Tryg
Annual Report 2015

Plain-text annual report

Annual report 2015Contents – Management’s review MANAGEMENT’S REVIEW 16 Commercial 34 Executive Board 3 Income overview 4 Introduction 5 Events in 2015 18 Corporate 20 Sweden 35 Corporate Social Responsibility in Tryg 22 Investment activities FINANCIAL STATEMENTS 6 Targets and strategy 24 Capital and risk management 37 Financial statements 9 Financial targets and outlook 26 Shareholder information 104 Group chart 10 Tryg’s results 14 Private 28 Corporate governance 105 Glossary 32 Supervisory Board 106 Product overview Learn more Reference to further information at tryg.com. Reference to further information in the annual report. Reference to contents. Tryg is the second-largest non-life 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 3,400 employees provide peace of mind for 2.8 million customers and handle approximately 950,000 claims on a yearly basis. Our ambition is to become the world’s best insurance company. Editor Investor Relations | Publication 21 January 2016 | Layout amo design | Proofreading TextMinded Annual report 2015 | Tryg A/S | 2 Income overview DKKm 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 Profit/loss Run-off gains/losses, net of reinsurance Key figures Total equity Return on equity after tax (%) Number of shares at 31 December (1,000) Earnings per share Net asset value per share (DKK) Dividend per share (DKK) Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Combined ratio on business areas Private Commercial Corporate Sweden Q4 2015 Q4 2014 4,393 -2,988 -615 790 -272 4 522 201 -19 704 11 715 6 721 241 4,646 -2,976 -684 986 -220 9 775 13 -20 768 -135 633 7 640 338 9,831 27.5 282,316 2.53 11,119 23.0 289,120 2.19 -1.6 68.0 6.2 74.2 14.2 88.4 -5.5 3.1 5.4 87.0 85.0 99.4 73.2 -0.1 64.1 4.7 68.8 14.9 83.7 -7.3 4.3 2.6 82.4 74.5 90.4 98.3 2015 17,977 -13,562 -2,720 1,695 710 18 2,423 -5 -91 2,327 -395 1,932 49 1,981 1,212 9,831 18.9 282,316 6.95 34.82 6.00a) -0.8 75.4 -3.9 71.5 15.3 86.8 -6.7 3.4 3.4 85.4 83.6 90.7 83.5 2014 18,652 -12,650 -2,689 3,313 -341 60 3,032 360 -90 3,302 -755 2,547 10 2,557 1,131 11,119 23.0 289,120 8.74 38.46 5.80 -1.1 67.8 1.8 69.6 14.6 84.2 -6.1 3.1 2.4 82.5 79.4 89.8 92.0 2013 19,504 -14,411 -3,008 2,085 349 62 2,496 588 -91 2,993 -620 2,373 -4 2,369 970 11,107 21.5 296,870 7.88 37.41 5.40 -2.7 73.9 -1.8 72.1 15.6 87.7 -5.0 2.1 3.2 86.0 85.4 91.7 91.2 2012 20,314 -14,675 -3,295 2,344 86 62 2,492 585 -60 3,017 -837 2,180 28 2,208 1,015 10,979 22.1 303,474 7.30 36.18 5.20 -0.1 72.2 -0.4 71.8 16.4 88.2 -5.0 2.3 1.8 87.7 81.3 91.4 95.3 a) Dividend per share in 2015 includes dividend paid out in July of DKK 2.50 and proposed dividend of DKK 3.50. | Contents – Management’s review 2011 19,948 -15,783 -3,271 894 507 171 1,572 61 -30 1,603 -455 1,148 -8 1,140 944 9,007 13.1 301,866 3.77 29.84 1.30 3.6 79.1 -2.5 76.6 16.6 93.2 -4.7 2.7 3.6 92.7 89.6 93.6 102.9 3 Annual report 2015 | Tryg A/S | Customer focus and increasing dividend Enhanced customer experience ity’s approval of Tryg’s internal capital model, which In 2015, we continued our efforts to improve custo m- means that Tryg is well-prepared for the implementa- er experience. Focus has most important ly been on tion of the Solvency II regulatory regime from 2016. improving our customer services, for example through Risk management is also important in relation to the increased empowerment of front-line staff as individual products, and in 2015 a small number of a way of increasing first-contact resolution. We are products, in particular contents and property, did continuously following up on our customers’ assess- not develop satisfactorily. Minor price adjustments ment of their contact with Tryg. We are therefore and improved claims assessment procedures will pleased to note a significant improvement in our NPS therefore be introduced. Tryg continuously assesses score, up from 11 at the Capital Markets Day in developments in the number and size of claims. November 2014 to 22 in Q4 2015 and with more than 78% of our customers returning ratings of 9 or 10 in Stable and increasing dividend for shareholders the text message surveys used to capture customer Being a shareholder in Tryg must be attractive, and in feedback after each customer contact. It is also good accordance with Tryg’s dividend policy, we strive to news for Tryg’s customers that Tryg hedsGruppen, ensure that a steadily increasing dividend is paid to which owns 60% of Tryg, has decided to pay out a Tryg’s shareholders. The Supervisory Board proposes bonus to Tryg’s Danish customers from 2016. that a dividend of DKK 3.50 be paid for the second half of the year, bringing the dividend paid out for 2015 to Efficient insurance operations DKK 6.00 per share. Tryg also assesses the relevance A profit of DKK 1,981m was returned, equivalent of extraordinary share buy backs as a way of increas- to a return on equity of 18.9%, together with a ing value creation for our shareholders. In 2015, we com bined ratio of 86.8 and an expense ratio of completed a DKK 1bn share buy back programme, 14.9 before one-off costs. The return on equity was and in 2016 we will execute a similar programme, below target due to very low investment income and while at the same time ensuring a solid capital base. one-offs. Tryg met the combined ratio and expense The total yield to shareholders was 6.9% for 2015. ratio targets for 2015. Tryg aims to achieve efficiency improvements of DKK 750m in the period up until Thank-you to employees 2017, and the delivery of savings of DKK 165m in The delivery of an enhanced customer experience 2015 exceeded the target for the year. The efficiency and the financial results has only been possible programme will be key to improving results and through the committed efforts of Tryg’s employees, reaching an expense ratio of 14 or below in 2017. and the Supervisory Board and the Executive Board would like to thank all for their hard work. Efficient risk management Risk management is essential for an insurance com- pany – spanning from the overall risk management of Tryg to the pricing of our products. A milestone in Morten Hübbe Jørgen Huno Rasmussen 2015 was the Danish Financial Supervisory Author- Group CEO Chairman | Contents – Management’s review | Contents – Management’s review Annual report 2015 | Tryg A/S | 4 4 Annual report 2015 | Tryg A/S | Events in 2015 Share buy back programme initiated On 2 January, Tryg initiated an extraordinary share buy back of DKK 1bn, which was completed on 18 December 2015. Contents insurance ‘Best in Test’ Tryg’s contents insurance was named ‘Best in Test’ by the Danish Consumer Council’s magazine TÆNK. The criteria tested are coverage, customer satisfaction, number of appeals and price. New car insurance product Tryg launched a new car in- surance product in Denmark. The product provides basic coverage, and in addition customers can buy add-on products to cover their exact insurance needs. Read about the car insurance at tryg.dk. New car insurance in Sweden Moderna, Tryg’s Swedish branch, launched a new car insurance product, ‘Moderna Smart’. The price of the new product is differentiated depend- ing on the driver’s driving style, which is recorded by a mobile app. Read more about the insurance on modernaforsakringar.se. Acquisition of Swedish child insurance portfolio Tryg acquired Skandia’s child and adult insurance portfolio with a premium volume of approximately SEK 250m. The portfolio will be integrated into Tryg’s Swedish branch Moderna in H1 2016. Tryg’s ‘A-’ rating maintained The credit rating agency Standard & Poor’s recon- firmed Tryg and Tryg Garanti’s ‘A-/stable’ rating. TryghedsGruppen’s members’ bonus scheme approved Tryg’s majority shareholder TryghedsGruppen’s member bonus scheme was approved by the Danish Business Authority. The scheme allows TryghedsGruppen to pay out some of its profit to members (policyholders of Tryg Forsikring A/S in Denmark). New health insurance in Denmark A new health insurance product was launched in Denmark, which includes a prevention app named ‘TrygHealth’. The app provides access to a medical hotline via mobile video conferencing and includes Healthcare profile Plus cover, which allows the insured to hold video conferences with a dietitian or physiotherapist. Read more about the new health insurance at tryg.dk. January February March April May June July August September October November December Tryg share split 1:5 On 12 May, Tryg split its share in 1:5, meaning each share with a nominal value of DKK 25 was replaced by five shares with a nominal value of DKK 5. The Tryg share was split as the price was up to more than DKK 600 in 2014, making it the second-most expensive share in the C20 index. Tryg’s car insurance Best in Test Tryg’s new car insurance product launched in March 2015 was recommended as ‘Best in Test’ by the Danish Consumer Council. The test also showed that Tryg is the company with the lowest number of complaints tried before the appeals board. Launch of change of car ownership insurance Tryg was the first company to introduce a change of car ownership insurance product in Denmark. The product is for customers buying and selling cars privately and covers mechanical damage for the first six months. Read more about the insurance at tryg.dk. Launch of new accident insurance Tryg launched new personal accident products in Denmark and Nor- way. The products provide basic cover with the option of taking out additional cover, for example for critical illness for children and young people. Read more about the products at tryg.dk and tryg.no. Moderna – insurance broker of the year For the third year running, Tryg’s branch in Sweden, Moderna, was named insurance broker of the year within the commercial and corporate segments. CFO resigning Group CFO Tor Magne Lønnum is resigning to take up a position as CFO of Aimia Inc in Montreal, Canada. He will stay on as CFO of Tryg until the end of April 2016. Denmark hit by storm On 29 November, Denmark was hit by a storm, named Gorm. Tryg received approximately 9,000 claims, of which 24% were reported within the first 24 hours, and 20% were reported online. Internal capital model Tryg’s internal capital model in relation to Solvency II was approved by the Danish FSA. New bond issue Tryg Forsikring A/S entered into an agreement on the issu- ance of Solvency II-compliant Tier 2 capital in the form of a bond issue in the amount of NOK 1.4bn (DKK 1.1bn) in the Norwegian market. Flooding in parts of Norway The eastern parts of Norway were hit by severe floods. Tryg received approx. 500 claims. Organisational change Tryg announced an organisa tional change of its daily management structure as of 1 January 2016. The Nordic business areas are trans- ferred to national business areas with new directors. The new struc- ture replaces the Group Executive Management and top management com prise an Executive Board com prising CEO, CFO and COO. | Contents – Management’s review 5 Annual report 2015 | Tryg A/S | Targets and strategy Aiming for the highest level of employee satisfac- than growth. However, competition remained tion in the financial sector in the Nordic region, fierce in 2015 in both the Danish and Norwegian Tryg was pleased to note a continued increase in markets. In Denmark, the situation is impacted by employee satisfaction in 2015, with Tryg surpass- the high profitability of car insurance combined ing the general level of employee satisfaction in with high sales of smaller and safer cars. Generally the financial sector in the region. speaking, this development in car sales is leading to a lowering of insurance risk and a correspond- Value creation for our shareholders ing reduction in average premiums, reducing total Tryg’s shareholders must see Tryg as a company premium income. Tryg has developed a new price- Our purpose for customers, employees and shareholders, and increasing dividends. In 2015, Tryg did not meet its this development through a slightly higher average Tryg’s purpose is to create peace of mind and value with ambitious targets disbursing stable and differentiated car product which partly mitigates We create peace of mind and value for income and one-off costs. Tryg met the combined affected the market somewhat, while a number customers, employees and shareholders. Tryg’s ambition is to become the world’s best insur- ratio and expense ratio targets for 2015 and is on of minor competitors actively gained market this must be at the core of everything we do. return on equity target due to very low investment premium. In Norway, the weakened economy ance company. This ambition lies at the heart of all track to achieving the ambitious financial targets share. In general, the impact of aggregators was the strategic measures implemented by Tryg. Tryg set for the period up until 2017. limited in both Denmark and Norway. Overall, Our ambition has identified its fundamental corporate values, Tryg’s retention rate was quite stable, indicating To become the world's best insurance the company’s ambition. The Nordic insurance market is characterised insurance company. In Denmark, the retention which will help us meet our targets and support Stable Nordic insurance market that customers are generally satisfied with their company. Our values by consumers and businesses that have largely rate increased somewhat, while a slight drop was Our customers – our most important asset covered their insurance needs, combined with seen in Norway. Our customers are our most important asset. Tryg relatively low rates of economic growth. Profitability strives to continuously strengthen customer relations in the insurance industry is generally high as the vast Market developments differed in Denmark and through our advisory services, products, concepts, majority of companies focus on earnings rather Norway in 2015. In Denmark, consumer optimism Our values are highly integrated in our claims handling procedures and claims prevention culture and consistent with our purpose. measures. In 2015, we had a strong focus on initia- tives supporting the customer targets for 2017. Employee satisfaction 2011-2015 • We meet people with respect, openness and trust Our employees – our most important resource • We show initiative, share knowledge Our employees are our most important resource and and take responsibility key to realising our vision of becoming the world’s • We deliver solutions based on quality best insurance company. As an important step and simplicity towards achieving this, all our employees must feel • We create sustainable results that they have an opportunity to be successful. Clear Index 75 70 65 60 55 50 increased, leading to increasing real estate prices and a lower unemployment rate of around 4.6% at the end of 2015. Total car sales were up 9.9% in 2015 compared with 2014 and were character- ised, in particular, by increased sales of small cars. The Norwegian economy deteriorated in 2015 primarily due to the significant drop in oil prices although the Norwegian economy is generally and ambitious targets must be set for each individual Tryg Nordic financial market Nordic market to around 4.4%. Car sales in Norway were up employee, and regular feedback must be provided. 4.5% in 2015. | Contents – Management’s review 6 2011 2012 2013 2014 2015 very strong. The unemployment rate increased Annual report 2015 | Tryg A/S | Targets strong focus on improving customer experience have sent more than 600,000 automated text mes- throughout all management and employee levels. Tryg has a strong focus on both financials and in all parts of the organisation. sages to customers after they have been in contact This creates clarity in terms of how the individual customers, and targets have therefore been set with us and received more than 200,000 replies. employee contributes to the overall corporate for both areas. Financial and customer targets are Strategic initiatives 78% rated their experience with Tryg between 9 targets, which in turn leads to a more structured inextricably linked. Loyal customers mean high Tryg has set up four strategic initiatives to support and 10 on a scale of 1-10. Tryg’s overall NPS score and continuous dialogue regarding the employee’s retention rates, keeping the expenses associated its financial and customer targets. The strategic has almost doubled since the Capital Markets Day own personal development. with attracting new customers low, thereby con- initiatives for 2016 are unchanged from 2015. in November 2014, from 11 to 22, which means tributing to a low expense ratio. With the financial that our 2017 target of an NPS score of 22 has been Leading in efficiency results posted for 2015, Tryg is on track to meeting Strategic initiatives 2016 achieved. Concurrently with the implementation of After having delivered on the previous efficiency the financial targets for 2017. • Next level pricing automated NPS data, all managers and front-line programme targets, Tryg launched its new efficiency • Customer journey & success culture employees have received training and coaching in programme in 2015 with the aim of further reducing In 2015, Tryg improved its performance on all • Leading in efficiency delivering a superior customer dialogue as close claims and direct costs by DKK 750m by the end customer-related parameters as a result of a • IT stability and digitalisation relations and the sense of genuinely being listened of 2017, with DKK 500m relating to claims and Next level pricing most highly in the overall customer experience. a further consolidation of Tryg’s Nordic procurement to are two of the factors which our custo mers rate DKK 250m to expenses. As regards the claims costs, Financial targets 2015 Next level pricing (price differentiation) has been an volume and the dedication of more resources to ongoing initiative and Tryg’s most important initia- To increase employee competences and motivation, com batting fraud will be among the primary drivers, • Return on equity of 20% after tax tive in recent years. By the end of 2015, Tryg had Tryg implemented the SuccessFactors tool in 2015, while outsourcing, digitalisation and process developed 33 new price-differentiated products, which allows corporate KPIs to be cascaded down optimi sation will contribute positively to reducing • Combined ratio ≤90 • Expense ratio <15 Financial targets 2017 • Return on equity of ≥21% after tax • Combined ratio ≤87 • Expense ratio ≤14 and it is estimated that 85% of Tryg’s tariffs are at peer level. This development supports the target of being ahead of peers for 25% of products and on a par with peers for the remaining products in 2017. In 2016, as an important part of the next level pricing initiative, the portfolio will be converted to the new price-differentiated products. This will positively impact both profitability and efficiency, especially in claims handling through the stand- ardised handling of insurance agreements with Customer targets 2017 similar terms and conditions. • NPS + 100% • Retention rate + 1 pp Customer journey & success culture In 2015, Tryg implemented the Net Promoter Score • Customers ≥3 products + 5 pp (NPS) system in all sales and claims teams across Denmark, Norway and Sweden. In just one year, we 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 NPS = Promoters 1 2 3 – 4 Detractors 5 6 7 8 9 10 Detractors Passives Promoters | Contents – Management’s review 7 Annual report 2015 | Tryg A/S | Change of car ownership insurance Tryg was the first company to introduce a change of car ownership insurance product in Denmark. The product is for customers buying and selling cars privately and consists of a car test and a change of car ownership insurance. expenses and supporting the expense ratio target agreed to all future communications with Tryg being of 14 or below in 2017. During 2015, the out- solely digital, while the figure for Norway is 63%. The sourcing programme continued as planned, with 46 digitalisation programme has focused on creating a employees being out sourced, primarily in Finance. better customer experience in Tryg’s claims handling The potential of the out sourcing programme is and services, and secondly on automation, also in deemed to be significant. the claims division. The programme is swiftly gaining momentum, having already released a number of new IT stability and digitalisation solutions. For 2016, the focus will be on self-service, IT stability is extremely important for an insurance automation, lead generation and cross sales. The company which is very dependent on IT systems target for 2017 is for 90% of our customers to be for its customer communications within both sales digital and for 80% of claims notifications from digital and claims handling. Following the switch to TCS customers to be reported via Tryg’s webpages. Tata Consultancy, Tryg has seen a continuous im- provement in IT stability and is now within sight of Corporate Social Responsibility the maximum downtime target. This is due to the Corporate Social Responsibility is an integrated part of joint efforts of Tryg and its partners, encompassing Tryg’s core business, which is to create peace of mind the transition of services, process optimisation, and value for our customers, employees and share- monitoring, upgrades and simplification of the holders. This means that Corporate Social Respon- IT structure and systems. sibility plays a constant role in the decisions which we make, in the improvement and development of Digitalisation is very important and will become even our products and services, in the optimisation of our more important in future. An expansion of Tryg’s operations and in the positive contributions which digital communication with customers requires the we make to society at large through our activities. necessary acceptance by customers that we commu- Read more about Tryg's CSR activities on pages nicate digitally. In Denmark, 80% of customers have 35-36. Efficiency programme – claims procurement Efficiency programme – expenses DKKm 500 400 300 200 100 0 250 500 150 100 105 2015 2016 2017 Total target DKKm 250 200 150 100 50 0 125 250 75 50 60 2015 2016 2017 Total target Target Achieved Target Achieved | Contents – Management’s review Annual report 2015 | Tryg A/S | 8 Annual report 2015 | Tryg A/S | Financial targets and outlook Financial targets 2017 highly skilled organisation. and administration and DKK 250m relating to is around 7% with the MSCI world index as the tion through integration into Tryg's efficient and relating to the procurement of claims services return is expected. For shares, the expected return expenses. The target is DKK 225m for 2016 and benchmark, while the expected return for property • Return on equity of ≥21% after tax Tryg has a solid reserve position, and at the Capital DKK 375m in 2017. • Combined ratio ≤87 • Expense ratio ≤14 Markets Day in November 2014, Tryg therefore is around 6%. Investment activities also include other types of investment income and expenses, announced that the run-off level was likely to be The investment portfolio is divided into a match especially the cost of managing investments, the higher than the run-off level during the pre-2015 portfolio corresponding to the technical provi- cost of currency hedges and interest paid on loans. period. Tryg expects this to be the case until the sions and a free portfolio. The objective is for the end of 2017, after which we expect a long-term return on the match portfolio and changes in the There has been a gradual lowering of tax rates in The return on equity for 2015 was below target run-off level of 2.5-3%. technical provisions due to interest rate changes Denmark, Norway and Sweden in recent years. In due to very low investment income and one-off to be neutral when taken together. From 2016, Denmark, the tax rate was 23.5% in 2015 and will costs. Tryg met the combined ratio and expense In 2016, weather claims net of reinsurance and the curve used for discounting technical provi- be reduced to 22% in 2016. The Norwegian tax ratio targets for 2015 and is well positioned for large claims are expected to be DKK 500m and sions will change due to the implementation of rate was 27% in 2015 and will be reduced to 25% meeting the targets for 2017. DKK 550m, respectively, which is unchanged the Solvency II directive, and this might result in in 2016, while the Swedish rate was 22%. When relative to 2015. slightly more volatile match portfolio net results. calculating the total tax payable, account should Tryg expects growth in gross premium income The new curve increases the interest rate risk of also be taken of the fact that gains and losses on of 0-2% in local currencies in 2016. From 2017, The interest rate used to discount Tryg’s technical the technical provisions, thereby introducing a shareholdings are not taxed in Norway. All in all, we expect premium growth to be in line with GDP. provisions is historically low. An interest rate in- larger difference between the match return and this causes the expected tax payable for an The size of the motor market will generally be crease will have a positive effect on Tryg’s results. the changes in the technical provisions. Moreover, average year to be reduced from around 22-23% negatively impacted by technological develop- Generally speaking, an interest rate increase of the curve introduces a component, 'Credit Risk to around 21% in 2016. ments, and Tryg has therefore announced that we 1 percentage point will increase the pre-tax result Adjustment – or CRA', which cannot be hedged, will be taking a more active approach to acquiring by around DKK 300m and vice versa. and the impact from this component can only The value of the NOK fell in 2015, which had smaller port folios and developing the market for be negative. products which are expected to see higher growth For the purpose of realising the financial targets, a negative impact on Tryg’s operating profit. The share of equity held in NOK and SEK is rates such as pet insurance and child insurance. Tryg launched an efficiency programme aimed at The return on bonds in the free portfolio will continuously hedged in the financial markets. In general, acquisitions should support value crea- realising savings of DKK 750m, with DKK 500m vary, but given current interest rate levels, a low | Contents – Management’s review 9 Annual report 2015 | Tryg A/S | Tryg’s results The one-off costs of DKK 120m incurred in Q3 2015 were in line with Tryg’s statement at the Capital Markets Day (CMD) in November 2014 Customer highlights 2015 and relate primarily to Tryg’s sourcing programme, • NPS improved from 11 to 22 but also to initiatives designed to achieve our first- • Retention rate improved from 87.9 to 88.1 contact resolution targets and improve our digital • Number of customers with three or more solutions. As communicated at the CMD, a thorough products up from 56.3% to 56.7% analysis undertaken by Tryg in cooperation with • TryghedsGruppen’s members’ bonus its sourcing partner has identified a significant scheme approved by the Danish Business A result of DKK 1,981m affected by one-off costs Results sourcing potential both in the claims and in the Authority and a low investment return. Proposed dividend Reporting a return on equity of 18.9%, a combined administration parts of the business areas. of DKK 3.50 per share equivalent to a dividend ratio of 86.8 and an expense ratio of 15.3, Tryg of DKK 6 per share for 2015. A share buy back met its combined ratio and expense ratio targets. In 2015, Tryg maintained a strong focus on the The share of customer with three or more products programme of DKK 1,000m is planned for 2016. The target was a combined ratio below 90 and an customer targets for 2017. The Net Promoter increased from 56.3% to 56.7%. Increasing the Financial highlights 2015 • Profit after tax of DKK 1,981m (DKK 2,557m) • • Return on equity after tax of 18.9% (23.0%) Technical result of DKK 2,423m (DKK 3,032m) • Combined ratio of 86.8 (84.2) • Premium income reduced by 0.8% (-1.1%) • Claims ratio, net of ceded business, of expense ratio below 15, and adjusted for one-off Score (NPS) improved from 11 at the CMD to 22 number of products per customer is an effective costs of DKK 120m relating to the ongoing ef- by the end of 2015. Improving in all business areas way of improving customer loyalty and has been a ficiency programme, an expense ratio of 14.9 was in the course of the year, the NPS has proven to be focus area in all parts of the organisation. realised. Due to the above-mentioned one-off a strong driver for improving customer loyalty. In costs and the very low investment result, Tryg did 2015, the score improved very significantly, espe- In August, the Danish Business Authority approved not meet the target of the return on equity of 20%. cially for Tryg’s Norwegian business. At the end of the members’ bonus scheme of TryghedsGruppen, 2015, the NPS was also implemented by Corporate Tryg’s majority shareholder. Tryg expects the Profit after tax was DKK 1,981m (DKK 2,557m), with very high scores, with a particularly high score bonus scheme and the expected disbursement positively affected by the ongoing efficiency pro- of 63 being achieved by our Guarantee business. of bonus corresponding to 5-8% of the prior-year gramme, which contributed savings of DKK 165m At 88.1, the retention rate was up from 87.9 at the premium to support our customer targets and in 2015 against a target of DKK 150m. Profit after CMD. In 2015, we saw a significant improvement especially customer retention. The first bonus tax was adversely impacted by a low level of in- in Commercial Denmark from 86.6 at CMD to will be disbursed in spring 2016. 