we respect human rights in all aspects of our work, and we want to improve our preventive efforts Carbon emissions to minimise the risk of human rights violations. Our aim is to reduce Tryg’s environmental impact, Also, we focus on the well-being of our employees and each year we measure our carbon emissions and their right to a healthy and safe workplace. Tryg and waste volumes. Most of the daily carbon emis- wants to respect and promote the human rights sions are associated with the lighting and heating and labour rights that are relevant to our business of our offices, as well as car and plane travel. and activity areas. This applies both internally and Tryg’s ambition is to create peace of mind and value suppliers. To provide the best possible solutions, in relations with our customers, suppliers, inves- for customers, employees and shareholders. Cor- we engage in cooperation and partnerships with Tryg has defined carbon emission targets since 2007, tors and partners. Our efforts focus primarily on porate Social Responsibility therefore constitutes an public authorities and researchers, and together and initiatives have been implemented to reduce inclusion, equality and labour rights as well as data integral part of our core business and plays a key role we develop contingency plans and solutions which carbon emissions at our offices in Ballerup and in protection. Read more at tryg.com > CSR in connection with the development and improve- can ensure that local areas, buildings and pro- Bergen. At the same time, focus has been on reduc- > Thematic areas > Well-being > Labour rights. ment of our products and services as well as the opti- cesses are geared to withstanding climate change. ing carbon emissions from travel by plane and car. misation of our operations and our activities. In Tryg, Read more at tryg.com > CSR > Thematic In 2014, carbon emissions were reduced by 48.1% Inclusion Corporate Social Responsibility is associated primar- areas > Climate. relative to 2007. The target for 2015 is a reduction Tryg welcomes diversity, and we ensure non-discrim- ily with our insurance products, our history and our of 50% relative to 2007. The reduction was primarily ination through equal treatment of all our employees, expertise, and our efforts focus on climate, claims Preventing water and storm damage due to the reduced consumption of heating oil, as regardless of gender, age, disabilities, ethnic origin, prevention, inclusion and employee well-being. In Tryg, we work actively to prevent and minimise the office in Bergen made more use of heat pumps sexual orientation and religion. As a workplace the risk of damage and not only help once the instead of oil boilers for heating, which also explains characterised by diversity and the representation of Our efforts are based on the principles of the United damage has happened. Tryg focuses on how cus- the increase in electricity consumption. Read different perspectives, we increase the quality of our Nations Global Compact and the United Nations tomers can avoid storm damage, and offers for ex- more about the climate initiatives at tryg.com services by having a better understanding of our cus- Guiding Principles on Business and Human Rights; ample to check their basements for free. By being > CSR > Thematic areas > Climate. tomers and their requirements. In 2014, 4% of Tryg’s these focus on the possibilities and risks inherent aware of the risk of flooding due to cloudbursts, it Danish employees were of non-Western origin; thus in our business activities with regard to the climate, human rights, labour rights and anti-corruption. Tryg’s CSR policy is approved annually by the Super- visory Board. Download the policy at tryg.com > CSR > CSR strategy > CSR policy. Climate For Tryg, it is crucial to consistently promote sus- tainable initiatives which can prevent and address the issue of climate-related damage which we experience in our daily work with customers and | Menu – Management’s review Carbon emissions Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 Electricity Heating oil Air travel Motor 2013 2014 The carbon emissions chart covers both Norway and Denmark; air travel also includes Sweden. Waste Kg 200,000 160,000 120,000 80,000 40,000 0 Employee mix No. 1,800 1,500 1,200 900 600 300 0 Men Women Age <30 yrs Age 30-49 yrs Paper & corrugated cardboard IT, batteries & light sources Bio waste Iron & metal Residual Age <50 yrs Non- Western background a) Flexi job a) Non-Western background has been compiled by Statistics Denmark. 36 Annual report 2014 | Tryg A/S | we did not meet our target of 4.2%. We will consist- guarantee confidentiality between counsellor and and 49 Norwegian customers contacted Tryg ID. ently focus on increasing the share of employees customer. ‘Tryg i Livet’ has been welcomed by our Read more about data protection in Tryg at of non-Western origin even though this is not customers, and the initiative will continue in 2015. tryg.com > CSR > Thematic areas > Prevention a specific KPI in 2015. To make the most of our > Data protection. employees’ linguistic and cultural expertise, in 2014 Active steps to reduce burglaries in Denmark we launched a new insurance advisory service for Tryg has introduced a number of initiatives to reduce Anti-corruption our private customers called 6 languages. The new burglaries. As the first insurance company in Den- To create the best possible conditions for providing initiative was welcomed both by our employees mark, Tryg is offering synthetic DNA marking to cus- peace of mind, it is important that we encourage and by our customers, of whom 280 made use of tomers. Through customers marking their valuable our employees to maintain high moral standards, to the service. Read more about inclusion in Tryg possessions, we are supporting police investigations conduct themselves in an ethically correct fashion at tryg.com > CSR > Thematic areas > Inclusion. of burglaries and ensuring that burglars can be linked and in compliance with applicable legislation. To Read more about guidance in six languages at to the crime scene. In other countries, DNA marking make it easier for our employees to observe all tryg.dk > Privat > Kontakt os > Other languages. has been shown to be an effective deterrent against relevant rules and instructions, Tryg is continuously burglary. Tryg has launched an experiment in Sønder- updating the internal code of conduct which all Equal rights borg, with the aim of documenting the preventive employees must know and adhere to. Through Tryg's To ensure compliance with section 99b of the Danish effect of DNA marking in Denmark. The purpose is to Ethical Hotline (whistleblowing scheme) employees Financial Statements Act on equal gender represen- raise awareness of the benefits of DNA marking with and external stakeholders are able to report, in con- tation at management level, Tryg is devoting targeted a view to the long-term crime prevention. fidentiality, any suspected instances of non-com- efforts to ensuring gender equality with regard to pay as well as equal career opportunities. We have Data protection pliance with the guidelines or breaches of the law. The whistleblower scheme was applied four times an action plan aimed at ensuring the representation As part of our daily work, we handle sensitive in 2014. Read more about the ethical hotline at of more women in management, and in 2014 the information from our customers, and it is crucial tryg.com > Governance > Ethical Hotline. target of a 2% increase was almost met with 36.5% that they trust our handling of their personal data. against 34.6% in 2013. The target figure for 2015 In 2014, we therefore held four workshops about CSR in sourcing is 38% for more women in management. Read personal data protection in Denmark. To ensure that Tryg’s values and fundamental more about women in management at tryg.com desire to run a responsible business are also > CSR > CSR strategy > Plans of action. In the past, Tryg used to send all information contain- reflected in the way they do business, our suppliers ing sensitive personal data to our customers by are required to conduct themselves in a socially Responsible investments In Tryg, we screen our investments to make sure that they do not have a negative impact on the environment, human rights and anti- corruption. The screening is carried out by Nordea Invest and Skagen Fondene, both of which have signed UN Principles for Responsi- ble Investment (UN PRI). Read more about responsible investments at tryg.com > CSR. Complaints Customers who feel discriminated against in their relations with Tryg can complain. They can do so by sending an email to kvalitet@tryg.dk. Tryg employees who are exposed to discrimi- nation in their daily work must first contact their immediate superior. If this does not solve the problem, employees can contact their union representative or HR. Everyday peace of mind ordinary mail. However, in 2014, Tryg implemented responsible manner. Among other things, suppli- Global Reporting Initiative In 2014, Tryg was the first Danish insurance com- an email solution which makes it possible to send ers of automobile services to our customers and pany to roll out a hotline ‘Tryg i Livet’ counselling encrypted emails. Hence, Tryg has further improved services to our business units must report annually Tryg’s monitoring and reporting of our CSR service. The purpose is to ensure peace of mind for our data protection standards, while at the same on specific initiatives and results in the environ- efforts are based on the Global Reporting our Tryg Plus customers in their daily lives by offer- time ensuring that customers receive our communi- mental area and with respect to human rights, Initiative G3. Read more about the ing free counselling by psychologists who can help cations as quickly as possible. labour rights and anti-corruption. In 2014, 25 reporting system at globalreporting.org. them tackle crises or even prevent a problem from caravan workshops reported on their CSR efforts, Read more about Tryg’s CSR KPIs at developing into a crisis. Customers have unlim- Tryg Plus customers are helped in case of theft or and in 2015 an additional 400 car repairers will be tryg.com > CSR > CSR strategy > CSR KPIs. ited access to the service, which is anonymous to abuse of their personal data. In 2014, 240 Danish required to report. | Menu – Management’s review 37 Annual report 2014 | Tryg A/S | Menu – Financial statements 2014 TRYG GROUP 4 Insurance technical interest, 19 Premium provisions Note Statement by the Supervisory net of reinsurance Board and the Executive 5 Claims, net of reinsurance 64 64 19 Claims provisions 20 Pensions and similar liabilities Management 39 6 Insurance operating costs, 21 Deferred tax Independent auditor’s reports Financial highlights Income statement 40 41 42 dividends etc. net of reinsurance 64 22 Other provisions 7 Interest income and 23 Amounts owed to credit Statement of comprehensive 8 Value adjustments income 43 9 Tax Statement of financial position 44 10 Profit/loss on discontinued Statement of changes in equity 45 and divested business Cash flow statement 1 Risk and capital management 2 Operating segments 2 Geographical segments 46 47 58 60 11 Intangible assets 12 Property, plant and equipment 13 Investment property 69 69 69 69 70 72 73 institutions 24 Debt relating to unsettled funds transactions and repos 25 Earnings per share 26 Contractual obligations, collateral and contingent liabilities 27 Acquisition of subsidiaries 14 Equity investments in associates 73 28 Related parties 2 Technical result, net of 15 Financial assets reinsurance, by line of business 62 16 Reinsurers’ share 3 Premium income, net of 17 Current tax reinsurance 64 18 Equity 75 77 77 77 29 Financial highlights 30 Accounting policies Tryg’s Group consolidated financial statements are prepared in accordance with IFRS and published in Danish and English. 78 78 79 81 81 81 81 81 82 84 84 85 86 TRYG A/S (PARENT COMPANY) Income statement – Tryg A/S (parent company) 95 Statement of financial position – Tryg A/S (parent company) 96 Statement of changes in equity (parent company) Notes (parent company) REPORTING FOR Q4 Quarterly outline Geographical segments INFORMATION Other key ratios Group chart Glossary Product overview Disclaimer 97 98 101 103 104 105 106 107 108 | Menu – Financial statements Annual report 2014 | Tryg A/S | 38 Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Manage- company have been prepared in accordance with assets, liabilities and financial position at 31 and the parent company, the results for the year ment have today considered and adopted the the Danish Financial Business Act. In addition, the December 2014 and of the results of the Group’s and of the Group’s and the parent company’s annual report for 2014 of Tryg A/S and the Tryg annual report has been presented in accordance and the parent company’s operations and the cash financial position in general and describes signifi- Group. with additional Danish disclosure requirements for flows of the Group for the financial year cant risk and uncertainty factors that may affect the annual reports of listed financial enterprises. 1 January-31 December 2014. the Group and the parent company. The consolidated financial statements have been prepared in accordance with the International In our opinion, the accounting policies applied are Furthermore, in our opinion the Management’s We recommend that the annual report be adopted Financial Reporting Standards as adopted by the appropriate, and the annual report gives a true and report gives a true and fair view of developments by the shareholders at the annual general meeting. EU, and the financial statements of the parent fair view of the Group’s and the parent company’s in the activities and financial position of the Group Ballerup, 28 January 2015 Executive Management Morten Hübbe Group CEO Tor Magne Lønnum Group CFO Lars Bonde Group Executive Vice President and COO Supervisory Board 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 | Menu – Financial statements 39 Annual report 2014 | Tryg A/S | Independent auditor’s reports To the shareholders of Tryg A/S financial services companies as well as for the preparation of consolidated and parent financial Statement on the mangement’s review Report on the consolidated financial statements and parent financial statements preparation of parent financial statements that give statements that give a true and fair view in order to a true and fair view in accordance with the Danish design audit procedures that are appropriate in the Pursuant to the Danish Financial Business Act, we Financial Business Act and Danish disclosure circumstances, but not for the purpose of express- have read the mangement’s review. We have not requirements for listed financial services compa- ing an opinion on the effectiveness of the entity’s in- performed any further procedures in addition to nies, and for such internal control as management ternal control. An audit also includes evaluating the the audit of the consolidated and parent financial We have audited the consolidated and parent fi- determines is necessary to enable the preparation appropriateness of accounting policies used and statements. On this basis, it is our opinion that the nancial statements of Tryg A/S for the financial year and fair presentation of consolidated and parent the reasonableness of accounting estimates made information provided in the mangement’s review is 1 January to 31 December 2014, page 41-100, financial statements that are free from material by management, as well as the overall presentation consistent with the consolidated and parent finan- which comprise the income statement, statement misstatement, whether due to fraud or error. of the consolidated and parent financial statements. cial statements. of comprehensive income, statement of financial We believe that the audit evidence is sufficient and position, statement of changes in equity and notes, Auditor’s responsibility appropriate to provide a basis for our audit opinion. including the accounting policies, for the Group as Our responsibility is to express an opinion on the Our audit has not resulted in any qualification. well as for the parent company, and the consolidat- consolidated and parent financial statements based ed cash flow statement. The consolidated financial on our audit. We conducted our audit in accord- Opinion Ballerup, 28 January 2015 statements are prepared in accordance with Inter- ance with International Standards on Auditing In our opinion, the consolidated financial state- Deloitte national Financial Reporting Standards as adopted and additional requirements under Danish audit ments give a true and fair view of the Group’s Statsautoriseret Revisionspartnerselskab by the EU and the parent financial statements are regulation. This requires that we comply with ethi- financial position at 31 December 2014, and of prepared in accordance with the Danish Financial cal requirements and plan and perform the audit the results of its operations and cash flows for the Business Act. In addition, the consolidated and to obtain reasonable assurance about whether financial year 1 January to 31 December 2014 in parent financial statements are prepared in accord- the con solidated and parent financial statements accordance with International Financial Reporting ance with Danish disclosure requirements for listed are free from material misstatement. An audit Standards as adopted by the EU and Danish dis- financial services companies. involves performing procedures to obtain audit closure requirements for listed financial services Jens Ringbæk evidence about the amounts and disclosures in companies. Moreover, in our opinion, the parent State Authorised Public Accountant Management’s responsibility for the consolidated the consolidated and parent financial statements. financial statements give a true and fair view of the financial statements and parent financial statements The procedures selected depend on the auditor’s parent company’s financial position at 31 December Management is responsible for the preparation judgement, including the assessment of the risks 2014, and of the results of its operations for the of consolidated financial statements that give a of material misstatements of the consolidated and financial year 1 January to 31 December 2014 in true and fair view in accordance with International parent financial statements, whether due to fraud accordance with the Danish Financial Business Financial Reporting Standards as adopted by the or error. In making those risk assessments, the audi- Act and Danish disclosure requirements for listed Lone Møller Olsen EU and Danish disclosure requirements for listed tor considers internal control relevant to the entity’s financial services companies. State Authorised Public Accountant | Menu – Financial statements 40 Annual report 2014 | Tryg A/S | Financial highlights DKKm 2014 2013 2012 2011 2010 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 (%) 18,652 -12,650 -2,689 19,504 -14,411 -3,008 20,314 -14,675 -3,295 19,948 -15,783 -3,271 18,894 -15,111 -3,136 3,313 -341 60 3,032 360 -90 3,302 -755 2,547 10 2,557 1,131 31,692 1,938 11,119 52,224 67.8 1.8 69.6 14.6 84.2 14.4 83.8 4.8 23.0 