Tryg
Annual Report 2019

Plain-text annual report

Annual report 2019 2 1 2 0 6 4 6 2 . o n R V C · k r a m n e D , p u r e l l a B 0 5 7 2 , 1 0 6 j e v o r b s l a d s u a K l · S / A g y r T Contents Management’s review 3 Highlights 4 Tryg at a glance 5 Business areas 21 Commercial 23 Corporate 25 Sweden 6 7 Income overview 27 Investment activities Introduction by Chairman and Group CEO 30 Capital and risk management 8 Events 2019 9 Financial outlook 11 Targets and strategy 15 Tryg’s results 19 Private 32 Investor information 34 Corporate governance 39 Supervisory Board 42 Executive Board 43 Corporate Responsibility in Tryg Financial statements 47 Financial statements 114 Group chart 115 Glossary 116 Product overview Editor Investor Relations | Publication 22 January 2020 | Layout amo design | Proofreading Semantix Highlights Premium growth of 17.1% or 6.1% excluding Alka. Technical result of DKK 3,237m (DKK 2,766m) impacted positively by the growth in the private segment driven, among other things, by the highest ever customer satisfaction with a TNPS of 68 and an all-time high retention. The overall result was positively impacted by the inclusion of Alka and related synergies, a continuous improvement in the underlying claims ratio and a low level of large and weather claims. Investment income of DKK 579m (DKK -332m) driven by higher equity market returns. Profit before tax of DKK 3,628m (DKK 2,262m). Quarterly dividend of DKK 1.70 per share, supporting TryghedsGruppen’s member bonus. Extraordinary dividend of DKK 1.65 per share. Solvency ratio of 162. Financial highlights 2019 • Premium growth of 17.1% or 6.1% (4.1%) excluding Alka in local currencies Technical result of DKK 3,237m (DKK 2,766m) primarily driven by the inclusion of Alka Expense ratio of 14.2 (14.4) Combined ratio of 85.1 (85.1) Return on free investments portfolio of DKK 857m (DKK -33m) Total investment return of DKK 579m (DKK -332m) Profit before tax of DKK 3,628m (DKK 2,262m) A total annual dividend of DKK 6.80 per share and extraordinary dividend of 1.65 per share Solvency ratio of 162 • • • • • • • • Financial highlights Q4 2019 • Premium growth of 10.4% or 5.6% (4.5%) excluding Alka in local currencies Technical result of DKK 762m (DKK 596m) driven by a combined ratio of 86.1 (88.2) Underlying claims ratio (Private and Group) improved by 0.5 and 0.5 percentage points Expense ratio of 14.6 (15.6) Return on free investments portfolio of DKK 226m (DKK -198m) Total investment return of DKK 198m (DKK -330m) Profit before tax of DKK 940m (DKK 149m) Q4 dividend of DKK 1.70 per share • • • • • • • Customer highlights Q4 2019 • • • TNPS of 68 (67) Number of products per customer 3.8 (3.8) In Q4, awareness of TryghedsGruppen's member bonus among non-customers increased to 28%, up by 27% compared with the same period prior year 2020 targets DKK Earnings Technical result DKK 3.3bn Combined ratio ≤86 Expense ratio ~14 RoE ≥21 Customers TNPS 70 Number of products per customer +10% Contents – Management’s review 3 Annual report 2019 | Tryg A/S | Tryg at a glance Purpose As the world changes, we make it easier to be tryg a). Strong market position 4 million customers Tryg is one of the largest non-life insurance companies in the Nordic region. We are the largest player in Denmark and the fourth-largest in Norway. In Sweden, we are the fifth-largest company in the market. Our 4,151 employees provide peace of mind for 4 million customers and handle approximately 1 million claims on a yearly basis. Attractive dividend policy Great diversity of products Trygheds- Gruppen We aim to distribute a nominal, stable increase in dividend and to pay out 60-90% of our profit. We offer a broad range of insurance products for private individuals as well as businesses. TryghedsGruppen owns 60% of Tryg and contributes to projects that create peace of mind via TrygFonden. In 2020, TrygFonden will contribute with DKK 650m. Employees Employees Employees 1 4 5 Market position Market position Market position 21.6 % Market share 13.1 % Market share 3.3 % Market share Copenhagen experiences the largest fire in its history. The fire heightened public awareness of the need to insure oneself 1 7 3 1 Tryg was listed on OMX Nordic Stock Exchange Copenhagen on 14 October 2 0 0 9 TrygVesta simplified its name to Tryg 2 0 1 1 New dividend policy stating a nominal, stable increasing dividend with an annual distribution of 60-90% of the profit after tax 2 0 1 4 Tryg spilts its share 1:5, meaning each share with a nominal value of DKK 25 was replaced by 5 shares with a nominal value of DKK 5 2 0 1 6 • Tryg presented new financial targets and customer targets for 2020 at Capital Market Day • Tryg acquired Alka Forsikring 2 0 1 9 Kjøbenhavns Brand (the oldest componens in Tryg's history) was established by Royal Decree as a result of the Copenhagen fire in 1728 1 7 2 8 a) ‘Tryg’ means: Feeling protected and cared for. Contents – Management’s review Tryg acquired Moderna Försäkringer Morten Hübbe appointed new Group CEO of Tryg Tryg presented new financial targets and customer targets for 2017 at Capital Markets Day For the first time, TryghedsGruppen decided to pay out a bonus to its members: 8% of premiums paid to Tryg for 2015 2 0 0 5 2 0 1 0 2 0 1 2 2 0 1 5 • For the fourth consecutive year, TryghedsGruppen paid out member bonus: 8% premiums paid to Tryg for 2018 • Barbara Plucnar Jensen joined the Executive Board as new Group CFO in Tryg 2 0 1 7 4 Annual report 2019 | Tryg A/S | 2,6501,083419Business areas Private Commercial Private provides insurance products to private customers in Denmark and Norway. Private offers a range of insurance products including car, contents, house, accident, travel, motorcycles, pet and health. Commercial provides insurance products including motor, property, liability, workers' compensation, travel and health to small and medium-sized business in Denmark and Norway. 55 % Portfolio Brands Portfolio Brands 20 % 1,317 Own sales agents • Call centres Real estate agents • Internet • Car dealers Franshises 495 Call centres • Internet Own sales agents • Franchise offices Employees Distribution channels Employees Distribution channels Corporate Sweden Corporate provides insurance products including property, liability, workers' compensation, transport, group life etc. to corporate cus- tomers under the brand Tryg in Denmark and Norway, and Moderna in Sweden. Tryg is part of the global AXA Corporate solutions network. Sweden provides insurance products to private individuals within car, house, pet, child, boat and accident insurance etc. 18 % Portfolio Brands 290 Own sales agents Insurance brokers 7 % Portfolio 386 Brands Own sales agents • Call centres • Internet Employees Distribution channels Employees Distribution channels Contents – Management’s review 5 Annual report 2019 | Tryg A/S | Income overview DKKm Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Investment return after insurance technical interest Other income and costs Profit/loss before tax Tax Profit/loss on continuing business Profit/loss on discontinued and divested business after tax Profit/loss Run-off gains/losses, net of reinsurance Key figures Total equity Return on equity after tax (%) Number of shares 31 December (1,000) Earnings per share (DKK) Net asset value per share (DKK) Ordinary dividend per share (DKK) 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 Note: Tryg´s acquisition of Alka affects the Financial Statement from closing the 8 November 2018 Contents – Management’s review Q4 2019 Q4 2018 5,479 -3,851 -798 829 -66 0 762 198 -20 940 -234 706 -1 705 256 5,053 -3,485 -787 781 -184 -1 596 -330 -117 149 -37 112 -2 110 207 12,085 23.0 301,700 2.33 11,334 3.9 301,743 0.37 1.70 10.4 70.3 1.2 71.5 14.6 86.1 -4.7 1.8 1.7 83.8 90.3 92.6 75.3 1.65 13.0 69.0 3.6 72.6 15.6 88.2 -4.1 1.7 1.6 80.1 74.2 111.8 89.2 2019 21,741 -14,857 -3,081 3,803 -566 1 3,237 579 -188 3,628 -783 2,845 -2 2,843 1,194 12,085 24.6 301,700 9.42 40.05 6.80 1.65 17.1 68.3 2.6 70.9 14.2 85.1 -5.5 2.1 1.9 83.7 86.8 87.6 84.8 2018 18,740 -12,636 -2,704 3,400 -624 -10 2,766 -332 -172 2,262 -529 1,733 -2 1,731 1,221 11,334 14.9 301,743 5.73 37.56 6.60 6.3 67.4 3.3 70.7 14.4 85.1 -6.5 2.6 2.0 81.6 80.3 95.6 86.0 2017 17,963 -11,865 -2,516 3,582 -779 -14 2,789 527 -77 3,239 -720 2,519 -2 2,517 972 12,616 28.8 301,945 9.12 41.78 6.40 3.31 1.7 66.1 4.3 70.4 14.0 84.4 -5.4 1.4 1.7 82.1 82.6 90.0 88.1 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 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 6 Annual report 2019 | Tryg A/S | Good results and increased customer loyalty Contents – Management’s review Good results and increased customer loyalty 2019 was characterised by a lot of changes, new initiatives and satisfactory financial results. Customer satisfaction reached record highs while customer retention was also at the highest level ever recorded. TryghedsGruppen paid out a member bonus for the fourth year running – now including the 380,000 Alka customers – meaning that 1.3 million customers (or approximately every fourth Dane) received a bonus equivalent to 8% of premiums paid in 2018. First full year with Alka Alka continued its positive development, producing strong earnings and healthy top-line growth in 2019. Alka is a leader in digital sales, which increased by a further 14% in 2019, while customer use of Tryg’s online claims handling solutions increased from 31% to 44%. Tryg announced a DKK 300m synergies target in 2021 following the acquisition of Alka. Synergies in 2019 were DKK 90m, which is higher than the target- ed level of DKK 75m after the first year of integration. Claims handling and prevention There was a strong focus on combating insurance fraud, primarily based on knowledge sharing with Alka. Alka has historically been very efficient at identifying insurance fraud at an early stage in the claims process. Prevention is key for the well-being of customers, products such as TrygDrive, a digital device that record driving behaviour, Tryg Alarm and a rat blocker, are all part of Tryg’s prevention strategy. Digitalisation Good progresses were made in 2019 when it comes to liaising with customers via digital communica- tion. Around 60% of all inquiries to Tryg were through self-service, 45% of all claims were submit- ted online, whereas 30% of claims were processed without the involvement of Tryg employees. Efficient distribution Tryg is progressing well in reducing distribution costs through the use of new channels such as independ- ent insurance agents in Private and Commercial. In addition, the partnership with Danske Bank in the Private and Commercial segment started positively. In Norway good results were achieved through a deliberate focus on distribution through partner- ships. Additionally, an increased level of online sales supports the focus on lowering distribution costs. New products and services Tryg has an ambition of creating DKK 1bn in gross premiums in 2020+ from profitable new products and services. In 2019, Tryg reported gross premi- ums of DKK 650m from new products, while the number of prevention products sold increased. In 2019, the profitable credit and surety business Tryg Garanti expanded to the Netherlands and Austria, while increasing its presence in Germany. Positive financial performance The full-year technical result was DKK 3,237m with a combined ratio of 85.1, which together with a positive investment result yielded at a total pre-tax result of DKK 3,628m, corresponding to a return on equity of 24.6% after tax. Stable and increasing dividend to shareholders Tryg has a strong focus on securing that shareholders receive a nominal and stable increase in dividends. A total dividend of DKK 6.80 per share will be paid out for 2019 (DKK 6.60 in 2018), additionally an extraor- dinary dividend per share of DKK 1.65 (DKK 500m) will also be paid, totalling a dividend of DKK 8.45 per share or a dividend yield of approximately 4.5%. Thanks to all employees We are very pleased to see a high level of job satis- faction in Tryg of 78 compared to 74 for Nordic financial companies. This high level of job satisfac- tion has been achieved in a year marked by a lot of changes, new initiatives and satisfactory financial results. The Supervisory Board and the Executive Board would like to thank all employees, including the new Alka employees, for their great efforts. Jukka Pertola Chairman Morten Hübbe Group CEO 7 Annual report 2019 | Tryg A/S | Events in 2019 Q1 Q2 New partnership with NITO On 1 January, Tryg Norway initiated the partner agreement with members of the Norwegian Society of Engineers and Technology (NITO). NITO has approximately 90,000 members. Q3 Q4 Partner agreement between Alka and DiBa Alka entered into a new agreement with DiBa, an online car loan company, which means that Alka now provides car insurance products to DiBa customers. The partner- ship is well in line with Tryg’s 2020 strategy and the increased focus on improving distribution agreements. New CFO in Tryg On 1 March, Barbara Plucnar Jensen joined the Executive Board as new Group CFO in Tryg. New members of Tryg’s Supervisory Board At Tryg’s annual general meeting, two new mem- bers, Karen Bladt and Klaus Wistoft, were elected to join the Supervisory Board as representatives of TryghedsGruppen. New Vet hotline Tryg Private launched its Vet hotline for Danish cat and dog owners, who can get online advice from an author - ised veterinarian for their pets via mobile or tablet. The service was launched in Norway earlier this year and has been available in Sweden for some time. New agreements between Alka and HK Alka and HK, Denmark's largest union for salaried employees, entered into a new agreement about salary insurance for HK's members. With the salary insurance the members are guaranteed up to 80% of their current salary after an unanticipated dismissal. Digital insurance check-up In October, Tryg launched an online insurance check- up feature. With this tool, customers are now able to compare their insurance cover and subsequently receive a recommendation based on products taken out by similar customers in Tryg. New sales channel in Commercial Denmark In Q1, Commercial Denmark signed the first contracts with independent agents selling Tryg products exclu- sively. The sales agents include both customer and telephone meetings. TryghedsGruppen’s member bonus For the fourth consecutive year, TryghedsGruppen, Tryg’s majority shareholder, paid out a member bonus. The total payout was DKK 925m, equivalent to 8% of premiums paid for 2018. The bonus was paid out to Tryg’s and Alka’s customers in Denmark on 12 June 2019. Tryg Mobil Commercial Denmark started testing a new initiative, Tryg Mobil, with the aim of increasing safety and avoiding accidents in traffic. When enabling Tryg Mobil, the driver’s mobile phone will automatically block the display to disable hand-held usage of the mobile by the driver. Strategic partnership with Danske Bank Tryg started providing insurance solutions to Danske Bank’s 3 million Nordic customers. The partnership covers all the countries and markets in which Tryg operates, i.e. both Private and Commercial in Denmark and Norway, and Private in Sweden. New Nordic agreement with SEB On 1 December, Tryg and Moderna, Tryg's Swedish brand, entered into a new agreement with SEB (Skan- di naviska Enskilda Banken) regarding all credit card insurance products in the Nordic region. The new con- tract runs for three years with an option for renewal and covers travel insurance on SEB's cards for private customers, Private Banking customers and Commercial customers in Denmark, Norway, Sweden and Finland. Partnership with Arbejdernes Landsbank Commercial Denmark has signed an important strategic agreement with Arbejdernes Landsbank effective from 1 January 2020. Arbejdernes Lands- bank already has a distribution agreement with Alka regarding sales to the bank's private customers. Contents – Management’s review 8 Annual report 2019 | Tryg A/S | Financial outlook The trade war between the USA and China, Brexit and a general climate of political uncertainty in many European countries have dampened global growth outlooks. The Scandinavian economies remain relatively healthy, but small and open economies are not immune from global uncertain- ties. Expected GDP growth in 2020 (according to Nordea macroeconomic outlook) is 2.3% in Nor- way, 1.5% in Denmark and 1.0% in Sweden, and unemployment rates are likely to remain below 4% in Denmark and Norway, but somewhat higher in Sweden. Government indebtedness across the region remains low compared to larger European countries. The Nordic non-life insurance markets remain relatively stable in terms of top-line growth and product offerings. The Nordic countries are characterised by a high level of non-life insurance penetration – ratios of non-life insurance premi- ums as % of GDP are some of the highest in the world. This is attributable to the fact that house- holds are generally wealthy and tend to cover their insurance needs relatively well. Retention levels are very high in the Nordic region compared to nearly everywhere else in the world. This is a key profitability driver as it helps insurers keep their overall expenses low. Retention rates hover around 90% in the Private and Commercial (SMEs) segments, which represent more than 80% of Tryg’s total business. A direct distribution model also contributes importantly to the very ef- ficient set-up. At the end of 2019, Tryg reported an expense ratio of 14.2 (14.1 excluding Alka at the end of 2018), while the target for 2020 remains an expense ratio of ~14. In the 2017-2020 period, the expense ratio will be impacted by increased IT investments, which will be offset primarily by improved distribution efficiency. Tryg’s reserves position remains strong. At the CMD in November 2017, it was disclosed that run-off gains are expected to be between 3% and 5% in 2020. Tryg’s systematic claims reserving approach still includes a margin of approximately 3% on best estimate. Financial targets 2020 Technical result DKK 3.3bn Expense ratio ~14 Combined ratio ≤86 Return on equity ≥21% after tax TryghedsGruppen’s member bonus In June, Tryg’s majority shareholder, TryghedsGruppen, paid out a member bonus for the fourth year running. The bonus corresponds to 8% of the premi- ums paid to Tryg in 2018, or the payout of DKK 925m in total to TryghedsGruppen’s members, Tryg’s Danish customers and for the very first time Alka’s customers. Contents – Management’s review 9 Annual report 2019 | Tryg A/S | In 2020, weather claims net of reinsurance and large claims are expected to total DKK 600m and DKK 550m, respectively. The interest rate used to discount Tryg’s technical provisions is historically low. An interest rate in- crease will have a positive effect on Tryg’s results. An interest rate increase of 1 percentage point will increase the pre-tax result by around DKK 300m, and vice versa. The investment portfolio is divided into a match portfolio corresponding to the technical provi- sions, and a free portfolio. The objective is for the return on the match portfolio to be approximately zero as capital gains and losses on the assets side should be mirrored by corresponding develop- ments on the liabilities side. The free portfolio is invested in different asset classes with a view to obtaining the best risk-adjusted return. The return on bonds in the free portfolio (slightly above 60% of the free portfolio) will vary, but given current interest rate levels, a very low return is expected. For shares, the expected return is around 7% with the MSCI World Index as bench- mark, while the expected return for property is around 5%. The investment return in the income statement also includes the cost of managing investments, the cost of currency hedges, inter- est expenses on subordinated loans and other minor items. In the past few years, corporate tax rates have been lowered throughout Scandinavia. In Den- mark, the rate will remain at 22% in 2020, while it is 25% in Norway and 21% in Sweden. Capital gains and losses on equities are not taxed in Norway, which reduces the expected tax payable for an average year to 22-23%. The current three-year strategy period ends in 2020, and Tryg will therefore host a new CMD towards the end of the year and launch new financial targets. Financial targets for 2020 are a technical result of 3.3bn (including DKK 150m of synergies from the Alka acquisition), an expense ratio of ~14, a combined ratio at or below 86 and a return on equity at or above 21% after tax. Digital insurance check-up In October, Tryg launched an online insurance check-up feature. With this tool, customers are able to compare their insurance cover and subse- quently receive a recommendation based on the products taken out by similar customers in Tryg. Weather claims, net of reinsurance Expected level 2020 (including Alka): DKK 600m Large claims, net of reinsurance Expected level 2020: DKK 550m DKKm 800 600 400 200 0 2015 2016 2017 2018 2019 DKKm 800 600 400 200 0 2015 2016 2017 2018 2019 Expected level 2020 Expected level 2020 Contents – Management’s review 10 Annual report 2019 | Tryg A/S | Targets and strategy At the Capital Markets Day (CMD) held in Novem- ber 2017 in London, Tryg announced new financial and non-financial targets for 2020. The financial targets were updated following the acquisition of Alka. Along with a new strategy, a new purpose was defined. ‘As the world changes, we make it easier to be tryg’ is the overarching principle guiding the realisation of our targets for 2020. Tryg’s main financial target is a technical result of DKK 3.3bn in 2020. The technical result target is underpinned by a combined ratio at or below 86, an expense ratio of ~14 and a return on equity at or above 21. Tryg’s customer targets are a Transaction- al Net Promoter Score (TNPS) level of 70 and a 10% increase in the number of products per customer. The targets are supported by four strategic themes: claims excellence, digital empowerment of customers, product & service innovation and distribution efficiency as well as Alka synergies, all of which are described in detail on pages 12-14. These initiatives are at the core of Tryg’s 2020 strategy and should support both the financial and non-financial initiatives. Improving customer relations Customer satisfaction is of paramount importance for Tryg, and the organisation continually strives to strengthen customer relations through advisory services, products, concepts, claims handling pro- cedures and claims prevention measures. Satisfied customers support improved retention levels, which in 2019 reached an all-time high in the Danish Private and Commercial businesses, while results in Norway were also positive. Employees are a key resource Tryg’s employees are the key to achieving the over - arching purpose of making it easier to be ‘tryg’ and to attaining the financial targets. All employees must feel that they play an integral role in supporting this overall purpose. Therefore, clear and ambitious targets must be set for each individual employee – and regular feedback must be provided. Tryg is very pleased to see a historically high level of employee satisfaction in 2019, surpassing the general level of employee satisfaction in the financial sector in the Nordic region. Tryg is aiming for the highest level of employee satisfaction in the financial sector in the Nordic region. Value creation for our shareholders Tryg’s shareholders must see Tryg as a company with a key focus on profitability and efficiency, which reflects the company’s core strategy and its financial targets. Tryg’s performance can be meas- ured by its long-term total shareholder return. Tryg aims to pay a nominal, stable and increasing ordinary dividend, while maintaining stable results and a high level of return on capital employed. Purpose As the world changes, we make it easier to be tryg a) Grasping opportunities to develop rather than just defending our business • Digitalisation • New products • Analytics Adjusting to customer preferences and needs • Self-service • Straight-through processing • Packaging of products Increasing customer relevance and share of wallet • Product innovation • Prevention • Add-on services Tryg’s business model Tryg makes it easier to be ‘tryg’a) for its customers by offering them insurance against risk, efficient claims handling, and advice and services to prevent claims from arising in the first place. By making it easier for our customers to feel protected and cared for, we benefit all of Tryg’s stakeholders. Via TryghedsGruppen’s 60% ownership of Tryg, part of the company’s profit is returned to customers, who are also members of TryghedsGruppen. Tryg’s new purpose is valid for all stake- holders – our customers, our employees and our shareholders. s E m ployees Distribution Own sales force and partners e e y o p m l E g n i c i r P i g n d r o c c a g n c i r P i l e fi o r p k s i r o t Insurance Prevention Claims handling p r o d u c t r a n g e F u l l n o n - l i f e P r o d u c t s Processes Combination of in- house and sourcing Employe e s E l m p o y e e s 11 Contents – Management’s review a) Tryg’ means: feeling protected and cared for. a) Tryg’ means: feeling protected and cared for. Annual report 2019 | Tryg A/S | Strategic initiatives Tryg has defined four initiatives in support of its financial targets and customer tagets Financial targets Tryg’s main target for 2020 is a technical result of DKK 3.3bn. In 2019, Tryg reported a FY technical result of DKK 3,237m. The combined ratio was 85.1, and the expense ratio 14.2. The return on equity was 24.6. Customer targets Tryg maintains an intense focus on understanding customer needs, and detailed customer targets have been established, which are also important to realising the financial targets. This is reflected in an increased focus on customer satisfaction measured through the TNPS score. The TNPS target for 2020 is 70, and in 2019 a level of 68 was achieved. There is a strong correlation between customer loyalty and the number of products per customer, and therefore a target of increasing the number of products by 10% per customer has been set, corres- ponding to four products per customer. In 2019, the number of products per customer was 3.8. Strategic initiatives Tryg has defined four strategic initiatives to support both the financial targets and customer targets for 2020. KPIs have been defined for each initiative. Furthermore, synergies ascribable to Alka will also be part of the initiatives. Claims excellence is the most important strategic initiative for improving the technical result. The target is to reduce claims costs by DKK 600m in 2020, and in 2018 and 2019 accumulated savings of DKK 350m were achieved. One of the main initiatives is to further leverage Tryg’s procurement power, and in 2019 cost savings of more than DKK 200m were realised. Initiatives in 2019 included the renewal of a contract for windscreen services, a new five-year contract with Recover Nordic (the largest Nordic claims service group) and a claims agreement for elec- tronic products in Norway and have helped to lower average claim costs in Tryg. The customer bonus, paid by Tryghedsgruppen to the Danish customers, also supports customer loyalty, and in 2019 we saw a continued positive development in the awareness of the customer bonus. Awareness of the customer bonus among Tryg customers increased to 77% 2019 against 73% in 2018, and among non- customers we saw an increase from 22% in 2018 to 28% in 2019, corresponding to an increase of 27%. Fraud detection is another important initiative to be realised in 2020. Tryg has realised an increase in fraud detection, mainly due to enhanced fraud detection training and the im- plementation of Alka’s fraud detection method- ologies. Increased benefits of DKK 30m has been achieved from implementing the fraud detection methodology in 2019. Claims excellence DKKm Distribution efficiency DKKm 800 600 400 200 0 600 350 200 150 Realised Target 200 150 100 50 0 150 90 60 30 Realised Target 2018 2019 2020 2018 2019 2020 Digital empowerment of customers Product & service innovation DKKm 120 90 60 30 0 100 60 40 20 Realised Target DKKm 1,200 900 600 300 0 1,000 650 375 275 Realised Target 2018 2019 2020 2018 2019 2020 Contents – Management’s review 12 Annual report 2019 | Tryg A/S | Strategy 2018-2020 Strengthening the core, while embracing the future Finally, Tryg’s claims handling process has been improved through initiatives such as data and voice analysis. A new claims handling system, Guidewire, is being implemented in Tryg in both Denmark and Norway to improve the claims handling process further as well as customer satisfaction. Digital empowerment of customers is another important initiative in Tryg. Digital services, sim- plification and efficient customer interaction are becoming increasingly important for customers, and Tryg is highly committed to meeting these demands. Customers in general prefer speedy processes, and therefore digital solutions also support Tryg's focus on customer satisfaction. The target for 2020 is 50% straight-through processing (STP) of claims and a self-service level of 70% for all contacts with Tryg. The focus on digital services in Tryg is expected to contribute by DKK 100m to the financial targets as well as improving customer satisfaction. In 2019, this initiative realised DKK 60m. In general, there are an increasing number of customer contacts as many customers acknowl- edge the new digital solutions, but still prefer per- sonal contact. Tryg believes that the total increase in customer contact is positive and supports both sales and customer loyalty. Self-service levels continued to increase in 2019. Login numbers to Tryg’s digital universe for our Private customers, ‘My Page’, increased to approxi mately 3.3m logins corresponding to an increase of 30% compared to last year. New on- line initiatives such as digital invoicing and online insurance check-ups have also helped to further improve self-service levels. In 2019, the level of digital self-service increased to 60%. The level of STP of claims is up thanks to the use of robots in the claims handling process. As a result 36% of claims were prossesed as STP in 2019. Additionally, Tryg’s new claims handling system is now processing claims on selected products, showing improved efficiency. In the coming years, the new claims system is expected to boost STP levels in both Denmark and Norway. Product & service innovation is important for Tryg to remain relevant to customers. The target is to increase premiums by DKK 1,000m from new products and services by 2020+. Tryg’s primary focus is profitability, and this initiative also supports Trygs overall profitability. In 2019, the portfolio of products and services increased to DKK 650m. Claims excellence DKK 600m in claims cost reduction Product & service innovation DKK 1bn in new products by 2020+ Financial targets 2020 • Technical result: DKK 