71.5 (69.6) vestment income and one-off costs relating to the 87.9 in Q4 2015. • Expense ratio of 15.3 (14.6) and efficiency programme. The total effect of weather 14.9 (15.3) before one-off effects claims, large claims and run-off was somewhat • Investment return, after transfer to higher than in 2014. A slightly negative develop- insurance, of DKK -5m (DKK 360m) ment was observed during the year, especially for • Proposed dividend of DKK 3.5 per share the property lines across the different business and DKK 6.0 when including H1 dividend • DKK 1bn share buy back completed and a new DKK 1bn programme planned in 2016 areas, and this will be mitigated through price increases to the tune of 3% and new targeted claims assessment initiatives in 2016. Customer targets DKKm Net Promoter Score (NPS) Retention rate Customers with ≥3 products (%) | Contents – Management’s review CMD (Nov. 2014) 11 87.9 56.3 2015 22 88.1 56.7 Target 2017 22 88.9 61.3 10 Annual report 2015 | Tryg A/S | As part of Tryg’s customer focus, Commercial Council recommended Tryg’s new car insurance We know that many customers prefer self-service development in the portfolio. Corporate posted radically changed its structure in 2015 through product as being ‘Best in Test’. Tryg also launched solutions, and we have therefore developed a self- premium growth of 0.0% (1.1%) in local currencies. increased empowerment of the front-line organi- new house insurance, travel insurance, accident service solution for our most important product, For this business area, Tryg is prepared for more sation and a reduction in back-office functions. insurance and pet insurance products in Norway, motor, in both Denmark and Norway, which allows substantial fluctuations in premium income due to This change will support first-contact resolution by while in Denmark we launched a new accident customers to register their current kilometre read- the competitive situation and the focus on having a removing a lot of unnecessary stops in connection insurance product along with many products for ings and yearly mileages. profitable portfolio. The Swedish business saw a 3.1% with the selling of insurance. In Q4, Commercial our largest affinity agreement, including house, (-7.4%) drop in premium income in local currencies. also introduced Tryg Plus for commercial custom- pet and motorcycle insurance. Claims reporting is one of the most important After the implementation of significant structural ers with many customer advantages. parameters for customers, and in Q4 a solution for changes in recent years, the Swedish business gener- Within Private, many new initiatives were intro- Smart motor app, which from the start has re- launched in Denmark. Tryg will continue to develop levels under the distribution agreement with Nordea. In Q4 2015, Moderna launched the Moderna the digital reporting of private contents claims was ated higher-level sales in 2015 compared to sales duced to improve first-contact resolution through ceived much attention from customers and gener- user-friendly solutions in 2016. To increase the new customer centre workflows. In Denmark, ated very strong sales. The app records the driver’s number of products per customer, Tryg will also, In Norway, Tryg’s child insurance was acclaimed a significant improvement was achieved, with a driving style, and the car insurance price is as part of the digitalisation programme, encourage as Best in Test by the Norwegian Family Economy first-contact resolution rate of 83% being realised, then differentiated accordingly. customers to buy new products through Tryg’s ‘My (Norsk Familieøkonomi). In 2015, Tryg made an agree- which is close to the target of 90%. In Private page’ online solution in both Denmark and Norway. ment to acquire Skandia’s child insurance portfolio. Norway, first-contact resolution stood at 75%, In 2015, a number of old products were converted and with many initiatives in the pipeline for 2016. to new and more up-to-date products. The conver- Premiums The portfolio is worth around SEK 250m, and the trans- action is expected to take effect in H1 2016. Tryg gen- sion process was generally successful with a high Premium income totalled DKK 17,977m erally views child insurance as a future growth area. In 2015, Tryg also had a strong focus on claims hit rate. In 2016, the conversion of products will be (DKK 18,652m), representing a fall of 0.8% (-1.1%) prevention. In 2014, Tryg was the first insurance a very im portant focus area. Tryg will convert almost when measured in local currencies. The develop- Claims company to start offering synthetic DNA marking 1 million insurance policies in 2016 primarily within ment in premium income improved for Private and The gross claims ratio was 75.4 (67.8), with a claims in Denmark. The scheme was further rolled out the main areas of activity – motor, house and ac- Sweden, but was somewhat lower for Commercial ratio, net of ceded business, which covers both claims in both Denmark and Norway in 2015 with good cident. This will contribute to increasing efficiency and Corporate. In 2015, Private saw an improved and business ceded as a percentage of gross pre- results, leading to a significant drop in break-ins in as old products can then be phased out. It also development trend, and the development in both miums, of 71.5 (69.6). The claims level was positively the targeted areas and also very positive customer ensures that em ployees will only have one product customer numbers and sales improved in 2015 rela - impacted by the efficiency programme in the amount responses, which attracted new customers to Tryg. to consider in their advisory and claims handling tive to 2014. The improvements were primarily due of DKK 105m due to combination of the improved functions. to a strengthened customer focus and new price- procurement of claims services and claims administra- The development of price-differentiated products differen tiated products with improved coverage, tion. The net impact from weather claims, large claims continued in 2015, and in March Tryg launched Digitalisation is a key strategic initiative for Tryg. which had a positive effect on the development in and run-off impacted the claims ratio negatively by a new car insurance product in Denmark. This In 2015, Tryg further increased the number of premium income. Premium income in Commercial 0.1 percentage points. Apart from this, an increase was the most important product launch since the customers we contact digitally, both in our daily was down by 2.9% (-3.0%) in local currencies. In was seen in the level of medium-sized claims as well start of Tryg’s strategic initiative to develop price- dealings with customers, but also as part of pre- 2015, the Commercial retention rate improved in as a higher claims level especially for the property differentiated products in 2012. The new product paring for the customer bonus scheme. Tryg has Denmark, but dropped in Norway. There is a general lines across the different areas. The development improved Tryg’s competitive position in this very digitalised 80% of its Danish and more than 60% need to improve the balance between sales and in property insurance claims will be offset by minor important market, and the Danish Consumer of its Norwegian customers. retention rates in Commercial to achieve a positive price adjustments, but also through improved quality | Contents – Management’s review 11 Annual report 2015 | Tryg A/S | control for certain types of claims such as, for exam- Large claims amounted to 3.4% (3.1%) in 2015 The return on the match portfolio was DKK 1m 6,193m at the end of 2015, and is measured based ple, claims relating to pipes. Tryg saw an increase and weather claims to 3.4% (2.4%). Large claims (DKK 181m) after transfer to insurance tech nical on the adequate capital base, which amounted to in such claims in 2015. We also saw an increase in and weather claims totalled DKK 1,227m, which interest. The return on the free investment portfolio DKK9,525m. After recognition of a share buy back the level of travel insurance claims, highlighting the is somewhat higher than the average level of was DKK 232m (DKK 548m). The return on the in 2015, Tryg’s surplus cover is DKK 3,332m, fact that the price increases introduced in August DKK 1,050m a year. The run-off level stood at 6.7% equity portfolio was positive at 3.4%, which was corresponding to 54%. 2014 in connection with the extension of cover (6.1%), which underlines Tryg’s solid provisions. significantly lower than in 2014, which saw a return for health-related issues no longer covered under of 10% and was impacted by a volatile develop- Tryg’s capital adequacy calculation includes approxi- the public health insurance schemes were too low. Expenses ment for equities especially in Q3, which saw a sig- mately NOK 1.2bn after tax from the Norwegian This development will be mitigated through price The expense ratio was 15.3 (14.6). Adjusted for nificant drop leading to a negative return of 10.3%. Na t ural Perils Pool and the Norwegian guarantee adjustments. one-off costs of DKK 120m relating to the ef- Bonds produced a negative return of 0.1% (2.1%), scheme. On 26 August 2015, the Norwegian Ministry ficiency programme, the expense ratio was 14.9 with the total return being impacted especially by a of Justice and Public Security started a consultation The claims-related measures implemented in 2015 and in line with the target of an expense ratio negative return of 0.6% on covered bonds. in relation to the use of the Norwegian Natural Perils included improved agreements on the procure- below 15 in 2015. Pool (NNP) as an Own Funds item under the Solv- ment of claims services within contents insurance, Profit/loss on discontinued business ency II scheme. The most important message in the including an agreement with Scalepoint and the The efficiency programme contributed DKK 60m A profit of DKK 49m (DKK 10m) was realised consultation material is that the classification of the gradual implementation of the IN4MO system for in 2015, corresponding to an impact on the ex- on discontinued business, comprising gains Natural Perils Pool will be allowed as a Tier 2 capital the management of all processes and deliveries in pense ratio of 0.3 percentage points. The initiatives on provisions, primarily relating to the marine item. Tryg expects a final solution to be announced in connection with building claims. Most agreements comprised cuts in Finance and IT as part of the run-off business. with claims service companies are based on a outsourcing programme, but the changed general model of fixed prices for specific tasks. This Commercial structure also had a positive impact. Tax Q1 2016. The inclusion of the Natural Perils Pool as Tier 2 capital will lead to a potential for issuing future subordinated debt of approximately DKK 1bn. approach is easy to manage and encourages the Going forward, outsourcing in the various business Tax on profit for the year totalled DKK 395m, or 17% swift handling of reported claims. areas will play an important role in meeting the of the profit before tax. The relatively low tax rate was On 2 January 2015, Tryg initiated a buy back of own DKK 250m target for the period up until 2017. due to a lower Norwegian tax rate and a merger of shares for an amount of DKK 1,000m, which was Tryg renewed a horizontal reinsurance agreement Tryg’s property com panies, which meant that a tax finalised on 18 December 2015. for the period from 1 July 2015 to 30 June 2016. In 2015, the number of employees was reduced deficit in one of Tryg’s properties could be utilised. In the event of total storm and cloudburst claims from 3,599 to 3,359. In 2015, Tryg paid DKK 765m in income tax as well As earlier mentioned, Tryg has acquired Skandia’s expenses in excess of DKK 300m, the agreement as various payroll taxes totalling DKK 362m, result- child insurance portfolio. This will lead to a capital will cover the next DKK 600m. Only claims events Investment return ing in total tax payments of DKK 1.127m in 2015. impact of DKK 400-500m, both due to the price paid in excess of DKK 20m are covered by the agree- The investment return was negative by DKK 5m for the portfolio and the capital requirement relating ment. In H2 2015, storm and cloudburst claims (DKK 360m) in 2015. The match portfolio totalled Capital position to the portfolio. totalled approximately DKK 190m, which means DKK 28.1bn and is made up of bonds which match Tryg’s equity totalled DKK 9,831m (DKK 11,119m) that after claims for another approximately the insurance provisions so that fluctuations re- at the end of 2015. Tryg determines the individual In general, Tryg wants to acquire small portfolios DKK 110m, the agreement will provide cover sulting from interest rate changes are offset to the solvency requirement according to the Danish which can be integrated in an effective way and sup- in H1 2016. greatest possible extent. At 31 December 2015, Financial Supervisory Authority’s guidelines. port Tryg’s financial targets over a three-year horizon, the value of the free portfolio totalled DKK 10.7bn. The individual solvency requirement was DKK supporting a return on equity of 21%. | Contents – Management’s review 12 Annual report 2015 | Tryg A/S | The transition to Solvency II from 1 January 2016 Results for Q4 2015 Claims The number of employees was further reduced will have a positive impact on Tryg’s capital The profit after tax totalled DKK 721m The gross claims ratio was 68.0 (64.1), with a in the quarter by 66 full-time employees, leaving pos ition. Tryg has a Solvency II ratio of 176 on (DKK 640m) based on a technical result of claims ratio, net of ceded business, which covers 3,359 full-time employees at the end of the year. 1 January 2016. Dividend policy DKK 522m (DKK 775m) and an investment both claims and business ceded as a percentage result of DKK 201m (DKK 13m). of gross premiums, of 74.2 (68.8). The higher Investments level of claims can be ascribed especially to a high The investment return was DKK 201m (DKK 13m) According to Tryg’s dividend policy, the aim is Profit after tax was positively affected by the on- level of weather claims of 5.4% (2.6%). Sweep- with a result from the match portfolio of DKK for the dividend to be steadily increased. For H2 going efficiency programme which had an impact ing across Denmark at the end of November, the 44m (DKK 39m), a result from the free portfolio 2015, a dividend of DKK 3.5 per share is proposed, of DKK 32m in the quarter. The investment income storm Gorm resulted in claims of approximately of DKK 201m (154m) and other financial income corres ponding to a total dividend per share based rebounded somewhat from the very negative de- DKK 120m, while the flooding caused by the storm and expenses totalling DKK -44m. The high return on the 2015 results of DKK 6 (DKK 5.8), represent- velopment in Q3 2015 with a result of DKK 201m. Synne in Norway at the beginning of December led on the free portfolio was due to a rebound in the ing total dividend payments of DKK 1,759 or 89% The net effect of weather claims, large claims and to claims of approximately NOK 215m, of which equity market reflected in a return on equities of of the profit for the year. run-off was up by 3 percentage points in the Tryg covers approximately NOK 23m. In addition DKK 111m (DKK 75m) or 4.5% (3.2%). The return quarter, with weather claims being especially high. to these specific weather claims came the usual on Investment property was DKK 71m (DKK 50m) In 2015, a DKK 1bn share buy back was com- The claims level was also impacted by a higher winter claims, especially in Norway. The high level following a positive revaluation for some invest- pleted, and Tryg has planned a DKK 1bn share buy claims level from the property lines across the of weather claims means that Tryg will be covered ment properties. back programme once approved by the Danish different business areas. under a horizontal reinsurance agreement after Financial Supervisory Authority. further weather claims of DKK 110m. Premiums The total yield for shareholders was 6.9% in 2015. Premiums developed negatively by 1.6% (-0.1%) in In Q4, claims levels generally remained high for Financial highlights Q4 2015 local currencies. In Private, the positive develop- the property lines, which will be mitigated through Events after balance sheet date ment continued with growth of 1.1% (-0.2%) in minor price adjustments and claims initiatives. The introduction of Solvency II will have a signifi- local currencies, reflecting both a strong develop- Claims initiatives will include more thorough in- • Profit after tax of DKK 721m (DKK 640m) • Technical result of DKK 522m (DKK 775m) cant impact on Tryg’s capital position in various ment in sales and stable retention rates. In Com- vestigations, in particular of pipe-related claims. • Combined ratio of 88.4 (83.7) areas and will be taken in to account as of 1 January mercial, premiums dropped by 5.0% (-1.8%) in lo- 2016. Read more on in the section Capital and risk cal currencies, reflecting a competitive Norwegian Expenses • Weather claims impacting the combined ratio by 5.4 percentage points (2.6) management on pages 24-25 and Download the market which was also impacted by the economic The expense ratio was 14.2 (14.9).The efficiency • Large claims impacting the combined newsletter at Tryg.com situation, whereas Commercial in Denmark saw programme contributed DKK 15m in the quarter, ratio by 3.1 percentage points (4.3) stable development but was impacted by the in- corresponding to an impact on the expense ratio • Expense ratio of 14.2 (14.9) In the opinion of Management, from the balance dividual regulation of a number of large accounts. of 0.3 percentage points. Apart from the contri- • Investment return of DKK 201m sheet date to the present date no other matters In Corporate, premium growth was negative at bution from the efficiency programme, the low (DKK 13m) of major significance have arisen that are likely 2.1% (1.5%) in local currencies, reflecting a more expense ratio was also due to the organisation’s • Proposed dividend of DKK 3.5 per share to materially influence the assessment of the competitive Norwegian market. The Swedish efforts to meet the overall target for 2015 of an and DKK 6.0 when including H1 dividend company’s financial position. business saw a drop in premium income of 6.1% expense ratio below 15. (1.6%) in local currencies following the termination of a large affinity agreement. • DKK 1bn share buy back completed and a new DKK 1bn programme planned in 2016 | Contents – Management’s review 13 Annual report 2015 | Tryg A/S | Private retention rate dropped from 87.0 to 86.4 due to the storm Gorm in Denmark but also flooding in Norway above-mentioned developments in the Norwegian and higher claims levels for some lines of business. economy and the competitive market situation. House insurance saw a particularly negative Sales and customer numbers developed positively, development in claims, as did some minor lines of which can also be ascribed to the increased cus tomer business such as travel insurance. Tryg constantly focus. Sales in Denmark were 7% higher than in 2014, monitors developments in claims, and steps are and Norwegian sales were also slightly higher, especi- taken to counter any consistently negative trends. ally due to strong sales via the franchise sales channel. Initiatives will often be a combination of minor Private encompasses the sale of insurance products in premiums was slightly positive and improved price adjustments and claims prevention. to private individuals in Denmark and Norway. Sales compared to 2014. Adjusted for the one-off effects Claims are effected via call centres, the Internet, Tryg’s own in 2014 of Norwegian pension and IT costs, the The gross claims ratio amounted to 69.0 (67.7), with a Expenses agents, franchisees (Norway), interest organisations, expense ratio improved by 0.6 percentage points. claims ratio, net of ceded business, of 70.7 (68.0). The The expense ratio was 14.7 (14.5). Adjusted for the car dealers, estate agents and Nordea’s branches. increase was ascribable to the efficiency programme one-off effects of the Norwegian pension scheme The business area accounts for 49% of the Group’s Premiums and a higher level of weather claims related to the and the change of IT suppliers in 2014, the expense total premium income. Results The development in gross premium income improved by 0.3% in local currencies against an unchanged level in 2014 and a 2.2% drop in 2013. Premiums increased Key figures – Private The technical result for 2015 was DKK 1,298m by 0.4% in Denmark, which was very satisfactory (DKK 1,612m), with a combined ratio of 85.4 given also that the average price of the motor product (82.5). The development was attributable to a fell by a further 2.6 percentage points due to higher combination of a positive impact from the ef- sales of smaller and safer cars. In Norway, premium ficiency programme, a higher level of weather income increased by 0.3% in local currencies, which claims and a higher level of claims especially from was acceptable, considering the competitive market the property lines of business. The development situation and the weakened Norwegian economy. Financial highlights 2015 • Technical result of DKK 1,298m (DKK 1,612m) • Combined ratio of 85.4 (82.5) • Gross premiums in local currencies increased by 0.3% (0.0%) • Expense ratio of 14.7 (14.5) | Contents – Management’s review The improved premium development can be ascribed to a strong customer focus, which has resulted in a significant improvement in the Net Promoter Score (NPS) from 21 in 2014 to 26 in 2015. The develop- ment was significant in both Denmark and Norway. In Denmark, the NPS improved from 25 to 29, while an improvement from 15 to 22 was seen in Norway. The development in the NPS also supported a posi- tive development in the retention rate in Denmark, which improved from 89.6 to 89.9. In Norway, the DKKm Q4 2015 Q4 2014 Gross premium income Gross claims Gross expenses 2,172 -1,548 -290 2,249 -1,468 -337 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 Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 334 -51 2 285 49 1.1 71.3 2.3 73.6 13.4 87.0 -2.3 0.4 7.6 444 -48 4 400 47 -0.2 65.3 2.1 67.4 15.0 82.4 -2.1 0.0 2.6 2015 8,803 -6,074 -1,291 1,438 -148 8 1,298 324 0.3 69.0 1.7 70.7 14.7 85.4 -3.7 0.3 4.5 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 -3.9 0.1 2.5 14 Annual report 2015 | Tryg A/S | ratio improved by 0.6 percentage points. This a competitive market situation and the weakened development was the result of a consistent focus Norwegian economy. The positive development in on improving expense levels, and in 2015 outsour- the NPS continued in Q4 with an improvement of cing initiatives were implemented in Private. The 1 point to 29 in Denmark and an unchanged level of initiatives centred on reducing expense levels in the 22 in Norway. The positive development in customer back-office functions and improving sales efficiency numbers continued with a significant increase in through improved management and training. Denmark and a slight reduction in Norway. Sales were The number of employees was reduced from 903 channels contributed positively to the development, at the end of 2014 to 837 in 2015, mainly through and in Norway the franchise sales channel posted job cuts in the administration. consistently high sales levels. high in both Denmark and Norway. In Denmark, all Financial highlights Q4 2015 The retention rate in Denmark increased to 89.9 (89.6), and the retention rate in Norway was 86.4 (87.0). The high level in Denmark was probably partly • Technical result of DKK 285m due to awareness of the customer bonus that will be (DKK 400m) implemented from spring 2016. • Combined ratio of 87.0 (82.4) • Claims ratio, net of ceded business, Claims of 73.6 (67.4) The gross claims ratio was 71.3 (65.3), and the • Expense ratio of 13.4 (15.0) claims ratio, net of ceded business, was 73.6 (67.4). Results Q4 2015 The high level was primarily due to the weather in Denmark and Norway. A storm in Denmark resulted in more than 9,000 claims, and in Norway severe The technical result totalled DKK 285m (DKK 400m), flooding caused damage of an estimated NOK 215m with a combined ratio of 87.0 (82.4), and was for the market as a whole, on top of which came the negatively affected by a significantly higher level impact from winter claims. We saw a slight increase of weather claims than in 2014. The expense level in property claims in Denmark, which underpins the was very low at 13.4 (15.0). importance of implementing both price and claims prevention initiatives from 2016. Premiums Gross premiums increased by 1.1% (-0.2%) in local Expenses currencies. Premium growth in Denmark was 2.6%, In Denmark, the expense ratio was 13.4 (15.0), partly due to a low level of bonus and premium reflecting a strong focus on efficiency and a lower rebates, while premium growth in Norway was level of commissions and marketing spend. The negative at -0.7% in local currencies, still reflecting number of employees was reduced by 15 in Q4. Prevention creates peace of mind and increases sales Tryg is the first insurance company to actively use DNA marking in an effort to prevent break-ins. The DNA marking technology consists of an the home-owners using DNA marking. Tryg invisible and synthetic liquid which can be extended the trial to Norway, distributing applied to all valuables. The liquid is visible DNA kits to 280 households in Hasleåsen in under UV light and cannot be removed. Sandefjord, another residential area plagued by high break-in rates. In addition to reducing Tryg first carried out a trial in a residential the number of break-ins, the initiative has district in the town of Sønderborg in southern attracted more than 50 new customers in Denmark with a particularly high incidence the area. of break-ins, and 90 residents said yes to the DNA kit. Police data show that the number Studies show that synthetic DNA marking of break-ins in the Sønderborg area in general has a clearly preventive effect on burglary has fallen by 26%, while Tryg’s data from the rates. Read more about Tryg’s DNA test area show a 53% decline in break-ins for marking initiative at tryg.dk. | Contents – Management’s review Annual report 2015 | Tryg A/S | 15 Commercial The development in sales improved in 2015, which lines of business. The very high level of large claims can also be ascribed to the increased customer focus related to fires in both Denmark and Norway. during the year. Sales in Denmark were 2 percent- age points higher than in 2014, and in Norway The high level of property claims was, among other sales were also at a slightly higher level, especially things, also due to an increase in fire-related claims, due to strong sales via the franchise sales channel. especially in Denmark and Norway. The agriculture Overall, the sales level was, however, too low to segment also saw a high level of claims. Based on secure stable premium growth through the year. the development in property, selective price adjust- ments will be initiated. Commercial encompasses the sale of insurance Adjusted for the one-off effects of the Norwegian Claims products to small and medium-sized businesses in pension and IT costs in 2014, the expense ratio was The gross claims ratio amounted to 65.4 (63.8), Expenses Denmark and Norway. Sales are effected by Tryg’s at a slightly higher level. with a claims ratio, net of ceded business, of 66.5 The expense ratio was 17.1 (15.8). Adjusted for the own sales force, brokers, franchisees (Norway), (63.6). The higher level was ascribable to a com- one-off effects of the Norwegian pension scheme customer centres and through group agreements. Premiums bination of higher weather and large claims and and the change of IT suppliers in 2014, the expense The business area accounts for 22% of the Group’s The development in gross premium income was a higher claims level, especially for the property ratio increased slightly by 0.2 percentage points. total premium income. Results negative by 2.9% in local currencies, which was in line with the development in 2014, but at the same time an unsatisfactory development. Premiums de- The technical result for 2015 was DKK 658m creased by around 2.6% in Denmark, due to a gen- (DKK 875m), with a combined ratio of 83.6 (79.4). erally competitive market situation and selective The combined ratio was negatively affected by price hikes. In Norway, premium income declined a higher level of weather and large claims and a by 3.6% in local currencies due to the competitive higher level of claims from especially property lines situation and the weakened Norwegian economy. of business. The development in premiums was negative with a reduction of 2.9% (-3.0%) and was The Net Promoter Score (NPS) improved from 0 in more or less in line with the development in 2014. 