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 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 90 894 507 171 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 13.1 112 647 -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 Solvency ratio (Solvency I – ratio between base capital and weighted assets) 87 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 respect 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 mainly Marine Hull insurance, which was divested in 2010 and 2014 and the Finnish branch of Tryg Forsikring, which was sold in 2012. | Menu – Financial statements 41 Annual report 2014 | Tryg A/S | Income statement DKKm 2014 2013 DKKm 2014 2013 Note General insurance Gross premiums written Ceded insurance premiums Change in premium provisions Change in reinsurers' share of premium provisions 3 Premium income, net of reinsurance 18,672 -1,059 268 -57 17,824 19,820 -1,220 36 24 18,660 Note 14 7 8 7 Investment activities Income from associates Income from investment property Interest income and dividends Value adjustments Interest expenses Administration expenses in connection with investment activities 4 Insurance technical interest, net of reinsurance 60 62 Claims paid Reinsurance cover received Change in claims provisions Change in the reinsurers' share of claims provisions 5 Claims, net of reinsurance -13,695 1,361 1,045 -688 -11,977 -14,059 1,034 -352 406 -12,971 Bonus and premium discounts -288 -352 Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers 6 Insurance operating costs, net of reinsurance -1,955 -734 -2,689 102 -2,587 -2,227 -781 -3,008 105 -2,903 2 Technical result 3,032 2,496 Total investment return 4 Return on insurance provisions Total investment return after insurance technical interest Other income Other costs Profit/loss before tax Tax 9 Profit/loss on continuing business 10 Profit/loss on discontinued and divested business 10 94 949 -95 -115 -69 774 -414 360 81 -171 3,302 -755 2,547 10 6 97 1,029 115 -112 -64 1,071 -483 588 100 -191 2,993 -620 2,373 -4 Profit/loss for the year 2,557 2,369 25 Earnings per share of DKK 25 – continuing business Diluted earnings per share of DKK 25 – continuing business Earnings per share of DKK 25 Diluted earnings per share of DKK 25 43.5 43.5 43.7 43.7 39.4 39.3 39.4 39.3 | Menu – Financial statements 42 Annual report 2014 | Tryg A/S | Statement of comprehensive income DKKm Note Profit/loss for the year Other comprehensive income Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions 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 2014 2,557 26 2 0 -46 12 -6 -178 191 -47 -34 -40 2,517 2013 2,369 0 9 -3 179 -54 131 -326 305 -76 -97 34 2,403 | Menu – Financial statements 43 Annual report 2014 | Tryg A/S | Statement of financial position DKKm Note 11 Assets Intangible assets Operating equipment Owner-occupied property Assets under construction 12 Total property, plant and equipment 13 Investment property 14 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 15 Total investment assets Reinsurers' share of premium provisions Reinsurers' share of claims provisions 19 16 Total reinsurers' share of provisions for insurance contracts Receivables from policyholders Total receivables in connection with direct insurance contracts Receivables from insurance enterprises Other receivables 15 Total receivables 17 Current tax assets Cash at bank and in hand Total other assets Interest and rent receivable Other prepayments and accrued income Total prepayments and accrued income 2014 2013 DKKm 2014 2013 Note 18 Equity and liabilities Equity 1 Subordinate loan capital Premium provisions 19 19 Claims provisions Provisions for bonuses and premium discounts Total provisions for insurance contracts Pensions and similar obligations 20 21 Deferred tax liability 22 Other provisions Total provisions Debt relating to direct insurance Debt relating to reinsurance Amounts owed to credit institutions 23 24 Debt relating to unsettled funds transactions and repos 15 Derivative financial instruments 17 Current tax liabilities Other debt Total debt Accruals and deferred income 11,119 1,768 5,810 25,272 610 31,692 342 1,022 83 1,447 565 188 116 2,902 799 429 1,153 6,152 46 11,107 1,818 6,212 26,087 640 32,939 791 1,057 73 1,921 447 330 6 2,821 514 409 1,033 5,560 26 Total equity and liabilities 52,224 53,371 1 26 27 28 29 30 Risk and capital management Contractual obligations, collateral and contingent liabilities Acquisition of subsidiaries Related parties Financial highlights Accounting policies 984 97 1,153 11 1,261 1,828 225 225 128 3,884 37,175 667 1,318 43,172 45,225 219 1,719 1,938 1,232 1,232 208 222 1,662 0 505 505 337 312 649 758 122 1,304 0 1,426 1,831 215 215 150 3,741 36,971 1,301 692 42,855 44,901 237 2,383 2,620 1,088 1,088 299 1,027 2,414 145 553 698 406 148 554 Total assets 52,224 53,371 | Menu – Financial statements 44 Annual report 2014 | Tryg A/S | Statement of changes in equity Reserve for DKKm Share Revaluation- exchange rate Equalisation- reserve capital adjustment reserves Other reservesa) Retained earnings Proposed dividend Total Equity at 31 December 2013 1,533 78 49 61 888 6,842 1,656 11,107 2014 Profit/loss for the year Other comprehensive income Total comprehensive income Nullification of own shares Dividend paid Dividend own shares Purchase and sale of own shares Exercise of share options Issue of employee shares Issue of share options and matching shares Total changes in equity in 2014 Equity at 31 December 2014 Equity at 31 December 2012 2013 Profit/loss for the year Other comprehensive income Total comprehensive income 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 Equity at 31 December 2013 0 -41 -41 1,492 1,533 0 0 0 1,533 2 2 -34 -34 60 -15 45 -81 41 -40 847 -34 813 41 59 -1,005 49 45 3 5 1,731 1,731 -1,656 75 2,557 -40 2,517 0 -1,656 59 -1,005 49 45 3 12 6,847 1,731 11,119 2 80 72 6 6 6 78 -34 15 45 106 -40 848 146 61 1,044 6,529 1,594 10,979 -97 -97 0 0 -156 0 -156 -97 49 0 61 -156 888 869 125 994 15 -800 100 4 313 1,656 0 1,656 -1,594 62 2,369 34 2,403 -1,594 15 -800 100 4 128 6,842 1,656 11,107 Proposed dividend per share DKK 29 (DKK 27 in 2013) 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 (59,695,516 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 2,622m (DKK 3,020m in 2013). 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. a) Other reserves contains Norwegian Natural Perils Pool | Menu – Financial statements 45 Annual report 2014 | Tryg A/S | Cash flow statement DKKm Note 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) Acquisition of intangble assets Hedging of currency risk Investments, continuing business Total investments 2014 2013 DKKm 2014 2013 Note 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 Total financing Change in cash and cash equivalents, net Additions relating to purchase of subsidiaries Exchange rate adjustment of cash and cash equivalents, 1 January Change in cash and cash equivalents, gross Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December -956 0 -1,656 110 -2,502 -2,502 -37 14 -25 -48 553 505 -700 316 -1,594 -8 -1,986 -1,986 88 0 -39 49 504 553 18,139 -13,584 229 -2,862 -190 1,732 995 -115 39 -512 -90 2,049 -58 1,991 -14 7 291 -386 630 -17 -228 191 474 474 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 0 305 392 -192 | Menu – Financial statements 46 Annual report 2014 | Tryg A/S | 1 Risk and capital management Risk management in Tryg The Supervisory Board defines the company’s risk appetite through its business model and strategy, and this is operationalised through the company’s policies. The company’s risk management forms the basis for the risk profile being in line with the specified risk appetite at all times. Tryg’s risk profile is continuously measured, quanti- fied and reported to the management and the Super- visory Board. Given that the requirements for the Supervisory Board’s involvement in the company’s capital and risk management are considerable and ever-growing, Tryg’s Supervisory Board has decided to set up a special Risk Committee to address these topics sepa- rately in the course of the year. The Committee meets five times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status. mented, and day-to-day compliance is verified on a regular basis. Risk management at the first level of control is supported by decentralised risk managers affiliated with the individual areas. At the second level of control, there is the risk management function which ensures consistent risk management across the organisation, among other things. The risk management function measures and assesses risks at group level and prepares continuous reporting to the management and the Supervisory Board. Among other things, this involves an ongoing identification and assessment of the most significant risks in the company. Furthermore, the function pre- pares specific recommendations in relation to capital management, reinsurance, interest rate risk identifica- tion and more. Tryg’s risk management function is also responsible for determining the company’s capital requirements and for assessing whether the calculated solvency requirement is reasonable given the identified risks. Tryg’s risk management is organised into three levels of control. The first level of control is handled in the business where the company’s policies are imple- At the second level, there is also Tryg’s committee en- vironment which deals with and monitors risk topics of a more principal and interdisciplinary nature. Line of defence Supervisory Board 1. Line of defence 2. Line of defence 3. Line of defence External audit (cid:127) Operational control (cid:127) Business controls (cid:127) Risk management (cid:127) Compliance (cid:127) Aktuarial function (cid:127) Internal audit Executive Management | Menu – Financial statements What risk profile does Tryg want? - Business model - Strategy - Policies How is this supported? Tactically - Policies - Capital plan - Contingency plan Operationally - Frameworks - Limitations - Instructions - Allocated capital - Contingency plans How is the actual risk profile measured? Tactically - Risk reports - Internal controls - Capital model - Stress tests Tryg's risk management environment Supervisory Board • Risk appetite • Capital • Strategy • Crisis management Supervisory Board’s Risk Committee Risk management environment Policies Executive Management Policies Risk reporting Recommen- dations Insurance Risk Committee Model Risk Committee Investment Risk Committee Operational Risk Committee Systematic risk assessment Reporting • Contingency • Control • Risk identification • Risk management 47 NotesAnnual report 2014 | Tryg A/S | The third level consists of the internal audit which performs independent assessments of the entire control environment. Capital management Tryg’s capital management is based on the key business objectives: • • • A solid capital base, supporting both the statutory requirements and a continued ‘ A-’ rating from Standard & Poor’s. Support of a steadily rising nominal dividend per share, where 60-90% of the net profit or loss for the yearis paid out in two instalments. Return on the average equity of at least 21% after tax. Viewed in isolation, in order to fulfil the first two ob- jectives, the company’s capital buffer must be as large as possible, while the third objective is best achieved by keeping the capital buffer to a minimum or by ensuring that the capital base is mostly made up of subordinate loan capital. The balance between the different objectives and the resulting capital require- ment is assessed in the company’s capital plan. The capital base is continuously measured against the individual solvency requirement calculated on the basis of Tryg’s partial internal model, where insurance risks are modelled using a internal model, while other risks are described using the Solvency II standard model. The model calculates Tryg’s capital requirement with 99.5% certainty with a 1-year horizon, which means that Tryg will be able to fulfil its obligations in 199 out of 200 years. The partial internal model has been used for a number of years, and Tryg expects that the model will be approved by the Danish Financial Supervisory Authority at the end of 2015 so that the present sol- vency requirement can be maintained when Solvency II comes into force on 1 January 2016. The model reflects all significant risks and takes (like the Solvency II standard model) into account the diversification between the different types of risks. The individual solvency requirement should be kept within the adequate capital base consisting of the company’s equity minus intangible assets plus sub- ordinate loan capital. The balance between equity and subordinate loan capital will be assessed in the course of 2015 in connection with the refinancing of the sub- Major risks DKKm 10,000 8,000 6,000 4,000 3,222 2,429 287 915 243 2,898 6,560 2,362 2,000 0 Non-life insurance Health insurance Market risk Counterpart risk Operational risk Tryg Garanti Diversification Total Solvency requirement ordinate loan of EUR 150m. This assessment takes into account the future Solvency II term ‘own funds’ as well as the temporarily increased access to in- cluding subordinate loan capital implemented by the Danish Financial Supervisory Authority from 1 January 2015. Underwriting risk Underwriting risk is the risk of the premium charged in connection with the conclusion of insurance con- tracts not being sufficient to cover the compensation that the company is obliged to pay once a claim is made. Tryg’s total subordinate debt amounts to DKK 1,768m, corresponding to 16% of equity at the end of 2014. Given Tryg’s strong results, Tryg decided to announce extraordinary dividend in November 2014 in the form of a share buyback programme of DKK 1,000m. The share buyback programme was launched on 2 January 2015. Company’s own risk assessment ‘ORSA’ (Own Risk and Solvency Assessment) ORSA is the company’s own risk assessment based on the Solvency II principles, which implies that Tryg must assess all material risks that the company is or may be exposed to. The ORSA report also contains an assessment of whether the individual solvency re- quirement is sensibly calculated in relation to Tryg’s actual risk profile. Moreover, the capital requirement is also assessed over the company’s strategic plan- ning period, and Tryg’s provisions and reinsurance are also subject to assessment. Tryg’s risk activities are underpinned by continuous risk management processes, which are dealt with by the Supervisory Board and the risk committee during the year, while the ORSA report is an annual summary document assessing all these processes and present- ing the total risk picture to Tryg’s Supervisory Board. Insurance risk Insurance risk comprises two main types of risks: underwriting risk and provisioning risk. Underwriting risk is managed first and foremost through the company’s insurance policy defined by the Supervisory Board, and administered through business procedures, insurance take out guidelines etc. Underwriting risk is assessed in Tryg’s capital model, determining the capital impact from various insurance products. Reinsurance is used as an important tool to reducing underwriting risk where a special need for this exists. In the event of major events involving damage to buildings and contents, Tryg’s reinsurance pro- gramme provides cover for up to DKK 5.75bn, which statistically is sufficient to cover a 250-year event. Retention for such events is DKK 150m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m for all claims above DKK 20m, after total annual retention of DKK 300m. Tryg has also taken out reinsurance for the risk of large claims occurring in sectors with very large sums insured. Tryg’s largest individual building and contents risks are covered by up to DKK 1.7bn. Retention for large claims is DKK 100m, gradually falling to DKK 25m. Single risks exceeding DKK 1.7bn are hedged individually. Tryg has combined the minimum cover of other sectors into a joint cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. For the individual sectors, individual cover has subsequently been taken out as needed. | Menu – Financial statements 48 NotesAnnual report 2014 | Tryg A/S | For Tryg’s subsidiary Tryg Garantiforsikring A/S, the maximum retention is DKK 30m. The use of reinsurance creates a natural counterparty risk. This risk be handled by applying a wide range of rein- surers with at least an ‘A’ rating and USD 100m in capital. Provisioning risk Provisioning risk relates to the risk of Tryg’s insurance provisions proving to be inadequate. The Supervisory Board lays down the overall framework for the han- dling of provisioning risk in the insurance policy, while the overall risk is measured in the capital model. The uncertainty associated with the calculation of claims provisions affects Tryg’s results through the run-off on provisions. Long-tail provisions in particular are subject to inter- est rate and inflation risk. Interest rate risk is hedged by means of Tryg’s match portfolio which corre- sponds to the discounted claims provisions. In order to counter the inflation risk of Danish workers’ com- pensation claims provisions, Tryg has bought zero coupon inflation swaps. Tryg determines the claims provisions via statistical calculations and individual assessments. At the end of 2014, Tryg’s claims provisions totalled DKK 25,272m with an average duration of 3.7 years. The duration expresses the average length of time from the provi- sion is determined until the compensation is paid and varies considerably from sector to sector. 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 investment 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, fol- low-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. Sensitivity analysis Insurance risk DKKm 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 frame- work defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s shareholdings constitute the company’s largest investment risk. At the end of 2014, the equity portfo- lio accounted for 5.7% of the total investment assets. This share is expected to be at a similar level in 2015. Tryg’s property portfolio mainly comprises owner- occupied and investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2014, investment properties accounted for 4.9%, while owner-occupied properties accounted for 2.7% of the total investment assets. Property investments are expected to be at a similar level in 2015. Tryg’s does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance busi- ness in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to Effect of 1% change in: Combined ratio (1 percentage point) Claim frequency (1 percentage point) Average claim Premium rates Provisioning risk 1% change in inflation in person-related lines of business 10% error in the assessment of long-tail lines of business (workers’ compensation, motor liability, liability, accident) Investment risk Interest rate market Effect of 1% increase in interest curve: Impact on interest-bearing securities Higher discounting of claims provisions Net impact of interest rate increase Impact of Norwegian pension obligation a) Equity market 15% decline in equity market Impact 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 Net impact of exchange rate decline Technical result per year: Impact of 15% change in NOK and SEK exchange rates relative to DKK 2014 2013 +/- 184 +/- 1,369 +/- 122 +/- 190 +/- 192 +/- 1,437 +/- 139 +/- 190 +/- 715 +/- 684 +/- 1,752 +/- 1,753 -880 793 -87 87 -393 -72 -488 -835 791 -44 -849 755 -94 282 -398 -35 -499 -1,031 985 -46 +/- 230 +/- 195 a) Additional sensitivity information can be found in Note 20 ‘Pensions and similar obligations’ | Menu – Financial statements 49 NotesAnnual report 2014 | Tryg A/S | Emerging risk Emerging risk covers new risks or known risks, with changing characteristics. The management of this type of risk will be handled in the individual business areas, which monitor the mar- ket and adapt the products as the conditions change. In the event of a change in insurance terms, it is en- sured that Tryg’s reinsurance cover is consistent with the new conditions. One example of this is drone insurance, where Tryg in 2014 decided to insure commercial purpose drones of up to 25 kg. In this context, there has been an ongo- ing dialogue with Tryg’s reinsurers to ensure that Tryg does not accept risks without having considered and identified the specific risk at the desired level. fluctuations in the other Scandinavian currencies due to its ongoing insurance activities. Premiums earned and compensation paid in other currencies create a natural currency hedge, for which reason other risk mitigation measures are not required in this area. How- ever, 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 ex- posed to credit, counterparty and concentration risk. These risks primarily relate to exposures 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 policy. For an insurance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. 