3.3bn • Combined ratio: ≤ 86 • Expense ratio: ~14 • RoE: ≥21 Customer targets 2020 • TNPS: 70 • Number of products per customer: +10% Dividend policy • Targeting a nominal, stable increase in dividend • Extraordinary dividend to further adjust the capital structure Alka acquisition DKK 300m in synergies with full run-rate impact in 2021 Digital empowerment of customers DKK 100m STP on claims: 50% Self-service: 70% Distribution effiency DKK 150m in technical result impact Long-term profitable growth and attractive shareholder value creation Contents – Management’s review 13 Annual report 2019 | Tryg A/S | One of the main drivers involves innovation of new products such as the Health insurance package (covers accidents, health, dental and sickness). Other important contributions in 2019 were by product such as cyber insurance, pet insurance and child insurance. Bundling of products is another important initia- tive for Tryg to reach its 2020+ targets. Bundling of products such as health and child insurance generated DKK 150m in 2019. Prevention is key for the well-being of customers and a key driver of financial results. Products such as Tryg Drive, a digital device that records driving behaviour, Tryg Alarm and a rat blocker to prevent rats from enter- ing drains are all part of Tryg's prevention strategy. Finally, entering new markets and increasing the profitable credit and surety business, Tryg Garanti, is also considered an important initiative for reach- ing Tryg’s 2020 targets. In 2019, Tryg Garanti ex- panded to Germany, Austria and the Netherlands. Increasing Distribution efficiency is a strategic priority for Tryg. The target is to generate savings of DKK 150m in 2020. In 2019, efficiency gains corresponding to approximately DKK 90m were realised. One of the main drivers of this initiative is the mix of distribution channels in the Private and Commercial segments. Optimisation of the chan- nel mix makes distribution to customers more efficient, improves the customer experience and lowers cost of sales. Another important element involves the introduction of independent sales agents in Private Denmark and Commercial Den- mark, inspired by the franchise channel in Norway, selling exclusively on behalf of Tryg. This initia- tive generated positive results, resulting in a total impact of DKK 60m in 2019. Finally, an important component for improving dis- tribution efficiency involves partner agreements. In Norway, the partner agreement with NITO has generated very good leads, and increased sales and retention levels. The agreement with Danske Bank also got off to a good start in 2019, generat- ing very good leads and sales both for Private and Commercial customers in Denmark and Norway. Finally, Tryg’s Norwegian branch, Enter Forsikring, recently launched ‘Enter Proff’ selling car insur- ance to commercial customers. Tryg's focus on digital empowerment of customers also supports distribution efficiency through the development of online solutions. Alka synergies In connection with the acquisition of Alka, Tryg communicated a guidance of DKK 300m of syner- gies which are expected to be achieved in 2021. Tryg has announced synergies targets of DKK 75m in 2019, DKK 150m in 2020 and DKK 300m in 2021. Synergies of DKK 90m were realised in 2019 (DKK 75m target), dem- onstrating that Tryg is slightly ahead of the plan for delivering synergies. Approximately half of the achieved synergies relate to costs, while the inclusion of the Alka business in the large Tryg's procurement network has also helped. Corporate Responsibility Corporate Responsibility (CR) is an integrated part of Tryg’s core business and is closely linked to our purpose ‘as the world changes, we make it easier to be tryg a)’. We focus on activities related to human and labour rights, climate and envi- ronment as well as anti-corruption, and we are actively working to integrate CR into our insur- ance, claims handling and prevention activities. CR plays a role in our decisionmaking, our risk mitigation, the improvement and development of our products and services, the optimisation of our operations and business partners, the develop- ment of our employees, and the contributions we Employee satisfaction 78 78 71 68 74 72 Index 80 70 60 50 40 30 20 10 0 Tryg Nordic Nordic financial market 2019 2018 Tryg has an employee satisfaction level above the average of the Nordic sector. Source: Global Employee and Leadership Index make to society at large through our activities and strategic partnerships. Read more about Tryg's CR activities in the sextion Corporate Responsibility on pages 23-24. a) Tryg’ means: feeling protected and cared for. Contents – Management’s review 14 Annual report 2019 | Tryg A/S | Tryg’s results Premium growth of 17.1% or 6.1% excluding Alka. Technical result of DKK 3,237m (DKK 2,766m) impacted positively by the growth in the private segment driven, among other things, by the highest ever customer satisfaction with a TNPS of 68 and an all-time high retention. The overall result was positively impacted by the inclusion of Alka and related synergies, a continuous improvement in the underlying claims ratio and a low level of large and weather claims. Investment income of DKK 579m (DKK -332m) driven by higher equity market returns. Profit before tax of DKK 3,628m (DKK 2,262m). Quarterly dividend of DKK 1.70 per share, supporting TryghedsGruppen’s member bonus. Extraordinary dividend of DKK 1.65 per share. Solvency ratio of 162. Results 2019 Premium growth was 17.1%, or 6.1% excluding Alka. The Private segment was up 7.8% exclud- ing Alka, while Commercial (excluding Alka and Troll) reported 4.4% growth, whereas Corporate reported a lower growth of 2.0%. Tryg reported a technical result of 3,237m (DKK 2,826m excluding Alka). The higher techni- cal result was impacted positively by the growth in the private segment, the inclusion of Alka and related synergies stemming from the acquisition (DKK 90m in 2019). Weather and large claims were more than DKK 250m lower than normal in 2019, it is important to keep this in mind when looking at the technical result target of DKK 3.3bn in 2020. The Private segment reported an increased tech- nical result, driven by an improved underlying claims ratio and the inclusion of Alka, which offset a lower run-off result. The Commercial segment reported a lower technical result, driven primar- ily by lower run-offs and higher large claims, while the under lying profitability was broadly unchanged. The Corporate segment reported a highly improved technical result, driven by a high- er run-off result and a decrease in large claims. The underlying profitability is moving in the right direction for Corporate but still not satisfactory for the current underwriting year with normal- ised assumptions for especially large claims and run-off, while further profitability initiatives are planned for 2020. The technical result for Private Sweden is well above the corresponding year, driven primarily by a high level of run-off reflecting a strong reserving position in the motor third-party liability segment. The underlying profitability for the current underwriting year, especially with a normalised run-off level, is not satisfactory and initiatives, especially for the motor business, will be implemented. The combined ratio was 85.1 (84.5 excluding Alka), driven by a claims ratio of 70.9 and an expense ratio of 14.2. The sum of large and weather claims (in per cent) was in line with 2018 (but lower than normal), while run-offs (in per cent) were lower. The investment result was DKK 579m (DKK -332m), driven primarily by higher equity market returns. Financial highlights 2019 (2018 excluding Alka) Financial highlights 2019 (2018 as reported) Technical result DKK 3,237m (DKK 2,826m) Profit before tax DKK 3,628m (DKK 2,398m) Claims ratio, net of reinsurance 70.9 (70.4) Gross expense ratio 14.2 (14.1) Combined ratio 85.1 (84.5) Technical result DKK 3,237m (DKK 2,766m) Profit before tax DKK 3,628m (DKK 2,262m) Claims ratio, net of reinsurance 70.9 (70.7) Gross expense ratio 14.2 (14.4) Combined ratio 85.1 (85.1) Equities return DKK 404m (20.5%) in 2019 vs DKK -212m (-10.8%) in 2018. Other income and expenses were DKK -188m (DKK -172m). In 2019, Danish customers received the fourth member bonus payout from TryghedsGruppen (Tryg’s 60% majority shareholder). The 8% bonus is appreciated by customers and seen as an im- portant competitive advantage through boosting customer loyalty and supporting customer targets. The pre-tax result was DKK 3,628m (DKK 2,398m excluding Alka), while the return on equity after tax was 24.6%. Tryg will be implementing price adjustments of around 3% in 2020 to mitigate claims inflation. Customer targets DKKm Transactional Net Promoter Score (TNPS) Number of products per customer Q4 2019 Q4 2018 Target 2020 68 3.8 67 3.8 70 4 (+10%) Contents – Management’s review 15 Annual report 2019 | Tryg A/S | As flagged at Q3, more profitability actions will be initiated in the Corporate segment. Premiums Premiums totalled DKK 21,741m (18,740m), representing a growth in local currencies of 17.1%, or 6.1% excluding Alka. The Private segment reported growth of 7.8% (excluding Alka), helped by partner agreement sales, more product offerings, increased retention rates and positive support from the Trygheds- Gruppen member bonus. Private Denmark and Private Norway are both contributing to the positive top-line performance. The Commercial segment reported premium growth of 4.4% (excluding Alka) based on satis- factory growth both in Denmark and Norway. In Denmark, developments were positive with an improved retention rate helped by the member bonus from Tryghedsgruppen, but also by improved sales compared to previous years. In Commercial Norway, price initiatives of 7% supported growth as customers largely accepted the higher prices. The Corporate segment reported premium growth of 2.0% in local currencies. In Corporate Denmark, the development in premium income was helped by the member bonus model. Corporate Norway premium fell approximately 5% for the full year following double-digit price increases. The surety and credit business, Tryg Garanti, grew by 12% in 2019. In 2020, more profitability actions will be initiated to continuously improve the profit- ability of the Corporate segment. In Denmark, high single-digit price increases are being pushed through. Tryg will continue to work to re-balance its portfolio with the aim of increasing the Private and Commercial portfolios, where profitability is higher and capital requirements lower. The segment Sweden increased 6.1%, helped by healthy growth in the pet insurance segment and also by positive developments in the motor and accident lines of businesses. Claims The claims ratio, net of ceded business, was 70.9 (70.4 excluding Alka), while the underlying claims ratio showed an improvement of 0.5 percentage points, driven by price adjustments and claims procurement initiatives. At the CMD in November 2017, Tryg launched a new target, which includes a DKK 600m ‘claims excellence’ programme. In 2019, savings of DKK 200m were achieved, resulting in an accumulated total of DKK 350m for the years 2018 and 2019. It is important to note that part of the savings impacted the previous year’s results (run-off gain), but not current year figures. Claims inflation is monitored continuously using internal and external parameters, and price adjustments are pushed through accordingly. Motor insurance is one of the largest and most profitable business segments for Tryg, and claims developments are therefore carefully scrutinised. Approximately half of all new cars sold in Norway are electric/hybrid, and some of these carry differ- ent risks compared to normal vehicles, making it particularly important to monitor claims inflation and adjust prices accordingly. More recently, the building index in Norway has reported higher than previously observed inflation, and prices have been adjusted accordingly. In 2019, large claims totalled DKK 455m (DKK 490m), while weather claims totalled DKK 416m (DKK 384m). Both the level of large claims and the level of weather claims were below normalised expectations of DKK 550m and DKK 600m a year. The overall run-off result was DKK 1,194m (DKK 1,221m), or 5.5% (6.5%) on the combined ratio. The run-off result was driven mainly by run-off gains in the long-tail segments. Expenses The expense ratio was 14.2 (14.1 adjusting for Alka). At the CMD in 2017, Tryg announced an expense ratio target of around 14 in 2020. A number of initiatives to lower distribution costs are being implemented, and some of the savings from these initiatives are being invested in new digital solutions. The expense ratio was impacted by healthy growth in the Private segment, where commissions to the various distribution channels are often paid upfront. Investments activities The investment return totalled DKK 579m (DKK -332m) and was boosted by positive equity market developments in 2019 compared to 2018. Almost two thirds of the difference in the invest- ment result between 2019 and 2018 is attribut- able to the performance of equities, which was 20.5% in 2019 and -10.8% in 2018. Additionally, falling rates and narrowing credit spreads have boosted the performance of Tryg’s fixed-income portfolio. Market volatility remains high due to high geopolitical risk levels although tensions around a trade war between the US and China ap- pear to be receding. Contents – Management’s review 16 Annual report 2019 | Tryg A/S | Tryg pays a Q4 dividend per share of DKK 1.70 bringing the full- year dividend per share to DKK 6.80. Additionally an extraordinary dividend per share (for the FY 2019) of 1.65 will be paid. The match portfolio reported an overall loss due primarily to negative developments in Q3, while other financial income and expenses ended at DKK -236m, which is in line with expectations. Other income and costs Other income and costs were DKK -188m (DKK -172m). The increase compared to 2018 was attributable primarily to the amortisation of customer relations stemming from the Alka acquisition, partly offset by a VAT compensation of DKK 45m booked in the last quarter of the year. Tax Tryg paid a total tax bill of DKK 783m (DKK 529m), or 21.5% of the profit before tax. Capital position The solvency ratio (based on Tryg’s partial internal model) was 162 at year-end. Tryg will pay a Q4 dividend of DKK 1.70 per share on 27 January 2020, which is in line with the dividend paid for the first three quarters of the year and also in line with the policy of paying a stable quarterly dividend. Additionally, Tryg will pay out an extra ordinary divi- dend of DKK 1.65 per share, amounting to a total payout of DKK 500m, also on 27 January 2020. The solvency ratio of 162 includes the ordinary and extraordinary dividend payments. points. Sensitivities towards equity market falls and interest rate movements are low. Own funds totalled DKK 8,119m (DKK 8,058m). In 2019, own funds were positively impacted mainly by the net profit, and negatively impacted by the ordinary dividend and the extraordinary dividend payment (due to be paid on 27 January 2020). Tryg’s own funds comprise mainly shareholders’ equity, intangibles (fully deducted), Tier 2 instru- ments (subordinated debt and the Norwgian natural perils pool), Tier 1 instruments and future profits. Most of Tryg’s own funds consist of shareholders’ equity. Tier 2 capacity has been fully utilised, while Tier 2 bonds in the amount of DKK 142m are currently not included in the own funds as they exceed the 50% solvency capital requirement (SCR). Tier 1 capacity has also been almost fully utilised, with DKK 17m remaining at year-end 2019. Tryg’s solvency ratio displays low sensitivities to capital market movements. The highest level of sensitivity is towards spread risk, where a widening/ tightening of 100 basis points would impact the solvency ratio by approximately 14 percentage The Supervisory Board regularly assesses Tryg’s capital position. Continuous assessments of the company’s capital position are carried out, projecting SCR on the basis of Tryg’s forecasts. The projections include initiatives set out in the company’s strategy for the coming years, and also the most significant risks identified by the com- pany. Adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy. Tryg calculates its SCR based on a partial internal model in accordance with the Danish Financial Supervisory Authority’s Executive Order on Sol- vency and Operating Plans for Insurance Compa- nies. The model is based on the structure of the standard model. Tryg uses an internal model to assess insurance risks, while other risks are cal- culated using standard model components. Tryg’s SCR, calculated using the partial internal model, was DKK 5,021m at the end of 2019 compared to DKK 4,892m at the end of 2018. The slight SCR increase in 2019 was attributable primarily to premium growth and to a modest increase in market risk. Based on the standard formula, Tryg’s SCR was DKK 6,293m compared to DKK 5,980m at the end of 2018. Dividend policy Tryg’s dividend policy targets a nominal, stable increase in dividend payments on a full-year basis. Tryg introduced quarterly dividends in 2017. The quarterly payment was DKK 1.70 per share, or a total of DKK 6.80 (DKK 6.60) for 2019. This equates to total dividend payments of DKK 2,056m, or 72% of the profit for the year. Additionally, an extra- ordinary dividend of DKK 1.65, amounting to a total payout of DKK 500m, will also be paid out. Events after the balance sheet date On January 15, Tryg announced three new Direc- tors in its business segments. The intensified focus on improving risk selection and profitability has led to management changes in Corporate Den- mark and Corporate Norway while the managing director of the business unit, Sweden, was also changed. All the changes were effective as per 15 January 2020. Contents – Management’s review 17 Annual report 2019 | Tryg A/S | The underlying claims ratio showed an improvement of 0.5 percentage points for the Group and of 0.5 percentage points for the Private segment. Results Q4 2019 The technical result was DKK 762m (DKK 656m excluding Alka), driven by a positive development in the underlying claims ratio, sound cost control and the inclusion of Alka and related synergies. Investment income was DKK 198m (DKK -330m), driven primarily by positive equity market de- velopments. The claims ratio (net) was 71.5, the expense ratio was 14.6, and the combined ratio was 86.1. The underlying claims ratio improved 0.5 percentage points both for Private and for the Group. The pre-tax result was DKK 940m, and the after-tax result was DKK 705m. Tryg pays a quar- terly dividend of DKK 1.70 per share (DKK 514m) and an extraordinary dividend of DKK 1.65 per share (DKK 500m) and reports a solvency ratio of 162. Premiums Premium growth was 5.6% excluding Alka, driven by good organic growth, higher retention levels and satisfactory sales of new products. Premium growth came mostly from the Private segment in Denmark and Norway, but the Commercial busi- ness also saw positive development. Corporate growth was driven mainly by Tryg Garanti and by price increases, mostly in the Norwegian part of Corporate, designed to improve the underlying profitability. Claims The claims ratio, net of ceded business, was 71.5 (71.5 excluding Alka). Large claims of DKK 98m (DKK 84m) were higher than last year, but still below a normal quarter, while weather claims of DKK 94m (DKK 82m) were also higher than last year, but also below a normal Q4 character- ised by relatively harsh Scandinavian weather conditions. The run-off result was DKK 256m (DKK 207m). The underlying claims ratio im- proved 0.5 percentage points both for the Private segment and for the Group. Expenses The reported expense ratio was 14.6 (14.4 excluding Alka). Various initiatives aimed at lower- ing distribution costs are being implemented, and some of the savings from these initiatives are being invested in new digital solutions. Tryg maintains its expense ratio target of around 14.0 for FY 2020. Investments The investment return totalled DKK 198m (DKK -330m) for Q4 2019, driven by a return of Financial highlights Q4 2019 (Q4 2018 excluding Alka) Financial highlights Q4 2019 (Q4 2018 as reported) Technical result DKK 762m (DKK 656m) Profit before tax DKK 940m (DKK 285m) Claims ratio, net of reinsurance 71.5 (71.5) Gross expense ratio 14.6 (14.4) Combined ratio 86.1 (85.9) Technical result DKK 762m (DKK 596m) Profit before tax DKK 940m (DKK 149m) Claims ratio, net of reinsurance 71.5 (72.6) Gross expense ratio 14.6 (15.6) Combined ratio 86.1 (88.2) DKK 226m (DKK -198m) on the free portfolio, a return of DKK 19m (DKK -42m) on the match portfolio and other financial income and expenses of DKK -47m (DKK -90m). The primary driver of the strong investment return in Q4 is the perfor- mance of equities, which were up 7.2% (-14.9%), this swing explaining more than 80% of the increased investment result. Other income and costs Other income and expenses totalled DKK -20m (DKK -117m). In Q4 2018, DKK 76m of one-off costs were booked in connection with the Alka transaction. Other income and expenses consist mainly of the amortisation of customer relations stemming from the Alka acquisition. In Q4 2019, a positive VAT compensation of DKK 45m was booked. Taxes Tryg paid taxes of DKK 234m (DKK 37m) in Q4, equating to an aggregate tax rate of 24.8%. The slightly higher than normal tax rate is attributable to expenses related to share-based employee bonuses and the revaluation of investment properties. Contents – Management’s review 18 Annual report 2019 | Tryg A/S | Private Results 2019 The technical result for 2019 was DKK 1,951m (DKK 1,734m), with a combined ratio of 83.7 (81.6). The improved result was driven by the inclusion of Alka (and related synergies) and by an improved underlying claims ratio. Premiums Gross premium income was up 28.0% (8.9%) in local currencies, which was ascribable primarily to the Alka acquisition. Organic premium growth excluding Alka was 7.8%. Growth was attributable mainly to improved retention levels in the Danish and Norwegian Private segments, strong partner agreements and the cross-selling of new products to existing customers in Denmark, helping to increase customer loyalty further. The partner agreements driving growth in Norway were primarily OBOS (the largest housing developer in Norway) and NITO. Growth was achieved through relevant and innovative solutions and products tailored especially to the members of the various partner organisations. The retention rate in Denmark increased from 91.2 to 91.6, while in Norway the retention rate increased from 86.7 to 87.1. The positive develop- ment in Denmark can be ascribed to a positive impact from the member bonus model and a consistently strong focus on customer loyalty, as Contents – Management’s review reflected in the TNPS score of 80. Private Norway also had a strong focus on customer loyalty with a TNPS score of 75. Claims The gross claims ratio totalled 68.1 (65.5), and the claims ratio, net of ceded business, 70.0 (67.8). The underlying claims level improved by 0.6 percentage points, which was attributable to the claims excellence programme and price ad- justments aimed at mitigating increased claims inflation. Weather-related claims were on a par with 2018 levels and related primarily to Norway. Expenses The expense ratio for Private was 13.7 (13.8), which was in line with the general guidance for Tryg, reflecting investments in digital solutions financed through distribution efficiency. Total employee numbers decreased from 1,329 at the end of 2018 to 1,317 in 2019, reflecting Tryg’s focus on efficiency. In Denmark, sales agents were recruited to target leads from the FDM port- folio, and furthermore around 30 independent sales agents were recruited in 2019. In Norway, the primary distribution channel is franchise agents, who are not directly employed by Tryg, and therefore not included in the employee numbers. Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the internet, Tryg’s own agents Alka (Denmark), franchisees (Norway), interest organisations, car dealers, estate agents and Danske Bank branches. The business area accounts for 55% of the Group’s total premium income. Financial highlights 2019 Technical result DKK 1,951m (DKK 1,734m) Combined ratio 83.7 (81.6) Premium growth (local currencies) 28.0% (8.9%) Expense ratio 13.7 (13.8) Key figures – Private DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Q4 2019 Q4 2018 3,059 -2,075 -411 2,679 -1,719 -363 572 -77 -1 494 33 16.2 67.9 2.5 70.4 13.4 83.8 84.9 -1.1 0.0 2.4 597 -65 -1 531 78 21.2 64.2 2.4 66.6 13.5 80.1 83.0 -2.9 0.0 1.3 2019 12,021 -8,185 -1,650 2,185 -231 -3 1,951 238 28.0 68.1 1.9 70.0 13.7 83.7 85.7 -2.0 0.1 2.0 2018 9,466 -6,198 -1,309 1,959 -220 -5 1,734 394 8.9 65.5 2.3 67.8 13.8 81.6 85.8 -4.2 0.0 2.4 19 Annual report 2019 | Tryg A/S | Results Q4 2019 The technical result totalled DKK 494m (DKK 531m), with a combined ratio of 83.8 (80.1). The lower technical result is driven primarily by a lower run- off result and somewhat higher weather-related claims in Norway. The underlying claims ratio improved by 0.5 percentage points, which is in line with developments in the previous quarter and positively impacted by Alka synergies. Premiums Gross premiums increased by 16.2% (21.2%) in local currencies and were impacted by the Alka acquisition. Excluding the Alka acquisition, premium growth was 7.6%. The retention rate in Denmark increased from 91.2 to 91.6, while in Norway the retention rate increased from 86.7 to 87.1. Claims The gross claims ratio was 67.9 (64.2), and the claims ratio, net of ceded business, was 70.4 (66.6). The underlying claims ratio improved by 0.5 percentage points. It was impacted by the ongoing claims excellence programme, Alka syn- ergies and price adjustments aimed primarily at mitigating claims inflation. Weather claims were higher than last year and were primarily related to Norway. Expenses The expense ratio was 13.4 (13.5), approximately on the same level as corresponding year. Contents – Management’s review Financial highlights Q4 2019 Technical result DKK 494m (DKK 531m) Combined ratio 83.8 (80.1) Claims ratio, net of ceded business 70.4 (66.6) Expense ratio 13.4 (13.5) Health insurance voted best in Norway For the second year in a row, Tryg has been named as ‘Best private health insurance’ by the Norwegian Consumer Council. 