2014 to 12 in 2015. The development in the NPS was significant in both Denmark and Norway. In Denmark, the NPS improved from 5 to 18, and in Norway an improvement from -11 to -1 was seen. The development in the NPS also supported a posi- tive development in the retention rate in Denmark, which improved from 87.0 to 87.9. In Norway, the retention rate fell slightly due to the above-men- tioned development in the Norwegian economy and a competitive market situation. Financial highlights 2015 • Technical result of DKK 658m (DKK 875m) • Combined ratio of 83.6 (79.4) • Gross premiums reduced by 2.9% (-3.0%) • Expense ratio of 17.1 (15.8) | Contents – Management’s review Key figures – Commercial DKKm Q4 2015 Q4 2014 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 Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 970 -604 -167 199 -53 1 147 61 -5.0 62.3 5.5 67.8 17.2 85.0 -6.3 1.9 4.8 1,050 -580 -164 306 -39 3 270 126 -1.8 55.2 3.7 58.9 15.6 74.5 -12.0 4.2 2.6 2015 3,992 -2,612 -683 697 -44 5 658 388 -2.9 65.4 1.1 66.5 17.1 83.6 -9.7 6.7 2.8 2014 4,190 -2,673 -664 853 8 14 875 310 -3.0 63.8 -0.2 63.6 15.8 79.4 -7.4 4.3 1.9 16 Annual report 2015 | Tryg A/S | This development was a result of a consistent and the weakened Norwegian economy. The posi- focus on improving expense levels, which, tive development in the NPS continued in Q4 with however, could not fully make up for the drop an improvement to 18 from 15 in Q3 in Denmark in premium income. and an improvement in Norway to -1 from -4 in Q3. Sales were higher than in the prior-year quarter The number of employees was reduced from in both Denmark and Norway. 559 at the end of 2014 to 527 in 2015 following a restructuring move seeing greater empowerment In Denmark, the increase was generated in par- of front-line staff and job cuts among the adminis- ticular by the partner channel, while sales via the trative personnel. Financial highlights Q4 2015 • Technical result of DKK 147m (DKK 270m) • Combined ratio of 85.0 (74.5) franchise sales channel remained at a high level in Norway, whereas sales by agents were at a low level. However, the challenge is still that sales are too low to outweigh the decline in retention levels in Norway, which led to a drop in premium income. The retention rate in Denmark increased to 87.9 (87.0), while the retention rate in Norway • Claims ratio, net of ceded business, was 87.1 (87.8). of 67.8 (58.9) • Expense ratio of 17.2 (15.6) Claims Results Q4 2015 The gross claims ratio was 62.3 (55.2), with a claims ratio, net of ceded business, of 67.8 (58.9). The high level was primarily due to the weather in The technical result totalled DKK 147m (DKK 270m), both Denmark and Norway. Denmark was hit by with a combined ratio of 85.0 (74.5), and was nega- a storm, and in Norway flooding caused damage tively affected by a significant increase in weather worth an estimated NOK 215m for the market as claims relative to 2014. Premium growth was nega- a whole, on top of which came the impact from tive by 5.0% (-1.8%). The expense level was 17.2 winter claims. Q4 2015 also saw an increase in (15.6) following the drop in premium income. property claims levels for Commercial. Premiums Expenses Gross premiums dropped by 5.0% (-1.8%) in local In Denmark, the expense ratio was 17.2 (15.6), currencies with a drop in Denmark of 5.8% and primarily due to reduced premiums. The number a drop in Norway of 2.8% in local currencies as a of employees was reduced by 21 to 527 in Q4. result of the competitive market situation in general | Contents – Management’s review Fire at Copenhagen Experimentarium: Fast and professional handling. In April 2015, a fire broke out at one of the most popular tourist attractions in Denmark, Experimentarium in Copenhagen. The damage ran into tens of millions of Danish kroner. “In connection with some construction ence, and so I was extremely pleased to work, the roof structure caught fire, and it have Tryg on board to provide a professional quickly became clear that one of our most overview of the situation,” says Experimen- popular and treasured exhibitions, the tarium’s Executive Director Kim Gladstone Water exhibition, was beyond rescue. Herlev. In addition to covering the actual At the emergency meeting held the following relevant parties and provided advice and day, I was still severely shaken by the experi- guidance on the handling of the situation. claims, Tryg handled the dialogue with the Ø S K O R B E T T E M : O T O H P Annual report 2015 | Tryg A/S | 17 Corporate The Net Promoter Score (NPS) was also implemented Claims in Corporate in 2015 and generally with good results. The gross claims ratio amounted to 102.4 (71.2), In Denmark, the NPS was 15, and in Norway 20. In with a claims ratio, net of ceded business, of 79.9 Sweden, the NPS has not been implemented, but (78.7). The high claims level was due to a high level for the third year running, Swedish brokers ranked of large claims, and claims relating to business Corporate Sweden as the best company. interruption were generally at a high level. Because of this development, Corporate will be implement- Corporate had a particular focus on international ing price adjustments for the property business. customers in 2015 and made arrangements with Corporate sells insurance products to corporate by somewhat higher capital requirements. To some large international customers in coopera- In Denmark, the motor line of business developed customers under the brands ‘Tryg’ in Denmark and contribute to Tryg’s overall ambition of a return of tion with both the AXA network and some large negatively, with a high claims frequency, which will Norway, ‘Moderna’ in Sweden and ‘Tryg Garanti’. equity of 21%, Corporate must therefore realise a European reinsurance groups. The international also lead to the introduction of targeted initiatives Sales are effected both via Tryg’s own sales force lower combined ratio than the Tryg Group. In that business accounts for around 15% of Corporate such as higher excess and price increases. and via insurance brokers. Moreover, customers respect, the results are not satisfactory. premium income. with international insurance needs are served by Corporate through its cooperation with the AXA The moderate development in premiums seen in re- Group. The business area accounts for 22% of cent years continued in 2015 at an unchanged level the Group’s total premium income. (1.1%), measured in local currencies. This was an Key figures – Corporate acceptable development in a year impacted, among other things, by the weakened Norwegian economy. DKKm Q4 2015 Q4 2014 Results The technical result for 2015 was DKK 369m (DKK 427m), with a combined ratio of 90.7 (89.8). Adjusted for the one-off effects of the Norwegian The result was negatively affected by a high level pension and IT costs in 2014, the expense ratio of large claims and a lower level of run-off. With a was at a significantly lower level. higher proportion of long-tailed business than the other business areas, Corporate is characterised Premiums The development in gross premium income was unchanged compared to 2014 in local currencies. Premiums increased by around 1.6% in Denmark, whereas in Norway premium income declined by 3.3% in local currencies due to the competitive market situation, especially for the broker channel, and the weakened Norwegian economy. In Sweden, which accounts for only 20% of the total Corporate business, continued growth of 6.2% in local currencies was posted. Financial highlights 2015 • Technical result of DKK 369m (DKK 427m) • Combined ratio of 90.7 (89.8) • Gross premiums unchanged (1.1%) • Expense ratio of 10.8 (11.1) | Contents – Management’s review 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 Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 949 -657 -92 200 -195 0 5 65 -2.1 69.2 20.5 89.7 9.7 99.4 -6.8 11.3 2.0 1,015 -682 -108 225 -128 1 98 162 1.5 67.2 12.6 79.8 10.6 90.4 -16.0 15.4 2.9 2015 3,894 -3,987 -420 -513 877 5 369 351 0.0 102.4 -22.5 79.9 10.8 90.7 -9.0 8.2 2.2 2014 4,033 -2,872 -446 715 -304 16 427 421 1.1 71.2 7.5 78.7 11.1 89.8 -10.4 9.4 3.0 18 Annual report 2015 | Tryg A/S | In the Swedish business, profitability was im- and a significantly lower level of run-off compared proved through a number of initiatives. In 2015, to Q4 2014. Premium growth was negative by a negative development was, however, also seen 2.1% (1.5%). The expense level was very low at in the motor lines in Sweden where the portfolio 9.7 (10.6), reflecting a strong cost focus. of large trucks, in particular, showed an increasing claims trend. Substantial selected price hikes will Premiums therefore be introduced in this segment. Gross premiums dropped by 2.1% (1.5%) in local Expenses currencies based on an increase in Denmark of 2.0% and an 8.1% drop in local currencies in The expense ratio was 10.8 (11.1). Adjusted for Norway, still reflecting a competitive market the one-off effects of the Norwegian pension situation and the weakened Norwegian economy. scheme and the change of IT suppliers in 2014, Competition remains more pronounced in the the expense ratio improved by 0.8 percentage broker channel, in Norway another sign of the points. This was achieved through a continued weakened Norwegian economy. In addition, the focus on improving expense levels, and in 2015 quarter was also affected by volume adjustments Corporate also started a number of outsourcing under a number of major agreements. initiatives aimed reducing expense levels in the back-office functions. The quarter was, as always, impacted by the preparations for the renewals process starting The number of employees was reduced from on 1 January 2016, where approximately 48% 279 at the end of 2014 to 265 in 2015. of customers are renewed. New and more flexible car insurance In March 2015, Tryg launched a brand new car product. Financial highlights Q4 2015 • Technical result of DKK 5m (DKK 98m) Customers are automatically granted elite Council TÆNK carried out a review of car • Combined ratio of 99.4 (90.4) status once they reach the age of 30 and insurance policies from 11 different com- • Claims ratio, net of ceded business, after three years of no claims. In addition panies, which resulted inTryg coming out of 89.7 (79.8) to good basic cover, our new car insurance Best in Test. Tryg’s car insurance product • Expense ratio of 9.7 (10.6) product also offers a number of new types was named the best in the market based on of optional covers, allowing customers to a combined value-for-money rating of price tailor their insurance to their exact needs. and cover. Read more about the car In June 2015, the Danish Consumer insurance at tryg.dk. Claims The gross claims ratio was 69.2 (67.2), with a claims ratio, net of ceded business, of 89.7 (79.8). The high level was primarily due to a high level of large and medium-sized claims. Claims level, were high for property in both Denmark and Norway, whereas in Sweden motor insurance claims were high. Expenses Results Q4 2015 The expense ratio was 9.7 (10.6), reflecting The technical result totalled DKK 5m (DKK 98m), a strong focus on efficiency, and was achieved with a combined ratio of 99.4 (90.4), and was despite a drop in premium income. The number negatively affected by a high level of large claims of employees was reduced by 5 in Q4. | Contents – Management’s review | Contents – Management’s review 19 Annual report 2015 | Tryg A/S | Sweden In Q4 2015, Moderna launched an app, Moderna mination of the agreements with both Nordea and Smart, which from the start has received much Villaägerne, where profitability was not satisfactory. attention from customers and generated very high sales. Claims Expenses The expense ratio was 18.7 (19.2) or 18.8 in 2014 excluding one-off effects. The lower expense level The gross claims ratio amounted to 64.7 (71.3), can be ascribed to a more efficient sales set-up and with a claims ratio, net of ceded business, of 64.8 the restructuring of the business to include one (72.8). The significant improvement can be ascribed call centre as well as a generally strong focus on Sweden comprises the sale of insurance products harmonisation of the reserving models across to the harmonisation of the claims reserving model, efficiency. to private customers under the ‘Moderna’ brand. Tryg. Premium income dropped by 3.1% (-7.4%), which led to a high level of run-off gains in 2015. Moreover, insurance is sold under the brands which was a significant improvement compared Weather claims were at a slightly higher level. In The number of employees was 333 at the end of Atlantica, Bilsport & MC, Securator and Moderna with 2014. general, the claims ratio improved due to the ter- 2015, down 49 from 382 at the end of 2014. Djurförsäkringar. Sales are effected via Tryg’s own salespeople, call centres and online. The business In 2015, the new structure with only one call area accounts for 7% of the Group’s total premium centre in Malmö was fully implemented, and income. Results the acquired company Securator, which insures electrical goods, and the pet insurance portfolio, which was also acquired in 2014, were fully Key figures – Sweden Sweden’s results have improved significantly in integrated. recent years, and a strong result of DKK 218m was posted for 2015. The combined ratio was Premiums 83.5 (92.0) and was impacted by a very high Premium income declined by 3.1% (-7.4%) in local level of run-off gains of DKK 149m due to the currencies. The improved development was due to high sales, which were even higher than when Tryg had the partner agreement with Nordea. There was a strong performance by all sales channels – inbound, web, aggregator and the niche sales channels. The strong sales performance has mitigated the effects of the reduction in the port- folio following the termination of the agreement with Nordea and Villaägerne. In Q4 2015, the portfolio was further impacted by the termination of the agreement with the ICA supermarket chain. Sales of pet insurance were at a high level in 2015, this being a significant growth segment. Financial highlights 2015 • Technical result of DKK 218m (DKK118m) • Combined ratio of 83.5 (92.0) • Gross premiums reduced by 3.1% (-7.4%) • Expense ratio of 18.7 (19.2) | Contents – Management’s review DKKm Q4 2015 Q4 2014 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 Run-off, net of reinsurance (%) Weather claims, net of reinsurance (%) 313 -162 -66 85 -1 1 85 66 -6.1 51.8 0.3 52.1 21.1 73.2 -21.1 1.6 338 -252 -75 11 -5 1 7 3 1.6 74.6 1.5 76.1 22.2 98.3 -0.9 1.5 2015 1,317 -852 -246 219 -1 0 218 149 -3.1 64.7 0.1 64.8 18.7 83.5 -11.3 1.7 2014 1,399 -998 -268 133 -21 6 118 43 -7.4 71.3 1.5 72.8 19.2 92.0 -3.1 1.5 20 Annual report 2015 | Tryg A/S | Acquisition of Swedish child insurance portfolio In August 2015, Tryg acquired Skandia’s child and adult insurance portfolio with a premium volume of approximately SEK 250m. The port- folio will be integrated into Tryg’s Swedish branch Moderna in H1 2016. Results Q4 2015 Claims The technical result totalled DKK 85m (DKK 7m), The gross claims ratio was 51.8 (74.6), with a with a combined ratio of 73.2 (98.3), and was posi- claims ratio, net of ceded business, of 52.1 (76.1). tively impacted by the harmonisation of claims The low claims ratio was due to the harmonisa - reserving models. The harmonisation led to a run- tion of the models used to calculate the claims off of approximately DKK 70m. Weather claims reserves. Since Moderna has been included in were at a slightly higher level due to storm claims Tryg’s common reserving models and applies and a mild winter. Premium growth was negative the same methods, a run-off gain of around by 6.1% (1.6%). The expense level improved to DKK 70m was identified. 21.1 (22.2) as a result of a strong cost focus. Expenses Premiums The expense ratio was 21.1 (22.2), reflecting Gross premiums dropped by 6.1% (1.6%), in local a strong focus on efficiency, and was achieved currencies which was partly due to the termination despite a drop in premium growth. The number of the ICA agreement from Q4 2015. The premium of employees was reduced by 3 in Q4 2015. development was also affected by a very low level of activity in the niche areas – yacht insurance and Bilsport/MC – which posted significant growth in Q2 and Q3. The premium income for Q4 2015 was also impacted by the above-mentioned Moderna Smart car insurance product, the price of which is based on how safely the customer is driving. Since the launch, more than 1,000 customers a day have taken out an insurance policy, and on average with a higher insurance premium. Financial highlights Q4 2015 • Technical result of DKK 85m (DKK 7m) • Combined ratio of 73.2 (98.3) • Claims ratio, net of ceded business, of 52.1 (76.1) • Expense ratio of 21.1 (22.2) | Contents – Management’s review Annual report 2015 | Tryg A/S | 21 Investment activities Key figures – investments DKKm Q4 2015 Q4 2014 2015 2014 Free portfolio, gross return Match portfolio, regulatory deviation and performance Other financial income and expenses Total investment return 201 44 -44 201 154 39 -180 13 232 1 -238 -5 548 181 -369 360 The purpose of Tryg’s investment activities is of fixed income assets that match the insurance From a Scandinavian point of view, 2015 was and the return on the match portfolio less the primarily to support its insurance business by liabilities, so that fluctuations resulting from inter- also an eventful year. The Danish, Swedish and amount transferred to the insurance business creating an optimum and robust return on its est rate changes are offset to the greatest possible Norwegian central banks lowered their lending was DKK 1m. Deducting financial income and capital in the long term. Through a relatively extent. The free portfolio is primarily the Group’s rates by 0.15 percentage points, 0.35 percentage expenses of DKK -238m, the return on invest - conservative and diversified approach to risk, shareholders’ equity, which is invested in fixed points and 0.50 percentage points, respectively. ment activities was DKK -5m. the overall strategy is to minimise and match income securities with a short duration, proper- The reduction in the Danish lending rate took the impact from interest and exchange rate ties, equities and some high-yield bonds. place concurrently with a reduction in the deposit The return of the match portfolio consists of a fluctuations on the balance sheet. rate of 0.75 percentage points, which still has not regulatory deviation of DKK 29m and a perform- Financial markets in 2015 been normalised, even though the foreign reserve ance of DKK -28m. The positive regulatory devi- The total market value of Tryg’s investment port- In 2015, the financial markets were characterised has been brought down to the normal level. While ation was caused by the previously discussed yield folio was DKK 38.8bn as of 31 December 2015. by a considerable degree of volatility. Worries short interest rates decreased during 2015, longer difference between the FSA and local swap rates. The investment portfolio consists of a match about a Greek exit from the Euro zone in the first interest rates in Denmark and Euroland went up. The negative performance was due to the stressed portfolio of DKK 28.1bn and a free portfolio of half of the year, as well as Chinese devaluation and Furthermore, the FSA yields increased more than covered bond market in Norway in Q3. DKK 10.7bn. The match portfolio is composed falling growth expectations in emerging-market local swap rates in Denmark. The Danish 10-year nations in Q3 led to the highest level of volatility in FSA yield increased by 0.33 percentage points, equity markets in four to five years. This increase while the 10-year swap rate increased by 0.19 per- Responsible investments Financial highlights 2015 • Investment return of DKK -5m (DKK 360m) • Net return on match portfolio of DKK 1m (DKK 181m) • Gross return on free portfolio of DKK 232m (DKK 548m) • Volatile equity market in market uncertainty led to substantial fluctu- centage points. The reduction of the Nor wegian ations in equity prices and interest rates. One lending rate followed significant drops in the oil driver behind this was the expected divergence price, which has led to bleaker expectations for of the monetary policies of the European and the Norwegian economy. Despite the falling lend- American central banks, the ECB and the FED. ing rate, Norwegian covered bonds experienced These worries became a reality in December when the FED increased its policy rate by 0.25 percent- Investment return 2015 significant yield increases. age points, while the ECB lowered rates by 0.10 The total investment return in 2015 was DKK -5m. percentage points in December. The return on the free portfolio was DKK 232m, Tryg uses external portfolio managers and observes rules not to invest in controversial activities. Together with our external man- agers, we constantly seek to comply with international regulations. In 2015, we have screened for new UN and EU regulation on certain financial sanctions against countries and individuals. | Contents – Management’s review 22 Annual report 2015 | Tryg A/S | Return – match portfolio DKKm Q4 2015 Q4 2014 Return, match portfolio Value adjustments, changed discount rate Transferred to insurance technical interest Match, regulatory deviation and performance Hereof: Match, regulatory deviation Match, performance 63 45 -64 44 35 9 340 -217 -84 39 31 8 2015 140 120 -259 1 29 -28 2014 1,336 -741 -414 181 77 104 Investment activities in Q4 2015 benefitted from decreasing interest rates Q4 was characterised by risk aversion and coinciding with increasing FSA discounting rates. nervousness amongst investors, stemming from the terror attack in Paris in November as well as In Denmark, the FSA rates just increased less than the continuing divergence among monetary policy the swap rates. The positive performance was due makers. This has led to falls in commodity prices to a positive Danish covered bonds environment. and the associated emerging-market currencies, Deducting financial income and expenses of while the US dollar appreciated by almost 3% in Q4, DKK -44m, the return on Tryg’s investment acti vities or 12% in total in 2015. Due to our low emerging- in Q4 was DKK 201m. markets exposure, this only had a limited impact on the investment result. Despite the risk aversion, the The state of the financial markets resulted in close Other financial income and expenses free portfolio made the most of the positive equity to zero returns on the equity and bond index MSCI Other financial income and expenses amounted market. All in all, the free portfolio provided a gross World All Countries and the 1-year Mortgage Bond to DKK -238m in 2015, comprising a number of return of DKK 201m (1.8%) in Q4. Index by Nordea, of -0.7% and 0.3%, respectively. elements, the main ones being the expenses from The BofA Merrill Lynch US High Yield index – the hedging of the foreign currency exposure on In addition to the free portfolio return, the match DKK-hedged saw a return of -5.6%. By comparison, Tryg’s equity, consisting of DKK -60m in 2015, and portfolio generated a net return of DKK 44m, with the free portfolio generated an equity return of expenses regarding Tryg’s subordinated loans of DKK 35m coming from regulatory deviation and DKK 91m (3.4 %) and an interest and credit exposure DKK -86m. return of DKK -10m (-0.1%). Investment properties provided a net return of DKK 151m (7.2%). DKK 9m from match performance. The positive regulatory deviation stemmed from Norway as well as Denmark. In Norway, our local hedge Financial highlights Q4 2015 • Investment return of DKK 201m (DKK 13m) • Net return on match portfolio of DKK 44m (DKK 39m) • Return on free portfolio of DKK 201m (DKK 154m) Return – free portfolio DKKm Q4 2015 Q4 2015 (%) Q4 2014 Q4 2014 (%) 2015 2015 (%) 2014 2014 (%) 30.12.2015 31.12.2014 Investment assets Government bonds Covered bonds Inflation linked bonds Emerging market bonds High-yield bonds Other a) Interest rate and credit exposure Equity exposure b) Investment property Total gross return 4 7 -4 6 -4 10 19 111 71 201 1.6 0.2 -0.9 1.5 -0.5 1.4 0.3 4.5 3.5 1.8 9 24 0 -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 4 -26 -1 2 -8 19 -10 91 151 232 1.4 -0.6 -0.2 0.5 -0.8 2.1 -0.1 3.4 7.2 1.9 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 a) Bank deposits and derivative financial instruments hedging interest rate risk and credit risk. b) In addition to the equity portfolio exposure is futures contracts of DKK 47m. | Contents – Management’s review 265 3,602 484 412 837 712 6,312 2,374 2,052 279 5,188 0 410 910 1,085 7,872 2,470 2,099 10,738 12,441 23 Annual report 2015 | Tryg A/S | Capital and risk management The main purpose of insurance is the spread- insurance. Operating within these boundaries, ing of risk. By pooling risks from large numbers Tryg’s risk will depend on the company’s choice of of customers, an insurance company’s risks are exposure within different segments and industries spread more evenly, and its results should become in the insurance market. The impact from large more predictable. The assessment and manage- claims and adverse weather events is mitigated ment of Tryg’s aggregated risk and the associated through reinsurance. capital requirements therefore constitute a central element in the management of the company. The investment risk appetite is managed by means of exposure and capital consumption limits for Risk profile, appetite and management different asset classes (shares, property etc.) Tryg’s Supervisory Board defines the framework combined with management of the total interest for the company’s target risk appetite and thereby risk via Tryg’s match strategy. This prescribes that the capital which must be available to cover any Tryg’s investment assets corresponding to the losses. The risk appetite is set out in Tryg’s policies technical provisions must be invested in interest- in the form of a qualitative risk strategy and quanti- bearing assets, the interest rate sensitivity of which tative exposure limits for different types of risk. matches and thereby hedges the interest rate sensitivity of the discounted provisions as closely The insurance risk is managed through limits for as possible. the size of single large commitments and via the use of reinsurance, thus curtailing the maximum The Solvency II regime emphasises the need for cost of large claims. Furthermore, the insurance sound risk management and introduces additional risk is managed through geographical limita- requirements concerning risk governance, consist- tions and by refraining from offering certain types ency across the Group and top management of insurance such as aviation and marine hull reporting and involvement. Night Ravens celebrated 25th anniversary CEO Morten Hübbe attended the Night Ravens’ 25th anniversary in March 2015 and donated NOK 1m to the project, which creates peace of mind for young people in the streets at night and prevents violence and vandalism. Read more about the Night Ravens on page 35. | Contents – Management’s review Annual report 2015 | Tryg A/S | 24 Tryg has worked towards the principles of Solv- Requirement/Solvency capital requirement going from these new elements will result in a relative need to accommodate the initiatives set out in ency II for years and has, among other things, forward) with a certainty of 99.5%, such that Tryg large increase in the capital buffer, but at the same the company’s strategy for the coming years, and carried out risk identification routines, written would statistically be able to honour its obligations time the core equity will constitute a smaller part also on the most significant risks identified by the ORSA (Own Risk and Solvency Assessment) reports, in 199 out of 200 years. of the capital base. Read more about Tryg’s company. The adequacy is measured in relation to acted in a set-up comprising three lines of defence capitalisation after the introduction of Solvency II Tryg’s strategic targets, including return on equity, and appointed a special Risk Committee under the At the end of 2015, the Individual Solvency in the newsletter at tryg.com. capital buffer and dividend policy. Supervisory Board which focuses on capital and Requirement totalled DKK 6,193m (DKK 6,560m risk management. Read more about Tryg’s risk in 2014). For 2015, this is measured against the Tryg’s capital base consists of equity and sub- At the annual general meeting to be held on management in Note 1 on page 46. adequate capital base. At the end of 2015, this ordinate loan capital. The relative sizes of these 16 March 2016, Tryg’s Supervisory Board will totalled DKK 9,525m after dividend, correspond- two categories are subject to ongoing assessment propose a dividend per share of DKK 3.5, corre- Capital requirement and management ing to a surplus cover of DKK 3,332m or 54%. with a view to maintaining an optimum structure sponding to the distribution of DKK 1,013m. Capital management is based on Tryg’s internal which takes account of target return on equity, In 2015, Tryg paid out its first semi-annual dividend capital model, which was approved by the super- The introduction of Solvency II will have a major capital costs and maintaining the desired finan - of DKK 2.5 per share. Thus, the aggregated annual visory authorities in November 2015 for use influence on Tryg’s capital position in various areas cial flexibility. In connection with this assess- dividend pay-out for 2015 will be DKK 6.00 per share, going forward as Solvency II came into force as and is taken into account as of 1 January 2016. ment, Tryg’s subordinate loan of EUR 150m was equivalent to the total distribution of DKK 1,759m. of 1 Janu ary 2016. The capital model is based The Solvency capital requirement will decrease by refinanced with a new subordinated loan of on the risk profile, and thus takes account of approximately DKK 1,200m due to the inclusion NOK 1,400m. By structuring the terms of the sub- In conjunction with the capital plan, a contingency the composition of Tryg’s insurance portfolio, of the loss absorbency capacity of deferred tax. ordinated loan in accordance with the Solvency II plan is made. It describes specific measures that geographical spread, provisions profile, reinsur- The