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 an adequate control environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines covering the various aspects of the Group’s operations. Tryg has also set up a security and investi- gation unit to handle internal fraud, IT security, physi- cal security and contingency plans. The Supervisory Board defines the overall framework for managing operational risk in Tryg’s IT security policy and operational risk policy. These risks are controlled via the Operational Risk Committee. Tryg has set up a crisis management structure to deal with the eventuality that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and finally business contingency in the individual areas. Tryg has prepared contingency plans to address the most important areas. In addition, comprehensive IT contingency plans have been established, primarily focusing on the business-critical systems. Other risks Strategic risk The strategic risk is the risk of loss as a result of Tryg’s chosen strategic position. The strategic position cov- ers both business transactions, IT strategy, choice of business partners and changed market conditions. Tryg’s strategic position is determined by Tryg’s Supervisory Board in close collaboration with the Group Executive Management. Before determining the strategic position, the strate- gic decisions are subjected to a risk assessment, explaining the risk of the chosen strategy to Tryg’s Supervisory Board and Group Executive Management. Compliance risk Compliance risk is the risk of loss as a result of lack of compliance with rules and regulations. The handling of compliance risk is coordinated cen- trally via the Group’s legal department, which, among other things, sits on industry committees in connec- tion with legislative monitoring, ensures implementa- tion in Tryg through business procedures and partici- pates in the ongoing training of the organisation. Certain parts of the operationalisation take place via the decentralised risk manager structure, ensuring additional anchoring in the individual business areas. | Menu – Financial statements 50 NotesAnnual report 2014 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Gross 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10,443 10,468 10,334 10,224 9,962 10,035 9,814 9,702 9,666 9,625 9,393 9,393 -9,174 219 -10 Estimated accumulated 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 2003 and prior years Other Gross claims provisions, end of year 11,172 11,065 10,916 10,539 10,666 10,609 10,514 10,526 10,499 10,393 10,393 -9,898 495 -48 10,954 11,214 10,747 10,957 10,893 10,884 10,862 10,825 10,641 11,879 12,464 13,017 12,994 12,993 12,898 12,771 12,764 12,451 13,775 13,645 13,657 13,616 13,523 13,491 13,811 14,456 14,475 14,264 14,145 14,044 16,056 16,154 16,103 15,982 15,892 16,386 16,783 16,776 16,726 13,905 13,877 13,814 13,754 14,065 13,074 10,641 -9,939 12,764 -11,764 13,491 -11,900 14,044 -12,489 15,892 -13,801 16,726 -14,331 13,814 -10,964 14,065 -10,249 13,074 -6,214 144,298 -120,724 702 -68 999 -89 1,592 -130 1,555 -123 2,091 -133 2,395 -129 2,850 -138 3,816 -144 6,860 -156 23,574 -1,167 2,194 671 25,272 | Menu – Financial statements 51 NotesAnnual report 2014 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Ceded business 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 775 790 828 827 813 823 823 812 810 814 814 814 -757 56 -3 Estimated accumulated 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 2003 and prior years Other Reinsurers' share of claims provisions, end of year 924 819 824 819 844 840 825 825 817 829 829 -797 32 -1 278 278 265 296 297 292 290 292 290 290 -282 8 0 503 469 482 488 507 478 507 498 498 -484 14 0 163 227 193 183 183 170 176 176 -162 14 -1 287 357 335 290 293 298 298 -288 10 0 674 751 745 721 731 731 -562 169 -2 1,465 2,171 2,292 2,334 2,334 -2,171 163 -3 240 271 311 311 -269 42 -1 556 969 262 969 -570 399 -4 262 -91 170 -2 7,512 -6,434 1,078 -18 212 447 1,719 | Menu – Financial statements 52 NotesAnnual report 2014 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Net of reinsurance 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10,248 10,246 10,092 9,720 9,822 9,770 9,689 9,702 9,682 9,564 9,564 -9,101 463 -47 Estimated accumulated 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 9,668 9,678 9,506 9,397 9,149 9,212 8,991 8,890 8,856 8,811 8,580 8,580 Cumulative payments to date -8,417 163 -8 Provisions before discounting, end of year Discounting Reserves from 2003 and prior years Other Claims provisions, net of reinsurance, end of year 10,676 10,936 10,483 10,661 10,596 10,592 10,571 10,533 10,351 11,377 11,995 12,535 12,506 12,486 12,420 12,264 12,266 12,288 13,548 13,452 13,474 13,433 13,354 13,316 13,524 14,099 14,140 13,973 13,852 13,745 15,381 15,403 15,359 15,260 15,161 14,921 14,612 14,483 14,392 13,666 13,606 13,503 13,198 13,096 12,813 10,351 -9,657 12,266 -11,280 13,316 -11,737 13,745 -12,201 15,161 -13,239 14,392 -12,160 13,503 -10,696 694 -68 986 -89 1,578 -129 1,545 -123 1,922 -130 2,232 -126 2,808 -137 13,096 -9,679 3,417 -140 12,813 -6,124 136,786 -114,291 6,690 -153 22,497 -1,149 1,981 224 23,553 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 2014 to prevent the impact of exchange rate fluctuations. | Menu – Financial statements 53 NotesAnnual report 2014 | Tryg A/S | Claims provisions (continued) DKKm 2014 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 2013 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded Expected cash flow, not discounted 0-1 year 1-2 years 2-3 years > 3 years Other Total 5,337 -156 9,041 -529 13,693 5,765 -219 9,701 -844 14,403 130 0 4,282 -311 4,101 136 0 4,513 -255 4,394 124 0 2,716 -199 2,641 131 0 2,897 -258 2,770 133 0 9,945 -263 9,815 144 0 10,489 -496 10,137 86 -22 678 -451 291 36 -18 816 -603 231 5,810 -178 26,662 -1,753 30,541 6,212 -237 28,416 -2,456 31,935 Other comprises Tryg Garantiforsikring A/S and from 2014 premium provisions in Securator A/S. | Menu – Financial statements 54 NotesAnnual report 2014 | Tryg A/S | DKKm Investment risk Bond portfolio including interest derivatives 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 2014 413 207 674 1,096 563 2,953 128 2014 2013 Impact of exchange rate fluctuations in SEK and NOK on technical result 16,622 13,925 4,129 2,836 37,512 2.2 2014 2013 Change Gross premium income Gross claims Total insurance operating costs 18,652 -12,650 -2,689 3,313 Profit/loss on gross business Profit/loss on ceded business -341 Insurance technical interest, net of reinsurance 60 Technical result 3,032 19,504 -14,411 -3,008 2,085 349 62 2,496 -852 1,761 319 1,228 -690 -2 536 2013 2012 Change Gross premium income Gross claims Total insurance operating costs 19,504 -14,411 -3,008 2,085 Profit/loss on gross business Profit/loss on ceded business 349 Insurance technical interest, net of reinsurance 62 Technical result 2,496 20,314 -14,675 -3,295 2,344 86 62 2,492 -810 264 287 -259 263 0 4 Currency effect Change excl. currency effect -642 437 86 -119 10 -3 -112 -210 1,324 233 1,347 -700 1 648 Currency effect Change excl. currency effect -253 161 38 -54 11 -1 -44 -557 103 249 -205 252 1 48 18,748 14,000 3,188 2,403 38,339 2.3 2013 393 141 793 892 591 2,810 150 The share portfolio includes exposure from share derivaties of DKK 477m (DKK 325m in 2013) Unlisted equity investments are based on an estimated market price. Exposure to exchange rate risk 2014 2013 Assets and debt Hedge Exposure Assets and debt Hedge Exposure 1,952 530 79 3,701 1,076 541 -1,918 706 -69 -3,507 -998 -474 34 1,236 10 194 78 67 1,619 1,387 524 81 3,226 1,306 565 -1,335 664 -91 -2,981 -1,280 -379 52 1,188 -10 245 26 186 1,707 USD EUR GBP NOK SEK Other Total | Menu – Financial statements 55 NotesAnnual report 2014 | Tryg A/S | Impact of exchange rate fluctuations in SEK and NOK on the statement of financial position Credit risk DKKm 2014 2013 Change Currency effect Change excl. currency effect 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 984 1,261 1,828 225 43,172 1,938 1,662 505 649 758 1,426 1,831 215 42,855 2,620 2,414 698 554 226 -165 -3 10 317 -682 -752 -193 95 -30 -36 -25 -1 -1,391 -62 -65 -19 -9 Total assets 52,224 53,371 -1,147 -1,638 Equity and liabilities Equity Subordinate loan capital Provisions for insurance contracts Total provisions Other debt Accruals and deferred income Total equity and liabilities 11,119 1,768 31,692 1,447 6,152 46 52,224 11,107 1,818 32,939 1,921 5,560 26 53,371 12 -50 -1,247 -474 592 20 -1,147 13 -50 -1,062 -84 -453 -2 -1,638 256 -129 22 11 1,708 -620 -687 -174 104 491 -1 0 -185 -390 1,045 22 491 | Menu – Financial statements Bond portfolio by ratings AAA to A Other Not rated Total Reinsurance balances AAA to A Other Not rated Total 2014 DKKm 36,930 244 1 37,175 1,447 1 147 1,595 % 99.3 0.7 - 2013 DKKm 36,456 514 1 % 98.6 1.4 0.0 100.0 36,971 100.0 90.7 0.1 9.2 100.0 2,268 1 140 2,409 Liquidity risk Maturity of the Group’s financial obligations including interest 2014 0-1 years 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 2013 Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 87 116 2,902 428 2,335 5,868 89 6 2,821 219 2,219 5,354 243 0 0 225 0 468 356 0 0 199 0 555 2,209 0 0 189 0 2,398 2,558 0 0 125 0 2,683 Interest on loans for a perpetual term has been recognised for the first fifteen years. 94.2 0.0 5.8 100.0 Total 2,539 116 2,902 842 2,335 8,734 3,003 6 2,821 543 2,219 8,592 56 NotesAnnual report 2014 | Tryg A/S | Notes Subordinate loan capital The fair value of the loan at the statement of financial position date The fair value of the loan at the statment 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 Bond loan EUR 150m Bond loan NOK 800m 2014 1,106 99 3 50 4.5% 2013 1,127 101 5 50 4.1% 2014 714 108 4 40 3.6% 2013 741 105 5 33 4.8% Loan terms: Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure Listed bonds EUR 150m 99.017 December 2005 2025 2015 Interest-only 4.5% (until 2015) 2.1% above EURIBOR 3M (from 2015) Listed bonds NOK 800m 100 March 2013 Perpetual 2023 Interest-only 3.75 % above NIBOR 3M (until 2023) 4.75 % above NIBOR 3M (from 2023) The share of capital included in the calculation of the capital base total DKK 1,496m (DKK 1,551m in 2013). 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 credi- tors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liquida- tion 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. | Menu – Financial statements 57 Annual report 2014 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other Group 2 Operating segments 2014 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Other items Profit/loss 9,051 -6,129 -1,311 -23 24 1,612 Run-off gains/losses, net of reinsurance 357 Intangible assets Equity investments in associates Reinsurers' share of premium provisions Reinsurers' share of claims provisions Other assets Total assets Premium provisions Claims provisions Provisions for bonuses and premium discounts Other liabilities Total liabilities 10 154 2,423 6,062 488 4,190 -2,673 -664 8 14 875 310 37 12 346 1,425 6,742 51 4,033 -2,872 -446 -304 16 427 421 197 1,181 1,163 10,754 62 1,399 -998 -268 -21 6 118 43 600 0 38 799 1,714 9 -21 22 0 -1 0 0 0 347 225 0 0 49,077 0 0 0 9,413 18,652 -12,650 -2,689 -341 60 3,032 -475 2,557 1,131 984 225 219 1,719 49,077 52,224 5,810 25,272 610 9,413 41,105 Description of segments 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. | Menu – Financial statements 58 Annual report 2014 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other Group 2 Operating segments 2013 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Other items Profit/loss 9,366 -6,596 -1,418 -43 26 1,335 4,411 -2,978 -820 29 12 654 4,158 -3,661 -490 338 13 358 Run-off gains/losses, net of reinsurance 310 265 375 Intangible assets Equity investments in associates Reinsurers' share of premium provisions Reinsurers' share of claims provisions Other assets Total assets Premium provisions Claims provisions Provisions for bonuses and premium discounts Other liabilities Total liabilities 8 265 2,727 6,377 507 9 404 1,281 6,462 29 219 1,641 1,374 11,491 94 1,587 -1,178 -280 9 11 149 20 463 1 73 830 1,757 10 -18 2 0 16 0 0 0 295 215 0 0 49,778 0 0 0 9,325 19,504 -14,411 -3,008 349 62 2,496 -127 2,369 970 758 215 237 2,383 49,778 53,371 6,212 26,087 640 9,325 42,264 | Menu – Financial statements 59 Annual report 2014 | Tryg A/S | Notes DKKm 2 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 2014 2013 2012 2011 2010 a) Includes Danish general insurance and Finnish guarantee insurance. 9,361 1,510 564 66.9 2.1 69.0 15.1 84.1 9,534 1,202 566 79.5 -7.0 72.5 15.0 87.5 9,910 1,441 571 71.1 -0.2 70.9 14.5 85.4 10,019 1,033 770 83.3 -8.1 75.2 15.1 90.3 9,648 195 615 81.6 0.7 82.3 16.2 98.5 Number of full-time employees 31 December 2,007 2,046 2,187 2,315 2,349 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 7,337 1,478 501 66.5 1.4 67.9 12.5 80.4 7,819 1,258 387 65.1 4.1 69.2 15.3 84.5 8,239 1,017 465 72.4 -1.0 71.4 16.8 88.2 7,916 598 182 73.2 3.2 76.4 17.0 93.4 7,490 389 177 76.7 3.1 79.8 15.7 95.5 Number of full-time employees 31 December 1,167 1,199 1,282 1,338 1,338 | Menu – Financial statements 60 Annual report 2014 | Tryg A/S | Notes DKKm 2 Geographical segments 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 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 2014 2013 2012 2011 2010 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. 1,975 44 66 77.6 2.2 79.8 18.4 98.2 425 -21 0 2,169 36 17 80.6 0.7 81.3 17.6 98.9 458 -18 0 2,183 131 -21 75.3 1.5 76.8 18.6 95.4 444 -18 -97 2,050 -59 -7 82.0 2.6 84.6 20.3 104.9 423 -37 0 1,769 -124 32 84.6 0.8 85.4 22.4 107.8 414 -13 0 18,652 19,504 20,314 19,948 18,894 3,032 360 -90 3,302 1,131 67.8 1.8 69.6 14.6 84.2 2,496 588 -91 2,993 970 73.9 -1.8 72.1 15.6 87.7 2,492 585 -60 3,017 1,015 72.2 -0.4 71.8 16.4 88.2 3,913 189 1,572 61 -30 1,603 944 79.1 -2.5 76.6 16.6 93.2 4,076 242 460 550 -4 1,006 824 80.0 1.6 81.6 16.7 98.3 4,101 191 Number of full-time employees, continuing business at 31 Dec. Number of full-time employees, discontinued and divested business at 31 December 3,599 3,703 0 0 | Menu – Financial statements 61 Annual report 2014 | Tryg A/S | 2 Technical result, net of reinsurance, by line of business DKKm Gross premiums written 2014 1,692 1,663 Gross premium income - 1,212 Gross claims - 224 Gross operating expenses Profit/loss on ceded business - 7 Insurance technical interest, net of reinsurance 5 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 225 72.9 86.8 4.5% 33,560 37,228 Accident and health Health care Worker’s compensation Motor TPL Motor comprehensive insurance Marine, aviation and cargo insurance 2013 1,798 1,740 - 1,282 - 219 - 3 4 240 73.7 86.4 4.4% 36,905 36,480 2014 313 314 - 223 - 37 - 1 1 54 71.0 83.1 2013 324 326 - 209 - 29 0 1 89 64.1 73.0 2014 951 970 - 155 - 108 - 8 3 702 16.0 27.9 2013 1,039 1,007 - 394 - 128 - 36 - 6 443 39.1 55.4 128.3% 4,334 50,173 108.8% 4,918 45,694 17.4% 79,102 9,463 16.8% 89,638 9,209 2014 2013 2014 2013 2,098 2,134 - 1,556 - 337 - 51 7 197 72.9 91.1 5.6% 22,248 72,195 2,322 2,298 - 1,728 - 403 - 36 7 138 75.2 94.3 5.7% 24,059 73,973 3,747 3,715 - 2,295 - 555 16 11 892 61.8 76.3 3,986 3,884 - 2,532 - 602 - 2 14 762 65.2 80.7 2014 353 320 - 256 - 39 21 1 47 80.0 85.6 2013 359 344 - 167 - 39 - 91 1 48 48.5 86.3 18.1% 10,376 224,791 19.4% 10,644 238,955 19.8% 111,361 2,470 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 2013 2014 2013 2014 2013 2014 2013 Gross premiums written 2014 4,453 4,492 Gross premium income - 3,139 Gross claims - 671 Gross operating expenses Profit/loss on ceded business 22 Insurance technical interest, net of reinsurance 12 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 4,739 4,693 - 3,405 - 794 - 21 18 491 72.6 89.9 716 69.9 84.3 7.6% 9,615 333,943 9.0% 10,508 348,296 2,556 2,535 - 1,957 - 376 - 113 7 96 77.2 96.5 15.8% 62,035 29,686 2,651 2,632 - 1,933 - 419 - 126 10 164 73.4 94.1 23.1% 56,519 38,033 62 65 - 63 - 12 0 0 - 10 66 79 - 52 - 8 0 0 19 96.9 115.4 9.2% 20,263 4,255 65.8 75.9 8.1% 25,531 4,349 985 979 - 917 - 148 - 10 3 - 93 93.7 109.8 11.3% 81,763 10,454 986 978 - 848 - 135 50 3 48 86.7 95.4 2014 338 327 16 - 45 - 188 1 111 -4.9 66.4 2013 336 326 - 888 - 47 629 2 22 272.4 93.9 2014 573 568 - 450 - 79 - 2 2 39 79.2 93.5 2013 569 571 - 425 - 80 - 1 2 67 74.4 88.6 11.6% 59,246 10,566 0.1% 1,068,663 83 0.3% 6,994,362 127 19.4% 5,673 79,007 14.0% 8,265 54,848 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. a) b) Average claims are total claims before run-off in the year relative to the number of claims in the year. | Menu – Financial statements 62 NotesAnnual report 2014 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business DKKm Gross premiums written 2014 75 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance 84 - 14 - 15 - 20 1 Technical result Gross claims ratio Combined ratio Average claims DKK b) Total claims 36 16.7 58.3 59,818 220 Other insurance Total exclusive of Norwegian Group Life Norwegian Group Life one-year policies 2013 2014 2013 18,196 19,276 18,166 - 12,221 - 2,646 - 341 54 18,980 - 13,887 - 2,977 351 56 3,012 2,523 67.3 83.7 73.2 87.2 101 102 - 24 - 74 - 12 0 - 8 23.5 107.8 63,990 210 2014 476 486 - 429 - 43 0 6 20 88.3 97.1 2013 544 524 - 524 - 31 - 2 6 - 27 100.0 106.3 Total 2014 2013 18,672 19,820 18,652 - 12,650 - 2,689 - 341 60 19,504 - 14,411 - 3,008 349 62 3,032 2,496 67.8 84.2 73.9 87.7 | Menu – Financial statements 63 Annual report 2014 | Tryg A/S | 2014 2013 DKKm 2014 2013 18,872 67 18,939 1 18,940 -1,067 -49 17,824 19,740 83 19,823 33 19,856 -1,161 -35 18,660 Ceded -719 -39 -403 -1,161 6 Insurance operating