20 Annual report 2019 | Tryg A/S | Commercial Results 2019 The technical result for 2019 was DKK 566m (DKK 784m), with a combined ratio of 86.8 (80.3). The combined ratio was affected by an increased level of large claims and a lower level of run-off. The development in premiums improved signifi- cantly due to the Alka acquisition and strong sales in Norway. Premiums The development in gross premium income was a positive 8.3% (3.7%) in local currencies, impacted by the acquisition of Alka as well as the OBOS and Troll portfolios. An underlying improvement in premium income was also seen for both the Dan- ish and Norwegian Commercial business areas. Commercial Denmark introduced a new and more efficient sales channel inspired by the Norwegian franchise set-up, while continuing to capitalise on the TryghedsGruppen member bonus. In Norway, premium development was positively impacted by price adjustments, particularly for large com- mercial customers, which were widely accepting of the price increases. The retention rate for Commercial Denmark increased from 88.0 to 88.6, while in Norway the retention rate increased from 87.7 to 89.0. The positive developments in Denmark and Norway can be ascribed to a strong customer focus, while the customer bonus model also supported the development in Denmark. Claims The gross claims ratio was 67.1 (58.6), with a claims ratio, net of ceded business, of 69.3 (62.8). The higher claims level was due to an increase in large claims and a lower level of run-off. In general, Tryg experienced an improved underlying claims ratio, primarily due to price initiatives in Norway for large customers in this segment. Expenses The expense ratio for Commercial was 17.5 (17.5). Commercial Denmark has recruited a new type of sales agents with the aim of lowering cost of sales, which has already led to a lower expense level in Denmark. The total number of employees was down from 516 at the end of 2018 to 495 in 2019. Contents – Management’s review Commercial encompasses the sale of insurance products to small and medium- sized businesses in Denmark and Norway. Sales are effected via Tryg’s own sales force, brokers, Alka (Denmark), franchisees (Norway), customer centres as well as group agreements. The business area accounts for 20% of the Group’s total premium income. Financial highlights 2019 Technical result DKK 566m (DKK 784m) Combined ratio 86.8 (80.3) Premium growth (local currencies) 8.3% (3.7%) Expense ratio 17.5 (17.5) Key figures – Commercial DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Q4 2019 Q4 2018 1,079 -746 -188 145 -41 1 105 36 4.8 69.1 3.8 72.8 17.4 90.3 93.6 -3.3 0.3 1.0 1,044 -545 -183 316 -47 1 270 161 6.8 52.2 4.5 56.7 17.5 74.2 89.6 -15.4 -1.0 2.3 2019 4,274 -2,867 -749 658 -94 1 566 310 8.3 67.1 2.2 69.3 17.5 86.8 94.0 -7.2 3.3 2.2 2018 3,971 -2,326 -696 949 -165 0 784 434 3.7 58.6 4.2 62.8 17.5 80.3 91.2 -10.9 1.6 2.3 21 Annual report 2019 | Tryg A/S | Financial highlights Q4 2019 Technical result DKK 105m (DKK 270m) Combined ratio 90.3 (74.2) Claims ratio, net of ceded business 72.8 (56.7) Expense ratio 17.4 (17.5) Claims The gross claims ratio was 69.1 (52.2), with a claims ratio, net of ceded business, of 72.8 (56.7). The higher claims ratio was driven by a lower level of run-off gains and a higher level of large claims. Expenses The expense ratio was 17.4 (17.5), which was in line with the prior-year period. Going forward Commercial will continue to focus on reducing costs. Results Q4 2019 The technical result was DKK 105m (DKK 270m), with a combined ratio of 90.3 (74.2). The result was negatively impacted by a lower run-off result and a higher large claims level. Premium growth was a positive 4.8% (6.8%), primarily due to the Alka acquisition, but also due to price adjustments in Norway. Premiums Gross premiums increased by 4.8% (6.8%) in local currencies, impacted by the acquisition of Alka. Growth was 4.3% excluding Alka. The retention rate in Denmark increased to 88.6 (88.0), while the retention rate in Norway increased significantly to 89.0 (87.7) due to a strong focus on customer loyalty. Contents – Management’s review 22 Annual report 2019 | Tryg A/S | Corporate Results 2019 The technical result was DKK 496m (DKK 173m), with a combined ratio of 87.6 (95.6). The result was positively affected by a significantly lower level of large claims and a higher run-off level. Premiums were up 2.0% (4.0%) and were im- pacted by price hikes, especially in Norway, and a high retention level driven by the customer bonus model in Denmark. The underlying profitability is increasing, but it is still not satisfactory, in par- ticular when looking at current-year profitability based on normalised asumptions for large claims and run-offs. The corporate market is generally challenging in all countries, even following signifi- cant price hikes, especially in Norway. Tryg will continue to implement profitability actions in all countries in 2020, which might reduce premium income. Tryg Garanti continued its expansion to Germany, the Netherlands and Austria in line with previous communication. The result for Tryg Garanti was DKK 225m (DKK 204m). Premiums Gross premium income was up 2.0% (4.0%) in local currencies. An increase of 7.2% was seen in Denmark due to a positive development for the credit and surety business (Tryg Garanti) and a high retention level. Corporate Norway premiums decreased by 4.7%, primarily due to price hikes of approximately 14% (excluding fronting and captive agreements). In Sweden, which accounts for only 20% of the total Corporate business, pre- mium growth was 0.8% and was also impacted by profitability initiatives resulting in a loss of customers. Claims The gross claims ratio totalled 70.8 (79.9), and the claims ratio, net of ceded business, 77.2 (85.7). As mentioned before, the lower claims level was due to a lower level of large claims and a higher level of run-off. Profitability remains challenging in the Corporate segment considering a combined ratio of 97.8 excluding run-offs, and price hikes will therefore be implemented. In the past two years, Corporate Norway has introduced profit- ability initiatives, but in 2020 these initiatives will be implemented in all countries. Depending on customer reactions, this may lead to a reduction in premium income, but profitability is expected to improve. Tryg expects further significant profit- ability initiatives to be implemented in 2021. Contents – Management’s review Corporate sells insurance products to cor- porate 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 insurance brokers. Moreover, customers with interna- tional insurance needs are served by Corporate through its cooperation with the AXA Group. The business area accounts for 18% of the Group’s total premium income. Financial highlights 2019 Technical result DKK 496m (DKK 173m) Combined ratio 87.6 (95.6) Premium growth (local currencies) 2.0% (4.0%) Expense ratio 10.4 (9.9) Key figures – Corporate DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Q4 2019 Q4 2018 987 -850 -120 17 56 0 73 81 1.1 86.1 -5.7 80.4 12.1 92.6 100.7 -8.2 9.6 0.9 987 -915 -102 -30 -87 0 -117 -54 2.9 92.7 8.8 101.5 10.3 111.8 106.3 5.5 9.5 2.5 2019 3,979 -2,816 -415 748 -255 2 496 407 2.0 70.8 6.4 77.2 10.4 87.6 97.8 -10.2 7.7 1.8 2018 3,897 -3,114 -385 398 -225 0 173 271 4.0 79.9 5.8 85.7 9.9 95.6 102.6 -7.0 11.0 1.4 23 Annual report 2019 | Tryg A/S | Expenses The expense ratio for Corporate was 10.4 (9.9), and it was quite stable throughout the year. The low expense ratio is driven by high average pre- miums in the Corporate segment, relatively low claims handling costs and the fact that brokers are paid by customers. Employee numbers increased from 265 at the end of 2018 to 290 in 2019, primarily due to the expansion of the credit and surety business. Results Q4 2019 The technical result was DKK 73m (DKK -117m), with a combined ratio of 92.6 (111.8). The results were positively impacted by a higher level of run-off gains, but also by an improved underlying combined ratio due to the launch of profitability initiatives, particularly in Norway. Premium growth was a positive 1.1% (2.9%), primarily due to price hikes as well as credit and surety business growth. Premiums Gross premiums were up 1.1% (2.9%) in local currencies, primarily due to price hikes in Norway, the credit and surety business in Denmark and high retention levels, especially in the Danish business. Claims The gross claims ratio was 86.1 (92.7), and the claims ratio, net of ceded business, 80.4 (101.5). The improved claims ratio was primarily due to a much higher run-off level compared to last year. Further initiatives aimed at improving profitability were introduced in the quarter with price hikes of 14% in Norway, which was the main reason for the improved underlying profitability. Expenses The expense ratio was 12.1 (10.3) and somewhat higher than for Q4 2018. Financial highlights Q4 2019 Technical result DKK 73m (DKK -117m) Combined ratio 92.6 (111.8) Claims ratio, net of ceded business 80.4 (101.5) Expense ratio 12.1 (10.3) Best workplace according to employees Tryg has been named ‘best work- place’ in the insurance industry according to employees in the financial sector. The survey called ’Employee image 2019’ is con- ducted by the research company Wilke on behalf of FinansWatch, where Tryg scores 75.4 out of 100 based on 3,500 replies. Contents – Management’s review 24 Annual report 2019 | Tryg A/S | Sweden Results 2019 Sweden reported a technical result of DKK 231m (DKK 201m) and a combined ratio of 84.8 (86.0). The improvement was driven by higher run-off gains reflecting a strong reserving position in the motor third-party liability segment. The underly- ing profitability for the current underwriting year with a normalised run-off level is not satisfactory. and initiatives, especially for the motor segment, will be implemented. Premium growth increased in 2019, primarily as a result of growth in the motor segment and double-digit growth for pet insurance. Premiums Gross premium income totalled DKK 1,521m (DKK 1,471m), equating to growth of 6.1% (4.9%) in local currencies. Growth was attributable espe- cially to motor insurance, accident insurance and pet insurance. Double-digit growth was posted for pet insurance in 2019. Tryg’s Swedish business, Moderna, is a small player in the Swedish market trying to grow in selected niches where it has a strong brand or through innovative solutions such as the driving app Moderna Smart Flex (a digital device for recording driving behaviour). Contents – Management’s review Claims The gross claims ratio was 66.6 (69.6), and the claims ratio, net of ceded business was 67.3 (69.9). The lower claims level was primarily due to a higher run-off level derived from a solid reserves position in the long-tail motor segment. Motor insurance, which accounts for approximately one third of the private lines in Moderna, reported a higher level of small claims in 2019, and initiatives are therefore being implemented to reduce the number of motor claims. Expenses The expense ratio was 17.5 (16.1), which is a relatively stable level considering the size of the Swedish business. Employee numbers in Sweden were up 32 employees compared to the prior-year period, totalling 386 at the end of 2019. Sweden 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, partners and online. The business area accounts for 7% of the Group’s total premium income. Financial highlights 2019 Technical result DKK 231m (DKK 201m) Combined ratio 84.8 (86.0) Premium growth (local currencies) 6.1% (4.9%) Expense ratio 17.5 (16.1) Key figures – Sweden DKKm Gross premium income Gross claims Gross expenses Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currencies Gross claims ratio Net reinsurance ratio Claims ratio, net of ceded business Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Weather claims, net of reinsurance (%) Q4 2019 Q4 2018 364 -193 -78 93 -3 0 90 107 3.3 53.1 0.8 53.8 21.5 75.3 104.8 -29.5 0.1 361 -259 -62 40 -1 -1 38 22 7.7 71.7 0.3 72.0 17.2 89.2 95.3 -6.1 0.0 2019 1,521 -1,014 -267 241 -10 0 231 246 6.1 66.6 0.7 67.3 17.5 84.8 101.0 -16.2 0.7 2018 1,471 -1,024 -237 210 -4 -5 201 122 4.9 69.6 0.3 69.9 16.1 86.0 94.3 -8.3 0.5 25 Annual report 2019 | Tryg A/S | Financial highlights Q4 2019 Technical result DKK 90m (DKK 38m) Combined ratio 75.3 (89.2) Claims ratio, net of ceded business 53.8 (72.0) Expense ratio 21.5 (17.2) Results Q4 2019 Gross premium income for Q4 2019 was DKK 364m (DKK 361m). The technical result was DKK 90m (DKK 38m), with an expense ratio of 21.5 (17.2) and a combined ratio of 75.3 (89.2). Claims The gross claims ratio was 53.1 (71.7) and net of ceded business 53.8 (72.0). The much lower claims level was due to a higher level of run-off gains. Premiums Gross premium income was DKK 364m (DKK 361m), or up 3.3% (7.7%) in local currencies. As men- tioned before, the primary drivers of growth in Sweden are motor insurance, accident insurance and pet insurance. The key focus is on generating profitable growth through niche products and innovative solutions in Sweden. Expenses The expense ratio was 21.5 (17.2). The number of employees decreased by 54 compared to Q4 2018 underlining the efficiency initiatives in Moderna. Contents – Management’s review 26 Alka’s car insurance is ’best in test’ For the third consecutive year, Alka’s car insurance has been voted ‘best in test’ by the Danish Consumer Council, Tænk. The Consumer Council tested car insurance products from 16 differ- ent insurance companies. Annual report 2019 | Tryg A/S | Investment activities The investment return totalled DKK 579m (DKK -332m) for the full year 2019, driven by a return of DKK 857m (DKK -33m) on the free portfolio, a return of DKK -42m (DKK -2m) on the match portfolio, and other financial income and expenses of DKK -236m (DKK -297m). The total market value of Tryg’s investment portfolio was DKK 40bn (DKK 40bn) at year-end 2019. The investment portfolio consists of a match portfolio of DKK 29bn (DKK 29bn) and a free portfolio of DKK 11bn (DKK 11bn). The match portfolio is com- posed of low-risk fixed-income assets that match the Group’s insurance liabilities, so that fluctuations resulting from interest rate changes are offset to the greatest possible extent. The free portfolio reflects the Group’s capital, which is predominantly invested in fixed-income securities with a short duration, but also in equities and properties. Free portfolio Financial markets ended the year on a positive note, driven primarily by strong equity markets in the last three months of 2019. Trades fear abated, macroeconomic data were generally positive, and central banks cut interest rates. Tryg’s equity portfolio reported a return of DKK 404m (20.5%) in 2019 vs DKK -212m (-10.8%) in 2018. The large difference in the return on equi- ties explains around 2/3 of the difference in the Group’s investment return in 2019 vs 2018. The fixed-income portfolio also produced a very good return of DKK 294m (4.4%) vs DKK -93m (-1.4%) in 2018, driven primarily by falling rates through- out most of the year and tightening credit spreads. The return on the investment property portfolio was DKK 159m (DKK 272m in 2018 driven by revalu- ations of DKK 155m), or 7.7%, helped by revalu- ations of DKK 68m in the last quarter of the year. Equity and property investments totalled DKK 4.3bn, while approximately DKK 2.1bn were invest- ed in corporate bonds. The remaining DKK 5.0bn were primarily invested in Nordic covered bonds and Government bonds, including inflation-linked bonds, where current yields remain negative, put- ting downward pressure on the return on the free portfolio and the overall investment income. Match portfolio The result of the match portfolio is the difference between the return on the match portfolio and the amount transferred to the technical result. The result can be split into a ’regulatory deviation’ and a ’performance result’. The regulatory deviation was DKK -73m (DKK 31m) for the full year 2019, driven primarily by negative developments in Q3 as Contents – Management’s review Financial highlights 2019 Investment return DKK 579m Free portfolio result DKK 857m Match portfolio DKK -42m Other financial income and expenses DKK -236m Key figures – investments DKKm Q4 2019 Q4 2018 Free portfolio, gross return Match portfolio, regulatory deviation and performance Other financial income and expenses Total investment return 226 19 -47 198 -198 -42 -90 -330 Return – match portfolio DKKm Q4 2019 Q4 2018 Return, match portfolio Value adjustments, changed discount rate Transferred to insurance technical interest Match, regulatory deviation and performance Hereof: Match, regulatory deviation Match, performance -268 322 -35 19 23 -4 138 -126 -54 -42 -19 -23 2019 857 -42 -236 579 2019 475 -351 -166 -42 -73 31 2018 -33 -2 -297 -332 2018 200 7 -209 -2 -2 0 27 Annual report 2019 | Tryg A/S | a very high level of volatility at the long end of the interest rate curve drove the negative development. The performance result was DKK 31m (DKK 0m) as Nordic covered bond spreads narrowed slightly. Other financial income and expenses The other financial income and expenses compo- nent is primarily made up of interest expenses re- lated to outstanding subordinated debt, the cost of the currency hedges to protect shareholders’ equity and the cost of running the investment operations. Other financial income and expenses totalled DKK -236m (DKK -297m). Tryg has previously announced that this line should report a result of approximately DKK -60m per quarter so the over- all result for 2019 is in line with expectations. Investment result in Q4 2019 The last quarter of 2019 was characterised by positive developments, especially in the equity mar- kets. Tryg’s equity portfolio returned DKK 152m or 7.2%. The geo-political backdrop was positive, due primarily to eased trade discussions between China and the USA and generally positive macro- economic data. Additionally, the UK parliamentary elections returned a clear mandate, thus removing some uncertainty. In general, the macro economic picture and geo-political tensions generally remain volatile and will drive most of the narrative in the capital markets also in 2020. The fixed-income portfolio returned a negative result of DKK -19m (DKK -16m) or -0.3%, with most fixed- income asset classes posting negative returns due to increasing interest rates in Q4 with the noticeable exception of emerging-market bonds and high-yield bonds driven by narrowing credit spreads. Finally, the property portfolio booked a return of DKK 93m (DKK 102m) or 4.4% in the quarter, driven primarily by a revaluation of DKK 68m. The overall result of the free portfolio was DKK 226m (DKK -198m) Return – free portfolio DKKm Q4 2019 Q4 2019 (%) Q4 2018 Q4 2018 (%) 2019 2019 (%) 2018 2018 (%) 31.12.2019 31.12.2018 Government bonds Covered bonds Inflation-linked bonds Investment-grade credit Emerging-market bonds High-yield bonds Othera) Interest rate and credit exposure Equity exposureb) Investment property Total gross return -1 -15 -19 -4 17 7 -4 -19 152 93 226 -1.8 -0.4 -3.7 -0.3 3.2 0.7 -0.3 7.2 4.4 2.0 4 5 1 -4 -8 -35 21 -16 -284 102 -198 0.1 0.1 0.2 -0.6 -1.7 -3.7 -0.3 -14.9 4.7 -1.9 4 22 23 106 48 72 19 294 404 159 857 1.9 0.7 4.6 11.9 8.6 7.6 4.4 20.5 7.7 8.0 -3 13 -10 -34 -33 -23 -3 -93 -212 272 -33 -2.9 0.3 -2.0 -4.4 -6.7 -2.5 -1.4 -10.8 13.0 -0.4 98 3,664 498 1,016 545 1,058 180 7,058 2,237 2,141 198 3,696 493 820 484 862 47 6,600 1,842 2,238 11,436 10,680 Investment assets 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 are derivatives contracts of DKK 168m. Contents – Management’s review 28 Annual report 2019 | Tryg A/S | Financial highlights Q4 2019 Investment return DKK 198m Free portfolio result DKK 226m Match portfolio DKK 19m Other financial income and expenses DKK -47m The match portfolio reported an overall result of DKK 19m (DKK -42m), driven primarily by a regulatory deviation contribution of DKK 23m (DKK -19m), while Nordic covered-bond spreads were almost flat, explaining the DKK -4m (DKK -23m) performance result. Other financial income and expenses were DKK -47m (DKK -90m), which is broadly in line with the guidances. Q4 2018 was burdened by the write-down of a couple of minor strategic investments, as explained in the annual report 2018 (page 30). The overall investment result in Q4 was DKK 198m (DKK -330m) with more than 80% of the performance swing being explained by changes in equity markets performance, 7.2% in Q4 2019 vs -14.9% in Q4 2018. Contents – Management’s review 29 Annual report 2019 | Tryg A/S | Capital and risk management Risk management is based on Tryg’s targets and strategies and the risk exposure limits decided by the Supervisory Board. The assessment and manage- ment of Tryg’s aggregated risk and the associated capital requirement therefore constitutes a central element in the management of the company. Tryg’s Supervisory Board defines the framework for the company’s target risk appetite and thereby the capi- tal which must be available to cover any losses. Solvency II The Solvency II regime (introduced at the beginning of 2016) emphasises the need for sound risk management and introduced additional require- ments concerning risk governance, consistency Solvency Capital Requirement DKKm 6,000 5,000 4,000 3,000 2,000 1,000 0 4,892 5,021 Q4 2018 Q4 2019 across the Group and top management reporting and involvement. Tryg has implemented a risk gov- ernment structure in full compliance with Solvency II. In addition to the requirements in Solvency II Tryg has chosen to appoint a special Risk Committee consisting of members from the Supervisory Board. Tryg has chosen to implement a – approved by the Danish FSA – partial internal model which models insurance risk while all other modules are based on the standard formula. Insurance risk The insurance risk is controlled by limiting the size of single exposures and through the use of reinsur- ance, thereby capping the cost of large and weather- related claims. Additionally, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operat- ing within these boundaries, Tryg’s risk depends on the company’s choice of exposure within different segments and industries in the insurance market. Tryg operates in relatively stable markets, while slightly more than 80% of premiums are in the Private and Commercial (SMEs) segments. Quar- terly fluctuations are driven mainly by large and weather-related events, and reinsurance is used extensively to stabilise the overall earnings level. Investment risk Invested assets are split into a match portfolio (DKK 29bn) and a free portfolio (DKK 11bn). The objective is for the return on the match portfolio to be as close as possible to zero as capital gains and losses on the assets side should be mirrored by corresponding developments on the liabilities side. The free portfolio is intended to produce the maxi- mum risk-adjusted return. The investment risk as- sociated with the free portfolio is managed through limits on exposure within single asset classes. Capital management Capital management is a function of developments in Tryg’s own funds and the capital requirement (based on the approved partial internal model). As mentioned previously, Tryg has modelled the insurance risk internally, while all other modules are based on the standard formula. The capital model is based on Tryg’s risk profile and therefore takes into consideration the composition of Tryg’s insurance portfolio, geographical diversification, its claims reserves profile, reinsurance program- me, investments mix and the overall level of profit- ability. The solvency ratio is defined as own funds divided by the solvency capital requirement (SCR). The key components of Tryg’s own funds are shareholders’ equity, qualifying debt instruments (both Tier 1 and Tier 2 debt) and future profit, while all intangibles are deducted in the calcula- tion. The debt capacity has been fully utilised, and at the end of 2019 some DKK 142m of Tier 2 instruments are not included in the own funds as they exceed the 50% SCR limit. Own funds totalled DKK 8,119m at the end of 2019 vs DKK 8,058m at the end of 2018, the primary drivers of the own funds being profits and dividends. The solvency capital requirement is calculated in such a way that Tryg should be able to honour its obligations in 199 out of 200 years. Own funds DKKm 10,000 8,000 6,000 4,000 2,000 8,058 8,119 Q4 2018 Q4 2019 Contents – Management’s review 30 Annual report 2019 | Tryg A/S | DKK Tryg will pay a Q4 dividend and an extraordinary dividend on January 27 2020 At the end of 2019, Tryg’s SCR was DKK 5,021m, up approximately DKK 129m since the end of 2018. The slight SCR increase in 2019 was attributable primarily to premium growth and to a modest increase in the market risk. An applica- tion, for an updated internal model, has been submitted to the Danish FSA. The updated model will include Tryg’s Swedish business and also other adjustments. Tryg’s solvency ratio displays low sensitivity to- wards capital market movements. Fixed-income securities represent some 90% of Tryg’s invested assets, for which reason the highest solvency sensitivity is towards spread risk, where a widen- ing/tightening of 100 basis points will impact the solvency ratio by 14 percentage points. Lower sensitivity is displayed towards equity market falls and interest rate fluctuations. Additional changes in the UFR (Ultimate Forward Rate) will have a neg- ligible impact due to the relatively short duration of Tryg’s liabilities (below four years on average). Ordinary and extraordinary dividend The Supervisory Board regularly assesses the capital structure of the company in light of future internal earnings forecasts and balance sheet needs. The projections include initiatives set out in the company’s strategy for the coming years and are based also on the most significant risks identified by the company. The adequacy is measured in relation to Tryg’s strategic targets, including return on equity and dividend policy. Tryg will pay a Q4 dividend of DKK 1.70 per share on 27 January 2020, which is in line with Tryg’s policy of paying out a stable quarterly dividend. The full-year dividend is therefore DKK 6.80 per share, equivalent to the total distribution of just above DKK 2bn. In addition, Tryg will pay an extraordinary dividend of DKK 1.65 per share, equivalent to DKK 500m also on 27 January 2020. Moody’s rating Tryg has an ‘A1’ (stable outlook) insurance finan- cial strength rating (IFSR) from Moody’s. The rating agency highlights Tryg’s strong position in the Nordic P&C market, robust profitability, very good asset quality and relatively low financial leverage. Moody’s also assigned an ‘A3’ rating to Tryg’s subordinated debt and a ‘Baa3’ rating to Tryg’s Tier 1 debt. The ratings were re-affirmed in summer 2019. Contents – Management’s review 31 Shareholder remunerationDKK per share1086420Extraordinary buy backExtraordinary dividendOrdinary dividend201720182019201620153.56.06.26.46.66.83.53.31.65Annual report 2019 | Tryg A/S | Investor information Investor Relations (IR) is responsible for Tryg’s com- munication with the capital markets. It is important that investors, analysts and other stakeholders can form a true and fair view of developments, includ- ing Tryg’s financial results. For this reason, Tryg’s IR team strives to be as open and transparent as possible to ensure that stakeholders’ information requirements are met at the highest possible level. IR is in charge of the communication with equity in- vestors, fixed-income investors and rating agencies. See Tryg’s IR policy at tryg.com > Governance > Policies After the publication of quarterly and annual reports, Tryg’s management and IR team travel extensively to meet with shareholders and potential investors. Quarterly analyst presentations are held in Copenhagen and London. Tryg also attends vari- ous financial conferences. In 2019, we held around 300 investor meetings – mostly one-to-ones and some group meetings in Europe, the USA, Canada and Asia. The Tryg share is covered by 21 analysts, who continuously update their recommendations and earnings forecasts. Tryg hosts an annual Ana- lyst Day, while more in-depth capital market days are hosted every three years. See a list of analysts and their recommendations at tryg.com >Investor > Share > Analysts Contents – Management’s review The Tryg share The Tryg share is listed on NASDAQ Copenhagen. Company announcements and transaction state- ments are published in both Danish and English, whereas interim reports and annual reports are published in English. Subscribe to all financial information at tryg.com Follow @TrygIR on Twitter The Tryg share started the year at a price of DKK 164.8 and ended 2019 at DKK 197.5. The total return (price and dividends) of the share was 24%. The positive share price development was driven primarily by highly stable earnings and an improved underlying financial performance. The insurance sector’s key attraction is its dividend yield. Therefore, earnings and solvency are always carefully scrutinised by investors. In the world of Solvency II, changes in solvency levels can be more difficult to predict and often also difficult to under- stand. Tryg has a relatively simple business model and a transparent capital position, which is highly appreciated by analysts and investors. NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. Daily turn- over on NASDAQ averaged DKK 86m, and average daily volume was 442,179. Share capital and ownership Tryg’s share capital totalled DKK 1,510,739,955 on 31 December 2019. It comprises one share class (302,147,991 shares with a nominal value of DKK 5), and all shares rank pari passu. The majority share- holder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder holding more than 5% of the share capital. TryghedsGruppen in- vests in peace-of-mind and healthcare providers in the Nordic region and supports non-profit-making activities. Quarterly dividends started in 2017 Tryg started paying quarterly dividends in 2017. The Tryg share has a distinct income profile in that the business generally grows in line with GDP, producing high margins, which are mostly returned to shareholders. The prolonged period of very low interest rates in the wake of the financial crisis means that investors, all else being equal, attach even greater importance to dividends than in a more normal environment. This is particularly true for insurance investors as insurance is one of the sectors offering the highest dividend yield. From an investment perspective, TrygFonden TrygFonden is the leading and most well-known peace-of-mind supporter in Denmark, supporting around 800 activities that contribute to creating peace of mind, such as coastal lifeguards, cuddle bears for children at hospitals and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and which con- tributed DKK 600m to projects that create peace of mind in all parts of Denmark in 2019. TryghedsGruppen In 2019 and for the fourth year running, Tryg’s majority shareholder, TryghedsGruppen, paid out a member bonus to Tryg’s customers in Denmark corresponding to 8% of the annual premiums paid for 2018. 