capital base will increase by approximately principles, Tryg has ensured that the loan will be may be introduced in the near term, should the ance programme, investment portfolio and Tryg’s DKK 400m due to the inclusion of expected future eligible as a Tier II capital element. The NOK 800m company’s desired capital position be threatened. profitability in general. The model calculates the profits (DKK 600m) and the transition to a new subordinate loan which was issued in 2013 will be Tryg’s Supervisory Board has approved both the statutory capital requirement (Individual Solvency discounting curve (DKK -200m). The net effect grandfathered according to Solvency II and treated capital plan and the contingency plan. Read Shareholder remuneration since IPO Capital DKK 10 8 6 4 2 0 6.6 4.2 4.2 3.4 2.6 3.1 1.3 2005 2006 2007 2008 2009 New dividend policy 3.5 3.4 5.8 6.0 3.2 2.6 5.2 5.4 0.8 2010 1.3 2011 2012 2013 2014 2015 DKKm 12,000 10,000 8,000 6,000 4,000 2,000 0 as Tier 1. At the end of 2015, Tryg’s total subordi- more about Tryg’s risk management and Solvency II nate loan capital amounted to 17% of equity, with in Note 1 on page 46. total interest expenses of DKK 86m. Read more about Tryg’s subordinated loans in Note 1 on page 46. Standard & Poor’s The Supervisory Board regularly assesses the agency Standard & Poor’s was confirmed, and need for capital adjustments. In practice, extra- Tryg aims to maintain this rating. In 2015, Tryg’s ‘A-’ rating from the credit rating ordinary adjustments are made through share buy backs assessed in the company’s capital 3,332 6,193 1,719 7,806 Individual Solvency a) Standard Solvency Need a) plan, in which the Individual Solvency Require- Cash dividend Ordinary buy back Extraordinary buy back Capital requirement Buffer Excess capital ment is projected on the basis of Tryg’s fore- casts. The projections are based partly on the a) Share buy back deducted. | Contents – Management’s review 25 Annual report 2015 | Tryg A/S | Shareholder information dividend shares like Tryg. During the period from Share capital and ownership 1 January to 14 April, the Tryg share rose by some Tryg had a total share capital of DKK 1,447,798 on 30% (Tryg share was up 58% between 1 Septem- 31 December 2015. This comprised one share class ber 2014 and 14 April 2015), while the share fell (289,559,550 shares with a nominal value of DKK 5), almost by the same amount in the two months and all shares rank pari passu. The majority share- from mid-April to mid-June due to the distribution holder, TryghedsGruppen smba, Denmark, owns 60% of dividend and because the Q1 figures were bur- of the shares and is the only shareholder owning more dened by relatively high winter claims in Norway. A than 5% of the share capital. TryghedsGruppen invests similar trend was seen for the European insurance in peace-of-mind and healthcare providers in the Nor- Investor Relations (IR) is responsible for Tryg’s com- exchange. In accordance with the recommenda- sector as a whole, which was up 23% between dic region, and supports non-profit-making activities. munication with the capital markets. It is important tions issued by NASDAQ Copenhagen, Tryg does 1 January and 14 April 2015, and 30% between that investors, analysts and other stakeholders are not comment on the company’s financial results 1 September 2014 and 14 April 2015. The OMX able to form a true and fair view of developments, or outlook two weeks before the publication of C20 CAP index rose by 36.2% in 2015. including Tryg’s financial results. For this reason, we interim reports and four weeks before the publica- strive to be as open and transparent as possible to tion of the annual report. Company announce- NASDAQ Copenhagen is still the primary exchange ensure that stakeholders’ information requirements ments, press releases and transaction statements for trading the Tryg share. In 2015, NASDAQ are met at the highest possible level. IR is in charge of are published in both Danish and English, whereas Copenhagen accounted for 50% of the turnover of communications with equity investors, fixed-income interims and annual report are published in the Tryg share. In addition, 15% of trading in 2015 investors and also rating agencies. Tryg’s IR policy English. All financial information is published at was carried out on alternative exchanges (MTF is available at tryg.com/investor. tryg.com in English. It is possible to subscribe to trades), led by BATS Chi-X as the largest alterna- the interim and annual reports and all financial tive exchange. This means that NASDAQ and the After the publication of quarterly and annual reports, information. It is also possible to follow @TrygIR alternative exchanges account for two thirds of Tryg’s management and IR team hold meetings to on Twitter. discuss the company’s financial development with the trading that impacts the liquidity of the share, thereby determining the price of the Tryg share. investors and analysts. Tryg also participates in a The Tryg share started the year at a price of 137.8 Other trading platforms such as OTC (over-the- number of financial conferences. In 2015, we held and ended 2015 at 137.4. Including a combined counter) and dark pools account for a large share TrygFonden TrygFonden works actively to create peace of mind in Denmark, supporting around 800 ac- tivities that contribute to this, such as coastal lifeguards to prevent drowning accidents on Danish beaches. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributes approximately DKK 500m every year to projects that create peace of mind throughout Denmark. investor meetings in Europe, the USA, Canada and (annual and semi-annual) dividend of DKK 8.3, of the remaining trading of the share, but as this TryghedsGruppen Asia. The Tryg share is followed by 21 analysts, who the share was up 5.7% during 2015, and including takes place outside of the established exchanges continuously update their expectations and views on the effect of buy back, the share price increased and MTFs, it does not directly impact the price the share. See a list of analysts and their recom- by 8.3%. Especially during the first four months and liquidity of the share. In 2015, a share buy mendations at tryg.com/investor. of 2015, the share price development was heavily back programme totalling DKK1bn, correspond- The Tryg share ments, and the ECB announcement in September positive impact on turnover of the Tryg share. Total The Tryg share is listed on NASDAQ Copenhagen 2014 of an asset-backed securities programme turnover (including OTC trades) of the share was impacted by European macroeconomic develop- ing to 7 million shares, was completed. This had a and is included in the C20 index (OMX C20 CAP), to fight deflation pushed share prices higher and 280 million shares in 2015. comprising the 20 most traded shares on the generally led to an increased demand for high- Tryg’s majority shareholder, Trygheds- Gruppen, has decided to pay out some of its profit to members, policyholders of Tryg Forsikring A/S in Denmark, from 2016. The members' bonus scheme will equate to around 5-8% of the annual price customers pay for their insurance products. | Contents – Management’s review 26 Annual report 2015 | Tryg A/S | At Tryg’s annual general meeting on 25 March semi-annual dividend from H2 2015. The object 2015, a share split was approved, involving the of Tryg’s dividend policy is to ensure a stable dis- splitting of each share of DKK 25 into five shares of tribution on a full-year basis. The dividend policy DKK 5. The reason for this was the positive devel- reflects our expectations of high earnings in the opment seen in the Tryg share, taking the price up insurance business and a low risk profile for our to more than DKK 600 and making it the second- investment activities, as well as the requirement most expensive share in the C20 index. In addition, of a solid capital position based on Tryg’s internal the share split was intended to help increase the capital model (Individual Solvency). Tryg’s internal liquidity of the share. At the end of 2015, there was capital model, which constitutes the framework a free float of 40% of the shares, held by approxi- for calculating the company’s capital requirement, mately 36,000 registered shareholders. The 200 is calibrated on the Solvency II rules, which came Distribution DKKm Dividend Dividend per share (DKK) Payout ratio Extraordinary share buy back b) 2015a) 2014 1,759 6.0 89% 1,000 1,731 5.8 68% 1,000 2013 1,656 5.4 70% 1,000 2012 1,594 5.2 72% 800 2011 400 1.3 35% 0 a) Dividend per share includes dividend for H1 of DKK 2.50 paid out in July 2015 and dividend of DKK 3.50 proposed by the Supervisory Board for adoption by the annual general meeting. b) Subject to approval by the Danish Financial Supervisory Authorities. largest shareholders owned 67% of the shares. into effect on 1 January 2016. • The capital level must at all times reflect The notice will be advertised in the daily press in the return on equity targets and the statutory February 2016 and will be sent to shareholders At the end of 2015, and after the share buy back Tryg’s dividend policy is based on the following capital requirements. upon request. The annual general meeting programme, Tryg held 7,243,126 own shares, corre- assumptions: • The capital level may extraordinarily be will also be announced at tryg.com. sponding to 2.4% of the share capital. At the coming • A general objective of creating long-term adjusted through a share buy back. annual general meeting, the Supervisory Board will value for the company’s shareholders. The company announcements issued in 2015 propose the cancellation of the repurchased shares. • A competitive dividend policy in comparison Based on Tryg’s dividend policy and the satisfac- can be seen at tryg.com > Investor > News. with the policies of our Nordic competitors. tory 2015 results, at the 2016 annual general Semi-annual dividend from 2015 • An aspiration to distribute a dividend which meeting the Supervisory Board will propose In connection with Tryg’s Capital Markets Day is steadily increasing in nominal terms on a that a dividend of DKK 3.50 be paid per share, in November 2014, it was announced that full-year basis. corresponding to DKK 1,013m. the Supervisory Board had decided to pay out • Distribution of 60-90% of the profit after tax. The full-year dividend corresponds to a payout of 89% of the profit after tax. Furthermore, it has Financial calendar 2016 16 March 2016 Annual general meeting 17 March 2016 Tryg shares trade ex-dividend Shareholders At 31 December 2015 Free float – geographical distribution At 31 December 2015 16 12 11 Per cent 60 TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders 12 Per cent 59 3 12 14 Denmark UK USA Nordic region Others a) Shareholders holding more than 10,000 shares. Free float is exclusive of TryghedsGruppen. been decided to initiate an extraordinary share buy 21 March 2016 Payment of dividend based on back of DKK 1bn awaiting approval by the Danish Financial Supervisory Authority. This decision was made against the background of Tryg’s solid capital position and expected earnings. H2 2015 results 12 April 2016 Interim report for Q1 2016 12 July 2016 Half-year report 2016 13 July 2016 Tryg shares trade ex-dividend Annual general meeting 15 July 2016 Payment of dividend based on Tryg’s annual general meeting will be held on 16 March 2016 at 14:00 at Falkoner Centret, Falkoner Allé 9, 2000 Frederiksberg, Denmark. H1 2016 results 11 October 2016 Interim report for Q1-Q3 2016 | Contents – Management’s review 27 Annual report 2015 | Tryg A/S | Corporate governance See the IR policy at tryg.com > Investor > shareholders and that it complies with the require- IR contacts > IR policy, and the CSR policy ments applicable to Tryg as a financial undertaking. at tryg.com > CSR > CSR strategy > CSR policy. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Annual general meeting Supervisory Board. Tryg holds an annual general meeting every year. As required by the Danish Companies Act and the Depending on the development in results, each Articles of Association, the annual general meeting year the Supervisory Board proposes a dividend is convened via a company announcement and at and possibly an extraordinary share buy back, if fur- Tryg focuses on managing the company in ac- Tryg has adopted an IR policy, which states, among tryg.com subject to at least three weeks’ notice. ther adjustment of the capital structure is required. cordance with the principles of good corporate other things, that all company announcements are Shareholders may also opt to receive the notice by From H2 2015, Tryg introduced a semi-annual governance and generally complies with the Danish published in Danish and English. Tryg publishes post or email. The notice contains information about dividend. At the annual general meeting in 2015, recommendations prepared by the Committee on interim reports each quarter, and reports are pub- time and venue as well as an agenda for the meeting. the shareholders authorised the Supervisory Board Corporate Governance and most recently updated lished in English. Furthermore, Tryg publishes an an- to allow Tryg to acquire own shares amounting to in 2014. The Recommendations on Corporate Gov- nual profile in Danish, English and Norwegian. The All shareholders are encouraged to attend the an- up to 10% of the share capital during the period ernance are available at corporate governance.dk. profile is addressed to Tryg’s private shareholders, nual general meeting. The annual general meeting up until 25 March 2020. On 2 January 2015, Tryg At tryg.com, Tryg has published its statutory corpo- customers, employees and other stakeholders. The is held by personal attendance as the Supervisory initiated a share buy back programme, which ran rate governance report based on the ‘comply-or- purpose is to give a broad picture of what it is like Board values personal contact with the Group’s until 18 December 2015. Tryg acquired own shares explain’ principle for each individual recommenda- being a customer, an employee and a shareholder in shareholders. Shareholders may propose items to be for an amount of DKK 1bn. Once approved by the tion. This section on corporate governance is an Tryg. The annual profile is published on 28 January included on the agenda for the annual general meet- Danish Financial Supervisory Authority, Tryg will excerpt of the corporate governance report. 2016. Moreover, Tryg prepares quarterly investor ing, and may ask questions before and at the meet- initiate a new share buy back programme totalling Download Tryg’s statutory corporate govern- presentations, which are used in the dialogue with ing. Shareholders may vote in person at the annual DKK 1bn, which will run until the end of 2016. ance report at tryg.com > Investor > Download. investors and analysts. All announcements, financial general meeting, by post or appoint the Supervisory reports, presentations and newsletters are available Board or a third party as their proxy. Shareholders Duties, responsibilities and composition Dialogue between Tryg, shareholders at tryg.com. This material provides all stakeholders may consider each item on the agenda. The proxy of the Supervisory Board and other stakeholders with a comprehensive picture of Tryg’s position and form and form for voting by post are available at The Supervisory Board is responsible for the central The Investor Relations (IR) department main- performance. The consolidated financial reports tryg.com prior to the annual general meeting. strategic management and financial control of Tryg tains regular contact with analysts and investors. are presented in accordance with IFRS. At tryg.com, and for ensuring that the business is organised Together with the Executive Board, IR organises stakeholders are able to subscribe to press releases, Share and capital structure in a sound way. This is achieved by monitoring investor meetings and conference calls and partici- company announcements as well as insider trading Tryg’s share capital comprises a single share class, targets and frameworks on the basis of regular and pates in conferences in Denmark and abroad. IR announcements. A number of internal guide- and all shares rank pari passu. The majority share- systematic reviews of the strategy and risks. The also communicates with stakeholders in the social lines ensure that the disclosure of price-sensitive holder, TryghedsGruppen smba, owns 60% of the Executive Board reports to the Supervisory Board media via Twitter@TrygIR. The Supervisory Board information complies with legislation and the stock shares and is the only shareholder owning more on strategies and action plans, market develop- is informed about the dialogue with investors and exchange’s codes of conduct. Tryg has adopted than 5% of the company’s shares. The Supervisory ments and Group performance, funding issues, other stakeholders on a regular basis. a number of policies describing the relationship Board ensures that Tryg’s capital structure is aligned capital resources and special risks. The Supervisory between different stakeholders. with the needs of the Group and the interests of its Board holds one annual strategy seminar to decide | Contents – Management’s review 28 Annual report 2015 | Tryg A/S | on and/or adjust the Group’s strategy with a view The Supervisory Board performs an annual evalu - Each year, the Supervisory Board discusses Tryg’s The board committees’ terms of reference can to sustaining value creation in the company. The ation of its work and skills to ensure that it pos- activities to guarantee diversity at management be found at tryg.com > Governance > Management Executive Board works with the Supervisory Board sesses the expertise required to perform its duties levels. Tryg attaches importance to diversity at all > Super visory Board > Board committees, including to ensure that the Group’s strategy is developed and in the best possible way. The Supervisory Board management levels. Tryg has prepared an action plan, descrip tions of members, meeting frequency, monitored. The Supervisory Board ensures that the focuses primarily on the following qualifications and which sets out specific targets to ensure diversity and responsibil ities and activities during the year. necessary skills and financial resources are available skills: management experience, financial insight, equal opportunities and access to management pos- See the tasks of the board committees in 2015 for Tryg to achieve its strategic targets. The Super- organisation, IT, product development, commu- itions for qualified men and women. In 2015, the pro- at tryg.com > Governance > Management > Super- visory Board specifies its activities in a set of rules of nication, market insight, international experience, portion of women at management level was 35.4% visory Board > Board committees. procedure and an annual cycle for its work. knowledge of insurance, reinsurance, capital against 36.4% in 2014. The target for 2015 of 38% or requirements, general accounting insight and ac- more women at management level was therefore not Three out of four members of the Audit Committee Eight members of the Supervisory Board are elect- counting principles (GAAP), including regulations met. Tryg maintains the target to increase the total and three out of five members of the Risk Committee, ed by the annual general meeting for a term of one and principles designed for the insurance industry proportion of women at management level to 38% or including the chairman of the committees, are year. Of the eight members elected at the annual and M&A experience. See CVs and descriptions more in 2016. See the action plan at tryg.com > independent persons. Of the four members of the general meeting, four are independent persons as of the skills in the section Super visory Board on CSR > Thematic areas > People. Remuneration Committee, one member is an inde- stated in recommendation 3.2.1 in Recommenda- pages 32-33 and at tryg.com > Governance > tions on Corporate Governance, while the other Management > Supervisory Board. Board committees pendent person, while one out of two members of the Nomination Committee is independent. Board four members are dependent persons as they are Tryg has an Audit, a Risk, a Nomination and a Remu- committee members are elected primarily based appointed by the majority shareholder Trygheds- Duties and composition of the Executive Board neration Committee. The framework of the commit- on special skills that are considered important Gruppen. See pages 32-33 for information on when Each year, the Supervisory Board reviews and tees’ work is defined in their terms of reference. by the Supervisory Board. Involvement of the the individual members joined the Supervisory adopts the rules of procedure of the Supervisory Board, were re-elected and when their current elec- Board and the Executive Board with relevant tion period ends. To ensure the integration of new policies, guidelines and instructions describing talent on the Supervisory Board, members elected reporting requirements and requirements for com- by the annual general meeting may hold office for a munication with the Executive Board. Financial DKK Total remuneration of the Supervisory Board in 2015 Audit Fee Committee Committee Risk Remuneration Committee Total maximum of nine years. Furthermore, members of legislation also requires the Executive Board to the Supervisory Board must retire at the first annual disclose all relevant information to the Super - general meeting following their 70th birthday. The visory Board and report on compliance with limits Supervisory Board has 12 members, five men and defined by the Supervisory Board and in legislation. seven women (including one male and three female employee representatives). Women are thus not The Supervisory Board considers the compos- underrepresented on Tryg’s Supervisory Board. The ition, development, risk and succession plans of Supervisory Board has members from Denmark, the Executive Board in connection with the annual Sweden and Norway. See details about the evaluation of the Executive Board, and regularly in independent board members in the section Super- connection with board meetings. visory Board on pages 32-33 and at tryg.com > Governance > Management > Supervisory Board. Jørgen Huno Rasmussen Torben Nielsen Anya Eskildsen Vigdis Fossehagen Ida Sofie Jensen Bill-Owe Johansson Lone Hansen Jesper Hjulmand Lene Skole Tina Snejbjerg Mari Thjømøe Carl Viggo Östlund a) Paul Bergqvist b) 990,000 660,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 330,000 258,145 71,855 225,000 150,000 150,000 150,000 150,000 100,000 100,000 100,000 100,000 90,000 90,000 135,000 1,125,000 1,035,000 420,000 420,000 330,000 330,000 330,000 580,000 580,000 430,000 580,000 327,097 92,903 68,952 21,048 a) Joined the Supervisory Board in March 2015 b) Resigned from the Supervisory Board in March 2015 | Contents – Management’s review 29 Annual report 2015 | Tryg A/S | Total remuneration of the Executive Management in 2015 provide sufficient motivation for all members of security. The Supervisory Board issues guidelines the Executive Board to do their best to achieve the to the Executive Board. Risks associated with new DKK Basic salary Car/ Pension car allowance Total fixed salary Value of matching shares a) Total fee company’s defined targets. The variable pay ele- financial reporting rules and accounting policies are ment constitutes only a limited part of the overall monitored and considered by the Audit Committee, Morten Hübbe Tor Magne Lønnum Lars Bonde 9,419,270 2,354,817 6,026,452b) 1,342,553 1,134,691 4,538,766 255,000 12,029,087 7,523,569 154,564 5,928,457 255,000 1,100,000 13,129,087 8,173,569 6,428,457 650,000 500,000 a) At time of allocation b) Tor Lønnum’s basic salery includes a non-pensionable relocation allowance of DKK 656,239. remuneration. The Supervisory Board can decide the finance management and the internal auditors. that the fixed pay be supplemented with a variable Material legal and tax-related issues and the pay element of up to 12.5% of the fixed basic financial reporting of such issues are assessed on pay including pension at the time of allocation. an ongoing basis. Other risks associated with The variable pay element consists of a matching the financial reporting are described in the section shares programme. Four years after the purchase Capital and risk management on pages 24-25 employee representatives in the committees is also fixed fee and are not comprised by any form of by a member of the Executive Board of a speci- and in Note 1 Risk management on page 46. considered important. The committees ex clusively incentive or severance programme or pension fied number of shares, such member is granted prepare matters for decision by the entire Super- scheme. Their remuneration is based on trends in a corresponding number of free shares in Tryg. Tryg engages in ongoing risk identification, map- visory Board. The special skills of all members peer companies, taking into account the required The purpose of the matching shares programme ping insurance risks and other risks which may are also described at tryg.com. skills, efforts and the scope of the Supervisory is both to retain members of the Executive Board, endanger the realisation of the Group’s strategy or Board’s work, including the number of meetings and to create a joint financial interest between the which may have a potentially substantial impact on Remuneration of Management held. The remuneration received by the Chairman Executive Board and the shareholders. Read the Group’s financial position. The process involves Tryg has adopted a remuneration policy for the of the Board is triple that received by ordinary more about the matching shares programme in identifying and continually monitoring the risks Supervisory Board and the Executive Board, members, while the Deputy Chairman’s remuner- the remuner ation policy at tryg.com > Governance identified. As in previous years, Tryg undertook including general guidelines for incentive pay. The ation is double that received by ordinary members > Remuneration. remuneration policy for 2015 was adopted by of the Supervisory Board. an Own Risk and Solvency Assessment (ORSA) in 2015. The purpose of the ORSA is to link strategy, the Supervisory Board in December 2014 and by Each member of the Executive Board is entitled risk management and appetite and solvency, as the the annual general meeting on 25 March 2015. Remuneration of Executive Board to 12 months’ notice of termination and 12 aim of the ORSA is to ensure a sensible correlation Members of the Executive Board are employed on months’ severance pay. However, the Group CEO between the strategy for assuming risks and the The Chairman of the Supervisory Board reports a contractual basis, and all terms of their remu- is entitled to 12 months’ notice of termination and available capital over the business planning period. on Tryg’s remuneration policy each year in connec- neration are established by the Supervisory Board 18 months’ severance pay. Each member of the tion with the consideration of the annual report at within the framework of the approved remuner- Executive Board has 25% of the basic salary paid The Supervisory Board and the Executive Board the annual general meeting. The Board’s proposal ation policy. Tryg wants to ensure an appropriate into a pension scheme. approve and monitor the Group’s overall policies for the remuneration of the Supervisory Board and balanced combination between management and guidelines, procedures and controls in for the current financial year is also submitted for remuneration, predictable risk and value creation Financial reporting, risk management and auditing important risk areas. They receive reports about approval by the shareholders at the annual general for the shareholders in the short and long term. Being an insurance business, Tryg is subject to developments in these areas and about the meeting. See the remuneration policy at the risk management requirements of the Danish ways in which the frameworks are applied. The tryg.com > Governance > Remuneration. The Executive Board’s remuneration consists Financial Business Act and Solvency II. In its Supervisory Board checks that the company’s risk of a fixed pay element, a pension and a variable policies, the Supervisory Board defines Tryg’s risk management and internal controls are effective. Remuneration of Supervisory Board pay element. The fixed pay element must be management framework as regards insurance risk, The Board receives reports on non-compliance Members of Tryg’s Supervisory Board receive a competitive and appropriate for the market and investment risk and operational risk, as well as IT with the frameworks and guidelines established by | Contents – Management’s review 30 Annual report 2015 | Tryg A/S | Tryg has published its statutory corporate governance report based on the ‘comply- or-explain’ principle for each individual recommendation. Download the report at tryg.com > Investor > Download. the Supervisory Board. The Risk Committee moni- Read more about Tryg’s whistleblower line at tors the risk management on an ongoing basis and tryg.com > Governance > Whistleblower line reports quarterly to the Supervisory Board. Independent and internal audit The Group’s internal control systems are based on The Supervisory Board ensures monitoring by clear organisational structures and guidelines, gen- competent and independent auditors. The Group’s eral IT controls and segregation of functions, which internal auditor attends all Board meetings. The are supervised by the internal auditors. independent auditor attends the annual Board meeting at which the annual report is presented. As part of the internal control system, Tryg has established independent risk management, compli- The annual general meeting annually appoints ance and actuarial functions. The functions report an independent auditor recommended by the to the Executive Board and the Supervisory Board’s Super visory Board. The internal and independent Risk Committee. Tryg has a decentralised set-up auditors attend the Audit Committee meetings and whereby risk managers in the business areas carry at least once a year, the auditors meet with the Audit out controlling tasks for the risk management envir- Committee without the presence of the Executive onment and Tryg’s compliance function. Board. The Chairman of the Audit Committee deals with any matters that need to be reported to the The Executive Board has established a formal Supervisory Board. process for the Group comprising monthly reporting, including for example budget and deviation reports. Tryg’s internal audit department regularly reviews the quality of the Group’s internal control systems Risk management is an integral part of Tryg’s busi- and business procedures. It is responsible for ness operations. The Group seeks at all times to planning, performing and reporting the audit work minimise the risk of unnecessary losses in order to the Supervisory Board. to optimise returns on the company’s capital. Read more about Tryg’s risk management in Deviations and explanations the section Capital and risk management on pages Tryg complies with the Recommendations on 24-25 and in Note 1 on page 46. Corporate Governance with the exception of Whistleblower line the recommendation concerning the number of independent members of the board committees, Tryg has a whistleblower line, which allows em- with which Tryg complies partially; see item 3.4.2 of ployees, customers and business partners to report the Recom mendations on Corporate Governance. any serious wrongdoing or suspected irregularities. The deviation is explained in Tryg’s statutory Reporting takes place in confidence to the Chairman corporate governance report, which is available of the Audit Committee and the Head of Compliance. at tryg.com > Investor > Download. | Contents – Management’s review Annual report 2015 | Tryg A/S | 31 Supervisory Board Jørgen Huno Rasmussen a) Chairman Born in 1952. Joined: 2012. Danish citizen. Professional board member. Adjunct Pro fessor, CBS. Former CEO of the FLSmidth Group. Education: Graduate Diploma in Organisation, MSc (Civ. Eng.) and PhD. Chairman: Tryg A/S, Tryg For- sik ring A/S, TryghedsGruppen smba, Lundbeckfonden and LundbeckFond Invest A/S. Deputy Chairman: Terma A/S, Rambøll Group A/S and Haldor Topsøe A/S. Board member: Bladt Industries A/S, Otto Mønsted A/S and Thomas B. Thriges Fond. Committee memberships: Chairman of Remuneration Committee, Nomination Commit- tee and the Remuneration Com- mittee in Haldor Topsøe A/S. Number of shares held:1,830 Change in portfolio 2015: 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) Anya Eskildsen a) Vigdis Fossehagen Lone Hansen Bill-Owe Johansson Born 1968. Joined: 2013. Danish citizen. CEO at Niels Brock Copenhagen Business College Education: MSc in political Science, business college teaching degree, certified IoD Board Programme. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, California International Business University (CIBU), USA and Learn for Life (Egmont Fonden). Committee memberships: Remuneration Committee, member of Nykredits Regions- råd, Danish Chinese Business Forum, GSK coordinator apointed by minister and NOCA. Number of shares held: 250 Change in portfolio 2015: +250 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 in 1947. Joined: 2011. Danish citizen. Professional board member, Adjunct Pro- fessor, CBS. Former Governor of Danmarks Nationalbank (Danish Central Bank). Education: Savings bank training, Graduate Diplomas in Organisa- tion, Work Sociology, Credit and Financing. Chairman: Sydbank A/S, Investe- ringsforeningen Sparinvest, Inve- steringsforeningen Sparinvest Sicav, Luxembourg, EIK banki p/f, Capital Market Partners and Museum South East Denmark. Deputy Chairman: Tryg A/S and Tryg Forsikring A/S. Board member: Sampension KP Livsforsikring A/S, Dansk Land- brugs Realkredit and a member of the Executive Management of Bombebøssen. Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman) and Remuneration Committee. Number of shares held: 19,000 Change in portfolio 2015: +1,500 Torben Nielsen has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Nationalbank. Employee representative Born in 1955. Joined: 2012. Norwegian citizen. Employed since 1996. Education: Educated in the area of agricultural mechanics. Chairman: Finansforbundet Tryg, Norway. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Remuneration Committee and lay judge in the District Court of Bergen. Number of shares held: 265 Change in portfolio 2015: +165 Employee representative Born in 1966. Joined: 2012. Danish citizen. Employed since 1990. Education: Certified commer- cial insurance agent. Various insurance and sales courses and negotiation training. Chairman: The Association for Tied Agents and Key Account Managers in Tryg. Board member: Tryg A/S and Tryg Forsikring A/S. Member of the Tied Agents’ District Board of the Financial Services Union Denmark. Number of shares held: 695 Change in portfolio 2015: +165 Employee representative Born in 1959. Joined: 2010. Swedish citizen. Claims handler in Moderna (Swedish branch). Employed since 2002. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 1,265 Change in portfolio 2015: +165 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. | Contents – Management’s review 32 Annual report 2015 | Tryg A/S | Supervisory Board Jesper Hjulmand a) Lene Skole b) Mari Thjømøe b) Carl-Viggo Östlund b) Ida Sofie Jensen a) Tina Snejbjerg Born in 1963. Joined: 2010. Danish citizen. CEO of SEAS- NVE A.m.b.A. Education: MSc in Economics and Business Administration, Lieutenant-Colonel Royal in the Danish Air Force Reserve, pathfinder. Chairman: Association of Danish Energy and Distribution Compan- ies (DEA), Energi Danmark A/S, Fibia P/S, and SEAS-NVE Net A/S. Deputy Chairman: Trygheds- Gruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S, DI General Council and Dansk Energi. Committee memberships: Audit Committee and Risk Committee, Executive Director Committee of Dansk Energi (Chairman), Green Committee in Region Zeland (Chairman) and member of the Board of Representatives of TryghedsGruppen. Number of shares held: 8,750 Change in portfolio 2015: 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 in 1959. Joined: 2010. Danish citizen. CEO of the Lundbeck Foundation and Lundbeckfond Invest A/S. Education: The A.P. Møller Group’s international shipping education, Graduate Diploma in Financing and various international management programmes. Deputy Chairman: Dong Energy A/S, H. Lundbeck A/S, ALK-Abelló A/S and Falck A/S (Falck Holding A/S, Falck Danmark A/S). Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee and Risk Committee, the Audit Committee in ALK- Abelló A/S and H. Lundbeck A/S. Number of shares held: 5,525 Change in portfolio 2015: +1,800 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. Born in 1962. Joined: 2012. Norwegian citizen. Professional board member and independent advisor. Education: Master of Econom- ics and Business Administra- tion, Financial Analyst (CFA) and executive programmes, London Business School 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 Member of Audit Committee in Sevan Marine ASA and E-CO (Chairman), Scatec Solar ASA and Remuneration Committee in Argentum. Number of shares held: 1,800 Change in portfolio 2015: +300 Mari Thjømøe has experience from finance, investor relations, international management, strategy, branding and a special knowledge of the insurance market and special insights into Norwegian market conditions as a Norwegian citizen. Born in 1955. Joined: 2015. Swedish citizen. Professional board member and independent advisor. Former CEO of the Swedish banks SBAB and Nordnet as well as the insurance company SalusAnsvar. Education: Bachelor of Science, education in International Busi- ness and Finance & Accounting. Chairman: Beyond Clean Water AB, Creador AB, Plus Bolån/ MA 2 AB, SFM Stockholm AB, PAUSE Foundation Board member: Tryg A/S, Tryg Forsikring A/S, Culture Vision and Organisation Sweden AB, Committee memberships: Remuneration Committee. Number of shares held: 0 From a number of leading positions in listed as well as privately held companies, Carl- Viggo Östlund has experience from the packaging industry, logistics, insurance, finance and banking. As a Swedish citizen, Carl-Viggo Östlund has special knowledge of Swedish market conditions. Employee representative Born in 1962. Joined: 2010. Danish citizen. Employed since 1987. Head of Section in Tryg’s staff association. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Audit Committee and Central Board of DFL. Number of shares held: 695 Change in portfolio 2015: +165 Born in 1958. Joined: 2013. Danish citizen. Director General of Lif (Danish Assosiation of the Pharmaceutical Industry) and the subsidiary DLI A/S Dansk Lægemiddel Information A/S. Education: MSc in Political Science, European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Programme Columbia Business School. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, Plougmann & Vingtoft A/S and Hans Knudsen Instituttet (business trust). Number of shares held: 1,175 Change in portfolio 2015: +310 Ida Sofie Jensen has experience from business operations and the health sector as well as management, strategy, politics and finance. 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. | Contents – Management’s review 33 Annual report 2015 | Tryg A/S | Executive Board On 1 January 2016, Tryg changed the daily management structure. The Nordic business areas are transferred to national business areas with new directors heading the areas. The new structure replaces the Group Executive Management, and the top management is constituted by an Executive Board comprising CEO, CFO and COO. The former Group Executive Vice Presidents either continue as directors of one of the newly established business areas or in other positions within the organisation. Trond Bøe Svestad, former Group Executive Vice Presi- dent of Commercial, left Tryg in connection with the organisational change. See organisational chart at tryg.com Morten Hübbe Group CEO Tor Magne Lønnum Group CFO Lars Bonde Group COO Born in 1972. Joined Tryg in 2002. Joined the Executive Board in 2003. Born in 1967. Joined Tryg in 2011. Joined the Executive Board in 2011. Born in 1965. Joined Tryg in 1998. Joined the Executive Board in 2006. Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton. Board member: Tjenestemændenes Forsikring, KMD A/S and KMD Holding A/S. Number of shares held: 85,740 Change in portfolio in 2015: +18,475 Education: State-authorised public accountant, Executive Master of Business and Administration from University of Bristol and Ecole Nationale des Ponts et Chaussées. Board member: Tryg Garantiforsikring A/S, Thermopylae AS (Chairman) and Finansnæringens Fellesorganisasjon, TGS Nopec ASA and P/f Bakkafrost. Number of shares held: 34,150 Change in portfolio in 2015: +4.150 Education: Insurance training, LL.M. Board member: Danish Employers’ Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet, the Danish Insurance Association and Cphbusiness. Number of shares held: 36,845 Change in portfolio in 2015: +9.790 | Contents – Management’s review 34 Annual report 2015 | Tryg A/S | Corporate Social Responsibility in Tryg Statutory Corporate Social Responsibility report SMS pilot to prevent storm claims In 2015, we reduced our carbon emissions by 48.8% In 2015, Tryg launched an SMS pilot which sent compared to 2007. Thus, we did not achieve our goal 10,000 text messages to customers living in areas of a 50% reduction. This was to be expected as an in which cloudbursts were forecast. Customer increased level of travel activity was necessary to en- feedback was extremely positive with 77% rating sure the smooth transition of tasks to our offshoring the service 9 or 10 on a scale of 0-10. In 2016, partners in Asia. However, emissions were reduced we will investigate the possibility of introducing a by 0.48% compared to 2014. Our target for 2016 is a more permanent SMS solution. 1% reduction compared to 2015. Read more at tryg.com > CSR > Thematic areas > Climate. Tryg’s ambition is to be the world’s best insurance Principles on Business and Human Rights, and Carbon emissions company. Realising this ambition means operating in Global Reporting Initiative. The Supervisory Board Our carbon emissions are mainly associated with People a responsible manner and taking care of society. For approves Tryg’s CSR policy annually. Download heating and electricity use at our offices, as well At Tryg, we focus on the well-being of our employees this purpose steps have been taken to link Corporate the policyat tryg.com > CSR > CSR strategy > CSR as car and air travel. We have already introduced a and their right to a healthy and safe workplace. We Social Responsibility (CSR) more closely to Tryg’s policy Read more about Tryg’s CSR KPIs at variety of climate-friendly initiatives. These include welcome diversity and ensure non-discrimination core business. Thus, the ambition for 2016 is for the tryg.com > CSR > CSR strategy > CSR KPIs. the installation of 82 video conference rooms in through equal treatment of all our employees CSR department to work closer with Tryg’s Claims order to minimise travel between offices as well as regardless of gender, age, disabilities, ethnic origin, Prevention department to introduce new activities Climate re placing traditional light bulbs with LED light. We sexual orientation and religion. We see our different equally beneficial to society and to our customers. The global climate is changing, and we are seeing also work to minimise other greenhouse gas emis- perspectives as an asset that increases the quality of Read more at tryg.com > CSR. an increase in climate-related claims. In 2014-2015, sions. In 2015, we replaced our old Freon 22-based our services through a better understanding of our Our efforts focus on climate, people, business ethics weather property insurance claims compared to tem running on ammonia. In 2016, our ambition is to and peace of mind. We comply with all aspects of 2012-2013 (excluding storm claims). Because of introduce even more climate-friendly solutions in In collaboration with the Municipality of Ballerup, an increase of 103.2% was seen in the number of cooling system with a new and more effective sys- customer needs. Danish legislation, but our efforts are also based on the more extreme weather, we want to devise our daily operations. the principles of the UN Global Compact, UN Guiding solutions which prevent damage in the first place. Employee mix No. 1,800 1,500 1,200 900 600 300 0 Men Women Age <30 yrs Age 30-49 yrs Age <50 yrs Flexi job Ikke- vestlig baggrund a) Waste Kg 150,000 120,000 90,000 60,000 30,000 0 Paper & corrugated cardboard IT, batteries & light sources Bio waste Residual Carbon emissions Tonnes 3,000 2,500 2,000 1,500 1,000 500 0 a) Non-Western background has been compiled by Statistics Denmark. | Contents – Management’s review The carbon emissions chart covers both Norway and Denmark; air travel also includes Sweden. In Tryg, processes are in place to ensure that men and women enjoy equal treatment in terms of pay 35 Electricity Heating oil Air travel Motor 2014 2015 Equal opportunities Tryg helps prepare refugees for entering the Danish labour market. In 2016, we hope to be able to offer an introductory course for refugees. In Tryg, we attach importance to striking a healthy work/life balance and support our employees by offering flexible working hours and the option of working from home. Each year, we conduct an internal employee satisfaction survey. The result was index 74 in 2015 compared to 71 in 2014. Read more at tryg.com > CSR > Thematic area > People. Annual report 2015 | Tryg A/S | levels and career opportunities. To comply with sec- system, 124 automobile suppliers reported on their have also visited our partners to get a better local community in Ballerup to participate in two tion 99b of the Danish Financial Statements Act on CSR efforts in 2015. Read more at tryg.com > understanding of their operations and to support workshops. One focused on bicycle safety and the equal gender representation at management level, CSR > Thematic area > Business ethics. them during the first few weeks after taking over the other one on prevention of fire. Both workshops our initiatives include an action plan aimed at ensur- new processes. Partners are asked to submit an received positive feedback, and we are planning to ing the recruitment and promotion of more women As a part of Tryg's business ethics including anti- annual CSR report. Read more at tryg.com > host at least one workshop in 2016. To increase our in management roles. Internal recruiters as well as corruption, we have a code of ethics which all em- CSR > Thematic area > Business ethics. engagement with the local community, we will also external agencies are instructed to work actively to ployees must know and adhere to. At the same time, re-launch a financial training course in 2016 aimed present qualified candidates of both genders. our employees are obliged to report any activities The offshoring programme has resulted in redun- at enabling young people to assume responsibility that do not comply with our code of ethics or ap- dancies. Tryg has made a new-placement agree- for their finances. Read more at tryg.com > CSR > In 2015, our ambitious target of 38% or more plicable legislation. For this purpose, Tryg has set up a ment with the stated object ive that at least 90% Thematic areas > Peace of mind. women at management level was not achieved whistleblower line, where it is possible for employees of the affected employees must have found a new as the share of women in management positions and external stakeholders to report such instances in job, started studying or in some other way clarified Night Ravens stood at 35.4%. Not meeting our target can be confidentiality. The whistleblower line was used once their career path within 12 months of leaving Tryg. In 2015, Tryg celebrated the 20th anniversary ascribed to the fact that even though we want both in 2015. In 2016, we will work to further increase Preliminary results show that in Denmark 94% collaboration with the Night Ravens in Norway. The genders to be represented in the recruitment pro- awareness of the code of ethics among our employees. of those made redundant in February 2015 have Night Ravens are volunteers who walk the streets cess, we are at the same time interested in appoint- Read more at tryg.com > Governance > Whistle- found new opportunities. at night to prevent violence and crime. To mark the ing the person best qualified for the job, whether blower line Read our code of ethics at tryg.com > a man or a woman. The result shows that we were CSR > Thematic areas > Business ethics. Peace of mind anniversary, a conference was held in Bergen which was attended by the Norwegian Prime Minister not able to attract enough of the qualified women In Tryg, we want to help create peace of mind in so- Erna Solbjerg. At the conference, Tryg's CEO Morten in 2015, an issue which we will strive to address in Taxes ciety. This is our reason for engaging in a number of Hübbe donated NOK 1m to enable the Night Ravens 2016. To qualify and motivate more women to apply Tryg’s tax policy is adopted by the Supervisory Board activities to prevent claims. One initiative is to offer to continue their valuable work. At the end of 2015, for management jobs, we are maintaining our focus once a year and anchored in the Audit Committee. synthetic DNA marking as a way of preventing break- there were approximately 370 active groups of Night on the issue in 2016, and planning a number of The tax policy includes guidelines ensuring that Tryg ins. The initiative started in 2014 in Sønderborg, Ravens in Norway. Read more at tryg.com > events targeted at high-potential women in Tryg. pays all relevant taxes. Denmark. In 2015, Tryg distributed 280 marking kits CSR > Thematic areas > Peace of mind. The target for 2016 is 38% or more women in in Sandefjord, Norway. In October 2015, preliminary management position. Read more at tryg.com > Responsible offshoring results from Sønderborg showed a 50% decline in Lifebuoys CSR > Thematic area > People. In 2015, Tryg extended its offshoring programme the number of break-ins for the 90 properties using The red-and-white lifebuoy has become a symbol of to include accounting. In its choice of partners, Tryg DNA marking compared to a 26% decline in the safety along the coastlines in Denmark, Norway and Business ethics has paid much attention to working conditions, area in general. In 2016, we will be able to conclude Sweden. Since 1952, more than 39,000 life buoys In Tryg, we respect human rights in everything we wanting to ensure that our partners respect human on the long-term preventive effect of synthetic DNA have been installed in Norway alone, and every year do, and we want to improve our preventive efforts and labour rights. At the same time, a risk analysis marking in Sønderborg. Read more at tryg.com > they help prevent drownings. In 2015, the demand to minimise the risk of human rights violations. To of each partner is performed before signing the CSR > Thematic areas > Peace of mind. for more lifebuoys increased as Tryg distributed over ensure that Tryg’s values are part of our suppliers’ contract. Tryg also wants to make sure that workers 2,000 compared to around 1,000 in 2014. In 2016, mindset, all our suppliers have to comply with receive the necessary training, which is why our Engagement with the local community Tryg will continue to donate lifebuoys to enhance our CSR reporting guidelines. Therefore, we have partners’ employees have been visiting Tryg to learn To create peace of mind and share our knowledge safety at the seaside. Read more at tryg.com > introduced a new reporting system. Trialling the new about our systems and processes. Tryg employees about prevention, we invited 120 students from the CSR > Thematic areas > Peace of mind. | Contents – Management’s review 36 Annual report 2015 | Tryg A/S | Menu – Financial statements 2015 TRYG GROUP 4 Insurance technical interest, 17 Current tax Note Statement by the Supervisory net of reinsurance Board and the Executive 5 Claims, net of reinsurance Management 38 6 Insurance operating costs, Independent auditor’s reports Financial highlights Income statement Statement of comprehensive income 39 40 41 42 net of reinsurance 6 Share option programme 6 Matching shares 7 Interest income and dividends etc. Statement of financial position 43 8 Value adjustments Statement of changes in equity 44 9 Tax Cash flow statement 1 Risk and capital management 2 Operating segments 2 Geographical segments 45 46 56 58 10 Profit/loss on discontinued and divested business 11 Intangible assets 12 Property, plant and equipment 2 Technical result, net of 13 Investment property 62 62 62 64 66 67 67 67 67 68 71 72 18 Equity 19 Premium provisions 19 Claims provisions 20 Pensions and similar liabilities 21 Deferred tax 22 Other provisions 23 Amounts owed to credit 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 reinsurance, by line of business 60 14 Equity investments in associates 72 28 Related parties 3 Premium income, net of 15 Financial assets reinsurance 62 16 Reinsurers’ share 74 76 29 Financial highlights 30 Accounting policies 76 76 77 77 78 80 80 80 80 80 81 83 83 84 85 TRYG A/S (PARENT COMPANY) Income statement – Tryg A/S (parent company) 94 Statement of financial position – Tryg A/S (parent company) 95 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 96 97 100 102 103 104 105 106 107 Tryg’s Group consolidated financial statements are prepared in accordance with IFRS. | Menu – Financial statements Annual report 2015 | Tryg A/S | 37 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 2015 and of the results of the Group’s and of the Group’s and the parent company’s annual report for 2015 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 2015. 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, 21 January 2016 Executive Board Morten Hübbe Group CEO Tor Magne Lønnum Group CFO Lars Bonde Group COO Supervisory Board Jørgen Huno Rasmussen Chairman Torben Nielsen Deputy Chairman Anya Eskildsen Vigdis Fossehagen Lone Hansen Jesper Hjulmand Ida Sofie Jensen Bill-Owe Johansson Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund | Contents – Financial statements 38 Annual report 2015 | 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 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 Financial Business Act and Danish disclosure circumstances, but not for the purpose of express- Pursuant to the Danish Financial Business Act, we requirements for listed financial services compa- ing an opinion on the effectiveness of the entity’s in- have read the management’s review. We have not nies, and for such internal control as management ternal control. An audit also includes evaluating the performed any further procedures in addition to Statement on the management’s review We have audited the consolidated and parent determines is necessary to enable the preparation appropriateness of accounting policies used and the audit of the consolidated and parent financial financial statements of Tryg A/S for the financial and fair presentation of consolidated and parent the reasonableness of accounting estimates made statements. On this basis, it is our opinion that the year 1 January to 31 December 2015, page 40-99, financial statements that are free from material by management, as well as the overall presentation information provided in the management’s review which comprise the income statement, statement misstatement, whether due to fraud or error. of the consolidated and parent financial statements. is consistent with the consolidated and parent of comprehensive income, statement of financial We believe that the audit evidence is sufficient and financial statements. 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, 21 January 2016 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 2015, and of CVR-nr. 33 96 35 56 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 2015 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 2015, 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 2015 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 | Contents – Financial statements 39 Annual report 2015 | Tryg A/S | Financial highlights DKKm 2015 2014 2013 2012 2011 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 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 (%) 17,977 -13,562 -2,720 18,652 -12,650 -2,689 19,504 -14,411 -3,008 20,314 -14,675 -3,295 19,948 -15,783 -3,271 1,695 710 18 2,423 -5 -91 2,327 -395 1,932 49 1,981 1,212 31,571 3,176 9,831 51,281 75.4 -3.9 71.5 15.3 86.8 15.1 86.5 4.8 18.9 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 87 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 Solvency ratio (Solvency I – ratio between base capital and weighted assets) 108 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 2015'' 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 and the Finnish branch of Tryg Forsikring, which was sold in 2012. | Contents – Financial statements 40 Annual report 2015 | Tryg A/S | Income statement DKKm 2015 2014 DKKm 2015 2014 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 18,150 -1,165 61 1 17,047 18,672 -1,059 268 -57 17,824 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 18 60 Claims paid Reinsurance cover received Change in claims provisions Change in the reinsurers' share of claims provisions 5 Claims, net of reinsurance -13,095 471 -467 1,301 -11,790 -13,695 1,361 1,045 -688 -11,977 Bonus and premium discounts -234 -288 Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers 6 Insurance operating costs, net of reinsurance -2,042 -678 -2,720 102 -2,618 -1,955 -734 -2,689 102 -2,587 2 Technical result 2,423 3,032 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 42 94 794 -493 -95 -88 254 -259 -5 81 -172 2,327 -395 1,932 49 10 94 949 -95 -115 -69 774 -414 360 81 -171 3,302 -755 2,547 10 Profit/loss for the year 1,981 2,557 25 Earnings per share – continuing business Diluted earnings per share – continuing business Earnings per share Diluted earnings per share 6.77 6.77 6.95 6.95 8.70 8.70 8.74 8.73 | Contents – Financial statements 41 Annual report 2015 | 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 Change in taxes on security 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 2015 1,981 21 141 4 2 -12 3 159 -89 86 -21 -24 135 2,116 2014 2,557 26 0 2 0 -46 12 -6 -178 191 -47 -34 -40 2,517 | Contents – Financial statements 42 Annual report 2015 | 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 2015 2014 DKKm 2015 2014 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 9,831 1,698 5,571 25,427 573 31,571 264 701 132 1,097 603 330 64 4,074 612 357 1,001 7,041 43 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 Total equity and liabilities 51,281 52,224 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 1,038 62 1,144 2 1,208 1,838 229 229 138 3,589 35,705 0 843 40,275 42,342 173 3,003 3,176 1,261 1,261 199 871 2,331 118 471 589 281 316 597 984 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 Total assets 51,281 52,224 | Contents – Financial statements 43 Annual report 2015 | 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 2014 1,492 80 15 106 848 6,847 1,731 11,119 2015 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 2015 Equity at 31 December 2015 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 6 6 -24 -24 22 -1 21 -104 22 -82 6 86 78 2 2 -24 -9 21 127 -82 766 -34 -34 60 -15 45 -81 41 -40 0 -44 -44 1,448 1,533 0 -41 -41 1,492 2 80 -34 15 45 106 -40 848 304 132 436 44 97 -1,044 13 2 5 -447 6,400 1,759 1,759 -2,477 -718 1,013 1,981 135 2,116 0 -2,477 97 -1,044 13 2 5 -1,288 9,831 847 -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 49 61 888 6,842 1,656 11,107 Dividend per share in 2015 includes dividend paid out in July of DKK 2.5 and proposed dividend of DKK 3.5, totalling DKK 6.0 (DKK 5.8 in 2014 ). Proposed dividend per share of DKK 3.50 is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (289,559,550 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 2,516m (DKK 2,622m in 2014) 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 | Contents – Financial statements 44 Annual report 2015 | 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 property Sale of 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 intangible assets Hedging of currency risk Investments, continuing business Investments, discontinued and divested business Total investments 2015 2014 DKKm 2015 2014 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 -1,031 12 -2,380 -53 -3,452 -3,452 -37 0 3 -34 505 471 -956 0 -1,656 110 -2,502 -2,502 -37 14 -25 -48 553 505 17,721 -13,040 -412 -2,771 -158 1,340 807 -95 47 -765 -91 1,243 -32 1,211 -46 10 480 1,070 641 0 0 86 2,241 -37 2,204 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 0 474 | Contents – Financial statements 45 Annual report 2015 | 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, quantified and reported to the management and the Supervisory Board. Given the extensive requirements for the Super visory Board’s involvement in capital and risk management, Tryg’s Supervisory Board has decided to set up a special Risk Committee to address these topics separately during the year. The Committee meets five times a year for a detailed review of various risk management topics and regularly keeps the en- tire Supervisory Board up-to-date on the status. 