Tryg
Annual Report 2016

Plain-text annual report

Annual report 2016 Contents – Management’s review MANAGEMENT’S REVIEW 17 Commercial 35 Executive Board 3 Income overview 19 Corporate 36 Corporate Social Responsibility in Tryg 4 Introduction by Chairman and CEO 21 Sweden 5 Events in 2016 23 Investment activities FINANCIAL STATEMENTS 6 Targets and strategy 25 Capital and risk management 39 Financial statements 9 Financial targets and outlook 27 Shareholder information 109 Group chart 10 Tryg’s results 15 Private 29 Corporate governance 110 Glossary 33 Supervisory Board 111 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 offer a broad range of insurance products to both private individuals and businesses. Our 3,300 employees provide peace of mind for more than 3 million customers and handle approximately 950,000 claims annually. Our ambition is to become the world’s best insurance company. Editor Investor Relations | Publication 20 January 2017 | Layout amo design | Proofreading TextMinded Annual report 2016 | 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 (%) a) Number of shares 31 December (1,000) Earnings per share (DKK) Net asset value per share (DKK) Ordinary dividend per share (DKK) Proposed extraordinary 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 2016 Q4 2015 4,504 -3,245 -802 457 -140 -3 314 598 -112 800 -240 560 0 560 301 4,393 -2,988 -615 790 -272 4 522 242 -19 745 3 748 6 754 241 9,437 24.1 274,595 2.03 9,644 32.0 282,316 2.64 1.7 72.0 3.1 75.1 18.0 93.1 -6.7 4.4 2.6 83.6 82.8 99.1 92.9 -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 2016 17,707 -11,619 -2,737 3,351 -951 -10 2,390 987 -157 3,220 -748 2,472 -1 2,471 1,239 9,437 26.2 274,595 8.84 34.37 6.20 b) 3.54 0.1 65.6 5.4 71.0 15.7 86.7 -7.0 2.2 2.0 83.8 82.1 88.8 90.7 2015 17,977 -13,562 -2,720 1,695 710 18 2,423 -22 -91 2,310 -390 1,920 49 1,969 1,212 9,644 20.0 282,316 6.91 34.16 6.00 -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 23.7 289,120 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 21.8 296,870 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 22.3 303,474 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) From 1 January 2016, Tryg has implemented Executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA, which prescribes applying a new yield curve and a new way of calculating Return on equity after tax (%). Comparative figures have been restated accordingly. Please refer to details of the new yield curve in note 31 Accounting policies. b) Ordinary dividend per share in 2016 includes dividend paid out in July of DKK 2.60 and proposed ordinary dividend of DKK 3.60. | Contents – Management’s review 3 Annual report 2016 | Tryg A/S | Customer focus 2016 was characterised by many initiatives with a focus Efficient operations and risk management on customers. To accelerate decision-making processes for Tryg continues to work concertedly to reduce costs and to the benefit of customers, our organisational structure was negotiate favourable agreements for the procurement of changed with more responsibilities and decision-making claims services, ensuring that Tryg operates as efficiently as powers being delegated to the management teams in the possible for the benefit of customers and shareholders. Risk individual countries early in the year. This has, among other management is in many ways key to running an insurance things, resulted in the establishment by the Private organ- business – covering everything from the overall risk manage- isations in both Denmark and Norway of a front-office func- ment of Tryg as a company to the pricing of our products. tion, which ensures that customers are met by employees who can process claims, provide advisory services and effect 2016 was the first year with the Solvency II rules, and sales. In summer 2016, our Danish customers received the according to these rules Tryg has a solid capital base. This first member’s bonus payout by TryghedsGruppen, amount- creates peace of mind for customers and supports Tryg’s ing to 8% of total premiums for 2015. Tryg is continuously dividend policy. following up on customer satisfaction as reflected in our Net Promoter Score (NPS), and we are pleased with our Stable and increasing dividends for shareholders 2016 NPS score of 22, which already meets our target Being a shareholder in Tryg must be attractive, and we attach of 22 for 2017. Tryg also measures NPS immediately after importance to distributing stable and increasing dividends customers have been in touch with Tryg, and our NPS to shareholders in accordance with Tryg’s dividend policy. score here was 49. Good results in 2016 The Supervisory Board therefore proposes a dividend of DKK 3.60 per share for the second half of 2016, resulting in a total payout of DKK 6.20 per share in 2016. Based on We posted a profit of DKK 2,471, which was an improve- our good results and solid capital position, the Supervisory ment compared to 2015. The results were achieved Board has decided to propose that an extraordinary dividend through customer focus, improved products and further of DKK 1,000m for 2016 be paid in 2017 concurrently with optimisation of operations. the introduction of quarterly dividend payments. New products World-class employees Tryg has a strong focus on developing and marketing new The good results, the many new initiatives and the high products. New products have been launched in areas with customer satisfaction scores have only been possible growth potential, such as children and pets. Commercial and through the committed efforts of Tryg’s employees, and Corporate launched a new cyber insurance product to meet both the Supervisory Board and the Executive Board businesses’ new insurance need. As a source of inspiration would like to thank them for their hard work. for future insurance solutions, Tryg has rented out an area at our head office in Denmark to smaller start-up enterprises focusing on innovation. Tryg has in recent years focused strongly on developing existing products to better meet customer needs and to ensure more risk-based pricing. In 2016, the majority of our customers had the most up-to-date Jørgen Huno Rasmussen Morten Hübbe products as more than 500,000 policies were updated. Chairman Group CEO | Contents – Management’s review Annual report 2016 | Tryg A/S | 4 4 Annual report 2016 | Tryg A/S | Events in 2016 New bond issue Tryg Forsikring A/S took out a Solvency II-compliant Tier 2 subordinated call- able bond issue of SEK 1bn (approx. DKK 800m) in the Swedish market. New online claims reporting Tryg launched new improved digital claims reporting solu- tion, enabling customers to report claims on tablets and smartphones. New CFO appointed Christian Baltzer was ap- pointed Group CFO, taking up his new position on 15 April 2016. Acquisition completed Tryg obtained approval from the authorities, hence the acquisition of Skandia’s child insurance portfolio was final- ised on 1 September 2016. The portfolio was integrated into Tryg’s Swedish business, Moderna. New improved Tryg Pluss Norway launched an up dated Tryg Pluss benefits program- me for private customers. The programme offers three main benefits: Tryg ID, Tryg Care and Tryg House Assist- ance. See tryg.no. New motorcycle app Moderna launched the Moderna Smart MC app. The app records the driver’s driving style, and the motor- cycle insurance price is then differentiated accordingly. Driving safely triggers a dis- count the following year. New jointly produced Tryg family film For the first time, Tryg, TryghedsGruppen and TrygFonden released a film together based on a true story about saving a life. As a Tryg customer, you contribute to saving lives. Tryg’s Danish customers are members of TryghedsGruppen, which is behind TrygFonden and involved in hundreds of peace-of-mind activities in Denmark. Watch the film. January February March April May June July August September October November December Share buy back programme initiated On 6 April, Tryg initiated an extraordinary share buy back of DKK 1bn, which was completed on 16 December 2016. ‘A2’ rating from Moody’s Tryg was assigned an ‘A2’ financial strength rating with a positive outlook from Moody’s. At the same time, the rating agreement with Standard & Poor’s was terminated. Members’ bonus paid In March 2016, TryghedsGruppen’s Board of Representatives decided to pay out a bonus to its members (Tryg’s Danish customers), corresponding to 8% of the premium paid for 2015. On 1 June 2016, a bonus of DKK 696m was paid to members. Tryg ID on social media Tryg launched a campaign informing our Tryg Plus customers of Tryg’s offer of advice and help to prevent, discover and limit the misuse of personal information on the social media. Misuse of one’s identity can take the form of a fake Facebook pro- file or misuse of personal pictures, for example. New and improved ‘My page’ Tryg launched a new and improved ‘My page’. ‘My page’ enables cus- tomers to access insurance policies and edit coverage of insurance products. ‘My page’ is tailored to the customer’s needs and suggests recommended products. Moderna, best company of the year For the fourth year running, Tryg’s branch in Sweden, Moderna, was named insurance broker of the year in the commercial and corporate segments. Launch of new child insurance Tryg launched a new child insurance product in Denmark with three different levels of coverage; from Tryg Child Super to Tryg Child Minimum. insurance on tryg.dk. Read more about child TryghedsGruppen proposes new rules for election of Tryg’s Chairman TryghedsGruppen, the majority shareholder in Tryg, will propose an amendment to Tryg’s Articles of Associations at Tryg’s AGM in 2017, hence the Chairman of Trygheds- Gruppen is not automatically Chairman of Tryg. Opening of The Camp 5 October 2016 was the official opening of The Camp, a co-work space for start-ups at Tryg’s head office in Ballerup. The Camp contributes to innovation, developing Tryg’s current and new business. Launch of cyber risk insurance Tryg launched a cyber risk insur- ance product in Commercial and Corporate in Denmark, Norway and Sweden. With this cyber insurance product, Tryg can help customers manage cyber-attacks, while also covering any economic losses sus- tained as a result of such attacks. Tryg upgraded to ’A1’ Moody’s upgraded Tryg from ‘A2’ to ‘A1’ with a stable outlook. Denmark hit by storm On 26 December, Denmark was hit by a storm. Tryg received approx. 1,600 claims. Northern Jutland and the Copenhagen area were hit the hardest. | Contents – Management’s review Annual report 2016 | Tryg A/S | 5 Targets and strategy Tryg surpassing the general level of employee satis- faction in the financial sector in the region. Employee satisfaction 2012-2016 Value creation for our shareholders Tryg’s shareholders must see Tryg as a company with ambitious targets disbursing stable and increasing dividends. Tryg delivered a strong result in 2016 and is on track to achieving its ambitious financial targets for 2017. Index 75 70 65 60 55 50 2012 2013 2014 2015 2016 Tryg Nordic financial market Nordic market Our purpose value for customers, employees and shareholders, Tryg’s business model Tryg’s purpose is to create peace of mind and We create peace of mind and value for Tryg’s ambition is to become the world’s best offering them insurance against risk, efficient claims holders. Via TryghedsGruppen’s 60% ownership of customers, employees and shareholders. insurance company. handling, and advice and services to prevent claims Tryg, part of the company’s profit is returned to cus- and this must be at the core of everything we do. Tryg creates peace of mind for its customers by o mers’ peace of mind, we benefit all of Tryg’s stake- from arising in the first place. By ensuring our cust- tomers, who are also members of TryghedsGruppen. Our ambition Our customers – our most important asset Our customers are our most important asset. Tryg strives to continuously strengthen customer Tryg’s business model To become the world's best insurance relations through our advisory services, products, company. concepts, claims handling procedures and claims prevention measures. In 2016, we had a strong focus on initiatives supporting the customer Our values targets for 2017. Our values are highly integrated in our Our employees – our most important resource culture and consistent with our purpose. Our employees are our most important resource and key to realising our vision of becoming the • We meet people with respect, world’s best insurance company. As an important openness and trust step towards achieving this, all our employees • We show initiative, share knowledge must feel that they have an opportunity to be suc- and take responsibility cessful. Clear and ambitious targets must be set • We deliver solutions based on quality for each individual employee, and regular feedback and simplicity must be provided. Aiming for the highest level of • We create sustainable results employee satisfaction in the financial sector in the Nordic region, Tryg was pleased to note a continued high level of employee satisfaction in 2016, with Tryg is a pure non-life insurer creating peace of mind and value for our customers, employees and shareholders. S E E Y O L P M E G N I C I R P o t g n i d r o c c a g n i c i r P e l fi o r p k s i r E M P LOY E E S D I ST R I B U T I O N Own sales force and partners I N S U R A N C E P R E V E N T I O N C L A I M S H A N D L I N G P R O C E SS E S Combination of in-house & sourcing E M P LOY E E S F u l l n o n - l i f p r o d u c t r a n g e P R O D U C T S E M P L O Y E E S O U R A M B I T I O N To become the world's best insurance company. G E O G R A P H Y S E G M E N T S Private, Commercial and Corporate | Contents – Management’s review 6 Annual report 2016 | Tryg A/S | Stable Nordic insurance market actly the impact will be on the insurance business Targets port the target of being ahead of peers for 25% of The Nordic insurance market is characterised remains an open question. So far, the development Tryg has a strong focus on both financials and cus- products and on a par with peers for the remaining by consumers and businesses that have largely of more technically advanced cars has led to a tomers, and targets have therefore been set for both products in 2017. covered their insurance needs, combined with rela- reduction in the number of people who are injured areas. Financial and customer targets are inextric- tively low rates of economic growth. Profitability in in car accidents, but at the same time it is also ably linked. Loyal customers mean high retention Customer journey & success culture the insurance industry is generally high as the vast clear that the more advanced cars are much more rates, keeping the expenses associated with attract- In 2016, Tryg has continued its many initiatives to majority of companies focus on earnings rather expensive to repair. ing new customers low, thereby contributing to a improve the customer experience. Tryg sent out ap- than growth. Customers are generally loyal to their low expense ratio. With the financial results posted proximately 900,000 text messages to customers insurance company based on good customer ser- Contrary to developments in motor insurance, for 2016, Tryg is on track to meeting the financial asking them to rate their experience, and more vice and claims handling processes. For customers other areas are expected to grow in the future. targets defined for 2017. In 2016, Tryg had a strong than 440,000 responded. Eighty-two per cent rated looking for a new insurance provider, competition This goes, especially, for the insurance of people, focus on improving the customer experience in all Tryg between 9 and 10 on a scale of 1-10 where 10 is always intense, generally combined also with a pets and technology. Based on these develop- parts of the organisation to improve its performance is best. This is a strong feedback on the good ser- focus on profitability. ments, Tryg has been actively acquiring companies on customer-related parameters. vice provided by our customer service and claims Motor insurance accounts for a significant share of pet insurance and cyber insurance products. Strategic initiatives in these areas and developing new child insurance, representatives. Tryg’s overall NPS score was 22, and thus Tryg has already met the target of an NPS the non-life insurance market, and the insurance Tryg has set up four strategic initiatives to support of 22 as set at the Capital Markets Day in 2014. business therefore closely monitors how technical In Norway, the weakened economy affected the its financial and customer targets. The strategic developments affect this area. With the develop- overall premiums development, and at the same initiatives for 2017 are unchanged from 2016. Tryg continues to capture feedback in order to ment of the autonomous car, the motor insurance time a number of very aggressive insurers ended up further improve the customer experience. Key market is expected to shrink in the future. What ex- into financial difficulties. In general, the impact of Strategic initiatives 2017 initiatives evolving from this are projects aimed at aggregators continues to be limited in both Den- • Next level pricing improving customer loyalty. The feedback has also Financial targets 2017 mark and Norway. Market developments differed • Customer journey & success culture shown an appetite for closer and better dialogue in Denmark and Norway in 2016. In Denmark, • Leading in efficiency with Tryg, which has contributed to changes to the • Return on equity of ≥21% after tax to slightly increasing real estate prices and a lower consumer sentiment was quite stable, which led • Digitalisation way in which Tryg approaches both consumers and businesses in order to improve customer loyalty • Combined ratio ≤87 • Expense ratio ≤14 unemployment rate of around 4.2% at the end of Next level pricing and advocacy. 2016. Total car sales were up 7.4% in 2016 com - Next level pricing (price differentiation) has been Customer targets 2017 • NPS + 100% • Retention rate +1 pp • Customers ≥3 products +5 pp pared with 2015, and a shift from sales of small an ongoing initiative and Tryg’s most important To develop the skills and boost the motivation cars to medium-sized cars was observed. The initiative in recent years. Tryg has developed more of managers and employees, Tryg continued to Norwegian economy remained challenged in than 35 new price-differentiated products since use the SuccessFactors suite of tools in 2016, 2016, especially in the oil-related areas, although defining this as a strategic initiative. In 2016, focus which allows corporate KPIs to be cascaded down the Norwegian economy is generally very strong. was on converting Private customers to the new throughout all management and employee levels. The unemployment rate was largely unchanged at and updated products. At the end of 2016, 88% An important SuccessFactors tool which was around 4.8%. Car sales in Norway were up 2.6% of customers had the new and updated products. implemented in 2016 is People Review. People in 2016. Tryg will continue to enhance its products to sup- reviews are carried out for all managers and | Contents – Management’s review 7 Annual report 2016 | Tryg A/S | employees in the organisation, the purpose being Digitalisation to work systematically with feedback and to sup- Digitalisation is one of the key drivers for im- port the development of managers and employ- proved customer service and claims handling ees. In Tryg, we want to acknowledge employees processes. In 2016, focus was on self-service, who deliver an extraordinary performance, and an automation, lead generation and cross-sales. employee recognition programme was therefore Tryg developed many digital solutions in 2016 implemented in 2016 with the aim of celebrating shown in the chart Digitalisation of Tryg. Tryg was employees who are supportive of Tryg’s targets. named Best Digital Finance Company of the Year Leading in efficiency Tryg launched a new efficiency programme in among insurance companies by FinansWatch (Danish media) and Wilke (Analysis institute). 2015 with the aim of further reducing claims and With more than 80% of customers having signed direct costs by DKK 750m by the end of 2017, up for digital communication in Denmark and with DKK 500m relating to claims and DKK 250m Norway, Tryg has a very high level of digital to expenses. The programme is on track, and sig- customers. This is reflected in more than 1 million nificant structural changes were implemented in online visits in 2016. For direct customers, all 2016 in both the Norwegian and Danish organisa- relevant claims can be filed online. Tryg will tions. In Norway, two major structural initiatives continue to develop digital solutions in 2017 and were implemented in 2016, and in Denmark the going forward capitalise on the developed solu- merger of customer service and claims handling tions to reduce expenses and claims costs. for the less complicated products was a significant initiative. The continued development of digital Corporate Social Responsibility solutions and initiatives directed against fraud Corporate Social Responsibility (CSR) is an inte- will also support reaching the targets for 2017. grated part of Tryg’s core business. Through in- Efficiency programme up until 2017 ers, employees and shareholders. This means surance, claims handling and prevention, we work to create peace of mind and value for our custom- DKKm Old programme New programme 400 350 300 250 200 150 100 50 0 388 395 175 125 250 50 100 60 105 75 65 150 145 2012 2013 2014 Target 2015 2015 Target 2016 2016 Target 2017 Claims Expenses that CSR plays a constant role in the decisions we make, in the improvement and development of our products and services, in the optimisation of our operations and in the positive contributions which we make to society at large through our activities. Read more on pages 36-38. Digitalisation of Tryg 2015 2016 Self- service Denmark Claims Self- service Norway Claims Self- service Claims Sweden My Page Tjeneste- mændenes Forsikring | Contents – Management’s review 8 8 Annual report 2016 | Tryg A/S | Financial targets and outlook Some of the claims initiatives relate to previous There has been a gradual lowering of tax rates claims years and will therefore impact the run-off. in Denmark, Norway and Sweden in recent years. In Denmark, the tax rate was 22 in 2016, At the end of 2016, a tax on salaries for financial and this will also be the level for 2017. The companies was approved in Norway. The tax will Norwegian tax rate was 25 in 2016, while the have an impact of approximately NOK 40m for Swedish rate was 22. When calculating the total 2017, which will hit claims costs and expenses. tax payable, account should also be taken of the The investment portfolio is divided into a match not taxed in Norway. All in all, this causes the fact that gains and losses on shareholdings are Financial targets 2017 pre-2015 period. Tryg expects this to be the case sions, and a free portfolio. The objective is for around 22-23% in 2017. likely to be higher than the run-off level during the portfolio corresponding to the technical provi- expected tax payable for an average year to be • Return on equity of ≥21% after tax run-off level to gradually converge towards the in the technical provisions due to interest rate until the end of 2017. Hereafter, we expect the the return on the match portfolio and changes • Combined ratio ≤87 • Expense ratio ≤14 long-term level of 2.5-3%. changes to be close to zero. In 2017, weather claims net of reinsurance and From 2016, the curve used for discounting Weather claims, net of reinsurance large claims are expected to be DKK 500m and technical provisions changed due to the im- DKK 550m, respectively, which is unchanged plementation of the Solvency II directive, and The return on equity for 2016 was 26.2%, and the relative to 2016. this might result in slightly more volatile match portfolio net results. The new curve increases combined ratio was 86.7. Tryg is well-positioned The interest rate used to discount Tryg’s technical the interest rate risk of the technical provisions, for meeting the targets for 2017. provisions is historically low. An interest rate in- thereby introducing a larger difference between crease will have a positive effect on Tryg’s results. the match return and the changes in the tech- Tryg expects growth in gross premium income of Generally speaking, an interest rate increase of nical provisions. 0-2% in local currencies in 2017. 1 percentage point will increase the pre-tax result by around DKK 300m and vice versa. The return on bonds in the free portfolio will DKKm Expected level 2017: DKK 500m 800 600 400 200 0 2012 2013 2014 2015 2016 Tryg will continue to take an active approach vary, but given current interest rate levels, a low Large claims, net of reinsurance to acquiring smaller portfolios and developing For the purpose of realising the financial targets, return is expected. For shares, the expected Expected level 2017: DKK 550m the market for products which are expected to Tryg has launched an efficiency programme return is around 7% with the MSCI World Index see higher growth rates such as pet and child aimed at realising savings of DKK 750m, with as the benchmark, while the expected return insurance. DKK 500m relating to the procurement of for property is around 6%. Investment activities Tryg has a solid reserve position, and at the Capital DKK 250m relating to expenses. The target is and expenses, especially the cost of managing Markets Day in November 2014, Tryg therefore an- DKK 375m in 2017 after targets for 2015 and investments, the cost of currency hedges and nounced that the run-off level going forward was 2016 of DKK 125m and DKK 250m. interest paid on loans. claims services and administration and also include other types of investment income 800 600 400 200 0 2012 2013 2014 2015 2016 | Contents – Management’s review 9 Annual report 2016 | Tryg A/S | Tryg’s results (DKK 2,423m), positively affected by the ongoing efficiency programme, which contributed savings of DKK 210m in 2016 against a target of DKK 225m. Customer highlights 2016 The efficiency programme and price adjustments of around 3% had a positive impact on profitability as • • NPS unchanged at 22 Retention rate dropped slightly from reflected in an improved trend through-out the year. 88.1 to 88.0 The total effect of weather claims, large claims and • Number of customers with three or more run-off was much lower than in 2015. products up from 56.7% to 57.2% Financial highlights 2016 A result after tax of DKK 2,471m impacted by In 2016, a slightly higher level of claims inflation one-offs. Proposed H2 dividend of DKK 3.60 per was observed for the profitable motor insurance share equivalent to a full-year dividend of DKK area. Tryg believes that this is driven by an increase • Profit after tax of DKK 2,471m 6.20 per share for 2016. Extraordinary dividend in accident numbers as well as the use of more (DKK 1,969m) of DKK 1,000m for 2016. Solvency ratio of 194 expensive spare parts primarily in medium/high- • First year with TryghedsGruppen’s members’ bonus for Danish customers • The majority of customers now have Tryg’s most updated products • • Return on equity after tax of 26.2% (20.0%) after H2 dividend and extraordinary dividend. end models. For extended warranty insurance of The investment result was impacted by the sale Technical result of DKK 2,640m (DKK 2,543m) adjusted for one-offs Results electronic goods, a smaller product area, claims of investment properties and domiciles, which inflation was also observed. To improve the under- had a positive impact on the investment result of • Combined ratio of 85.3 (86.1) adjusted for one-offs • Premium income increased by 0.1% in local currency (-0.8%) • Expense ratio of 14.8 (14.9) adjusted for one-offs • Investment return of DKK 987 (DKK -22m) impacted by sale of investment properties and domiciles and high returns on several asset classes • Proposed H2 dividend of DKK 3.60 and DKK 6.20 per share for 2016 • DKK 1bn share buy back completed. Proposed DKK 1bn extraordinary dividend to be paid after the AGM in 2017 • Quarterly dividend from Q1 2017 At the beginning of 2016, Tryg announced a new lying claims level, and following on from the price DKK 500m. Adjusted for gains on investment country-based organisation. This has created a adjustments made in 2016, Tryg will be implement- properties and domiciles, an investment result more agile organisation, as reflected in the many ing further price adjustments corresponding to of DKK 487m was posted, boosted strongly by business initiatives launched in 2016 in Denmark, around 3% in 2017. positive capital market developments. Norway and Sweden. A profit after tax of DKK 2,471m (DKK 1,969m) was posted, together with a return on equity of 26.2% (20.0%) and a combined ratio of 86.7 (86.8). The results show that Tryg is on the track to meet its financial targets for 2017 with a return on equity at or above 21% and a combined ratio at or below 87. The expense ratio was 14.8 (14.9) adjusted for one-offs, primarily related to write-downs on intangible assets in 2016 and one-off costs in 2015. Tryg launched many new initiatives in 2016, which – in combination with further initiatives in 2017 – will support an expense ratio target at or below 14 in 2017. The technical result was DKK 2,390m Key figures adjusted for write-downs on intangibles and one-offs DKKm Technical result Investment income Other income/costs Pre-tax result Claims ratio, net Gross expense ratio Combined ratio Q4 2016 adjusted Q4 2015 2016 adjusted 2015 adjusted 564 98 -12 650 73.2 14.4 87.6 522 242 -19 745 74.2 14.2 88.4 2,640 487 -57 3,070 70.5 14.8 85.3 2,543 -22 -91 2,430 71.2 14.9 86.1 2016 adjusted for DKK 250m, primarily related to write-downs on intangibles and DKK 500m extraordinary capital gain on the sale of properties. 2015 adjusted for the one-off charge of DKK120m related to the effieciency programme. | Contents – Management’s review 10 Annual report 2016 | Tryg A/S | Tryg has a strong focus on the customer targets for whereas there was a drop in Norway. To reverse Having acquired the Skandia portfolio, in autumn In the course of 2016, many new digital solutions 2017. Our customer targets are generally strongly the trend in Norway, a more focused approach 2016 Tryg also launched a new child insurance were developed (see page 8) which both make it linked to our financial targets and have been per- for cross-selling to customers who have bought product for the Danish market. For Commercial and more convenient for customers to buy and change ceived as very appealing by the organisation. motor insurance through the car sales channel Corporate customers, Tryg launched a cyber insur- products and also report claims. The digital solu- has been initiated. ance product in autumn of 2016. Going forward, tions also support cross-selling by suggesting that The Net Promoter Score (NPS) was unchanged Tryg expects cyber insurance to become increas- customers buy additional covers based on their at 22 at the end of 2016. There was a positive In 2016, Danish customers received their first ingly important for both small and large companies. expected insurance needs. development for especially Private customers in members’ bonus from TryghedsGruppen. The 8% Sweden Private continued its innovative product Denmark and a slight drop for Private Norway. bonus has been well received by customers, and development and developed three new smart app Premiums For Commercial, the NPS score dropped slightly, Tryg expects the bonus to provide an important products for car, motorcycle and health. Premium income totalled DKK 17,707m primarily in the Danish part of Commercial. competitive advantage by improving customer (DKK 17,977m), representing premium growth Tryg also measures customer satisfaction after loyalty and customer targets. TryghedsGrup- In Private in both Denmark and Norway, a income of 0.1% (-0.8%) when measured in local customers have been in contact with Tryg, defined pen has announced that they expect to make structural initiative was implemented involving currencies. The development in premium income as the Transactional Net Promotor Score or TNPS. recurring bonus payouts, but that payouts will be the integration of customer service and claims improved for Private and Sweden, but was some - The figure was 49 in 2016. decided each year by TryghedsGruppen. handling for the most simple products. This what lower for Commercial and Corporate. It is integration supports Tryg’s overall ambition of positive that after a challenging period Tryg achieved At 88.0, the retention rate in 2016 was slightly Price differentiation has been a very important ini- first-contact resolution as employees can handle a positive development in premium growth, despite lower than in 2015 at 88.1. The retention level was tiative for Tryg in recent years. In 2016, focus was claims and also advise customers about their the economic situation in Norway and falling aver- more or less unchanged for Private in Denmark on updating customers to the improved products insurance needs. The integration also supports age prices for motor insurance in Denmark. and Norway. The retention rate dropped some- which have been developed over the past few up-selling and increasing the number of what for Commercial in Denmark due to selected years. More than 500,000 policies were updated customers with three or more products. In 2016, Private saw improved growth of 0.8% price initiatives whereas for Commercial Norway, in 2016, meaning that the majority of Private (0.3%), which was driven by the development in the the retention rate improved due to improved customers now have the most recent products. In Commercial, a more specialised structure was Danish Private business, which posted premium customer focus. implemented with the aim of providing customers growth of 1.8%. The members’ bonus supported In 2016, many new products were added to Tryg’s with more professional customer services. The new this development, and at the same time the suc- The share of customers with three or more prod- product portfolio. Tryg bought a child insurance structure segments customers into large accounts, cessful conversion of customers to new products ucts increased from 56.7% to 57.2%. In Denmark, portfolio from Skandia in Sweden. The product is the liberal professions, technique and agriculture. resulted in many customers buying add-on covers, the number increased by 1 percentage point very profitable, and with a good sales potential. thereby increasing premium levels. Premium growth Customer targets Net Promoter Score (NPS) Retention rate Customers with ≥3 products (%) 2016 22 88.0 57.2 2015 22 88.1 56.7 Target 2017 22 88.9 61.3 In both Commercial and Corporate, Tryg’s co- for Private Norway was slightly negative by 0.5%, operation with brokers is strong. For the fourth which was ascribable to the competitive situation year running, Corporate Sweden was nominated and a weakened economic situation in Norway. The as the best non-life insurance company. Corporate development was also due to a lack of distribution implemented a new concept, which means that power, and several structural initiatives were initiated customers can both be served by Tryg’s own sales in 2016 to address this. The initiatives reduced back- organisation and by brokers as customers in some office costs, and some of the savings were invested instances prefer this set-up. in more distribution power through an upscale of the | Contents – Management’s review 11 Annual report 2016 | Tryg A/S | franchise distribution. Also, our co-operation with both claims and business ceded as a percentage of the In4mo system continued to generate savings in ratio of 0.4 percentage points. Initiatives launched Nordea was strengthened through the establish- gross premiums, of 71.0 (71.5). Adjusted for one-off different areas, for example from cash settlements. comprised cost reductions and general optimisa- ment of outbound teams in Nordea branches. effects, the claims ratio, net of ceded business, was tions following the implementation of the new 70.5 (71.2). The claims level was positively impacted In 2016, large claims totalled 2.2% (3.4%) and country-based structure at the beginning of 2016, Premium income in Commercial was down 1.3% by the efficiency programme in the amount of weather claims 2.0% (3.4%). In Q4 2016, the storm in addition to the effects from sourcing of staff (-2.9%) in local currencies, with a slightly bigger DKK 145m due to a combination of the improved Urd hit Denmark and Norway with an esti mated im - functions and to a lesser extent business sourcing. drop in the Norway. In order to in crease premium procurement of claims services and claims admin- pact of DKK 60m. Large and weather claims were income, the back-office organisation in Norway istration. The negative impact from large claims approximately DKK 300m lower than average level In Q4 2016, Tryg announced a write-down of was reduced, and some of the savings were and weather claims was more than offset by higher of DKK 1,050m a year. The run-off level was 7.0% intangible assets by approximately DKK 250m. invested in more distribution power. In Denmark, run-offs and had a positive 2.8 percentage point net (6.7%), which underlines Tryg’s solid provision level. The write-down relates predominantly to IT customer segmentation, a new agreement with impact on the claims ratio. Nordea and the delegation of more powers to the Expenses systems for payment, digitalisation and IT system integration. The write-down is generally due to the sales organisation were important initiatives aimed In 2016, a number of initiatives were implemented The expense ratio was 15.7 (15.3). Adjusted for annual assessment of intangible assets, according at increasing Tryg’s distribution power. to mitigate the claims inflation seen especially for one-off costs, the expense ratio was 14.8 (14.9). to which the related system development costs Corporate saw a drop in premium income of claims had a positive impact on the development in 2016 as the organisation has been very focused on benefits are also expected to be lower. 