costs, net of reinsurance Commissions regarding direct insurance contracts Other acquisition costs Total acquisition costs Administration expenses Insurance operating costs, gross Commission from reinsurers 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 -395 -1,560 -1,955 -734 -2,689 102 -2,587 -11 -11 -3 -1 -7 -11 -379 -1,848 -2,227 -781 -3,008 105 -2,903 -13 -13 -6 -1 -6 -13 -11 Expenses have been incurred for the Group´s Internal Audit Department. -10 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 pro- perty based on a calculated market rent of DKK 38m. (DKK 41m in 2013). DKKm 3 Premium income, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Ceded indirect insurance Direct insurance, by location of risk 2014 2013 Denmark Other EU countries Other countries Gross 9,488 1,943 7,442 Ceded -689 -30 -348 Gross 9,709 2,162 7,902 18,873 -1,067 19,773 DKKm 4 Insurance technical interest, net of reinsurance Return on insurance provisions Discounting transferred from claims provisions 5 Claims, net of reinsurance Claims Run-off previous years, gross Reinsurance cover received Run-off previous years, reinsurers' share 2014 2013 414 -354 60 -13,376 726 -12,650 268 405 -11,977 483 -421 62 -15,273 862 -14,411 1,332 108 -12,971 | Menu – Financial statements 64 NotesAnnual report 2014 | Tryg A/S | DKKm 6 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 26m (DKK 30m in 2013) Insurance operating costs and claims include the following staff expenses: Salaries and wages Commision Allocated share options and matching shares Pension plans Other social security costs Payroll tax 2014 2013 -395 -1,463 -213 -459 -272 -108 221 -2,689 -2,098 -7 -3 143 -5 -351 -2,321 -379 -1,802 -224 -411 -237 -110 155 -3,008 -2,122 -8 -4 -362 -5 -355 -2,856 Remuneration for the Supervisory Board and Executive Management is disclosed in note 28 'Related parties'. Average number of full-time employees during the year (continuing business) 3,639 3,800 | Menu – Financial statements 65 NotesAnnual report 2014 | Tryg A/S | Notes DKKm 6 Share option programmes Spec. of outstanding options: TOTAL NUMBERS FAIR VALUE 2014 Group Executive Management Other senior employees Other employees Total Per option Total value at time of at time of allocation allocation DKKm DKK Per option at 31 Dec. DKK Total value at 31 Dec. DKKm Allocation 2009-2011 Allocated in 2009-2011, 1 January Exercised Expired Outstanding options from 2009-2011 49,041 -26,351 0 147,990 -119,818 -1,600 32,852 -26,084 -2,650 229,883 -172,253 -4,250 94/75/72 94/75/72 94/75/72 allocation 31 Dec. 2014 22,690 26,572 4,118 53,380 Number of options exercisable 31 Dec. 2014 22,690 26,572 4,118 53,380 2013 Allocation 2008-2011 Allocated in 2008-2011, 1 January Exercised Cancelled Expired 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 Outstanding options from 2008-2011 allocation 31 Dec. 2013 49,041 147,990 32,852 229,883 Number of options exercisable 31 Dec. 2013 40,756 53,727 9,046 103,529 273/262 273/262 273/262 238/226/238 238/226/238 238/226/238 238/226/238 18 -13 0 5 42 -23 -1 -1 18 50 -36 0 14 99 -43 -2 0 54 Tryg did not allocate share options in 2014. At 31 December 2014, the share option plan com- prised 53.380 share options (229.883 share options at 31 December 2013). 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 0,1 % of the share capital in Tryg A/S if all share options are exercised. In 2014, the fair value of share options recognised in the consolidated income statement amounted to DKK 0m (DKK 2m in 2013). At 31 December 2014, a total amount of DKK 78m was recognised for share option programmes issued in 2006-2011. Fair values at the time of allocation are based on the Black & Scholes option pricing formula. There are no resigned Group Executive Managers with outstanding options at 31 December 2014. 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 calcu- lation 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. | Menu – Financial statements 66 Annual report 2014 | Tryg A/S | Notes DKKm 6 Share option programmes (continued) Spec. of outstanding options: Year of allocation Years of exercise 1 Jan. 2014 Allocation Exercised Cancelled Expired 31 Dec. 2014 2009 2010 2011 2012-2014 2013-2015 2014-2016 Outstanding options 31 December 2014 40,908 62,621 126,354 229,883 0 0 0 0 -36,658 -18,577 -117,018 -172,253 0 0 0 0 -4,250 0 0 -4,250 0 44,044 9,336 53,380 The assumptions by calculating the marketvalue at time of allocation Year of allocation Years of exercise 2009 2010 2011 2012-2014 2013-2015 2014-2016 Average share price at time of allocation DKK 313.51 320.04 295.83 Expected Volatility 37.70% 29.20% 30.00% Expected maturity Risk-free interest rate 4 years 4 years 4 years 2.80% 2.70% 3.00% Average term Average exercise share price 31 Dec. 2014 to maturity 31 Dec. 2014 0.00 0.08 0.55 0.00 273.02 261.90 | Menu – Financial statements 67 Annual report 2014 | Tryg A/S | Notes DKKm 6 Matching shares TOTAL NUMBERS FAIR VALUE Group Executive Management Other senior employees Average per matching share at grant date DKK Total Total value Average per at time of matching share at 31 Dec. allocation DKK DKKm Total value at 31 Dec. DKKm 2014 Allocated in 2014 3,471 6,011 9,482 Matching shares tildelt 2014 pr. 31.12.14 3,471 6,011 9,482 Allocated in 2011-2013 14,855 Cancelled 0 12,368 -2,644 27,223 -2,644 Matching shares allocated in 2011-2013 at 31.12.14 14,855 9,724 24,579 2013 Allocated in 2011-2013 14,855 Cancelled 0 12,368 -1,993 27,223 -1,993 Matching shares allocated in 2011-2013 at 31.12.13 14,855 10,375 25,230 515 515 339 339 339 339 339 339 5 5 9 0 9 9 0 9 689 689 689 689 689 525 525 525 7 7 19 -2 17 14 -1 13 In 2011-2014, Tryg entered into an agreement on matching shares for the Executive Management and selected other senior employees as a consequence of the Group’s remuneration policy. The Executive Man- agement 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 2014, the reported fair value of matching shares for the Group amounted to DKK 3m (DKK 2m in 2013). At 31 December 2014, a total amount of DKK 7m was recognised for matching shares. Bonus programmme In 2014 Tryg has adopted a bonus program based on share-based compensation and awards made in cash. The plan is designed to reward employees for their contribution to the performance of the Group and has conditions related to the financial performance. Each employee has the opportunity to decide on one of the two compensation elements. The recognition of the bonus program in 2014 constituting DKK 71 m. | Menu – Financial statements 68 Annual report 2014 | Tryg A/S | DKKm 7 Interest and dividends 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 8 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 2014 2013 DKKm 2014 2013 9 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 Tax adjustment, previous years Adjustment of non-taxable income and costs Change in valuation of tax assets Change in tax rate 10 Profit/loss on discontinued and divested business Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Insurance technical interest, net of reinsurance Technical result Other income and costs Profit/loss before tax Tax Profit/loss on discontinued and divested business 39 8 893 9 949 -90 -25 -115 834 -18 354 17 -129 596 2 822 23 -106 -741 -93 -917 -95 19 18 984 8 1,029 -89 -23 -112 917 -42 578 30 -250 -300 -5 11 -17 -76 298 -101 104 115 -809 -58 -8 140 -24 6 -2 -755 % 24.5 1.5 0.5 -4.0 1.0 -0.5 23.0 -3 31 -14 14 0 14 0 14 -4 10 -749 -58 -2 152 -20 58 -1 -620 % 25.0 2.0 0.0 -5.0 1.0 -2.0 21.0 202 -149 -55 -2 1 -1 1 0 -4 -4 Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK -179m (DKK -146m in 2013) | Menu – Financial statements 69 NotesAnnual report 2014 | Tryg A/S | DKKm 11 Intangible assets Trademarks and customer relations Goodwill Assets under con- Software a) struction a) 2014 Cost Cost at 1 January Exchange rate adjustments 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 Amortisation for the year Reversed amortisation Amortisation and write-downs at 31 December 381 -23 0 188 0 546 0 0 -4 0 -4 171 -11 0 40 0 936 -14 86 28 -8 200 1,028 -89 5 -20 0 -819 12 -82 9 270 -1 -86 107 0 290 -92 0 0 0 Total 1,758 -49 0 363 -8 2,064 -1,000 17 -106 9 -104 -880 -92 -1,080 DKKm 11 Intangible assets Trademarks and customer relations Goodwill 2013 Cost Cost at 1 January Exchange rate adjustments Transferred from asset under construction Additions for the year Cost at 31 December 397 -16 0 0 381 Amortisation and write-downs Amortisation and write-downs at 1 January Exchange rate adjustments Amortisation for the year Impairment losses and write-downs for the year Amortisation and write-downs at 31 December 0 0 0 0 0 178 -7 0 0 171 -73 3 -19 0 -89 Assets under con- Software a) struction a) 869 -26 77 16 936 -747 22 -81 -13 227 -1 -77 121 270 -92 0 0 0 Total 1,671 -50 0 137 1,758 -912 25 -100 -13 -819 -92 -1,000 Carrying amount at 31 December 542 96 148 198 984 Carrying amount at 31 December 381 82 117 178 758 a) Hereof developed in-house DKK 245m (DKK 245m at 31 December 2013) | Menu – Financial statements 70 NotesAnnual report 2014 | Tryg A/S | 11 Intangible assets (continued) 11 Intangible assets (continued) Impairment test In 2014, Tryg acquired Securator A/S, Optimal Djurförsäkring i Norr AB and Codan's agricultural portfolio. The insurance activities were incorporated into the Tryg Group's business structure. Goodwill At 31 December 2014, 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 Moderna and Securator, respectively. 2014 Moderna Securator 2013 Moderna Assumed annual Assumed annual groeth 0-10 years growth > 10 years Required return before tax 2.0% 3,0-36,0% 1.0% 3.0% 12.7% 10.8% Assumed annual Assumed annual groeth 0-10 years growth > 10 years Required return before tax 2.0% 0.0% 12.5% Trademarks and customer relations As at 31 December 2014, management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the goodwill test. The impairment test of the acquired agricultural portfolio is based on renewal and retention rates, which are on the expected level. The test did not indicate any impairment. Software and assets under construction As at 31 December 2014, 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 0m (DKK 13m in 2013). Assumptions for impairment test: The Value-in-use method is used. Moderna 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, excluding Modern Re S.A., were merged into Tryg For- sikring A/S as Moderna Forsäkringar, a branch of Tryg Forsikring A/S. Modern Re S.A. was discontinued in 2011. The cash flows appearing from the latest budgets approved by management for the next 3 financial years a re used when calculating the value in use of Moderna. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic 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 eq- uity of DKK 0.5bn and does not indicate any impairment. Securator The test for Securator A/S is based on the valuation at the time of acquisition due to the short ownership period and the lack of indications of impairment since the acquisition. The cash flows appearing from the latest budgets approved by management for the next 3 financial years are used when calculating the value in use of Securator. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic 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 238m relative to a recognised equity of DKK 174m and does not indicate any impairment. | Menu – Financial statements 71 NotesAnnual report 2014 | Tryg A/S | Notes 12 Property, plant and equipment DKKm 2014 Cost Cost at 1 January Exchange rate adjustments Additions for the year Cost at 31 December Operating equipment Owner-occupied property Assets under construction 237 -5 9 241 -115 2 -31 0 0 -144 97 228 -8 0 18 -1 237 -90 3 -28 0 0 -115 122 1,738 -29 2 1,711 -434 -5 -15 -106 2 -558 1,153 1,786 -60 10 2 0 1,738 -343 -9 -15 -76 9 -434 1,304 85 -2 11 94 -85 2 0 0 0 -83 11 101 -6 -10 0 0 85 -90 5 0 0 0 -85 0 2014 6.7 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 2m relating to the domicile in Ber- gen was subsequently included in other comprehen- sive income (DKK 9m in 2013) and impairment of DKK 106m relating to the domicile in Ballerup in the income statement (DKK 76m in 2013). The impair- ment 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, cor- responding 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 hierar- chy during the year. Total 2,060 -36 22 2,046 -634 -1 -46 -106 2 -785 1,261 2,115 -74 0 20 -1 2,060 -523 -1 -43 -76 9 -634 1,426 2013 6.7 Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January Exchange rate adjustments Depreciation for the year Value adjustments for the year at revalued amount in income statement Value adjustments for the year at revalued amount in other comprehensive income Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December 2013 Cost Cost at 1 January Exchange rate adjustments Transferred from assets under construction Additions for the year Disposals for the year Cost at 31 December Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January Exchange rate adjustments Depreciation for the year Value adjustments for the year at revalued amount in income statement Value adjustments for the year at revalued amount in other comprehensive income Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December The following return percentages have been applied: Return percentages, weighted average Office property | Menu – Financial statements 72 Annual report 2014 | Tryg A/S | DKKm 13 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 2014 2013 DKKm 2014 2013 1,831 -30 12 -7 23 -1 1,828 1,886 -52 16 -2 -17 0 1,831 14 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 Dividend received, this year Reversed on sale Value adjustments for the year Revaluations at 31 December 201 201 14 -1 0 -1 12 24 201 201 19 -3 -8 0 6 14 Carrying amount at 31 December 225 215 Total rental income for 2014 is DKK 124m (DKK 126m in 2013). Total expenses for 2014 are DKK 30m (DKK 29m in 2013). Of this amount, expenses for non-let property total DKK 4m (DKK 2m in 2013), total expenses for the income-generating investment property are DKK 26m (DKK 27m in 2013). 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 follo- wing return percentages were used for each property category: Return percentages, weighted average 2014 2013 Business property Office property Residential property Total 7.0 6.5 6.0 6.5 7.0 6.5 6.0 6.5 | Menu – Financial statements 73 NotesAnnual report 2014 | Tryg A/S | Notes DKKm 14 Equity investments in associates (continued) Shares in associates according to the latest annual report: Name and registered office Assets Liabilities Equity Revenue Profit/loss for the year Ownership share in % 2014 Komplementarselskabet af 1. marts 2006 ApS, Denmark 0 936 Ejendomsselskabet af 1. marts 2006 P/S, Denmark 54 AS Eidsvåg Fabrikker, Norway 2013 Komplementarselskabet af 1. marts 2006 ApS, Denmark 0 394 Ejendomsselskabet af 1. marts 2006 P/S, Denmark 52 AS Eidsvåg Fabrikker, Norway 5 Bilskadeinstituttet AS, Norge 0 240 7 0 0 7 0 0 696 47 0 394 45 5 0 47 18 0 26 16 2 0 36 4 0 12 6 0 50 30 28 50 50 28 30 Individual estimates are made of the degree of influence under the contracts made. | Menu – Financial statements 74 Annual report 2014 | Tryg A/S | DKKm 15 Financial assets Financial assets at fair value with value adjustments in the income statement 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 142 2,167 45,339 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 Financial liabilities at fair value with value adjustment in the income statement Total financial liabilities 799 7,121 7,920 73 3,112 45,967 514 6,864 7,378 Information on valuation of subordinate loan capital at fair value is stated in note 1. Other financial li- abilities measured at amortised cost only deviate to a minor extent from fair value. 2014 2013 DKKm 15 Financial assets (Continued) Fair value hierarchy for financial instruments measured at fair value in the statement of financial position 43,030 42,782 2014 Equity investments Unit trust units Bonds Deposits with credit institutions Derivative financial instruments, assets Derivative financial instruments, debt 2013 Equity investments Unit trust units Bonds Deposits with credit institutions Derivative financial instruments, assets Derivative financial instruments, debt Qouted Observable input market price Non- observable input 0 3,884 22,259 667 0 0 26,810 0 3,741 25,068 1,301 0 0 30,110 0 0 14,915 0 1,318 -799 15,434 0 0 11,903 0 692 -514 12,081 128 0 1 0 0 0 129 150 0 0 0 0 0 150 Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: 2014 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 150 -4 -18 8 -8 1 129 -18 Total 128 3,884 37,175 667 1,318 -799 42,373 150 3,741 36,971 1,301 692 -514 42,341 2013 209 -10 -48 3 -4 0 150 -42 Bonds measured on the basis of observable inputs consist of Norwegian bonds issued by banks and to some extent Danish semi-liquid bonds, where no quoted prices based on actual trades are available. No significant reclassifications have been made between the categories 'Quoted prices' and 'Observable input' in 2014. 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 -438m (DKK -166m in 2013). | Menu – Financial statements 75 NotesAnnual report 2014 | Tryg A/S | DKKm 15 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 % 2014 2013 DKKm 34 -95 -371 -239 -11 -399 -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: 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 2014 2013 Fair value in statement of finacial position 434 0 85 Nominal 25,882 477 7,790 Nominal 26,015 325 9,352 34,149 519 35,692 3,221 37,370 19,438 9,720 8,212 -438 81 86 -70 65 3,311 39,003 16,003 14,169 8,831 Fair value in statement of finacial position 88 3 87 178 -166 12 -58 55 15 Derivatives, repos and reverses are used continuously as part of the cash and risk management carried out by Tryg and its portfolio managers. 