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- mented, and day-to-day compliance is verified. This is supported by decentralised risk managers affiliated with the individual areas. The risk management func- tion is the second level of control, and ensures a con- Lines of defence Supervisory Board sistent approach across the organization, risk assess- ment at group level and reporting to the management and the Supervisory Board. 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, investment risk manage- ment and more. Tryg’s risk management function is also responsible for determining the company’s capital. 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 ‘A-’ rating from Standard & Poor’s. Support of a steadily rising nominal dividend per share, where 60-90% of the annual net profit is paid out in two instalments. Return on the average equity of at least 20% after tax. However 21% from 2017. 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 1. Line of defence 2. Line of defence 3. Line of defence External audit • Operational control • Business controls • Risk management • Compliance • Actuarial function • Internal audit Executive Management | Contents – Financial statements 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 46 NotesAnnual report 2015 | Tryg A/S | Viewed in isolation, in order to fulfil the first two objectives, 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 mainly 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 an internal model, while other risks are described using the Solvency II standard model. The model calculates Tryg’s capital requirement with 99.5% solvency level 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 was approved by the Danish Financial Supervisory Authority in 2015 which means that the present solvency requirement will be maintained as Solvency II has come into force as of 1 January 2016. The introduction of Solvency II will have a major influence on Tryg’s capital position in various areas from 1 January 2016. The Solvency capital require- ment will decrease by approximately DKK 1.200m due to the inclusion of the loss absorbency capacity of deferred tax. The capital base will increase by approximately DKK 400m due to the inclusion of ex- pected future profits (DKK 600m) and the transition to a new Solvency II discounting curve (DKK -200m). The net effect form these new elements will result in a relative large increase in the capital buffer, where the core equity will constitute a lesser part of the capital base. Tryg has two subordinated loans that amount to DKK 1,707m. The first is a NOK 1,400m loan that was issued in November 2015 and is classified as a Tier 2 element under Solvency II. The second is a NOK 800m loan that was issued in March 2013 and is ac- cordingly to the grandfathering rules treated as a Tier 1 element under Solvency II. Read more about Tryg’s capitalisation after the introduction of Solvency II in the newsletter. 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 calculation of solvency capital requirement is reasonable and is reflecting Tryg’s actual risk profile. Moreover, the projected capital requirement is also assessed over the company’s strategic planning period. Tryg’s risk activities are implemented via continuous risk management pro- cesses, where the main results are reported to 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 Underwriting risk is the risk that insurance premiums will not be sufficient to cover the compensations and other costs associated with the insurance business. Underwriting risk is managed primarily through the company’s insurance policy defined by the Super- visory Board, and administered through business procedures, underwriting guidelines etc. Underwriting risk is assessed in Tryg’s capital model, determining the capital impact from insurance products. Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a suffi- cient degree via ordinary diversification. In case of major events involving damage to buildings and contents, Tryg’s reinsurance programme provides protection for up to DKK 5.75bn, which statistically is sufficient to cover at least a 250-year event. Reten- tion for such events is DKK 150m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m for, 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 2bn. Re- tention for large claims is DKK 100m, gradually drop- ping to DKK 25m. Single risks exceeding DKK 2bn are covered 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 sub- sequent claims. For the individual sectors, individual cover has subsequently been taken out as needed. For Tryg’s subsidiary Tryg Garantiforsikring A/S, the maximum retention is DKK 30m. The use of reinsur- ance creates a natural counterparty risk. This risk be handled by applying a wide range of reinsurers with at least an ‘A’ rating and USD 100m in capital. Reserving risk Reserving risk relates to the risk of Tryg’s insurance provisions being inadequate. The Supervisory Board lays down the overall framework for the handling of reserving risk in the insurance policy, while the overall risk is measured in the capital model. The uncertainty associated with the calculation of claims reserves af- fects Tryg’s results through the run-off on reserves. Long-tailed reserves 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 reserves. In order to manage the inflation risk of Danish workers’ compen- sation claims reserves, Tryg has bought zero coupon inflation swaps. Tryg determines the claims reserves via statistical methods as well as individual assess- ments. At the end of 2015, Tryg’s claims reserves totalled DKK 25,427m with an average duration of 4,0 years. 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 dis- counted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryg carries out daily monitoring, follow-up and risk management of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework 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 equity portfolio constitutes the company’s largest in- vestment risk. At the end of 2015, the equity portfolio accounted for 5.9% of the total investment assets. This share is expected to be at a similar level in 2016. Tryg’s property portfolio mainly comprises owner-occupied and investment properties, the value of which is ad- justed based on the conditions on the property market through internal valuations backed by external valua- tions. At the end of 2015, investment properties accounted for 5.1%, while owner-occupied properties accounted for 3.0% of the total investment assets. | Contents – Financial statements 47 NotesAnnual report 2015 | Tryg A/S | Property investments are expected to be at a similar level in 2016. Tryg’s does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance business in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to fluctuations in the other Scandinavian currencies due to its ongoing insurance activities. Premiums earned and compensation paid in other cur- rencies create a natural currency hedge, for which rea- son other risk mitigation measures are not required in this area. However, the part of equity held in other cur- rencies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using cur- rency swaps. In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentra- tion 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 Eu- ropean 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. The only significant as- sets on Tryg’s balance sheet, which by nature is some- what illiquid, are the property portfolio. 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. 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. A special crisis management structure is set up 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 covers both business transactions, IT strategy, choice of business partners and changed market conditions. Tryg’s strategic position is determined by Tryg’s Super - visory Board in close collaboration with the Executive Board. Before determining the strategic position, the strategic decisions are subjected to a risk assessment, explaining the risk of the chosen strategy to Tryg’s Supervisory Board and Executive Board. 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 centrally via the Group’s legal department, which, among other things, sits on industry committees in connection with legis- lative monitoring, ensures implementation in Tryg through business procedures and participates in the ongoing training of the organisation. Emerging risk Emerging risk cover 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 market and adapt the products as the conditions change. In the event of a change in insurance terms, it is ensured that Tryg’s re- insurance cover is consistent with the new conditions. Sensitivity analysis Insurance risk DKKm Effect of 1 percentage point change in: Combined ratio (1 percentage point) Claim frequency (1 percentage point) Average claim Premium rates Provisioning risk 1% change in inflation on person-related lines of business a) 10% error in the assessment of long-tailed lines of business (workers' compensation, motor liability, liability, accident) Investment risk Interest rate market Effect of 1 % increase in interest curve: Impact of interest-bearing securities Higher discounting of claims provisions Net effect of interest rate rise Impact of Norwegian pension obligation b) 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 2015 2014 +/- 177 +/- 1,450 +/- 132 +/-175 + / -184 +/- 1,369 +/-122 +/- 190 +/- 476 +/- 300 +/- 1,671 +/- 1,752 -940 947 7 153 -341 -7 -480 -647 614 -33 -880 793 -87 87 -393 -72 -488 -835 791 -44 +/- 176 +/- 230 a) Including the effect of the zero coupon inflation swap. b) Additional sensitivity information in note 20 'Pensions and similar obligations'. | Contents – Financial statements 48 NotesAnnual report 2015 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Gross 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 10,935 10,825 10,685 10,315 10,460 10,405 10,311 10,323 10,294 10,189 10,020 10,020 -9,746 273 -41 Estimated accumulated claims End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later 10 year later Cumulative payments to date Provisions before discounting, end of year Discounting Reserves from 2004 and prior years Other reserves Gross provisions for claims, end of year 10,711 10,972 10,515 10,743 10,679 10,671 10,649 10,612 10,428 10,361 10,361 -9,771 589 -68 11,629 12,199 12,773 12,752 12,755 12,661 12,535 12,529 12,461 12,162 13,500 13,383 13,396 13,357 13,262 13,231 12,981 13,534 14,189 14,204 14,002 13,884 13,787 13,770 15,782 15,884 15,836 15,718 15,631 15,567 16,126 16,516 16,515 16,466 16,304 13,659 13,644 13,581 13,431 13,532 13,845 13,682 12,841 13,188 14,853 12,461 -11,610 12,981 -11,796 13,770 -12,386 15,567 -13,967 16,304 -14,383 13,431 -11,187 13,682 -11,048 851 -99 1,185 -138 1,384 -156 1,600 -161 1,921 -159 2,245 -174 2,634 -167 13,188 -9,504 3,685 -205 14,853 -6,714 146,618 -122,112 8,139 -193 24,506 -1,561 2,127 355 25,427 | Contents – Financial statements 49 NotesAnnual report 2015 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Ceded business 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Estimated accumulated claims End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later 10 year later Cumulative payments to date 915 811 816 811 840 836 822 822 814 826 823 823 -811 Provisions before discounting, end of year Discounting Reserves from 2004 and prior years Other reserves Provisions for claims, end of year 12 -1 272 272 259 292 293 288 287 288 286 286 286 -278 8 -1 498 465 480 485 505 476 505 496 496 496 -483 14 -1 155 220 189 179 179 166 171 165 165 -159 7 0 284 354 332 289 292 297 292 292 -283 10 0 668 748 738 714 723 744 744 -685 60 -1 1,449 2,145 2,267 2,307 2,271 2,271 -2,176 95 -1 228 259 297 304 304 -264 40 -1 550 961 942 942 -642 300 -3 250 302 2,068 302 -213 88 -2 2,068 -41 2,027 -7 8,695 -6,034 2,660 -17 210 151 3,003 | Contents – Financial statements 50 NotesAnnual report 2015 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Net of reinsurance 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 10,439 10,700 10,256 10,450 10,386 10,383 10,362 10,323 10,142 10,075 10,075 -9,493 582 -68 Estimated accumulated claims End of year 1 year later 2 year later 3 year later 4 year later 5 year later 6 year later 7 year later 8 year later 9 year later 10 year later 10,020 10,014 9,869 9,504 9,619 9,569 9,489 9,502 9,481 9,363 9,196 9,196 Cumulative payments to date -8,935 261 -40 Provisions before discounting, end of year Discounting Reserves from 2004 and prior years Other reserves Provisions for claims, net of reinsurance, end of the year 11,131 11,734 12,293 12,267 12,250 12,186 12,030 12,033 11,965 12,007 13,280 13,194 13,217 13,178 13,096 13,059 12,816 13,250 13,835 13,872 13,713 13,592 13,491 13,477 15,115 15,137 15,098 15,004 14,907 14,823 14,677 14,370 14,248 14,160 14,033 13,432 13,386 13,284 13,127 12,982 12,884 12,740 12,591 12,886 12,786 11,965 -11,128 12,816 -11,637 13,477 -12,103 14,823 -13,282 14,033 -12,206 13,127 -10,923 12,740 -10,406 837 -98 1,179 -138 1,374 -156 1,540 -160 1,826 -157 2,204 -173 2,334 -164 12,886 -9,290 3,596 -204 12,786 -6,675 137,924 -116,079 6,112 -186 21,846 -1,543 1,917 204 22,424 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 2015 to prevent the impact of exchange rate fluctuations. | Contents – Financial statements 51 NotesAnnual report 2015 | Tryg A/S | Claims provisions (continued) DKKm 2015 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 2014 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 5,149 -146 9,045 -1,959 12,089 5,337 -156 9,041 -529 13,693 126 0 4,029 -395 3,760 130 0 4,282 -311 4,101 67 0 2,646 -213 2,500 124 0 2,716 -199 2,641 87 0 11,150 -311 10,926 133 0 9,945 -263 9,815 142 -28 357 -151 320 86 -22 678 -451 291 5,571 -174 27,227 -3,029 29,595 5,810 -178 26,662 -1,753 30,541 Other comprises Tryg Garantiforsikring A/S and premium provisions in Securator A/S. | Contents – Financial statements 52 NotesAnnual report 2015 | 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 2015 52 90 501 1,165 516 2,324 138 2015 2014 Impact of exchange rate fluctuations in SEK and NOK on technical result 14,856 13,011 4,175 2,363 34,405 2.5 2015 2014 Change Gross premium income Gross claims Total insurance operating costs 17,977 -13,562 -2,720 1,695 Profit/loss on gross business Profit/loss on ceded business 710 Insurance technical interest, net of reinsurance 18 Technical result 2,423 18,652 -12,650 -2,689 3,313 -341 60 3,032 -675 -912 -31 -1,618 1,051 -42 -609 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 2014 2013 Change 18,652 -12,650 -2,689 3,313 -341 19,504 -14,411 -3,008 2,085 349 60 62 3,032 2,496 -852 1,761 319 1,228 -690 -2 536 Currency effect Change excl. currency effect -534 374 81 -79 11 -2 -70 -141 -1,286 -112 -1,539 1,040 -40 -539 Currency effect Change excl. currency effect -642 437 86 -119 10 -3 -112 -210 1,324 233 1,347 -700 1 648 16,622 13,925 4,129 2,836 37,512 2.2 2014 413 207 674 1,096 563 2,953 128 The share portfolio includes exposure from share derivatives of DKK 47m (DKK 477m in 2014) Unlisted equity investments are based on an estimated market price. Exposure to exchange rate risk 2015 2014 Assets and debt Hedge Exposure Assets and debt Hedge Exposure 2,355 633 197 1,991 1,114 477 -2,313 -524 -189 -1,867 -1,007 -429 42 109 8 124 107 48 438 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 USD EUR GBP NOK SEK Other Total | Contents – Financial statements 53 NotesAnnual report 2015 | Tryg A/S | Impact of exchange rate fluctuations in SEK and NOK on the statement of financial position Credit risk DKKm 2015 2014 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 1,038 1,208 1,838 229 40,275 3,176 2,331 589 597 984 1,261 1,828 225 43,172 1,938 1,662 505 649 Total assets 51,281 52,224 Equity and liabilities Equity Subordinate loan capital Provisions for insurance contracts Total provisions Other debt Accruals and deferred income Total equity and liabilities 9,831 1,698 31,571 1,097 7,041 43 51,281 11,119 1,768 31,692 1,447 6,152 46 52,224 54 -53 10 4 -2,897 1,238 669 84 -52 -943 -1,288 -70 -121 -350 889 -3 -943 12 -26 -20 -1 -704 -45 -19 0 -3 -806 0 -82 -518 -43 -163 0 -806 42 -27 30 5 -2,193 1,283 688 84 -49 -137 -1,288 12 397 -307 1,052 -3 -137 | Contents – Financial statements Bond portfolio by ratings AAA to A Other Not rated Total Reinsurance balances AAA to A Other Not rated Total 2015 DKKm 35,181 523 1 35,705 2,772 0 120 2,892 % 98.5 1.5 - 2014 DKKm 36,930 244 1 % 99.3 0.7 0.0 100.0 37,175 100.0 95.9 - 4.1 100.0 1,447 1 147 1,595 90.7 0.1 9.2 100.0 Liquidity risk Maturity of the Group’s financial obligations including interest 2015 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 2014 Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 66 64 4,074 181 2,291 6,676 87 116 2,902 428 2,335 5,868 263 0 0 219 0 482 243 0 0 225 0 468 3,362 0 0 259 0 3,621 2,209 0 0 189 0 2,398 Interest on loans for a perpetual term has been recognised for the first fifteen years. Total 3,691 64 4,074 659 2,291 10,779 2,539 116 2,902 842 2,335 8,734 54 NotesAnnual report 2015 | 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 statement of financial position date is based on a price of Total capital losses and costs at the statement of the financial position date Interest expenses for the year Effective interest rate Bond loan EUR 150m Bond loan NOK 800m 2015 - - - 49 - 2014 1,106 99 3 50 4.5% 2015 671 108 4 34 3.6% Bond loan NOK 1,400 2015 1,086 100 6 3 3.9% 2014 714 108 4 40 3.6% 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 Called by Tryg in December 2015 Listed bonds NOK 800m 100 March 2013 Perpetual 2023 Listed bonds NOK 1,400m 100 November 2015 2045 2025 Interest-only 4.5% (until 2015) 2.1% above EURIBOR 3M (from 2015) Interest-only 3.75 % above NIBOR 3M (until 2023) 4.75 % above NIBOR 3M (from 2023) Interest-only 2.75 % above NIBOR 3M (until 2025) 3.75 % above NIBOR 3M (from 2025) The share of capital included in the calculation of the capital base total DKK 1,707m (DKK 1,496m in 2014) The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. The loans are taken by Tryg Forsikring A/S. The creditors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liq- uidation 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. | Contents – Financial statements 55 Annual report 2015 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) Group 2 Operating segments 2015 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 8,803 -6,074 -1,291 -148 8 1,298 Run-off gains/losses, net of reinsurance 324 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 17 141 2,342 5,791 457 3,992 -2,612 -683 -44 5 658 388 33 16 408 1,318 6,566 54 3,894 -3,987 -420 877 5 369 351 140 2,422 1,062 11,357 50 1,317 -852 -246 -1 0 218 149 597 0 32 849 1,713 12 -29 -37 -80 26 0 -120 0 408 229 0 0 46,838 0 0 0 9,879 17,977 -13,562 -2,720 710 18 2,423 -442 1,981 1,212 1,038 229 173 3,003 46,838 51,281 5,571 25,427 573 9,879 41,450 Description of segments Please refer to the accounting principles for a description of operating segments. Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption. a) Amounts relating to eliminations and in 2015 also restructuring expenses are included under 'Other'. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are therefore not allocated to the individual segments but are included under 'Other'. | Contents – Financial statements 56 Annual report 2015 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) 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 | Contents – Financial statements 57 Annual report 2015 | 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 2015 2014 2013 2012 2011 a) Includes Danish general insurance and Finnish guarantee insurance. 9,346 1,371 512 80.5 -9.2 71.3 13.9 85.2 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 Number of full-time employees 31 December 1,859 2,007 2,046 2,187 2,315 Norwegian general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio 6,766 844 492 70.9 2.1 73.0 14.9 87.9 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 7,916 598 181 73.2 3.2 76.4 17.0 93.4 Number of full-time employees 31 December 1,113 1,167 1,199 1,282 1,338 | Contents – Financial statements 58 Annual report 2015 | 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 Dec. 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 b) Amounts relating to eliminations. In 2012 discon- tinued business and restructuring expenses were included under 'Other'. In 2014 the costs were positively affected by a one-time effect regarding changed pension terms in Norway and they were negatively affected by a provision in connection with the transfer to the new it-supplier. The joint effect was approx DKK 135m. In 2015 costs and claims were negatively effected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. c) Adjustment of gross expense ratio included only in 'Tryg '. The adjustment is explained in a footnote to Financial highlights. 2015 2014 2013 2012 2011 1,894 328 208 63.5 1.7 65.2 17.5 82.7 387 -29 -120 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 17,977 18,652 19,504 20,314 19,948 2,423 -5 -91 2,327 1,212 75.4 -3.9 71.5 15.3 86.8 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 Number of full-time employees, continuing business at 31 Dec. Number of full-time employees, discontinued and divested business at 31 Dec. 3,359 3,599 3,703 0 0 0 | Contents – Financial statements 59 Annual report 2015 | Tryg A/S | 2 Technical result, net of reinsurance, by line of business DKKm Gross premiums written 2015 1,652 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance 1,629 - 1,026 - 219 - 4 2 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 382 63.0 76.7 4.4% 29,968 40,135 Accident and health Health care Worker’s compensation Motor TPL Motor comprehensive insurance Marine, aviation and cargo insurance 2014 1,692 1,663 - 1,212 - 224 - 7 5 225 72.9 86.8 4.5% 33,560 37,228 2015 321 316 - 255 - 32 - 1 0 28 80.7 91.1 2014 313 314 - 223 - 37 - 1 1 54 71.0 83.1 2015 890 893 - 85 - 103 - 10 1 696 9.5 22.2 2014 951 970 - 155 - 108 - 8 3 702 16.0 27.9 130.3% 3,905 56,697 128.3% 4,334 50,173 17.6% 65,254 10,469 17.4% 79,102 9,463 2015 1,980 1,963 - 1,164 - 339 - 33 2 429 59.3 78.2 5.5% 17,846 77,164 2014 2,098 2,134 - 1,556 - 337 - 51 7 197 72.9 91.1 5.6% 22,248 72,195 2015 3,680 3,573 - 2,446 - 542 - 2 3 586 68.5 83.7 2014 3,747 3,715 - 2,295 - 555 16 11 892 61.8 76.3 2015 332 337 - 218 - 41 - 53 1 26 64.7 92.6 2014 353 320 - 256 - 39 21 1 47 80.0 85.6 17.9% 10,110 241,311 18.1% 10,376 224,791 21.2% 75,653 2,871 19.8% 111,361 2,470 Fire and contents (Private) Fire and contents (Commercial) Change of ownership Liability insurance Credit and guarantee insurance Tourist assistance insurance Gross premiums written 2015 4,363 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance 4,328 - 3,130 - 647 - 117 2 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 2014 4,453 4,492 - 3,139 - 671 22 12 716 69.9 84.3 2015 2,427 2,442 - 3,750 - 363 1,438 2 - 231 153.6 109.5 436 72.3 90.0 7.9% 8,742 370,685 7.6% 9,615 333,943 16.1% 116,003 32,331 2014 2,556 2,535 - 1,957 - 376 - 113 7 96 77.2 96.5 15.8% 62,035 29,686 2015 62 64 - 118 - 10 0 0 - 64 184.4 200.0 9.9% 26,008 4,275 2014 62 65 - 63 - 12 0 0 - 10 96.9 115.4 9.2% 20,263 4,255 2015 962 958 - 612 - 153 - 67 1 127 63.9 86.8 10.2% 68,006 10,454 2014 985 979 - 917 - 148 - 10 3 - 93 93.7 109.8 11.3% 81,763 10,454 2015 352 347 247 - 45 - 392 0 157 -71.2 54.8 2014 338 327 16 - 45 - 188 1 111 -4.9 66.4 0.1% 790,685 111 0.1% 1,068,663 83 2015 610 607 - 580 - 81 - 2 1 - 55 95.6 109.2 19.6% 5,893 96,774 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. | Contents – Financial statements 2014 573 568 - 450 - 79 - 2 2 39 79.2 93.5 19.4% 5,673 79,007 60 Annual report 2015 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business DKKm Other insurance c) Total exclusive of Norwegian Group Life Norwegian Group Life one-year policies 2015 2014 2015 2014 Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance 59 60 - 46 - 95 - 46 1 Technical result Gross claims ratio Combined ratio Average claims DKK b) Total claims - 126 76.7 311.7 392,147 34 75 84 - 14 - 15 - 20 1 36 16.7 58.3 59,818 220 17,690 18,196 17,517 - 13,183 - 2,670 711 16 18,166 - 12,221 - 2,646 - 341 54 2,391 3,012 75.3 86.4 67.3 83.7 2015 460 460 - 379 - 50 - 1 2 32 82.4 93.5 2014 476 486 - 429 - 43 0 6 20 88.3 97.1 Total 2015 2014 18,150 18,672 17,977 - 13,562 - 2,720 710 18 18,652 - 12,650 - 2,689 - 341 60 2,423 3,032 75.4 86.8 67.8 84.2 b) Average claims are total claims before run-off in the year relative to the number of claims in the year. c) Other insurance, gross claims and gross operating expenses include restructuring costs of DKK 40m and DKK 80m, respectively, in 2015. | Contents – Financial statements 61 Annual report 2015 | Tryg A/S | 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 2015 2014 Gross 9,419 1,893 6,855 Ceded -625 -46 -432 Gross 9,488 1,943 7,442 18,167 -1,103 18,873 Denmark Other EU countries Other countries a) a) Mainly Norway 2015 2014 DKKm 2015 2014 18,166 44 18,210 1 18,211 -1,103 -61 17,047 18,872 67 18,939 1 18,940 -1,067 -49 17,824 Ceded -689 -30 -348 -1,067 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 Administrative expenses include fee to the auditors appointed by the annual general meeting: Deloitte The fee is divided into: Statutory audit Tax advice Other services -368 -1,674 -2,042 -678 -2,720 102 -2,618 -7 -7 -3 -2 -2 -7 -395 -1,560 -1,955 -734 -2,689 102 -2,587 -11 -11 -3 -1 -7 -11 -10 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 2015 2014 Expenses have been incurred for the Group´s Internal Audit Department. -9 In the calculation of the expense ratio, costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner-occupied property based on a calculated market rent of DKK 36m. (DKK 38m in 2014) 259 -241 18 -15,063 1,500 -13,563 2,061 -288 -11,790 414 -354 60 -13,376 726 -12,650 268 405 -11,977 | Contents – Financial statements 62 NotesAnnual report 2015 | 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 27m (DKK 26m in 2014) Insurance operating costs and claims include the following staff expenses: Salaries and wages Commission Allocated share options and matching shares Pension plans a) Other social security costs Payroll tax a) In 2015 defined benefit plans were included with DKK 40m. Remuneration for the Supervisory Board and Executive Management is disclosed in note 28 'Related parties'. 