1.2% (0.0%) in local currencies. In general, more claims, but at the same time, an increase was seen implementing initiatives that have limited effect in substantial fluctuations in premium income for in salaries for construction workers in Denmark due, 2016, but which support the target of an expense In 2016, the number of employees was reduced property claims. A team dedicated to controlling pipe No steep drop in the expense ratio was expected in will be higher, while for some of the systems, this area are expected on account of the competi- among other things, to public building projects. ratio at or below 14 in 2017. The initiatives have from 3,359 to 3,264. tive situation and the impact of gaining or losing been most visible in the Norwegian part of the major clients. Developments were generally more Motor insurance continues to be very profitable, but organisation. The initiatives introduced in both the Investment return positive in Corporate in Denmark as customers in 2016 an increased claims frequency was seen, first and second half of 2016 generally focused The investment return was positive by DKK 987m welcomed TryghedsGruppen’s members’ bonus. while it is also apparent that average repair costs for on reducing back-office functions with the aim of (DKK -22m) in 2016. The match portfolio totalled cars will increase due to the use of more advanced reducing expense levels and increasing distribution DKK 29,105m and is made up of bonds which The Swedish business realised an increase in pre- electronic solutions in cars. As mentioned, the power. In Denmark, the initiatives centred mostly match the insurance provisions so that fluctuations mium income of 3.4% (-3.1%) in local currencies. development in claims will be mitigated through around the integration of our customer service and resulting from interest rate changes are offset The acquisition of Skandia’s child insurance port- price adjustments averaging 3% in 2017. claims handling functions. In Q4, the Danish part of to the greatest possible extent. At 31 December folio had a positive impact of approximately 5% in Commercial reduced the number of support func- 2016, the value of the free portfolio totalled 2016. The Swedish business compensated for the The claims-related measures implemented in 2016 tions in sales, while at the same time delegating DKK 11,995m. The return on the match portfolio loss of distribution power following the loss of two included initiatives that bring injured policyholders more powers to the sales force. In the Danish part was DKK 210m (DKK -16m) after transfer to large affinity agreements through an increase in back to work. This initiative is positive for the injured of Corporate, the number of sales departments insurance technical interest. The return on the free sales via our own sales channels. policyholder and for the employer getting the were reduced from three to two, reducing the num- investment portfolio was DKK 939m (DKK 232m). Claims a reduction of claims expenses. As these claims 8.4%, which was significantly higher than in 2015, The gross claims ratio was 65.6 (75.4), with a typically relate to claims for previous years, the The efficiency programme contributed DKK 65m in which saw a return of 3.4%. claims ratio, net of ceded business, which covers savings support the run-off level. In 2016, the use of 2016, corresponding to an impact on the expense employee back to work, and also for Tryg through ber of back-office employees. The return on the equity portfolio was positive at | Contents – Management’s review 12 Annual report 2016 | Tryg A/S | In Q4 2016, Tryg sold some of its bigger invest- 2016. During the year, own funds were mostly nary dividend after assessing the company’s capital Results Q4 2016 ment properties and domiciles in Denmark and impacted positively by net profits and negatively by plan, in which the SCR is projected on the basis of Norway. This resulted in a gain of DKK 600m, of dividends and buy backs. Additionally, Tryg issued Tryg’s forecasts. The projections include initiatives The profit after tax totalled DKK 560m (DKK 754m) which DKK 500m is recognised as investment SEK 1.0bn subordinated, Solvency II-compliant debt. set out in the company’s strategy for the coming based on a technical result of DKK 314m (DKK 522m) income and DKK 100m in shareholders’ equity. This boosted Own funds in its Tier 2 component. years, and also the most significant risks identified and an investment result of DKK 598m (DKK 242). The main purpose was to create a more diversi- The Solvency ratio was 194 at year-end 2016. by the company. The adequacy is measured in Adjusted for one-offs, the profit after tax totalled fied investment portfolio in accordance with Tryg’s relation to Tryg’s strategic targets, including return DKK 410m (DKK 754m) based on a technical result overall risk profile, and also to enter into less risky The key components of Tryg’s own funds are on equity and dividend policy. of DKK 564m (DKK 522m) and an investment result and more flexible agreements for the domiciles. shareholders’ equity, intangibles, Tier 2 instruments of DKK 98m (DKK 242). (subordinated debt and natural perils pool), ATier 1 Dividend policy Other income and costs instruments (old subordinated debt which has been According to Tryg’s dividend policy, the aim is for Profit after tax was positively affected by the ongoing Other income and costs were primarily impacted grandfathered) and future profits. The vast majority the dividend to be steadily increased. For H2 2016, efficiency programme, which had an impact of DKK by write-down of goodwill of DKK 100m related to of Tryg’s own funds are constituted by shareholders’ a dividend of DKK 3.60 per share is proposed, 59m in Q4. The net effect of weather claims, large the acquisition of Securator. equity. The Tier 2 capacity has been fully utilised corresponding to a total dividend of DKK 6.20 claims and run-off was 0.3 percentage points due after the SEK 1bn sub ordinated debt issue in May (DKK 6.00) per share based on the 2016 results. mainly to a high level of weather and large claims. Profit/loss on discontinued business 2016. Currently, some DKK 200m of Tier 2 instru- This equates to total dividend payments of DKK -1m (DKK 49m) was realised on dis- ments are not included in the own funds as they DKK 1,770 or 72% of the profit for the year. In 2016, Premiums continued business, comprising adjustments exceed the 50% SCR cap. Tryg has an additional a DKK 1bn (3.5 per share) buy back was completed, Premiums developed positively by 1.7% (-1.6%) in on provisions, primarily relating to the marine ATier 1 capacity of DKK 1.0bn at the end of 2016. while Tryg will pay a DKK 1bn extraordinary dividend local currencies. In Private, the positive develop- run-off business. Tax Tryg’s solvency ratio displays low sensitivities to will be effected as dividends rather than buy backs. currencies, reflecting strong growth of 2.7% in the capital market movements. The highest sensitivity Additionally, Tryg has decided to pay a quarterly Danish part of Private. In Commercial, premiums de- in 2017. Going forward, any extraordinary payments ment continued with growth of 1.3% (1.1%) in local Tax on profit for the year totalled DKK 748m is towards spread risk, where a widening/tightening dividend starting from Q1 2017. The dividend will clined by 0.8% (-5.0%) in local currencies, reflecting (DKK 390m), or 23% of the profit before tax. of 100 basis points would impact the solvency ratio be evenly distributed across the year. an improved development especially in Denmark, In 2016, Tryg paid DKK 529m in income tax as by approximately 14 percentage points. Lower sen- whereas Commercial in Norway was impacted by well as various payroll taxes totalling DKK 417m, sitivities are displayed towards equity market falls Moody’s rating upgraded the economic situation. The growth figures for Q4 resulting in total tax payments of DKK 946m. and interest rate movements. A change in the UFR In December 2016, Moody’s upgraded Tryg 2015 were negatively impacted by the individual (Ultimate Forward Curve) would have a very modest Forsikring’s insurance financial strength rating (IFSR) regulation of a number of large accounts. In Corpor- Capital position impact as the solvency ratio would fall 1 percent- from ‘A2’ to ‘A1’ with a stable outlook. In its press re- ate, premium growth was positive at 0.9% (-2.1%) Tryg’s solvency capital requirement (SCR) was age point. This in unsurprising considering that Tryg lease, Moody’s noted that the ‘A1’ IFSR reflects Tryg’s in local currencies, reflecting a positive premium DKK 5.1bn at the end of 2016, which is on a par underwrites only non-life risks, and the duration of leadership position in Property & Casualty (P&C) development in Q4 2016. The Swedish business saw with the level as at 1 January 2016, when Sol- the business is below four years. insurance in the Nordic region, its strong profitabil- an increase in premium income of 12.2% (-6.1%) in vency II went live. At the end of 2016, Tryg’s own ity both from a return on capital and underwriting local currencies due to the Skandia child insurance funds were DKK 9,850m (after deducting the H2 The Supervisory Board regularly assesses the need (combined ratio) perspective, very good asset quality portfolio. Excluding Skandia, premium income dividend and the proposed extraordinary dividend for capital adjustments. In 2017, Tryg has decided and relatively low financial leverage. dropped by 4.2%, which was an improvement com- of DKK 1bn) against DKK 10.3bn on 1 January to announce the payment of DKK 1bn in extraordi- pared to the prior-year period. | Contents – Management’s review 13 Annual report 2016 | Tryg A/S | On 26 December 2016, Denmark was hit by the storm ‘Urd’. Northern Jutland and the Copenhagen area were hit the hardest. The event was officially recognised as a flood event. Tryg received 1,600 claims, which impacted the result by approximately DKK 60m. Claims Investments The gross claims ratio was 72.0 (68.0) and 70.1 The investment return was positive by DKK 598m before one-offs. The claims ratio, net of ceded (DKK 242m) in Q4 2016. The return of the match business, which covers both claims and busi- portfolio was 8m (DKK 85m), and the return on ness ceded as a percentage of gross premiums, the free investment portfolio was DKK 541m was 75.1 (74.2) and 73.2 before one-offs. The (DKK 201m). lower claims level after one-offs was due to a lower weather claims level of 2.6% (5.4%). In Q4, In Q4 2016, Tryg sold some of its bigger invest- Tryg was hit by the storm Urd with an impact of ment properties and domiciles in Denmark and approximately DKK 60m, which was significantly Norway. This resulted in a gain of DKK 600m, of less than the storm in Q4 2015 with an impact of which DKK 500m is recognised as investment approximately DKK 180m. income and DKK 100m in shareholders’ equity. The underlying claims level adjusted for one-offs was 0.7 percentage points higher for the Group and 0.3 percentage points higher for Private, confirming the positive trend seen recently of an underlying claims ratio which is still deteriorating but less so compared to previous quarters. Tryg still expects an improvement in the underlying claims ratio in 2017. Expenses The expense ratio was 18.0 (14.2) and 14.4 after one-offs. The efficiency programme contributed DKK 18m in the quarter, corresponding to an impact on the expense ratio of 0.4 percentage points. In Q4, Commercial in Denmark restruc- tured the organisation, leading to a reduced number of back-office employees in sales and the delegation of more powers to the sales organisation. The number of employees was further reduced in the quarter by 46, leaving 3,264 employees at the end of the year. Financial highlights Q4 2016 • Profit after tax of DKK 560m (DKK 754m) • • Technical result of DKK 314m (DKK 522m) Combined ratio of 87.6 (88.4) adjusted for one-offs • Premium growth of 1.7 (-1.6) in local currencies • Expense ratio of 14.4 (14.2) adjusted for one-offs • Investment return of DKK 598m (DKK 242m) impacted by sale of investment properties and domiciles and high returns on several asset classes • Proposed H2 dividend of DKK 3.60 per share and DKK 6.20 per share for the full year • DKK 1bn share buy back completed. Proposed DKK 1bn extraordinary dividend to be paid after the AGM in 2017 | Contents – Management’s review Annual report 2016 | Tryg A/S | 14 14 Annual report 2016 | Tryg A/S | Private Financial highlights 2016 • Technical result of DKK 1,404m (DKK 1,298m) • • Combined ratio of 83.8 (85.4) Gross premiums increased by 0.8% (0.3%) in local currencies • Expense ratio of 14.2 (14.7) point for Private customers in Denmark and a drop in the number of customers with three or more prod- ucts in Norway. To improve the level of customers Private encompasses the sale of insurance products to private individuals in Denmark with three or more products in Norway, the car sales and Norway. Sales are effected via call centres, channel, where many customers have few products, the Internet, Tryg’s own agents, franchisees was restructured with the aim, among other things, (Norway), interest organisations, car dealers, of increasing cross-selling to these customers. Claims estate agents and Nordea branches. The business area accounts for 49% of the Group’s total premium income. very satisfactory given also that the average price of The gross claims ratio totalled 67.8 (69.0), with a motor insurance continued to fall by 0.6 percentage claims ratio, net of ceded business, of 69.6 (70.7). points. In Norway, premium income declined by 0.5% The improvement was ascribable to the efficiency pipe claims. In fact, claims inflation increased in local currencies mainly due to the competitive mar- programme and a lower level of weather claims. due to higher construction costs because of wage ket situation and the weakened Norwegian economy. House insurance was still under pressure despite increases for construction workers, and in Norway positive results from the claims team focusing on higher prices for materials due to the weakened Customer focus is very strong in both Denmark and Norway, as evidenced by the continued improve- ment in Tryg’s Net Promoter Score (NPS) to 29 in Key figures – Private 2016 (26). This development was significant in DKKm Results Denmark whereas there was a slight drop in Norway. In Denmark, the NPS score improved from 29 to The technical result for 2016 was DKK 1,404m 35, and in Norway there was a slight drop from 22 (DKK 1,298m), with a combined ratio of 83.8 to 21. The members’ bonus from TryghedsGruppen (85.4). The development was attributable to a is expected to have a positive impact on customer combination of positive impacts from the efficiency loyalty among Private customers in Denmark. In programme, a lower level of weather claims and a 2016, more than 500,000 insurance policies were higher level of claims especially from the property converted to new and more updated products. As lines of business. The development in premiums the products are more correctly priced, this also was positive and improved compared to 2015, and means that some customers will experience a higher the expense ratio was at a significantly lower level. price, and the conversion is therefore expected to Premiums have a slightly negative impact on retention rates. The retention rate in Denmark dropped slightly to The gross premium income development im proved 89.7 from 89.9, while in Norway the retention rate by 0.8% (0.3%) in local currencies, which was in was unchanged at 86.4. The number of customers line with the improvements seen since 2013. Pre- with three or more products increased from 56.7% miums increased by 1.8% in Denmark, which was to 57.1% with a significant increase of 1 percentage Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) | Contents – Management’s review Q4 2016 Q4 2015 2,235 -1,518 -310 2,172 -1,548 -290 407 -40 -1 366 61 1.3 67.9 1.8 69.7 13.9 83.6 86.3 -2.7 0.0 3.8 334 -51 2 285 49 1.1 71.3 2.3 73.6 13.4 87.0 89.3 -2.3 0.4 7.6 2016 8,710 -5,904 -1,240 1,566 -158 -4 1,404 312 0.8 67.8 1.8 69.6 14.2 83.8 87.4 -3.6 0.0 2.8 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 89.1 -3.7 0.3 4.5 15 Annual report 2016 | Tryg A/S | In 2016, Norway launched an updated Tryg Pluss benefits programme for private customers. The programme offers three main benefits: • Tryg ID – Helping customers if they believe or know that their identity has been misused • Tryg Care – Professional help from psychologists for customers experiencing a personal crisis • Tryg House assistance – Advisory services and access to Tryg’s network of building experts Norwegian currency. Tryg has a strong focus on Results Q4 2016 developments in motor insurance, and throughout the year we saw slightly higher claims inflation The technical result totalled DKK 366m due to higher frequency levels and higher average (DKK 285m), with a combined ratio of 83.6 (87.0), claims for cars with more advanced electronic sys- and was positively affected by a significantly lower tems. Against this background, Tryg has decided to level of weather claims than in 2015. introduce price adjustments of approximately 3% to mitigate this development and improve profitability. Premiums Expenses Gross premiums increased by 1.3% (1.1%) in local currencies. Continued premium growth at a rate The expense ratio was 14.2 (14.7). This develop- of 2.7% was seen in Denmark, whereas premium ment resulted from a consistent focus on improv- income for Norway dropped by 0.5% due to a ing expense levels, and many initiatives were im- com petitive market situation and the weakened plemented in 2016. In both Denmark and Norway, Norwegian economy. The positive development in customer service and claims handling functions the NPS score continued in Q4 with an improvement were integrated to improve customer loyalty, of six percentage points to 35 in Denmark and a slight while at the same time reducing expense levels. In drop from 22 to 21 in Norway. The retention rate in Norway, many initiatives were implemented which Denmark dropped slightly from 89.9 to 89.7, whereas will reduce employee numbers by a total of 60, the the retention rate in Norway was stable at 86.4. primary impact of which will be seen in 2017 after almost no impact in 2016. Employee numbers Claims were reduced from 933 at the end of 2015 to 929 The gross claims ratio was 67.9 (71.3), and the claims in 2016, mainly through job cuts in back-office ratio, net of ceded business, was 69.7 (73.6). The lower functions but also transfer of employees from the level was primarily due to mild weather in Denmark Claims department as part of the integration of and Norway despite the storm Urd, which had a much customer service and claims handling. lower impact than the storm in Q4 2015. We saw a Financial highlights Q4 2016 • Technical result of DKK 366m (DKK 285m) • Combined ratio of 83.6 (87.0) • Claims ratio, net of ceded business, of 69.7 (73.6) • Expense ratio of 13.9 (13.4) slight increase in motor claims in Denmark, which underpins the importance of implementing both price and claims prevention initiatives from 2017. Expenses The expense ratio was 13.9 (13.4). As mentioned, focus in 2016 was on implementing initiatives that will reduce expenses in 2017. Employee numbers increased by 16 in Q4 2016 to 929 due to the transfer of claims employees to the Private area. | Contents – Management’s review Annual report 2016 | Tryg A/S | 16 16 Annual report 2016 | Tryg A/S | Commercial lower run-off result. The claims level for property improved through the selected price and prun- ing initiatives. Due to price increases, exposure Commercial encompasses the sale of insurance products to small and medium- to the segment of large agricultural customers sized businesses in Denmark and Norway. was reduced, which had a positive impact on Sales are effected via Tryg’s own sales force, profitability. There is still a need for selected price brokers, franchisees (Norway), customer adjustments in the Commercial area, especially centres as well as group agreements. The for property. These price adjustments will be business area accounts for 22% of the implemented in 2017. Group’s total premium income. Financial highlights 2016 large agricultural customers. In Norway, the market Expenses other things led to a drop in the market share for • Technical result of DKK 695m by the slowdown in the Norwegian economy. In level is generally too high for Commercial, employee numbers were reduced by approxi- (DKK 658m) both Norway and Denmark, structural initiatives and initiatives were therefore implemented to mately 40 employees. In Denmark, the number • Combined ratio of 82.1 (83.6) were implemented to support an improved devel- improve this in 2016. The most significant steps of employees was reduced by approximately ten was generally very competitive and also impacted The expense ratio was 17.0 (17.1). The expense were taken by Commercial in Norway, where • Gross premiums reduced by 1.3% (-2.9%) opment in premiums. • Expense ratio of 17.0 (17.1) The Net Promoter Score (NPS) decreased to 6 in Key figures – Commercial 2016 (12). In Denmark, the NPS score decreased DKKm Q4 2016 Q4 2015 Results from 18 to 6, and in Norway an improvement from The technical result for 2016 was DKK 695m -1 to 9 was seen. The development in the NPS (DKK 658m), with a combined ratio of 82.1 (83.6). score also reflected retention rates. The retention The combined ratio was positively affected by a rate for Commercial in Denmark fell from 87.9 to lower level of weather and large claims but also a 87.1, and in Norway, the retention rate improved lower level of run-off. The development in premiums significantly from 87.1 to 87.5. The negative improved in 2016, but was still not satisfactory. development for Commercial in Denmark can be 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 Premiums ascribed to price initiatives aimed at improving profitability, whereas the improvement in Norway The development in gross premium income was can be ascribed to a more focused organisation negative by 1.3% (-2.9%) in local currencies, which with improved customer contact. was a significant improvement compared with 2015, but at the same time an unsatisfactory devel- Claims opment. The drop in premiums was slightly higher The gross claims ratio totalled 61.1 (65.4), with a in the Norwegian part of Commercial. The develop- claims ratio, net of ceded business, of 65.1 (66.5). ment in the Danish part was affected by price hikes The lower claims level was ascribable to a combin- to improve profitability for property, which among ation of lower weather and large claims, but also a Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 972 -567 -160 245 -78 -1 166 91 -0.8 58.3 8.0 66.3 16.5 82.8 92.2 -9.4 2.8 1.9 970 -604 -167 199 -53 1 147 61 -5.0 62.3 5.5 67.8 17.2 85.0 91.3 -6.3 1.9 4.8 | Contents – Management’s review 2016 3,893 -2,380 -663 850 -154 -1 695 304 -1.3 61.1 4.0 65.1 17.0 82.1 89.9 -7.8 2.2 1.6 2015 3,992 -2,612 -683 697 -44 5 658 388 -2.9 65.4 1.1 66.5 17.1 83.6 93.3 -9.7 6.7 2.8 17 Annual report 2016 | Tryg A/S | In 2016, Tryg launched a cyber risk insurance product in Commercial and Corporate in Denmark, Norway and Sweden. With this cyber insurance product, Tryg can help customers manage cyber-attacks, while also covering any economic losses sustained as a result of such attacks. through a reduction in back-office functions. Claims Total employee numbers were reduced from The gross claims ratio was 58.3 (62.3), with a 527 at the end of 2015 to 474 in 2016. claims ratio, net of ceded business, of 66.3 (67.8). Results Q4 2016 The low level was primarily due to benign weather in both Denmark and Norway, while large claims were at a higher level and run-off gains at a higher level. The technical result totalled DKK 166m (DKK 147m), with a combined ratio of 82.8 Expenses (85.0). The result was positively affected by a low The expense ratio was 16.5 (17.2), and the level of weather claims and large claims, but also number of employees was reduced by 13 a much higher level of run-off gains. Premium to 474 in Q4 2016. growth was negative by 0.8% (-5.0%), and the expense level was 16.5 (17.2). Premiums Gross premiums declined by 0.8% (-5.0%) in local currencies based on a slight increase of 0.1% in Denmark and a drop in Norway of 3.3% in local currencies as a result of the competitive market situation in general and the weakened Norwegian economy. In Norway, the NPS score was improved from -1 to 9, whereas the NPS score dropped in Denmark from 18 to 6. The re- tention rate in Denmark dropped to 87.1 (87.9), while the retention rate in Norway improved significantly to 87.5 (87.1). Financial highlights Q4 2016 • Technical result of DKK 166m (DKK 147m) • Combined ratio of 82.8 (85.0) • Claims ratio, net of ceded business, of 66.3 (67.8) • Expense ratio of 16.5 (17.2) | Contents – Management’s review Annual report 2016 | Tryg A/S | 18 Corporate large accounts. In 2017, these initiatives will, in general, follow the normal process with individual customer initiatives in all markets although in the Swedish market, priority will be given to initiatives targeting motor insurance. Expenses The expense ratio was 11.0 (10.8) as a result of the reduced premium income. Although expense levels Financial highlights 2016 economy. In Sweden, which accounts for only 20% on reducing expenses as a way of improving the the broker channel, and the weakened Norwegian are quite low, Corporate also has a strong focus of the total Corporate business, premium growth competitive position. In Denmark, the structure of Corporate sells insurance products to corporate customers under the brands ‘Tryg’ in Denmark and Norway, ‘Moderna’ in Sweden and ‘Tryg Garanti’. Sales are effected both via Tryg’s own sales force and via insur- ance brokers. Moreover, customers with international insurance needs are served by Corporate through its cooperation with the AXA Group. The business area accounts for 22% of the Group’s total premium income. • Technical result of DKK 421m was zero (6.2%) due to price increases and pruning the sales organisation was optimised, leading to a The number of employees was reduced from (DKK 369m) of the portfolio. In Corporate, there is a strong fo- reduction in employee numbers by five employees. 265 at the end of 2015 to 257 in 2016. • Combined ratio of 88.8 (90.7) cus on the relations with brokers as they constitute • Gross premiums dropped by 1.2% (0.0%) an important distribution channel. In Sweden, the • Expense ratio of 11.0 (10.8) Swedish brokers ranked Moderna’s Corporate busi- ness as the best corporate company for the fourth Key figures – Corporate year running. In both Denmark and Norway, there DKKm Q4 2016 Q4 2015 Results was a strong focus on improving broker relations. The technical result for 2016 was DKK 421m In Denmark, it was possible for customers to be (DKK 369m), with a combined ratio of 88.8 (90.7). served either by brokers or through direct distribu- Gross premium income Gross claims Gross expenses The result was positively affected by a higher run- tion as customers in some cases find this is the off level and a slightly lower level of weather claims, best solution. whereas large claims were at the same level as in 2015. The moderate development in premiums Claims 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 seen in recent years continued in 2016 with a drop The gross claims ratio totalled 60.8 (102.4), with a of 1.2% (0.0%), measured in local currencies. claims ratio, net of ceded business, of 77.8 (79.9). Premiums The lower claims level was primarily due to a high level of run-off gains as large claims and weather The development in gross premium income saw a claims declined slightly. In 2016, in Denmark and drop of 1.2% (0.0%) in local currencies. Premiums Norway, as part of the normal renewals process, increased by around 2.4% in Denmark, whereas in Corporate increased prices, adjusted retention Norway, premium income declined by 4.9% in local levels and changed coverage to improve profitabil- currencies due to the loss of some large custom- ity. In Sweden, more significant steps were taken ers, a competitive market situation, especially for to improve profitability, especially for some of the Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) 966 -814 -102 50 -41 0 9 121 0.9 84.3 4.2 88.5 10.6 99.1 111.6 -12.5 17.6 0.9 949 -657 -92 200 -195 0 5 65 -2.1 69.2 20.5 89.7 9.7 99.4 106.2 -6.8 11.3 2.0 2016 3,775 -2,295 -416 1,064 -643 0 421 506 -1.2 60.8 17.0 77.8 11.0 88.8 102.2 -13.4 8.1 1.0 | Contents – Management’s review 2015 3,894 -3,987 -420 -513 877 5 369 351 0,0 102.4 -22.5 79.9 10.8 90.7 99.7 -9.0 8.2 2.2 19 Annual report 2016 | Tryg A/S | In 2016, Tryg introduced DNA marking for Commercial and Corporate customers. DNA marking is an excellent tool to prevent theft from construction sites, for example. With DNA marking, the owner of stolen copper cables, for example, is easily identified, which saves the contractor having to order new custom-made cables for the job. Results Q4 2016 Claims The gross claims ratio was 84.3 (69.2), with a The technical result amounted to DKK 9m claims ratio, net of ceded business, of 88.5 (89.7). (DKK 5m), with a combined ratio of 99.1 (99.4), The high level was primarily due to a high level of and was negatively affected by a high level of large claims in all countries. The high large claims large claims. Premium growth was positive by level did not represent a trend, but normal volatility 0.9% (-2.1%). Premiums for large-sized claims. Expenses Gross premiums increased by 0.9% (-2.1%) in The expense ratio was 10.6 (9.7), which is higher local currencies based on an increase in Denmark than last year due to normal fluctuations in ex- and a drop in Norway in local currencies, reflect- pense levels. The number of employees was 257, ing a competitive market situation and the weak- down 8 in Q4 2016. ened Norwegian economy. Competition remains more pronounced in the broker channel, although competition from some of the smaller players has eased somewhat. The quarter was, as always, im- Financial highlights Q4 2016 pacted by preparations for the customer renewals process starting on 1 January 2017. • Technical result of DKK 9m (DKK 5m) • Combined ratio of 99.1 (99.4) • Claims ratio, net of ceded business, of 88.5 (89.7) • Expense ratio of 10.6 (9.7) | Contents – Management’s review | Contents – Management’s review 20 Annual report 2016 | Tryg A/S | Sweden pacted the claims ratio by 1.7 percentage points. The various initiatives will continue in 2017 with the aim of improving profitability, especially for ex- tended warranty insurance of electronic products. Expenses The expense ratio was slightly higher at 19.0 (18.7). Integration and efficiency initiatives will support a lower expense ratio and strengthen Financial highlights 2016 an active M&A approach. to improve its market position in Sweden through Tryg’s competitive position. • Technical result of DKK 120m Premiums The number of employees was 337 (338) at the end of 2016, which was almost unchanged despite (DKK 218m) Premium income rose by 3.4% (-3.1%) in local the acquisition of Skandia. • Combined ratio of 90.7 (83.5) currencies. This was due to the acquisition of • Gross premiums increased by 3.4% Skandia’s child insurance portfolio, which is highly (-3.1%) profitable and characterised by high retention • Expense ratio of 19.0 (18.7) levels. The acquisition also supports Tryg’s aim of growth in the Nordics as child insurance has con- Key figures – Sweden Sweden comprises the sale of insurance products to private customers under the ‘Moderna’ brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC, Securator, Moderna Barnförsäkringar and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres, part- ners and online. The business area accounts for 7% of the Group’s total premium income. siderable growth potential in both Denmark and DKKm Q4 2016 Q4 2015 Results Norway. Through 2016, focus was on mitigating the loss of a number of large affinity agreements Sweden Private posted a result of DKK 120m and the impact on distribution. The Swedish (DKK 218m) for 2016, which represented a signifi- organisation was able to offset this through higher cant reduction compared to the prior-year result. sales in Q4 2016 compared with Q4 2015, partly This was mainly due to a harmonisation of reserv- through cross-selling to customers in the boat ing models in 2015, resulting in a positive impact of and motorcycle insurance niche segments. 