32 Annual report 2019 | Tryg A/S | Financial calendar 2020 Shareholders at 31 December 2019 23 Jan. 2020 Tryg shares are traded ex-dividend 27 Jan. 2020 Payment of Q4 dividend and extraordinary dividend 30 Mar. 2020 Annual general meeting 21 Apr. 2020 Interim report Q1 22 Apr. 2020 Tryg shares are traded ex-dividend 24 Apr. 2020 Payment of Q1 dividend 09 July 2020 Interim report Q2 and H1 10 July 2020 Tryg shares are traded ex-dividend 14 July 2020 Payment of Q2 dividend 09 Oct. 2020 Interim report Q1-Q3 12 Oct. 2020 Tryg shares are traded ex-dividend 8 Per cent 60 20 12 TryghedsGruppen Large Danish shareholders a) Large international shareholders a) Small shareholders a) Shareholders holding more than 10,000 shares. Free float – geographical distribution at 31 December 2019 21 25 37 Per cent 17 Denmark UK USA Others 14 Oct. 2020 Payment of Q3 dividend Free float is exclusive of TryghedsGruppen. Shareholder distribution DKKm Dividend Dividend per share (DKK) Payout ratio Extraordinary share buy back Extraordinary dividend Extraordinary dividend per share (DKK) 2019 2,056 6.8 72% - 500 1.65 2018 1,994 6.6 115% - - - 2017 1,827 6.4 73% - 1,000 3.31 2016 1,770 6.2 72% - 1,000 3.54 2015 1,759 6.0 89% 1,000 - - 33 The notice will be advertised in the daily press in February 2020 and will be sent to shareholders upon request. The annual general meeting will also be announced at tryg.com The company announcements published in 2020 can be seen at tryg.com > Announcements a quarterly dividend is a clear reminder of the high profitability of our business and our focus on returning capital to shareholders. Tryg’s dividend policy is based on the following assumptions: • • • • • • An aspiration to distribute a steadily increasing dividend in nominal terms on a full-year basis. A general objective of creating long-term value for the company’s shareholders. A competitive dividend policy in comparison with those of our Nordic competitors. Annual distribution of 60-90% of our profit after tax. The capital level must at all times reflect our return-on-equity targets and statutory capital requirements. The capital level may be adjusted via extraordinary dividends. Annual general meeting Tryg’s annual general meeting will be held on 30 March 2020 at 15:00 CET at Tryg’s head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark. Contents – Management’s review Annual report 2019 | Tryg A/S | Corporate governance Tryg focuses on managing the company in ac- cordance with the principles of good corporate governance and generally complies with the Danish recommendations prepared by the Committee on Corporate Governance. The Recommendations on Corporate Governance are available at corporate- governance.dk. At tryg.com, Tryg has published its statutory corporate governance report based on the ‘comply-or-explain’ principle for each individual re- commendation. This section on corporate governance is an excerpt of the corporate governance report. Download Tryg’s statutory corporate governance report at tryg.com > Investor > Download Dialogue between Tryg, shareholders and other stakeholders Tryg’s Investor Relations (IR) department maintains regular contact with analysts and investors. Together with the Executive Board, IR organises investor meet - ings, conference calls and participates in conferences in Denmark and abroad. IR also communicates with stakeholders on social media via Twitter@TrygIR. The Supervisory Board is informed about the dialogue with investors and other stakeholders on a regular basis. Tryg has an IR policy, which states, among other things, that all company announce- ments are published in Danish and English. Tryg publishes quarterly interim reports in English. Furthermore, Tryg publishes an Annual Profile in Danish, English and Norwegian. The profile is ad- dressed to Tryg’s private shareholders, customers, employees and other stakeholders and will be published on 5 February 2020. Moreover, Tryg prepares quarterly investor pres- entations, which are used in the dialogue with investors and analysts. Tryg also publishes IR news- letters on relevant topics on a regular basis. All an- nouncements, financial reports, presentations and newsletters are available at tryg.com. This material provides all stakeholders with a comprehensive picture of Tryg’s position and performance. The consolidated financial statements are presented in accordance with IFRS. At tryg.com, stakeholders are invited to subscribe to press releases, company announcements as well as trading announcements by insiders. A number of internal guidelines ensure that the disclosure of price-sensitive information complies with legisla- tion and stock exchange codes of conduct. Tryg has adopted a number of policies describing the relationship between different stakeholders. See the IR policy at tryg.com > Governance > Policies > IR policy Annual general meeting Tryg holds an annual general meeting (AGM) every year. As required by the Danish Companies Act and the Articles of Association, the AGM is convened via a company announcement and at tryg.com subject to at least three weeks’ notice. Sharehold- ers may also opt to receive the notice by post or email. The notice contains information about time and venue as well as an agenda for the meeting. All shareholders are encouraged to attend the AGM. The AGM is held by personal attendance as the Supervisory Board values personal contact with the Group’s shareholders. Shareholders may propose items to be included on the agenda for the AGM, and may ask questions before and at the meeting. Shareholders may vote in person at the AGM, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the AGM. Share and capital structure Tryg’s share capital comprises a single share class, and all shares rank pari passu. The majority share- holder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the company’s shares. The Supervisory Board ensures that Tryg’s capital structure is aligned with the needs of the Group and the inter- ests of its shareholders and that it complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board. Depending on the development in results, each year the Supervisory Board proposes the distribu- tion of quarterly dividends, and possibly an ex- traordinary annual dividend if further adjustment of the capital structure is required. Duties, responsibilities and composition of the Supervisory Board The Supervisory Board is responsible for the cen- tral strategic management and financial control of Tryg and for ensuring that the business is organ- ised in a sound way. This is achieved by monitoring targets and frameworks on the basis of regular and systematic reviews of the strategy and risks. The Executive Board reports to the Super visory Board on strategies and action plans, market develop- ments and Group performance, funding issues, capital resources and special risks. The Supervisory Board holds one annual strategy seminar to decide on and/or adjust the Group’s Contents – Management’s review 34 Annual report 2019 | Tryg A/S | strategy with a view to sustaining value creation in the company. The Executive Board works with the Supervisory Board to ensure that the Group’s strategy is developed and monitored. The Super- visory Board ensures that the necessary skills and financial resources are available for Tryg to achieve its strategic targets. The Supervisory Board speci- fies its activities in a set of rules of procedure and an annual cycle for its work. The current eight members of the Supervisory Board were elected by the annual general meet- ing for a term of one year. Of the eight members elected at the annual general meeting, five, and thus the majority, are independent persons, thus complying with recommendation 3.2.1. in the Rec- ommendations on Corporate Governance, while the other three members are dependent persons as they are appointed by Tryg’s majority shareholder, TryghedsGruppen smba. See pages 39-41 for in- formation on when the individual members joined the Supervisory Board, were re-elected and when their current election period ends. To ensure the integration of new talent on the Supervisory Board, members elected by the annual general meeting may hold office for a maximum of twelve years. The Supervisory Board has 12 members, with an equal representation of men and women. There- fore, women are not underrepresented on Tryg’s Supervisory Board, thus complying with legislation as well as Tryg’s policy. The Supervisory Board has members from Denmark, Sweden and Norway. and in accordance with sound governance princi- ples. The Supervisory Board decided to arrange a Board education day on relevant matters. See details about the independent board members in the section Supervisory Board on pages 39-41 and at tryg.com > Governance See CVs and descriptions of the skills in the section Supervisory Board on pages 39-41 and at tryg.com > Governance The Supervisory Board performs an annual evalu- ation of its work and skills to ensure that it pos- sesses the expertise required to perform its duties in the best possible way. In addition to the annual self-evaluation, an assessment is facilitated with external assistance as a minimum every third year to ensure objectivity in the evaluation process. The Supervisory Board focuses primarily on the follow- ing qualifications and skills: business judgement, problem solving, networking, risk management, succession management, general management, CFO/audit, people and organisation, business de- velopment, financial services, risk and regulatory, insurance – commercial and product, insurance – technical/financial modelling, digitalisation, value chain optimisation and customer journey. In 2019 the evaluation was based on the Chairman’s inter- views with the board members supplemented by a questionnaire focusing on board competencies. The overall conclusions from the evaluation was that the Supervisory Board is working effectively Duties and composition of the Executive Board Each year, the Supervisory Board reviews and adopts the rules of procedure of the Supervisory Board and the Executive Board comprising relevant policies, guidelines and instructions describing reporting requirements and requirements for com- munication with the Executive Board. Financial legislation also requires the Executive Board to disclose all relevant information to the Supervisory Board and report on compliance with limits de- fined by the Supervisory Board and in legislation. The Supervisory Board considers the composi- tion, development, risk and succession plans of the Executive Board in connection with the annual evaluation of the Executive Board, and regularly in connection with board meetings. Each year, the Supervisory Board discusses Tryg’s activities to guarantee diversity at management levels. Tryg ascribes great importance to diversity at all man- agement levels. Tryg has prepared an action plan, which sets out specific targets to ensure diversity and equal opportunities and access to manage- ment positions for qualified men and women. In 2019, the share of women at management level was 35% against 33% in 2018. The target for 2019 of 38% or more women at management level was therefor not met. Tryg maintains the target of in- creasing the total share of women at management level to 41% or more in 2020. See the action plan at tryg.com Board committees Tryg has an Audit Committee, a Risk Committee, a Nomination Committee, a Remuneration Com- mittee and an IT-Data Committee. The frameworks for the committees’ work are defined in their terms of reference. See The board committees’ terms of reference can be found at tryg.com > Governance > Management > Supervisory Board > Board committees, including descriptions of members, meeting frequency, responsibilities and activities during the year See the tasks of the board committees in 2019 at tryg.com > Governance > Management > Supervisory Board > Board committees Contents – Management’s review 35 Annual report 2019 | Tryg A/S | All members of the Audit Committee and three out of four members of the Risk Committee, including the chairman of the committees, are independent persons. Two out of the three mem- bers of the Remuneration Committee elected by the General Assembly are independent persons, and the fourth member is employee representa- tive. Two out of three members of the Nomina- tion Committee are independent, including the chairman of the committee. Two out of three General Assembly elected member of the IT-Data Committee are independent persons, including the chairman of the committee, and the fourth member is an employee representative. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board. Involvement of the employee representatives in the committees is also considered important. The committees exclusively prepare matters for decision by the entire Supervisory Board. The special skills of all members are also described at tryg.com Remuneration of management Tryg has adopted a remuneration policy for Tryg in general which contains specific schemes for the Supervisory Board, the Executive Board and other Contents – Management’s review employees in Tryg, whose activities have a material impact on the risk profile of the company, so-called risk takers. The remuneration policy for 2019 was adopted by the Supervisory Board in January 2019 and approved by the annual general meeting on 15 March 2019. The Chairman of the Supervisory Board reports on Tryg’s remuneration policy each year in connection with the review of the annual report at the annual general meeting. The Supervisory Board's proposal for the remuneration of the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting. See the remuneration policy at tryg.com Remuneration of the Supervisory Board Members of Tryg’s Supervisory Board receive a fixed fee and are not comprised by any form of incentive or severance programme or pension scheme. Their remuneration is based on trends in peer companies, taking into account the required skills, efforts and the scope of the Supervisory Board’s work, includ- ing the number of meetings held. The remuneration received by the Chairman of the Supervisory Board is three times that received by ordinary members, while the Deputy Chairman’s remuneration is twice that received by ordinary members of the Super- visory Board. Total remuneration of the Supervisory Board in 2019 DKK Jukka Pertola Torben Nielsen Jesper Hjulmandb) Lene Skole Mari Thjømøe Carl-Viggo Östlund Ida Sofie Jensen Tina Snejbjerg Lone Hansen Tom Eileng Anders Hjulmandb) Elias Bakk Karen Bladtc) Claus Wistoftc) Audit Fee Committee Committee Risk Remuneration IT-Data Nomination Committee Committeea) Committee Total 236,250 37,500 157,500 157,500 232,500 35,000 155,000 155,000 155,000 161,250 245,000 107,500 107,500 297,500 245,000 245,000 107,500 1,147,500 765,000 90,000 382,500 382,500 382,500 382,500 382,500 382,500 382,500 90,000 382,500 292,500 292,500 75,000 112,500 1,666,250 75,000 1,308,750 162,500 695,000 695,000 787,500 810,000 537,500 627,500 490,000 90,000 382,500 292,500 292,500 a) One-off fee of DKK 140,000 in 2018/2019. IT-Data Committee became permanent as of 1 April 2019. b) Resigned from the Supervisory Board in March 2019 c) Joined the Supervisory Board in March 2019 36 Annual report 2019 | Tryg A/S | Remuneration of the Executive Board Members of the Executive Board are employed on a contractual basis, and all terms of their remuneration are established by the Supervisory Board within the framework of the approved remuneration policy. Tryg wants to strike an appropriate balance between management remuneration, predictable risk and value creation for the company’s share- holders in the short and long term. The Executive Board’s remuneration consists of a base salary, a pension contribution of 25% of the base salary and other benefits. The base salary must be competitive and appropriate for the market and provide sufficient motivation for all members of the Executive Board to do their best to achieve the company’s defined targets. The Supervisory Board can decide that the base salary should be supplemented with a variable pay element of up to 50% of the fixed salary including pension. In 2019, the variable pay element consisted of a Matching Shares Programme. Using taxed funds, the Executive Board may in 2020 buy shares (so-called investment shares) in Tryg A/S at market price for a predefined amount, which is dependent on the member’s performance for the financial year. Four years after the purchase, Tryg will grant one matching share per investment share free of charge. Matching is conditional upon the fulfilment of ad- ditional conditions such as continued employment and back testing (testing prior to matching, to en- sure that the criteria on which the variable salary is based are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure alignment of the interests of the Ex- ecutive Board and the company’s shareholders. The targets for 2019 were based on Tryg’s tech- nical result, Transactional Net Promoter Score, employee satisfaction levels, the implementation of Alka and the overall execution of the strategy. Each year the Supervisory Board evaluates the performance of the Executive Board against the targets defined by the Supervisory Board for the financial year. The overall fulfilment of the weighted targets determines the number of investment shares offered to each member of the Executive Board. Read more about the Matching Shares Programme in the remuneration policy at tryg.com and in the remuneration rapport for 2019, which will be available at the annual general meeting. Total remuneration of the Executive Board in 2019 DKK Base salary Pension Car allowance Other benefits Total fixed salary Morten Hübbe Lars Bonde Johan Kirstein Brammer Barbara Plucnar Jensen b) 11,330,000 5,385,056 5,175,000 4,166,667 2,832,500 1,346,264 1,293,750 1,041,667 255,000 255,000 255,000 212,500 26,000 26,000 26,000 21,667 14,443,500 7,012,320 6,749,750 5,442,500 One-off fee 0 0 0 1,000,000 Share-based remuneration a) Total fee 4,886,718 2,372,502 2,283,665 1,647,717 19,330,218 9,384,822 9,033,415 8,090,217 a) The value of Matching Shares (investment shares) at the time of allotment of the right to participate in the Matching Shares programme for the Executive Board for the 2019 performance year. b) Barbara Plucnar Jensen took up the position as CFO on 1 March 2019, i.e. salary calculated pro rata for 2019. Was granted a sign-on bonus vesting in 2020. Contents – Management’s review 37 Annual report 2019 | Tryg A/S | From 2021, based on the performance in the financial year 2020, the variable pay is allotted as conditional shares. Financial reporting, risk management and auditing As an insurance business, Tryg is subject to the risk management requirements of the Dan- ish Financial Business Act and Solvency II. The Supervisory Board defines Tryg’s risk management framework as regards insurance risk, investment risk, compliance risk and operational risk, as well as IT security, in policies and guidelines for the Executive Board. Risks associated with new financial reporting rules and accounting policies are monitored and considered by the Audit Com- mittee, the finance management and the internal auditors. Material legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis. Other risks associated with the financial reporting are described in the section Capital and risk management on pages 30-31 and in Note 1 Risk management on page 58 Tryg engages in ongoing risk identification, map- ping insurance risks and other risks which may endanger the realisation of Tryg’s strategy, or which may potentially have a substantial impact on Tryg’s financial position. The process involves identifying and continually monitoring the risks identified. As in previous years, Tryg's Supervisory Board un- dertook an Own Risk and Solvency Assessment (ORSA) in 2019. The purpose of the ORSA is to ensure and demonstrate a link between strategy, risk management, risk appetite, solvency and capital planning over the planning period. The Supervisory Board and the Executive Board approve and monitor the Group’s overall poli- cies and guidelines, procedures and controls in important risk areas. They receive reports about developments in these areas and about the ways in which the frameworks are applied. The Super- visory Board checks that the company’s risk man- agement and internal controls are effective. The Board receives reports on non-compliance with the frameworks and guidelines established by the Supervisory Board. The Risk Committee monitors the risk management on an ongoing basis and reports quarterly to the Supervisory Board. The Group’s internal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, which are supervised by the internal auditors. As part of the internal control system, Tryg has established independent risk management, compliance and actuarial functions. The functions report to the Executive Board and the Supervisory Board’s Risk Committee. Tryg has a decentralised set-up whereby risk managers in the business areas carry out controlling tasks for the risk man- agement and compliance functions. Risk management is an integral part of Tryg’s business operations. The Group seeks at all times to minimise the risk of unnecessary losses in order to optimise returns on the company’s capital. Read more about Tryg’s risk management in the section Capital and risk management on pages 30-31 and in Note 1 on page 58 Whistleblower line Tryg has a whistleblower line, which allows employees, customers and business partners to report any serious wrongdoings or suspected irregularities. Reporting takes place in confidence to the chairman of the Audit Committee and the Head of Compliance. Read more about Tryg’s whistleblower line at tryg.com Independent and internal audit The Supervisory Board ensures monitoring by competent and independent auditors. The Group’s internal auditor attends all board meetings. The independent auditor attends the annual board meeting at which the annual report is presented. The annual general meeting annually appoints an independent auditor on the recommendation of the Supervisory Board. At least once a year, the auditors meet with the Audit Committee without the presence of the Executive Board. The chair- man of the Audit Committee handles any matters that need to be reported to the Supervisory Board. Tryg’s internal audit department regularly reviews the quality of the Group’s internal control systems and business procedures. It is responsible for planning, performing and reporting on the audit work to the Supervisory Board. Deviations and explanations Tryg complies with the Recommendations on Corporate Governance with the exception of the number of independent members of board committees, with which Tryg complies partially; see recommendations 3.4.2. of the Recommen- dations on Corporate Governance. The deviations are explained in Tryg’s statutory corporate governance report, which is available at tryg.com > Download Contents – Management’s review 38 Annual report 2019 | Tryg A/S | Supervisory Board Tina Snejbjerg (1962) Employee representative Officer of Tryg’s Personnel Depart- ment. Employed since 1987. Elias Bakk (1975) Employee representative Team Manager in Tryg. Employed since 2006. Jukka Pertola (1960) Chairman Has special skills in the fields of management, insurance, IT and digitalisation, communication and finance. Jukka Pertola has more than ten years of board work experience from companies, foundations and organisations. Torben Nielsen (1947) Deputy Chairman Has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Nationalbank. Karen Bladt (1967) Board member Has 10 years of experience as a member of various supervisory boards. Karen Bladt has particular skills in the fields of business devel- opment and problem-solving. Carl-Viggo Östlund (1955) Board member Has experience from insurance, logistics, finance and banking, from leading positions in listed and non-listed companies. Carl-Viggo Östlund has special knowledge of Swedish market conditions. Mari Thjømøe (1962) Board member Has special skills in the fields of management, finance, investment management and investor relations, as well as experience from insur- ance and Norwegian large caps. Mari Thjømøe has special insights into the Norwegian market. Tom Eileng (1954) Employee representative Deputy Chairman of Finansforbundet Tryg and Senior Commercial Adviser. Employed since 1986. Lene Skole (1959) Board member Has experience from international companies, among other things through previous positions with Colo- plast and Maersk Company Limited, UK. Lene Skole has particular skills in the fields of strategy, financing and risk management. Lone Hansen (1966) Employee representative Chairman of the Association for Tied Agents and Key Account Man- agers in Tryg. Employed since 1990. Claus Wistoft (1959) Board member Has special skills in the fields of management, business develop- ment and problem-solving, risk management and succession. Claus Wistoft has experience from politics. Ida Sofie Jensen (1958) Board member Has experience from the healthcare sector as well as top management, strategy and communication. Chairman of TryghedsGruppen. Contents – Management’s review 39 Annual report 2019 | Tryg A/S | Supervisory Board Jukka Pertolab) Chairman Born in 1960. Joined the Supervisory Board in 2017. Finnish citizen. Career: Professional board member. Former CEO of Siemens Denmark. Education: MSc in Electrical Engineering. Board seats, Chairman: Danish Academy of Technical Sciences (ATV), Gomspace Group AB and GomSpace A/S, Asetek A/S, Siemens Gamesa Renewable Energy A/S, Tryg A/S and Tryg Forsikring A/S, IoT Denmark A/S, Monsenso ApS. Board seats, Deputy Chairman: Cowi Holding A/S. Board member: Industriens Pensionsforsikring A/S. Committee membership: Remuneration Committee (Chairman), Nomination Committee (Chairman) and IT-Data Committee in Tryg. Nomination Committee in COWI and in GomSpace. Remuneration Committee (Chairman) in Asetek. Experience: More than 25 years of top management experience in the IT and telecommunication industry and electrical engineering, the lat- est position being the CEO of Siemens Denmark from 2002 to 2017. Broad international experience with global and regional business responsibilities in both BtC and BtB. Competencies: Solid technological background in telecommunica- tions, IT, digitalisation, business models, strategy and business development. Understanding of risk management, M&A, business know-how and judgement as well as insurance. Number of shares held: 4,000 Change in portfolio 2019: 0 Torben Nielsenb) Deputy Chairman Born in 1947. Joined the Supervisory Board in 2011. Danish citizen. Career: Professional board member, Adjunct Professor at the Copenhagen Business School. Former Governor of Danmarks Nationalbank (Danish Central Bank). Education: Savings bank training, Graduate Diplomas in Organisation, Work Sociology, Credit and Financing. Board seats, Chairman: Investeringsforeningen Sparinvest, Vordingborg Borg Fund, Ny Holmegaard Værk Fund, Museum of South East Denmark and KTIF (Kapitalforeningen Tryg Invest Funds). Board seats, Deputy Chairman: Tryg A/S and Tryg Forsikring A/S. Board member: Sampension AKP Livsforsikring A/S and member of the Executive Management of Bombebøssen. Committee memberships: Audit Committee (Chairman), Risk Committee (Chairman) and Nomination Committee in Tryg as well as Audit and Risk Committee of Sampension (Chairman). Contents – Management’s review Experience: General experience from executive level in banking. Micro and macro knowledge from membership of the board of governors in the Danish central bank. Knowledge of chairman- ship from non-excecutive boards. Competencies: General top management experience from the financial sector as well as experience with risk management and regulatory requirements, business know-how and judgement. Number of shares held: 28,000 Change in portfolio 2019: +1,000 Elias Bakka) Born in 1975. Employee representative. Joined the Supervisory Board in 2017. Swedish citizen. Employed since 2006. Career: Team Manager in Moderna SE. Education: Norrea Real Gymnasium, financial services & insurance at Företagsekonomiska institut Stockholm. Education at ‘Forsikringsakademiet’ for new board members. Experience: Team Manager in Moderna Affinity for 12 years, Business development in Moderna and Affinity for 2 years Competencies: Solid insurance knowledge from his years in the industry, business know-how and judgement, experience with organisation development, business development, customer- handling and interaction. Number of shares held: 818 Change in portfolio 2019: 0 Lone Hansena) Born in 1966. Employee representative. Joined the Supervisory Board in 2012. Danish citizen. Employed since 1990. Career: Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training. Board member: Tryg A/S and Tryg Forsikring A/S. Chairman of the Association for Tied Agents and Key Account Managers in Tryg. Committee memberships: IT-Data Committee in Tryg. Experience: Many years of insurance experience as insurance agent and Chairman of the Association for Tied Agents and Key Account Managers. Competencies: Business know-how and judgement, especially within insurance, commercial and product and customer- handling as well as interaction from many years of experience in the industry. Problem-solving abilities and understanding of HR-related issues. Number of shares held: 1,037 Change in portfolio 2019: +139 Ida Sofie Jensena) Born in 1958. Joined the Supervisory Board in 2013. Danish citizen. Career: Group Managing Director of Lif (Medicine and Health- care Industry), CEO of the subsidiary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry). Education: MSc in Political Science (cand.scient.pol.), European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University. Board seats, Chairman: TryghedsGruppen smba. Board member: Tryg A/S, Tryg Forsikring A/S. Committee memberships: Remuneration Committee, Nomination Committee and IT-Data Committee in Tryg. Experience: General top management experience as CEO of Lif since 2004 and former CEO of Herlev University Hospital. Rep- resentative in TryghedsGruppen since 2010, Deputy Chairman 2014-2019 and Chairman since 2019. Competencies: Solid business know-how and judgement, analytical approach to problem-solving and strategy, networking skills and the ability to evaluate succession scenarios as well as understanding of digitalisation. Number of shares held: 2,905 Change in portfolio 2018: +537 Lene Skoleb) Born in 1959. Joined the Supervisory Board in 2010. Danish citizen. Career: CEO of Lundbeckfonden (+ Lundbeckfond Invest A/S). Education: The A.P. Møller Group International Shipping Educa- tion, Graduate Diploma in Finance and various international management programmes. Board seats, Chairman: LFI Equity A/S. Board seats, Deputy Chairman: Ørsted 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, Audit Committee, Nomination and Scientific Committee in ALK-Abelló A/S, Scientific and Remuneration Committee in H. Lundbeck A/S, Remuneration and Nomination Committee in Falck A/S and Nomination and Remuneration Committee in Ørsted A/S. Competencies: Solid business know-how and judgement, risk management, business development, finance, strategy, M&A and understanding of business models. Experience: Top management experience from various positions in the AP Moller-Maersk Group, CFO in Coloplast and currently CEO of Lundbeckfonden. Number of shares held: 7,025 Change in portfolio 2019: 0 Committee meetings overview 2019 Supervisory Audit Name Jukka Pertola Torben Nielsen Elias Bakk Lone Hansen Ida Sofie Jensen Lene Skole Board Committee Committee Committee Risk Nomination Remuneration IT-Data Committee Committee 8/8 8/8 8/8 8/8 8/8 8/8 6/6 6/6 6/6 6/6 3/3 3/3 3/3 6/6 6/6 3/3 3/3 3/3 Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. a) Dependent member of the Supervisory Board. b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. 40 Annual report 2019 | Tryg A/S | Supervisory Board Mari Thjømøeb) Born in 1962. Joined the Supervisory Board in 2012. Norwegian citizen. Career: Professional board member and independent adviser. Education: MSc in Economy and Business Administration, Char- tered Financial Analyst (CFA), the Senior Executive Programme from London Business School and Effective Board Management from Harvard Business School. Board seats, Chairman: TF Bank AB. Board seats, Deputy Chairman: Norconsult A/S and Norconsult Holding. Board member: Tryg A/S, Tryg Forsikring A/S, Scatec Solar ASA, ICE ASA and Hafslund E-CO AS. Committee memberships: Audit Committee and Risk Committee in Tryg, Audit Committee in Norconsult and ICE (Chairman), Remuneration Committee in TF Bank (Chairman), the Audit Committees in Scatec Solar, Hafslund E-CO and TF bank. Experience: Senior management experience from large cap companies, insurance and real estate. Extensive experience from board of directors within finance, energy and renewables and is engaged in developing sustainable businesses and good governance. Headed the Norwegian IR associations for a number of years and received the Womens Board Award for Norway. Competencies: Business know-how from experience with the financial sector and energy as well as risk management, strategy, restructuring, business development, M&A, IR and financial com- munication and working with regulatory authorities. Number of shares held: 4,300 Change in portfolio 2018: +400 Claus Wistoftb+c) Born in 1959. Joined the Supervisory Board in 2019. Danish citizen. Career: 1st Deputy Mayor, Municipality of Syddjurs and member of the finance committee. Agriculturalist, wind energy production, tenanted properties and project development of building sites. CEO in Demex Holding A/S and C.W. Holding A/S. Education: Agricultural education at Bygholm Agricultural College and various business courses. Board seats, Chairman: Midttrafik I/S. Board member: Tryg A/S, Tryg Forsikring A/S, Syddjurs ud- viklingspark, Lyngfeldt A/S, Lyngfeldt Finansiering A/S, Lyngfeldt Maskinudlejning ApS, K/S Prinz Carl Anlage l, Rosenfeldt Gods, Sidelmann Holding ApS, Houmarken A/S, I/S Torntoft and TryghedsGruppen smba. Experience: Top management experience from operating an own business for 35 years. Competencies: Analytical approach to problem-solving, solid business know-how and business development, understanding of risk management and succession. Number of shares held: 2,500 Change in portfolio 2019: +2,500 Karen Bladtb+c) Born in 1967. Joined the Supervisory Board in 2019. Danish citizen. Career: Director/owner of HASLE Refractories A/S and member of the regional labour market council in Bornholm. Education: MSc.Eng in Operations and Supply Chain. Management, Aalborg University and the CBS Executive course for Supervisory Board members in the financial sector, insurance and pension at CBS Executive. Board member: Tryg A/S, Tryg Forsikring A/S, HASLE Refractories A/S, Bornholmstrafikken Holding A/S and TryghedsGruppen smba. Experience: 10 years of experience as a member of various Supervisory Boards and top management experience as the owner of HASLE Refractories A/S since 2003. Competencies: Business-knowhow and judgement, experienced in business development with an analytical approach to problem- solving. Number of shares held: 0 Change in portfolio 2019: 0 Tom Eileng a) Born in 1954. Employee representative. Joined the Supervisory Board in 2016. Norwegian citizen. Employed since 1986. Career: Deputy Chairman of Finansforbundet Tryg and Senior Commercial Adviser. Education: Business Economist. Authorised adviser in life and non-life insurance. Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond. Committee memberships: Remuneration Committee in Tryg. Experience: As senior advisor of commercial customers, Tom Eileng is experienced in handling of and interaction with customers. In the capacity of Deputy Chairman of Finans- forbundet in Tryg, Tom Eileng is also experienced in independent and auto nomous management. Competencies: Solid business know-how and experienced in handling customers and with interacting, understanding of risk management, insurance, sales, underwriting and reinsurance. Number of shares held: 607 Change in portfolio 2019: +139 Tina Snejbjerg a) Born in 1962. Employee representative. Joined the Supervisory Board in 2010. Danish citizen. Employed since 1987. Career: Officer of Tryg’s Personnel Department. Education: Insurance training. Board member: Tryg A/S, Tryg Forsikring A/S and the Central Board of Forsikringsforbundet. Committee memberships: Risk Committee in Tryg. Experience: From 1987 to 2001 Tina Snejbjerg has worked with sale of insurance to both private and commercial customers as well as providing insurance advice to customers. Since 2001, Tina Snejbjerg has been the deputy chairmen of the local department of Forsikringsforbundet and since 2009 Chairman working with operations, strategy, negotiating agreements and engaged in recruiting and retaining members. Competencies: From the many years of experience, Tina Snejbjerg has acquired solid business know-how and judgement, problem- solving abilities working with management and HR-related issues in the financial sector, specifically the insurance industry. Number of shares held: 1,037 Change in portfolio 2019: +139 Carl-Viggo Östlundb) Born in 1955. Joined the Supervisory Board in 2015. Swedish citizen. Career: CEO of Allert Östlund AB, professional board member and investor. Former CEO of the Swedish banks SBAB and Nord- net and the insurance company SalusAnsvar. Education: BSc in International Business and Finance & Accounting. Board seats, Chairman: FCG Fonder AB, Gladsheim Fastigheter AB, Hypoteket Bolån AB, IQ Chef AB, Juvinum Food & Beverage AB, Ponture AB, Wisory Group AB, Ywonn Media Group AB. Board member: Tryg A/S, Tryg Forsikring A/S, DBT Capital AB. Committee memberships: IT-Data Committee (Chairman) and Remuneration Committee in Tryg. Experience: More than 30 years as CEO and Managing Director in local as well as in international environment in listed compa- nies as well as banks. Experience from the following industries: manufacturing, logistics, insurance, finance and banking. Competencies: Solid background from the Insurance industry, non-life as well as life. Business know-how and judgement, bank- ing and finance know-how, understanding of digitalisation and risk management. Number of shares held: 2,630 Change in portfolio 2019: +820 Committee meetings overview 2019 Supervisory Audit Name Board Committee Committee Committee Mari Thjømøe Claus Wistoft Karen Bladt Tom Eileng Tina Snejbjerg Carl-Viggo Östlund 8/8 7/8 7/8 8/8 8/8 8/8 6/6 6/6 6/6 Risk Nomination Remuneration IT-Data Committee Committee 6/6 6/6 3/3 Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. a) Dependent member of the Supervisory Board. b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance. c) Joined the supervisory board March 2019 Contents – Management’s review 41 Annual report 2019 | Tryg A/S | Executive Board Contents – Management’s review Read more about the Executive Board on tryg.com 42 Morten Hübbe Group CEOBorn in 1972. Joined Tryg in 2002. Joined the Executive Board in 2003.Education: BSc (International Business Administration and Modern Languages), MSc (Finance and Accounting), management programme at Wharton. Board seats, Deputy Chairman: Kapitalforeningen Tryg Invest Funds and Simcorp A/S.Board member: KBC BV.Number of shares held: 196,289 Change in portfolio in 2019: +34,190Johan Kirstein Brammer Group CCOBorn in 1976. Joined Tryg in 2015. Joined the Executive Board in 2018.Education: LL.M., MBA, Graduate Diploma in Finance.Board member: Insurance & Pension Denmark (IPD).Number of shares held: 24,396Change in portfolio in 2019: +12,907Lars BondeGroup COOBorn in 1965. Joined Tryg in 1998. Joined the Executive Board in 2006.Education: Insurance training, LL.M.Board seats, Chairman: P/F Betri Trygging, Tryg Livsforsikringsselskab A/S and Forsikringsakademiet.Board member: Danish Employers’ Association for the Financial Sector and cphbusiness (Copenhagen Business Academy).Number of shares held: 70,408Change in portfolio in 2019: +11,434Barbara Plucnar JensenGroup CFOBorn in 1971. Joined Tryg in 2019. Joined the Executive Board in 2019. Education: MSc Economics, University of Copenhagen.Board member: J. Lauritzen.Committee memberships: Audit Committee in J. Lauritzen (Chairman).Number of shares held: 0Change in portfolio in 2019: 0Annual report 2019 | Tryg A/S | Corporate Responsibility in Tryg Statutory Corporate Responsibility report Tryg has been a signatory member to the UN Global Compact since 2008. In addition to this statutory section on Corporate Responsibility, Tryg publishes its annual Corporate Responsibility report on Tryg.com providing extensive Environ- mental, Social Governance (ESG) data. Download Corporate Responsibility report Tryg’s 2020 Corporate Responsibility strategy is focused on four elements: Actively creating peace of mind, climate and environment, responsible workplace and business ethics. The Corporate Responsibility efforts are linked to Tryg’s business model and core business (see page 10). As Tryg provides a safety net across the Nordic countries for the customers as insurance provider in case of a claim, Tryg also offers prevention initiatives to re- duce and limit claims. Tryg thereby creates peace of mind before, during and after a claim. The Corporate Responsibility Board, chaired by the CFO, supervisees our Corporate Responsibility efforts. Download Corporate Responsibility policy Actively creating peace of mind Actively creating peace of mind is one of the strategic elements of our Corporate Responsibility strategy where Tryg can contribute to society through creating peace of mind as well as offering relevant products with a prevention element to our customers. In 2019, Tryg launched the ‘Mobile blocker’ currently offered to our Commercial customers. The Mobile blocker prevents drivers from using their mobile phone while driving, which provides employers with a tool to ensure the health and safety of their employees and other road users. The Nightravens and lifebuoys are two initiatives that create peace of mind in society. The initiatives prevent crimes from happening by being present and making people feel safer in the night life or along the coastlines, lakes or by the harbours, which benefits customers, Tryg's business and society. Lifebuoys Since 1952, Tryg’s iconic lifebuoys have provided safety along the coastlines, lakes and rivers in Nor- way. The lifebuoy is a vitally important rescue tool, and for decades Tryg has provided lifebuoys to the Norwegian society. Tryg has more than 47,000 lifebuoys, which are located from Lindesnes at the very south of Norway to Svalbard, the Norwegian archipelago in the Arctic Ocean. Read more about the lifebuoys here Climate and environment Tryg has a direct impact on the climate and the environment through its operations, and an indi- rect impact through its business activities. Tryg has focused its efforts on its internal operations and initiatives to improve its footprint, while also reducing costs. Although Tryg is not an energy- intensive company since its carbon emissions are mainly associated with heating and elec- tricity use at the offices, car and air travel, Tryg acknowledges that it is part of the solution when it comes to minimising carbon emissions. Tryg encourages its building owner to make resource and efficiency improvements to the buildings and invest in renovating buildings to keep them energy-efficient. Tryg’s materiality assessment showed that the climate and the environment continue to be ma- terial issues for Tryg and its stakeholders. Extreme weather events such as flooding, cloudbursts and storms present a risk to Tryg and are a cause for concern for customers and society since envir - onmental and climate-related events can increase the frequency of climate-related claims. Therefore, Tryg advises its customers on how to protect their homes. Tryg’s Corporate Responsibility policy further outlines Tryg's commitment minimising the company's climate and environmental footprint. Download Corporate Responsibility policy Carbon emissions Tonnes 6,000 5,000 4,000 3,000 2,000 1,000 0 Electricity Heating oil Air and train travel Car District heating Total 2019 2018 The carbon emissions chart covers both Norway and Denmark; air and train travel also include Sweden while car only applies for Denmark. Contents – Management’s review 43 Annual report 2019 | Tryg A/S | Climate and environmental initiatives Tryg has initiated a process which involves con- tinuously installing more efficient and climate- friendly LED lighting at its offices, as well as in- stalling more screens for Skype meetings to reduce air travel and offering electric cars for external meetings. In Norway, four of the office areas were moved to save energy and resource consumption per employee in 2019. In Denmark, two offices were merged as well. In Norway, Tryg removed the oil boilers, and the heating and cooling systems were connected to a heating pump system to further reduce the environmental impact, while a new ventilation system will be installed by 2020 with a higher degree of heating recovery. One of the areas in which Tryg has a potential adverse impact on the environment is waste production, which is why Tryg is committed to reducing waste and consumption. Tryg continu- ously works on minimising and sorting waste at local waste stations to bring down waste volumes. In 2019, Tryg outsourced the canteen services at the head office in Denmark. The new supplier was selected due to its high food quality standards and Corporate Responsibility efforts. With the arrival of the new canteen provider, Tryg has established a new sorting system in the canteen to ensure easier sorting of food waste and ordinary waste. In collaboration with the canteen staff, Tryg is working to establish a waste target. Eco-Lighthouse in Norway Eco-Lighthouse is a climate and environmental certification scheme in Norway. Eight of the Nor- wegian sites are Eco-Lighthouse-certified. Tryg an- nually reports on progress as well as documenting the policies and procedures in place to manage the impact on the climate and the environment. Tryg’s carbon emissions In 2019, Tryg’s carbon emissions decreased by 1% compared to 2018. The decrease is mainly due to a new carbon emission calculation method. Responsible workplace Providing a healthy and safe working environment and ensuring the well-being of its employees is vital to Tryg. The materiality assessment indicated that there is a risk that Tryg can have adverse impacts on its employees through, for example, dissatisfaction, discrimination, or the physical or psychosocial working environment. To mitigate this risk, Tryg is continuously working to improve the conditions for the employees. Focus on diversity and women in management In 2019, Tryg’s share of women in management positions was 35% compared to 33% in 2018. This indicates a stabilising tendency towards the share of women in management. However, as the target for women in management positions is 41% in 2020, further actions will be required. Additionally, in 2019, Tryg increased diversity on its Executive Board with with the appointment of Barbara Plucnar Jensen as new CFO, thus in- creasing diversity on the Executive Board to 25%. Employee mix % 60 50 40 30 20 10 0 Men Women Age <30 years Age 30-49 years Age >50 years Flexi job Tryg’s Supervisory Board is composed of six men and six women, and under Danish law as well as Tryg's own policy, there is equality among the genders. Steps of action on increasing diversity Tryg has an action plan for diversity including women in management which guides our actions towards realising our 2020 target. In 2019, Tryg focused on reducing unconscious bias in its re- cruiting processes. Tryg raised awareness of why unconscious biases may be formed, and of the possible benefits of having a more diverse pool of employees. Tryg has taken specific steps to ensure approval of all final candidates for managerial positions from the CEO and HR director, as well as ensur- ing that all management positions are advertised both internally and externally. Furthermore, Tryg is increasing awareness in the organisation of unconscious bias in recruiting processes. See General action plan for diversity including women in management Contents – Management’s review 44 Annual report 2019 | Tryg A/S | Business ethics Ethics can determine a company’s future and are essential to conducting business responsibly. Tryg is committed to running an ethical, transparent and responsible business. The materiality assess- ment showed that business ethics, GDPR and data pro tection are material matters to Tryg. Building knowledge and capacity in this field, for example internally among the employees through e-learning, requires continuous attention. A commitment to ethics and strong corporate govern ance is the foundation on which Tryg builds its business. Tryg’s Code of Conduct defines the rules which all employees and business partners are required to adhere to. Tryg’s tax policy and anti-corruption policy further outline Tryg's com- mitment to conducting itself as a responsible company at all times. Download Code of Conduct Data security and GDPR Data security and GDPR are important issues for Tryg in relation to personal data. In 2019, the online learning platform ‘Safe Colleague’ was introduced to educate employees and test their skills. Through gamification, the employees learn about the basics of data security. Tryg requires all new employees to do a mandatory e-learning programme on GDPR and IT security as part of their onboard- ing programme. In the course of the year, all new employees have completed the online training. Download Personal data policy Whistleblower cases Tryg’s whistleblower hotline is available for all stakeholders to report any violation of our Code of Conduct or other issues and is reviewed by the chairman of the Audit Committee, assisted by Tryg’s Legal and Compliance Director. In 2019, three cases were reported and investigated compared to seven cases in 2018. No cases led to further action being taken. Read more about the Whistleblower hotline Responsible Investments Tryg’s responsible investment policy and policy for execution of active ownership were updated in 2019 to ensure a continuous focus on responsible investing. External portfolio managers are selected on the basis of having a responsible mindset similar to Tryg’s. However, a screening of the holdings is carried out each year to ensure that individual hold- ings do not deviate from expectations. The portfolio holdings screening is carried out by an external screening provider. Furthermore, in 2019 Tryg launched its formal escalation process which guides the process after a screening of investments. Responsible investing is important to Tryg as it ensures that investments are conducted in accord- ance with our values. The materiality assessment identified responsible investments as a material issue to Tryg. Tryg is at risk of violating interna- tional standards when investing and wants to be transparent about its efforts to mitigate this risk. See Responsible investment policy See Policy for execution of active ownership See Process for ethical screening Active Source Management Tryg’s initiatives on active ownership are pri marily directed towards managing and monitoring Tryg’s external managers’ responsible investment pro- cesses. In 2019, Tryg launched a process related to ensuring compliance by external managers with Tryg’s responsible investment policy called Active Source Management. Tryg’s primary focus is selecting external manag- ers who share the principles and have policies in place to ensure that investments are managed respon sibly. External asset managers are UN PRI signatories or in the process of becoming signa- tories. Tryg also ensures that external managers carry out active ownership on individual holdings. In 2019, Tryg further developed our external man- ager selection process to include a separate due diligence process on responsible investments. The due diligence process evaluates all new external managers on their commitment, processes and execution of responsible investment. New external screening provider Tryg conducts an ethical screening each year based on controversial behaviour and controver- sial weapons. In 2019, the regular screening led to one company being flagged for controversial behaviour. In line with the escalation process, a dialogue was initiated with the relevant external managers, which has yielded satisfactory ex- planations and actions. Human rights and responsible supply chain management Tryg is committed to respecting human rights as described in the Universal Declaration of Human Rights. Tryg’s commitment is enforced through our signatory membership to the UN Global Compact and is outlined in the Corporate Responsibility policy as well as Tryg’s Code of Conduct. Contents – Management’s review 45 Annual report 2019 | Tryg A/S | The materiality assessment indicated that there is a risk of violating human and labour rights in Tryg’s supply chain through our outsourcing activities. To mitigate any violations, we actively monitor our outsourcing suppliers regarding compliance of our Code of Conduct and the principles out- lined in the UN Global Compact. We work closely with our suppliers to promote shared values. In 2019, we updated our existing supply chain management process to include a Corporate Re- sponsibility pre-assessment as a way of strength- ening the focus on high-risk suppliers. The imple- mentation of the new process has been merged with the existing compliance processes to include Corporate Responsibility risks in order to assess risks and how to work with high-risk suppliers. Implementation of the Corporate Responsibility audit process and supplier assessment continued in 2019. The building of capacity and training of internal auditors in Corporate Responsibility audits is an ongoing effort, and during the year the training continued. The trainings are held ad hoc as needed before any audits. In 2019, Tryg’s audit revealed no violations or red flags among the audited high-risk outsourcing suppliers. The process continues in 2020, and all high-risk outsourcing suppliers are expected to be audited by 2020. Download Code of Conduct Download Corporate Responsibility policy Contents – Management’s review 46 Tryg has published an independent Corporate Responsibility report with extended Environmental, Social and Governance (ESG) data. Download the report Annual report 2019 | Tryg A/S | Contents – Financial statements 2019 Tryg’s Group consolidated financial statements are prepared in accordance with IFRS Tryg Group Note Statement by the Supervisory Board and the Executive Board Independent auditor’s reports Financial highlights Income statement Statement of comprehensive income Statement of financial position Statement of changes in equity Cash flow statement 1 Risk and capital management 2 Operating segments 2 Geographical segments 2 Technical result, net of reinsurance, by line of business Premium income, net of reinsurance Insurance technical interest, net of reinsurance 5 Claims, net of reinsurance Insurance operating costs, 6 net of reinsurance 3 4 48 59 52 53 54 55 56 57 58 67 69 71 73 73 73 73 6 Matching shares and conditional shares 75 76 7 76 8 Value adjustments 76 9 Other costs Interest and dividends Intangible assets Investment property Equity investments in associates Financial assets Note 10 Tax 11 12 Property, plant and equipment 13 14 15 16 Reinsurers’ share 17 Current tax 18 Equity 19 Premium provisions 19 Claims provisions 20 Pensions and similar liabilities 21 Deferred tax 22 Other provisions 23 Other debt 24 25 Earnings per share Contractual obligations, collateral and contingent liabilities 26 Acquisition of activities 27 Related parties Financial highlights 28 29 Accounting policies Tryg A/S (parent company) Income statement Statement of financial position Statement of changes in equity Notes Reporting for Q4 Quarterly outline Geographical segments Information Other key figures Group chart Glossary Product overview Disclaimer 104 105 106 107 111 113 114 115 116 117 118 76 77 80 81 81 82 85 86 86 86 86 88 89 90 90 90 90 93 93 94 95 Contents – Financial statements 47 Annual report 2019 | Tryg A/S | Statement by the Supervisory Board and the Executive Board The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2019 of Tryg A/S and the Tryg Group. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act and the require- ments of NASDAQ Copenhagen for the presenta- tion of the financial statements of listed com- panies. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises. assets, liabilities and financial position at 31 December 2019 and of the results of the Group’s and the parent company’s operations and the cash flows of the Group for the financial year 1 January - 31 December 2019. In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group’s and the parent company’s Furthermore, in our opinion the management’s review gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group’s and the parent company’s financial position in general and describes signifi- cant risk and uncertainty factors that may affect the Group and the parent company. We recommend that the annual report be adopted by the shareholders at the annual general meeting. Ballerup, 22 January 2020 Executive Board Morten Hübbe Group CEO Barbara Plucnar Jensen Group CFO Lars Bonde Group COO Johan Kirstein Brammer Group CCO Supervisory Board Jukka Pertola Chairman Torben Nielsen Deputy Chairman Elias Bakk Tom Eileng Lone Hansen Karen Bladt Claus Wistoft Ida Sofie Jensen Lene Skole Tina Snejbjerg Mari Thjømøe Carl-Viggo Östlund Contents – Financial statements 48 Annual report 2019 | Tryg A/S | Independent auditor’s report To the shareholders of Tryg A/S Opinion We have audited the consolidated financial statements and the parent financial statements of Tryg A/S for the financial year 1 January to 31 December 2019, pages 52-110, which comprise the income statement, statement of comprehen- sive income, balance sheet, statement of changes in equity and notes, including the summary of significant accounting policies, for the Group as well as the Parent and the consolidated cash flow statement. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act. In our opinion, the consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2019 and of its financial performance and cash flows for the financial year 1 January to 31 December 2019 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for financial companies. Also, in our opinion, the parent financial state- ments give a true and fair view of the financial position of the Parent at 31 December 2019 and of its financial performance for the financial year 1 January to 31 December 2019 in accordance with the Danish Financial Business Act. Our opinion is consistent with our audit book comments issued to the Audit Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and re- quirements are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor’s report. We are independent of the Group in accordance with the IESBA Code of Ethics for Professional Accountants and additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2019. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Claims provisions 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 24,859m at 31 December 2019 (2018: DKK 24,847m). Management has specified the risks etc. related to the estimates of the claims provisions in note 1 ’Risk and capital management’ on pages 58-66 and in ’Accounting policies’, note 29 on pages 95-103. The principles of estimating the claims provisions have been specified in ’Accounting policies’, note 29 on pages 101-102, and further specified in note 1 on pages 61-64 and in note 19 on page 87. 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. How the matter was addressed in the audit • • • • • 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 qualified actuaries and based on our knowledge of the industry, experience and historical observations, we have assessed the statistical models applied to estimate the claims provisions and we have tested significant estimates and assumptions 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 most important assessments and assumptions of future events relate to • Estimated future claims payments, which are based on the completeness and the accuracy of historical claims and payment patterns, among other factors. • 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. Contents – Financial statements 49 Annual report 2019 | Tryg A/S | To the best of our knowledge and belief, we have not provided any prohibited non-audit services as referred to in Article 5(1) of Regulation (EU) No 537/2014. with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We were appointed auditors of Tryg A/S on 28 January 2002 for the financial year 2002 as part of the formation of the Company. However, we have been the appointed auditors of the under- lying subsidiaries since before 1995. We have been reappointed annually by decision of the general meeting for a total contiguous engagement period of more than 18 years up to and including the financial year 2019. Statement on the management’s review Management is responsible for the management’s review. Our opinion on the consolidated financial state- ments and the parent financial statements does not cover the management’s review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements and the parent financial state- ments, our responsibility is to read the management’s review and, in doing so, consider whether the management’s review is materially inconsistent Moreover, it is our responsibility to consider whether the management’s review provides the information required under the Danish Financial Business Act. Based on the work we have performed, we con- clude that the management’s review is in accord- ance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the manage- ment’s review. in accordance with the Danish Financial Business Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group’s and the Parent’s ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Parent or to cease op- erations, or has no realistic alternative but to do so. Management’s responsibilities for the consolidated financial statements and the parent financial statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Finan- cial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for listed financial companies, and for the preparation of par- ent financial statements that give a true and fair view Auditor’s responsibilities for the audit of the consolidated financial statements and the parent financial statements Our objectives are to obtain reasonable assur- ance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements. As part of an audit in accordance with ISAs and additional requirements applicable in Denmark, we exercise professional judgement and maintain pro- fessional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial state- ments, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Contents – Financial statements 50 Annual report 2019 | Tryg A/S | • • • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Conclude on the appropriateness of Manage- ment’s use of the going concern basis of ac- counting in the preparation of the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the • • audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial state- ments and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view. Obtain sufficient appropriate audit evidence regarding the financial information of the enti- ties or business activities within the Group to express an opinion on the consolidated finan- cial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with govern- ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independ- ence, and to communicate with them all relation- ships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Copenhagen, 22 January 2020 Deloitte Statsautoriseret Revisionspartnerselskab Business Registration No 33 96 35 56 Jens Ringbæk State Authorised Public Accountant, MNE no 27735 Kasper Bruhn Udam State Authorised Public Accountant, MNE no 29421 Contents – Financial statements 51 Annual report 2019 | Tryg A/S | Financial highlights DKKm 2019 2018 2017 2016 2015 NOK/DKK, average rate for the period SEK/DKK, average rate for the period 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 b) Operating ratio Relative run-off gains/losses Return on equity after tax (%) 75.80 70.62 21,741 -14,857 -3,081 3,803 -566 1 3,237 579 -188 3,628 -783 2,845 -2 2,843 1,194 32,224 1,501 12,085 59,059 68.3 2.6 70.9 14.2 85.1 85.1 5.1 24.6 77.53 72.67 18,740 -12,636 -2,704 3,400 -624 -10 2,766 -332 -172 2,262 -529 1,733 -2 1,731 1,221 31,948 1,415 11,334 56,545 67.4 3.3 70.7 14.4 85.1 85.2 5.4 14.9 79.99 77.24 17,963 -11,865 -2,516 3,582 -779 -14 2,789 527 -77 3,239 -720 2,519 -2 2,517 972 30,018 1,366 12,616 51,367 66.1 4.3 70.4 14.0 84.4 84.5 4.1 28.8 80.09 78.93 17,707 -11,619 -2,737 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 83.52 79.69 17,977 -13,562 -2,720 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 Note: Tryg´s acquisition of Alka affects the Financial Statement from closing the 8 November 2018. a) Profit/loss on discontinued and divested business after tax includes mainly Marine Hull insurance. b) Until the sale of the group occupied property in 2016, the gross expense ratio without adjustment is calcu- lated as the ratio of actual gross insurance operating costs to gross premium income. Other key ratios are calculated in accordance with ’Recommendations & Financial Ratios’ issued by the Danish Finance Society. The adjustment, which is made pursuant to the Danish Financial Supervisory Authority’s and the Danish Finance Societys’ definitions of expense ratio and combined ratio, involves the addition of a calcu- lated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. The sale of owner- occupied property in December 2016 does not affect the calculation. Contents – Financial statements 52 Annual report 2019 | Tryg A/S | Income statement DKKm 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 2019 2018 DKKm 2019 2018 22,563 -1,259 -143 38 21,198 18,999 -1,362 85 -47 17,675 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 -10 58 534 454 -178 -114 744 -166 579 168 -356 3,628 -783 2,845 -2 22 46 580 -537 -140 -94 -123 -209 -332 128 -300 2,262 -529 1,733 -2 4 Insurance technical interest, net of reinsurance 1 -10 Claims paid Reinsurance cover received Change in claims provisions Change in the reinsurers' share of claims provisions 5 Claims, net of reinsurance -15,419 388 562 40 -14,429 -13,294 466 658 125 -12,045 Total investment return 4 Return on insurance provisions Total investment return after insurance technical interest Bonus and premium discounts -679 -344 9 Other income Other costs Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers 6 Insurance operating costs, net of reinsurance -2,458 -623 -3,081 227 -2,854 -2,104 -600 -2,704 194 -2,510 Profit/loss before tax Tax 10 Profit/loss on continuing business Profit/loss on discontinued and divested business 2 Technical result 3,237 2,766 Profit/loss for the year 2,843 1,731 24 Earnings per share 9.42 5.73 Contents – Financial statements 53 Annual report 2019 | 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 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 2019 2,843 2018 1,731 -76 19 -57 32 -19 4 18 -39 -5 1 -4 -50 49 -11 -12 -16 2,804 1,715 Contents – Financial statements 54 Annual report 2019 | Tryg A/S | Statement of financial position DKKm 2019 2018 DKKm 2019 2018 Note 11 Assets Intangible assets Operating equipment Owner-occupied property 12 Total property, plant and equipment 13 Investment property 14 Equity investments in associates Total investments in associates Equity investments Unit trust units Bonds Other lending 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 Other Total other assets Interest and rent receivable Other prepayments and accrued income Total prepayments and accrued income Note 18 Equity and liabilities Equity 1 Subordinate loan capital 19 19 Premium provisions Claims provisions Provisions for bonuses and premium discounts Total provisions for insurance contracts 20 21 22 Pensions and similar obligations Deferred tax liability Other provisions Total provisions Debt relating to direct insurance Debt relating to reinsurance Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Debt to group undertakings Current tax liabilities Other debt 15 23 17 23 Total debt Accruals and deferred income Total equity and liabilities 1 25 26 27 28 29 Risk and capital management Contractual obligations, collateral and contingent liabilities Acquisition of activities Related parties Financial highlights Accounting policies 7,364 155 730 885 1,151 0 0 1,798 2,424 38,814 75 1,128 44,239 45,390 216 1,285 1,501 1,727 1,727 240 588 2,555 52 868 1 921 147 296 443 7,236 145 790 935 1,345 242 242 1,149 1,663 38,042 0 899 41,753 43,340 181 1,234 1,415 1,476 1,476 144 803 2,423 0 627 0 627 169 400 569 Total assets 59,059 56,545 12,085 2,875 5,996 24,859 1,370 32,224 303 911 86 1,300 577 252 711 2,601 800 300 125 5,178 10,543 33 11,334 2,868 5,861 24,847 1,240 31,948 277 912 111 1,300 614 169 494 2,797 740 313 118 3,813 9,058 37 59,059 56,545 Contents – Financial statements 55 Annual report 2019 | Tryg A/S | Statement of changes in equity DKKm Equity at 31 December 2018 2019 Profit/loss for the year Other comprehensive income Total comprehensive income Dividend paid Dividend own shares Purchase and sale of own shares Issue of conditional and matching shares Non-controlling interest Total changes in equity in 2019 Equity at 31 December 2019 Equity at 31 December 2017 2018 Profit/loss for the year Other comprehensive income Total comprehensive income Dividend paid Purchase and sale of own shares Issue of share options and matching shares Total changes in equity in 2018 Equity at 31 December 2018 Share capital 1,511 0 0 1,511 1,511 0 0 1,511 Reserve for exchange rate adjustment Other reservesa) Retained earnings Proposed Non-controlling interest dividend Total -41 1,617 7,748 499 0 11,334 18 18 18 -23 -29 -12 -12 -12 -41 60 60 60 1,677 230 -57 173 1 -43 27 158 7,906 2,553 2,553 -2,040 514 1,013 1,592 8,059 1,483 25 25 25 1,617 -290 -4 -294 -27 10 -311 7,748 1,996 1,996 -2,980 -984 499 2,843 -39 2,804 -2,040 1 -43 27 1 751 12,085 12,616 1,731 -16 1,715 -2,980 -27 10 -1,282 11,334 0 1 1 1 0 0 Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares). The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provi- sions of DKK 1,677m (DKK 1,617m in 2018). 