2015 2014 -368 -1,680 -179 -364 -261 -102 234 -2,720 -2,108 -6 -5 -300 -4 -371 -2,794 -395 -1,463 -213 -459 -272 -108 221 -2,689 -2,098 -7 -3 143 -5 -351 -2,321 Average number of full-time employees during the year (continuing business) 3,472 3,639 | Contents – Financial statements 63 NotesAnnual report 2015 | Tryg A/S | Notes DKKm 6 Share option programmes Spec. of outstanding options: TOTAL NUMBERS a) FAIR VALUE 2015 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 2010-2011 Allocated in 2010-2011, 1 January Exercised Expired 113,450 -113,450 0 132,860 -120,775 0 20,590 -13,570 -3,335 266,900 -247,795 -3,335 15/14 15/14 15/14 Outstanding options from 2010-2011 allocation 31 Dec. 2015 Number of options exercisable 31 Dec. 2015 0 0 12,085 3,685 15,770 12,085 3,685 15,770 2014 Allocation 2009-2011 Allocated in 2009-2011, 1 January Exercised Expired Outstanding options from 2009-2011 245,205 -131,755 0 739,950 -599,090 -1,600 164,260 1,149,415 -861,265 -130,420 -4,250 -2,650 19/15/14 19/15/14 19/15/14 allocation 31 Dec. 2014 113,450 132,860 20,590 266,900 Number of options exercisable 31 Dec. 2014 113,450 132,860 20,590 266,900 4 -4 0 0 18 -13 0 5 55/44 55/44 55/44 55/52 55/52 55/52 14 -13 0 1 50 -36 0 14 a) In May 2015 each share with a nominal value of DKK 25 was replaced by five new shares with a nominal value of DKK 5. The share split does not change the Group's share capital. Comparative figures have been restated to reflect the change in trading unit. Tryg did not allocate share options in 2015. At 31 December 2015, the share option plan com- prised 15,770 share options (266,900 share options at 31 December 2014). Each share option entitles the holder to acquire one existing share with a nominal value of DKK 5 in Tryg A/S. The share option plan entitles the holders to buy 0.01 % of the share capital in Tryg A/S if all share options are exercised. In 2015, the fair value of share options recognised in the consolidated income statement amounted to DKK 0m (DKK 0m in 2014). At 31 December 2015, 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 2015. Risk-tak- ers 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. | Contents – Financial statements 64 Annual report 2015 | Tryg A/S | Notes DKKm 6 Share option programmes (continued) Spec. of outstanding options: Year of allocation Years of exercise 1 Jan. 2015 Allocation Exercised Cancelled Expired 31 Dec. 2015 2010 2011 2013-2015 2014-2016 Outstanding options 31 December 2015 220,220 46,680 266,900 0 0 0 -216,885 -30,910 -247,795 -3,335 0 -3,335 0 0 0 0 15,770 15,770 The assumptions by calculating the market value at time of allocation Year of allocation Years of exercise 2010 2011 2013-2015 2014-2016 Average share price at time of allocation DKK 64.01 59.17 Expected Volatility 29.20% 30.00% Expected maturity 4 years 4 years Risk-free interest rate 2.70% 3.00% Average term Average exercise share price 31 Dec. 2015 to maturity 31 Dec. 2015 0.00 0.05 0.00 44.08 | Contents – Financial statements 65 Annual report 2015 | 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 fair value at 31 Dec. DKKm 2015 Allocated in 2015 14,415 33,740 48,155 Matching shares allocated in 2015 at 31.12.15 14,415 33,740 48,155 Allocated in 2011-2014 91,630 Cancelled Exercised 0 -18,000 78,675 -5,780 -19,540 170,305 -5,780 -37,540 Matching shares allocated in 2011-2014 at 31.12.15 Number of Matching shares exercisable 31 Dec. 2015 73,630 53,355 126,985 6,895 5,500 12,395 2014 Allocated in 2014 17,355 30,055 47,410 Matching shares allocated in 2014 at 31.12.14 17,355 30,055 47,410 Allocated in 2011-2013 74,275 Cancelled 0 61,840 -13,220 136,115 -13,220 Matching shares allocated in 2011-2013 at 31.12.14 74,275 48,620 122,895 88 88 77 77 77 77 103 103 68 68 4 4 14 0 -3 10 5 5 9 0 9 137 137 137 137 137 137 138 138 138 138 138 7 7 23 -1 -5 17 1 1 19 -2 17 In 2011-2015, 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 2015, the reported fair value of matching shares for the Group amounted to DKK 5m (DKK 3m in 2014). At 31 December 2015, a total amount of DKK 12m was recognised for matching shares. | Contents – Financial statements 66 Annual report 2015 | 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 2015 2014 DKKm 2015 2014 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 before tax Tax Profit/loss on discontinued and divested business -548 -26 0 -15 129 65 0 -395 % 23.5 1.0 0.0 1.0 -5.5 -3.0 17.0 3 54 7 64 -15 49 -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 -4 10 Profit/loss on discontinued and divested business primarily relates to Marine Hull Insurance. 47 2 742 3 794 -89 -6 -95 699 13 57 14 -608 -42 0 -566 17 0 120 -64 73 -493 39 8 893 9 949 -90 -25 -115 834 -18 354 17 -129 596 2 822 23 -106 -741 -93 -917 -95 Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK 58m (DKK -179m in 2014) | Contents – Financial statements 67 NotesAnnual report 2015 | Tryg A/S | DKKm 11 Intangible assets Trademarks and customer relations Goodwill Assets under con- Software a) struction a) DKKm 11 Intangible assets Trademarks and customer relations Goodwill Assets under con- Software a) struction a) 2015 Cost Cost at 1 January Exchange rate adjustments Transferred from assets under construction Additions 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 Amortisation and write-downs at 31 December 546 12 0 0 558 -4 0 0 -4 200 5 0 0 1,028 -9 127 7 205 1,153 290 0 -127 134 297 Total 2,064 8 0 141 2,213 -104 -3 -22 -880 8 -78 -92 0 0 -1,080 5 -100 -129 -950 -92 -1,175 2014 Cost Cost at 1 January Exchange rate adjustments Transferred from asset under construction Additions for the year Disposals for the year Cost at 31 December Amortisation and write-downs Amortisation and write-downs at 1 January Exchange rate adjustments 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 Carrying amount at 31 December 554 76 203 205 1,038 Carrying amount at 31 December 542 96 148 198 984 a) Hereof proprietary software DKK 317m (DKK 245m at 31 December 2014) | Contents – Financial statements 68 NotesAnnual report 2015 | Tryg A/S | DKKm 11 Intangible assets (continued) Impairment test Goodwill 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 and merged into Tryg in 2015. At 31 December 2015, 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. The Value-in-use method is used. Primary assumptions for impairment test: When assessing the cash flow management has based its estimates of premiums earned on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development from past ex- periences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to current levels. Moderna is adjusted for weather and large-scale claims as well. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management's own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future. Moderna Comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres and online. The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are 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 1.3bn (1.4 bn) relative to a recog- nised goodwill of DKK 368m (358m) and Equity of DKK 0.6bn (0.5bn) and does not indicate any impairment in 2015. DKKm 2015 2014 - Earned premium assumed CAGR 0-10 years - Earned premium assumed CAGR >10 years - Required return before tax - Expected level of Combined ratio Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0-10 years) CAGR -1.0 percentage point (0-10 years) Required return +1.0 percentage point Required return -1.0 percentage point Combined ratio +1.0 percentage point Combined ratio -1.0 percentage point 2% 1% 13% 93% 25 -24 -161 189 -24 25 2% 1% 12% 93% 15 -12 -172 202 -27 27 Securator In 2014, Tryg acquired Securator A/S. The insurance activities were incorporated into the Tryg Group's business structure in 2014 and are reported under Sweden. In 2015, Securator was merged into Tryg Forsikring A/S and is reported as part of the Swedish affinity portfolio. Securator is a Danish market leader within the sale and brokering of multi-annual product insurance via dealers in the electronics and tele- communications sector and supermarket chains. The cash flows appearing from the latest prognosis approved by management for the next 6 quarters 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 184m (238m)relative to a recog- nised Goodwill of DKK 184m (184m) and equity of DKK 174m (174m) and does not indicate any impairment in 2015. | Contents – Financial statements 69 NotesAnnual report 2015 | Tryg A/S | DKKm 2015 2014 DKKm - Earned premium assumed CAGR 0-10 years - Earned premium assumed CAGR >10 years - Required return before tax - Expected level of Combined ratio Sensitivity information Impact on equity from the following changes: CAGR +1.0 percentage point (0-10 years) CAGR -1.0 percentage point (0-10 years) Required return +1.0 percentage point Required return -1.0 percentage point Combined ratio +1.0 percentage point Combined ratio -1.0 percentage point 13% 3% 11% 83-91% 12% 3% 11% 79-91 % 6 -5 -35 48 -16 17 9 -9 -49 70 -18 18 Software and assets under construction As at 31 December 2015, 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 did not indicate any impairment. Assets under construction are not depreciated but tested once a year for impairment or when there is any indication of a decrease in value. Software with a limited useful life- time is amortised over 4 years using the straight-line method. Amortised software is assessed for impairment at the balance sheet date or when there are indications that the future cash flow cannot justify the carrying amount. In the event that the recoverable amount is lower than the carrying amount, the difference is recog- nised in the income statement. The recoverable amount is the higher of fair value less sales costs and value in use. A decline in the growth rate of more than 1% per cent will result in a write-down of the goodwill associated with Securator. We do not expect a decline in the growth rate due to an expected expansion of the Securator business to Norway and Sweden. Correction During a partial supervisory review the Danish Financial Supervisory Authority (DFSA) has found that the consolidated financial statements for 2014 for Tryg A/S were insufficient as these statements do not provide sufficient information on goodwill and the impairment test made for this purpose. It has no effect on profit for the year, total assets, liabilities or shareholders' equity in the 2014 Annual Report nor in the 2015 interim and annual reports. The lack of information required in accordance with IAS 36, Impairment of assets, covers all primary assumptions to which the calculation of the future cash flow is most sensitive, the method used to set these assumptions and information on the growth rate used in the terminal period. On the basis of the DFSA's partial supervisory review, Tryg has chosen to include the required information for 2015 and 2014 in the note on intangible asset, including goodwill, in the 2015 Annual Report. Trademarks and customer relations As at 31 December 2015, management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the Moderna 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. | Contents – Financial statements 70 NotesAnnual report 2015 | Tryg A/S | Notes 12 Property, plant and equipment DKKm 2015 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 Operating equipment Owner-occupied property Assets under construction 241 -2 0 0 -4 235 -144 1 -34 0 4 -173 62 237 -5 9 241 -115 2 -31 0 0 -144 97 1,711 -22 11 15 0 1,715 -558 -3 -14 4 0 -571 1,144 1,738 -29 2 1,711 -434 -5 -15 -106 2 -558 1,153 94 -2 -11 2 0 83 -83 2 0 0 0 -81 2 85 -2 11 94 -85 2 0 0 0 -83 11 2015 6.8 6.5 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 4m relating to the domicile in Bergen was subsequently included in other com- prehensive income (DKK 2m in 2014). The value of the domicile in Ballerup was not changed in 2015 (DKK -106m in 2014). The impairment test performed for operating equipment did not indicate any im- pairment. 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. Total 2,046 -26 0 17 -4 2,033 -785 0 -48 4 4 -825 1,208 2,060 -36 22 2,046 -634 -1 -46 -106 2 -785 1,261 2014 6.8 6.5 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 other comprehensive income Reversed depreciation Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December 2014 Cost Cost at 1 January Exchange rate adjustments Additions 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 Klausdalsbrovej 601, Ballerup Folke Bernadottesvei 50, Bergen Office property, weighted average | Contents – Financial statements 71 Annual report 2015 | Tryg A/S | 2015 2014 DKKm 2015 2014 DKKm 12 Property, plant and equipment (continued) Sensitivity Tryg’s property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above. Impacts on the fair value of properties Increase in applied rate of return of 0.25% Decrease in applied rate of return of 0.25% Decrease in net rental income of 3% Decrease in occupancy rate of 3% 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 2015 -41 45 -35 -8 1,828 -19 31 -17 8 7 1,838 2014 -46 42 -36 -8 1,831 -30 12 -7 23 -1 1,828 Total rental income for 2015 is DKK 120m (DKK 124m in 2014). Total expenses for 2015 are DKK 31m (DKK 30m in 2014). Of this amount, expenses for non-let property total DKK 0m (DKK 4m in 2014), total expenses for the income-generating investment property are DKK 31m (DKK 26m in 2014). 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. | Contents – Financial statements 13 Investment property (continued) The following return percentages were used for each property category: Return percentages, weighted average Business property Office property Residential property Total 7.0 6.5 6.0 6.5 7.0 6.5 6.0 6.5 Sensitivity Tryg’s property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above. Impacts on the fair value of properties Increase in applied rate of return of 0.25% Decrease in applied rate of return of 0.25% Decrease in net rental income of 3% Decrease in occupancy rate of 3% 14 Equity investments in associates Cost Cost at 1 January Cost at 31 December Revaluations at net asset value 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 Carrying amount at 31 December 2015 -77 82 -50 -9 201 201 24 -2 -32 -4 42 28 229 2014 -81 85 -61 -11 201 201 14 -1 0 -1 12 24 225 72 NotesAnnual report 2015 | 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 % 2015 Komplementarselskabet af 1. marts 2006 ApS, Denmark Ejendomsselskabet af 1. marts 2006 P/S, Denmark AS Eidsvåg Fabrikker, Norway 0 1,107 47 2014 Komplementarselskabet af 1. marts 2006 ApS, Denmark Ejendomsselskabet af 1. marts 2006 P/S, Denmark AS Eidsvåg Fabrikker, Norway 0 936 44 0 248 7 0 240 6 0 859 40 0 696 39 0 60 16 0 47 15 0 150 5 0 36 3 50 25 28 50 30 28 Individual estimates are made of the degree of influence under the contracts made. | Contents – Financial statements 73 Annual report 2015 | Tryg A/S | 2015 2014 DKKm 15 Financial assets (Continued) Fair value hierarchy for financial instruments measured at fair value in the statement of financial position 40,220 43,030 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 55 2,920 43,195 Financial assets at amortised cost only deviate to a minor extent from fair value. Financial liabilities Derivative financial instruments at fair value with value adjustments in the income statement Derivative financial instruments at fair value with value adjustments in other comprehensive income Financial liabilities at amortised cost with value adjustment in the income statement Total financial liabilities 598 14 8,127 8,739 142 2,167 45,339 799 0 7,121 7,920 2015 Equity investments Unit trust units Bonds Derivative financial instruments, assets Derivative financial instruments, debt 2014 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 3,589 18,254 0 0 21,843 0 3,884 22,259 667 0 0 26,810 0 0 17,450 843 -612 17,681 0 0 14,915 0 1,318 -799 15,434 138 0 1 0 0 139 128 0 1 0 0 0 129 Information on valuation of subordinate loan capital at fair value is stated in note 1. Other financial liabilities measured at amortised cost only deviate to a minor extent from fair value. Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: 2015 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 129 -1 3 11 -3 0 139 2 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 2015. 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 -417m (DKK -438m in 2014). | Contents – Financial statements 74 Total 138 3,589 35,705 843 -612 39,663 128 3,884 37,175 667 1,318 -799 42,373 2014 150 -4 -18 8 -8 1 129 -18 NotesAnnual report 2015 | 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 % 2015 2014 DKKm -153 -161 -297 -239 -14 -372 34 -95 -371 -239 -11 -399 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 2015 2014 Fair value in statement of financial position 283 0 -52 Nominal 27,415 47 8 Nominal 25,882 477 7,790 27,470 231 34,149 5,366 32,836 9,210 10,638 12,988 -417 -186 -56 -106 -24 3,221 37,370 16,592 11,121 9,657 Fair value in statement of financial position 434 0 85 519 -438 81 86 -70 65 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: 2015 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December 2014 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December Gains 2,152 344 2,496 Gains 1,787 365 2,152 Losses -2,162 -258 -2,420 Losses -1,988 -174 -2,162 Net -10 86 76 Net -201 191 -10 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 2015 23 -89 -66 2014 201 -178 23 | Contents – Financial statements 75 NotesAnnual report 2015 | Tryg A/S | 2015 2014 DKKm 2015 2014 DKKm 15 Financial assets (continued) Receivables Total receivables in connection with direct insurance contracts Receivables from insurance enterprises Unsettled transactions Reverse repos Other receivables Specification of write-downs on receivables from insurance contracts: Write-downs at 1 January Exchange rate adjustments Write-downs and reversed write-downs for the year Write-downs at 31 December 1,261 199 120 370 381 2,331 107 -3 12 116 1,232 208 0 0 222 1,662 112 -4 -1 107 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 53m (DKK 54m in 2014). Receivables in connection with insurance contracts include overdue receivables totalling: Falling due: Within 90 days After 90 days 116 135 Other receivables do not contain overdue receivables 16 Reinsurer's share Reinsurers' share Write-downs after impairment test 251 3,179 -3 3,176 164 122 286 1,958 -20 1,938 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 financial position as follows: Under assets, current tax Under liabilities, current tax -429 16 -495 -96 0 765 -239 118 -357 -239 -264 26 -632 -47 -24 512 -429 0 -429 -429 Net current tax 18 Equity Number of shares Number of shares of DKK 5 (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 2014 2015 289,120 -7,074 296,870 -8,963 Own shares 2015 9,358 7,074 2014 9,711 8,963 0 0 -8,919 -8,103 270 1,213 Number of shares at 31 December 282,316 289,120 Number of shares as a percentage of issued shares at 31 December Nominal value at 31 December (DKKm) 97.50 1,412 96.86 1,446 -270 7,243 2.50 36 -1,213 9,358 3.14 47 Impairment test As at 31 December 2015, management performed a test of the carrying amount of total reinsurers' share of provisions for insurance contracts and receivables. The impairment test resulted in impairment charges totalling DKK 3m (DKK 20m in 2014). Write-downs for the year include reversed write-downs totalling DKK 30m (DKK 0m in 2014). There is no overdue reinsurers' share other than the share already provided for. In May 2015 each share with a nominal value of DKK 25 was replaced by five new shares with a nominal value of DKK 5. The share split did not change the Group's share capital. Comparative figures have been restated to reflect the change in trading unit. Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 25 March 2020. Own shares are acquired for use in the Group's incentive programme and as part of the share buyback programme. | Contents – Financial statements 76 NotesAnnual report 2015 | Tryg A/S | 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 2015 2014 DKKm 19 9,831 -1,013 -3,868 4,950 1,707 -3,868 2,789 11,119 -1,731 -2,353 7,035 1,496 -2,353 6,178 2,571 7,122 Solvency ratio (Solvency I – ratio between capital base and weighted assets) 108 87 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 Adjustment regarding Norwegian Group life beginning of year 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) 5,724 -124 -53 17,311 -17,416 -13 5,429 142 5,571 6,176 0 -202 17,692 -17,951 9 5,724 86 5,810 a) Comprises premium provisions for Tryg Garantiforsikring A/S and Securator A/S. Gross Ceded Net of reinsurance Claims provisions 2015 Claims provisions at 1 January Adjustment regarding Norwegian Group life beginning of year Value adjustments of provisions, beginning of year 24,601 124 -464 24,261 Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years -6,676 -6,011 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) 2014 Claims provisions at 1 January Value adjustments of provisions, beginning of year -12,687 14,606 -1,232 13,374 124 25,072 355 25,427 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 adjustment Claims provisions at 31 December Other a) -13,132 12,835 -638 12,197 1,104 24,601 671 25,272 a) Comprises claims provisions for Tryg Garantiforsikring A/S. -1,272 23,329 0 32 -1,240 37 414 451 -2,021 15 -2,006 -57 -2,852 -151 -3,003 -1,780 58 -1,722 90 1,143 1,233 -251 -481 -732 -51 -1,272 -447 -1,719 124 -432 23,021 -6,639 -5,597 -12,236 12,585 -1,217 11,368 67 22,220 204 22,424 23,491 -781 22,710 -6,125 -5,774 -11,899 12,584 -1,119 11,465 1,053 23,329 224 23,553 | Contents – Financial statements 77 NotesAnnual report 2015 | Tryg A/S | DKKm 2015 2014 DKKm 2015 2014 20 Pensions and similar obligations Jubilees Recognised liability 50 50 Defined-benefit pension plans: Present value of pension obligations funded through operations 62 Present value of pension obligations funded through establishment of funds 1,130 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 1,192 978 214 1,290 -10 -74 35 29 -23 -55 1,192 1,010 -58 91 25 -49 -41 978 214 264 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 Number of pensioners Average expected remaining service time (years) 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 62 62 63 1,227 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 31 30 -26 5 0 40 53 595 586 7.81 % 10 73 15 2 2.6 18 1.9 1.9 2.5 0.0 2.3 7.0 14.1 K2013 38 39 -33 6 -421 -371 53 714 575 8.09 % 10 73 15 2 2.7 18 2.1 2.1 3.3 0.1 3.0 7.0 14.1 K2013 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. | Contents – Financial statements 78 NotesAnnual report 2015 | Tryg A/S | DKKm 20 2015 2014 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. 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 percentage point Turnover, decrease of 2 percentage point 46 -49 -99 83 25 -29 27 -30 -55 45 49 -61 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 contributions 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. 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 businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules. The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30. This years premium paid to FPK amounted to DKK 18m, which is about 4 % of the annual premium in FPK (2014). FPK writes in its interim report for 2015 that it had a collective consolidation ratio of 114 at 30 June 2015 (consolidation ratio of 110 at 30 June 2014). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations. | Contents – Financial statements 79 NotesAnnual report 2015 | Tryg A/S | 2015 2014 DKKm 2015 2014 DKKm 21 Deferred tax Tax asset Operating equipment Debt and provisions Capitalised tax loss Tax liability Intangible rights Land and buildings Bonds Contingency funds Deferred tax Unaccrued timing differences of statement of financial position items Development in deferred tax Deferred tax at 1 January Exchange rate adjustments Change in deferred tax relating to change in tax rate Change in deferred tax previous years Change in capitalised tax loss Change in deferred tax taken to the income statement Change in valuation of tax asset Change in deferred tax taken to equity Deferred tax at 31 December Tax value of non-capitalised tax loss Denmark Sweden 8 35 1 44 77 96 -40 612 745 701 20 1,022 -116 13 0 0 -58 -128 -32 701 16 0 11 60 1 72 77 229 3 785 1,094 1,022 146 1,057 -62 -6 -16 6 22 24 -3 1,022 18 2 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 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 32m (DKK14m at 31 December 2014). | Contents – Financial statements 22 Other provisions Other provisions at 1 January Change in provisions Other provisions 31 December 83 49 132 73 10 83 Other provisions relate to provisions for the Group’s own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 120m and reas- sessment of the beginning of year balance amounts to DKK -69m. The balance as at 31 December 2015 amounts to DKK 130m (DKK79m at 31 December 2014). 23 Amounts owed to credit institutions Overdraft facilities 24 Debt relating to unsettled funds transactions and repos Unsettled fund transactions Repo debt Unsettled fund transactions include debt for bonds purchased in 2014 and 2015; however, with settlement in 2015 and 2016, 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 64 64 290 3,784 4,074 1,932 49 1,981 285,073 28 285,101 6.77 6.77 6.95 6.95 0.18 0.18 116 116 885 2,017 2,902 2,547 10 2,557 292,521 267 292,788 8.70 8.70 8.74 8.73 0.04 0.03 80 NotesAnnual report 2015 | Tryg A/S | DKKm DKKm 2015 2014 26 Contractual obligations, collateral and contingent liabilities Contractual obligations 2015 <1 year 1-3 years 3-5 years > 5 years Total Obligations due by period Operating leases Other contractual obligations 2014 Operating leases Other contractual obligations 66 282 348 62 410 472 110 103 213 101 83 184 76 0 76 71 0 71 56 0 56 67 0 67 308 385 693 301 493 794 In august 2015 Tryg and Skandia have signed an agreement whereby Tryg will acquire Skandia’s activities within child and adult accident insurance and integrate them into its Swedish business, Moderna Forsäkringar. The transaction is subject to regulatory approvals and the parties expect it to be completed in second half 2016. Hereafter Tryg will take over the control of the portfolios. The acquisition has no effect on the financial statement for 2015. Tryg has signed the following contracts with amounts above DKK 50m: Outsourcing agreement with TCS for DKK 156m for a 4 year period, which expires in 2017. Lease contracts on premises for DKK 265m. The contracts expire after 5 years. 26 Contractual obligations, collateral and contingent liabilities (continued) Collateral The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on inter- est, 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 14 138 3,589 32,121 0 0 281 2,706 Total 38,849 15 128 3,884 34,273 667 439 337 1,730 41,473 | Contents – Financial statements 81 NotesAnnual report 2015 | Tryg A/S | D 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 2015 Assets Reverse repos Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 2014 Assets Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 370 843 1,213 3,784 612 417 4,813 1,318 1,318 2,017 799 438 3,254 0 0 0 0 0 0 0 0 0 0 0 0 0 370 843 1,213 3,784 612 417 4,813 1,318 1,318 2,017 799 438 3,254 -370 0 -370 -3,784 0 0 -3,784 0 0 -2,017 0 0 -2,017 0 -940 -940 -1 -641 -421 -1,063 -1,324 -1,324 -1 -767 -448 -1,216 0 -97 -97 -1 -29 -4 -34 -6 -6 -1 32 -10 21 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 these disputes will not affect the Group's financial position significantly beyond the obligations recognized in the statement of financial position at 31 December 2015. | Contents – Financial statements 82 Annual report 2015 | Tryg A/S | DKKm 27 2015 DKKm 2015 2014 Acquisition of subsidiaries 2015 In august 2015 Tryg and Skandia have signed an agreement whereby Tryg will acquire Skandia’s activities within child and adult accident insurance. See note 26 for further information. 2014 In 2014 the Tryg Group has taken control of Securator A/S and 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 portfolio and distribution chan- nels. 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. Net assets acquired Intangible assets Equipment Receivables, other assets and accrued income Provisions for insurance contracts Debt and accruals and deferred income Net assets acquired Goodwill Purchase price hereof cash Purchase price in cash 2014 0 1 65 -37 -40 -11 188 177 14 163 The Group has not incurred any significant acquisition costs in connection with the acquisition. The purchase price is final. In connection with the acquisitions, a sum was paid which exceeds the fair value of the identifiable acquired assets, liabilities and contingent liabilities. This positive balance is mainly attributable to expected 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 identi- fiable. Goodwill is not expected 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 fig- ures 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. | Contents – 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 members’ 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 1.9 0.1 0.0 0.5 0.3 0.3 2.5 0.1 0.1 0.3 83 NotesAnnual report 2015 | Tryg A/S | DKKm 28 DKKm 28 Related parties (continued) Specification of remuneration 2015 Supervisory Board Executive Management Risk-takers a) Exclusive of severance pay Of which retired: Supervisory Board Risk-takers Number of persons Basis salary Variable salary Pension Total a) 13 3 8 24 6 21 19 46 0 2 1 3 0 5 5 10 6 28 25 59 Number of persons Severance pay 1 3 4 0 14 14 The maximum amount paid in severance pay to an individual is DKK 7m. 2014 Supervisory Board Executive Management Risk-takers a) Exclusive of severance pay Of which retired: Risk-takers 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 Severance pay 2 2 0 0 There has not been paid any severance pay of more than DKK 1m. Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 4 years and share options, which are recognised over 3 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. 