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 approximately DKK 70m. The result for 2016 was also impacted by persistent challenges with ex- Claims tended warranty insurance for electronic products The gross claims ratio totalled 71.5 (64.7) and and profit-sharing agreements. The profit-sharing was affected by higher claims levels, especially for relates to prior-year results. The combined ratio extended warranty insurance products. Initiatives was 90.7 (83.5), and premium income increased encompassing price hikes, claims prevention and by 3.4% (-3.1%) due to the acquisition of Skandia’s adjustment of terms have been implemented. The child insurance portfolio. With the acquisition of claims level was also impacted by a profit-sharing Skandia’s child insurance portfolio, Tryg continues agreement based on prior-year results, which im- Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Weather claims, net of reinsurance (%) 337 -245 -68 24 0 -1 23 28 12.2 72.7 0.0 72.7 20.2 92.9 101.2 -8.3 0.9 313 -162 -66 85 -1 1 85 66 -6.1 51.8 0.3 52.1 21.1 73.2 94.3 -21.1 1.6 2016 1,348 -964 -256 128 -3 -5 120 117 3.4 71.5 0.2 71.7 19.0 90.7 99.4 -8.7 0.8 | Contents – Management’s review 2015 1,317 -852 -246 219 -1 0 218 149 -3.1 64.7 0.1 64.8 18.7 83.5 94.8 -11.3 1.7 21 Annual report 2016 | Tryg A/S | Results Q4 2016 models used to calculate the claims reserves. The claims level for extended warranty insurance of The technical result totalled DKK 23m (DKK 85m), electronic goods was still high, but as mentioned with a combined ratio of 92.9 (73.2). In Q4 2015, earlier, initiatives have been introduced to bring a harmonisation of claims reserving models led down this level. to a run-off of approximately DKK 70m, which is the main reason for the higher result this year. Expenses Weather claims were at a slightly lower level. The expense ratio was 20.2 (21.1), reflecting the Premium growth was positive by 12.2% (-6.1%). fact that Skandia’s child insurance portfolio is now The expense level improved to 20.2 (21.1), part of the business and with a low expense level. primarily as a result of the acquisition of the Skandia business. The number of employees was 337(349), reflecting a decrease of 12 employees in Q4 2016 Premiums despite the acquisition of Skandia. Gross premiums increased by 12.2% (-6.1%) in local currencies, which was due to the acquisition of the Skandia insurance portfolio with an impact of approximately 16%. The portfolio was still impacted by the loss of a number of large agree- ments. Sales were at a higher level than before the loss of these large agreements. Claims The gross claims ratio was 72.7 (51.8) and net of ceded business 72.7 (52.1). The low claims ratio in Q4 2015 was due to the harmonisation of the Financial highlights Q4 2016 • Technical result of DKK 23m (DKK 85m) • Combined ratio of 92.9 (73.2) • Claims ratio, net of ceded business, of 72.7 (52.1) • Expense ratio of 20.2 (21.1) | Contents – Management’s review Annual report 2016 | Tryg A/S | 22 In 2016, Moderna launched the Moderna Smart MC app. The app records the driver’s driving style, and the motorcycle insurance price is then differentiated accordingly. Driving safely triggers a price discount the following year. Investment activities Key figures – investments DKKm Q4 2016 Q4 2015 2016 2015 Free portfolio, gross return Match portfolio, regulatory deviation and performance Other financial income and expenses Total investment return 541 8 49 598 201 85 -44 242 939 210 -162 987 232 -16 -238 -22 Financial highlights 2016 • Investment return of DKK 987m (DKK –22m) • Return on free portfolio of DKK 939m (DKK 232m) • Return on match portfolio of DKK 210m (DKK -16m) capital gain in Q4 of DKK 500m, plus a DKK 100m interest rate risk of its Danish liabilities, partly using and the US presidential election. The market digested increase of shareholders’ equity on the sale of a Danish swaps and partly also Euro swaps. When the unexpected outcomes fairly quickly and the year property portfolio. The purpose of the investment the yield difference between Danish and Euro swap ended on a positive note. The result of the free port- strategy is to support a high and stable technical rates decreases, the regulatory deviation should folio was very strong in 2016, helped also by the capi- result and thus to reduce overall volatility to the produce a positive result; however, when the yield tal gain in Q4 on the sale of a property portfolio of DKK greatest possible extent. Since 2010, this purpose difference increases, the result is likely to be nega- 500m. The result, excluding the extraordinary capital has been supported by the strategic split of the tive. In 2016, the spread narrowed by 5 basis points, gain, was driven primarily by interest rate and credit investment portfolio into a match portfolio (assets driving a regulatory deviation of DKK 47m. exposure (DKK 196m) and equities (DKK 194m). matching the insurance reserves) and a free port- folio (the capital of the company). Tryg reported a The most important driver of ‘performance’ is the Interest rates decreased to historically low levels in DKK 939m (DKK 232m) return on the free portfo- difference in yields between Danish, Norwegian 2016. The yield of the 10-year German government lio, a DKK 210m (DKK -16m) return on the match and Swedish covered bonds and equivalent swap bond touched -0.19% at the end of June before 2016 was an eventful year characterised by volatil- portfolio and other financial income and expenses rates. If spreads narrow (versus swap rates), the moving up to 0.25% in December. High-yield bonds ity caused primarily by important political events of DKK -162m (DKK -238m). overall performance is positive; otherwise the over- (approximately 6% of the free portfolio and less than such as the ‘Brexit’ referendum in the UK and the all performance is negative. Tryg seeks to maintain 2% of total investments) produced a return in excess of US presidential election. After some initial turmoil, Match result stability in its covered-bonds portfolio, also in terms 10.6%, while emerging-markets bonds (USD-denom - equity markets recovered, and overall reactions can The result of the match portfolio is the difference of maturity; hence, spread movement should be a inated sovereign bonds) produced a return just below be said to be relatively moderate. The highest-ever between the return on the portfolio and the amount good indicator of overall performance. In 2016, the 9.5%. Equity markets had a volatile year, but produced spread between US and German rates was seen transferred to the technical result. The ‘net’ result ‘performance’ result was an unusually high DKK overall solid returns, and Tryg’s equity portfolio was up towards the end of December with US 10-year can be split into a ‘regulatory deviation’ and a ‘per- 163m. Spreads narrowed substantially, driven by 8.4%, resulting in an overall DKK 194m return. The sale notes yielding more than 230bps compared to formance’ component. The most important driver the so-called ‘quantitative easing’ enabled by the of three investment properties in central Copenhagen German notes. One noticeable area of turbulence of the ‘regulatory deviation’ is the yield difference bond-buying programme of the ECB. boosted the investment result by DKK 420m; a highly was the currency markets where the British pound between Euro swap rates and Danish swap rates. and EM currencies weakened significantly. In Norway and Sweden, Tryg hedges using local Free portfolio result concentrated property portfolio has been swapped for a globally diversified portfolio which is more swaps corresponding to the EIOPA curve; hence, In 2016, financial markets were influenced by sev eral carefully aligned with Tryg’s overarching investment Tryg’s investment activities produced an overall only the Danish exposure is relevant. Since the significant events such as the UK referendum on strategy. The overall property exposure remains result of DKK 987m (DKK -22m), boosted by a beginning of 2016, Tryg has started to hedge the continued membership of the European Union unchanged after the aforementioned transaction. | Contents – Management’s review 23 Annual report 2016 | Tryg A/S | Return – match portfolio DKKm Q4 2016 Q4 2015 Return, match portfolio Value adjustments, changed discount rate Transferred to insurance technical interest Match, regulatory deviation and performance Hereof: Match, regulatory deviation Match, performance -275 323 -40 8 8 0 63 86 -64 85 76 9 2016 547 -188 -149 210 47 163 2015 140 103 -259 -16 12 -28 financial markets were influenced by the interest The match portfolio returned DKK 8m (DKK 85m) rate hike from the US central bank. This led to after transfer to the insurance part, which is in line increasing equity markets, with e.g. MSCI All Coun- with expectations. tries returning 3.7%, while high-yields also did well. The US dollar appreciated by almost 7%. On the Other financial income and expenses of DKK 49m other hand, inflation-linked, emerging-market and (DKK -44m) were impacted by the sale of domi- investment-grade bonds tumbled at the beginning ciles in Bergen and Ballerup in the amount of Q4 due to nervousness prior to the US election of DKK 93m. All in all, the return on Tryg’s invest- and sharply increasing interest rates. ment activities totalled DKK 598m in Q4 2016 For the free portfolio, this resulted in a return on (DKK 242m). Other financial income and expenses 2016, but the overall interest expenses on the sub- the equity and bond portfolio of DKK 115m and The other financial income and expenses component ordinated debt remained largely unchanged thanks DKK -42m, respectively. The negative contribution is primarily made up of interest expenses related to to the falling interest rates. Expenses from the hedg- of DKK -42m is primarily explained by negative outstanding subordinated debt, the cost of the cur- ing of the foreign currency exposure on Tryg’s equity returns from emerging-market, inflation-linked and rency hedge to protect our shareholders’ equity and totalled DKK -57m, and interest expenses on Tryg’s investment-grade bonds of DKK -59m, whereas the cost of running our investment operations. These subordinated loans were DKK -88 m. the interest rate increases in Q4 did not have much are the main elements included in other financial in- impact on the portfolio of covered bonds. The come and expenses. The other financial income and Investment activities in Q4 2016 investment return is positively influenced by the expenses line produced a result of DKK -162m. Tryg In Q4, the positive sentiment after the US election sale of investment properties with a return on the issued additional subordinated debt of SEK 1bn in in November was predominant. Additionally, the free portfolio of DKK 541m (DKK 201m). Financial highlights Q4 2016 • Investment return of DKK 598m (DKK 242m) • Return on free portfolio of DKK 541m (DKK 201m) • Return on match portfolio of DKK 8m (DKK 85m) Return – free portfolio DKKm Q4 2016 Q4 2016 (%) Q4 2015 Q4 2015 (%) 2016 2016 (%) 2015 2015 (%) 30.12.2016 31.12.2015 Investment assets Government bonds Covered bonds Inflation linked bonds Investment grade credit Emerging market bonds High-yield bonds Other a Interest rate and credit exposure Equity exposure b) Investment property Total gross return 0 6 -20 -21 -18 13 -2 -42 115 468 541 0.0 0.1 -3.5 -4.2 -4.1 1.8 -0.6 5.3 22.2 4.7 4 7 -4 0 6 -4 10 19 111 71 201 1.6 0.2 -0.9 0.0 1.5 -0.5 1.4 0.3 4.5 3.5 1.8 1 69 41 -14 41 81 -23 196 194 549 939 0.4 1.8 8.1 -0.9 9.5 10.6 2.8 8.4 26.1 8.0 4 -26 -1 0 2 -8 19 -10 91 151 232 1.4 -0.6 -0.2 0.0 0.5 -0.8 2.1 -0.1 3.4 7.2 1.9 a) Senior/Bank deposits less than 1 year and derivative financial instruments hedging interest rate risk and credit risk. b) In addition to the equity portfolio exposure is futures contracts of DKK 97m. | Contents – Management’s review 322 4,464 539 546 447 730 220 7,268 2,187 2,540 265 3,602 484 0 412 837 712 6,312 2,374 2,052 11,995 10,738 24 Annual report 2016 | Tryg A/S | Capital and risk management Risk Committee (ORC) reports directly to the out risk identification routines, written ORSA Risk Committee. The ORC is responsible for all (Own Risk and Solvency Assessment) reports, operational risks and is under an obligation to acted in a setup comprising three lines of defence report high risks to the Risk Committee. Fraud is and appointed a special Risk Committee under a priority focus area in Tryg, when it comes to the Supervisory Board which focuses on capital both regular insurance fraud and internal fraud. and risk management. Tryg’s partial internal A dedicated unit in the Claims department covers Solvency II model was approved by the Danish the insurance fraud angle, and a special Corpo- FSA in November 2015. Read more about Tryg’s rate Security unit covers the internal fraud angle. risk management in Note 1 on page 50. Risk management is based on Tryg’s targets and claims and weather events, and reinsurance is used Intensive controls are carried out based on fraud strategies and the risk exposure limits decided extensively to smooth the impact on earnings. scenarios, and dedicated persons in Corporate Capital management by the Supervisory Board. The assessment and Security investigate the outcome. Capital management is based on Tryg’s partial management of Tryg’s aggregated risk and the Investment risk internal capital model, which was approved by associated capital requirements therefore consti- The investment risk is managed by looking at total IT security is a major operational risk area. Tryg’s the supervisory authorities in November 2015. tute a central element in the management of the exposure and capital consumption by asset classes IT security policy is based on the ISO 27000 Tryg has modelled the insurance risk internally, company. Tryg’s Supervisory Board defines the (bonds, shares, properties etc.). A very important framework, and Tryg has a dedicated second- while using the standard formula for all other framework for the company’s target risk appetite element in managing Tryg’s investment risk is the level Corporate Security unit performing security risks. The capital model is based on the risk and thereby the capital which must be available company’s matching strategy, according to which assessments of projects, controlling outsourcing profile, and therefore takes into consideration to cover any losses. Risk management is primar- invested assets corresponding to the technical pro- partners and performing regular IT risk analyses. the composition of Tryg’s insurance portfolio, ily focused on insurance risk, investment risk and visions must be invested in interest-bearing assets, We also have a strong focus on user awareness geographical diversification, its claims reserves operational risk. Insurance risk where the interest rate sensitivity of these assets as social engineering is the criminals’ preferred profile, reinsurance programme, investment mix matches and thereby hedges the interest rate sen- way of penetrating company IT systems. Further- and Tryg’s profitability in general. sitivity of the discounted provisions as closely as more, Tryg has a whistleblower line, which allows The insurance risk is managed by limiting the size possible. The so-called match portfolio represents employees, customers and business partners The Solvency Capital Requirement (SCR) is of single large commitments and through the use approximately 70% of total group investments, to report any serious wrongdoings or suspected calculated in such a way that Tryg would stat- of reinsurance, thus reducing the maximum cost while the free portfolio (the capital of the company) irregularities. of large claims. Furthermore, the insurance risk is represents the remaining 30%. managed through geographical limitations and by Solvency II istically be able to honour its obligations in 199 out of 200 years. In other words, Tryg could have a loss greater than DKK 5.1bn refraining from offering certain types of insurance Operational risk The Solvency II regime emphasises the need for (the SCR) in 1 out of 200 years. such as aviation and marine hull insurance. Operat- The operational risk covers several different areas sound risk management and introduces additional ing within these boundaries, Tryg’s risk depends on of Tryg’s operations. The most important ones requirements concerning risk governance, consist- Tryg’s SCR was DKK 5.1bn at the end of 2016, the company’s choice of exposure within different are physical security, fraud, whitewash, crisis ency across the Group and top management which is the same level as on 1 January 2016, when segments and industries in the insurance market. management, competencies and processes, and IT reporting and involvement. Tryg has been working Solvency II went live. At the end of 2016, Tryg’s Tryg operates in a relatively stable line of business. security. The Operational Risk Policy is approved towards implementing the principles of Solvency II Own funds were DKK 9,850m (after deducting Quarterly fluctuations are driven mainly by large by the Supervisory Board while the Operational for years and has, amongst other things, carried the H2 dividend and the proposed extraordinary | Contents – Management’s review 25 Annual report 2016 | Tryg A/S | dividend of DKK 1bn) against DKK 10.3bn at ATier 1 instruments (old subordinated debt which company’s strategy for the coming years, and Moody’s rating 1 January 2016. Own funds during the year have has been grandfathered) and future profits. The also on the most significant risks identified by the In 2016, Tryg decided to terminate the rating mostly been impacted positively by net profits vast majority of Tryg’s Own funds are represented company. The adequacy is measured in relation to agreement with Standard and Poor’s and acquire and negatively by dividends and buy backs. by shareholders’ equity. Tryg’s strategic targets, including return on equity a rating from Moody’s. At the end of April, Tryg Additionally, Tryg issued SEK 1.0bn sub ordinated, and dividend policy. Solvency II-compliant debt. This boosted the Own The Tier 2 capacity has been fully utilised after was assigned an ‘A2’ financial strength rating with a positive outlook. The rating was upgraded in funds in its Tier 2 component. The Solvency ratio the SEK 1bn subordinated debt issue in May At the annual general meeting to be held on December 2016 to an ‘A1’ financial strength rating was 194 at year-end 2016. 2016. Currently, some DKK 200m of Tier 2 instru- 8 March 2017, Tryg’s Supervisory Board will with a stable outlook. In its press release, Moody’s ments are not included in the Own funds as they propose an H2 dividend of DKK 3.60 per share. noted that the A1 IFSR reflects Tryg’s leadership The key components of Tryg’s Own funds are exceed the 50% SCR cap. Tryg had additional In 2016, Tryg also paid a semi-annual dividend position in Property & Casualty (P&C) insurance in shareholders’ equity, intangibles, Tier 2 instru- ATier 1 capacity of DKK 1.0bn at the end of 2016. of DKK 2.60 per share. The full-year dividend is the Nordic region, its strong profitability both from ments (subordinated debt and natural perils pool), thus DKK 6.20 per share, equivalent to the total a return on capital and underwriting (combined Tryg’s solvency ratio displays low sensitivities to distribution of DKK 1,770m. ratio) perspective, very good asset quality and capital market movements. The highest sensitiv- relatively low financial leverage. Own funds DKKm 12,000 10,000 8,000 6,000 4,000 2,000 0 ity is towards spread risk, where a widening/ In conjunction with the capital plan, a contingency tightening of 100 basis points would impact the plan is made. It describes specific measures that solvency ratio by approximately 12 percentage may be introduced in the near term, should the points. Lower sensitivities are displayed towards company’s desired capital position be threatened. equity market falls and interest rate movements. Tryg’s Supervisory Board has approved both the 9,850 10,286 capital plan and the contingency plan. Read more A change in the UFR (Ultimate Forward Curve) about Tryg’s risk management and Solvency II in Q4 2016 1 Jan. 2016 would have a very modest impact as the sol- note 1 on page 50. Solvency capital requirement DKKm 6,000 5,000 4,000 3,000 2,000 1,000 0 5,077 5,137 vency ratio would fall 1 percentage point. This is unsurprising considering that Tryg underwrites only non-life risks with low duration. Shareholder remuneration Ordinary and extraordinary dividend The Supervisory Board regularly assesses the need for capital adjustments. In 2017, Tryg has decided to announce a DKK 1bn (DKK 3.54 per share) extraordinary dividend after assessing the company’s capital plan, in which the SCR DKK 10 8 6 4 2 0 2.6 5.2 3.2 5.4 3.4 5.8 3.5 6.0 3.5 6.2 2012 2013 2014 2015 2016 Q4 2016 1 Jan. 2016 is projected on the basis of Tryg’s forecasts. Ordinary dividend The projections include initiatives set out in the Extraordinary buy back Extraordinary dividend | Contents – Management’s review 26 Annual report 2016 | Tryg A/S | Shareholder information ance investors remained very focused on Solvency own shares, corresponding to 2.7% of the share II (the new capital regime introduced on 1 January capital. At the annual general meeting, the 2016), adding an increased level of scrutiny to Supervisory Board will propose the cancellation European insurers’ balance sheets. This remains of the repurchased shares. Investor Relations (IR) is responsible for Tryg’s The Tryg share particularly true for the traditional life insurers whose business model is under heavy pressure from the extremely low interest rate levels. NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. In 2016, communication with the capital markets. It is The Tryg share is listed on NASDAQ Copenhagen. NASDAQ Copenhagen accounted for 59.3% of important that investors, analysts and other In accordance with the recommendations issued the turnover of the Tryg share. This means that stakeholders are able to form a true and fair view by NASDAQ Copenhagen, Tryg does not com- approxi mately 41% of all trading in 2016 was TrygFonden of developments, including Tryg’s financial results. ment on the company’s financial results or out- carried out on alternative exchanges (MTF trades), For this reason, we strive to be as open and trans- look two weeks before the publication of interim led by Turquoise as the largest alternative ex- parent as possible to ensure that stakeholders’ reports and four weeks before the publication of change. Average daily turnover on NASDAQ was information requirements are met at the highest the annual report. Company announcements, DKK 58m and average daily volume was 1,498. possible level. IR is in charge of communication press releases and transaction statements are The numbers were higher in 2015 impacted, with equity investors, fixed-income investors and published in both Danish and English, whereas amongst other things, by Tryg’s 1:5 share split. rating agencies. Tryg’s IR policy is available at interims and annual reports are published in tryg.com/investor. English. It is possible to subscribe to all financial Share capital and ownership After the publication of quarterly and annual Twitter. reports, Tryg’s management and IR team travel 31 December 2016. It comprised one share class (282,541,204 shares with a nominal value of extensively to meet with shareholders and poten- The Tryg share started the year at a price of DKK 5), and all shares rank pari passu. information on tryg.com. Follow @TrygIR on Tryg’s share capital totalled 1,412,706,020 on tial investors. Quarterly analyst presentations are DKK 137.4 and ended 2016 at DKK 127.7. The also held in Copenhagen and London. Tryg also total return of the share including dividends was The majority shareholder, TryghedsGruppen smba, attends various financial conferences. In 2016, we -2.6% . The Tryg share followed an unusually owns 60% of the shares and is the only share- held almost 300 investor meetings – mostly one- volatile pattern in 2016, to some extent due to holder owning more than 5% of the share capital. to-ones but also some group meetings in Europe, a number of remarkable political events which TryghedsGruppen invests in peace-of-mind and the USA, Canada and Asia (Japan and Singapore). sharply impacted financial stocks. healthcare providers in the Nordic region, and The Tryg share is covered by 21 analysts, who supports non-profit-making activities. continuously update their recommendations Brexit and the US presidential election resulted in and earnings forecasts. See a list of analysts large swings in the equity markets, in particular At the end of 2016, and after completion of the and their recommendations at tryg.com/investor. for banks’ and insurers’ stocks. Additionally, insur- share buy back programme, Tryg held 7,946,118 TrygFonden works actively to create peace of mind in Denmark, supporting around 800 activities that contribute to this, such as coastal lifeguards and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributed DKK 550m to projects that create peace of mind throughout Denmark in 2016. The amount will be increased to DKK 600m in 2017. TryghedsGruppen In 2016, Tryg’s majority shareholder, TryghedsGruppen, paid out a members’ bonus to Tryg’s Danish customers corresponding to 8% of the annual premium paid for 2015. | Contents – Management’s review 27 Annual report 2016 | Tryg A/S | Quarterly dividends from 2017 • An aspiration to distribute steadily increasing Tryg paid out semi-annual dividends in 2015 dividend in nominal terms on a full-year basis. and 2016 and will start paying out quarterly • Annual distribution of 60-90% of the profit Distribution DKKm dividends in 2017. Tryg’s share has a distinct after tax. income profile; the business generally grows in • The capital level must at all times reflect line with GDP, producing high margins, which the return on equity targets and the are mostly returned to shareholders. The pro- statutory capital requirements. longed period of very low interest rates means • The capital level may be adjusted via that investors, all else being equal, attach even extraordinary dividends. greater importance to dividends than in more normal environments. From an investment Based on Tryg’s dividend policy and the satisfac- perspective, a quarterly dividend will be a clear tory 2016 results, the Supervisory Board will Dividend Dividend per share (DKK) a) Payout ratio Extraordinary share buy back Extraordinary dividend b) 2016 1,770 6.2 72% 0 1,000 2015 1,759 6.0 89% 1,000 2014 1,731 5.8 68% 1,000 2013 1,656 5.4 70% 1,000 2012 1,594 5.2 72% 800 a) Dividend per share includes dividend for H1 of DKK 2.60 paid out in July 2016 and dividend of DKK 3.60 proposed by the Supervisory Board for adoption by the annual general meeting. b) Proposed by the Supervisory Board for adoption by the annual general meeting. reminder of the high profitability of the business propose an H2 dividend of DKK 3.60 per share at allows such extraordinary payments. Based on and its focus on returning capital to sharehold- the annual general meeting on 8 March 2017. The many investor meetings in 2016, it has become Financial calendar 2017 ers. Tryg’s dividend policy is based on the full-year dividend corresponds to a payout of 72% clear that in general, there is a higher prefer- following assumptions: of the profit after tax. ence for dividends than buy backs. The proposed • A general objective of creating long-term value Extraordinary dividends from 2017 total DKK 1bn corresponding to a dividend for the company’s shareholders. Starting 2017, Tryg has decided to move from of DKK 3.54 per share. • A competitive dividend policy in comparison effecting extraordinary buy backs to paying out with the policies of our Nordic competitors. extraordinary dividends when the capital position Annual general meeting extraordinary dividend payout in 2017 will 8 Mar. 2017 Annual general meeting 9 Mar. 2017 Tryg shares are traded ex-dividend 13 Mar. 2017 Payment of H2 2016 dividend and extraordinary dividend 7 Apr. 2017 Interim report Q1 2017 Shareholders At 31 December 2016 13 15 12 Per cent 60 TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders Free float – geographical distribution At 31 December 2016 6 4 15 20 Per cent 55 Denmark UK USA Nordic region Others a) Shareholders holding more than 10,000 shares. Free float is exclusive of TryghedsGruppen. Tryg’s annual general meeting will be held on 10 Apr. 2017 8 March 2017 at 15:00 CET at Tryg’s head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark. Tryg shares are traded ex-dividend 12 Apr. 2017 Payment of Q1 dividend The notice will be advertised in the daily press in 11 July 2017 February 2017 and will be sent to shareholders upon request. The annual general meeting 12 July 2017 will also be announced at tryg.com. Interim report Q2 and H1 2017 Tryg shares are traded ex-dividend The company announcements issued in 2016 can be seen at tryg.com > Investor > News. 14 July 2017 Payment of Q2 dividend 10 Oct. 2017 Interim report Q1-Q3 2017 11 Oct. 2017 Tryg shares are traded ex-dividend 13 Oct. 2017 Payment of Q3 dividend | Contents – Management’s review 28 Annual report 2016 | Tryg A/S | Corporate governance Annual general meeting Depending on the development in results, each Tryg holds an annual general meeting (AGM) every year the Supervisory Board proposes the distri- year. As required by the Danish Companies Act and bution of semi-annual dividend, and possibly an the Articles of Association, the AGM is convened extraordinary share buy back if further adjustment via a company announcement and at tryg.com of the capital structure is required. From Q1 2017, subject to at least three weeks’ notice. Sharehold- Tryg will introduce a quarterly dividend. At the ers may also opt to receive the notice by post or annual general meeting in 2016, the shareholders email. The notice contains information about time authorised the Supervisory Board to allow Tryg and venue as well as an agenda for the meeting. to acquire own shares amounting to up to 10% Tryg focuses on managing the company in ac- other things, that all company announcements are of the share capital during the period up until cordance with the principles of good corporate published in Danish and English. Tryg publishes All shareholders are encouraged to attend the AGM. 31 December 2017. On 6 April 2016, Tryg initiated governance and generally complies with the Danish quarterly interim reports in English. Furthermore, The AGM is held by personal attendance as the a share buy back programme, which ran until recommendations prepared by the Committee on Tryg publishes an annual profile in Danish, English Supervisory Board values personal contact with the 16 December 2016. Tryg acquired own shares for Corporate Governance. The Recommendations on and Norwegian. The profile is addressed to Tryg’s Group’s shareholders. Shareholders may propose an amount of DKK 1bn. Starting 2017, Tryg has Corporate Governance are available at corporate- private shareholders, customers, employees and items to be included on the agenda for the annual decided to move from extraordinary buy backs to governance.dk. At tryg.com, Tryg has published other stakeholders and is published on 26 January general meeting, and may ask questions before and extraordinary dividends when the capital position its statutory corporate governance report based 2017. Moreover, Tryg prepares quarterly investor at the meeting. Shareholders may vote in person allows extraordinary payments. The proposed on the ‘comply-or-explain’ principle for each presentations, which are used in the dialogue at the annual general meeting, by post or appoint extraordinary dividend is DKK 1bn in 2017. individual recommendation. This section on cor- with investors and analysts. All announcements, the Supervisory Board or a third party as their porate governance is an excerpt of the corporate financial reports, presentations and newsletters proxy. Shareholders may consider each item on the