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. a) Other reserves contains Norwegian Natural Perils Pool and contingency fund provisions - The contin- gency fund provisions DKK 809m have been reclas- sified from retained earnings to reflect the possible dividend is affected by the total amounts related to Norwegian Natural Perils Pool and contingency fund provisions . Contents – Financial statements 56 Annual report 2019 | 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 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 Sale of associated Hedging of currency risk Total investments Financing Issue of new shares Exercise of share options/purchase of own shares (net) Subordinate loan capital Dividend paid Change in lease liabilities Change in amounts owed to credit institutions Total financing 2019 2018 DKKm 2019 2018 Change in cash and cash equivalents, net Additions relating to purchase of subsidiaries Exchange rate adjustment of cash and cash equivalents, 1 January Change in cash and cash equivalents, gross Cash and cash equivalents at 1 january Cash and cash equivalents at 31 December Liabilities arising from financing activities 241 0 -1 241 627 868 2019 Carrying amount at 1 January Exchange rate adjustments Amortisation Cash flow Carrying amount at 31 December 2018 Carrying amount at 1 January Exchange rate adjustments Amortisation Cash flow Carrying amount at 31 December Subordinated loans Amounts owed to credit institutions 2,868 6 2 0 2,875 2,412 -48 2 502 2,868 494 0 0 217 711 306 0 0 188 494 -69 186 1 118 509 627 Total 3,362 6 2 217 3,586 2,718 -48 2 690 3,362 21,736 -15,557 -651 -3,210 1,849 4,167 467 -169 24 -827 -31 3,631 0 357 49 -1,978 0 -69 0 246 18 -1,376 0 -43 0 -2,040 -147 217 -2,013 18,712 -13,473 -725 -3,165 1,927 3,276 546 -138 12 -639 -174 2,883 -2 117 1,540 3,268 250 -61 -5,671 0 49 -510 0 -17 502 -2,980 -135 188 -2,442 Contents – Financial statements 57 Annual report 2019 | Tryg A/S | 1 Risk and capital management Risk management in Tryg The Supervisory Board defines the basis for the risk appetite through the business model and the current strategy. The Supervisory Board has regulated the management of risk activities through policies and guidelines to the business supported by underlying business processes and a power of attorney structure. 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. The Supervisory Board’s Risk Committee meets mini- mum 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. Capital management Tryg’s capital management is based on the key business objectives: • A solid capital base, supporting both the statutory requirements and a single ‘A’ rating from Moody’s. • Support of a dividend per share, with a payout ratio in the interval 60-90%. • Return on the average equity of at least 21% after tax Lines of defence Executive Board Supervisory Board Supervisory Board’s Risk Committee Supervisory Board’s Audit Committee Reporting Right to be heard, cf. draft for Executive order on Management Tryg’s risk management is organised into three levels of control. The first level of control is handled in the busi- ness where the company’s policies are implemented, and day-to-day compliance is verified. The risk management function is the second level of control, supported by decentralised risk managers affiliated with the individual business areas. The risk management function ensures a consistent approach across the organisation, risk assess- ment at Group level and reporting to the management and the Supervisory Board. This involves an ongoing identification and assessment of the most significant risks in the company. Furthermore, the function prepares specific recommendations in relation to capital manage- ment, reinsurance, investment risk management and more. Tryg’s risk management function is also respon- sible for determining the company’s capital require- ment. The third level consists of the internal audit which performs independent assessments of the entire control environment. The risk management is organised systematically in the company’s committee structure via the Executive Board’s own Risk Committee and the Supervisory Board’s own Risk Committee. The Supervisory Board’s Risk Commit- tee is a specialist committee with intensive focus sepa- rately on risk and capital management during the year. What risk profile does Tryg want? - Business model - Strategy - Policies How is this supported? Tactically - Policies - Capital plan - Contingency plan Operationally - Frameworks - Limitations - Instructions - Allocated capital - Contingency plans How is the actual risk profile measured? Tactically - Risk reports - Internal controls - Capital model - Stress tests - Reassurance 1st line of defence 2nd line of defence 3rd line of defence External audit • Business Management • Compliance • Actuarial function • Risk management • Internal audit • Internal audit function Tryg’s risk management environment Supervisory Board • Risk appetite • Capital • Strategy • Crisis management Supervisory Board’s Risk Committee Risk management environment Business areas Policies Executive Board Policies and guidelines Risk Committee Risk reporting recommen- dations Insurance risk Model risk Compliance risk Market risk Operational risk Systematic risk assessment reporting • Contingency • Control • Risk identification • Risk management Contents – Financial statements 58 NotesAnnual report 2019 | Tryg A/S | Tryg’s capital base currently consist of Tier 1 and 2 capi- tal, such as shareholders’ equity and subordinated loans. Insurance risk Insurance risk comprises two main types of risks: Un- derwriting risk and provisioning risk. ates 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. See table Subordinate loan capital on page 66. The capital base is continuously measured against the capital requirement calculated on the basis of Tryg’s par- tial internal model, where insurance risks are modelled using an internal model, while other risks are described using the standard formula. 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 fulfill 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. Monitoring of the capital base also involves capital projections based on expected business plans within the strategic planning period and stress on selected scenarios. Company’s Own Risk and Solvency Assessment (ORSA) 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 assess- ment of whether the calculation of solvency capital requirement is reasonable and is reflecting Tryg’s actual risk profile. Moreover, the projected capital requirement is also assessed over the company’s strategic planning period. Tryg’s risk activities are implemented via continuous risk management processes, where the main results are re- ported to the Supervisory Board and its Risk Committee during the year. Therefore, the ORSA report is an annual summary document assessing all these processes. 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 Supervisory Board, and administered through business procedures, underwriting guidelines etc. Underwriting risk is as- sessed in Tryg’s capital model, determining the capital impact from insurance products. Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a 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 7.25bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 168m. In the event of a frequency of natural disasters, Tryg is covered for up to DKK 600m, 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 sectors into a joint cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. For the individual sectors, individual cover has subsequently been taken out as needed. The use of reinsurance cre- 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 reserv- ing risk in the insurance policy, while the overall risk is measured in the capital model. The uncertainty associ- ated with the calculation of claims reserves affects Tryg’s results through the run-off on reserves. Long-tailed reserves in particular are subject to interest 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 statistical meth- ods as well as individual assessments. At the end of 2019, Tryg’s claims reserves net of reinsur- ance totalled DKK 23,574m with an average duration of approximately 4.5 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 discounted 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 man- agement of the Group’s interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryg’s property portfolio constitutes the com- pany’s largest investment risk. The 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 2019, investment properties accounted for 5.5% (including property funds) and Tryg’s equity portfolio accounted for 5.2% of the total investment assets. Tryg does not wish to speculate in foreign currency, but since Tryg invests and operates its insurance busi- ness in other currencies than Danish kroner, Tryg is exposed to currency risk. Tryg is primarily exposed to 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 currencies than Danish kro- ner 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 frame- work for reinsurance defined in the insurance policy. For a non-life insurance company like Tryg, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant asset class on Tryg’s balance sheet, which by nature is somewhat illiquid is the property portfolio. Contents – Financial statements 59 NotesAnnual report 2019 | Tryg A/S | Operational risk Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT secu- rity and similar factors. As operational risks are mainly internal, Tryg focuses on an adequate control environ- ment for its operations. In practice, this work is organ- ised 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 Operational risk policy and in the Information Security Policy. A special crisis management structure is set up to deal with the eventuality that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and finally business contingency teams in the individual areas. Tryg has prepared contingency plans to address the most im- portant 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 busi- ness 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 DKKm 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 is 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. Emerging risk is also a part of the systematically implemented risk identifica- tion process in Tryg. Insurance risk Effect of 1% change in: Combined ratio (1 percentage point) Major events Catastrophe event up to DKK 7,250m Reserving risk 1% change in inflation on person-related lines of businessb) 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 c) Equity market 15% decline in equity market Impact of derivatives and related thereto 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 a) Catastrophe event up to DKK 6,750m in 2018 b) Including the effect of the zero coupon inflation swap c) Additional sensitivity information in note 20 'Pensions and similar obligations' 2019 2018 +/- 217 +/- 187 -100 -168 -100 -168 a) +/- 412 +/- 402 +/- 1,755 +/- 1,696 -1,150 1,028 -122 189 -367 25 -1,079 991 -88 163 -288 36 -361 -372 -883 898 15 -1,316 1,242 -74 +/- 95 +/- 134 Contents – Financial statements 60 NotesAnnual report 2019 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Gross 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 a) 2019 a) 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 13,325 13,933 13,947 13,748 13,650 13,557 13,527 13,409 13,352 14,531 14,320 14,320 -13,694 15,476 15,570 15,523 15,443 15,355 15,280 15,257 15,166 16,379 16,202 15,810 16,190 16,247 16,200 16,026 16,060 15,926 17,398 17,467 13,365 13,438 13,396 13,211 12,947 12,859 14,049 13,977 13,764 14,026 13,686 13,518 13,498 14,802 14,591 12,609 12,929 12,747 12,659 13,970 13,813 14,610 14,550 14,503 15,873 15,810 12,801 12,656 14,119 14,090 12,658 14,323 14,230 15,454 15,439 16,170 16,202 -15,401 17,467 -16,357 13,977 -12,926 14,591 -13,407 13,813 -12,419 15,810 -14,423 14,090 -12,431 14,230 -12,001 15,439 -11,811 16,170 -8,377 166,109 -143,246 Provisions before discounting, end of year Discounting Reserves from 2008 and prior years Gross provisions for claims, end of year 626 -36 801 -46 1,110 -62 1,051 -54 1,184 -54 1,394 -63 1,387 -63 1,659 -65 2,230 -79 3,628 -103 7,793 -148 22,863 -774 2,770 24,859 a) The diagonal for 2018 and 2019 is affected by the Alka acquisition. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2019 to prevent the impact of exchange rate fluctuations. Contents – Financial statements 61 NotesAnnual report 2019 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Ceded business 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 a) 2019 a) 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 2008 and prior years Provisions for claims, end of year 275 339 318 277 281 286 275 274 273 303 302 302 -300 2 0 648 720 714 692 701 706 709 701 759 758 758 -756 1 0 1,452 2,135 2,255 2,294 2,241 2,235 2,241 2,625 2,619 2,619 -2,563 56 0 223 253 289 282 270 259 272 271 271 -268 3 0 1,133 1,479 1,261 1,255 1,271 1,303 1,352 1,352 -1,218 134 0 273 308 302 298 319 316 316 -292 24 0 2,077 1,883 1,915 1,890 1,920 1,920 -1,753 167 1 202 255 247 246 246 -233 14 0 287 394 388 388 -284 104 -1 632 677 371 677 -270 407 0 371 -127 243 -3 9,221 -8,064 1,156 -3 131 1,285 a) The diagonal for 2018 and 2019 is affected by the Alka acquisition. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2019 to prevent the impact of exchange rate fluctuations. Contents – Financial statements 62 NotesAnnual report 2019 | Tryg A/S | Claims provisions – estimated accumulated claims – DKKm Net of reinsurance 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 a) 2019 a) 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 13,049 13,594 13,629 13,471 13,369 13,271 13,252 13,135 13,078 14,228 14,018 14,018 -13,394 Provisions before discounting, end of year Discounting Reserves from 2008 and prior years Provisions for claims, net of reinsurance, end of the year 624 -36 14,829 14,850 14,809 14,751 14,654 14,574 14,548 14,466 15,620 15,444 14,358 14,055 13,992 13,907 13,786 13,825 13,686 14,773 14,848 13,142 13,185 13,107 12,928 12,677 12,600 13,777 13,706 12,631 12,547 12,425 12,264 12,226 13,499 13,239 12,336 12,621 12,445 12,361 13,651 13,497 12,533 12,667 12,588 13,983 13,890 12,598 12,401 13,872 13,843 12,370 13,929 13,842 14,822 14,762 15,799 15,444 -14,645 14,848 -13,794 13,706 -12,658 13,239 -12,190 13,497 -12,127 13,890 -12,671 13,843 -12,198 13,842 -11,716 14,762 -11,541 15,799 -8,251 156,889 -135,182 800 -46 1,055 -63 1,048 -54 1,049 -55 1,370 -63 1,220 -63 1,645 -65 2,126 -78 3,221 -103 7,549 -146 21,707 -771 2,638 23,574 a) The diagonal for 2018 and 2019 is affected by the Alka acquisition. The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2019 to prevent the impact of exchange rate fluctuations. Contents – Financial statements 63 NotesAnnual report 2019 | Tryg A/S | Claims provisions (continued) DKKm 2019 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 2018 Premium provisions, gross Premium provisions, ceded Claims provisions, gross Claims provisions, ceded 0-1 year 1-2 years 2-3 years > 3 years Total Expected cash flow, not discounted 5,851 -216 8,207 -695 13,147 5,588 -180 8,025 -642 12,791 72 0 4,012 -226 3,859 118 0 3,936 -229 3,825 45 0 2,611 -172 2,485 81 0 2,643 -138 2,586 28 0 10,927 -201 10,755 74 0 11,542 -246 11,370 5,996 -216 25,758 -1,293 30,245 5,861 -180 26,146 -1,255 30,572 Contents – Financial statements 64 NotesAnnual report 2019 | Tryg A/S | 2019 34,281 261 692 1,023 547 604 37,408 1,242 89 1,331 % 91.6 0.7 1.8 2.7 1.5 1.6 100 93.3 6.7 100 2018 34,112 479 1,169 850 583 850 38,042 1,207 96 1,303 DKKm 2019 2018 DKKm Investment risk The notes below are based on Tryg's investment portfolio without the external customers share. Bond portfolio including interest derivatives Duration 1 year or less Duration 1-5 years Duration 5-10 years Duration more than 10 years 13,067 15,747 5,975 2,856 Total Duration 37,645 3.4 Credit risk Bond portfolio by ratings 11,286 15,527 5,521 2,573 34,907 3.0 AAA AA A BBB BB B or lower Total 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. Shares Nordic countries EU ex. Nordic countries North America Others Total 250 566 2,674 213 3,702 154 446 1,995 217 2,812 The share portfolio includes property funds and exposure from share derivatives of DKK 167m (DKK 240m in 2018). Unlisted equity investments are based on an estimated market price. Exposure to exchange rate risk 2019 2018 Assets and debt Hedge Exposure Assets and debt Hedge Exposure 3,762 2,872 262 1,403 133 324 -3,794 -1,543 -265 -1,446 -111 -370 32 1,328 4 43 22 46 1,476 3,453 2,159 208 3,028 1,408 274 -3,467 -519 -207 -2,942 -1,388 -274 -14 1,640 1 86 20 0 1,762 USD EUR a) GBP NOK SEK Other Total Reinsurance balances AAA to A Not rated Total Liquidity risk Maturity of the Group’s financial obligations including interest 2019 0-1 years 1-5 years > 5 years Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 2018 Subordinate loan capital Amounts owed to credit institutions Debt relating to unsettled funds transactions and repos Derivative financial instruments Other debt 108 711 2,601 86 6,131 9,638 93 494 3,408 534 4,103 8,632 433 0 0 496 0 930 373 0 0 55 0 428 3,959 0 0 135 0 4,093 3,799 0 0 188 0 3,987 a) Due to correlation between DKK and EUR the exposure limit is DKK 3bn. All other currencies have a lower limit. Interest on loans for a perpetual term has been recognised for the first fifteen years. Contents – Financial statements % 89.7 1.3 3.1 2.2 1.5 2.2 100 92.6 7.4 100 Total 4,500 711 2,601 717 6,131 14,661 4,265 494 3,408 777 4,103 13,047 65 NotesAnnual report 2019 | Tryg A/S | Notes Subordinate loan capital DKKm Amortised cost value of the loan recognised in statement of financial position The fair value of the loan at the statement of financial position date The fair value of the loan at the statement of financial position date is based on a price of Total capital losses and costs at the statement of the financial position date Interest expenses for the year Effective interest rate 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 2019 2018 2019 2018 2019 2018 605 642 106 2 32 5.3% 595 633 106 2 30 4.8% Listed bonds NOK 800m 100 March 2013 Perpetual 2023 1,059 1,108 104 3 45 4.3% 1,043 1,073 103 3 41 3.7% Listed bonds NOK 1,400m 100 November 2015 2045 2025 713 730 102 3 19 2.6% 723 747 103 3 17 2.3% 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 2.75 % above NIBOR 3M (until 2025) 2.75 % above STIBOR 3M (until 2026) 3.75 % above NIBOR 3M (from 2025) 3.75 % above STIBOR 3M (from 2026) Interest-only The share of capital included in the calculation of the capital base totals DKK 2,744m (DKK 2,740m in 2018). The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost. The loans are taken by Tryg Forsikring A/S. The creditors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liquidation or bankruptcy of Tryg Forsikring A/S. Prices used for determination of fair value in respect of the loans are based on actual traded prices from Bloomberg. DKKm Amortised cost value of the loan recognised in statement of financial position The fair value of the loan at the statement of financial position date The fair value of the loan at the statement of financial position date is based on a price of Total capital losses and costs at the statement of the financial position date Interest expenses for the year Effective interest rate Loan terms: Lender Principal Issue price Issue date Maturity year Loan may be called by lender as from Repayment profile Interest structure Contents – Financial statements Bond loan SEK 700m 2018 506 491 96 3 5 2.1% 2019 499 501 100 2 13 2.4% Listed bonds SEK 700m 100 April 2018 Perpetual 2023 Interest-only 2.5 % above STIBOR 3M 66 Annual report 2019 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) Group 2 Operating segments 2019 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 Run-off gains/losses, net of reinsurance Intangible assets 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 12,021 -8,185 -1,650 -231 -3 1,951 238 1,565 42 15 2,691 6,201 1,195 4,274 -2,867 -749 -94 1 566 310 67 4 149 1,351 6,844 114 3,979 -2,816 -415 -255 2 496 407 0 170 1,114 1,035 9,055 27 1,521 -1,014 -267 -10 0 231 246 539 0 7 919 2,758 34 -54 24 0 23 0 -6 -6 5,193 0 0 50,193 0 0 0 14,750 21,741 -14,857 -3,081 -566 1 3,237 -394 2,843 1,194 7,364 216 1,285 50,193 59,059 5,996 24,859 1,370 14,750 46,974 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. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under 'Other'. a) Amounts relating to eliminations and one-off items. Please refer to note 2 'Geographical segments' for details. Contents – Financial statements 67 Annual report 2019 | Tryg A/S | Notes DKKm Private Commercial Corporate Sweden Other a) Group 2 Operating segments 2018 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 Run-off gains/losses, net of reinsurance 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 9,466 -6,198 -1,309 -220 -5 1,734 394 1,694 47 53 2,672 6,259 1,036 3,971 -2,326 -696 -165 0 784 434 89 3 118 1,326 6,425 164 3,897 -3,114 -385 -225 0 173 271 0 131 1,036 947 9,352 26 1,471 -1,024 -237 -4 -5 201 122 534 0 27 916 2,811 14 -65 26 -77 -10 0 -126 0 4,919 242 0 0 47,652 0 0 0 13,263 18,740 -12,636 -2,704 -624 -10 2,766 -1,035 1,731 1,221 7,236 242 181 1,234 47,652 56,545 5,861 24,847 1,240 13,263 45,211 Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under 'Other'. a) Amounts relating to eliminations and one-off items. Please refer to note 2 'Geographical segments' for details. Contents – Financial statements 68 Annual report 2019 | Tryg A/S | a) Includes Danish general insurance and German, Dutch, Austrian and Finnish guarantee insurance. The gross premium income related those branches amounts to DKK 78m (DKKm 54 in 2018). Notes DKKm 2019 2018 2017 2016 2015 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 NOK/DKK, average rate for the period 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 13,204 2,606 712 64.7 1.7 66.4 13.7 80.1 -5.4 2,650 75.80 6,472 469 283 73.7 5.1 78.8 14.4 93.1 -4.4 1,083 10,430 2,007 710 61.2 5.5 66.7 13.9 80.6 -6.8 2,520 77.53 6,302 791 520 72.6 1.2 73.8 13.9 87.7 -8.3 1,105 9,606 1,783 449 64.2 3.7 67.9 13.4 81.3 -4.7 1,933 79.99 6,272 770 422 67.9 5.3 73.2 14.7 87.9 -6.7 1,042 9,467 1,587 509 63.7 6.0 69.7 13.4 83.1 -5.4 1,839 80.09 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 83.52 6,766 844 492 70.9 2.1 73.0 14.9 87.9 -7.3 1,113 Contents – Financial statements 69 Annual report 2019 | Tryg A/S | b) Amounts relating to eliminations and one-off items. In 2018 Cost, Claims and Other Costs were nega- tively affected by DKK 75m, DKK 49m, DKK 76m. The costs are related to integration and transaction costs for the aquirement of Alka. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. c) The adjustment in gross expense ratio is only included in 'Tryg '. Please refer to a footnote in Financial highlights. Notes DKKm 2019 2018 2017 2016 2015 2 Geographical segments Swedish general insurance SEK/DKK, average rate for the period 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 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 December 70.62 2,120 169 205 74.0 2.0 75.9 16.1 92.0 -9.7 419 -54 -6 72.67 2,073 94 -9 82.3 -1.7 80.6 14.6 95.2 0.4 402 -65 -126 77.24 2,121 236 101 69.0 5.0 74.0 14.5 88.5 -4.8 398 -36 0 78.93 1,888 40 52 76.4 3.3 79.7 17.8 97.5 -2.8 385 -19 -250 79.69 1,894 328 208 63.5 1.7 65.2 17.5 82.7 -11.0 387 -29 -120 21,741 18,740 17,963 17,707 17,977 3,237 579 -188 3,628 1,194 68.3 2.6 70.9 14.2 85.1 -5.5 4,151 2,766 -332 -172 2,262 1,221 67.4 3.3 70.7 14.4 85.1 -6.5 4,027 2,789 527 -77 3,239 972 66.1 4.3 70.4 14.0 84.4 -5.4 3,373 2,390 987 -157 3,220 1,239 65.6 5.4 71.0 15.7 86.7 -7.0 3,264 2,423 -22 -91 2,310 1,212 75.4 -3.9 71.5 15.3 86.8 -6.7 3,359 Contents – Financial statements 70 Annual report 2019 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business DKKm Gross premiums written 2019 2,591 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance 2,466 - 1,460 - 340 - 15 - 1 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims 650 59.2 73.6 3.8% 22,950 73,735 Accident and health Health care Workers’ compensation Motor TPL Motor comprehensive insurance Marine, aviation and cargo insurance 2018 2,001 1,951 - 1,157 - 249 - 11 - 2 532 59.3 72.6 4.5% 24,634 53,060 2019 461 445 - 483 - 52 - 1 0 - 91 108.5 120.4 93.2% 5,390 84,348 2018 376 379 - 402 - 43 - 1 0 - 67 106.1 117.7 107.1% 5,595 58,510 2019 951 935 - 755 - 106 - 14 0 60 80.7 93.6 2018 884 884 - 438 - 105 - 13 0 328 49.5 62.9 21.9% 71,146 12,776 20.8% 63,754 11,779 2019 1,876 1,828 - 1,194 - 296 - 12 1 327 65.3 82.2 6.0% 18,794 87,595 2018 1,772 1,771 - 958 - 283 - 42 - 1 487 54.1 72.4 2019 4,823 4,617 - 3,127 - 652 - 44 1 795 67.7 82.8 2018 3,915 3,781 - 2,672 - 470 - 4 - 2 633 70.7 83.2 2019 231 222 - 153 - 33 4 0 40 68.9 82.0 2018 376 401 - 208 - 54 - 55 0 84 51.9 79.1 6.0% 15,763 76,710 21.8% 9,320 342,983 21.4% 9,605 283,335 18.9% 77,416 2,213 21.3% 68,061 2,492 Gross premiums written 2019 5,444 Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance 5,330 - 3,562 - 751 - 216 - 4 Technical result Gross claims ratio Combined ratio Claims frequency a) Average claims DKK b) Total claims Fire and contents (Private) Fire and contents (Commercial) Change of ownership Liability insurance Credit and guarantee insurance Tourist assistance insurance 2018 4,423 4,306 - 2,897 - 689 - 152 - 6 562 67.3 86.8 797 66.8 85.0 9.7% 8,743 427,228 9.9% 8,955 342,695 2019 2,758 2,656 - 1,894 - 413 - 129 3 223 71.3 91.7 16.9% 55,018 33,861 2018 2,426 2,434 - 1,736 - 391 - 167 - 1 139 71.3 94.2 15.5% 65,645 29,761 2019 2018 8 74 - 11 - 7 0 0 56 14.9 24.3 10.6% 22,639 2,689 79 65 - 63 - 9 0 - 1 - 8 96.9 110.8 14.3% 21,202 4,022 2019 1,100 1,088 - 828 - 168 8 0 100 76.1 90.8 12.5% 70,030 12,545 2018 1,094 1,071 - 1,027 - 155 28 - 1 - 84 95.9 107.7 12.2% 71,911 12,189 2019 527 527 - 95 - 69 - 131 0 232 18.0 56.0 2018 470 469 - 65 - 49 - 167 0 188 13.9 59.9 0.0% 1,872,000 49 0.0% 2,866,734 64 2019 941 886 - 775 - 119 - 1 1 - 8 87.5 101.0 17.5% 6,390 121,236 2018 720 715 - 624 - 100 - 3 0 - 12 87.3 101.7 19.3% 5,723 105,877 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. Contents – Financial statements 71 Annual report 2019 | Tryg A/S | Notes 2 Technical result, net of reinsurance, by line of business a) Group Life, one-year policies related to Norwegian Group Life and Alka Group Life. DKKm Other insurance Total exclusive of Group Life Group Life one-year policies a) Total Gross premiums written Gross premium income Gross claims Gross operating expenses Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Gross claims ratio Combined ratio Total claims 2019 2018 2019 2018 49 55 - 14 - 1 - 15 - 1 24 25.5 54.5 130 59 91 - 58 - 76 - 43 3 - 83 63.7 194.5 12 21,760 18,595 21,129 - 14,351 - 3,007 - 566 0 18,318 - 12,305 - 2,673 - 630 - 11 3,205 2,699 67.9 84.8 67.2 85.2 2019 803 612 - 506 - 74 0 1 33 82.7 94.8 2018 404 422 - 331 - 31 6 1 67 78.4 84.4 2019 22,563 21,741 - 14,857 - 3,081 - 566 1 3,237 68.3 85.1 2018 18,999 18,740 - 12,636 - 2,704 - 624 - 10 2,766 67.4 85.1 Contents – Financial statements 72 Annual report 2019 | Tryg A/S | DKKm 3 Premium income, net of reinsurance Direct insurance Indirect insurance Unexpired risk provision Ceded direct insurance Direct insurance, by location of risk 2019 2018 Denmark Other EU countries Other countries a) a) Mainly Norway Gross 13,649 2,172 6,547 22,368 Ceded -524 -229 -468 -1,221 Gross 10,542 2,095 6,397 19,034 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 2019 2018 166 -165 1 -16,031 1,173 -14,857 408 20 -14,429 209 -219 -10 -13,872 1,236 -12,636 606 -15 -12,045 2019 2018 DKKm 2019 2018 22,353 52 22,405 15 22,420 -1,221 21,198 19,037 50 19,087 -3 19,084 -1,409 17,675 Ceded -645 -186 -578 -1,409 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 -265 -2,193 -2,458 -623 -3,081 227 -2,854 -8 -8 -3 -1 -1 -3 -8 -227 -1,877 -2,104 -600 -2,704 194 -2,510 -24 -24 -3 -1 -1 -19 -24 -9 Expenses have been incurred for the Group´s Internal Audit Department. -10 Fees for non-audit services provide by Deloitte Statsautoriseret Revisionspartnerselskab to the Group amount to DKK 4m (DKK 20m in 2018) and consist of varius declaration tasks, mainly related to restruc- turing of investment setup and review of interim balances, objective tax advice and consulting services mainly related to GAP analysis and review, as well as other general accounting, consulting services and tax advice. Contents – Financial statements 73 NotesAnnual report 2019 | Tryg A/S | DKKm 6 2019 2018 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 -265 -2,043 -187 -649 -255 -71 388 -3,081 Please refer to note 12 and 23 regarding lease recognised costs according to IFRS 16. 