15 Financial assets (continued) Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes Gains and losses on hedges charged to other comprehensive income 2014 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December 2013 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December Gains 1,787 365 2,152 Gains 1,447 340 1,787 Losses -1,988 -174 -2,162 Losses -1,953 -35 -1,988 Net -201 191 -10 Net -506 305 -201 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 2014 201 -178 23 2013 527 -326 201 | Menu – Financial statements 76 NotesAnnual report 2014 | Tryg A/S | 2014 2013 DKKm 2014 2013 DKKm 15 Financial assets (continued) Receivables Receivables from insurance enterprises 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 1,439 0 223 1,662 112 -4 -1 107 1,387 885 142 2,414 113 -7 6 112 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 54m (DKK 43m in 2013). Receivables in connection with insurance contracts include overdue receivables totalling: Falling due: Within 90 days After 90 days 164 122 Including writedowns of due amounts Other receivables do not contain overdue receivables 16 Reinsurer's share Reinsurers' share Write-downs after impairment test 286 107 1,958 -20 1,938 194 108 302 112 2,647 -27 2,620 17 Current tax Net current tax at 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 -264 26 -632 -47 -24 512 -429 0 -429 -429 -652 64 -631 -76 14 1,017 -264 145 -409 -264 Net current tax 18 Equity Number of shares Number of shares of 25 DKK (1,000) Number of shares at 1 January Bought during the year Cancellation in connection with buyback programme Used in connection with exercise of incentive programme Shares outstanding 2013 2014 59,374 -1,793 60,695 -1,621 Own shares 2014 1,942 1,793 2013 621 1,621 0 0 -1,620 0 Number of shares at 31 December 57,824 59,374 243 300 -243 1,872 -300 1,942 Impairment test As at 31 December 2014, management performed a test of the carrying amount of total reinsurers' share of provisions for insurance contracts. The impairment test resulted in impairment charges total- ling DKK 20m (DKK 27m in 2013). Write-downs for the year include reversed write-downs totalling DKK 0m (DKK 0m in 2013). There is no overdue reinsurers' share other than the share alredy provided for. Number of shares as a percentage of issued shares at 31 December Nominal value at 31 december (DKKm) 96.86 1,446 96.83 1,484 3.14 47 3.17 49 Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 3 April 2019. Own shares are acquired for use in the Group's incentive programme and as part of the share buyback programme. | Menu – Financial statements 77 NotesAnnual report 2014 | Tryg A/S | 2014 2013 DKKm Gross Ceded Net of reinsurance DKKm 18 Equity (continued) 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 11,119 -1,731 -2,353 7,035 1,496 -2,353 6,178 11,107 -1,656 -2,307 7,144 1,551 -2,307 6,388 7,122 7,111 Solvency ratio (Solvency I – ratio between capital base and weighted assets) 87 90 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. 19 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) 6,176 -202 17,692 -17,951 9 5,724 86 5,810 6,658 -335 18,740 -18,881 -6 6,176 36 6,212 a) Comprises premium provisions for Tryg Garantiforsikring A/S and Securator A/S. 19 Claims provisions 2014 Claims provisions at 1 January Value adjustments of provisions , beginning of year 25,271 -839 24,432 Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years -6,215 -6,917 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) 2013 Total at 1 January Value adjustments of provisions, beginning of year -13,132 12,835 -638 12,197 1,104 24,601 671 25,272 26,842 -1,569 25,273 Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years -6,571 -6,604 Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years Discounting and exchange rate adjustment Claims provisions at 31 December Other a) -13,175 13,902 -854 13,048 125 25,271 816 26,087 a) Comprises claims provisions for Tryg Garantiforsikring A/S. -1,780 58 -1,722 90 1,143 1,233 -251 -481 -732 -51 -1,272 -447 -1,719 -1,893 126 -1,767 43 628 671 -562 -103 -665 -19 -1,780 -603 -2,383 23,491 -781 22,710 -6,125 -5,774 -11,899 12,584 -1,119 11,465 1,053 23,329 224 23,553 24,949 -1,443 23,506 -6,528 -5,976 -12,504 13,340 -957 12,383 106 23,491 213 23,704 | Menu – Financial statements 78 NotesAnnual report 2014 | Tryg A/S | DKKm 2014 2013 DKKm 2014 2013 20 Pensions and similar obligations Jubilees Recognised liability 62 62 Defined-benefit pension plans: Present value of pension obligations funded through operations 63 Present value of pension obligations funded through establishment of funds 1,227 Pension obligation, gross Fair value of plan assets Pension obligation, net Specification of change in recognised pension obligations: Recognised pension obligation at 1 January Adjustment regarding plan changes not recognised in the income statement and expected estimate deviation a) 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 1,290 1,010 280 1,756 -421 -123 41 38 58 -59 1,290 1,033 -72 57 32 4 -44 1,010 280 342 68 68 86 1,671 1,757 1,034 723 2,151 0 -278 63 39 -157 -62 1,756 1,109 -144 81 21 10 -44 1,033 723 791 a) The change of the pension scheme in Norway is carried out in the same way as has been done for other major financial companies in Norway and causes a reduction in the provision. 20 Pensions and similar obligations (continued) 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 Effect associated with change in agreement 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 Other Average return on plan assets Weighted average duration of the defined benefit obligation Assumptions used: Discount rate Estimated return on pension funds Salary adjustments Pension adjustments G adjustments Turnover Employer contributions Mortality table 38 39 -33 6 -421 -371 53 1,289 % 10 73 15 2 2.7 18 2.1 2.1 3.3 0.1 3.0 7.0 14.1 K2013 56 42 -23 11 0 86 78 1,376 % 10 73 15 2 3.3 18 3.3 3.3 3.8 3.5 3.5 7.0 14.0 K2013 | Menu – Financial statements 79 NotesAnnual report 2014 | Tryg A/S | DKKm 20 2014 2013 DKKm Pensions and similar obligations (continued) Sensitivity information The sensitivity analysis is based on a change in one of the assumptions, assuming that all other as- sumptions 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. 20 Pensions and similar obligations (continued) 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 insured with Försäkringsbranschens Pensionskassa – FPK. Under the terms of the agreement, the Group’s Swedish branch has undertaken, along with the other busi- nesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules. 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 Turnover, increase of 2.0 percentage point Turnover, decrease of 2.0 percentage point 27 -30 -55 45 49 -61 80 -70 -65 69 66 -84 Description of the Norwegian plan In the Norwegian part of the group, about half of the employees have a defined-benefit pension plan. The plans are based on the employees' expected 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 contri- butions for a full period of contribution are guaranteed a pension corresponding to 66% of their final pay. As of 2014, pensions being disbursed are no longer regulated in step with the basic amount of old-age pension paid in Norway (G regulation), but are subject to a minimum regulation. Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children's pension. The pension funds are managed by Nordea Liv & Pension and regulated by local legislation and practice. 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 2 % of the annual premium in FPK (2013). FPK writes in its interim report for 2014 that it had a collective consolidation ratio of 110 at 30 June 2014 (consolidation ratio of 114 at 30 June 2013). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations. | Menu – Financial statements 80 NotesAnnual report 2014 | Tryg A/S | 2014 2013 DKKm 2014 2013 DKKm 21 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 11 60 1 72 77 229 3 785 1,094 1,022 Unaccrued timing differences of statement of financial position items 146 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 1,057 -62 -6 -16 6 22 24 -3 1,022 18 2 0 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 gen- erate 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 14m (DKK -133m at 31 December 2013). | Menu – Financial statements 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 22 Other provisions Other provisions at 1 January Change in provisions Other provisions 31 December 73 10 83 98 -25 73 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 79m (DKK 23m at 31 December 2013). 23 Amounts owed to credit institutions Overdraft facilities 24 Debt relating to unsettled funds transactions and repos Unsettled fund transactions Repo debt 116 116 885 2,017 2,902 Unsettled fund transactions include debt for bonds purchased in 2013 and 2014; however, with settlement in 2014 and 2015, respectively. 25 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 Diluted 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 2,547 10 2,557 58,504 54 58,558 43.5 43.5 43.7 43.7 0.2 0.2 6 6 148 2,673 2,821 2,373 -4 2,369 60,155 104 60,259 39.4 39.3 39.4 39.3 0.0 0.0 81 NotesAnnual report 2014 | Tryg A/S | DKKm DKKm 2014 2013 26 Contractual obligations, collateral and contingent liabilities Contractual obligations 26 Contractual obligations, collateral and contingent liabilities (continued) Collateral 2014 <1 year 1-3 years 3-5 years > 5 years Total Obligations due by period Operating leases Other contractual obligations 2013 Operating leases Other contractual obligations 62 410 472 150 298 448 101 83 184 182 12 194 71 0 71 75 0 75 67 0 67 73 0 73 301 493 794 480 310 790 Tryg has signed the following contracts with amounts above DKK 50m: Outsourcing agreement with TCS for DKK 193m for a 4 year period, which expires in 2017. Lease contracts on premises for DKK 265m. The contracts expire after 5 years. Operation of mainframe contract of DKK 62m, which expires in late 2017. Telephony services contract with Telenor for DKK 84m, which expires in 2015 and 2017 respectively. Collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The compa- nies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. 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 Interest and rent receivable Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements Total 15 128 3,884 34,273 667 439 337 1,730 41,473 18 150 3,741 34,867 1,301 585 403 1,944 43,009 | Menu – Financial statements 82 NotesAnnual report 2014 | Tryg A/S | Contingent liabilities Companies in the Tryg Group are party to a number of disputes in Denmark, Norway and Sweden. Management believes that the outcome of disputes will not affect the Group's financial position signifi- cantly beyond the obligations recognized in the state- ment of financial position at 31 December 2014. Notes DKKm 26 Contractual obligations, collateral and contingent liabilities (continued) Offsetting and collateral in relation to financial assets and obligations Gross amount before offsetting According to the statement of financial position Offsetting Bonds as colla- teral for repos/ reverse repos Collateral in cash Net amount Collateral which is not offset in the statement of financial position 2014 Assets Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 2013 Assets Reverse repos Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 1,318 1,318 2,017 799 438 3,254 885 692 1,577 2,673 514 166 3,353 0 0 0 0 0 0 0 0 0 0 0 0 0 1,318 1,318 2,017 799 438 3,254 885 692 1,577 2,673 514 166 3,353 0 0 -2,017 0 0 -2,017 -885 0 -885 -2,673 0 0 -2,673 -1,324 -1,324 -1 -767 -448 -1,216 0 -553 -553 0 -433 -155 -588 -6 -6 -1 32 -10 21 0 139 139 0 81 11 92 | Menu – Financial statements 83 Annual report 2014 | Tryg A/S | 2014 DKKm 2014 2013 DKKm 27 Acquisition of subsidiaries In June 2014 the Tryg Group has taken control of Securator A/S and in September 2014 of Optimal Djurförsäkring i Norr AB by acquiring all shares in the companies. Securator A/S is a Danish market leader within the sale and brokering of multi-annual product insurance via dealers in the electronics and telecommunications sector and supermarket chains. The acquisition is expected to increase Tryg's market share within product insurance by providing access to Securator A/S's customer port- folio and distribution channels. Optimal Djurförsäkring i Norr AB is a swedish market leader within the sale of pet insurance. Tryg also expects to realise cost savings through synergies. Intangible assets Intangible assets Equipment Receivables, other assets and accrued income Provisions for insurance contracts Other provisions Debt and accruals and deferred income Net assets acquired Goodwill Purchase price Hereof cash Purchase price in cash 0 1 65 -37 0 -40 -11 188 177 14 163 The Group has not incurred any significant acquisition costs in connection with the acquisition. In connection with the acquisitions, a sum was paid which exceeds the fair value of the identifiable ac- quired assets, liabilities and contingent liabilities. This positive balance is mainly attributable to ex- pected synergies between the activities in the acquired enterprises and the Group’s existing activities, future growth opportunities as well as the staff of the acquired enterprises. These synergies have not been recognised separately from goodwill as they are not separately identifiable. Goodwill is not ex- pected to be deductible for tax purposes. The enterprises are included in premium income and in the results for the year with an insignificant amount due to the short ownership period and the Management believes that these pro forma figu- res reflect the Group’s earnings level after the acquisition of the enterprises and that the amounts may therefore form the basis for comparisons in subsequent financial years. | Menu – Financial statements 27 Acquisition of subsidiaries (continued) The determination of the pro forma amounts for premium income and profit for the period is based on the following significant assumptions: • Premiums and claims have been calculated on the basis of the fair values determined in the pre-acquisition balance sheets for premium and claims provisions, rather than the original carrying amounts. • Other costs, including depreciation of property, plant and equipment and amortisation of intangible assets, have been calculated on the basis of the fair values determined in the pre-acquisition balance sheets, rather than the original carrying amounts. 28 Related parties The group has no related parties with a decisive influence other than the parent company, Trygheds- Gruppen smba and the subsidiaries of TryghedsGruppen smba (other related parties). Related parties with significant influence include the Supervisory Board, the Executive Management and their mem- bers’ family. Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Parent company (TryghedsGruppen smba) - Key management - Other related parties 0.3 0.3 2.5 0.1 0.1 0.3 0.3 0.4 1.9 0.2 0.1 0.2 84 NotesAnnual report 2014 | Tryg A/S | DKKm 28 DKKm 28 Related parties (continued) Specification of remuneration 2014 Supervisory Board Executive Management Risk-takers a) Exclusive of severance pay Of which retired: Risk-takere Number of persons Basis salary Variable salary Pension Total a) 12 3 10 25 7 19 22 48 0 2 1 3 0 4 5 9 7 25 28 60 Number of persons Serverance pay 2 2 0 0 There has not been paid any severance pay of more than DKK 1m. 2013 Supervisory Board Executive Management Risk-takers a) Exclusive of severance pay Of which retired: Bestyrelse Risk-takere Number of persons Basis salary Variable salary Pension Total a) 14 3 10 27 7 18 20 45 0 1 0 1 0 4 5 9 7 23 25 55 Number of persons Serverance pay 2 1 3 0 5 5 The maximum amount paid in severance pay to an individual is DKK 5m. 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. Refer- ence is made to section 'Corporate governance' of the management's review on the corresponding dis- bursements. The Executive Management and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this. Related parties (continued) 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 Executive Management is paid a fixed remuneration and pension. The variable salary is awarded in the form of a matching share programme, see 'Corporate governance'. Besides this, the directors have free car appropriate to their position as well as other market conformal employee benefits. 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 further claims in this respect, for example claims for compensation pursuant to Sections 2a and/or 2b of the Dansih Salaried Em- ployees 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 decides 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:: - Providing and receiving services - Interest expenses 2014 1 0 2013 0 6 Transactions between TryghedsGruppen smba and Tryg A/S are conducted on an arm's length basis. Intra-group transactions: Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry in- terest 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. 29 Financial highlights Please refer to page 41. | Menu – Financial statements 85 NotesAnnual report 2014 | Tryg A/S | 30 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 De- cember 2014 and in accordance with the Danish Stat- utory Order on Adoption of IFRS. The annual report of the parent company is prepared in accordance with the executive order on financial re- ports presented by insurance companies and lateral pension funds issued by the Danish FSA. The devia- tions from the recognition and measurement require- ments of IFRS are: • • Investments in subsidiaries are valued according to the equity method, whereas under IFRS valua- tion is made at cost or fair value. Furthermore the requirements regarding presentation and disclo- sure are less comprehensive than under IFRS. The Danish FSA’s executive order does not allow pro- visions for deferred tax of contingency reserves allo- cated 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 Some of the Group's assets, mainly "Investment prop- erty" of DKK 191m in 2013, have been reclassified to "Investments in associates" following the implemen- tation of IFRS 11 and IAS 28, according to which the Group's interest in joint ventures must be accounted for using the equity method. So far, property has been recognised using the pro-rata method. A reclassifica- tion has been made in respect of other debt of DKK 431m in 2013 from the main item "Accruals and de- ferred income" to "Total debt". The reclassification is due to change in due date. The distribution on segments between Commercial an Corporate as to medium sized enterprise has been altered during H1 2014. The comparative figures have been restated to reflect the above changes. Except as noted above, the account- ing policies have been applied consistently with last year. Future orders, standards and interpretations that the group has not implemented and which have still not entered into force: Accounting regulation Implementation of changes to accounting standards and interpretation in 2014 The International Accounting Standards Board (IASB) has issued a number of changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards or interpretations have been imple- mented for the first time for the accounting year that began on 1st January 2014 that will have a significant impact on the group. New or amended standards and interpretations that have been implemented but have not significantly af- fected the group: • • • Amendments to IAS 39 ‘novations of derivaties’ IFRS 10 ‘ Consolidated Financial Statements’ • IFRS 11 ‘Joint Arrangements’ • IFRS 12 ‘Disclosure of interests in Other Entities’ • Amendments to IFRS 10, 11 and 12 ‘transitional • guidedance’ IAS 27 (as revised in 2011) ‘Separate Financial Statements’ IAS 28 (as revised in 2011) ‘Investments in Associates and Joint Ventures’ IFRIC 21 ‘Levies’ 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 periodes of service’ Amendments to IAS 32 ‘offsetting of assets and liabilities’ Amendments to IAS 36 ‘Recoverable Amount Disclosures for Non-financial Assets’ • • • • • • • • • • • IFRS 7 ‘Deferral of mandatory effective dates’ b) Amendments to IFRS 2 ‘Definition of ‘vesting condition’’ a) Amendments to IFRS 3 ‘accounting for contingent consideration’ a) Amendments to IFRS 3 ‘scope exception for joint ventures’ a) Amendments to IFRS 8 ‘aggregation of segments, reconciliation of segment assets’ a) Amendments to IFRS 13 ‘scope of the portfolio exception in paragraph 52’ a) Amendments to IAS 16 and IAS 38 ‘proportionate restatement of accumulated depreciation on revaluation’ a) • Amendments to IAS 24 ‘management entities’ a) • • • • • • Amendments to IAS 40 ‘interrelationship between IFRS 3 and IAS 40’ a) IFRS 14 ‘Regulatory Deferral Accounts’ c) Amendments to IAS 16 ‘Clarification of acceptable methods of depreciatioon and amotisation’ c) Amendments to IAS 19 ‘Actuarial assumptions: discount rate’ c) Amendments to IAS 27 ‘reinstating the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements’ c) Amendments to IAS 28 ‘regarding the sale or contribution of assets between an investor and its associate or joint venture’ c) • Amendments to IAS 34 ‘Other disclosures’ c) • Amendments to IAS 38 ‘Clarification of acceptable methods of depreciatioon and amotisation’ c) IFRS 15 ‘Revenue from Contracts with Customers’ d) IFRS 9 ‘Financial Instruments’ e) • • a) b) c) d) e) enters into force for the accounting year commencing 1 July 2014 or later. enters into force for the accounting year commencing 1 January 2015 or later. enters into force for the accounting year commencing 1 January 2016 or later. enters into force for the accounting year commencing 1 January 2017 or later. enters into force for the accounting year commencing 1 January 2018 or later. The changes will be implemented going forward from 2015. As for now the changes will not significantly affect the Group Changes to accounting estimates There have been no changes to the accounting estimates in 2014. Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting esti- mates and requires management to exercise its judge- ment in the process of applying the Group’s account- ing policies. The areas involving a higher degree of judgement or complexity, or areas where assump- tions 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 repre- sent the Group’s most critical accounting estimates, as these provisions involve a number of uncertainty factors. | Menu – Financial statements 86 NotesAnnual report 2014 | Tryg A/S | Claims provisions are estimated based on actuarial and statistical projections of claims and the adminis- tration of claims. The projections are based on Tryg’s knowledge of historical developments, payment pat- terns, reporting delays, duration of the claims settle- ment process and other factors that might influence future developments in the liabilities. The Norwegian and Swedish provisions are dis- counted based on euro swap rates, to which a coun- try-specific interest rate spread is added that reflects the difference between Norwegian and Swedish gov- ernment bonds and the interest rate on German gov- ernment bonds. Finnish provisions are discounted us- ing the Danish discount curve. sessed 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 in- come, as well as operating expenses in proportion to the property’s required rate of return in per cent. 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. 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 re- serves) 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 uncertain 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 nega- tive effects on earnings. Discounting affects the mo- tor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accident, in particular. The Financial Supervisory Authority’s adjusted dis- count curve, which is based on euro swap rates, na- tional spreads and Danish swap rates, and also an op- tion-adjusted mortgage interest rate spread, is used to discount Danish claims provisions. Several assumptions and estimates underlying the calculation of the claims provisions are mutually de- pendent. This has the greatest impact on assump- tions 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 ser- vice and salary. The net obligation with respect to the defined- benefit plan is based on actuarial calculations involving a number of assumptions. The assumptions include discount interest rate, expected future salary and pen- sion 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 observa- ble market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that re- flects the fair value of the instrument, the fair value is determined using a current OTC price of a similar finan- cial 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. Investment property is recognised at fair value. The calculation of fair value is based on market prices, tak- ing into consideration the type of property, location and maintenance standard, and based on a market- determined rental income as well as operating ex- penses in proportion to the property’s required rate of return. Cf. note 12 and 13. Measurement of goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations was ac- quired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units un- der which management manages the investment. The carrying amount is tested for impairment at least an- nually. Impairment testing involves estimates of future cash flows and is affected by a number of factors, in- cluding discount rates and other circumstances de- pendent on economic trends, such as customer be- haviour and competition. Cf. note 11. Description of accounting policies Recognition and measurement The annual report has been prepared under the historical cost convention, as modified by the revaluation of owner- occupied property, where increases are recognised in other comprehensive income, and revaluation of invest- ment property, financial assets held for trading and finan- cial assets and financial liabilities (including derivative in- struments) at fair value in the income statement. Valuation of property Property is divided into owner-occupied property and investment property. Owner-occupied property is as- Assets are recognised in the statement of financial po- sition when it is probable that future economic bene- fits will flow to the Group, and the value of such assets On initial recognition, assets and liabilities are meas- ured at cost, with the exception of financial assets, which are recognised at fair value. Measurement sub- sequent 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 re- port and that confirm or invalidate affairs and condi- tions 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 income statement unless otherwise described below. All amounts in the notes are shown in millions of DKK, unless otherwise stated. Consolidated financial statements The consolidated financial statements comprise the financial statements of Tryg A/S (the parent company) and the enterprises (subsidiaries) controlled by the parent company. The parent company is regarded as controlling an enterprise when it i) exercises a control- ling influence over the relevant activities in the enter- prise in question, ii) is exposed to or has the right to a variable return on its investment, and iii) can exercise its controlling influence to affect the variable return. Enterprises in which the Group directly or indirectly holds between 20% and 50% of the voting rights and exercises significant influence but no controlling influ- ence are classified as associates. | Menu – Financial statements 87 NotesAnnual report 2014 | Tryg A/S | Basis of consolidation The consolidated financial statements are prepared on the basis of the financial statements of Tryg A/S and its subsidiaries. The consolidated financial state- ments are prepared by combining items of a uniform nature. The financial statements used for the consoli- dation are prepared in accordance with the Group’s accounting policies. The tax effect of revaluations is taken into account. The acquisition price of an enterprise consists of the fair value of the price paid for the acquired enterprise. If the final determination of the price is conditional upon one or more future events, such events are recognised at their fair values at the date of acquisition. Costs relating to the acquisition are rec- ognised in the income statement as incurred. On consolidation, intra-group income and costs, intra- group accounts and dividends, and gains and losses arising on transactions between the consolidated en- terprises are eliminated. Items of subsidiaries are fully recognised in the con- solidated financial statements. Business combinations Newly acquired or newly established enterprises are recognised in the consolidated financial statements from the date of acquisition and the date of formation, respectively. The date of acquisition is the date on which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of com- prehensive income up to the date of disposal or the settlement date. The date of disposal is the date on which control of the divested enterprise actually passes to a third party. The purchase method is applied for new acquisitions if the Group gains control of the acquired enterprise. Subsequently, identifiable assets, liabilities and con- tingent liabilities in the acquired enterprises are meas- ured at fair value at the date of acquisition. Non-cur- rent assets which are acquired with the intention of selling them are, however, measured at fair value less expected selling costs. Restructuring costs are recognised in the pre-acquisi- tion balance sheet only if they constitute an obligation for the acquired enterprise. Any positive balances (goodwill) between the acquisi- tion price of the acquired enterprise, the value of mi- nority interests in the acquired enterprise and the fair value of previously acquired equity investments, on the one hand, and the fair value of the acquired as- sets, liabilities and contingent liabilities, on the other hand, are recognised as an asset under intangible as- sets, and are tested for impairment at least once a year. If the carrying amount of the asset exceeds its recoverable amount, it is impaired to the lower recov- erable amount. In the event of negative balances (negative goodwill), the calculated fair values, the calculated acquisition price of the enterprise, the value of minority interests in the acquired enterprise and the fair value of previ- ously acquired equity investments are revalued. If the balance is still negative, the amount is recognised as income in the income statement. If, at the date of acquisition, there is uncertainty as to the identification or measurement of acquired assets, liabilities or contingent liabilities or the determination of the acquisition price, initial recognition is based on a preliminary determination of values. The preliminar- ily determined values may be adjusted or additional assets or liabilities may be recognised up to 12 months after the acquisition, provided that new infor- mation has come to light regarding matters existing at the date of acquisition which would have affected the determination of the values at the date of acquisition, had such information been known. As a general rule, subsequent changes in estimates of conditional acquisition prices are recognised directly in the income statement. supports the management decisions on allocation of resources and assessment of the Group’s results di- vided into segments. Currency translation A functional currency is determined for each of the re- porting entities in the Group. The functional currency is the currency used in the primary economic environ- ment 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 curren- cies 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 applica- ble at the statement of financial position date. Trans- lation differences are recognised in the income statement under price adjustments. On consolidation, the assets and liabilities of the Group’s foreign operations are translated using the exchange rates applicable at the statement of finan- cial position date. Income and expense items are translated using the average exchange rates for the period. Exchange rate differences arising on transla- tion are classified as other comprehensive income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the activities are divested. All other foreign currency translation gains and losses are recognised in the income statement. The presentation currency in the annual report is DKK. Segment reporting Segment information is based on the Group’s man- agement and internal financial reporting system and The operational business segments in the Tryg are Pri- vate, Commercial, Corporate and Sweden. Private en- compasses the sale of insurances to private individuals in Denmark and Norway. Commercial encom passes the sale of insurances to small and medium sized businesses, in Denmark and Norway. Corporate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insurance products to private individuals in Sweden as well as sale of Product insurances in the nordic region. Geographical information is presented on the basis of the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Nor- way and Sweden. Segment income and segment costs as well as seg- ment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items pri- marily comprise assets and liabilities concerning in- vestment 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 ac- cordance with Recommendations and Ratios 2010 is- sued by the Danish Society of Financial Analysts and the Executive Order on Financial Reports for Insur- ance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Financial Super- visory Authority. | Menu – Financial statements 88 NotesAnnual report 2014 | Tryg A/S | Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and ad- justed for changes in premium pro- visions, corre- sponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the pre- mium provisions. Premiums are calculated as premium income in ac- cordance with the risk exposure over the cover period, calculated separately for each individual insurance contract. The calculation is generally based on the pro rata method, although this is adjusted for an unevenly divided risk between lines of business 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 premium provisions. The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial posi- tion date is reported as the reinsurers’ share of pre- mium provisions. Technical interest According to the Danish FSA’s executive order, techni- cal interest is presented as a calculated return on the year's average insurance liability provisions, net of re- insurance. 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 in- terest 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 un- winding. | Menu – Financial statements Claims Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item includes run-off gains/ losses in respect of previous years. The portion of the increase in provisions which can be ascribed to un- winding is transferred to insurance technical interest. Leasing Leases are classified either as operating or finance leases. The assessment of the lease is based on crite- ria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custom- made, the lease term and the present value of the lease payments. The share options are exercisable exclusively during a 13-day period, which starts the day after the publica- tion of full-year, half-year and quarterly reports and in accordance with Tryg’s in-house rules on trading in the Group’s shares. The options are settled in shares. A part of the Group’s holding of own shares is re- served for settlement of the options allocated. 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 exchange rates are recognised as a price adjustment. Tryg hedges the risk of changes in future pay and price figures for provisions 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 ef- fect of changes to inflation expectations under claims. Bonus and premium discounts Bonuses and premium discounts represent antici- pated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the insurance was taken out. Insurance operating expenses Insurance operating costs represent acquisition costs and administration expenses less reinsurance com- missions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commis- sion is recognised 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. Administra- tion expenses are accrued to match the financial year. 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 eco- nomic lifetime of the asset. The Group has no assets held under finance leases. Share-based payment The Tryg Group’s incentive programmes comprise share option programmes, employee shares and matching shares. Share option programme The value of services received as consideration for op- tions granted is measured at the fair value of the op- tions. Equity-settled share options are measured at fair value at the time of allocation and recognised under staff expenses over the period from the time of alloca- tion until vesting. The balancing item is recognised di- rectly in equity. The options are issued at an exercise price that corre- sponds to the market price of the Group’s shares at the time of allocation plus 10%. No other vesting con- ditions apply. Special provisions are in place concern- ing sickness and death and in case of change to the Group’s capital position etc. The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the contract of employ- ment. In case of termination due to restructuring or re- tirement, the employee is still entitled to the options. On initial recognition of the share options, the number of options expected to vest for employees and mem- bers of the Executive Management is estimated. Sub- sequently, adjustment is made for changes in the esti- mated number of vested options to the effect that the total amount recognised is based on the actual num- ber of vested options. The value for retired employees who retain their right to options is reported for the re- maining period of the financial year in which the em- ployee retires. The fair value of the options granted is estimated us- ing the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted. Employee shares According to established rules, the Group’s employees can be granted a bonus in the form of employee shares. When the bonus is granted, employees can choose between receiving shares or cash. The ex- pected value of the shares will be expensed over the vesting period. The scheme will be treated as a com- plex financial instrument, consisting of the right to cash settlement and the right to request delivery of shares. The difference between the value of shares and the cash payment is recognised in equity and is not remeasured. The remainder is treated as a liability and is remeasured until the time of exercise, such that the total recognition is based on the actual number of shares or the actual cash amount. Matching shares Members of Executive Management and risk takers have been allocated shares in accordance with the “Matching shares” scheme. Under Matching shares, 89 NotesAnnual report 2014 | Tryg A/S | the individual management member or risk takers is allocated one share in Tryg A/S for each share the Ex- ecutive 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 Matching share programme. The holder acquires the shares in the open window following publication of the annual report for the pre- vious 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 af- ter the matching time. The shares are recognised at market value and are ac- crued over the four-year maturation period, based on the market price at the time of acquisition. Recogni- tion is from the end of the month of acquisition under staff expenses with a balancing entry directly in eq- uity. If an Executive 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 represents the profit from property opera- tions 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 in- struments, value adjustment of investment property, foreign currency