Duties, responsibilities and composition governance report. Download Tryg’s statutory are available at tryg.com. This material provides agenda. The proxy form and form for voting by post of the Supervisory Board corporate governance report at tryg.com > Investor all stakeholders with a comprehensive picture of are available at tryg.com prior to the AGM. The Supervisory Board is responsible for the central > Download. Tryg’s position and performance. The consolidated strategic management and financial control of Tryg financial reports are presented in accordance Share and capital structure and for ensuring that the business is organised Dialogue between Tryg, shareholders with IFRS. At tryg.com, stakeholders are invited to Tryg’s share capital comprises a single share class, in a sound way. This is achieved by monitoring and other stakeholders subscribe to press releases, company announce- and all shares rank pari passu. The majority share- targets and frameworks on the basis of regular and The Investor Relations (IR) department maintains ments as well as insider trading announcements. holder, TryghedsGruppen smba, owns 60% of the systematic reviews of the strategy and risks. The regular contact with analysts and investors. A number of internal guidelines ensure that the shares and is the only shareholder owning more Executive Board reports to the Supervisory Board Together with the Executive Board, IR organises disclosure of price-sensitive information complies than 5% of the company’s shares. The Supervi- on strategies and action plans, market develop- investor meetings and conference calls and par- with legislation and the stock exchange’s codes of sory Board ensures that Tryg’s capital structure is ments and Group performance, funding issues, ticipates in conferences in Denmark and abroad. conduct. Tryg has adopted a number of policies aligned with the needs of the Group and the inter- capital resources and special risks. The Supervisory IR also communicates with stakeholders in the describing the relationship between different s ests of its shareholders and that it complies with Board holds one annual strategy seminar to decide social media via Twitter@TrygIR. The Supervisory takeholders. See the IR policy at tryg.com the requirements applicable to Tryg as a financial on and/or adjust the Group’s strategy with a view to Board is informed about the dialogue with investors > Investor > IR contacts > IR policy, and the undertaking. Tryg has adopted a capital plan and a sustaining value creation in the company. The Ex- and other stakeholders on a regular basis. Tryg CSR policy at tryg.com > CSR > CSR strategy contingency capital plan, which are reviewed ecutive Board works with the Supervisory Board to has adopted an IR policy, which states, among > CSR policy. annually by the Supervisory Board. ensure that the Group’s strategy is developed and | Contents – Management’s review 29 Annual report 2016 | Tryg A/S | monitored. The Supervisory Board ensures that The Supervisory Board performs an annual evalu- guarantee diversity at management levels. Tryg at- committees, are independent persons. Of the four the necessary skills and financial resources are ation of its work and skills to ensure that it pos- taches importance to diversity at all management members of the Remuneration Committee, one available for Tryg to achieve its strategic targets. sesses the expertise required to perform its duties levels. Tryg has prepared an action plan, which sets member is an independent person, while one out The Supervisory Board specifies its activities in a in the best possible way. The Supervisory Board fo- out specific targets to ensure diversity and equal of two members of the Nomination Committee set of rules of procedure and an annual cycle for cuses primarily on the following qualifications and opportunities and access to management pos- is independent. Board committee members are its work. skills: management experience, financial insight, itions for qualified men and women. elected primarily based on special skills that are organisation, IT, product development, commu- considered important by the Supervisory Board. Eight members of the Supervisory Board are nication, market insight, international experience, In 2016, the proportion of women at management Involvement of the employee representatives in elected by the annual general meeting for a term knowledge of insurance, reinsurance, capital level was 36.4% against 35.4% in 2015. The target the committees is also considered important. of one year. Of the eight members elected at the requirements, general accounting insight and ac- for 2016 of 38% or more women at management The committees exclusively prepare matters annual general meeting, four are independent counting principles (GAAP), including regulations level was therefore not met. Tryg maintains the for decision by the entire Supervisory Board. persons as stated in recommendation 3.2.1 in and principles designed for the insurance industry target to increase the total proportion of women The special skills of all members are also Recommendations on Corporate Governance, and M&A experience. See CV’s and descriptions at management level to 38% or more in 2017. described at tryg.com. while the other four members are dependent of the skills in the section Supervisory Board on See the action plan at tryg.com > CSR persons as they are appointed by the majority pages 33-34 and at tryg.com > Governance > > Thematic areas > People. Remuneration of Management shareholder TryghedsGruppen. See pages 33-34 Management > Supervisory Board. for information on when the individual members Board committees Tryg has adopted a remuneration policy for the Supervisory Board and the Executive Board, joined the Supervisory Board, were re-elected and Duties and composition of the Executive Board Tryg has an Audit Committee, a Risk Committee, including general guidelines for incentive pay. The when their current election period ends. To ensure Each year, the Supervisory Board reviews and a Nomination Committee and a Remuneration remuneration policy for 2016 was adopted by the the integration of new talent on the Supervisory adopts the rules of procedure of the Supervisory Committee. In 2016, Tryg set up a temporary Supervisory Board in January 2016 and approved Board, members elected by the annual general Board and the Executive Board with relevant IT Committee to allow the Board to work more by the annual general meeting on 16 March 2016. meeting may hold office for a maximum of nine policies, guidelines and instructions describing closely with Tryg’s IT strategy. The framework of The Chairman of the Supervisory Board reports on years. Furthermore, members of the Supervisory reporting requirements and requirements for com- the committees’ work is defined in their terms of Tryg’s remuneration policy each year in connection Board must retire at the first annual general meet- munication with the Executive Board. Financial reference. The board committees’ terms of with the review of the annual report at the annual ing following their 70th birthday. The Supervisory legislation also requires the Executive Board to reference can be found at tryg.com > Governance general meeting. The Board’s proposal for the Board has 12 members, seven men and five disclose all relevant information to the Supervisory > Management > Supervisory Board > Board com- remuneration of the Supervisory Board for the cur- women (including two male and two female Board and report on compliance with limits de- mittees, including descriptions of members, meet- rent financial year is also submitted for approval employee representatives). Women are thus not fined by the Supervisory Board and in legislation. ing frequency, responsibilities and activities during by the shareholders at the annual general meeting. underrepresented on Tryg’s Supervisory Board. the year. See the tasks of the board committees See the remuneration policy at tryg.com The Supervisory Board has members from The Supervisory Board considers the composi- in 2016 at tryg.com > Governance > Management > Governance > Remuneration. Denmark, Sweden and Norway. See details tion, development, risk and succession plans of > Supervisory Board > Board committees. about the independent board members in the the Executive Board in connection with the annual Remuneration of Supervisory Board section Supervisory Board on pages 33-34 evaluation of the Executive Board, and regularly Three out of four members of the Audit Com- Members of Tryg’s Supervisory Board receive a and at tryg.com > Governance > Management in connection with board meetings. Each year, the mittee and three out of five members of the fixed fee and are not comprised by any form of > Supervisory Board. Supervisory Board discusses Tryg’s activities to Risk Committee, including the chairman of the incentive or severance programme or pension | Contents – Management’s review 30 Annual report 2016 | Tryg A/S | Total remuneration of the Supervisory Board in 2016 within the framework of the approved remuner- fulfilment of additional conditions such as contin- ation policy. Tryg wants to strike an appropriate ued employment and back testing (a testing prior Audit Fee Committee Risk Remuneration Committeea) Committeea) Total balance between management remuneration, to matching, to ensure that the criteria forming predictable risk and value creation for the share- the basis of the calculation of the variable salary DKK Jørgen Huno Rasmussen Torben Nielsen Tom Eileng b) Lone Hansen Anders Hjulmand b) Jesper Hjulmand Ida Sofie Jensen Bill-Owe Johansson Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund Anya Eskildsen c) Vigdis Fossehagen c) 225,000 197,581 150,000 131,720 150,000 150,000 131,720 131,720 131,720 1,061,371 707,581 285,484 353,790 285,484 353,790 353,790 353,790 353,790 353,790 353,790 353,790 68,307 68,307 75,430 79,301 146,895 1,208,266 1,130,162 364,785 353,790 285,484 635,510 429,220 353,790 635,510 485,510 635,510 451,720 86,936 86,936 97,930 18,629 18,629 a) Fee increased as from 1 April 2016 b) Joined the Supervisory Board in March 2016 c) Resigned from the Supervisory Board in March 2016 holders in the short and long term. are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure The Executive Board’s remuneration consists of a alignment of interests between the Executive base salary, a pension contribution of 25% of the Board and the company’s shareholders. base salary and other benefits. The base salary must be competitive and appropriate for the Each year the Supervisory Board evaluates the market and provide sufficient motivation for performance of the Executive Board against the all members of the Executive Board to do their targets set by the Supervisory Board for the fiscal best to achieve the company’s defined targets. year. The overall fulfilment of the weighted targets The Supervisory Board can decide that the base determines the number of investment shares of- salary should be supplemented with a variable fered to each member of the Executive Board. The pay element of up to 25% of the fixed base salary targets for 2016 were a combination of long-term including pension. strategic targets and developmental targets, 60% weighted on the year's fulfilment of Tryg's CMD scheme. Their remuneration is based on trends in remuneration is twice that received by ordinary The variable pay element consists of a Matching 2017 targets, which were specified as combined peer companies, taking into account the required members of the Supervisory Board. Shares Programme. The Executive Board may, ratio, expense ratio, premium growth, Net Promo- skills, efforts and the scope of the Supervisory using taxed funds, buy shares (so-called invest- tor Score (NPS) and employee satisfaction, and Board’s work, including the number of meetings Remuneration of Executive Board ment shares) in Tryg A/S at market price for a 40% weighted on development targets, including held. The remuneration received by the Chair- Members of the Executive Board are employed predefined amount. Four years after the purchase, targets such as moving closer to the customers man of the Board is three times that received by on a contractual basis, and all terms of their remu- Tryg will grant one matching share per investment (higher degree of customers who are fully insured ordinary members, while the Deputy Chairman’s neration are established by the Supervisory Board share free of charge. Matching is conditional upon in Tryg), creating a strong customer centre, em- Total remuneration of the Executive Board in 2016 DKK Morten Hübbe Lars Bonde Christian Baltzer b) Tor Magne Lønnum c) Base salary Pension Car allowance Other benefits Total fixed salary Share-based remuneration a) Total fee 9,701,848 4,811,092 2,125,000 1,757,715 2,425,462 1,202,773 531,250 391,578 255,000 255,000 180,625 45,081 26,000 26,000 18,417 7,583 12,408,310 6,294,865 2,855,292 2,201,957 2,000,000 938,000 531,250 14,408,310 7,232,865 3,386,542 2,201,597 a) The maximum investment opportunity offered under the Matching Shares Programme at the beginning of 2017 (performance year 2016) b) Group CFO as of 15 April 2016 c) Resigned as Group CFO on 15 April 2016. Tor Magne Lønnum’s base salary includes a non-relocation allowance of DKK 191,403. powering the different lines of business, achieving high levels of innovation and development of prod- ucts/services and the impact and success of Tryg's leaders. Read more about the Matching Shares Programme in the remuneration policy at tryg.com > Governance > Remuneration. Financial reporting, risk management and auditing Being an insurance business, Tryg is subject to the risk management requirements of the Danish Financial Business Act and Solvency II. In its | Contents – Management’s review 31 Annual report 2016 | Tryg A/S | policies, the Supervisory Board defines Tryg’s risk reports on non-compliance with the frameworks Independent and internal audit Tryg’s internal audit department regularly reviews management framework as regards insurance risk, and guidelines established by the Supervisory The Supervisory Board ensures monitoring by the quality of the Group’s internal control systems investment risk and operational risk, as well as IT Board. The Risk Committee monitors the risk competent and independent auditors. The Group’s and business procedures. It is responsible for plan- security, and issues guidelines to the Executive management on an ongoing basis and reports internal auditor attends all Board meetings. The ning, performing and reporting on the audit work to Board. Risks associated with new financial report- quarterly to the Supervisory Board. independent auditor attends the annual Board the Supervisory Board. ing rules and accounting policies are monitored meeting at which the annual report is presented. and considered by the Audit Committee, the The Group’s internal control systems are based Deviations and explanations finance management and the internal auditors. on clear organisational structures and guidelines, The annual general meeting annually appoints Tryg complies with the Recommendations on Material legal and tax-related issues and the general IT controls and segregation of functions, an independent auditor recommended by the Corporate Governance with the exception of the financial reporting of such issues are assessed on which are supervised by the internal auditors. Supervisory Board. The internal and independent recommendation concerning the number of inde- an ongoing basis. Other risks associated with auditors attend the Audit and Risk Committee pendent members of the board committees, with the financial reporting are described in the section As part of the internal control system, Tryg has es- meetings, and at least once a year the auditors which Tryg complies partially; see recommenda- Capital and risk management on pages 25-26 tablished independent risk management, compli- meet with the Audit Committee without the pres- tion 3.4.2 of the Recommendations on Corporate and in Note 1 Risk management on page 50. ance and actuarial functions. The functions report ence of the Executive Board. The Chairman of the Governance. The deviation is explained in Tryg’s Tryg engages in ongoing risk identification, map- Risk Committee. Tryg has a decentralised set-up to be reported to the Supervisory Board. available at tryg.com > Investor > Download. to the Executive Board and the Supervisory Board’s Audit Committee deals with any matters that need statutory corporate governance report, which is ping insurance risks and other risks which may whereby risk managers in the business areas carry endanger the realisation of Tryg’s strategy or which out controlling tasks for the risk management and may potentially have a substantial impact on Tryg’s compliance functions. financial position. The process involves identifying and continually monitoring the risks identified. As Risk management is an integral part of Tryg’s in previous years, Tryg undertook an Own Risk and business operations. The Group seeks at all times Solvency Assessment (ORSA) in 2016. The purpose to minimise the risk of unnecessary losses in order of the ORSA is to ensure and demonstrate a link to optimise returns on the company’s capital. between strategy, risk management, risk appetite, Read more about Tryg’s risk management solvency and capital planning over the planning in the section Capital and risk management on period. pages 25-26 and in Note 1 on page 50. The Supervisory Board and the Executive Board ap- Whistleblower line prove and monitor the Group’s overall policies and Tryg has a whistleblower line, which allows em- guidelines, procedures and controls in important ployees, customers and business partners to report risk areas. They receive reports about develop- any serious wrongdoings or suspected irregularities. ments in these areas and about the ways in which Reporting takes place in confidence to the Chair- the frameworks are applied. The Supervisory Board man of the Audit Committee and the Head of Com- checks that the company’s risk management and pliance. Read more about Tryg’s whistleblower internal controls are effective. The Board receives line at tryg.com > Governance > Whistleblower line. 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. | Contents – Management’s review Annual report 2016 | Tryg A/S | 32 Supervisory Board Jørgen Huno Rasmussen a) Chairman Born in 1952. Joined: 2012. Danish citizen. Professional board member. Adjunct professor, CBS. Former CEO of the FLSmidth Group. Education: B.Com. (Organisa- tion), MSc (Civ. Eng.), PhD (Constr. Man.). Chairman: Tryg A/S, Tryg For- sikring 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 Tryg's Remuneration and Nomination Committees and the Remuneration Commit- tee in Haldor Topsøe A/S. Number of shares held: 1,830 Change in portfolio 2016: 0 As former CEO of FLSmidth, Jørgen Huno Rasmussen has experience in international man- agement of listed companies and special skills within strategy, business development, com- munication, risk management and finance. Torben Nielsen b) Anders Hjulmand Ida Sofie Jensen a) Lone Hansen Bill-Owe Johansson 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 Organisation, Work Sociology, Credit and Financing. Chairman: Sydbank A/S, Inves- teringsforeningen Sparinvest DK, EIK banki p/f 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: Tryg’s Audit Committee (Chairman), Risk Committee (Chairman) and Remuneration Committee. Number of shares held: 20,000 Change in portfolio 2016: +1,000 Torben Nielsen has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Natio- nalbank. Born in 1951. Joined: 2016. Danish citizen. Lawyer and partner at HjulmandKaptajn. Education: LL.M. Chairman: B&E STÅL A/S, Brdr. Schlie’s Fiskeeksport A/S, Conscius A/S, CPS A/S, Danish Label Coating A/S, Friis & Moltke A/S, Lastvogn & Trailer Center A/S, Nordjyske Jernbaner A/S, Palle Mørch A/S, Pava Produkter A/S, Seafood International Holding A/S, Scan Fish Danmark A/S, Utzon Center A/S, Kunsten – Museum of Modern Art, PSC A/S and a number of subsidiaries. Deputy Chairman: The Royal Danish Theatre. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, Flemming Christensens Fond, FDE Fonden, Effer Krancenter A/S, Sawo A/S and Utzon Fond. Number of shares held: 1,168 Change in portfolio 2016: +1,168 Anders Hjulmand is experienced in the counselling of a number of Danish and international, privately and publicly owned companies and foundations, and he is experienced within the areas of law, management, strategy and business development. Born in 1958. Joined: 2013. Danish citizen. CEO of Lif (Danish Association of the Phar- maceutical Industry), the subsid- iary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry). Education: MSC in Political Science, European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University. Board member: Tryg A/S and Tryg Forsikring A/S, Trygheds- Gruppen smba, Plougmann & Vingtoft A/S and Hans Knudsen Instituttet (business trust). Committee memberships: Remuneration Committee in Tryg. Number of shares held: 1,175 Change in portfolio 2016: 0 Ida Sofie Jensen has experience from business operations and the healthcare sector as well as management, strategy, politics and finance. Employee representative Born in 1959. Joined: 2010. Swedish citizen. Claims handler in Atlantica (Moderna, Swedish subsidiary). Employed since 2002. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Number of shares held: 1,500 Change in portfolio 2016: +235 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 2016: 0 Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. An employee election was 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 2016 | Tryg A/S | Supervisory Board Jesper Hjulmand a) Lene Skole b) Mari Thjømøe b) Carl-Viggo Östlund b) Tom Eileng Tina Snejbjerg Born in 1963. Joined: 2010. Danish citizen. CEO of SEAS- NVE A.m.b.A. Education: MSc in Economic and Business Administration, Lieutenant-Colonel Royal Danish Air Force Reserve, Pathfinder. Chairman: Employers association of Danish utility companies (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 Executive Committee and Executive Com- mittee of the Danish Energy Association. Committee memberships: Audit Committee and Risk Committee in Tryg, Executive Committee of Danish Energy Association (Chairman), member of the Board of Representatives in Tryghedsgruppen and in Nykredit. Number of shares held: 8,750 Change in portfolio 2016: 0 From his positions with SEAS-NVE, Jesper Hjulmand has experience within M&A, strategy, organisational and management development, communication and business development. Born in 1959. Joined: 2010. Danish citizen. CEO of Lund- beckfonden and Lundbeckfond Invest A/S. Education: The A.P. Møller Group International shipping education, Graduate Diploma in Finance and various international management programmes. Chairman: LFI Equity A/S Deputy Chairman: Dong Energy A/S, H. Lundbeck A/S, ALK- Abelló A/S and Falck A/S Board member: Tryg A/S and Tryg Forsikring A/S Committee memberships: Audit Committee and Risk Committee in Tryg, the Audit & Nomination Committee in ALK-Abelló A/S and the Audit and Remuneration Committee in H. Lundbeck A/S, Audit Committee in Falck A/S Number of shares held: 5,525 Change in portfolio 2016: 0 Lene Skole has experience from international companies, among other things through her previous work in Coloplast and The Maersk Company Ltd., UK. Lene Skole has skills within strategy, financing and com- munication. Born in 1962. Joined: 2012. Norwegian citizen. Professional board member and independ- ent advisor. Education: Master’s degree in Economy and Business Admin- istration, Chartered Financial Analyst (CFA) as well as Senior Executive Programmes from London Business School and Harvard Business School. Chairman: Seilsport Maritimt Forlag AS, Færder Nasjonalpark- senter IKS, ThjømøeKranen AS. Board member: Tryg A/S, Tryg Forsikring A/S, Nordic Mining ASA, Forskningskonsernet Sintef, E-CO Energi and Scatec Solar ASA. Committee memberships: Audit Committee and Risk Committee in Tryg. Audit Committee of E-CO (Chairman), Scatec Solar ASA. Number of shares held: 3,300 Change in portfolio 2016: +1,500 Mari Thjømøe has experience from financial planning and control, restructuring/financing, investment analysis, investor relations, asset management, strategic planning and special knowledge of the insurance market. As a Norwegian citizen, she has special insights into Norwegian markets. Born in 1955. Joined: 2015. Swedish citizen. Professional Board member and independent advisor. Former CEO of Nordnet and the insurance company SalusAnsvar. Education: Bachelor of Science, education in International Busi- ness and Finance & Accounting. Chairman: BLKCHN Scandi- navia AB, Bridge Scandinavia Ventures AB, Creador AB, FCG Fonder AB, HappyX AB, Insiderfonder AB, Our Interest AB, The PAUSE Foundation, Wunderbar AB. Board member: DBT Capital AB, Havsgaard AB, Holmö Fastigheter AB, Ponture AB, Tryg A/S, Tryg Forsikring A/S, Wonderbox AB. Advisory Board member: Daniel Wellington AB Committee memberships: Remuneration Committee Number of shares held: 170 Change in portfolio 2016: +170 Carl-Viggo Östlund has experi- ence from the packaging industry, logistics, insurance, finance and banking, from leading positions in listed and private companies. As a Swedish citizen, Carl-Viggo Östlund has special knowledge of Swedish market conditions. Employee representative Born in 1954. Joined: 2016 Norwegian citizen. Employed since 1986. Education: Business Economist Chairman: Chairman of Finansforbundet, Tryg and Senior Commercial Advisor Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond. Committee memberships: Remuneration Committee in Tryg A/S Number of shares held: 265 Change in portfolio 2016: 0 Employee representative Born in 1962. Employed since 1987. Joined the Supervisory Board in 2010. Danish citizen. Officer of Tryg’s Personnel Department. Education: Insurance training. Board member: Tryg A/S and Tryg Forsikring A/S. Committee memberships: Trygs Audit Committee and the Central Board of Forsikringsforbundet. Number of shares held: 695 Change in portfolio 2016: 0 Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. An employee election was 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 34 Annual report 2016 | Tryg A/S | Executive Board | Contents – Management’s review | Contents – Management’s review Annual report 2016 | Tryg A/S | 35 35 Annual report 2016 | Tryg A/S | Morten Hübbe Group CEOBorn in 1972. Joined Tryg in 2002. Joined the Executive Board in 2003.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: 111,510 Change in portfolio in 2016: +25,770Christian Baltzer Group CFOBorn 1978. Joined Tryg in 2009. Joined the Executive Board in 2016.Education: Masters in Insurance Science. Number of shares held: 3,235Change in portfolio in 2016: +1,400Lars BondeGroup COOBorn in 1965. Joined Tryg in 1998. Joined the Executive Board in 2006.Education: Insurance training, LL.M.Chairman: Tryg Liv og The Faroe Insurance CompanyBoard member: Danish Employers’ Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet, the Danish Insurance Association and Cphbusiness.Number of shares held: 42,600Change in portfolio in 2016: +5,755Corporate Social Responsibility in Tryg Statutory Corporate Social Responsibility report year, the lifebuoys saved three lives. Tryg has donated Our focus on DNA marking is also evident in Norway. more than 40,000 lifebuoys over the years and over In 2016, we joined forces with the Norwegian police 2,000 lifebuoys in 2016. Read more at tryg.com > in handing out DNA kits to private house owners in CSR > Thematic areas > Peace of mind > Society Bergen. In collaboration with the police, we have also Night Ravens increased our focus on burglaries in the construc- tion industry, which is seeing an increase in the The Night Ravens are volunteers who walk the number of burglaries and thefts of expensive tools streets at night to prevent violence and crime in from construction sites and from work vans. In an Norway. A total of approximately 370 local groups attempt to prevent this problem, Tryg, the police and Tryg’s Corporate Social Responsibility (CSR) initia- to ensure that they can fill in a complaint. Even are involved in this preventive work. Tryg acts the construction industry recommend synthetic DNA tives focus on peace of mind, people, business though claims handling is key to our business, partly as a secretary for the Night Ravens, while marking and labelling of special tools and machines. ethics as well as the environment and climate. we still believe it creates peace of mind if we can also paying for clothing and other necessary As a first major project, construction sites along These areas are closely linked to our business prevent claims from arising in the first place, which materials and supporting operations and events. the E39 between Bergen and Os in Hordaland have model (see page 6), since CSR concerns issues is why we focus on claims prevention. We focus Read more at tryg.com > CSR > Thematic started using DNA marking. To encourage more large relating to our focus on insurance, prevention on safety, health and climate, and in 2016 we areas > Peace of mind > Society customers to use DNA marking, Tryg has handed out and claims handling. By addressing some of the increased our focus on preventing break-ins and DNA kits to customers all across Norway. areas most closely linked to our business model, fires, while also seeking to improve safety at the DNA marking CSR is actively ensuring that Tryg is working in a seaside, for cyclist and among young people in Break-ins are a concern for the Danish population Bicycle safety respon sible way with both internal and external public spaces. Find Tryg’s complaint process at and pose a great problem for Tryg, our customers We focus on safety for cyclists and road safety in processes, while always focusing on creating prod- tryg.dk > Om Tryg > Kontakt os > Klagemuligheder and society as a whole, which is why we want to general. In 2016, we further highlighted the import- ucts and solutions that generate value for Tryg, our help prevent break-ins from happening. Synthetic ance of wearing a helmet and being visible to others customers and society. Find our CSR policy at It is important for us to engage in prevention, DNA marking and labelling is one simple preven- when riding a bike, for example by using reflectors. tryg.com > CSR > CSR strategy > CSR policy since the potential negative effects of no preven- tive mechanism that has proved rather effective To increase awareness of the importance of using Read more about CSR at tryg.com > CSR tion represents a risk for our customers and soci- in preventing break-ins and theft. In 2017, we will reflectors, we launched Facebook campaigns in Peace of mind ety. It is also a risk for Tryg since no prevention can continue to focus on the area and try to establish both Norway and Denmark in 2016. In Denmark, result in an increased number of claims. However, large-scale DNA-marking projects. we also created an online universe offering advice opportunities exist in this area – as the proactive and information on bicycle safety. Our ambition is Tryg’s overall vision is to create peace of mind for prevention of risks creates opportunities for edu- To test the effect of synthetic DNA marking, we to further develop our focus on bicycle safety with our customers and for society as a whole. In order cating and involving the community in Tryg’s work. started a pilot project in Sønderborg, Denmark, in more activities in 2017. Find more information to improve the way we work and achieve satisfied Read more about prevention at tryg.dk 2014. Our results from 2016 show an almost 40% on bicycle safety at tryg.dk > Forebyg skade > Cykel customers, it is important always to focus on our > Skader > Forebyg skade decline in the number of break-ins for the 90 proper- dialogue with customers. A major point of contact ties using DNA marking throughout the test period Educating society is our claims handling process, where we have Lifebuoys compared to an average decline of 24% in the entire In order to engage society in prevention, we believe processes in place to ensure the equal treatment The red and white lifebuoy has become a symbol city of Sønderborg. These statistics indicate that it is necessary to offer education for different groups of all customers. If customers are not satisfied of safety along the Norwegian coastline since 1952 DNA marking can – to some extent – help prevent in society. In 2016, we invited 60 students from the with our services, we also have processes in place and has prevented more than 1,000 drownings. This break-ins in residential areas. local community in Ballerup to participate in an | Contents – Management’s review 36 Annual report 2016 | Tryg A/S | innovation workshop focusing on fire prevention. employees. By addressing these issues, we think it with a number of Danish companies with the aim Tryg welcomed three refugees to a six-month part- The workshop was well-received, and most of the is possible to improve the well-being and develop- of sharing knowledge on how to develop the next time internship focusing on language training and job students felt that their newly acquired knowledge ment of our employees, which is positive for reten- generation of female leaders. At the same time, we culture. The internship was a combination of language would be useful for them in their everyday lives. tion rates as well as Tryg’s business as a whole. We are motivating women in Tryg to apply for next-level school and job training. By the end of 2016, three Fire prevention is also the focus of the new free ‘VR support our employees by offering flexible working management jobs by sending five women to the more refugees were a part of a preparatory 13-week HouseFire’ app which Tryg launched in 2016. It is a hours and the possibility of working from home. Danish Diversity Council women’s leadership pro- internship. After a successful start, we are looking for- virtual reality app, and the first of its kind in Norway. At the same time, we offer education and training gramme in 2017. With this programme, our ambi- ward to continuing our efforts in 2017 by welcoming The ambition is