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 remuneration 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 Danish 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 2015 0 2014 1 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 40. | Contents – Financial statements 84 NotesAnnual report 2015 | 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 December 2015 and in accordance with the Danish Statutory Order on Adoption of IFRS. The annual report of the parent company is prepared in accordance with the executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement requirements of IFRS are: • The Danish FSA’s executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the other comprehensive income of the parent company have been adjusted accordingly on the transition to IFRS. The accounting policies have been applied consistently with last year. Correction During a partial supervisory review the Danish Financial Supervisory Authority (DFSA) has found that the con- solidated financial statements for 2014 for Tryg A/S were insufficient as these statements do not provide sufficient information on goodwill and the impairment test made for this purpose. It has no effect on profit for the year, total assets, liabilities or shareholders' equity in the 2014 Annual Report nor in the 2015 interim and annual reports. The lack of information required in accordance with IAS 36, Impairment of assets, covers all primary as- sumptions to which the calculation of the future cash flow is most sensitive, the method used to set these assumptions and information on the growth rate used in the terminal period. On the basis of the DFSA's partial supervisory review, Tryg has chosen to include the required information for 2015 and 2014 in the note on intangible asset, including goodwill, in the 2015 Annual Report. The new executive order will only have effect on recognition and measurement in the Group’s financial reporting in the following area. Accounting regulation Implementation of changes to accounting standards and interpretation in 2015 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 implemented for the first time for the accounting year that began on 1st January 2015 that will have a significant impact on the group. Claims provisions The executive order prescribes a change from applying a yield curve issued by the Danish Financial Supervisory Authority to applying a new yield curve published by EIOPA – the new yield curve is expected to be at a lower level. The change will amount to approx. DKK 240m. It is Tryg’s assessment that the amendments to the Executive Order from 2016 can be accommodated within IFRS, therefore it is not expected that there are any major differences between the Parent Company and the consolidated financial statements as a result of the new accounting regulation. There has not been implemented any new or amended standards and interpretations that have affected the group significantly. Changes to accounting estimates There have been no changes to the accounting estimates in 2015. Future orders, standards and interpretations that the group has not implemented and which have still not entered into force but could effect the group significantly: • • • Executive order on financial reports presented by insurance companies and lateral pension funds is- sued by the Danish FSA1) IFRS 15 ‘Revenue from Contracts with Customers’2) IFRS 9 ‘Financial Instruments’2) 1) enters into force for the accounting year commencing 1 January 2016. 2) enters into force for the accounting year commencing 1 January 2018 or later. The changes will be implemented going forward from the effective date Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and 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. 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 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 rela- tive 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 motor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accident, in particular. | Contents – Financial statements 85 NotesAnnual report 2015 | Tryg A/S | The Financial Supervisory Authority’s adjusted discount curve, which is based on euro swap rates, national spreads and Danish swap rates, and also an option-adjusted mortgage interest rate spread, is used to discount Danish claims provisions. The Norwegian and Swedish provisions are discounted based on euro swap rates, to which a country-specific interest rate spread is added that reflects the difference between Norwegian and Swedish government bonds and the interest rate on German government bonds. Finnish provisions are discounted using the Danish discount curve. Several assumptions and estimates underlying the calculation of the claims provisions are mutually d ependent. 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 service 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 observ- able market data are not subject to material esti- mates. For securities that are not listed on a stock ex- change, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model cal- culation. The valuation models include the discount- ing of the instrument cash flow using an appropriate market interest rate with due consideration for credit and liquidity premiums. Valuation of property Property is divided into owner-occupied property and investment property. Owner-occupied property is as- sessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a de- duction for depreciation and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating expenses in pro- portion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, loca- tion and maintenance standard, and based on a mar- ket- 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. ognised in other comprehensive income, and revalua- tion of investment property, financial assets held for trading and financial assets and financial liabilities (in- cluding derivative instruments) at fair value in the in- come statement. 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 can be measured reliably. Liabilities are recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the Group, and the value of such liabilities can be measured reliably. On initial recognition, assets and liabilities are 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 in- come statement unless otherwise described below. All amounts in the notes are shown in millions of DKK, unless otherwise stated. Description of accounting policies Consolidation Recognition and measurement The annual report has been prepared under the his- torical cost convention, as modified by the revaluation of owner-occupied property, where increases are rec- Consolidated financial statements The consolidated financial statements comprise the fi- nancial 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. 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 statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group’s account- ing policies. 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. | Contents – Financial statements 86 NotesAnnual report 2015 | Tryg A/S | 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 recog- nised in the pre-acquisition balance sheet only if they constitute an obligation for the acquired enterprise. 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. 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. 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 supports the management decisions on allocation of resources and assessment of the Group’s results di- vided into segments. The operational business segments in the Tryg are Pri- vate, Commercial, Corporate and Sweden. Private en- compasses the sale of insurances to private individu- als in Denmark and Norway. Commercial encompasses the sale of insurances to small and me- dium sized businesses, in Denmark and Norway. Cor- porate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corpo- rate handles all business involving brokers. Sweden encompasses the sale of insurance products to pri- vate 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 2015 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. Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium provisions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the premium provisions. Premiums are calculated as premium income in 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. | Contents – Financial statements 87 NotesAnnual report 2015 | Tryg A/S | 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. 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 effect 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. Ad- ministration expenses are all other expenses attribut- able to the administration of the insurance portfolio. Administration expenses are accrued to match the fi- nancial year. 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. 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 share option programme was closed in 2012 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 allocation until vesting. The balancing item is recognised directly 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. 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 reserved for set- tlement of the options allocated. The fair value of the options granted is estimated using the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted. 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 be- tween receiving shares or cash. The expected value of the shares will be expensed over the vesting period. The scheme will be treated as a complex 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 eq- uity 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, the individual management member or risk takers is allo- cated one share in Tryg A/S for each share the Execu- tive management member or risk taker acquires in Tryg A/S at the market rate for certain liquid cash at a con- tractually agreed sum in connection with the Match- ing share programme. The holder acquires the shares in the open window following publication of the annual report for the 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 instruments, value adjustment of investment property, foreign cur- rency translation adjustments and the effect of move- ments in the yield curve used for discounting, are rec- ognised as price adjustments. Investment management charges represent expenses relating to the management of investments including salary and management fees on the investment area. | Contents – Financial statements 88 NotesAnnual report 2015 | Tryg A/S | 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. Discontinued business also comprises the Tryg For- sikring 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 al- located 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 cer- tainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are 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. 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 accu- mulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when such assets are ready to be brought into use. Depreciation of operating equipment is calculated using the straight-line method over its estimated economic lifetime as follows: • IT, 4 – 8 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. 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 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 de- preciation and impairment losses. Revaluations are 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 typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, cor- responding 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. | Contents – Financial statements 89 NotesAnnual report 2015 | Tryg A/S | Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. based on business plans. The business plans are based on past experience and expected market devel- opments. Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any dif- ferences in the nature, location or maintenance con- dition of specific assets. If this information is not avail- able, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market. The fair value is calculated on the basis of market- specific rental 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 often if there are indications of impairment, and im- pairment testing is performed for each cash-generat- ing unit to which the asset belongs. The present value is normally established using budgeted cash flows 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. 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. 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. | Contents – Financial statements 90 NotesAnnual report 2015 | Tryg A/S | 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. 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 con- tracts Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provi- sions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as assets and reported as reinsurers’ share of provisions for in- surance contracts. Amounts receivable from reinsurers are measured consistently with the amounts associated with the re- insured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in insur- ance technical interest. Changes due to changes in the yield curve or foreign exchange rates are recog- nised as price adjustments. The Group continuously assesses its reinsurance as- sets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its re- coverable amount. Impairment losses are recognised in the income statement. 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. Receivables that arise as a result of insurance con- tracts are classified in this category and are reviewed for impairment as a part of the impairment test of ac- counts receivable. Receivables are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when there is a clear indication of 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. tax on the Norwegian and Swedish contingency fund reserves is allocated. Prepayments and accrued income Prepayments include expenses paid in respect of sub- sequent financial years and interest receivable. Accrued underwriting commission relating to the sale of insur- ance products is also included. Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration). Equity Share capital Shares are classified as equity when there is no obliga- tion to transfer cash or other assets. Costs directly at- tributable 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 revaluation 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 recognised in Other comprehensive income. When an entity is wound up, the balance is transferred to the income statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive in- come in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of re- tained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Super- visory Authority and when it is for the benefit of the pol- icyholders. The Norwegian contingency fund reserves include provisions for the Norwegian Natural Perils Pool and security reserve. The Danish and Swedish pro- visions comprise contingency fund provisions. Deferred 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 programme. 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 transaction 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. | Contents – Financial statements 91 NotesAnnual report 2015 | Tryg A/S | 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. rep- resent amounts expected to be paid to policyholders in view of the claims experience during the financial year. Claims provisions are determined for each line of business based on 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 infla- tion assumptions are used, with annuities for the in- sured being indexed based on the workers’ compensa- tion index. An inflation curve that reflects the market’s inflation expectations plus a real wage spread is used as an approximation to the workers’ compensation index. For other lines of business, the inflation assumptions, because present only implicitly in the actuarial 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. 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- | Contents – Financial statements 92 NotesAnnual report 2015 | Tryg A/S | 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 deferred income tax liability is settled. Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxable profit will be realised against which the temporary differences can be offset. Deferred income tax is provided on temporary differences concerning investments, except where Tryg controls when the temporary difference will be realised, and it is probable that the temporary differ- ence will not be realised in the foreseeable future. Other provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the best estimate by management of the expenditure required to settle the present 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 according to the same principle as the Group’s other claims provisions. Debt Debt comprises debt in connection with direct insurance and reinsurance, amounts owed to credit institutions, current tax obligations and other debt. Derivative financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are assessed at amor- tised cost based on the effective interest method. Cash flow statement The consolidated cash flow statement is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the Group’s cash and cash equivalents at the begin- ning and end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement. Cash flows from operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed. Cash flows from investing activities comprise payments in connection with the purchase and sale of intangible assets, property, plant and equipment as well as financial assets and deposits with credit institutions. Cash flows from financing activities comprise changes in the size or composition of Tryg’s share capital and related costs as well as the raising of loans, repayments of interest-bearing debt and the payment of dividends. Cash and cash equivalents comprise cash and demand deposits. | Contents – Financial statements 93 NotesAnnual report 2015 | 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 2,044 1 -7 2,038 -75 2,600 0 -7 2,593 -51 Profit/loss before tax 1,963 2,542 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 earnings 18 1,981 1,981 1,759 -1,656 1,878 1,981 15 2,557 2,557 1,731 143 683 2,557 2015 2014 DKKm 2015 2014 Note Statement of comprehensive income Profit/loss for the year Other comprehensive income 1,981 2,557 Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions Change in taxes on security 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 21 141 4 2 -12 3 159 -89 86 -21 -24 135 26 0 2 0 -46 12 -6 -178 191 -47 -34 -40 Comprehensive income 2,116 2,517 | Contents – Financial statements 94 Annual report 2015 | Tryg A/S | Statement of financial position for Tryg A/S (parent company) DKKm 2015 2014 Note 4 Assets Equity investments in Group undertakings Total investments in Group undertakings 10,322 10,322 11,843 11,843 Total investment assets 10,322 11,843 5 Current tax assets Cash at bank and in hand Total other assets 18 1 19 14 0 14 Total assets 10,341 11,857 Equity and liabilities Equity Debt to Group undertakings Other debt Total debt 9,846 11,134 487 8 495 718 5 723 Total equity and liabilities 10,341 11,857 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 | Contents – Financial statements 95 Annual report 2015 | Tryg A/S | Statement of changes in equity (parent company) DKKm Equity at 31 December 2014 2015 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 2015 Equity at 31 December 2015 Share capital Revaluation reserves Retained earnings Proposed dividend Total 1,492 4,856 3,055 1,731 11,134 -1,656 135 -1,521 0 -44 -44 1,448 -1,521 3,335 1,878 1,759 1,878 44 97 -1,044 13 2 5 995 4,050 1,759 -2,477 -718 1,013 1,981 135 2,116 0 -2,477 97 -1,044 13 2 5 -1,288 9,846 Dividend per share in 2015 includes dividend paid out in July of DKK 2.50 and proposed dividend of DKK 3.50, totalling DKK 6.00 (DKK 5.80 in 2014 ). Proposed dividend per share of DKK 3.50 is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (289,559,550 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 2,516m (DKK 2,622m in 2014) 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 2013 1,533 4,753 3,180 1,656 11,122 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 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 | Contents – Financial statements 96 Annual report 2015 | Tryg A/S | Notes DKKm 1 Income from Group undertakings Tryg Forsikring A/S 2 Other expenses Administration expenses 2,044 2,044 -75 -75 2,600 2,600 -51 -51 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 15 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 19 -1 18 % 23.5 -1.0 22.5 13 14 1 15 % 24.5 0.5 25.0 2015 2014 DKKm 2015 2014 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 4,856 2,179 -3,700 3,335 6,987 6,987 4,753 1,759 -1,656 4,856 Carrying amount at 31 December 10,322 11,843 Name and registered office Ownership share in % Equity 2015 Tryg Forsikring A/S, Ballerup 2014 Tryg Forsikring A/S, Ballerup 5 Current tax assets Tax receivable at 1 January Current tax for the year Tax paid for the year Tax receivable at 31 December 100 10,322 100 11,843 14 18 -14 18 14 14 -14 14 | Contents – Financial statements 97 Annual report 2015 | 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. 2015 2014 DKKm 2015 2014 0 16 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 disputes in Denmark, Norway and Sweden. Management believes that the outcome of these disputes 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 2015. 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 9,846 -1,013 -3,868 4,965 1,707 -3,868 2,804 11,134 -1,731 -2,353 7,050 1,496 -2,353 6,193 2,586 7,137 9 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Management and their members’ related family. Related parties are the same as for the Tryg Group; please see Note 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 -13 -487 -15 -718 Solvency ratio (Solvency I – ratio between capital base and weighted assets) 108 87 Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. | Contents – Financial statements 98 Annual report 2015 | Tryg A/S | Notes DKKm 10 2015 2014 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 Profit/loss – Danish FSA executive order Reconciliation of equity Equity – IFRS Deferred tax provisions for contingency funds Equity – Danish FSA executive order 11 Accounting policies Please refer to Tryg Group's accounting policies. 1,981 1,981 9,831 15 9,846 2,557 2,557 11,119 15 11,134 | Contents – Financial statements 99 Annual report 2015 | Tryg A/S | Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 A further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables 2,172 285 2,211 398 2,226 434 2,194 181 2,249 400 2,289 445 2,275 494 2,238 273 2,290 286 Q4 2015 | Quarterly outline DKKm Private 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 106.2 71.3 2.3 73.6 13.4 87.0 89.3 970 147 62.3 5.5 67.8 17.2 85.0 91.3 949 5 69.2 20.5 89.7 9.7 99.4 65.1 2.3 67.4 14.7 82.1 86.5 1,022 136 77.1 -6.8 70.3 16.6 86.9 98.6 984 195 99.9 -30.1 69.8 10.6 80.4 98.1 63.3 2.1 65.4 15.3 80.7 83.7 997 220 55.7 5.2 60.9 17.2 78.1 84.5 993 99 170.5 -91.2 79.3 11.0 90.3 94.5 76.5 0.0 76.5 15.3 91.8 96.8 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 1,003 155 1,050 270 1,045 188 1,053 224 1,042 193 1,080 157 66.3 0.9 67.2 17.4 84.6 98.9 968 70 67.6 13.4 81.0 11.9 92.9 55.2 3.7 58.9 15.6 74.5 86.5 1,015 98 67.2 12.6 79.8 10.6 90.4 100.1 106.4 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 | Contents – Financial statements 100 Annual report 2015 | Tryg A/S | Q4 2015 | 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 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014 Q4 2013 313 85 51.8 0.3 52.1 21.1 73.2 94.3 -11 0 373 38 73.2 0.5 73.7 15.8 89.5 92.4 -7 -120 342 72 61.1 0.0 61.1 17.8 78.9 93.2 -8 0 289 23 72.0 -0.7 71.3 20.8 92.1 100.1 -3 0 338 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 4,393 4,583 4,550 4,451 4,646 4,712 522 201 -19 704 721 68.0 6.2 74.2 14.2 88.4 93.9 647 -383 -20 244 580 76.6 -6.8 69.8 16.3 86.1 94.9 825 -84 -27 714 525 84.8 -17.8 67.0 15.2 82.2 87.1 429 261 -25 665 640 72.0 3.1 75.1 15.6 90.7 98.5 775 13 -20 768 593 64.1 4.7 68.8 14.9 83.7 91.0 793 -1 -10 782 869 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 1,150 455 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 4,583 4,737 523 89 -10 602 565 71.7 1.6 73.3 15.9 89.2 96.5 546 154 -61 639 74.9 -1.2 73.7 15.4 89.1 94.3 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 further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables | Contents – Financial statements 101 Annual report 2015 | Tryg A/S | Q4 2015 | Geographical segments Q4 2015 2,330 289 116 65.2 9.3 74.5 13.1 87.6 1,611 124 44 74.4 4.3 78.7 13.8 92.5 463 109 81 54.6 3.0 57.6 19.0 76.6 DKKm Danish general insurance a) Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Number of full-time employees 31 Dec. 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. | Contents – Financial statements Q4 2014 2,346 651 262 52.1 7.9 60.0 12.4 72.4 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 9,346 1,371 512 80.5 -9.2 71.3 13.9 85.2 1,859 6,766 844 492 70.9 2.1 73.0 14.9 87.9 1,113 1,894 328 208 63.5 1.7 65.2 17.5 82.7 387 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 2015 2014 DKKm Other b) Gross premium income Technical result Tryg Q4 2015 -11 0 Q4 2014 -6 0 2015 2014 -29 -120 -21 0 Gross premium income 4,393 4,646 17,977 18,652 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 522 201 -19 704 241 68.0 6.2 74.2 14.2 88.4 775 13 -20 768 338 64.1 4.7 68.8 14.9 83.7 2,423 -5 -91 2,327 1,212 75.4 -3.9 71.5 15.3 86.8 Number of full-time employees, continuing business at 31 Dec. Number of full-time employees, discontinued and divested business at 31 Dec. 3,359 0 3,032 360 -90 3,302 1,131 67.8 1.8 69.6 14.6 84.2 3,599 0 a) b) Includes Danish general insurance and Finnish guarantee insurance. Amounts relating to eliminations. In 2015 also restructuring expenses are included under 'Other'. In 2014 the costs were positively affected by a one-time effect regarding changed pension terms in Norway and they were negatively affected by a provision in connection with the transfer to the new it-supplier. The joint effect was approx DKK 135m. In 2015 costs and claims were negatively effected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. c) Adjustment of gross expense ratio included only in 'Tryg '. The adjustment is explained in a footnote to Financial highlights. 102 Annual report 2015 | Tryg A/S | Other key figures 2015 2014 2013 2012 2011 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) 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 70.1 15.8 85.9 15.6 13.5 14.4 0.1 0.1 22.2 18.4 5,691 25,350 2,557 31.0 141.4 172.4 3,359 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 0 0 0 189 6.95 6.95 6.77 282,316 285,073 285,101 137.40 34.82 4.0 6.00 20.3 8.74 8.73 8.70 289,120 292,521 292,788 137.80 38.46 3.6 5.80 15.8 7.88 7.86 7.89 296,870 300,777 301,295 104.90 37.41 2.8 5.40 13.3 7.30 7.27 7.21 303,474 302,455 303,571 85.30 36.18 2.4 5.20 11.8 75.7 17.0 92.7 16.9 7.9 8.3 0.9 0.9 18.4 13.1 6,876 25,894 1,828 34.8 134.9 169.7 4,076 242 3.77 3.77 3.80 301,866 302,003 302,003 63.80 29.84 2.1 1.30 16.8 In May 2015 each share with a nominal value of DKK 25 was replaced by five new shares with a nominal value of DKK 5. The share split did not change the Group's share capital. Comparative figures have been restated to reflect the change in trading unit. The expense ratio, net without adjustment, is calculated as the ratio of actual insurance operating costs, net of reinsurance to premium income, net of reinsurance. Other key ratios are calculated in accordance with ''Recommendations & Financial Ratios 2015'' issued by the Danish Society of Financial Analysts. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Society of Financial Analysts’ definitions of expence ratio and combined ratio, involves the addition of a calculated cost (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. | Contents – Financial statements 103 Annual report 2015 | Tryg A/S | Group chart Tryg A/S (Denmark) Tryg Forsikring A/S (Denmark) Tryg Garanti- forsikring A/S (Denmark) Moderna Försäkringar (Branch Sweden) Tryg Forsikring incl. Enter (Branch Norway) A/S af 7. juli 2015 (Denmark) Vesta Eiendom AS (Norway) Tryg Ejendomme A/S (Denmark) Optimal Djurförsäkring i Norr AB (Sweden) Respons Inkasso AS (Norway) Tryg Garanti (Branch Norway) Moderna Garanti (Branch Sweden) Tryg Garanti (Branch Finland) Komplementar- selskabet af 1. marts 2006 ApS (50%) Thunesvei 2 AS (Norway) ANS Grensen 3 (99%) (Norway) Group chart at 1 January 2016. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated. Company Branch | Contents – Management’s review 104 Annual report 2015 | 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 2015’ 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 | Contents – 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 comes into force at 1 January 2016. 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. 105 Annual report 2015 | 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 14% of total premium income and covers the loss of or damage to the buildings, stock or equipment of commercial customers. Moreover, Tryg provides cover for operating losses in connection with covered claims. In Denmark, motor insurance taken out by concept customers includes Tryg’s roadside assistance, such as towing and battery jump-start. 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. | Contents – Management’s review 106 Annual report 2015 | 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 46, 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. | Contents – Management’s review 107 Annual report 2015 | Tryg A/S | 

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