translation adjustments and the ef- fect of movements in the yield curve used for dis- counting, are recognised as price adjustments. Investment management charges represent expenses relating to the management of investments including salary and management fees on the investment area. | Menu – Financial statements Other income and expenses Other income and expenses include income and ex- penses which cannot be ascribed to the Group´s in- surance 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 discontinued and divested busi- ness in a note to the financial statements. Discontin- ued and divested business includes gross premiums, gross claims, gross costs, profit/loss on ceded busi- ness, insurance technical interest net of reinsurance, investment return after insurance technical interest, other income and costs and tax in respect of the dis- continued business. Any reversal of earlier impair- ment is recognised under other income and costs. The statement of financial position items concerning discontinued activities are reported unchanged under the respective entries whereas assets and liabilities con- cerning divested activities are consolidated under one item as assets held for sale and liabilities held for sale. The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested business in the income statement includes the profit/ loss after tax of the run-off for the marine hull busi- ness 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 undertaking and the fair value of acquired identifiable assets, liabilities and contin- gent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the investment and is recog- nised under intangible assets. Goodwill is not amor- tised but is tested for depreciation at least once per year. Trademarks and customer relations Trademarks and customer relations have been identi- fied as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of ac- quisition 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 de- velopment and directly attributable relevant 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 according to the straight-line method over the assessed economic lifetime, 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 under construction” until they are put into use, whereupon they are reclassified 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 accumulated depreciation and any accumu- lated impairment losses. Cost encompasses the pur- chase 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 us- ing the straight-line method over its estimated eco- nomic lifetime as follows: IT, 4 years • • Vehicles, 5 years • Furniture, fittings and equipment, 5-10 years Leasehold improvements are depreciated over the ex- pected 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 recognised in the in- come 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 investment 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 clas- sified as investment property. Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are 90 NotesAnnual report 2014 | Tryg A/S | performed regularly to avoid material differences be- tween the carrying amounts and fair values of owner- occupied property at the statement of financial posi- tion date. The fair value is calculated on the basis of market-specific rental income per property and typi- cal operating expenses for the coming year. The re- sulting operating income is divided by the required re- turn on the property in per cent, which is adjusted to reflect market interest rates and property characteris- tics, corresponding to the present value of a perpetual annuity. Increases in the revalued carrying amounts of owner- occupied property are recognised in the revaluation reserve in equity. Decreases that offset previous reval- uations of the same asset are charged against the re- valuation reserves directly in equity; all other de- creases 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 economic benefits associ- ated with the item will flow to the Group, and the cost of the item can be measured reliably. Ordinary repair and maintenance costs are expensed in the income statement when incurred. Depreciation on owner-occupied property is calcu- lated 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-occu- pied property, costs to be capitalised are recognised at cost under owner-occupied property. On completion of the project, it is reclassified as owner-occupied prop- erty, 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. on business plans. The business plans are based on past experience and expected market developments. 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 available, 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 income per property and typical oper- ating expenses for the coming year. The resulting op- erating income is divided by the required return on the property in per cent, which is adjusted to reflect mar- ket interest rates and property characteristics, corre- sponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as va- cant premises or special tenant terms and conditions. Changes in fair values are recorded in the income statement. Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are as- sessed at least once per year to ensure that the depre- ciation method and the depreciation period that is used are connected to the expected economic life- time. This also applies to the salvage value. Write- down is performed if depreciation has been demon- strated. A continuous assessment of owner-occupied property is performed. Goodwill is tested annually for impairment, or more of- ten if there are indications of impairment, and impair- ment testing is performed for each cash-generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based Equity investments in Group undertakings The parent company’s equity investments in subsidi- aries are recognised and measured using the equity method. The parent company’s share of the enter- prises’ profits or losses after elimination of unrealised intra-group profits and losses is recognised in the in- come statement. In the statement of financial posi- tion, equity investments are measured at the pro rata share of the enterprises’ equity. Subsidiaries with a negative net asset value are recog- nised at zero value. Any receivables from these enter- prises are written down by the parent company’s share of such negative net asset value where the re- ceivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the re- maining 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 trans- lation of the items in the income statement using av- erage exchange rates for the period unless they devi- ate significantly from the transaction day exchange rates. Income and costs in domestic enterprises de- nominated in foreign currencies are translated using the exchange rates applicable on the transaction date. Statement of financial position items of foreign sub- sidiaries are translated using the exchange rates appli- cable at the statement of financial position date. Equity investments in associates Associates are enterprises in which the Group has sig- nificant 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 pro- portionate share of the enterprises’ net assets. Profit after tax from equity investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised in- tra-group profits and losses. Associates with a negative net asset value are meas- ured at zero value. If the Group has a legal or construc- tive obligation to cover the associate’s negative bal- ance, 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 recogni- tion and re-evaluates this at every reporting date. Financial assets measured at fair value with recogni- tion of value adjustments 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 man- aged in accordance with fair value. Derivative financial instruments are similarly classified as financial assets 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 cate- gory financial assets at fair value are recognised in the income statement in the period in which they arise. | Menu – Financial statements 91 NotesAnnual report 2014 | Tryg A/S | Financial assets are derecognised when the rights to receive cash flows from the financial assets have ex- pired, or if they have been transferred, and the Group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis, the date on which the Group commits to purchase or sell the asset. Calculation of value is generally performed on the ba- sis of rates supplied by Danske Bank with relevant in- formation providers and is checked by the Group’s valuation technicians. Discounting on the basis of market interest rates is applied in the case of deriva- tive financial instruments involving an expected future cash flow. 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 tech- niques. These include the use of similar recent arm’s length transactions, reference to other similar instru- ments or discounted cash flow analysis. Derivative financial instruments and hedge accounting The Group’s activities expose it to financial risks, in- cluding changes in share prices, foreign exchange rates, interest rates and inflation. Forward exchange con- tracts and currency swaps are used for currency hedg- ing 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 manage cash flows and interest rate risks related to the portfolio of bonds and insurance provisions. Share de- rivatives 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 fi- nancial position at fair value. Positive fair values of de- rivatives are recognised as derivative financial instru- ments under assets. Negative fair values of derivatives are recognised under derivative financial instruments under liabilities. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments. Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging in- strument 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 derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net in- vestment are recognised directly in equity. The net as- set value of the foreign entities estimated at the begin- ning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective por- tion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the Group with reinsurers un- der 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 insur- ance contracts. Contracts that do not meet these classi- fication 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 in- surance contracts. Amounts receivable from reinsurers are measured con- sistently with the amounts associated with the rein- sured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in insurance technical interest. 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 recover- able amount. Impairment losses are recognised in the income statement. Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contain accounts receivable in connection with property Receiva- bles that arise as a result of insurance contracts are classified in this category and are reviewed for impair- ment as a part of the impairment test of accounts re- ceivable. Receivablesare 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 as- set impairment. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows. 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. Prepayments and accrued income Prepayments include expenses paid in respect of sub- sequent financial years and interest receivable. Ac- crued underwriting commission relating to the sale of insurance products is also included. Equity Share capital Shares are classified as equity when there is no obli- gation to transfer cash or other assets. Costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Revaluation reserves Revaluation of owner-occupied property is recognised in other comprehensive income unless the revalua- tion offsets a previous impairment loss. Foreign currency translation reserve Assets and liabilities of foreign entities are recognised using the exchange rate applicable at the statement of financial position date. Income and expense items are recognised using the average monthly exchange rates for the period. Any resulting differences are recog- nised in Other comprehensive income. When an en- tity 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 com- prehensive income in respect of the part that con- cerns 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 and security reserve. The Danish and Swedish provisions comprise contingency fund provi- sions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated. | Menu – Financial statements 92 NotesAnnual report 2014 | Tryg A/S | 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 divi- dends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buyback pro- gramme. Proceeds from the sale of own shares in connection with the exercise of share options or matching shares are taken directly to equity. 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 statement over the borrowing period us- ing the effective interest method. Provisions for insurance contracts Premiums written are recognised in the income state- ment (premium income) proportionally over the pe- riod of coverage and, where necessary, adjusted to re- flect any time variation of the risk. The portion of premiums received on in-force contracts that relates to unexpired risks at the statement of financial posi- tion date is reported as premium provisions. Premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum 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 statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the pol- icy- holders. They include direct and indirect claims handling costs that arise from events that have oc- curred 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 as- sessments 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 fac- tors (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. Dis- counting affects the motor liability, professional liabil- ity, 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 policyhold- ers in view of the claims experience during the finan- cial year. Claims provisions are determined for each line of business based on actuarial 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 distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method and De Vylder’s credibility method. Chain-Ladder techniques are used for lines of business with a stable run-off pat- tern. The Bornhuetter-Ferguson method, and some- times the Loss Ratio method, are used for claims years in which the previous run-off provides insuffi- cient information about the future run-off perfor- mance. De Vylder’s credibility method is used for ar- eas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for ex- ample the number of insured. The provision for annuities under workers’ compensa- tion insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis (official mortality table). In some instances, the historic data used in the actu- arial models is not necessarily predictive of the ex- pected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected increase in claims. In connection with legislative changes, the same estimate is used for de- termining the change in the level of claims. Subse- quently, this estimate is maintained until new loss his- tory materialises which can be used for re-estimation. Several assumptions and estimates underlying the calculation of the claims provisions are mutually de- pendent. 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 in- flation assumptions are used, with annuities for the insured being indexed based on the workers’ compen- sation index. An inflation curve that reflects the mar- ket’s inflation expectations plus a real wage spread is used as an approximation to the workers’ compensa- tion index. For other lines of business, the inflation assumptions, because present only implicitly in the actuarial mod- els, will cause a certain lag in predicting the level of fu- ture losses when a change in inflation occurs. On the other hand, the effect of discounting will show imme- diately as a consequence 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 ade- quacy of the insurance provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency results in an increase in the relevant provision, 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 insur- ance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan un- der which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or con- structive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a de- fined-benefit plan as regards the future pension bene- fits. Försäkringsbranschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is there- fore accounted for as a defined-contribution plan. | Menu – Financial statements 93 NotesAnnual report 2014 | Tryg A/S | 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 pay- ments in connection with the purchase and sale of in- tangible assets, property, plant and equipment as well as financial assets and deposits with credit institu- tions. Cash flows from financing activities comprise changes in the size or composition of Tryg’s share capital and related costs as well as the raising of loans, repayments of interest-bearing debt and the payment of dividends. Cash and cash equivalents comprise cash and de- mand deposits. For the defined-benefit plan recognised in the state- ment of financial position, an annual actuarial calcula- tion 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 according to the plan. The capital value is calculated using the Projected Unit Credit Method, which are based on input Cf. note 20. The capital value of the pension obligations less the fair value of any plan assets is recognised in the state- ment 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 expected and realised returns on pension assets, actuarial gains or losses ensue. These gains and losses are recognised under other comprehensive income. In case of changes to the benefits stemming from the employees' employment with the group so far, a change is seen in the actuarially calculated capital value which is considered as pension costs for previ- ous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs.The plan is closed for new business. Other employee benefits Employees of the Group are entitled to a fixed pay- ment 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 jurisdictions in which it operates. Current tax liabilities and current tax receivables are recog- nised 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 position liability method on all timing dif- ferences between the tax and accounting value of as- sets and liabilities. Deferred income tax is measured using the tax rules and tax rates that apply in the rele- vant countries on the statement of financial position date when the deferred tax asset is realised or the de- ferred income tax liability is settled. Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the ex- tent that it is probable that future taxable profit will be realised against which the temporary differences can be offset. Deferred income tax is provided on temporary differ- ences concerning investments, except where Tryg controls when the temporary difference will be real- ised, 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 es- timate by management of the expenditure required to settle the present obligation. The measurement of provisions is based on a discounting of the costs nec- essary to settle the obligation if this has a significant effect on the measurement of the obligation. Provisions for restructurings are recognised as obliga- tions when a detailed formal restructuring plan has been announced prior to or at the statement of finan- cial 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 ac- cording to the same principle as the Group’s other claims provisions. Debt Debt comprises debt in connection with direct insur- ance and reinsurance, amounts owed to credit institu- tions, current tax obligations and other debt. Deriva- tive financial instruments are assessed at fair value according to the same practice that applies to finan- cial assets. Other liabilities are assessed 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. | Menu – Financial statements 94 NotesAnnual report 2014 | Tryg A/S | Income statement for Tryg A/S (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 2,600 0 -7 2,593 -51 2,410 1 -6 2,405 -52 Profit/loss before tax 2,542 2,353 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 15 2,557 2,557 1,731 143 683 2,557 14 2,367 2,367 1,656 817 -106 2,367 2014 2013 DKKm 2014 2013 Note Statement of comprehensive income Profit/loss for the year Other comprehensive income 2,557 2,367 Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions 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 26 2 0 -46 12 -6 -178 191 -47 -34 -40 0 9 -3 179 -54 131 -326 305 -76 -97 34 Comprehensive income 2,517 2,401 | Menu – Financial statements 95 Annual report 2014 | Tryg A/S | Statement of financial position for Tryg A/S (parent company) DKKm 2014 2013 Note 4 Assets Equity investments in Group undertakings Total investments in Group undertakings 11,843 11,843 11,740 11,740 Total investment assets 11,843 11,740 5 Current tax assets Cash at bank and in hand Total other assets 14 0 14 14 1 15 Total assets 11,857 11,755 Equity and liabilities Equity Debt to Group undertakings Other debt Total debt 11,134 11,122 718 5 723 629 4 633 Total equity and liabilities 11,857 11,755 6 7 8 9 10 11 Deferred tax assets Capital adequacy Contractual obligations, contingent liabilities and collateral Related parties Reconciliation of profit/loss and equity Accounting policies | Menu – Financial statements 96 Annual report 2014 | Tryg A/S | Statement of changes in equity (parent company) DKKm Equity at 31 December 2013 2014 Profit/loss for the year Other comprehensive income Total comprehensive income Nullification of own shares Dividend paid Dividend own shares Purchase and sale of own shares Exercise of share options Issue of employee shares Issue of share options and matching shares Total changes in equity in 2014 Equity at 31 December 2014 Share capital Revaluation reserves Retained earnings Proposed dividend Total 1,533 4,753 3,180 1,656 11,122 143 -40 103 0 -41 -41 1,492 103 4,856 683 683 41 59 -1,005 49 45 3 -125 3,055 1,731 1,731 -1,656 75 1,731 2,557 -40 2,517 0 -1,656 59 -1,005 49 45 3 12 11,134 Proposed dividend per share DKK 29 (DKK 27 in 2013 ) Dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of sha- res at the end of the year (59,695,516 shares). The di- vidend 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 2,622m (DKK 3,020m in 2013). 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. Equity at 31 December 2012 1,533 3,902 3,967 1,594 10,996 2013 Profit/loss for the year Other comprehensive income Total comprehensive income 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 Equity at 31 December 2013 817 34 851 0 0 1,533 851 4,753 -106 -106 15 -800 100 4 -787 3,180 1,656 1,656 -1,594 62 1,656 2,367 34 2,401 -1,594 15 -800 100 4 126 11,122 | Menu – Financial statements 97 Annual report 2014 | Tryg A/S | Notes DKKm 1 Income from Group undertakings Tryg Forsikring A/S 2 Other expenses Administration expenses 2,600 2,600 -51 -51 2,410 2,410 -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 28 concerning related parties of the Tryg Group. Refer to Note 6 of the consolidated financial statements for a specification of the audit fee. Average number of full-time employees for the year 3 Tax Reconciliation of tax costs Tax on profit/loss for the year Tax adjustments, previous years Effective tax rate Tax on profit/loss for the year Tax adjustment, previous years 13 14 1 15 % 24.5 0.5 25.0 11 14 0 14 % 25.0 0.0 25.0 2014 2013 DKKm 2014 2013 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 6,987 6,987 4,753 1,759 -1,656 4,856 6,987 6,987 3,902 2,445 -1,594 4,753 Carrying amount at 31 December 11,843 11,740 Name and registered office Ownership share in % Equity 2014 Tryg Forsikring A/S, Ballerup 2013 Tryg Forsikring A/S, Ballerup 5 Current tax assets Tax receivable at 1 January Current tax for the year Adjustment of current tax in respect of previous years Tax paid for the year Tax receivable at 31 December 100 11,843 100 11,740 14 14 0 -14 14 24 14 0 -24 14 | Menu – Financial statements 98 Annual report 2014 | Tryg A/S | Notes DKKm 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. 2014 2013 DKKm 2014 2013 0 18 0 18 8 C ontractual obligations, contingent liabilities and collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The compa- nies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies. Companies in the Tryg Group are party to a number of disputesin Denmark, Norway and Sweden. 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 2014. 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 11,134 -1,731 -2,353 7,050 1,496 -2,353 6,193 11,122 -1,656 -2,307 7,159 1,551 -2,307 6,403 7,137 7,126 9 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, Trygheds- Gruppen smba. Related parties with a significant influence include the Supervisory Board, the Execu- tive Management and their members’ related family. Related parties are the same as for the Tryg Group; please see Note 28 in the consolidated financial statements. 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' -15 -718 -23 -629 Solvency ratio (Solvency I – ratio between capital base and weighted assets) 87 90 Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. | Menu – Financial statements 99 Annual report 2014 | Tryg A/S | Notes DKKm 10 2014 2013 Reconciliation of profit/loss and equity The executive order on application of International Financial Reporting Standards for companies sub- ject 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 2,557 0 2,557 11,119 15 0 11,134 2,369 -2 2,367 11,107 17 -2 11,122 11 Accounting policies Please refer to Tryg Group's accounting policies. | Menu – Financial statements 100 Annual report 2014 | Tryg A/S | Q4 2014 | Quarterly outline DKKm Privat Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance 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 reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Corporate Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off 106.4 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 A more detailed version of the table can be seen at tryg.com >investor > Downloads. 2,249 400 2,289 445 2,275 494 2,238 273 2,290 286 2,329 440 2,363 364 2,384 245 2,449 326 65.3 2.1 67.4 15.0 82.4 84.5 64.6 1.1 65.7 15.1 80.8 85.3 69.0 -2.6 66.4 12.4 78.8 82.4 72.1 0.4 72.5 15.5 88.0 93.7 75.6 -2.5 73.1 14.6 87.7 90.8 64.7 1.7 66.4 15.1 81.5 84.0 68.5 0.8 69.3 15.6 84.9 89.0 72.9 1.8 74.7 15.3 90.0 93.5 70.1 1.1 71.2 15.6 86.8 88.4 1,050 270 1,045 188 1,053 224 1,042 193 1,080 157 1,075 230 1,124 153 1,132 114 1,129 146 55.2 3.7 58.9 15.6 74.5 86.5 1,015 98 67.2 12.6 79.8 10.6 90.4 63.9 0.9 64.8 17.5 82.3 92.1 999 130 63.0 13.0 76.0 11.5 87.5 94.9 72.1 -5.6 66.5 12.6 79.1 81.9 1,030 180 73.3 0.1 73.4 9.5 82.9 86.8 63.9 0.3 64.2 17.7 81.9 86.9 989 19 81.5 4.6 86.1 12.6 98.7 73.8 -5.9 67.9 17.9 85.8 92.8 1,025 59 75.0 7.6 82.6 12.1 94.7 113.4 102.2 56.0 3.5 59.5 19.5 79.0 87.3 1,025 42 122.9 -38.2 84.7 11.6 96.3 104.8 69.5 -1.1 68.4 18.3 86.7 94.5 1,062 139 88.5 -12.2 76.3 10.9 87.2 94.4 70.5 0.8 71.3 18.6 89.9 91.0 1,046 118 66.2 10.1 76.3 12.5 88.8 101.7 65.9 2.1 68.0 18.7 86.7 92.8 1,107 131 75.2 0.9 76.1 11.9 88.0 99.7 | Menu – Financial statements 101 Annual report 2014 | Tryg A/S | The distribution on segments between Commercial an Corporate as to medium sized enterprise has been altered during Q1 2014. Comparative figures have been restated accordingly. a) Amounts relating to eliminations are included under 'Other' A more detailed version of the table can be seen at tryg.com >investor > Downloads. Q4 2014 | Quarterly outline DKKm Sweden Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance 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 reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 338 7 74.6 1.5 76.1 22.2 98.3 99.2 -6 0 386 30 76.2 0.8 77.0 15.5 92.5 97.7 -7 0 4,646 4,712 775 13 -20 768 640 64.1 4.7 68.8 14.9 83.7 91.0 793 -1 -10 782 593 64.9 3.7 68.6 15.1 83.7 90.0 358 43 69.3 -0.3 69.0 19.6 88.6 91.7 -5 0 4,711 941 259 -50 1,150 869 70.7 -2.6 68.1 12.6 80.7 84.1 317 38 64.4 4.4 68.8 19.9 88.7 91.5 -3 0 348 44 71.8 -2.9 68.9 19.3 88.2 94.5 -6 0 442 54 72.6 0.5 73.1 14.7 87.8 89.8 -4 0 420 28 76.7 0.0 76.7 17.6 94.3 94.3 -7 0 377 23 75.6 -0.3 75.3 19.6 94.9 92.0 -1 0 399 54 67.2 -0.8 66.4 21.1 87.5 87.2 -8 -9 4,583 4,737 4,867 4,962 4,938 5,076 523 89 -10 602 455 71.7 1.6 73.3 15.9 89.2 96.5 546 154 -61 639 565 74.9 -1.2 73.7 15.4 89.1 94.3 766 152 -11 907 715 75.9 -6.6 69.3 15.5 84.8 89.8 684 13 -9 688 514 73.7 -2.6 71.1 15.6 86.7 91.9 500 269 -10 759 575 71.2 3.1 74.3 16.0 90.3 94.8 648 5 -15 638 404 70.2 0.9 71.1 16.3 87.4 92.1 | Menu – Financial statements 102 Annual report 2014 | Tryg A/S | Q4 2014 | 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 Q4 2014 2,346 651 262 52.1 7.9 60.0 12.4 72.4 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 Dec. 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 Dec. 1,839 190 86 73.1 0.9 74.0 16.0 90.0 467 -66 -10 89.1 3.9 93.0 21.4 114.4 | Menu – Financial statements Q4 2013 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 2014 2013 DKKm Q4 2014 Q4 2013 2014 2013 Other b) Gross premium income Technical result Tryg -6 0 -6 0 -21 0 -18 0 Gross premium income 4,646 4,737 18,652 19,504 Technical result Investment return Other income and costs Profit/loss before tax Run-off gains/losses, net of reinsurance Nøgletal Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio C) Combined ratio 775 13 -20 768 338 64.1 4.7 68.8 14.9 83.7 546 154 -61 639 247 74.9 -1.2 73.7 15.4 89.1 3,032 360 -90 3,302 1,131 67.8 1.8 69.6 14.6 84.2 Number of full-time employees, continuing business at 31 Dec. Number of full-time employees, discontinued and divested business at 31 Dec. 3,599 0 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) c) Adjustment of gross expense ratio included only in 'Tryg '. Amounts relating to eliminations are included under 'Other'. The adjustment is explained in a footnote to Financial highlights. 9,361 1,510 564 66.9 2.1 69.0 15.1 84.1 2,007 7,337 1,478 501 66.5 1.4 67.9 12.5 80.4 1,167 1,975 44 66 77.6 2.2 79.8 18.4 98.2 425 9,534 1,202 566 79.5 -7.0 72.5 15.0 87.5 2,046 7,819 1,258 387 65.1 4.1 69.2 15.3 84.5 1,199 2,169 36 17 80.6 0.7 81.3 17.6 98.9 458 103 Annual report 2014 | Tryg A/S | Other key figures 2014 2013 2012 2011 2010 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 of continuing business (DKK) Number of shares (1,000) end of period Average number of shares (1,000) Diluted average number of shares (1,000) Share price (DKK) Net asset value per share (DKK) Market price/net asset value Dividend per share (DKK) Price/Earnings 68.3 15.0 83.3 14.8 16.3 17.3 0.3 0.3 29.7 22.9 6,012 25,680 2,279 31.2 135.5 166.7 3,599 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 3,703 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 3,913 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 4,076 0 0 189 242 43.7 43.7 43.5 57,824 58,504 58,558 689.0 192.3 3.6 29.00 15.8 39.4 39.3 39.4 59,374 60,155 60,259 524.5 187.1 2.8 27.00 13.3 36.5 36.4 36.0 60,695 60,491 60,714 426.5 180.9 2.4 26.00 11.8 18.9 18.9 19.0 60,373 60,401 60,401 319.0 149.2 2.1 6.52 16.8 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 4,101 191 9.5 9.5 11.9 60,634 62,362 62,444 257.5 139.5 1.8 4.00 21.7 The expense ratio, net without adjustment, is calcu- lated as the ratio of actual insurance operating costs, net of reinsurance to premium income, net of reinsur- ance. 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 Dan- ish 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. | Menu – Financial statements 104 Annual report 2014 | Tryg A/S | Group chart Tryg A/S Tryg Forsikring A/S Tryg Garanti- forsikring A/S (Dansk Kaution) Moderna Försäkringar (Swedish branch) Tryg Forsikring (Norwegian branch) Vesta Eiendom AS (Norway) Ejendoms- selskabet af 8. maj 2008 A/S Tryg Garanti (Norwegian branch) Optimal Djurförsäkring i Norr AB (Sweden) Respons Inkasso AS (Norway) Thunesvei 2 AS (Norway) Securator A/S (Denmark) Tryg Ejendomme A/S (Denmark) Komplementar- selskabet af 1. marts 2006 ApS (50%) Moderna Garanti (Swedish branch) Tryg Garanti (Finnish branch) Group chart at 1 January 2015. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated. Company Branch | Menu – Management’s review ANS Grensen 3 (99%) (Norway) Claims Management A/S (Denmark) Ejendoms- selskabet af 1. marts 2006 P/S (30%) 105 Annual report 2014 | Tryg A/S | Glossary The financial highlights and key ratios of Tryg have been prepared in accordance with the Executive Order issued by the Danish Financial Supervisory Authority on the 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. Capital base Equity plus share of subordinate loan capital and less intangible assets, tax asset, discounting, equalisation reserve and proposed dividend. Earnings per share of continuing business Diluted earnings from continuing business after tax Diluted average number of shares 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), Tryg Garantiforsikring A/S (including Finnish branch) and Securator A/S. Gross claims ratio Gross claims x 100 Gross premium income 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. Diluted average number of shares Average number of shares adjusted for number of share options which may potentially dilute. Gross insurance operating costs with adjustment x 100 Gross premium income Discounting Expresses recognition in the financial statements of expected future payments at a value below the nomi- nal amount, as the recognised amount carries interest until payment. The size of the discount depends on the market-based discount rate applied and the ex- pected time to payment. Dividend per share Proposed dividend Number of shares at year-end Earnings per share Profit or loss for the year x 100 Average number of shares | Menu – Management’s review 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 Relative run-off gains/losses Run-off gains/losses net of reinsurance relative to claims provisions net of reinsurance, beginning of year. Individual solvency New Danish solvency requirements for insurance companies comprising the companies’ own determi- nation 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. Reserve ratio, claims provisions Claims provisions x 100 Gross premium income Reserve ratio, premium provisions Premium provisions x 100 Gross premium income Market price/net asset value Share price Net asset value per share Net asset value per share Year-end equity Number of shares at year-end Net reinsurance ratio 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 tech- nical 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 Price/Earnings Average equity Share price Earnings per share Run-off gains/losses The difference between the claims provisions at the beginning of the financial year (adjusted for foreign currency translation adjustments and discounting ef- fects) and the sum of the claims paid during the finan- cial 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. 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 ex- pected 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. 106 Annual report 2014 | Tryg A/S | Product overview Being one of the largest insurance companies in the Nordic region, Tryg offers a broad range of insurance products to both private individuals and businesses. Tryg continuously develops new products and adapts existing peace of mind solutions to customer requirements and developments in society. Also, Tryg focuses strongly at all times on striking a better balance between price and risk. Tryg sells its products primarily via its own sales channels such as call centres, the Internet, tied agents, franchisees (Norway), interest organisa- tions, car dealers, real estate agents, insurance brokers and Nordea branches. Moreover, Tryg engages in international cooperation with the AXA Group. It is an important element of Tryg’s distribution strategy to be available in places where customers want it and that most distribu- tion takes place via the company’s own sales channels. Motor insurance Fire and contents – Commercial Motor insurance accounts for 31% 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 13% 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. Fire and contents – Private Fire and contents insurance for private customers represents 24% of total pre- mium 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 Workers’ compensation insurance accounts for 5% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occu- pational 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 supplementary 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. | Menu – Management’s review 107 Annual report 2014 | Tryg A/S | Disclaimer Certain statements in this annual report are based financial markets, extraordinary events such as on the beliefs of our management as well as natural disasters or terrorist attacks, changes in assumptions made by and information currently legislation or case law and reinsurance. Should available to management. Statements regarding one or more of these risks or uncertainties Tryg’s future operating results, financial position, materialise, or should any underlying assumptions cash flows, business strategy, plans and future prove to be incorrect, Tryg’s actual financial objectives other than statements of historical fact condition or results of operations could can generally be identified by the use of words materially differ from that described herein as such as ‘targets’, ‘believes’, ‘expects’, ‘aims’, anticipated, believed, estimated or expected. ‘intends’, ‘plans’, ‘seeks’, ‘will’, ‘may’, ‘anticipates’, Tryg is not under any duty to update any of the ‘would’, ‘could’, ‘continues’ or similar expressions. forward-looking statements or to conform such statements to actual results, except as may be A number of different factors may cause the required by law. Read more in the chapter actual performance to deviate significantly Capital and risk management in the annual from the forward-looking statements in this report on page 24-25, and in Note 1 on annual report, including but not limited to page 47, for a description of some of the factors general economic developments, changes in the which may affect the Group’s performance or competitive environ ment, developments in the the insurance industry. | Menu – Management’s review 108 Annual report 2014 | Tryg A/S | 

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