to make people more aware of how in order to upgrade our employees’ qualifications tion is to develop role models and motivate female more refugees to participate in the internship. to prevent fires from starting, and how to handle fires and improve their career prospects. To monitor leaders to reach for the next level of management. if they occur. The app has been downloaded close developments in employee satisfaction, we conduct to 1,900 times in 2016 and is also used by the an internal employee satisfaction survey each year. Our target for 2017 is to attain 38% women at Business ethics Norwegian fire department to teach people how Despite the organisational changes which took management levels. In addition, we already have an In Tryg, we work in a responsible way by respecting to handle and prevent fires. Download the app place in 2016, employee satisfaction increased from equal gender distribution on our Supervisory Board both human and labour rights, while also focusing for iPhone or Download it for for Android index 73 in 2015 to index 74 in 2016, 6 index points with three of the eight members appointed by the on anti-corruption. At the same time, we acknowledge higher than the Nordic financial market benchmark. annual general meeting being women. our responsibility for the climate and the environ- People Equal opportunities In addition to focusing on equal opportunities for and external partners adhere to our standards at all ment. Therefore, it is important that our employees As clearly set out in our business model, we believe In Tryg, processes are in place to ensure that men our employees, we also want to engage with the times. Tryg has formulated a CSR Code of Conduct our employees are one of our most important and women enjoy equal treatment in terms of pay local community in order to share our knowledge based on the UN Global Compact, which we expect resources and assets, and that they should be treated levels and career opportunities. Our initiatives and help more people to get a chance to enter the suppliers to comply with. We also have another as such. In Tryg, we focus on the well-being of our include, for example, an action plan aimed at ensur- Danish labour market. In 2016, Tryg worked with the Code of Conduct, which all employees must know employees and their right to a healthy and safe work- ing the recruitment and promotion of more women Municipality of Ballerup to help prepare refugees for and adhere to. To avoid corruption, Tryg has laid place. We welcome diversity and ensure non-discrim- in management roles. Both internal recruiters and entering the Danish labour market. In early 2016, down an anti-corruption policy stating that all em- ination through equal treatment of all our employees external agencies are instructed to work actively to regardless of gender, age, disabilities, ethnic origin, present qualified candidates of both genders. sexual orientation and religion. We see our different Employee mix perspectives as an asset that increases the quality of In 2016, we had an ambitious target of 38% women our services through ensuring a better understand- at management level. Through organisation changes ing of our customers’ needs. Read more about and our focus on equal representation in recruitment, people at tryg.com > CSR > Thematic areas > People we achieved 36.4% women at management levels, Employee satisfaction 5.4% higher than the 2015 Danish financial market benchmark. In 2017, we will maintain our focus on In Tryg, we believe that satisfied employees are this issue, and to qualify and motivate more women key to improving our business and services. We to apply for management jobs, we have signed an are actively working to minimise the risks of dis- agreement with the Danish Diversity Council. This No. 2,000 1,600 1,200 800 400 0 Men Women Age <30 yrs Age 30-49 yrs Age >50 yrs Non- Western background a) Flexi job a) Non-Western background has been compiled by satisfaction, discrimination and stress among our means that we will be entering into a partnership Statistics Denmark. ployees and everyone acting on behalf of Tryg must comply with existing anti-corruption legislation. Read more about business ethics at tryg.com > CSR > Thematic areas > Business Ethics Find our anti-corruption policy at tryg.com > CSR > CSR strategy > CSR policy Employees and business ethics It is important that our employees follow our Code of Conduct at all times. This includes, for example, policies on good practices for marketing, handling of personal data, anti-discrimination, diversity and anti-corruption, including gifts. In order to mitigate | Contents – Management’s review 37 Annual report 2016 | Tryg A/S | the risks associated with our working processes, a new monitoring system, asking six offshoring Tryg is actively working to educate our employees partners to hand in a report focusing on their CSR Climate and environment our emissions by 1% a year. Even though we want to minimise our negative impact on the climate, in using the guidelines in the Code of Conduct to obligations towards Tryg. These reports will provide Tryg is highly affected by more extreme weather the overall effect of our efforts is likely to be limited ensure that they can handle the risks associated a starting point for our monitoring efforts, which conditions since they can increase the number and since Tryg’s carbon emissions are mainly associ- with their position. Find our Code of Conduct involve continuous dialogue with our partners and frequency of climate-related claims. This repre- ated with heating and electricity use at our offices here at tryg.com > CSR > CSR strategy > CSR policy regular visits to follow up on their commitments. sents a risk to Tryg since it will increase our claims and with car, train, and air travel. Tryg is therefore costs. The risk becomes even greater if we do not not an energy-intensive company. Neverthe- To educate our employees on how to handle infor- Investments have the necessary focus on claims prevention. less, we are still endeavouring to minimise the mation online, in 2016 we launched a campaign Tryg’s is a non-life insurance company, and our Therefore, Tryg continuously focuses on finding environmental impact of our daily operations by focusing on IT security covering everything from main activities are naturally related to all aspects solutions which can prevent damage from happen- trying to minimise food waste in canteens and by hacking and social media to general data protec- of insurance such as claims handling and preven- ing in the first place. Our aim is to use our knowl- renting new energy-efficient office premises, for tion and phishing. As part of the campaign, we tion. This also means that investments only ac- edge to offer solutions and advice on prevention for example. Reducing our energy consumption also introduced a phishing button which employees can count for a small part of our business, which is one society and customers so that everybody is better means cost reductions, which is further motivating use to report phishing. To test awareness, all users of the reasons why we have decided to have ex- prepared for more extreme weather events. us to attain our target each year. In 2016, Tryg’s were a part of a major phishing exercise. This ternal portfolio managers handle our investments. Read more about environment and climate at total estimated carbon emissions were 4267.5 showed that employees were more aware than 80% of Tryg’s investments are Nordic AAA covered tryg.com > CSR > Climate and environment tonnes compared to an actual emission of 4481.5 was the case in 2015 since more than 200 reported or government bonds. This means only minor phishing. In 2017, we are planning to maintain our investments in lower-grade risk assets, which are Hordaklim tonnes in 2015. Our estimated reduction was therefore 4.78%. Thus, we achieved our goal of a focus on raising awareness in this area. well-diversified and listed global government or The Hordaklim project is one initiative in which 1% reduction, which is mainly associated with a To encourage employees and external partners to observant when it comes to our investments, due related issues. The project is a research partner- a 1% reduction compared to 2016. Read more report any activities that do not comply with our to the underlying risk of Tryg violating international ship which involves Tryg helping and advising a at tryg.com > CSR > Thematic areas > Climate and Code of Conduct or applicable legislation, Tryg standards such as the UN Global Compact or ESG number of local authorities in Hordaland, Norway, environment > CO2 reduction corporate bonds or equities. We are internally very we contribute with new perspectives on climate- decrease in travel activities. In 2017, our target is has set up a whistleblower line that can be used in when investing. To the best of our knowledge we on how to identify areas that are most affected by confidentiality. In 2016, the whistleblower line was believe that there are no major challenges nor climate change. Our property claims statistics are used four times. All incidents are evaluated by the violations when it comes to our investments. valuable in this process and can help the author- Carbon emissions Legal & Compliance Department before any further action is taken. Find Tryg’s whistleblower line Taxes ities prevent damage to existing buildings while at the same time planning for a safer future. The aim at tryg.com > Governance > Whistleblower Line Tryg contributes to the society of which we are of the project is to produce new data that can be Offshoring and supply chain legislation. To ensure compliance with legislation at We expect our employees and our suppliers to work all times, internal processes are in place to ensure Reducing Tryg’s carbon footprint in a responsible way. It is therefore important to we pay all relevant taxes. Aiming to be as transpar- Since Tryg is highly affected by more extreme part, and we pay our taxes according to national useful for the rest of Western Norway. Tonnes 5,000 4,000 3,000 2,000 1,000 0 Electricity Heating oil Air and train travel Motor Total 2016 (estimated) 2015 (actual) make it clear to our suppliers that they must respect ent as possible, we have published our tax policy. weather events, it is important for us to take part our guidelines and Code of Conduct as part of their Find our tax policy at tryg.com > CSR >CSR in the global community’s endeavours to minimise obligations towards Tryg. In 2016, we introduced strategy > CSR Policy greenhouse gas emissions. Our target is to reduce The carbon emissions chart covers both Norway and Denmark; air travel and train also include Sweden while motor only applies for Denmark. | Contents – Management’s review 38 Annual report 2016 | Tryg A/S | Contents – Financial statements 2016 TRYG GROUP 5 Claims, net of reinsurance 66 19 Claims provisions Note Statement by the Supervisory 6 Insurance operating costs, 20 Pensions and similar liabilities Board and the Executive Board 40 net of reinsurance Independent auditor’s reports Financial highlights Income statement 41 44 45 6 Share option programme 6 Matching shares 7 Interest income and Statement of comprehensive dividends etc. income 46 8 Value adjustments Statement of financial position 47 9 Tax Statement of changes in equity 48 10 Profit/loss on discontinued Cash flow statement 1 Risk and capital management 2 Operating segments 2 Geographical segments 2 Technical result, net of 49 50 60 62 and divested business 11 Intangible assets 12 Property, plant and equipment 13 Investment property 66 68 69 70 70 70 70 71 74 75 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 Sale of properties 27 Contractual obligations, collateral and contingent liabilities 28 Acquisition of subsidiaries 14 Equity investments in associates 75 29 Related parties reinsurance, by line of business 64 15 Financial assets 3 Premium income, net of 16 Reinsurers’ share reinsurance 66 17 Current tax 4 Insurance technical interest, 18 Equity net of reinsurance 66 19 Premium provisions 77 79 79 79 80 30 Financial highlights 31 Accounting policies Tryg’s Group consolidated financial statements are prepared in accordance with IFRS. 81 82 84 84 84 84 84 85 85 88 88 89 90 TRYG A/S (PARENT COMPANY) Income statement – Tryg A/S (parent company) 99 Statement of financial position – Tryg A/S (parent company) 100 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 101 102 105 107 108 109 110 111 112 | Contents – Financial statements Annual report 2016 | Tryg A/S | 39 Statement by the Supervisory Board and the Executive Board The Supervisory Board and the Executive Board requirements of the NASDAQ Copenhagen for assets, liabilities and financial position at and of the Group’s and the parent company’s have today considered and adopted the annual the prensentation of financial statement of listed 31 December 2016 and of the results of the financial position in general and describes signifi- report for 2016 of Tryg A/S and the Tryg Group. companies. In addition, the annual report has been Group’s and the parent company’s operations cant risk and uncertainty factors that may affect presented in accordance with additional Danish and the cash flows of the Group for the financial the Group and the parent company. The consolidated financial statements have been disclosure requirements for the annual reports of year 1 January-31 December 2016. prepared in accordance with the International listed financial enterprises. We recommend that the annual report be adopted Financial Reporting Standards as adopted by the Furthermore, in our opinion the Management’s by the shareholders at the annual general meeting. EU, and the financial statements of the parent In our opinion, the accounting policies applied are review gives a true and fair view of developments company have been prepared in accordance appropriate, and the annual report gives a true and in the activities and financial position of the Group with the Danish Financial Business Act and the fair view of the Group’s and the parent company’s and the parent company, the results for the year Ballerup, 20 January 2017 Executive Board Morten Hübbe Group CEO Christian Baltzer Group CFO Lars Bonde Group COO Supervisory Board Jørgen Huno Rasmussen Chairman Torben Nielsen Deputy Chairman Tom Eileng Lone Hansen Anders Hjulmand Jesper Hjulmand Ida Sofie Jensen Bill-Owe Johansson Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund | Menu – Financial statements 40 Annual report 2016 | Tryg A/S | Independent auditor’s report To the shareholders of Tryg A/S 1 January to 31 December 2016 in accordance with the Danish Financial Business Act. Opinion We have audited the consolidated financial state- Basis for opinion ments and the parent financial statements of Tryg We conducted our audit in accordance with Inter- A/S for the financial year 1 January to 31 Decem- national Standards on Auditing (ISAs) and additional ber 2016, pages 44-104, which comprise the requirements applicable in Denmark. Our responsi- income statement, statement of comprehensive bilities under those standards and requirements are income, balance sheet, statement of changes in eq- further described in the Auditor’s responsibilities for uity and notes, including a summary of significant the audit of the consolidated financial statements accounting policies, for the Group as well as the and the parent financial statements section of this Parent and the cash flow statement of the Group. auditor’s report. We are independent of the Group in The consolidated financial statements are prepared accordance with the International Ethics Standards in accordance with International Financial Report- Board of Accountants’ Code of Ethics for Profes- ing Standards as adopted by the EU and additional sional Accountants (IESBA Code) and the additional Danish requirements for listed financial companies, requirements applicable in Denmark, and we have and the parent financial statements are prepared in fulfilled our other ethical responsibilities in accord- accordance with the Danish Financial Business Act. ance with these requirements. We believe that the In our opinion, the consolidated financial state- appropriate to provide a basis for our opinion. audit evidence we have obtained is sufficient and ments give a true and fair view of the Group’s financial position at 31 December 2016 and of Key audit matters Claims provisions How the matter was addressed in the audit Management’s estimates of the claims provisions are based on actuarial methods and involve complex statistical methods as well as estimates of future events. Changes in methods and assumptions may result in a material impact on the size of the claims provisions. Consequently, the audit of the claims provisions is considered a key audit matter. The claims provisions amount to DKK 25,452m at 31 December 2016 (2015: DKK 25,670m). Management has specified the risks etc. related to the estimates of the claims provisions in note 1 ”Risk and capital management” on pages 51-52 and in ”Accounting policies”, note 31 on pages 90-91. The principles of estimating the claims provisions have been specified in ”Accounting policies”, note 31 on page 97, and further specified in note 1 on pages 53-56 and in note 19. The estimates of the claims provisions depend on accurate and complete insurance data of current and historical claims, including the development in claims and payment patterns, as these data are used to establish the expectations for future claims for the purpose of the statistical models. • Assessment and test of controls related to the processes of claims handling and the recognition and measurement of provisions for known claims. • In cooperation with our own internationally qualified actuaries, we have tested controls related to the actuarial estimates of the claims provisions of selected lines of business. • We have tested the accuracy and the complete- ness of the data that are included in the actuarial estimates of the claims provisions. • In cooperation with our own internationally qual- ified actuaries and based on our knowledge of the industry, experience and historical observa- tions, we have assessed the statistical models applied to estimate the claims provisions and we have tested significant estimates and assump- tions focusing on consistency and possible changes. • Based on the actuarial estimates of the claims provisions and analyses and in cooperation with our own internationally qualified actuaries, we have assessed the development in the claims provisions, including run-off gains/losses and the development in the size of the margin included in Management’s estimate of the claims provisions. the results of its operations and cash flows for the Key audit matters are those matters that, in our financial year 1 January to 31 December 2016 in professional judgement, were of most significance The most important assessments and assumptions of future events relate to: accordance with International Financial Reporting in our audit of the consolidated financial state- • Estimated future claims payments, which are Standards as adopted by the EU and Danish disclo- ments and the parent financial statements for the sure requirements for listed financial companies. financial year 1 January to 31 December 2016. These matters were addressed in the context of our Further, in our opinion, the parent financial state- audit of the consolidated financial statements and ments give a true and fair view of the Parent’s the parent financial statements as a whole, and in financial position at 31 December 2016, and of forming our opinion thereon, and we do not provide the results of its operations for the financial year a separate opinion on these matters. based on the completeness and the accuracy of historical claims and payment patterns, among other things. • Expectations for future inflation. • Determination of the margin included in Management’s estimate of the claims provisions to address the uncertainty related to the actuarial estimates. | Menu – Financial statements 41 Annual report 2016 | Tryg A/S | Statement on the management’s review Solvency ratio Financial Reporting Standards as adopted by the auditor’s report that includes our opinion. Rea- Management is responsible for the management’s Management is responsible for the key figure EU and Danish disclosure requirements for listed sonable assurance is a high level of assurance, review. “Solvency ratio” evident from the statement of financial companies as well as the preparation of but is not a guarantee that an audit conducted financial highlights and key figures on page 44 parent financial statements that give a true and in accordance with International Standards on Our opinion on the consolidated financial state- of the annual report. fair view in accordance with the Danish Financial Auditing and additional requirements applicable ments and the parent financial statements does Business Act, and for such internal control as in Denmark will always detect a material mis- not cover the management’s review, and we do not As disclosed in the statement of financial high- Management determines is necessary to enable statement when it exits. Misstatements can arise express any form of assurance conclusion thereon. lights and key figures, the solvency ratio is exempt the preparation of consolidated financial state- from fraud or error and are considered material In connection with our audit of the consolidated from the requirement to be audited. Consequently, ments and parent financial statements that are if, individually or in the aggregate, they could rea- financial statements and the parent financial state- our opinion on the consolidated financial state- free from material misstatement, whether due sonably be expected to influence the economic ments, our responsibility is to read the manage- ments and the parent financial statements does to fraud or error. ment’s review and, in doing so, consider whether not cover the solvency ratio, and we do not express decisions of users taken on the basis of these consolidated financial statements and these par- the management’s review is materially inconsist- any form of assurance conclusion thereon. In preparing the consolidated financial statements ent financial statements. ent with the consolidated financial statements and and the parent financial statements, Management the parent financial statements or our knowledge In connection with our audit of the consolidated is responsible for assessing the Group’s and the As part of an audit in accordance with International obtained in the audit or otherwise appears to be financial statements and the parent financial state- Parent’s ability to continue as a going concern, for Standards on Auditing and additional requirements materially misstated. ments, our responsibility is to consider whether the disclosing, as applicable, matters related to going applicable in Denmark, we exercise professional solvency ratio is materially inconsistent with the concern, and for using the going concern basis of judgement and maintain professional scepticism Moreover, it is our responsibility to consider financial statements or our knowledge obtained accounting in the preparation of the consolidated throughout the audit. We also: whether the management’s review provides the in the audit or otherwise appears to be materially financial statements and the parent financial information required under the Danish Financial misstated. statements unless Management either intends to • Identify and assess the risks of material Business Act. liquidate the Group or the Parent or to cease op- misstatement of the consolidated financial If, based on this, we conclude that the solvency ra- erations, or has no realistic alternative but to do so. statements and the parent financial statements, Based on the work we have performed, we con- tio is materially misstated, we are required to report whether due to fraud or error, design and per- clude that the management’s review is in accord- on this. We have nothing to report in this respect. Auditor’s responsibilities for form audit procedures responsive to those risks, ance with the consolidated financial statements the audit of the consolidated financial statements and obtain audit evidence that is sufficient and and the parent financial statements and has been Management’s responsibility for and the parent financial statements appropriate to provide a basis for our opinion. prepared in accordance with the requirements the consolidated financial statements Our objectives are to obtain reasonable assur- The risk of not detecting a material misstate- of the Danish Financial Business Act. We did not and the parent financial statements ance about whether the consolidated financial ment resulting from fraud is higher than for one identify any material misstatement of the manage- Management is responsible for the preparation of statements and the parent financial statements resulting from error, as fraud may involve collu- ment’s review. consolidated financial statements that give a true as a whole are free from material misstatement, sion, forgery, intentional omissions, misrepre- and fair view in accordance with International whether due to fraud or error, and to issue an sentations, or the override of internal control. | Menu – Financial statements 42 Annual report 2016 | Tryg A/S | • Obtain an understanding of internal control • Evaluate the overall presentation, structure and From the matters communicated with Those relevant to the audit in order to design audit content of the consolidated financial statements Charged with Governance, we determine those procedures that are appropriate in the circum- and the parent financial statements, including matters that were of most significance in the audit of stances, but not for the purpose of expressing the disclosures in the notes, and whether the the consolidated financial statements and the parent an opinion on the effectiveness of the Group’s consolidated financial statements and the par- financial statements of the current period and are and the Parent’s internal control. ent financial statements represent the underly- therefore the key audit matters. We describe these ing transactions and events in a manner that matters in our auditor’s report unless law or regula- • Evaluate the appropriateness of accounting gives a true and fair view. tion precludes public disclosure about the matter policies used and the reasonableness of or when, in extremely rare circumstances, we de- accounting estimates and related disclosures • Obtain sufficient appropriate audit evidence re- termine that a matter should not be communicated made by Management. garding the financial information of the entities or in our report because the adverse consequences of business activities within the Group to express an doing so would reasonably be expected to outweigh • Conclude on the appropriateness of Manage- opinion on the consolidated financial statements. the public interest benefits of such communication. ment’s use of the going concern basis of ac- We are responsible for the direction, supervision counting in the preparation of the consolidated and performance of the group audit. We remain financial statements and the parent financial solely responsible for our audit opinion. Ballerup, 20 January 2017 statements, and, based on the audit evidence obtained, whether a material uncertainty exists We communicate with Those Charged with Deloitte related to events or conditions that may cast Governance regarding, among other matters, Statsautoriseret Revisionspartnerselskab significant doubt on the Group’s and the Parent’s the planned scope and timing of the audit and Business Registration No 33 96 35 56 ability to continue as a going concern. If we con- significant audit findings, including any significant clude that a material uncertainty exists, we are deficiencies in internal control that we identify required to draw attention in our auditor’s report during our audit. to the related disclosures in the consolidated financial statements and the parent financial We also provide Those Charged with Governance Jens Ringbæk statements or, if such disclosures are inad- with a statement that we have complied with State Authorised Public Accountant equate, to modify our opinion. Our conclusions relevant ethical requirements regarding independ- are based on the audit evidence obtained up to ence, and to communicate with them all relation- the date of our auditor’s report. However, future ships and other matters that may reasonably be events or conditions may cause the Group and thought to bear on our independence, and where the Parent to cease to continue as applicable, related safeguards. Kasper Bruhn Udam a going concern. State Authorised Public Accountant | Menu – Financial statements 43 Annual report 2016 | Tryg A/S | Financial highlights DKKm 2016 2015 2014 2013 2012 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 (%) Solvency ratio b) 17,707 -11,619 -2,737 17,977 -13,562 -2,720 18,652 -12,650 -2,689 19,504 -14,411 -3,008 20,314 -14,675 -3,295 3,351 -951 -10 2,390 987 -157 3,220 -748 2,472 -1 2,471 1,239 31,527 2,034 9,437 49,861 65.6 5.4 71.0 15.7 86.7 15.5 86.5 5.5 26.2 194 1,695 710 18 2,423 -22 -91 2,310 -390 1,920 49 1,969 1,212 31,814 3,176 9,644 51,281 75.4 -3.9 71.5 15.3 86.8 15.1 86.5 5.1 20.0 108 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 23.7 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 21.8 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 22.3 90 The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ‘’Recommendations & Financial Ratios 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 recpect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner- occupied property. The sale of owner-occupied property in December 2016 does not affect the calculation. 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. b) Solvency I ratios in 2012-2015 are the ratio between base capital and weighted assets and are audited. Solvency II ratio in 2016 is the ratio betwen own funds and the solvency capital requirement and is exempt from the requirement for auditing and thus not audited. | Menu – Financial statements 44 Annual report 2016 | Tryg A/S | Income statement DKKm 2016 2015 DKKm 2016 2015 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 17,842 -1,210 151 13 16,796 18,150 -1,165 61 1 17,047 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 -10 18 Claims paid Reinsurance cover received Change in claims provisions Change in the reinsurers’ share of claims provisions 5 Claims, net of reinsurance -13,947 1,260 2,328 -1,164 -11,523 -13,095 471 -467 1,301 -11,790 Bonus and premium discounts -286 -234 Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers 6 Insurance operating costs, net of reinsurance -2,029 -708 -2,737 150 -2,587 -2,042 -678 -2,720 102 -2,618 2 Technical result 2,390 2,423 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 42 105 671 518 -113 -87 1,136 -149 987 104 -261 3,220 -748 2,472 -1 42 94 794 -510 -95 -88 237 -259 -22 81 -172 2,310 -390 1,920 49 Profit/loss for the year 2,471 1,969 25 Earnings per share – continuing business Diluted earnings per share – continuing business Earnings per share Diluted earnings per share 8.84 8.84 8.84 8.84 6.74 6.73 6.91 6.91 | Menu – Financial statements 45 Annual report 2016 | 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 taxrates on security provisions Sale of owner-occupied property a) Sale of owner-occupied property, revaluation from previous years a) Tax on sale of owner-occupied property Tax on revaluation of owner-occupied property from previous years 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 a) Please refer to note 26 Sale of properties. 2016 2,471 2015 1,969 15 0 215 -115 -53 29 -95 24 20 51 -50 11 12 32 21 141 0 4 0 2 -12 3 159 -89 86 -21 -24 135 2,503 2,104 | Menu – Financial statements 46 Annual report 2016 | 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 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 2016 2015 DKKm 2016 2015 884 49 0 0 49 2,323 218 218 48 3,950 35,254 1,000 40,252 42,793 214 1,820 2,034 1,108 1,108 183 1,646 2,937 0 475 475 224 465 689 1,038 62 1,144 2 1,208 1,838 229 229 138 3,589 35,705 843 40,275 42,342 173 3,003 3,176 1,261 1,261 199 871 2,331 118 471 589 281 316 597 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 9,437 2,567 5,487 25,452 588 31,527 345 702 125 1,172 555 426 178 1,732 702 317 1,203 5,113 45 9,644 1,698 5,571 25,670 573 31,814 264 645 132 1,041 603 330 64 4,074 612 357 1,001 7,041 43 Total equity and liabilities 49,861 51,281 1 26 27 28 29 30 31 Risk and capital management Sale of properties Contractual obligations, collateral and contingent liabilities Acquisition of activities Related parties Financial highlights Accounting policies Total assets 49,861 51,281 | Menu – Financial statements 47 Annual report 2016 | 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 Equity at 31 December 2015 1,448 86 -9 127 766 6,213 1,013 2016 Adjustment 01.01.2016 b) 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 share options and matching shares Total changes in equity in 2016 Equity at 31 December 2016 2015 Adjustment 1.1.2015 c) 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 -86 -86 12 12 -127 -127 56 56 0 -35 -35 1,413 -86 0 -127 0 56 822 127 -355 106 -122 35 52 -1,000 1 3 -1,031 5,182 2,770 2,770 -1,766 1,004 2,017 12 3 15 -24 -24 6 6 0 -44 22 -1 21 -104 22 -82 -44 1,448 6 86 -24 -9 21 127 -82 766 -175 292 132 424 44 97 -1,044 13 2 5 -634 6,213 1,759 1,759 -2,477 -718 1,013 -175 1,969 135 2,104 0 -2,477 97 -1,044 13 2 5 -1,475 9,644 Equity at 31 December 2014 1,492 80 106 848 6,847 1,731 11,119 Total 9,644 0 2,471 32 2,503 0 -1,766 52 -1,000 1 3 -207 9,437 Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00 in 2015) and extraordinary dividend of DKK 3.54. Proposed dividend per share is calculated as the 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 (282,541,204 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 1,774m (DKK 2,516m in 2015). 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. b) A new executive order from the Danish FSA from 1 January 2016 has abolished the requirements of equalisation reserves in credit and guarantee insurance. c) New executive order from the Danish FSA on yield curves based on EIOPA. Please refer to note 31 Accounting policies. | Menu – Financial statements 48 Annual report 2016 | 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 intangble assets Hedging of currency risk Investments, continuing business Investments, discontinued and divested business Total investments 2016 2015 DKKm 2016 2015 17,729 -13,744 340 -2,699 -129 1,497 723 -113 25 -529 -56 1,547 -1 1,546 -122 6 147 413 0 -1 -135 -50 258 0 258 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 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 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 Liabilities arising from financing activities -999 800 -1,714 115 -1,798 -1,798 6 -2 4 471 475 2016 Carrying amount at 1 January Exchange rate adjustments Cash flow Carrying amount at 31 December 2015 Carrying amount at 1 January Exchange rate adjustments Cash flow Carrying amount at 31 December Subordinated loans Amounts owed to credit institutions 1,698 69 800 2,567 1,768 -82 12 1,698 64 -1 115 178 116 1 -53 64 -1,031 12 -2,380 -53 -3,452 -3,452 -37 3 -34 505 471 Total 1,762 68 915 2,745 1,884 -81 -41 1,762 | Menu – Financial statements 49 Annual report 2016 | 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 Supervisory Board’s involvement in capital and risk management, Tryg’s Supervisory Board has decided to set up a special Supervisory Board Risk Committee to address these topics separately during the year. The Committee meets minimum four times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status. 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. The risk management function is the second level of Lines of defence Supervisory Board control, supported by decentralised risk managers affiliated with the individual business areas. The risk management function ensures a consistent approach across the organization, risk assessment 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 prepares specific recommen- dations in relation to capital management, reinsurance, investment risk management and more. Tryg’s risk management function is also responsible for determining the company’s capital requirement. The third level con- sists 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: 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? • • • A solid capital base, supporting both the statutory requirements and a single ‘A’ rating from Moody’s. Support of a steadily increasing nominal dividend per share, with a payout ratio in the interval 60-90%. Return on the average equity of at least 21% after tax. 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 Board | Menu – Financial statements Supervisory Board • Risk appetite • Capital • Strategy • Crisis management Supervisory Board’s Risk Committee Risk management environment Business areas Policies Executive Board Policies Risk Committee 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 50 NotesAnnual report 2016 | Tryg A/S | The capital base is continuously measured against the capital 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. The introduction of Solvency II had a major influence on Tryg’s solvency ratio in various areas . The Solvency capital requirement decreased by approximately DKK 1,200m due to the inclusion of the loss absor- bency capacity of deferred tax. The capital base increased by approximately DKK 500m due to the inclusion of expected future profits (DKK 700m) and the transition to a new Solvency II discounting curve (DKK -200m). The net impact from these new ele- ments increased the solvency ratio of the Group. Tryg has three subordinated loans that amount to DKK 2,567m. The first is a NOK 1,400m loan that was issued in November 2015 and the second is a SEK 1,000m loan which was issued in May 2016. Both classified as a Tier 2 element under Solvency II. The third is a NOK 800m loan that was issued in March 2013 and is according to the grandfathering rules treated as a Tier 1 element under Solvency II. 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 capi- tal 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. 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 Supervi- sory Board, and administered through business pro- cedures, underwriting guidelines etc. Underwriting risk is assessed in Tryg’s capital model, determining the capital impact from insurance products. Reinsur- ance is used to reduce the underwriting risk in situa- tions where this can not be achieved to a sufficient 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. Retention for such events is DKK 150m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m for, 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. Retention for large claims is DKK 100m, gradually dropping to DKK 25m. Single risks exceeding DKK 2bn are covered individually. Tryg has combined the minimum cover of other sec- tors into a joint cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. For the individual sectors, individual cover has subse- quently been taken out as needed. The use of reinsur- ance creates a natural counterparty risk. This risk is handled by applying a wide range of reinsurers with at least an ‘A’ rating and DKK 750m 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 corresponds to the discounted claims reserves. In order to manage the inflation risk of Danish workers’ compensation claims reserves, Tryg has bought zero coupon inflation swaps. Tryg determines the claims reserves via statis- tical methods as well as individual assessments. At the end of 2016, Tryg’s claims reserves totalled DKK 25,452m with an average duration of approx- imately 4 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 portfo- lio is subject to the framework defined by the Super- visory 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 investment risk. At the end of 2016, the equity portfolio accounted for 5.4% of the total investment assets. Tryg’s property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2016, investment properties accounted for 6.3%. Tryg does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance business in other curren- cies 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 claims paid in other currencies create a natural currency hedge, for which reason other risk mitigation measures are not required in this area. However, the part of equity held in other curren- cies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using currency swaps. In addition to the above-mentioned risks, Tryg is exposed to credit, counterparty and concentration risk. These risks primarily relate to exposures in high-yield bonds, emerging market debt exposures as well as Tryg’s investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance policy. For a non-life insur- ance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant assets on Tryg’s balance sheet, which by nature is somewhat illiquid, are the property portfolio. | Menu – Financial statements 51 NotesAnnual report 2016 | Tryg A/S | Compliance risk Compliance risk is the risk of loss as a result of lack of compliance with rules, regulations, market standards or internal guidelines. The handling of compliance risk is coordinated centrally via the Group’s Compliance & Legal department, which, among other things, sits on industry committees in connection with legislative monitoring, ensures implementation of regulation in Tryg through business procedures, provides ongoing training in compliance matters and performs compli- ance controls within the organisation. Compliance risks and the result of the performed compliance controls are reported to the Supervisory Board’s Risk Committee. 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 reinsurance cover is consistent with the new conditions. 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 Op- erational risk policy. These risks are controlled via the Operational Risk Committee. A special crisis manage- ment 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 contin- gency 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 Supervisory Board in close collaboration with the Executive Board. Before determining the strategic position, the strategic decisions are subject to a risk assessment, explaining the risk of the chosen strategy to Tryg’s Supervisory Board and Executive Board. Sensitivity analysis Insurance risk DKKm Effect of 1 percentage point change in: Combined ratio (1 percentage point) 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 2016 2015 +/- 175 +/- 173 +/- 177 +/-175 +/- 436 +/- 476 +/- 1,800 +/- 1,671 -1,131 1,061 -70 173 -365 -15 -229 -763 728 -35 -940 947 7 153 -341 -7 -480 -647 614 -33 +/- 158 +/- 176 a) Including the effect of the zero coupon inflation swap. b) Additional sensitivity information in note 20 ‘Pensions and similar obligations’. | Menu – Financial statements 52 NotesAnnual report 2016 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Gross 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 10,928 11,188 10,723 10,929 10,865 10,856 10,834 10,797 10,613 10,546 10,444 10,444 -9,948 496 -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 2005 and prior years Other reserves a) Gross provisions for claims, end of year 11,853 12,436 12,985 12,961 12,960 12,865 12,739 12,731 12,663 12,613 12,420 13,737 13,607 13,618 13,577 13,486 13,454 13,203 13,074 13,772 14,413 14,431 14,221 14,103 14,002 13,985 13,867 16,008 16,106 16,055 15,934 15,845 15,780 15,778 16,338 16,734 16,727 16,678 16,514 16,569 13,860 13,831 13,768 13,617 13,356 13,710 14,022 13,858 13,666 13,030 13,376 13,153 15,066 15,003 13,130 12,613 -11,824 13,074 -12,042 13,867 -12,644 15,778 -14,287 16,569 -14,744 13,356 -11,550 13,666 -11,542 13,153 -10,481 15,003 -11,127 13,130 -6,590 150,652 -126,777 789 -63 1,032 -86 1,223 -97 1,492 -108 1,825 -116 1,806 -111 2,124 -113 2,672 -135 3,876 -131 6,541 -157 23,874 -1,159 2,378 358 25,452 a) Other provisions comprise the claims provisions for guarantee insurance. | Menu – Financial statements 53 NotesAnnual report 2016 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Ceded business 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 278 278 264 295 296 291 289 291 289 289 288 288 -281 7 0 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 2005 and prior years Other reserves a) Provisions for claims, end of year 502 468 482 487 507 478 506 497 497 497 497 -484 13 -1 162 226 192 182 182 169 175 168 168 168 -162 6 0 286 355 333 289 292 297 293 293 293 -283 10 0 672 749 742 719 728 751 756 756 -701 55 0 1,464 2,169 2,290 2,331 2,295 2,292 2,292 -2,208 84 -1 239 270 309 316 310 310 -284 26 0 555 968 949 946 946 -861 85 0 260 313 289 289 -236 52 0 2,088 1,893 176 1,893 -880 1,014 -2 176 -31 145 -1 7,908 -6,411 1,496 -7 211 120 1,820 a) Other provisions comprise the claims provisions for guarantee insurance. | Menu – Financial statements 54 NotesAnnual report 2016 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Net of reinsurance 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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 10,651 10,911 10,458 10,633 10,569 10,565 10,544 10,506 10,324 10,257 10,156 10,156 -9,667 Cumulative payments to date Provisions before discounting, end of year Discounting Reserves from 2005 and prior years Other reserves a) Provisions for claims, net of reinsurance, end of the year 11,351 11,968 12,503 12,474 12,454 12,388 12,233 12,234 12,166 12,116 12,258 13,512 13,415 13,436 13,396 13,317 13,279 13,035 12,906 13,486 14,058 14,098 13,932 13,811 13,705 13,692 13,575 15,336 15,357 15,313 15,215 15,116 15,029 15,023 14,874 14,565 14,438 14,347 14,219 14,277 13,622 13,561 13,459 13,301 13,045 13,155 13,053 12,909 12,720 12,770 13,063 12,864 12,979 13,109 12,955 12,116 -11,340 12,906 -11,880 13,575 -12,361 15,023 -13,586 14,277 -12,535 13,045 -11,266 12,720 -10,681 12,864 -10,244 13,109 -10,247 12,955 -6,560 142,744 -120,367 489 -41 776 -62 1,025 -86 1,213 -97 1,437 -108 1,741 -116 1,779 -111 2,039 -112 2,619 -135 2,862 -129 6,396 -155 22,378 -1,152 2,168 238 23,632 a) Other provisions comprise the claims provisions for guarantee insurance. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2016 to prevent the impact of exchange rate fluctuations. | Menu – Financial statements 55 NotesAnnual report 2016 | Tryg A/S | Claims provisions (continued) DKKm 2016 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 2015 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 a) Total 5,234 -182 8,071 -833 12,290 5,149 -146 9,045 -1,959 12,089 114 0 4,001 -379 3,736 126 0 4,029 -395 3,760 56 0 2,685 -215 2,526 67 0 2,646 -213 2,500 21 0 11,642 -287 11,376 87 0 11,150 -311 10,926 62 -32 358 -120 268 142 -28 357 -151 320 5,487 -214 26,757 -1,835 30,195 5,571 -174 27,227 -3,029 29,595 a) Other comprises guarantee insurance and in 2015 premium provisions in Securator A/S. | Menu – Financial statements 56 NotesAnnual report 2016 | Tryg A/S | 2016 2015 Impact of exchange rate fluctuations in SEK and NOK on technical result 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 14,758 13,692 5,373 2,369 36,192 2.9 14,856 13,011 4,175 2,363 34,405 2.5 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 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 2016 47 95 283 1,533 426 2,384 48 2015 52 90 501 1,165 516 2,324 138 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 The share portfolio includes exposure from share derivatives of DKK 97m (DKK 47m in 2015) Unlisted equity investments are based on an estimated market price. Exposure to exchange rate risk 2016 2015 Assets and debt Hedge Exposure Assets and debt Hedge Exposure 2,960 1,231 263 2,808 346 525 -2,872 -1,203 -254 -2,623 -314 -469 88 28 9 185 32 56 398 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 USD EUR GBP NOK SEK Other Total 2016 2015 Change Currency effect Change excl. currency effect 17,707 -11,619 -2,737 3,351 -951 -10 2,390 17,977 -13,562 -2,720 1,695 710 18 2,423 -270 1,943 -17 1,656 -1,661 -28 -33 -293 190 45 -58 15 0 -43 23 1,753 -62 1,714 -1,676 -28 10 2015 2014 Change 17,977 -13,562 -2,720 1,695 710 18,652 -12,650 -2,689 3,313 -341 18 60 2,423 3,032 -675 -912 -31 -1,618 1,051 -42 -609 Currency effect Change excl. currency effect -534 374 81 -79 11 -2 -70 -141 -1,286 -112 -1,539 1,040 -40 -539 | Menu – Financial statements 57 NotesAnnual report 2016 | Tryg A/S | Impact of exchange rate fluctuations in SEK and NOK on the statement of financial position Credit risk DKKm 2016 2015 Change Currency effect Change excl. currency effect Bond portfolio by ratings 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 884 49 2,323 218 40,252 2,034 2,937 475 689 1,038 1,208 1,838 229 40,275 3,176 2,331 589 597 Total assets 49,861 51,281 Equity and liabilities Equity Subordinate loan capital Provisions for insurance contracts Other provisions Other debt Accruals and deferred income Total equity and liabilities 9,437 2,567 31,527 1,172 5,113 45 49,861 9,644 1,698 31,814 1,041 7,041 43 51,281 -154 -1,159 485 -11 -23 -1,142 606 -114 92 -1,420 -207 869 -287 131 -1,928 2 -1,420 -21 0 19 0 563 31 6 2 11 611 0 71 353 45 143 -1 611 -133 -1,159 466 -11 -586 -1,173 600 -116 81 -2,031 -207 798 -640 86 -2,071 3 -2,031 | Menu – Financial statements AAA to A Other Not rated Total Reinsurance balances AAA to A Other Not rated Total 2016 DKKm 35,233 20 1 35,254 1,536 0 157 1,693 % 99.9 0.1 - 2015 DKKm 35,181 523 1 % 98.5 1.5 0.0 100.0 35,705 100.0 90.7 - 9,3 100.0 2,772 0 120 2,892 Liquidity risk Maturity of the Group’s financial obligations including interest 2016 0-1 years 1-5 years > 5 years Subordinate loan capital a) Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 2015 Subordinate loan capital a) Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 98 178 1,732 650 2,501 5,159 66 64 4,074 181 2,291 6,676 392 0 0 112 0 504 263 0 0 219 0 482 3,547 0 0 -53 0 3,494 3,362 0 0 259 0 3,621 a) Interest on loans for a perpetual term has been recognised for the first fifteen years. 95.9 0.0 4.1 100.0 Total 4,037 178 1,732 709 2,501 9,157 3,691 64 4,074 659 2,291 10,779 58 NotesAnnual report 2016 | Tryg A/S | Notes Subordinate loan capital DKKm 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 dates 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 Loan terms: Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure Bond loan NOK 800m Bond loan NOK 1,400m Bond loan SEK 1,000m 2016 2015 2016 2015 2016 2015 685 105 3 32 4.9% 671 108 4 34 3.6% 1,124 1,086 98 4 46 3.8% 100 6 3 3.9% 796 102 4 10 2.2% Listed bonds NOK 800m 100 March 2013 Perpetual 2023 Listed bonds NOK 1,400m 100 November 2015 2045 2025 - - - - - Listed bonds SEK 1,000m 100 May 2016 2046 2021 Interest-only 3.75 % above NIBOR 3M (until 2023) 4.75 % above NIBOR 3M (from 2023) Interest-only Interest-only 2.75% above STIBOR 3M (until 2026) 2.75 % above NIBOR 3M (until 2025) 3.75 % above NIBOR 3M (from 2025) 3.75% above STIBOR 3M (from 2026) The share of capital included in the calculation of the capital base totals DKK 2,371m (DKK 1,707m in 2015). The loans are initially recognised at fair value on the date on which a loan is entered and subse- quently measured at amortised cost. The loans are taken by Tryg Forsikring A/S. The credi- tors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liquida- tion or bankruptcy of Tryg Forsikring A/S. Prices used for determination of fair value in respect of both loans are based on actual traded prices from Bloomberg. | Menu – Financial statements 59 Annual report 2016 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) Group 2 Operating segments 2016 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 8,710 -5,904 -1,240 -158 -4 1,404 Run-off gains/losses, net of reinsurance 312 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 16 67 2,236 5,655 461 3,893 -2,380 -663 -154 -1 695 304 29 24 247 1,292 6,637 61 3,775 -2,295 -416 -643 0 421 506 174 1,476 1,092 10,255 53 1,348 -964 -256 -3 -5 120 117 596 0 30 867 2,905 13 -19 -76 -162 7 0 -250 0 259 218 0 0 46,725 0 0 0 8,897 17,707 -11,619 -2,737 -951 -10 2,390 81 2,471 1,239 884 218 214 1,820 46,725 49,861 5,487 25,452 588 8,897 40,424 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 one-off items. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under ‘Other’. | Menu – Financial statements 60 Annual report 2016 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) Group a) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under ‘Other’. 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 5,827 457 3,992 -2,612 -683 -44 5 658 388 33 16 408 1,318 6,688 54 3,894 -3,987 -420 877 5 369 351 140 2,422 1,062 11,505 50 1,317 -852 -246 -1 0 218 149 597 0 32 849 1,650 12 -29 -37 -80 26 0 -120 0 408 229 0 0 46,838 0 0 0 9,823 17,977 -13,562 -2,720 710 18 2,423 -454 1,969 1,212 1,038 229 173 3,003 46,838 51,281 5,571 25,670 573 9,823 41,637 | Menu – Financial statements 61 Annual report 2016 | 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 Run-off, net of reinsurance (%) Number of full-time employees 31 December Norwegian general insurance Gross premium income Technical result Run-off gains/losses, net of reinsurance Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Run-off, net of reinsurance (%) Number of full-time employees 31 December 2016 2015 2014 2013 2012 a) Includes Danish general insurance and Finnish guarantee insurance. 9,467 1,587 509 63.7 6.0 69.7 13.4 83.1 -5.4 1,839 6,371 1,013 678 63.9 5.1 69.0 15.2 84.2 -10.6 1,040 9,346 1,371 512 80.5 -9.2 71.3 13.9 85.2 -5.5 1,859 6,766 844 492 70.9 2.1 73.0 14.9 87.9 -7.3 1,113 9,361 1,510 564 66.9 2.1 69.0 15.1 84.1 -6.0 2,007 7,337 1,478 501 66.5 1.4 67.9 12.5 80.4 -6.8 1,167 9,534 1,202 566 79.5 -7.0 72.5 15.0 87.5 -5.9 2,046 7,819 1,258 387 65.1 4.1 69.2 15.3 84.5 -4.9 1,199 9,910 1,441 571 71.1 -0.2 70.9 14.5 85.4 -5.8 2,187 8,239 1,017 465 72.4 -1.0 71.4 16.8 88.2 -5.6 1,282 | Menu – Financial statements 62 Annual report 2016 | Tryg A/S | b) Amounts relating to eliminations and one-off items. In 2012 discontinued business and restructuring expenses were included under ‘Other’. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights. 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 Run-off, net of reinsurance (%) 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 Run-off, net of reinsurance (%) Number of full-time employees, continuing business at 31 Dec. Number of full-time employees, discontinued and divested business at 31 Dec. 2016 2015 2014 2013 2012 1,888 40 52 76.4 3.3 79.7 17.8 97.5 -2.8 385 -19 -250 1,894 328 208 63.5 1.7 65.2 17.5 82.7 -11.0 387 -29 -120 1,975 44 66 77.6 2.2 79.8 18.4 98.2 -3.3 425 -21 0 2,169 36 17 80.6 0.7 81.3 17.6 98.9 -0.8 458 -18 0 2,183 131 -21 75.3 1.5 76.8 18.6 95.4 1.0 444 -18 -97 17,707 17,977 18,652 19,504 20,314 2,390 987 -157 3,220 1,239 65.6 5.4 71.0 15.7 86.7 -7.0 3,264 0 2,423 -22 -91 2,310 1,212 75.4 -3.9 71.5 15.3 86.8 -6.7 3,359 0 3,032 360 -90 3,302 1,131 67.8 1.8 69.6 14.6 84.2 -6.1 3,599 0 2,496 588 -91 2,993 970 73.9 -1.8 72.1 15.6 87.7 -5.0 3,703 0 2,492 585 -60 3,017 1,015 72.2 -0.4 71.8 16.4 88.2 -5.0 3,913 189 | Menu – Financial statements 63 Annual report 2016 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business DKKm Gross premiums written 2016 1,741 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance 1,666 - 960 - 223 - 7 - 1 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 475 57.6 71.4 4.7% 25,091 46,883 Accident and health c) Health care Worker’s compensation Motor TPL Motor comprehensive insurance Marine, aviation and cargo insurance 2015 1,652 1,629 - 1,026 - 219 - 4 2 382 63.0 76.7 4.4% 29,968 40,135 2016 338 332 - 308 - 41 - 1 0 - 18 92.8 105.4 115.2% 4,558 57,186 2015 321 316 - 255 - 32 - 1 0 28 80.7 91.1 2016 860 858 - 191 - 98 - 8 0 561 22.3 34.6 2015 890 893 - 85 - 103 - 10 1 696 9.5 22.2 130.3% 3,905 56,697 19.8% 72,474 11,008 17.6% 65,254 10,469 2016 1,779 1,839 - 1,167 - 321 - 44 - 1 306 63.5 83.3 6.0% 17,913 77,441 2015 1,980 1,963 - 1,164 - 339 - 33 2 429 59.3 78.2 5.5% 17,846 77,164 2016 3,545 3,537 - 2,407 - 532 - 24 - 2 572 68.1 83.8 2015 3,680 3,573 - 2,446 - 542 - 2 3 586 68.5 83.7 20.2% 9,837 250,450 17.9% 10,110 241,311 2016 275 274 - 113 - 39 - 130 0 - 8 41.2 102.9 24.7% 57,384 2,896 2015 332 337 - 218 - 41 - 53 1 26 64.7 92.6 21.2% 75,653 2,871 Fire and contents (Private) Fire and contents (Commercial) Change of ownership Liability insurance Credit and guarantee insurance Tourist assistance insurance Gross premiums written 2016 4,266 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance 4,221 - 3,250 - 617 - 129 - 6 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 219 77.0 94.7 8.9% 9,036 363,113 7.9% 8,742 370,685 2015 4,363 4,328 - 3,130 - 647 - 117 2 436 72.3 90.0 2016 2,426 2,408 - 1,474 - 365 - 439 - 1 129 61.2 94.6 16.2% 53,344 30,020 2015 2,427 2,442 - 3,750 - 363 1,438 2 - 231 153.6 109.5 16.1% 116,003 32,331 2016 55 61 - 55 - 8 0 - 1 - 3 90.2 103.3 11.3% 21,846 3,807 2015 62 64 - 118 - 10 0 0 - 64 184.4 200.0 9.9% 26,008 4,275 2016 1,025 1,000 - 658 - 148 - 47 - 1 146 65.8 85.3 2015 962 958 - 612 - 153 - 67 1 127 63.9 86.8 2016 398 390 - 82 - 31 - 96 0 181 21.0 53.6 2015 352 347 247 - 45 - 392 0 157 -71.2 54.8 2016 655 650 - 497 - 90 - 2 0 61 76.5 90.6 11.6% 64,807 10,917 10.2% 68,006 10,454 0.1% 765,692 120 0.1% 790,685 111 19.9% 5,716 96,868 a) The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance contracts in the year. b) Average claims are total claims before run-off in the year relative to the number of claims in the year. c) Including the acquired insurance portfolio from Skandia. | Menu – Financial statements 2015 610 607 - 580 - 81 - 2 1 - 55 95.6 109.2 19.6% 5,893 96,774 64 Annual report 2016 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business DKKm Other insurance d) Total exclusive of Norwegian Group Life Norwegian Group Life one-year policies Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance tech. interest, net of reinsurance Technical result Gross claims ratio Combined ratio Average claims DKK b) Total claims 2016 57 55 - 95 - 179 - 23 2 - 240 172.7 540.0 2015 2016 2015 59 60 - 46 - 95 - 46 1 - 126 76.7 311.7 17,420 17,690 17,291 - 11,257 - 2,692 - 950 - 11 17,517 - 13,183 - 2,670 711 16 2,381 2,391 65.1 86.2 75.3 86.4 2016 422 416 - 362 - 45 - 1 1 9 87.0 98.1 2015 460 460 - 379 - 50 - 1 2 32 82.4 93.5 958,750 12 392,147 34 b) Average claims are total claims before run-off in the year relative to the number of claims in the year. d) Other insurance, gross claims and gross operating expenses are negatively affected by DKK 88m and DKK 162m in 2016, mainly by impairment of soft- ware. (DKK 40m and DKK 80m, mainly due to ac- cruals for efficieny programme , in 2015). Total 2016 2015 17,842 18,150 17,707 - 11,619 - 2,737 - 951 - 10 2,390 65.6 86.7 17,977 - 13,562 - 2,720 710 18 2,423 75.4 86.8 | Menu – Financial statements 65 Annual report 2016 | Tryg A/S | 2016 2015 DKKm 2016 2015 17,949 43 17,992 1 17,993 -1,178 -19 16,796 18,166 44 18,210 1 18,211 -1,103 -61 17,047 Ceded -625 -46 -432 -1,103 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 Other audit assignments Tax advice Other services -296 -1,733 -2,029 -708 -2,737 150 -2,587 -7 -7 -3 -1 -1 -2 -7 -368 -1,674 -2,042 -678 -2,720 102 -2,618 -7 -7 -3 0 -2 -2 -7 -9 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 36m in 2015). 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 2016 2015 Gross 9,533 1,928 6,489 Ceded -613 -110 -455 Gross 9,419 1,893 6,855 17,950 -1,178 18,167 Denmark Other EU countries Other countries a) a) Mainly Norway 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 2016 2015 149 -159 -10 -13,048 1,429 -11,619 286 -190 -11,523 259 -241 18 -15,062 1,500 -13,562 2,060 -288 -11,790 | Menu – Financial statements 66 NotesAnnual report 2016 | Tryg A/S | DKKm 6 Insurance operating costs, gross, classified by type Commissions Staff expenses Other staff expenses Office expenses, fees and headquarter expenses IT operating and maintenance costs, software expenses Depreciation, amortisation and impairment losses and write-downs Other income Total lease expenses amount to DKK 26m (DKK 27m in 2015) Insurance operating costs and claims include the following staff expenses: Salaries and wages Commision Allocated share options and matching shares Pension plans a) Other social security costs Payroll tax 2016 2015 -296 -1,615 -164 -416 -249 -223 226 -2,737 -2,036 -8 -3 -286 -4 -354 -2,691 -368 -1,680 -179 -364 -261 -102 234 -2,720 -2,108 -6 -5 -300 -4 -371 -2,794 a) In 2016 defined benefit plans were included with DKK 33m (DKK 40m in 2015). Remuneration for the Supervisory Board and Executive Board is disclosed in note 29 ‘Related parties’. Average number of full-time employees during the year (continuing business) 3,306 3,472 | Menu – Financial statements 67 NotesAnnual report 2016 | Tryg A/S | Notes DKKm 6 Share option programmes Spec. of outstanding options: 2016 Allocation 2011 Allocated in 2011, 1 January Exercised Expired Outstanding options from 2011 allocation 31 Dec. 2016 Number of options exercisable 31 Dec. 2016 2015 Allocation 2010-2011 Allocated in 2010-2011, 1 January Exercised Expired Total numbers a) Fair value Executive Board Other senior employees Other employees Total Per option at time of allocation DKK Total value at time of allocation DKKm Per option at 31 Dec. DKK Total value at 31 Dec. DKKm 0 0 0 0 0 12,085 -12,085 0 3,685 -3,450 -235 15,770 -15,535 -235 14 14 14 0 0 0 0 0 0 113,450 -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 0 0 0 0 55/44 55/44 55/44 0 0 0 0 4 -4 0 0 0 0 0 0 14 -13 0 1 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 Tryg did not allocate share options in 2016. At 31 December 2016, the share option plan comprised 0 share options (15,770 share options at 31 December 2015). In 2016, the fair value of share options recognised in the income statement amounted to DKK 0m (DKK 0m in 2015). 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. | Menu – Financial statements 68 Annual report 2016 | Tryg A/S | In 2011-2016, Tryg entered into an agreement on matching shares for the Executive Board and selected other senior employees as a consequence of the Group’s remuneration policy. The Executive Board and Other senior employees are allocated one share in Tryg A/S for each share that the Executive Board member or Other senior employees acquires in Tryg A/S at market rate for liquid cash at a contractu- ally agreed sum. The shares are reported at market value and are accrued over the 3- or 4-year matura- tion period. In 2016, the reported fair value of match- ing shares for the Group amounted to DKK 3m (DKK 5m in 2015). At 31 December 2016, a total amount of DKK 16m was recognised for matching shares. Notes DKKm 6 Matching shares Total numbers a) Fair value Executive Board 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 2016 Allocated in 2016 17,233 15,562 32,795 Matching shares allocated in 2016 at 31.12.16 17,233 15,562 32,795 Allocated in 2011-2015 Category changes Cancelled Exercised 106,045 1,835 -15,355 -54,635 125,635 -1,835 -17,130 -39,245 231,680 0 -32,485 -93,880 Matching shares allocated in 2011-2015 at 31.12.16 Number of Matching shares exercisable 31 Dec. 2016 37,890 67,425 105,315 0 0 0 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 Cancelled Exercised 91,630 0 -18,000 91,895 -19,000 -19,540 183,525 -19,000 -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 12,395 128 128 94 94 94 94 94 160 160 77 77 77 77 4 4 22 0 -3 -9 10 8 8 14 -1 -3 10 127 127 127 127 127 127 127 137 137 137 137 137 137 4 4 29 0 -4 -12 13 7 7 25 -3 -5 17 | Menu – Financial statements 69 Annual report 2016 | 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 Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property Owner-occupied property a) Discounting Other statement of financial position items 2016 2015 DKKm 2016 2015 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 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 -708 -40 8 -24 17 0 -1 -748 % 22.0 1.0 1.0 -1.0 0.0 23.0 0 1 -2 -1 0 -1 -543 -26 0 -15 129 65 0 -390 % 23.5 1.0 1.0 -5.5 -3.0 17.0 3 54 7 64 -15 49 Profit/loss on discontinued and divested business primarily relates to Marine Hull insurance. 25 1 642 3 671 -88 -25 -113 558 78 190 -19 -83 81 247 431 93 -188 -65 271 518 47 2 742 3 794 -89 -6 -95 699 13 57 14 -608 -42 -566 17 0 103 -64 56 -510 Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK 1m (DKK 58m in 2015) a) Please refer to note 26 Sale of properties | Menu – Financial statements 70 NotesAnnual report 2016 | Tryg A/S | DKKm 11 Intangible assets 2016 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 Impairment losses and write-downs for the year Trademarks and customer relations Goodwill Assets under con- Software a) struction a) 558 -16 0 77 619 -4 0 0 -100 205 -6 0 58 257 -129 5 -23 0 1,153 7 246 12 1,418 -950 -8 -94 -200 297 3 -246 131 185 -92 0 0 0 Total 2,213 -12 0 278 2,479 -1,175 -3 -117 -300 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 asset 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 Amortisation and write-downs at 31 December -104 -147 -1,252 -92 -1,595 Carrying amount at 31 December 515 110 166 93 884 Carrying amount at 31 December 554 76 203 205 1,038 a) Hereof proprietary software DKK 203m (DKK 317m at 31 December 2015) | Menu – Financial statements 71 NotesAnnual report 2016 | Tryg A/S | DKKm 11 Intangible assets (continued) Impairment test Goodwill In 2016, Tryg acquired Skandia’s child and adult accident insurance portfolio. The insurance activities were incorporated into the Tryg Group’s business structure from 1 september 2016. 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 2016, 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, Securator and the Skandia portfolio, 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 experiences. 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 1.2bn (DKK 1.3bn) relative to a recognised goodwill of DKK 354m (DKK 368m) and Equity of DKK 0.7bn (DKK 0.6bn) and does not indicate any impairment in 2016. DKKm 2016 2015 - 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% 16 -15 -157 199 -146 147 2% 1% 13% 93% 25 -24 -161 189 -144 144 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 84m (DKK 184m) relative to a recognised goodwill of DKK 84m (DKK 184m) and equity of DKK 138m (DKK 174m) which have led to an impairment in 2016 of DKK 100m which is recognised in other costs. The impairment is due to a lower sale of electronics, than expected and the loss of two major partners, which has led to a decline in the assumptions used. | Menu – Financial statements 72 NotesAnnual report 2016 | Tryg A/S | DKKm 2016 2015 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 10% 3% 12% 89-91% 13% 3% 11% 83-91% 6 -6 -15 20 -11 10 6 -5 -35 48 -16 17 Software and assets under construction As at 31 December 2016 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 indicate an impairment of DKK 200m due to revaluation of the groups it-systems. The write-down relates predominantliy to IT systems for payment, digitalisation and IT integration. The write- down is due to related systems development cost will be higher, while for some of the systems benefits are also expected to be lower. The cost is recognised as write-downs under depreciations in the income state- ment. 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 lifetime 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 recognised in the income statement. The recoverable amount is the higher of fair value less sales costs and value in use. An increase in the required return or combined ratio will result in a write-down of the goodwill associated with Securator. We do not expect an increase in these assumptions. Skandia child and adult accident insurance The impairment test at year-end for Skandia portfolio is based on the valuation at the time of acquisition due to the short ownership period and the lack of indications of impairment since the acquisition. Goodwill recognised DKK 77m. Please refer to note 28. The assets and liabilities have not changed significantly since the latests calculation and the recoverable amount calculated would exceed the carrying amount with the same margin or very close to that margin. Trademarks and customer relations As at 31 December 2016 management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the Moderna and Skandia portfolio 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. | Menu – Financial statements 73 NotesAnnual report 2016 | Tryg A/S | Notes 12 Property, plant and equipment DKKm 2016 Cost Cost at 1 January Exchange rate adjustments Additions for the year Disposals for the year Cost at 31 December Operating equipment Owner-occupied property Assets under construction 235 3 1 0 239 -173 -2 -15 0 0 0 -190 49 241 -2 0 0 -4 235 -144 1 -34 0 4 -173 62 1,715 20 75 -1,810 0 -571 3 -17 53 100 432 0 0 1,711 -22 11 15 0 1,715 -558 -3 -14 4 0 -571 1,144 83 2 12 -97 0 -81 -2 0 0 0 83 0 0 94 -2 -11 2 0 83 -83 2 0 0 0 -81 2 The owner-occupied properties were sold in December 2016. Please refer to note 26 Sale of properties. Total 2,033 25 88 -1,907 239 -825 -1 -32 53 100 515 -190 49 2,046 -26 0 17 -4 2,033 -785 0 -48 4 4 -825 1,208 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 Reversed depreciation and value adjustments Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December 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 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 | Menu – Financial statements 74 Annual report 2016 | Tryg A/S | DKKm 13 Investment property Fair value at 1 January Exchange rate adjustments Additions for the year Disposals for the year Value adjustments for the year Reversed on sale Fair value at 31 December 2016 2015 DKKm 2016 2015 1,838 16 47 -6 431 -3 2,323 1,828 -19 31 -17 8 7 1,838 13 Investment property (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. The sensitivity in 2016 is exclusive of the property sold. Total rental income for 2016 is DKK 129m (DKK 120m in 2015). Total expenses for 2016 are DKK 24m (DKK 31m in 2015). Of this amount, expenses for non-let property total DKK 0m (DKK 0m in 2015), total expenses for the income-generating investment property are DKK 24m (DKK 31m in 2015). Value adjustments of DKK 420m and a fair value as at 31 December 2016 of DKK 1,017m relates to sale of property in 2016. External experts were involved in valuing the majority of the other investment properties. In determining the fair value of the properties, not only publicly available market data are included, corresponding to the ‘non-observable input’ in the fair value hierarchy. No reclassifications have been made between this category and other categories in the fair value hierarchy during the year. The following return percentages were used for each property category: Return percentages, weighted average 2016 2015 Business property Office property Residential property Total 6.9 6.9 6.0 6.8 7.0 6.5 6.0 6.5 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 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 2016 -51 57 -37 -9 201 201 28 0 -10 -14 13 17 218 2015 -70 78 -57 -13 201 201 24 -2 -32 -4 42 28 229 | Menu – Financial statements 75 NotesAnnual report 2016 | 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 % 2016 Komplementarselskabet af 1. marts 2006 ApS, Denmark Ejendomsselskabet af 1. marts 2006 P/S, Denmark 0 1,106 2015 Komplementarselskabet af 1. marts 2006 ApS, Denmark Ejendomsselskabet af 1. marts 2006 P/S, Denmark AS Eidsvåg Fabrikker, Norway 0 1,107 47 0 234 0 248 7 0 872 0 859 40 0 66 0 60 16 0 54 0 150 5 50 25 50 25 28 Individual estimates are made of the degree of influence under the contracts made. | Menu – Financial statements 76 Annual report 2016 | Tryg A/S | DKKm 15 2016 2015 DKKm 15 Financial assets (Continued) Fair value hierarchy for financial instruments measured at fair value in the statement of financial position 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 40,252 40,220 0 3,412 43,664 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 681 21 6,978 7,680 598 14 8,127 8,739 2016 Equity investments Unit trust units Bonds Derivative financial instruments, assets Derivative financial instruments, debt 2015 Equity investments Unit trust units Bonds Derivative financial instruments, assets Derivative financial instruments, debt Qouted Observable input market price Non- observable input 0 2,999 17,555 0 0 20,554 0 3,589 18,254 0 0 21,843 0 942 17,698 1,000 -702 18,938 0 0 17,450 843 -612 17,681 48 9 1 0 0 58 138 0 1 0 0 139 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: Carrying amount at 1 January Exchange rate adjustments Gains/losses in the income statement Purchases Sales 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 2016 139 3 36 32 -152 58 -39 | Menu – Financial statements 77 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. In 2016 a few large unit trust units were not traded recently before 31.12.16 and thus transferred to cate- gory Observable input. 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 -398m (DKK -417m in 2015). Total 48 3,950 35,254 1,000 -702 39,550 138 3,589 35,705 843 -612 39,663 2015 129 -1 3 11 -3 139 2 NotesAnnual report 2016 | 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 % (exclusive of property sold). Exchange rate risk (VaR 99) Loss on counterparties of 8 % 2016 2015 DKKm -199 -150 -275 -104 -14 -466 -153 -161 -297 -239 -14 -372 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 2016 2015 Fair value in statement of financial position 347 7 -56 Nominal 32,889 607 7,735 Nominal 27,415 47 7,993 41,231 298 35,455 3,143 44,374 18,508 10,754 15,112 -398 -100 -91 -16 7 2,683 38,138 17,038 9,606 11,494 Fair value in statement of financial position 283 0 -52 231 -417 -186 -56 -106 -24 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: 2016 Gains and losses at 1 January Reversed hedges in profit/loss Value adjustments for the year Gains and losses at 31 December 2015 Gains and losses at 1 January Reversed hedges in profit/loss Value adjustments for the year Gains and losses at 31 December Gains 2,496 156 2,652 Gains 2,152 344 2,496 Losses -2,420 -23 -183 -2,626 Losses -2,162 -258 -2,420 Net 76 -23 -27 26 Net -10 86 76 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 Exchange rate adjustment for the year recognised in profit/loss Value adjustments at 31 December -66 26 25 -15 23 -89 0 -66 2016 2015 | Menu – Financial statements 78 NotesAnnual report 2016 | Tryg A/S | 2016 2015 DKKm 2016 2015 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 1,108 183 0 0 1,646 2,937 116 3 -2 117 1,261 199 120 370 381 2,331 107 -3 12 116 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 50m (DKK 53m in 2015). Receivables in connection with insurance contracts include overdue receivables totalling: Falling due: Within 90 days After 90 days 116 137 253 116 135 251 Other receivables do not contain overdue receivables 16 Reinsurer’s share Impairment test As at 31 December 2016, 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 2m (DKK 3m in 2015). The use of reinsurance creates a natural counterparty risk. The Risk will be handled by applying a wide range of reinsurers with at least an ‘A’ rating. 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 -239 -9 -636 0 38 529 -317 0 -317 -317 -429 16 -495 -96 0 765 -239 118 -357 -239 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 2015 2016 282,316 -7,793 289,120 -7,074 Own shares 2016 7,243 7,793 2015 9,358 7,074 0 -7,018 -8,919 0 72 270 -72 7,946 2.81 40 -270 7,243 2.50 36 Number of shares at 31 December 274,595 282,316 Number of shares as a percentage of issued shares at 31 December Nominal value at 31 december (DKKm) 97.19 1,373 97.50 1,412 Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 31 December 2017. Own shares are acquired for use in the Group’s incentive programme and as part of the share buyback programme. | Menu – Financial statements 79 NotesAnnual report 2016 | Tryg A/S | DKKm 18 Equity (continued) 2016 Own funds From 1 January 2016 new Solvency II rules are effective: Equity according to annual report Proposed dividend Intangible assets Profit margin, solvency purpose Taxes Subordinate loan capital Own funds 2015 Capital adequacy For 2015 the calculation is based on the Solvency I rules: 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 2016 2015 DKKm 2016 2015 19 Premium provisions Premium provision at 1 January Adjustment regarding Norwegian Group life beginning of year Addition on acquisition of Skandia activity 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) a) Comprises premium provisions for guarantee insurance. 5,517 0 35 32 17,570 -17,742 13 5,425 62 5,487 5,767 -124 0 -54 17,399 -17,458 -13 5,517 54 5,571 9,437 -2,017 -884 970 -27 2,371 9,850 9,831 -1,013 -3,868 4,950 1,707 -3,868 2,789 The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. The calculation of 2015 Solvency I ratio has not been ajusted for the FSA executive order on yield curves from 1 January 2016. | Menu – Financial statements 80 NotesAnnual report 2016 | Tryg A/S | Gross Ceded Net of reinsurance DKKm Gross Ceded Net of reinsurance DKKm 19 Claims provisions 2016 Claims provisions at 1 January Addition, purchase of Skandia portfolio Value adjustments of provisions, beginning of year Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years Discounting and exchange rate adjustments 353 Claims provisions at 31 December Other 1) 25,096 358 25,452 25,315 1,362 392 27,069 -6,812 -7,045 -13,857 12,961 -1,432 11,529 -2,852 0 -36 -2,888 22,463 1,362 356 24,181 30 -6,782 1,100 1,130 -175 180 5 53 -1,700 -120 -1,820 -5,945 -12,727 12,786 -1,252 11,534 406 23,396 238 23,632 24,601 -1,272 23,329 19 Claims provisions 2015 Claims provisions at 1 January Adjustment 1.1.2015 regarding new yield curves. Please refer to note 31 Accounting policies. Adjustment regarding Norwegian Group life beginning of year Value adjustments of provisions, beginning of year Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years 226 124 -464 24,487 -6,676 -6,011 -12,687 14,606 -1,232 13,374 Discounting and exchange rate adjustment 141 Claims provisions at 31 December Other a) 25,315 355 25,670 a) Comprises claims provisions for guarantee insurance. 0 0 32 -1,240 37 414 451 -2,021 15 -2,006 -57 -2,852 -151 -3,003 226 124 -432 23,247 -6,639 -5,597 -12,236 12,585 -1,217 11,368 84 22,463 204 22,667 | Menu – Financial statements 81 NotesAnnual report 2016 | Tryg A/S | DKKm 2016 2015 DKKm 2016 2015 20 Pensions and similar obligations Jubilees Recognised liability 37 37 Defined-benefit pension plans: Present value of pension obligations funded through operations 70 Present value of pension obligations funded through establishment of funds 1,198 Pension obligation, gross Fair value of plan assets Pension obligation, net 1,268 960 308 50 50 62 1,130 1,192 978 214 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 1,192 1,290 37 64 18 22 -8 -57 -10 -74 35 29 -23 -55 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 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 Recognised pension obligation at 31 December 1,268 1,192 Average return on plan assets Weighted average duration of the defined benefit obligation (years) 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 978 51 34 7 -66 -44 960 308 345 1,010 -58 91 25 -49 -41 978 214 264 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. Assumptions used Discount rate Estimated return on pension funds Salary adjustments G adjustments Turnover Employer contributions Mortality table 11 22 -6 6 33 49 517 637 8.00 % 8 76 12 3 0.7 13 1.4 1.4 2.3 2.0 7.0 14.0 K2013 31 30 -26 5 40 53 595 586 7.81 % 10 73 15 2 2.6 18 1.9 1.9 2.5 2.3 7.0 14.1 K2013 | Menu – Financial statements 82 NotesAnnual report 2016 | Tryg A/S | DKKm 20 2016 2015 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 52 -55 -103 88 31 -33 46 -49 -99 83 25 -29 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. The plan are closed for new business.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 19m, which is about 3,9 % of the annual premium in FPK (2015). FPK writes in its interim report for 2016 that it had a collective consolidation ratio of 128 at 30 June 2016 (consolidation ratio of 114 at 30 June 2015). The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations. | Menu – Financial statements 83 NotesAnnual report 2016 | Tryg A/S | 2016 2015 DKKm 2016 2015 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 Adjustment 1.1.2015 regarding new yield curves. Please refer to note 31 Accounting policies. Exchange rate adjustments Change in deferred tax relating to change in tax rate Change in deferred tax previous years 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 30 1 39 33 70 38 600 741 702 0 645 24 0 31 60 -17 -41 702 16 0 8 91 1 100 77 96 -40 612 745 645 20 1,022 -51 -116 13 0 -63 -128 -32 645 16 0 The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Loss determined according to Swedish 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 -30m (DKK 32m at 31 December 2015). | Menu – Financial statements 22 Other provisions Other provisions at 1 January Change in provisions Other provisions 31 December 132 -7 125 83 49 132 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 50m and reasses- ment of the beginning of year balance amounts to DKK -57m. The balance as at 31 December 2016 amounts to DKK 123m (DKK 130m at 31 December 2015). 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 2015 and 2016, however, with settlement in 2016 and 2017, 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 178 178 258 1,474 1,732 2,472 -1 2,471 279,399 0 279,399 8.84 8.84 8.84 8.84 0.00 0.00 64 64 290 3,784 4,074 1,920 49 1,969 285,073 28 285,101 6.74 6.73 6.91 6.91 0.17 0.18 84 NotesAnnual report 2016 | Tryg A/S | DKKm 26 Sale of properties In December 2016, Tryg signed sales contracts of its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. The recognition in the accounts in 2016 is: Carrying amount 1 Jan. 2016 597 1,144 1,741 Recognised in Income Other statement compre- hensive value income adjustments 100 100 100 420 93 513 -13 500 Carrying amount 31 Dec. 2016 1,017 - 1,017 Investment property, sold Owner-occupied property, sold a) Total property sold Other estimated costs concerning the sales Total impact in 2016 New lease contracts for the continued rental of both owner-occupied properties have been signed in 2016. a) Carrying amount is recognised in other receivables. DKKm 27 Contractual obligations, collateral and contingent liabilities Contractual obligations 2016 Operating leases Other contractual obligations 2015 Operating leases Other contractual obligations <1 year 1-3 years 3-5 years > 5 years Obligations due by period 140 202 342 66 282 348 246 0 246 110 103 213 299 0 299 76 0 76 260 0 260 56 0 56 Total 945 202 1,147 308 385 693 2016 Tryg has signed the following contracts with amounts above DKK 50m: In December 2016 Tryg signed sales contracts about its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. Please also refer to note 26 Sale of properties. Outsourcing agreement with TCS for DKK 64m for a 4 year period, which expires in 2017. 2015 In august 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia’s activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsäkringar. The transaction was subject to regulatory approvals and the parties completed it in second half 2016. Thereafter Tryg took over the control of the portfolios. The acquisition had no effect on the financial statement for 2015. | Menu – Financial statements 85 NotesAnnual report 2016 | Tryg A/S | DKKm 2016 2015 27 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 interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies. Tryg Forsikring A/S and Tryg Livsforsikring 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 Interest and rent receivable Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements 0 36 3,950 33,534 224 3,172 Total 40,916 14 138 3,589 32,121 281 2,706 38,849 | Menu – Financial statements 86 NotesAnnual report 2016 | Tryg A/S | Contingent liabilities Companies in the Tryg Group are party to a number of disputes. 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 2016. Notes DKKm 27 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 2016 Assets Derivative financial instruments Inflation derivatives, recognised in claims provisions Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 2015 Assets Reverse repos Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 1,000 16 1,016 1,474 702 414 2,590 370 843 1,213 3,784 612 417 4,813 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,000 16 1,016 1,474 702 414 2,590 370 843 1,213 3,784 612 417 4,813 0 0 0 -1,474 0 0 -1,474 -370 0 -370 -3,784 0 0 -3,784 -1,004 -13 -1,017 -4 -727 -425 -1,156 0 -940 -940 -1 -641 -421 -1,063 -4 3 -1 -4 -25 -11 -40 0 -97 -97 -1 -29 -4 -34 | Menu – Financial statements 87 Annual report 2016 | Tryg A/S | DKKm 28 Acquisition of subsidiaries 2016 In august 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia’s activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsäkringar. The transaction was approved by the Danish FSA and implemented 1 September 2016. The acquisition affects the Financial statement from 1 September 2016: DKKm 29 2016 2015 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 Board and their members’ family. Net assets acquired Intangible assets Cash and cash equivalents Total provisions for insurance contracts Net assets acquired Goodwill Purchase price Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Parent company (TryghedsGruppen smba) - Key management - Other related parties 2016 58 1,471 -1,389 140 77 217 0.5 0.4 3.7 0.0 0.1 1.8 0.3 0.3 1.9 0.1 0.0 0.5 The Group has not incurred any significant acquisition costs in connection with the acquisition. The purchase price is final. In connection with the acquisition, a sum was paid which exceeds the fair value of the identifiable acquired assets and total provisions for insurance contracts. This positive balance is mainly attributable to customer relations and to expected synergies between the portfolios in the acquired activities and the Group’s existing activities, which are not separately identifiable. If the activities were included with a full year, the premium income would amount to approx. DKK 200m and the technical result would be approx. DKK 30-60m. Management believes that these pro forma figures reflect the Group’s earnings level after the acquisition of the activities and that the amounts may form the basis for comparisons in subsequent financial years. The determination of the pro forma amounts for premium income and technical result 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 acqui- sition balance sheets for premium and claims provisions, rather than the original carrying amounts. • Other costs, including amortisation of intangible assets, have been calculated on the basis of the fair values determined in the acquisition balance sheets, rather than the original carrying amounts. . | Menu – Financial statements 88 NotesAnnual report 2016 | Tryg A/S | DKKm 29 Related parties (continued) Specification of remuneration DKKm 29 2016 Supervisory Board Executive Board Risk-takers Number of persons Basis salary Variable salary a) Pension Total 14 4 8 26 7 19 15 41 0 2 0 2 0 5 2 7 7 26 17 50 a) Including charges for matching shares allocated in 2016 for fiscal year 2015. See section “Corporate governance” in Management review for matching shares allocated in 2017 for fiscal year 2016. Of which retired: Supervisory Board Executive Board Risk-takers 2015 Supervisory Board Executive Board Risk-takers Number of persons Severance pay 2 1 1 4 0 0 0 0 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 a) Exclusive of severance pay Of which retired: Supervisory Board Risk-takers Number of persons Severance pay 1 3 4 0 14 14 Related parties (continued) Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 3-4 years and share options, which are recognised over 3 years. Reference is made to section ‘Corporate governance’ of the management’s review on the corres- ponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this. 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 Board 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 Executive Board have free car appropriate to their position as well as other market conformal employee benefits. Each member of the Executive Board 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). 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 2016 0 2015 0 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. The maximum amount paid in severance pay to an individual is DKK 7m. 30 Financial highlights Please refer to page 44. | Menu – Financial statements 89 NotesAnnual report 2016 | Tryg A/S | 31 Accounting policies Change in accounting policies The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 De- cember 2016 and in accordance with the Danish Stat- utory Order on Adoption of IFRS. The annual report of the parent company is prepared in accordance with the executive order on financial re- ports presented by insurance companies and lateral pension funds issued by the Danish FSA. The devia- tions from the recognition and measurement require- ments of IFRS are: • 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. Tryg has implemented the amendments which pre- scribes applying a new yield curve from the Executive order on financial reports by insurance companies and lateral pension funds issued by the Danish FSA from 1 January 2016. 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. For Tryg, this means applying a yield curve at a lower level. The comparative figures for 2015 are restated accordingly. Figures for previous years have not been restated as this is impracticable due to the non exist- ence of the new yield curve published by EIOPA be- fore 01.01.2015. The comparative figures have been restated for 2015 with the following amounts: Income statement DKKm Total Investment return after insurance technical interest Tax Profit and loss for the period Statement of financial position DKKm Equity Insurance provisions Deferred tax liabilities 2015 -17 5 -12 1.1.2015 31.12.15 -175 226 -51 -187 243 -56 It is Tryg’s assessment that the amendments to the Executive Order from 2016 can be accommodated within IFRS. Except as noted above, the accounting policies have been applied consistently with last year. Accounting regulation Implementation of changes to accounting standards and interpretation in 2016 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 2016 that will have a significant impact on the group. There has not been implemented any new or amended standards and interpretations that have affected the group significantly. 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: • • IFRS 16 ‘Leases’ a) IFRS 9 ‘Financial Instruments’ b) a) enters into force for the accounting year • commencing 1 January 2019. b) enters into force for the accounting year commencing 1 January 2018 or later insurance companies are expected to be allowed to postpone the implementation. However, IFRS 16 will change the composition of the statement of financial position, but without adding new risks. Regarding IFRS 16 Tryg expects to get more assets and liabilities in the balance sheet but it is not expected to have a significant impact on either profit or loss or equity. Tryg will primarily be effected by lease agreements related to cars and premises. The total impact on the balance sheet is being analysed in relation to the length of the lease agreements and amounts payable. Regarding IFRS 9 the assessment of no significant impact on the statement of financial position or profit and loss is based on the assumption that Tryg already carry all financial instruments at fair value through profit and loss. The implementation of IFRS 9, will not effect Trygs recognition and measurement. The changes will be implemented going forward from the effective date The new executive order will only have effect on recognition and measurement in the Group’s financial reporting in the following area. • Claims provisions The claims provisions has changed following the transition to a new interest curve. 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 at a lower level. It is Tryg’s assessment that the amendments to the Executive Order from 2016 can be accommo- dated within IFRS, therefore there are not any dif- ferences between the Parent Company and the consolidated financial statements as a result of the new accounting regulation. The implementation of IFRS 9 ‘financial instruments’ IFRS 16 ‘leases’ is not expected to significantly change the group’s financial position. Changes to accounting estimates There have been no changes to the accounting estimates in 2016. | Menu – Financial statements 90 NotesAnnual report 2016 | Tryg A/S | Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting esti- mates and requires management to exercise its judge- ment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judge- ment 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 • Control of subsidiaries 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 management’s best estimate based on actuarial and statistical projections of claims and administration of claims including a margin in- corporating the uncertainty related to the range of actuarial scenarios and other short and long-term risks not reflected in standard actuarial models. The projections are based on Tryg’s knowledge of histori- cal developments, payment patterns, reporting de- lays, duration of the claims settlement process and other factors that might influence future develop- ments 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 | Menu – Financial statements that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg. The calculation of the claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as regards factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation. The Group’s actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated claims provisions. Claims provisions are discounted. As a result, initial changes in discount rates or changes in the duration of the claims provisions could have positive or nega- tive effects on earnings. Discounting affects the mo- tor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accident, in particular. The Financial Supervisory Authority’s discount curve, which is based on Eiopa’s yield curves, is used to dis- count Danish, Norwegian and Swedish claims provi- sions in relation to the relevant functional currencies. Several assumptions and estimates underlying the calculation of the claims provisions are mutually de- pendent. This has the greatest impact on assump- tions regarding interest rates and inflation. Fair value of financial assets and liabilities Measurements of financial assets and liabilities for which prices are quoted in an active market or which are based on generally accepted models with observa- ble market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that re- flects the fair value of the instrument, the fair value is determined using a current OTC price of a similar fi- nancial instrument or using a model calculation. The valuation models include the discounting of the instru- ment 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 assessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a deduction 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, location and maintenance standard, and based on a market- determined rental income as well as operating ex- penses in proportion to the property’s required rate of return. Cf. note 12 and 13. 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. Measurement of goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations was acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least annually. Impairment testing involves estimates of future cash flows and is affected by a number of factors, including discount rates and other circum- stances dependent on economic trends, such as customer behaviour and competition. Cf. note 11. Control of subsidiaries Control of subsidiaries is assessed yearly. Hence whether a subsidiary should still be part of the consol- idation on line by line basis or as a single line item in the balance sheet. Description of accounting policies Recognition and measurement The annual report has been prepared under the historical cost convention, as modified by the revalua- tion of owner-occupied property, where increases are recognised in other comprehensive income, and re- valuation of investment property, financial assets held for trading and financial assets and financial liabilities (including derivative instruments) at fair value in the income statement. Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the Group, and the value of such assets can be measured reliably. Liabilities are recog- nised 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 income statement unless otherwise described below. 91 NotesAnnual report 2016 | Tryg A/S | All amounts in the notes are shown in millions of DKK, unless otherwise stated. Consolidation Consolidated financial statements The consolidated financial statements comprise the financial statements of Tryg A/S (the parent company) and the enterprises (subsidiaries) controlled by the parent company. The parent company is regarded as controlling an enterprise when it i) exercises a control- ling influence over the relevant activities in the enter- prise in question, ii) is exposed to or has the right to a variable return on its investment, and iii) can exercise its controlling influence to affect the variable return. Enterprises in which the Group directly or indirectly holds between 20% and 50% of the voting rights and exercises significant influence but no controlling influ- ence are classified as associates. Basis of consolidation The consolidated financial statements are prepared on the basis of the financial statements of Tryg A/S and its subsidiaries. The consolidated financial state- ments are prepared by combining items of a uniform nature. The financial statements used for the consoli- dation are prepared in accordance with the Group’s accounting policies. On consolidation, intra-group income and costs, intra- group accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated. Items of subsidiaries are fully recognised in the consolidated financial statements. which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of com- prehensive income up to the date of disposal or the settlement date. The date of disposal is the date on which control of the divested enterprise actually passes to a third party. The purchase method is applied for new acquisitions if the Group gains control of the acquired enterprise. Subsequently, identifiable assets, liabilities and con- tingent liabilities in the acquired enterprises are meas- ured at fair value at the date of acquisition. Non- current assets which are acquired with the intention of selling them are, however, measured at fair value less expected selling costs. Restructuring costs are recognised in the pre-acquisition balance sheet only if they constitute an obligation for the acquired enter- prise. The tax effect of revaluations is taken into ac- count. The acquisition price of an enterprise consists of the fair value of the price paid for the acquired en- terprise. If the final determination of the price is con- ditional upon one or more future events, such events are recognised at their fair values at the date of acqui- sition. Costs relating to the acquisition are recognised in the income statement as incurred. Any positive balances (goodwill) between the acquisi- tion price of the acquired enterprise, the value of minority 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 assets, liabilities and contingent liabilities, on the other hand, are recognised as an asset under intangi- ble assets, 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 recoverable amount. 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 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 information 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 | Menu – Financial statements 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 manage- ment and internal financial reporting system and sup- ports the management decisions on allocation of re- sources and assessment of the Group’s results divided into segments. The operational business segments in the Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individu- als in Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized busi- nesses, in Denmark and Norway. Corporate sells insur- ances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of in- surance products to private individuals in Sweden as well as sale of Product insurances in the nordic region. Geographical information is presented on the basis of the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Nor- way and Sweden. Segment income and segment costs as well as seg- ment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily 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 accordance with Recommendations and Ratios 2015 92 NotesAnnual report 2016 | Tryg A/S | issued 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. interest is applied according to the expected run-off pattern of the provisions. Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. time of writing the business. Underwriting commission is recognised when a legal obligation occurs. Administra- tion expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year. Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium pro- visions, corre- sponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the premium provisions. Premiums are calculated as premium income in accordance 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 position date is reported as the reinsurers’ share of premium 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 | Menu – Financial statements Claims Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item includes run-off gains/ losses in respect of previous years. The portion of the increase in provisions which can be ascribed to un- winding is transferred to insurance technical interest. Leasing Leases are classified either as operating or finance leases. The assessment of the lease is based on criteria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custom made, the lease term and the present value of the lease payments. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred. Changes in claims provisions due to changes in yield curve and exchange rates are recognised as a price adjustment. Tryg hedges the risk of changes in future pay and price figures for provisions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the ef- fect of changes to inflation expectations under claims. Bonus and premium discounts Bonuses and premium discounts represent antici- pated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the insurance was taken out. Insurance operating expenses Insurance operating costs represent acquisition costs and administration expenses less reinsurance commis- sions received. Expenses relating to acquiring and re- newing the insurance portfolio are recognised at the Assets held under operating leases are not recognised in the statement of financial position, but the lease pay- ments are recognised in the income statement over the term of the lease, corresponding to the economic life- time of the asset. The Group has no assets held under finance leases. Sale and lease back of owner-occupied property – operating lease Sale and lease back transactions are carried out at fair value and any gains or losses are recognised immedi- ately either in the income statement or other compre- hensive income. Losses are recognised in the income statement unless it is a reversal of a write up previously recognised in other comprehensive income. Gains are recognised in other comprehensive income unless it is a reversal of write down previously recognise in the income statement. 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 and the share option plan comprised no share options at the end of 2016. The value of services received as consideration for options granted is measured at the fair value of the options. Equity-settled share options are measured at fair value at the time of allocation and recognised under staff expenses over the period from the time of alloca- tion 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 settlement of the options allocated. The fair value of the options granted is estimated us- ing the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted. Employee shares According to established rules, the Group’s employees can be granted a bonus in the form of employee shares. When the bonus is granted, employees can choose between receiving shares or cash. The ex- pected value of the shares will be expensed over the vesting period. The scheme will be treated as a com- plex financial instrument, consisting of the right to 93 NotesAnnual report 2016 | Tryg A/S | cash settlement and the right to request delivery of shares. The difference between the value of shares and the cash payment is recognised in equity and is not remeasured. The remainder is treated as a liability and is remeasured until the time of exercise, such that the total recognition is based on the actual number of shares or the actual cash amount. Matching shares Members of Executive Board and other senior em- ployees have been allocated shares in accordance with the “Matching shares” scheme. Under Matching shares, the individual Executive Board member or other senior employee is allocated one share in Tryg A/S for each share he or she acquires in Tryg A/S at the market rate for certain liquid cash at a contractu- ally agreed sum in connection with the Matching share programme. The holder acquires the shares in the open window fol- lowing publication of the annual report for the previous year. The shares (matching shares) are provided free of charge, three or four years after the time of purchase of the investment Shares. The holder may not sell the shares until six months after the matching time. The shares are recognised at market value and are ac- crued over the four and tree year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisi- tion under staff expenses with a balancing entry di- rectly in equity. If the holder retires during the matura- tion period but remains entitled to shares, the remaining expense is recognised in the current ac- counting 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. 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 contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which manage- ment manages the investment and is recognised un- der intangible assets. Goodwill is not amortised 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. After completion of the development work, the asset is amortised according to the straight-line method over the assessed economic lifetime, though over a maximum of 4 years. The amortisation basis is re- duced by any impairment and write-downs. Assets under construction Group-developed intangibles are recorded under the entry “Assets under construction” until they are put into use, whereupon they are reclassified as software and are amortized in accordance with the amortiza- tion periods stated above. Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any 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 expected economic lifetime, however maximally the term of the lease. Costs for group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses. Gains and losses on disposals and retired assets are determined by comparing proceeds with carrying amounts. Gains and losses are recognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserves are transferred to retained earnings. Land and buildings Land and buildings are divided into owner-occupied property and investment property. The Group’s | Menu – Financial statements 94 NotesAnnual report 2016 | Tryg A/S | owner-occupied properties consist of the head office buildings in Ballerup and Bergen and a small number of holiday homes. The remaining properties are classified as investment property. Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occupied property at the statement of financial position date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property charac- teristics, corresponding to the present value of a perpetual annuity. Increases in the revalued carrying amounts of owner- occupied property are recognised in the revaluation reserve in equity. Decreases that offset previous re- valuations of the same asset are charged against the revaluation 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 associated 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 calculated based on the straight-line method and using an esti- mated economic lifetime of up to 50 years. Land is not depreciated. Assets under construction In connection with the refurbishment of owner-occupied property, costs to be capitalised are recognised at cost under owner-occupied property. On completion of the project, it is reclassified as owner-occupied property, and depreciation is made on a straight-line basis over the expected economic lifetime, up to the number of years stated under the individual categories. Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market. The fair value is calculated on the basis of market- specific rental income per property and typical oper- ating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions. Changes in fair values are recorded in the income statement. depreciation has been demonstrated. A continuous as- sessment of owner-occupied property is performed. Goodwill is tested annually for impairment, or more often if there are indications of impairment, and impairment testing is performed for each cash- generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments. Equity investments in Group undertakings The parent company’s equity investments in 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 income 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. Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are assess- ed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic lifetime. This also applies to the salvage value. Write-down is performed if 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 subsidiaries are translated using the exchange rates applicable at the statement of financial position date. When is it assessed that the parent company no longer has control over the subsidiary, it will be trans- ferred to either assets held for sale or unquoted shares and when sold, it will be derecognised. 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 intra-group profits and losses. Associates with a negative net asset value are measured at zero value. If the Group has a legal or constructive obligation to cover the associate’s negative balance, such obligation is recognised under liabilities. Investments Investments include financial assets at fair value which are recognised in the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments on initial recogni- tion and re-evaluates this at every reporting date. Financial assets measured at fair value with recognition of value adjustments in the income statement com- prise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment via the income statement. | Menu – Financial statements 95 NotesAnnual report 2016 | Tryg A/S | 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 expired, or if they have been transferred, and the Group has also transferred substantially all risks and rewards of ownership. Financial assets are recog- nised 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, including changes in share prices, foreign exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance statement of financial position items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks related to the portfolio of bonds and insurance provi- sions. Share derivatives in the form of futures and options are used from time to time to adjust share exposures. Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Positive fair values of derivatives are recognised as derivative financial instruments 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. Calculation of value is generally performed on the basis of rates supplied by Danske Bank with relevant information providers and is checked by the Group’s valuation technicians. Discounting on the basis of market interest rates is applied in the case of 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 instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign entities. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net investment are recognised directly in equity. The net asset value of the foreign entities estimated at the beginning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classifica- tion requirements are classified as financial assets. 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 asset 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. The benefits to which the Group is entitled under its re- insurance contracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts. Amounts receivable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in insurance technical interest. Changes due to changes in the yield curve or foreign exchange rates are recognised as price adjustments. The Group continuously assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recover- able amount. Impairment losses are recognised in the income statement. Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contain accounts receivable in connection with property. Receivables that arise as a result of insurance contracts are classified in this category and are reviewed for impairment as a part of the impairment test of accounts receivable. Other assets Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date. Prepayments and accrued income Prepayments include expenses paid in respect of subsequent financial years and interest receivable. Accrued underwriting commission relating to the sale of insurance products is also included. Equity Share capital Shares are classified as equity when there is no obli- gation to transfer cash or other assets. Costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Revaluation reserves Revaluation of owner-occupied property is recognised in other comprehensive income unless the revalua- tion offsets a previous impairment loss. Foreign currency translation reserve Assets and liabilities of foreign entities are recognised using the exchange rate applicable at the statement of financial position date. Income and expense items are recognised using the average monthly exchange rates for the period. Any resulting differences are recog- nised in Other comprehensive income. | Menu – Financial statements 96 NotesAnnual report 2016 | Tryg A/S | When an entity is wound up, the balance is trans- ferred to the income statement. The hedging of the currency risk in respect of foreign entities is also off- set in other comprehensive income in respect of the part that concerns the hedge. Contingency fund reserves Contingency fund reserves are recognised as part of retained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Supervisory Authority and when it is for the benefit of the policyholders. The Norwegian contingency fund reserves include provisions for the Norwegian Natural Perils Pool and security reserve. The Danish and Swedish provisions comprise contingency fund provi- sions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated. Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration). Own shares The purchase and sale sums of own shares and dividends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buy- back 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 using the effective interest method. Provisions for insurance contracts Premiums written are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premiums received on in-force contracts that relates to unexpired risks at the statement of financial posi- tion date is reported as premium provisions. Premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any risk variations. This applies to gross as well as ceded business. Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the pol- icy- holders. They include direct and indirect claims handling costs that arise from events that have oc- curred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions are estimated using the input of as- sessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external fac- tors (such as court decisions). The provisions include claims handling costs. Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability, workers’ compensation and personal acci- dent and health insurance classes, in particular. Provisions for bonuses and premium discounts etc. represent amounts expected to be paid to policy- holders in view of the claims experience during the financial year. Claims provisions are determined for each line of busi- ness based on actuarial methods. Where such business lines encompass more than one business area, short- tailed claims provisions are distributed based on num- ber of claims reported while long-tailed claims provi- sions are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter- Ferguson, the Loss Ratio method and De Vylder’s credi- bility method. Chain-Ladder techniques are used for lines of business with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder’s cred- ibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/ Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than pre- mium volume, for example 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 determining 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 dependent. Most importantly, this can be expected to be the case for assumptions relating to interest rates and inflation. Workers’ compensation is an area in which explicit inflation assumptions are used, with annuities for the insured being indexed based on the workers’ compensation index. An inflation curve that reflects the market’s inflation expectations plus a real wage spread is used as an 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 future losses when a change in inflation occurs. On the other hand, the effect of discounting will show immediately 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 adequacy 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 under 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 | Menu – Financial statements 97 NotesAnnual report 2016 | Tryg A/S | 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. 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. 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 recognised in the statement of financial position as estimated 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. best estimate by management of the expenditure required to settle the present obligation. Provisions for restructurings are recognised as obligations when a detailed formal restructuring plan has been announced prior to or at the statement of financial position date at the latest to the persons affected by the plan. Own insurance is included under other provisions. The provisions apply to the Group’s own insurance claims and are reported when the damage occurs according to the same principle as the Group’s other claims provisions. Deferred tax is measured according to the statement of financial position liability method on all timing differences between the tax and accounting value of assets 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. Debt Debt comprises debt in connection with direct insur- ance and reinsurance, amounts owed to credit institu- tions, current tax obligations and other debt. Deriva- tive financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are assessed at amortised cost based on the effective interest method. 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. Cash flow statement The consolidated cash flow statement is presented us- ing the direct method and shows cash flows from op- erating, investing and financing activities as well as the Group’s cash and cash equivalents at the beginning 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 finan- cial assets and deposits with credit institutions. Other employee benefits Employees of the Group are entitled to a fixed payment when they reach retirement and when they have been employed with the Group for 25 and for 40 years. The Group recognises this liability at the time of signing the contract of employment. 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 | Menu – Financial statements 98 NotesAnnual report 2016 | 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 2,525 0 -6 2,519 -63 2,032 1 -7 2,026 -75 Profit/loss before tax 2,456 1,951 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 15 2,471 2,471 2,770 -25 -274 2,471 18 1,969 1,969 1,759 -1,668 1,878 1,969 2016 2015 DKKm 2016 2015 Note Statement of comprehensive income Profit/loss for the year 2,471 1,969 Other comprehensive income Other comprehensive income which cannot subsequently be reclassified as profit or loss Change in equalisation provision and other provisions Change in taxrates on security provisions Sale of owner-occupied property a) Sale of owner-occupied property, revaluation from previous years a) Tax on sale of owner-occupied property Tax on revaluation of owner-occupied property from previous years 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 0 0 215 -115 -53 29 -95 24 5 51 -50 11 12 17 21 141 0 4 0 2 -12 3 159 -89 86 -21 -24 135 Comprehensive income 2,488 2,104 a) Please refer to note 26 Sale of properties in the Tryg Group. | Menu – Financial statements 99 Annual report 2016 | Tryg A/S | Statement of financial position for Tryg A/S (parent company) DKKm 2016 2015 Note 4 Assets Equity investments in Group undertakings Total investments in Group undertakings 10,127 10,127 10,135 10,135 Total investment assets 10,127 10,135 Other receivables Total receivables 5 Current tax assets Cash at bank and in hand Total other assets 1 1 15 0 15 0 0 18 1 19 Total assets 10,143 10,154 Equity and liabilities Equity Debt to Group undertakings Other debt Total debt 9,437 9,659 701 5 706 487 8 495 Total equity and liabilities 10,143 10,154 6 7 8 9 10 11 Deferred tax assets Own funds Contractual obligations, contingent liabilities and collateral Related parties Reconciliation of profit/loss and equity Accounting policies | Menu – Financial statements 100 Annual report 2016 | Tryg A/S | Statement of changes in equity (parent company) DKKm Equity at 31 December 2015 2016 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 share options and matching shares Total changes in equity in 2016 Equity at 31 December 2016 Equity at 31 December 2014 2015 Adjustment 1.1.2015 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 1,448 3,148 4,050 1,013 -25 17 -8 0 -35 -35 1,413 -8 3,140 -274 -274 35 52 -1,000 1 3 -1,183 2,867 2,770 2,770 -1,766 1,004 2,017 Total 9,659 2,471 17 2,488 0 -1,766 52 -1,000 1 3 -222 9,437 Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00) and proposed extraordinary dividend of DKK 3.54. Proposed dividend per share of DKK 3.60 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 (282,541,204 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 provi- sions of DKK 1,774m (DKK 2,516m in 2015). The con- tingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured. 1,492 4,856 3,055 1,731 11,134 -175 -1,668 135 -1,533 1,878 1,759 1,878 1,759 0 -44 44 97 -1,044 13 2 5 995 4,050 -2,477 -718 1,013 -44 1,448 -1,708 3,148 -175 1,969 135 2,104 0 -2,477 97 -1,044 13 2 5 -1,475 9,659 | Menu – Financial statements 101 Annual report 2016 | Tryg A/S | Notes DKKm 1 Income from Group undertakings Tryg Forsikring A/S 2 Other expenses Administration expenses 2016 2015 DKKm 2016 2015 2,525 2,525 -63 -63 2,032 2,032 -75 -75 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 3,148 2,542 -2,550 3,140 6,987 6,987 4,681 2,167 -3,700 3,148 Carrying amount at 31 December 10,127 10,135 Name and registered office Ownership share in % Equity Remuneration for the Executive Board 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 Board and risk-takers can be seen from note 29 concerning related parties of the Tryg Group. Refer to Note 6 for the Tryg Group for a specification of the audit fee. Average number of full-time employees for the year 3 Tax Reconciliation of tax costs Tax on profit/loss for the year Tax adjustments, previous years Effective tax rate Tax on profit/loss for the year Tax adjustment, previous years 15 15 0 15 % 22.0 0.0 22.0 15 19 -1 18 % 23.5 -1.0 22.5 2016 Tryg Forsikring A/S, Ballerup 2015 Tryg Forsikring A/S, Ballerup DKKm 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 10,127 100 10,135 2016 2015 18 15 -18 15 14 18 -14 18 | Menu – Financial statements 102 Annual report 2016 | 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. 2016 2015 DKKm 2016 2015 0 16 0 16 8 Contractual 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 posi- tion over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2016. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax losses. 7 Own funds 2016 Please refer to note 18 in the Tryg Group on Solvency II own funds. 2015 Capital adequacy Equity according to annual report 2015 Proposed dividend Solvency requirements of subsidiaries – 50% Tier 1 capital Subordinate loan capital Solvency requirements of subsidiaries – 50% Capital base Weighted items Solvency ratio (Solvency I – ratio between capital base and weighted assets) 9,846 -1,013 -3,868 4,965 1,707 -3,868 2,804 2,586 108 The calculation of the 2015 Solvency I – ratio has not been adjusted for the FSA executive order on yield curves from 1 January 2016. 9 Related parties Tryg A/S has no related parties with a controlling influence other than the parent company, Trygheds- Gruppen smba. Related parties with a significant influence include the Supervisory Board, the Execu- tive Board and their members’ related family. Related parties are the same as for the Tryg Group; please see note 29 in the Tryg Group. 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 16 -701 13 -487 Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. | Menu – Financial statements 103 Annual report 2016 | Tryg A/S | Notes DKKm 10 2016 2015 Reconciliation of profit/loss and equity The executive order on application of International Financial Reporting Standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differ- ences between the format of the annual report under International Financial Reporting Standards (IFRS) and the rules issued by the Danish FSA, however, there are no differences on profit/loss. The following is a reconciliation of equity. Reconciliation of equity Equity – IFRS Deferred tax provisions for contingency funds Change during the year of deferred tax provisions for contingency funds Equity – Danish FSA executive order 9,437 15 -15 9,437 9,644 15 0 9,659 11 Accounting policies Please refer to Tryg Group’s accounting policies. | Menu – Financial statements 104 Annual report 2016 | Tryg A/S | Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 A further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables 2,235 366 2,190 447 2,148 393 2,137 198 2,172 285 2,211 398 2,226 434 2,194 181 2,249 400 Q4 2016 | 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 111.6 67.9 1.8 69.7 13.9 83.6 86.3 972 166 58.3 8.0 66.3 16.5 82.8 92.2 966 9 84.3 4.2 88.5 10.6 99.1 63.2 2.1 65.3 14.3 79.6 84.5 977 142 65.5 3.4 68.9 16.6 85.5 92.8 968 117 42.9 34.0 76.9 11.1 88.0 98.3 65.9 1.2 67.1 14.5 81.6 84.9 977 172 64.1 0.7 64.8 17.6 82.4 84.7 921 156 60.6 11.6 72.2 10.9 83.1 98.0 74.2 2.2 76.4 14.3 90.7 94.1 967 215 56.6 3.7 60.3 17.5 77.8 90.2 920 139 55.2 18.0 73.2 11.6 84.8 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 99.4 100.9 106.2 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 1,003 155 1,050 270 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 | Menu – Financial statements 105 Annual report 2016 | Tryg A/S | a) Amounts relating to eliminations and one-off items are included under 'Other'. Please refer to note 2 Geographical segments. A further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables Q4 2016 | Quarterly outline Combined ratio exclusive of run-off 101.2 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 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 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 337 23 72.7 0.0 72.7 20.2 92.9 -6 -250 384 38 72.9 0.5 73.4 16.1 89.5 92.1 -5 0 338 49 65.7 0.3 66.0 19.2 85.2 289 10 75.1 0.0 75.1 21.1 96.2 100.3 105.9 -5 0 -3 0 313 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 4,504 4,514 4,379 4,310 4,393 4,583 4,550 4,451 4,646 314 598 -112 800 560 72.0 3.1 75.1 18.0 93.1 99.8 744 191 -12 923 732 59.7 9.5 69.2 14.5 83.7 90.1 770 181 -17 934 734 64.5 3.1 67.6 15.0 82.6 89.0 562 17 -16 563 445 66.3 5.7 72.0 15.1 87.1 95.7 522 242 -19 745 754 68.0 6.2 74.2 14.2 88.4 93.9 647 -441 -20 186 110 76.6 -6.8 69.8 16.3 86.1 94.9 825 -84 -27 714 580 84.8 -17.8 67.0 15.2 82.2 87.1 429 261 -25 665 525 72.0 3.1 75.1 15.6 90.7 98.5 775 13 -20 768 640 64.1 4.7 68.8 14.9 83.7 91.0 | Menu – Financial statements 106 Annual report 2016 | Tryg A/S | Q4 2016 | Geographical segments Q4 2016 2,407 441 144 66.4 2.6 69.0 12.5 81.5 -6.0 1,640 149 164 70.0 5.6 75.6 15.5 91.1 -10.0 463 -26 -7 85.7 0.9 86.6 18.6 105.2 1.5 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 Run-off, net of reinsurance (%) 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 Run-off, net of reinsurance (%) 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 Run-off, net of reinsurance (%) Number of full-time employees 31 Dec. | Menu – Financial statements Q4 2015 2,330 289 116 65.2 9.3 74.5 13.1 87.6 -5.0 1,611 124 44 74.4 4.3 78.7 13.8 92.5 -2.7 463 109 81 54.6 3.0 57.6 19.0 76.6 -17.5 2016 2015 DKKm 9,467 1,587 509 63.7 6.0 69.7 13.4 83.1 -5.4 1,839 6,371 1,013 678 63.9 5.1 69.0 15.2 84.2 -10.6 1,040 1,888 40 52 76.4 3.3 79.7 17.8 97.5 -2.8 385 9,346 1,371 512 80.5 -9.2 71.3 13.9 85.2 -5.5 1,859 6,766 844 492 70.9 2.1 73.0 14.9 87.9 -7.3 1,113 1,894 328 208 63.5 1.7 65.2 17.5 82.7 -11.0 387 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 Run-off, net of reinsurance (%) Q4 2016 -6 -250 4,504 314 598 -112 800 301 72.0 3.1 75.1 18.0 93.1 -6.7 Q4 2015 -11 0 2016 2015 -19 -250 -29 -120 4,393 17,707 17,977 522 242 -19 745 241 68.0 6.2 74.2 14.2 88.4 -5.5 2,390 987 -157 3,220 1,239 65.6 5.4 71.0 15.7 86.7 -7.0 2,423 -22 -91 2,310 1,212 75.4 -3.9 71.5 15.3 86.8 -6.7 Number of full-time employees, continuing business at 31 Dec. 3,264 3,359 a) Includes Danish general insurance and Finnish guarantee insurance. b) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. c) Adjustment of gross expense ratio included only in ‘Tryg ‘. The adjustment is explained in a footnote to Financial highlights. 107 Annual report 2016 | Tryg A/S | Other key figures 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 Ordinary dividend per share (DKK) Extraordinary dividend per share (DKK) Price/Earnings Number of full-time employess, continued business, at 31 December Number of full-time employess, discontinued and divested business, at 31 December 2016 2015 2014 2013 2012 Key ratios are calculated in accordance with ’Recommendations & Financial Ratios 2015’ issued by the Danish Society of Financial Analysts. 8.84 8.84 8.84 274,595 279,399 279,399 127.20 34.37 3.7 6.20 3.54 14.4 6.91 6.91 6.74 282,316 285,073 285,101 137.40 34.16 4.0 6.00 8.74 8.73 8.70 289,120 292,521 292,788 137.80 38.46 3.6 5.80 7.88 7.86 7.89 296,870 300,777 301,295 104.90 37.41 2.8 5.40 7.30 7.27 7.21 303,474 302,455 303,571 85.30 36.18 2.4 5.20 20.4 15.8 13.3 11.8 3,264 3,359 3,599 3,703 0 0 0 0 3,913 189 | Menu – Financial statements 108 Annual report 2016 | Tryg A/S | Group chart Tryg A/S (Denmark) Tryg Forsikring A/S (Denmark) Tryg Forsikring (Branch Finland) Moderna Försäkringar (Branch Sweden) Tryg Forsikring incl. Enter (Branch Norway) Tryg Livsforsikring A/S (Denmark) Tryg Ejendomme A/S (Denmark) Respons Inkasso AS (Norway) Thunesvei 2 AS (Norway) ANS Grensen 3 (99%) (Norway) Group chart at 1 January 2017. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated. Company Branch | Contents – Management’s review 109 Annual report 2016 | 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. Claims ratio, net of ceded business Gross claims ratio + net reinsurance ratio Earnings per share of continuing business Net asset value per share Diluted earnings from continuing business after tax Year-end equity Diluted average number of shares Number of shares at year-end Gross claims ratio Net reinsurance ratio Gross claims x 100 Gross premium income Profit or loss from reinsurance x 100 Gross premium income 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 (including Finnish guarantee branch and Tryg Livsforsikring A/S and excluding the Norwegian and Swedish branches). Diluted average number of shares Average number of shares adjusted for number of share options which may potentially dilute. Discounting Expresses recognition in the financial statements of expected future 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 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. Gross insurance operating costs with adjustment x 100 Gross premium income 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. Profit or loss for the year x 100 Market price/net asset value Average number of shares Share price Net asset value per share Norwegian general insurance Comprises Tryg Forsikring A/S, Norwegian branch.. Operating ratio Calculated as the combined ratio plus insurance technical interest in the denominator. Claims + insurance operating costs + profit or loss from reinsurance x 100 Gross premium income + insurance technical interest Own funds Equity plus share of subordinate loan capital and profit margin (solvency purpose), less intangible assets, tax asset and proposed dividend. Price/Earnings Share price Earnings per share Relative run-off gains/losses Run-off gains/losses net of reinsurance relative to claims provisions net of reinsurance, beginning of year. Return on equity after tax (%) Profit for the year after tax x 100 Average equity 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. Solvency II New solvency requirements for insurance companies issued by the EU Commission. The new rules came into force at 1 January 2016. Solvency ratio Ratio between own funds and the capital require- ment. Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch. Tier 1 capital Equity less proposed dividend and share of capital claims in subsidiaries. Total reserve ratio Reserve ratio, claims provisions + premium provisions 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. | Contents – Management’s review 110 Annual report 2016 | 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 30% of total premium income and comprises mandatory third-party liability insurance providing cover for injuries to a third party or damage to a third party’s property, and a voluntary comprehensive insurance policy that provides cover for damage to the customer’s own vehicle from collision, fire or theft. In Denmark, motor insurance taken out by concept customers includes Tryg’s roadside assistance, such as towing and battery jump-start. Fire and contents – Private Fire and contents insurance for private customers represents 24% of total premium income and includes, for example, house and contents insurance. House insurance covers damage to properties caused by, for example, fire, storm or water, legal assistance and the customer’s liability as owner of the property. The contents insurance covers loss of or damage to private household contents and covers in and outside of the home. Moreover, the insurance includes liability and legal assistance, to which can be added a number of supplementary covers, for example cover of sudden damage and damage to electronic equipment. Personal accident insurance Personal accident insurance accounts for 9% of total premium income and covers accidental bodily injury and death resulting from accidents. 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. 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 occupational diseases). Workers’ compensation insurance is mandatory and covers a company’s employees (except for public sector employees and persons working for sole proprietors). General third-party liability insurance General third-party liability insurance represents 6% 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 111 Annual report 2016 | 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 on page 25-26, from the forward-looking statements in this and in Note 1 on page 50, for a description annual report, including but not limited to of some of the factors which may affect the general economic developments, changes in the Group’s performance or the insurance industry. competitive environ ment, developments in the | Contents – Management’s review 112 Annual report 2016 | Tryg A/S | 

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