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 -2,747 -4 -27 -351 -6 -491 -3,625 -227 -1,740 -179 -612 -260 -69 383 -2,704 -2,227 -9 -10 -301 -6 -470 -3,023 a) In 2019 defined benefit plans were included with DKK 35m (DKK 35m in 2018). Remuneration for the Supervisory Board and Executive Board is disclosed in note 27 'Related parties'. Average number of full-time employees during the year (continuing business) 4,148 3,914 Contents – Financial statements 74 NotesAnnual report 2019 | Tryg A/S | Notes DKKm 6 Matching shares and conditional shares Total numbers Fair value Executive Board Risk- takers Other Average per matching share at grant date DKK Total Total value Average per at time of matching share at 31.12 allocation DKK DKKm Total fair value at 31.12 DKKm 2019 Allocated in 2019 Matching shares allocated in 2019 at 31.12.19 53,308 0 0 53,308 Allocated in 2011-2018 Category changes and addition Cancelled Exercised 189,745 0 -14,328 -90,826 89,473 -423 -7,476 -9,960 168,560 423 -40,525 -85,561 447,778 0 -62,329 -186,347 Matching shares allocated in 2011-2018 at 31.12.19 Number of Matching shares exercisable 31.12.19 2018 Allocated in 2018 Matching shares allocated 84,591 71,614 42,897 199,102 0 0 0 0 in 2018 at 31.12.18 30,444 29,835 37,321 97,600 Allocated in 2011-2017 Category changes and addition Cancelled Exercised 150,338 8,963 -14,205 -87,640 180,944 -121,306 -3,788 -8,945 18,896 112,343 -9,449 -84,485 350,178 0 -27,442 -181,070 Matching shares allocated in 2011-2017 at 31.12.18 Number of Matching shares exercisable 31.12.18 57,456 46,905 37,305 141,666 0 0 0 0 166 114 114 114 114 114 144 105 105 105 105 105 9 51 0 -7 -21 23 14 37 0 -3 -19 15 198 198 198 198 198 198 164 164 164 164 164 164 11 89 0 -12 -37 39 16 57 0 -4 -30 23 In 2019, Tryg entered into an agreement on matching shares for the Executive Board, as a consequence of the Group’s remuneration policy. Executive Board, are allo- cated one share in Tryg A/S for each share they acquires in Tryg A/S at market rate for liquid cash at a contractu- ally agreed sum over the 4-year maturation period. In 2019, the reported fair value of matching shares for the Group amounted to DKK 11m (DKK 7m in 2018). At 31 December 2019, a total amount of DKK 40m was recognised for matching shares. Conditional shares In 2017-2019, Tryg allocated conditional shares in accordance with the Group’s remuneration policy. The beneficiaries will receive shares in Tryg A/S if certain conditions are fulfilled over a 2 to 3 year vesting period. In 2019, the fair value of conditional shares is prorated relative to the vesting period and recognised in the income statement amounted to DKK 16m (DKK 3m in 2018). The maximum obligation for Tryg is 188,551 shares in Tryg A/S. Contents – Financial statements 75 Annual report 2019 | 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 expenses Interest expenses subordinate loan capital, credit institutions and cash at bank 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 Bonds Derivatives (Equity, Interest, Currency) Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39: Investment property Owner-occupied property Discounting Other statement of financial position items Exchange rate adjustments concerning financial assets or liabilities which can not be stated at fair value total DKK -97m (DKK -17m in 2018) Contents – Financial statements 2019 2018 DKKm 2019 2018 9 Other income and costs In 2019 Other income encompasses a one-off allowance regarding VAT of DKK 45m. Other costs DKK -356m (DKK -300m in 2018). The increase can primarily be attributed to depreciations related to trademarks, customer relationships and write-down of an agricultural portfolio DKK 157m (DKK 34m). 10 Tax Tax on accounting profit/loss Difference between Danish and foreign tax rates Tax adjustment, previous years Adjustment of non-taxable income and costs Change in valuation of tax assets Change in tax rate Effective tax rate Tax on accounting profit/loss Difference between Danish and foreign tax rates Tax adjustment, previous years Adjustment of non-taxable income and costs Change in valuation of tax assets 24 1 509 534 -117 -61 -178 356 463 114 120 -103 594 62 -10 -351 159 -140 454 12 0 568 580 -88 -52 -140 440 -64 -224 -365 -149 -801 147 -1 5 113 264 -537 -798 -40 -45 100 0 0 -783 % 22.0 1.0 1.5 -3.0 0.0 21.5 -498 -19 4 -31 12 3 -529 % 22.0 0.8 -0.2 1.4 -0.5 23.4 76 NotesAnnual report 2019 | Tryg A/S | DKKm 11 Intangible assets Trademarks and customer relations Goodwill Software a) Assets under con- struction a) DKKm 11 Intangible assets (continued) Trademarks and customer relations Goodwill Software a) Assets under con- struction a) 2019 Cost Cost at 1 January Exchange rate adjustments Transferred from assets under construction Additions for the year Disposals for the year 4,881 -5 1,981 -2 0 0 0 0 0 0 1,576 2 459 174 -21 Cost at 31 December 4,876 1,979 2,190 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 Reversed amortisation Amortisation and write-downs at 31 December -104 0 0 0 0 -199 2 -139 -18 0 -1,458 -2 -122 -7 16 Total 9,099 -3 1 418 -21 9,493 -1,863 0 -261 -24 19 661 2 -459 244 0 449 -102 0 0 0 3 2018 Cost Cost at 1 January Exchange rate adjustments Transferred from asset under construction Additions for the year b) Disposals for the year Cost at 31 December Amortisation and write-downs Amortisation and write-downs at 1 January Exchange rate adjustments Amortisation for the year Impairment losses and write-downs for the year Amortisation and write-downs at 31 December 656 -16 0 4,241 0 4,881 -104 0 0 0 300 -9 0 1,739 -49 1,981 1,528 -5 16 37 0 1,576 -171 6 -34 -1,364 5 -83 0 -16 352 -1 -16 326 0 661 -92 0 0 -10 Total 2,836 -31 0 6,343 -49 9,099 -1,731 11 -117 -26 -104 -354 -1,572 -100 -2,130 -104 -199 -1,458 -102 -1,863 Carrying amount at 31 December 4,772 1,625 618 349 7,364 Carrying amount at 31 December 4,777 1,782 118 559 7,236 a) Hereof proprietary software DKK 494m (DKK 524m at 31 December 2018) b) Hereof Trademarks and customer relationships related to Alka DKK 1.4bn and the total goodwill DKK 4,2bn Contents – Financial statements 77 NotesAnnual report 2019 | Tryg A/S | DKKm 11 Intangible assets (continued) DKKm 11 Impairment test Goodwill The value in use method is used when testing the Goodwill for impairment. 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 ex- pected claims ratios, which corresponds to normalised large- and weather claims. 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. Alka In 2018, Tryg acquired Forsikrings- Aktieselskabet Alka . The insurance activities were incorporated into the Tryg Group's business structure from 8 November 2018. Comprises the sale of insurance products to private and commercial customers under the ‘Alka’ brand. At 31 December 2019, 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. 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 Private DK. The cash flows in the latest prognosis period have been extrapolated for financial years after the prognosis 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 26.4bn (DKK 8.5bn) relative to a recognised goodwill of DKK 4.2bn (DKK 4.2bn) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.5% will result in a write down of goodwill. 2019 2018 Intangible assets (continued) - 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 the calculated present value 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 The above changes have no impact on equity. 3% 2% 8% 81% 1.2bn -1.0bn -4.1bn 6.0bn -1.2bn 1.2bn Obos In 2017, Tryg acquired Obos' insurance portfolio. The insurance activities were incorporated into the Tryg Group's business structure from 1 June 2017. Comprises the sale of insurance products to private and commercial customers under the ‘Obos’ brand. At 31 December 2019, 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. 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 Obos. The cash flows in the latest prognosis period have been extrapolated for financial years after the prognosis 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 0.3bn (DKK 0.4bn) relative to a recognised goodwill of DKK 49m (DKK 49m) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.0% will result in a write down of goodwill. Contents – Financial statements 78 NotesAnnual report 2019 | Tryg A/S | DKKm 11 Intangible assets (continued) - 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 the calculated present value 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 2019 2018 DKKm 2019 2018 4% 2% 13% 87% 14 -13 -48 58 -30 30 10% 2% 11% 90% 24 -22 -55 52 -37 37 11 Intangible assets (continued) - 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 the calculated present value 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 3% 2% 11% 91% 45 -42 -211 288 -177 177 3% 2% 11% 92% 34 -29 -280 384 -163 164 The above changes have no impact on equity. The above changes have no impact on equity. Moderna 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. The insurance activities were incorporated into the Tryg Group's business structure and merged into Tryg in 2015. At 31 December 2019, 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. Moderna portfolio consists from 1 January 2017 of Moderna, Securator and Skandia, which was prior to this date three separate cash-generating units. The reasons behind the merger of Securator and Skandia into Moderna, is that they are managed together as part of the Swedish business and reported under the segment ’Sweden’. 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 prognosis period have been extrapolated for financial years after the prognosis 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 1.5bn (DKK 1.7bn) relative to a recognised goodwill of DKK 0.5bn (DKK 0.5bn) and does not indicate any impairment in 2019. According to the sensitivity informations below a change in the required return rate will have the highst effect on the equity. An increase in the required return of approx. 4.5% will result in a write down of goodwill. Trademarks and customer relations As at 31 December 2019 management performed a test of the carrying amounts of customer relations as an integral part of the Moderna, Obos and Alka portfolio goodwill test. An agricultural portfolio acquired in 2014 was impaired and written down DKK 18m. Software and assets under construction As at 31 December 2019 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 7m (DKK 26m) due to revaluation of the Groups IT-systems. The write-down is due to related system development costs 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 statement. Assets under construction are not depreciated but tested once a year for impairment or when there is any indication of a decrease in value. 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. Contents – Financial statements 79 NotesAnnual report 2019 | Tryg A/S | Notes 12 Property, plant and equipment DKKm 2019 Cost Cost at 1 January Exchange rate adjustments 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 Depreciation for the year Value adjustments for the year at revalued amount in income statement Reversed depreciation and value adjustments Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December 2018 Cost Cost at 1 January Exchange rate adjustments Additions for the year Addition, purchase of Alka Disposals for the year Cost at 31 December Accumulated depreciation and value adjustments Accumulated depreciation and value adjustments at 1 January Depreciation for the year Accumulated depreciation and value adjustments at 31 December Carrying amount at 31 December Operating equipment Leases ROU Owner-occupied equipment a) property Leases ROU ’Group-occupied property’ b) 332 1 69 -29 372 -231 -26 0 10 -247 125 273 -3 62 0 0 332 -206 -25 -231 101 64 0 29 -17 76 -20 -26 0 0 -46 30 50 0 14 0 0 64 0 -20 -20 44 112 0 0 -112 0 0 0 -10 10 0 0 0 0 0 112 0 112 0 0 0 112 762 2 175 -27 912 -84 -98 0 0 -182 730 739 -10 54 0 -21 762 0 -84 -84 678 Total 1,270 3 272 -185 1,360 -335 -150 -10 20 -475 885 1,062 -13 130 112 -21 1,270 -206 -129 -335 935 a) Lease assets (Right of use-assets(ROU)) equipment only consists of leases of vehicles with a lease term of three to four years. The monthly amounts are fixed and there are no option for purchase or extension. Short term leases are not recognised as Right of use-assets. b) Lease assets (Right of use-assets), Group occupied property concists of leases of offices buildings. Contract terms are from 2 to 17 years and with yearly rent adjustments. Tryg has no lease contracts with variable lease payments based on sale or similar. Contents – Financial statements 80 Annual report 2019 | Tryg A/S | 2019 2018 DKKm 2019 2018 1,345 6 9 -272 60 3 1,151 1,324 -5 19 -148 141 14 1,345 14 Equity investments in associates Cost Cost at 1 January Additions for the year Disposals for the year a) Cost at 31 December Revaluations at net asset value Revaluations at 1 January Reversed on sale Value adjustments for the year Revaluations at 31 December Carrying amount at 31 December 226 10 -202 34 16 -40 -10 -34 0 215 13 -2 226 10 0 6 16 242 a) Ejendomsselskabet af 1. marts 2006 P/S, Denmark was sold in January 2019 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 Total rental income for 2019 is DKK 74m (DKK 87m in 2018). Total expenses for 2019 are DKK 12m (DKK 20m in 2018). External experts were involved in valuing the majority of the investment properties. Return percentages, weighted average 2019 2018 Business property Office property Residential property Total 5.4 5.4 2.3 5.1 Sensitivity Tryg’s property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above. Impacts on the fair value of properties: Increase in applied rate of return of 0.25% Decrease in applied rate of return of 0.25% Decrease in net rental income of 3% Decrease in occupancy rate of 3% 2019 -37 39 -34 -8 5.0 6.9 3.2 5.7 2018 -46 49 -40 -8 Contents – Financial statements 81 NotesAnnual report 2019 | Tryg A/S | DKKm 15 Financial assets Financial assets at fair value with value adjustments in the income statement Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income Receivables measured at amortised cost with value adjustment in the income statement Total financial assets 2019 2018 44,239 41,694 0 3,476 47,715 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 used for hedge accounting with value adjustment in other comprehensive income Financial liabilities at amortised cost with value adjustment in the income statement Total financial liabilities 728 72 12,618 13,418 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. 59 3,050 44,803 740 0 11,186 11,926 15 Financial assets (Continued) The Fair value hierarchy ’Quoted market prices and consolidated reference prices’ (level 1) consists of financial instruments that are quoted and traded in a principal and active market (markets generally accessable and with substantial volume and trade frequency). Valuation based on observable input (level 2) consists of financial instruments that are valued substan- tially on the basis of observable input other than quoted price or consolidated reference price for the instrument itself. If a financial instrument is quoted in a market that is not active, Tryg bases its measurement on the most recent transaction price. Adjustment is made for subsequent changes to market conditions, for instance, by including transactions in similar financial instruments that are assumed to be motivated by normal business considerations. For a number of financial assets and liabilities, no market exists. In such cases, Tryg uses recent transactions in similar instruments and discounted cash flows or other generally accepted estimation and valuation techniques based on market conditions at the balance sheet date to calculate an estimated value. This category covers instruments such as derivatives valued on the basis of observable yield curves and exchange rates and illiquid mortgage bonds valued by reference to the value of similar liquid bonds. Valuation based on significant non-observable input (level 3) consist of certain financial instruments based substantially on non-observable input. Such instruments include unlisted shares, unit trust investments and some unlisted bonds. The fair value of Investment property is also based on non-observable input. Please refer to note 13 and accounting policies section Investment property. If, at the balance sheet date, a financial instrument’s classification differs from its classification at the beginning of the year, the classification of the instrument changes. Changes are considered to have taken place at the balance sheet date. Developments in the financial markets can result in reclassifications between the categories. Some bonds have become illiquid and have been moved from ’Quoted prices or consolidated reference prices’ to the ’Observable input’ category, while other bonds have become liquid and have been moved from ’Observable input’ to the ’Quoted prices or consolidated reference prices’ category. Contents – Financial statements 82 NotesAnnual report 2019 | Tryg A/S | DKKm 15 Financial assets (Continued) Fair value hierarchy for financial instruments and investment property measured at fair value in the statement of financial position DKKm 15 Quoted market prices or consolidated references price a) Observable Non-observable input input 2019 Investment property Equity investments Unit trust units Bonds Other lendings Derivative financial instruments, assets Derivative financial instruments, debt 0 204 2,387 36,385 0 1 0 38,978 0 1,401 6 2,429 75 1,127 -800 4,237 a) Consolidated reference prices means Nasdaq consolidated reference prices 2018 Investment property Equity investments Unit trust units Bonds Derivative financial instruments, assets Derivative financial instruments, debt 0 135 1,663 30,678 0 0 32,476 0 899 0 7,302 899 -740 8,360 1,151 194 31 0 0 0 0 1,375 1,345 115 0 62 0 0 1,522 Total 1,151 1,798 2,424 38,814 75 1,128 -800 44,590 1,345 1,149 1,663 38,042 899 -740 42,358 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 or consolidated reference prices based on actual trades are available. DKKm 2019 2018 Financial instruments transferred from ’Quoted market prices or consolidated reference prices’ to ’Observable input’ Financial instruments transferred from ’Observable input’ or ’Non-observable input’ to ’Quoted market prices or consolidated reference prices’ 0 3,114 Financial assets (Continued) 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 Addition, purchase of Alka Gains/losses in the income statement a) 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 2019 2018 1,522 5 0 66 192 -410 1,375 -1 1,504 -5 138 210 18 -343 1,522 75 a) Hereof realised DKK 5m Inflation derivatives are measured at fair value on the basis of non-observable input and are included un- der claims provisions at a fair value of DKK -723m (DKK -521m in 2018). 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 2019 Fair value in statement of financial position 304 3 20 Nominal 17,163 167 7,531 Nominal 23,415 235 4,127 24,861 328 27,777 7,741 32,602 7,833 20,323 4,445 -724 -396 -26 2,572 -2,942 7,346 35,123 8,108 15,187 11,828 2018 Fair value in statement of financial position 138 10 11 159 -521 -362 -1,158 254 542 3,559 11,115 Derivatives, repos and reverses are used continuously as part of the cash and risk management carried out by Tryg and its portfolio managers. Contents – Financial statements 83 NotesAnnual report 2019 | Tryg A/S |  15 Financial assets (continued) Reconciliation of Tryg's Investment portfolio DKKm 2019 Bond Equity and unit trust units Investment property Derivatives and other items Other lending Total Investment assets according to balance sheet 38,814 4,222 1,151 1,128 Investment assets according to investment activities Other, hereof financial instrument in liabilities Classified according to investment strategy External customers a) Tryg's investment portfolio a) Match portfolio Free portfolio 2018 -2,458 9 -1,407 34,959 -27,901 7,058 0 -1,444 -520 2,258 -21 2,237 0 1,756 -766 2,141 0 2,141 -800 -246 200 282 -282 0 Investment assets according to balance sheet 38,042 3,054 1,345 899 Investment assets according to investment activities Other, hereof financial instrument in liabilities Classified according to investment strategy External customers a) Tryg's investment portfolio a) Match portfolio Free portfolio -2,523 -223 -337 34,959 -28,359 6,600 0 -1,013 -199 1,842 0 1,842 0 1,376 -482 2,238 0 2,238 -740 -140 176 196 -196 0 75 0 -75 0 0 0 0 0 0 0 0 0 0 0 45,390 -3,257 0 -2,493 39,639 -28,203 11,436 43,340 -3,263 0 -842 39,235 -28,554 10,680 a) The setup of Tryg invest is impacting Tryg’s balance sheet as external customers investments are booked under “total other financial investments” with opposing liabilities entries such as “debt to group undertakings” and “other debt”. Contents – Financial statements 84 Annual report 2019 | Tryg A/S | DKKm 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: 2019 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December 2018 Gains and losses at 1 January Value adjustments for the year Gains and losses at 31 December Gains 3,100 191 3,291 Gains 2,903 197 3,100 Losses -2,890 -209 -3,099 Losses -2,742 -148 -2,890 Value adjustments Value adjustments of foreign entities recognised in other comprehensive income in the amount of: Value adjustments at 1 January Value adjustment for the year Value adjustments at 31 December 2019 -202 32 -170 DKKm 15 Financial assets (Continued) Receivables Total receivables in connection with direct insurance contracts Receivables from insurance enterprises Unsettled transactions 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 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 39m (DKK 52m in 2018). Other receivables do not contain overdue receivables 2019 2018 1,727 240 401 187 2,555 139 1 -3 136 1,476 144 611 192 2,423 115 -1 25 139 16 Reinsurer's share Impairment test As at 31 December 2019, 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 0m (DKK 0m in 2018). 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. Net 210 -19 191 Net 161 49 210 2018 -152 -50 -202 Contents – Financial statements 85 NotesAnnual report 2019 | Tryg A/S | DKKm 17 Current tax Net current tax at 1 January Exchange rate adjustments Purchase or sale of activity Current tax for the year Current tax on equity entries Adjustment of current tax in respect of previous years Tax paid regarding previous year 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 Net current tax 18 Equity Number of shares 2019 2018 DKKm 2019 2018 -118 -2 0 -734 4 -50 -3 830 -73 52 -125 -73 18 19 -194 2 -7 -583 -12 37 0 639 -118 0 -118 -118 Solvency II – Own funds Equity according to annual report Proposed dividend Intangible assets Profit margin, solvency purpose Taxes Subordinate loan capital Solvency II – Own funds Premium provisions Premium provision at 1 January Addition on acquisition of Alka and Troll portfolio 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 12,085 -1,013 -7,364 1,408 260 2,744 8,119 5,861 0 2 22,660 -22,530 4 5,996 11,334 -499 -7,236 1,408 311 2,740 8,058 5,559 454 -59 18,820 -18,921 8 5,861 Number of shares of DKK 5 (1,000) Number of shares at 1 January Bought during the year Used in connection with exercise of incentive programme Shares outstanding 2018 2019 301,743 -500 301,945 -382 457 180 Number of shares at 31 December 301,700 301,743 Number of shares as a percentage of issued shares at 31 December Nominal value at 31 december (DKKm) 99.85 1,509 99.87 1,509 Own shares 2019 405 500 -457 448 0.15 2 2018 203 382 -180 405 0.13 2 Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to a total face value 151m DKK of the share capital in the period up until 31 December 2020. Own shares are acquired for use in the Group's incentive programme. Contents – Financial statements 86 NotesAnnual report 2019 | Tryg A/S | DKKm 19 Claims provisions DKKm 19 Claims provisions (continued) Gross Ceded Net of reinsurance Gross Ceded Net of reinsurance 2019 Claims provisions at 1 January Value adjustments of provisions, beginning of year Paid in the financial year in respect of the current year Paid in the financial year in respect of prior years Change in claims in the financial year in respect of the current year Change in claims in the financial year in respect of prior years Discounting and exchange rate adjustments Claims provisions at 31 December 24,847 65 24,912 -8,414 -7,082 -15,496 16,050 -1,117 14,933 510 24,859 -1,234 -7 -1,241 158 262 420 -397 -65 -462 -1 -1,285 23,613 58 23,671 -8,255 -6,820 -15,076 15,653 -1,182 14,471 509 23,574 2018 Claims provisions at 1 January Addition, purchase of Alka and Troll 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 adjustment Claims provisions at 31 December 23,925 1,626 -209 25,342 -7,132 -6,125 -13,257 13,678 -1,105 12,573 189 24,847 -1,121 -37 10 -1,148 250 310 560 -664 18 -646 0 -1,234 22,804 1,589 -199 24,194 -6,882 -5,815 -12,697 13,014 -1,087 11,927 189 23,613 Contents – Financial statements 87 NotesAnnual report 2019 | Tryg A/S | DKKm 2019 2018 DKKm 2019 2018 20 Pensions and similar obligations Jubilees Recognised liability Defined-benefit pension plans: Present value of pension obligations funded through operations Present value of pension obligations funded through establishment of funds Pension obligation, gross Fair value of plan assets Pension obligation, net Specification of change in recognised pension obligations: Recognised pension obligation at 1 January Exchange rate adjustments Present value of pensions earned during the year Capital cost of previously earned pensions Actuarial gains/losses Paid during the period Recognised pension obligation at 31 December Change in carrying amount of plan assets: Carrying amount of plan assets at 1 January Exchange rate adjustments Investments in the year Estimated return on pension funds Actuarial 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 Contents – Financial statements 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 Average return on plan assets Weighted average duration of the defined benefit obligation (years) Assumptions used Discount rate Estimated return on pension funds Salary adjustments Pension adjustments G adjustments Turnover Employer contributions Mortality table 26 21 -17 5 35 35 407 581 6.29 % 10 75 13 2 1.9 13 % 1.6 1.6 2.3 0.7 2.0 7.0 19.1 K2013 53 53 51 1,139 1,190 940 250 1,105 16 31 22 73 -57 1,190 875 13 72 18 0 -37 940 250 303 47 47 40 1,065 1,105 875 230 1,133 -16 30 19 -4 -57 1,105 885 -10 31 14 -8 -37 875 230 277 26 18 -14 5 35 35 442 588 7.00 % 10 77 12 1 1.7 13 % 2.0 2.0 2.8 0.8 2.5 7.0 19.1 K2013 88 NotesAnnual report 2019 | Tryg A/S | DKKm 20 Sensitivity information The sensitivity analysis is based on a change in one of the assumptions, assuming that all other assump- tions 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 calcu- lation of the pension provisions in the statement of financial position. 21 Deferred tax Tax asset Operating equipment Debt and provisions Capitalised tax loss 2019 2018 DKKm 2019 2018 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 57 -61 -83 74 38 -45 49 -52 -76 66 30 -36 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 guaran- teed level of pension benefits throughout their lives. The pension benefits are determined by the employ- ees' 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, pen- sions 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 Livsforsikringsselskapet Nordea Liv AS and regulated by local legisla- tion and practice. Description of the Swedish plan Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agree- ment, 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 col- laboration, 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 12m (DKK 12m in 2018), which is about 2,2 % of the an- nual premium in FPK(2018). FPK writes in its interim report for 2019 that it had a solvency ratio of 132 at 30 June 2019 (Solvency ratio of 141 at 30 June 2018). The Solvency Ratio is defined as the own funds rel- ativ to the solvency capital requirement. Tax liability Intangible rights Land and buildings Bonds Contingency funds Deferred tax Development in deferred tax Deferred tax at 1 January Exchange rate adjustments Change in deferred tax relating to change in tax rate Change in deferred tax previous years Purchase or sale of activity Change in capitalised tax loss Change in deferred tax recognised in income statement Change in deferred tax taken to equity Deferred tax at 31 December Tax value of non-capitalised tax loss Denmark 14 65 1 80 429 77 -59 544 991 911 912 5 0 34 5 -1 -26 -18 911 17 9 77 0 86 389 105 -61 565 998 912 656 -9 -3 33 288 38 -91 0 912 16 The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Loss determined according to Swedish and Finnish rules can be carried forward indefinitely. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the statement of financial position in the amount of DKK 22m (DKK 13m at 31 December 2018). Contents – Financial statements 89 NotesAnnual report 2019 | Tryg A/S | DKKm 22 Other provisions Other provisions at 1 January Exchange rate adjustment Change in provisions Other provisions 31 December 2019 2018 DKKm 2019 2018 111 0 -26 86 111 -1 1 111 24 Earnings per share Profit/loss from continuing business Profit/loss on discontinued and divested business Profit/loss for the year 2,845 -2 2,843 1,733 -2 1,731 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 0m and use of existing restructuring provisions amounts to DKK 26m. The balance as at 31 December 2019 excluding own insurances amounts to DKK 80m (DKK 102m at 31 December 2018). Average number of shares (1,000) 301,954 302,043 Diluted number of shares (1,000) Earnings per share, continuing business Diluted earnings per share, continuing business Earnings per share Diluted earnings per share 301,954 9.42 9.42 9.42 9.42 302,043 5.74 5.74 5.73 5.73 23 Other debt and debt to group undertakings Debt related to external customers investments amounts to DKK 2,493m please refer to note 15 Reconciliation of Tryg´s Investment portfolio. 25 Contractual obligations, collateral and contingent liabilities Contractual obligations Other debt Maturity of undiscounted lease liabilities Due 1 year or less Due 1-5 years Due more than 5 years Total Lease liabilities 31 December Lease liabilities included in the statement of financial position Hereof future cashflow options Amounts recognised in statement of cash flow Total cash out-flow for leases Amounts recognised in income statement Interest on lease liabilities There are no short team-leases recognised in the financial statement. Debt related to leasing are included in Other debt. Please refer to note 12 for specification of ROU assets. 155 489 476 1,121 64 147 -39 131 346 496 973 4 135 -38 2019 Other contractual obligations a) 2018 Other contractual obligations a) <1 year 616 616 335 335 Obligations due by period 1-3 years 3-5 years > 5 years 497 497 210 210 141 141 45 45 4 4 4 4 Total 1,258 1,258 594 594 a) Other contractual obligations mainly consists of investment commitments, IT and outsourcing agreements. Please refer to note 12 for lease agreements recognised as ROU. 2019 Tryg has signed the following contracts with amounts above DKK 50m: Tryg is comitted to invest in some investment funds. The commitment amounts to DKK 1,015m. DKK 399m are expected called during 2020 and DKK 616m within 5 years. 2018 Tryg is comitted to investments in some Investment funds. The commitment amounts to DKK 263m and are expected called during 2019. Contents – Financial statements 90 NotesAnnual report 2019 | Tryg A/S | DKKm 25 2019 2018a) Contractual obligations, collateral and contingent liabilities (continued) 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 Livsforsikring A/S and Forsikings-Aktieselskabet Alka Liv II have registered the following assets as having been held as security for the insurance provisions: Equity investments Bonds Interest and rent receivable Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements Total 0 1,096 5 0 1,101 413 27,011 144 8,388 35,956 a) Registered assets included Tryg Forsikring A/S in 2018. As of 1 July 2019 non-life insurance companies are no longer required to have registred assets. Contents – Financial statements 91 NotesAnnual report 2019 | 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 2019. Notes DKKm 25 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 2019 Assets Derivative financial instruments Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 2018 Assets Reverse repos Derivative financial instruments Inflation derivatives, recognised in claims provisions Liabilities Repo debt Derivative financial instruments Inflation derivatives, recognised in claims provisions 1,128 1,128 2,601 800 724 4,125 0 899 3 902 2,797 740 525 4,062 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,128 1,128 2,601 800 724 4,125 0 899 3 902 2,797 740 525 4,062 0 0 -2,602 0 0 -2,602 0 0 0 0 -2,797 0 0 -2,797 -1,247 -1,247 -1 -676 -656 -1,332 -4 -874 -3 -881 -2 -740 -525 -1,267 -119 -119 -2 124 68 190 -4 25 0 21 -2 0 0 -2 Contents – Financial statements 92 Annual report 2019 | Tryg A/S | DKKm 26 Acquisition of activities 2019 There have been no acquisions in 2019. Assets Intangible assets Tangible assets Financial assets Total reinsurance of provisions Receivables, other assets and accrued income Liabilities Total provisions for insurance contracts Debt and accruals and deferred income Net assets acquired hereof cash Purchase price Purchase price in cash Goodwill 2019 2018 DKKm 2019 2018 0 0 0 0 0 0 0 0 0 0 0 0 1,429 112 5,680 83 360 2,470 906 4,288 187 8,532 8,345 4,244 27 Related parties The Group has no related parties with a decisive influence other than the parent company, TryghedsGruppen smba and the subsidiaries of TryghedsGruppen smba (other related parties). Related parties with significant influence include the Supervisory Board, the Executive Management and their members’ family. Premium income - Parent company (TryghedsGruppen smba) - Key management - Other related parties Claims payments - Key management - Other related parties 0.5 0.4 3.1 0.2 0.5 0.5 0.0 4.5 0.0 0.4 Specification of remuneration 2019 Number of persons Share-based Variable salarya) Base salary Cash Variable salary Pension Total 14 4 Supervisory Board Executive Board b) Risk-takers investment functions Risk-takers staff functions Risk-takers independent control functions 5 Risk-takers other functions 19 7 20 9 27 10 31 8 43 0 5 0 4 0 4 0 0 1 4 0 6 0 7 1 6 1 7 9 39 12 45 9 60 69 127 14 11 22 175 a) Total expenses recognised in 2019 for matching shares and conditional shares allocated in 2019 and previous year. For matching shares and conditional shares allocated to Executive Board in 2019 please refer to ’Corporate governance’ in Management review. b) Barbara Plucnar Jensen took up the position as CFO on 1 March 2019. Of which retired: Supervisory Board Executive Board Risk-takers Number of persons Severance pay 2 0 4 6 0 0 0 0 2018 Alka In December 2017 Tryg agreed to acquire Forsikrings-Aktieselskabet Alka (Alka). The transaction was approved as per 5 November 2018 with closing 8 November 2018, whereby Tryg acquired 100% of the shares in Alka and its subsidiaries. The acquisition affects the Financial statement from 8 November 2018. The resultat will be recognised under Private Denmark and Commercial Denmark. FDM Tryg acquired FDM's insurance portfolio at 1 January 2018. In October 2017, Tryg began selling insurance products to FDM’s customers, and by 1 January 2018, all current customers had been transferred to Tryg. The result will be recognised under Private Denmark. Troll In February 2018 Tryg and Troll Forsikring made a declaration of intent whereby Tryg would acquire Troll Forsikring AS. The agreement meant that Tryg would acquire the production and distribution of the insur- ances sold to Troll's policyholders. The agreements was signed in February 2018 and the acquisition was approved by the Danish and Norwegian FSA in March 2018. Contents – Financial statements 93 NotesAnnual report 2019 | Tryg A/S | DKKm 27 Related parties (continued) 2018 Number of persons Share-based Variable salarya) Base salary Cash Variable salary Pension Total DKKm 27 Related parties (continued) Parent company TryghedsGruppen smba TryghedsGruppen smba controls 60% of the shares in Tryg A/S. 13 4 Supervisory Board Executive Board Risk-takers investment functions Risk-takers staff functions Risk-takers independent 4 control functions Risk-takers other functions 18 6 17 8 25 8 23 6 35 62 105 0 3 0 1 0 3 7 0 3 1 3 0 6 0 6 1 3 1 4 8 37 10 30 7 48 13 15 140 a) Total expenses in 2018 for matching shares programs allocated in 2018 and previous year. Of which retired: Number of persons Severance pay Supervisory Board Executive Management Risk-takers 1 1 5 7 0 0 0 0 Base salary are charges incurred during the financial year. Variable salary includes the charges for matching shares and conditional shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding 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 members of the Executive Board is paid a fixed remuneration, car allowance and pension. The variable salary is awarded in the form of share-based remuneration. Please refer to 'Corporate governance'. Each member of the Executive Board is entitled to 12 months' notice and severance pay equal to 12 months’ salary plus pension contribution except Group CEO who is entitled to severance pay equal to 18 months' salary. If a change of control clause is actioned CEO and COO are entitled to severance pay equal to 36 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 as risk-takers. 2019 In 2019 Tryg Forsikring A/S paid Tryg A/S DKK 2,039m and Tryg A/S paid TryghedsGruppen smba DKK 1,224m in dividends. 2018 In 2018 Tryg Forsikring A/S paid Tryg A/S DKK 1,437m and Tryg A/S paid TryghedsGruppen smba DKK 1,788m in dividends. Furthermore Tryg A/S made a capital contribution of DKK 2,000m to Tryg Forsikring A/S. In 2018, TryghedsGruppen smba has invested DKK 313m in ’Kapitalforeningen Tryg Invest’. The amount is recognised under Other financial investment assets and Debt to Group undertakings. The transactions between TryghedsGruppen smba and Tryg A/S is 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 interest on market terms. The companies in the Tryg Group have entered into reinsurance contracts on market terms. Transactions with Group undertakings have been eliminated in the consolidated financial statements in accordance with the accounting policies. 28 Financial highlights Please refer to page 52. Contents – Financial statements 94 NotesAnnual report 2019 | Tryg A/S | 29 Accounting policies The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 December 2019 and in accordance with the Danish Statutory Order on adoption of IFRS. Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards have been implemented for the first time for the accounting year that began on 1 January 2019 that will have a significant impact on the Group. See below regarding IFRS 9 ‘Financial instruments’. The annual report of the parent company is prepared in accordance with the executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement requirements of IFRS are: The following interpretations have been implemented for the first time for the accounting year that began on 1 January 2019: • IFRIC 23 ‘Uncertainty over Income Tax Treatments’ There has not been implemented any other 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 affect the Group significantly: • • IFRS 9 ‘Financial Instruments’ a) IFRS 17 ‘Insurance Contracts’ b) a) enters into force for the accounting year commencing 1 January 2018 – Insurance companies are allowed to postpone the implementation to 1 January 2022 if certain criteria are met. b) Expected to enter into force for the accounting year commencing 1 January 2022. • The Danish FSA’s executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the other comprehensive income of the parent company have been adjusted accordingly on the transition to IFRS. Change in accounting policies Tryg has not implemented any new significant accounting policies or IFRS standards in 2019. Other Software is amortised according to the straight-line method over the assessed economic lifetime. Going forward from 1 June 2019 certain intangible assets, such as core system software will have a depreciation period of up to 8 years. It has no bearings on prior periods, hence comparative figures have not been restated. 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 2019 The International Accounting Standards Board (IASB) has issued several changes to the international accounting standards, and the International Financial Reporting and loss. The implementation of IFRS 9 will not affect Tryg’s recognition and measurement. Tryg has post- poned the implementation of IFRS 9 to 1 January 2022 when IFRS 17 ’Insurance Contracts’ will be applicable. Tryg can postpone IFRS 9 due to the fact that our activi- ties are predominantly connected with insurance and that our liabilities connected with insurance is relatively greater than 80 per cent of the total liabilities. The impact of IFRS 17 is currently being assessed and is expected to be concluded in due course in time of the implementation date. The changes will be implemented going forward from the effective date. Significant accounting estimates and assessments The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving more judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are: • Liabilities under insurance contracts • Valuation of defined benefit plans • Fair value of financial assets and liabilities • Valuation of property • Business Combinations • Measurement of Goodwill, Trademarks and Customer relations • Control of subsidiaries administration of claims including a margin incorporating 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 historical developments, payment patterns, reporting delays, duration of the claims set- tlement process and other factors that might influence future developments in the liabilities. The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that has incurred, but are not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the Group but are not finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg. The calculation of the claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions about factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation. The Group’s actual liability for losses may be subject to material positive or negative deviations relative to the initially estimated claims provisions. Claims provisions are discounted. As a result, initial changes in discount rates or changes in the duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor third-party liability, general third-party liability, workers’ compensation classes, including sickness and personal accidents, 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 provisions in relation to the relevant functional currencies. The implementation of IFRS 9 ‘financial instruments’ is not expected to significantly change the Group’s financial position. 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 Liabilities under insurance contracts Estimates of provisions for insurance contracts represent the Group’s most critical accounting estimates, as these provisions involve several uncertainty factors. Claims provisions are management’s best estimate based on actuarial and statistical projections of claims and Contents – Financial statements 95 NotesAnnual report 2019 | Tryg A/S | Several assumptions and estimates underlying the calcu- lation of the claims provisions are mutually dependent. This has the greatest impact on assumptions regarding interest rates and inflation. Defined benefit pension schemes The Group operates a defined-benefit plan in Norway. A defined-benefit plan is a pension plan that defines an amount of pension benefit 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 several assumptions. The assumptions include discount interest rate, expected future salary and pension adjustments, turnover, mortality and disability. Fair value of financial assets and liabilities Measurements of financial assets and liabilities for which prices are quoted in an active market or which are based on generally accepted models with observable market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model calculation. The valuation models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration for credit and liquidity premiums. Valuation of property Property is divided into owner-occupied property and investment property. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property’s required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a market- determined rental income as well Contents – Financial statements as operating expenses in proportion to the property’s required rate of return. Cf. note 12, 13 and 15. Business Combinations In Business combinations, significant assessments are made when considering the fair value of the assets required and liabilities assumed and when identifying intangible assets, such as trademarks, customer rela- tions and goodwill as part of the transactions. Measurement of Goodwill, Trademarks and Customer relations Goodwill, Trademarks and customer relations were 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 several factors, including discount rates and other circumstances 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 consolidation 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 histori- cal cost convention, as modified by the revaluation of owner-occupied property, where increases are recog- nised in other comprehensive income, and revaluation of investment property, financial assets held for trading and financial assets and financial liabilities (including derivative instruments) at fair value are recognised in the income statement. Assets are recognised in the statement of financial posi- tion when it is probable that future economic benefits will flow to the Group, and the value of such assets can be measured reliably. Liabilities are recognised in the statement of financial position when the Group has a le- gal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the Group, and the value of such liabilities can be measured reliably. On initial recognition, assets and liabilities are measured at cost, with the exception of financial assets, which are recognised at fair value. Measurement after initial recognition is affected as described below for each item. Anticipated risks and losses that arise before the time of presentation of the annual report and that confirm or invalidate affairs and conditions existing at the statement of financial position date are considered at recognition and measurement. Income is recognised in the income statement as earned, whereas costs are recognised by the amounts attributable to this financial year. Value adjustments of financial assets and liabilities are recognised in the income statement unless otherwise described below. 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 • • • exercises a controlling influence over the relevant activities in the enterprise in question, is exposed to or has the right to a variable return on its investment, and 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 ex- ercises significant influence but no controlling influence are classified as associates. Basis of consolidation The consolidated financial statements are prepared based on the financial statements of Tryg A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group’s 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. Business combinations Newly acquired or newly established enterprises are recognised in the consolidated financial statements from the date of acquisition and the date of formation, respectively. The date of acquisition is the date on which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of comprehensive 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. Sub- sequently, identifiable assets, liabilities and contingent liabilities in the acquired enterprises are measured at fair value at the date of the acquisition. Non-current assets which are acquired with the intention of selling them are, however, measured at fair value less cost to sell. 96 NotesAnnual report 2019 | Tryg A/S | Restructuring costs are recognised in the pre-acquisition balance sheet only if they constitute an obligation for the acquired enterprise. The tax effect of revaluations is taken into account. The acquisition price of an enterprise consists of the fair value of the price paid for the acquired enterprise. If the final determination of the price is con- ditional upon one or more future events, such events are recognised at their fair values at the date of acquisition. Costs relating to the acquisition are recognised in the income statement as incurred. Any positive balances (goodwill) between the acquisition 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 intangible 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. In the event of negative balances (badwill), the calcu- lated fair values, the calculated acquisition price of the enterprise, the value of minority interests in the acquired enterprise and the fair value of previously 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 preliminarily 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 acquisi- tion which would have affected the determination of the values at the date of acquisition, had such information been known. Generally, subsequent changes in estimates of conditional acquisition prices are recognised directly in the income statement. Segment reporting Segment information is based on the Group’s management and internal financial reporting system and supports the management decisions on allocation of resources and assessment of the Group’s results divided into segments. Currency translation A functional currency is determined for each of the reporting entities in the Group. The functional currency is the currency used in the primary economic environment in which the reporting entity operates. Transactions in currencies other than the functional currency are transactions in foreign currencies. On initial recognition, transactions in foreign currencies are translated into the functional currency using the exchange rate applicable at the transaction date. Assets and liabilities denominated in foreign currencies are translated using the exchange rates applicable at the statement of financial position date. Translation differences are recognised in the income statement under price adjustments. On consolidation, the assets and liabilities of the Group’s foreign operations are translated using the exchange rates applicable at the statement of financial position date. Income and expense items are translated using the average exchange rates for the period. Exchange rate differences arising on translation are classified as other comprehensive income and transferred to the Group’s translation reserve. Such 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. The operational business segments in the Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individuals in Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized businesses, in Denmark and Norway. Corporate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insurance products to private individuals in Sweden as well as sale of Product insurances in the Nordic region. Geographical information is presented based on the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden. Segment income and segment costs as well as segment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment 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 accord- ance with Recommendations and Ratios issued by the The Danish Finance Society and the Executive Order on Financial Reports for Insurance Companies and Multi- Employer Occupational Pension Funds issued by the Danish Financial Supervisory Authority. Income statement Premiums Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium provisions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers’ share of the premium provisions. Premiums are calculated as premium income in 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 relates 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, technical interest is presented as a calculated return on the year’s average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus an actual interest from the present yield curve for each individual group of risks. The interest is applied according to the expected run-off pattern of the provisions. Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. Contents – Financial statements 97 NotesAnnual report 2019 | Tryg A/S | Claims Claims consists of claims paid during the year 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 unwinding is transferred to insurance technical interest. Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred. Changes in claims provisions due to changes in yield curve and exchange rates are recognised as a price adjustment. Tryg hedges the risk of changes in future pay and price figures for provisions for workers’ compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the effect of changes to inflation expectations under claims. Bonus and premium discounts Bonus and premium discounts represent anticipated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the insurance was taken out. Insurance operating costs Insurance operating costs represent acquisition costs and administration expenses less reinsurance com- missions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting 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. Contents – Financial statements Share-based payment The Tryg Group’s incentive programmes comprise conditional share programmes, employee shares and matching shares. 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 expected value of the shares will be expensed over the vesting period. The scheme will be treated as a complex financial instrument, consisting of the right to cash settlement and the right to request delivery of shares. The difference between the value of shares and the cash payment is recognised in eq- uity and is not remeasured. The remainder is treated as a liability and is remeasured until the time of exercise, such that the total recognition is based on the actual number of shares or the actual cash amount. Conditional shares Some senior employees have been allocated shares in accordance with the conditional shares scheme. Equity-settled ’Conditional shares’ are measured at the fair value at the grant date and recognised under staff costs over the period from the grant date until vesting fulfilment of certain conditions. The shares are recognised at market value and are accrued from one to four years. Matching shares Members of Executive Board and other senior employ- ees 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 contractually 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 accrued over the three and four year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisition under staff expenses with a balancing entry directly in equity. If the holder retires during the maturation period but remains entitled to shares, the remaining expense is recognised in the current accounting year. Investment activities Income from associates includes the Group’s share of the associates’ net profit. Income from investment properties before fair value adjustment represents the profit from property operations less property management expenses. Interest and dividends represent interest earned and dividends received during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of investment property, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as value adjustments. Investment management charges represent expenses relating to the management of investments including sal- ary and management fees on the investment area. Other income and costs Other income and costs include income and expenses which cannot be ascribed to the Group´s insurance port- folio or investment assets, including the sale of products for Velliv, Pension & Livsforsikring A/S, Danske Bank and depreciations of intangibles assets identified in Business combinations. Discontinued and divested business Discontinued and divested business is consolidated in one item in the income statement. Discontinued and di- vested business includes gross premiums, gross claims, gross costs, profit/loss on ceded business, insurance technical interest net of reinsurance, investment return after insurance technical interest, other income and costs and tax in respect of the discontinued business. Any reversal of earlier impairment is recognised under other income and costs. The statement of financial position items concerning discontinued activities are reported unchanged under the respective entries whereas assets and liabilities concerning 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 business and the divested activities in the Finnish branch. Discontinued business also comprises the Tryg Forsikring A/S run-off business. Statement of financial position Intangible assets Goodwill Goodwill is 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 management manages the investment and is recognised under intan- gible assets. Goodwill is not amortised but is tested for impairment at least once per year. 98 NotesAnnual report 2019 | Tryg A/S | Trademarks and customer relations Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected economic lifetime of 5–15 years. Software Acquired computer software licences are capitalised on the basis of the costs incidental to acquiring and bringing to use the specific software. The costs are amortised based on an estimated economic lifetime of up to 4 years. Costs for Group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses. 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. 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. 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 reduced by any impairment and write-downs. Leasing Right-of-use assets At inception of a contract, Tryg assesses whether a contract is, or contains, a lease. It has the following prerequisites: Assets under construction Group-developed intangibles are recorded under the entry ’Assets under construction’ until they are put into use, whereupon they are reclassified as software and are amortized in accordance with the amortization periods stated above. Fixed assets Operating equipment Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase • The underlying asset is identifiable • The Group has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use • The Group has the right to direct the use of the asset Tryg recognises a right-of-use asset (ROU asset) and a corresponding lease liability with respect to all lease agreements in which it is the lessee, excluding short- term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. At inception or on reassessment of a contract that contains lease components, Tryg allocates the consideration in the contract to each lease component based on their relative stand-alone prices. Right-of-use asset and lease liability are recognised at the lease commencement date. The ROU asset is initially measured the cost, which comprises the initial amount of the lease liability adjusted for • lease payments made at or before the commencement date • any initial direct cost incurred • estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset lease incentives received • ROU assets are tested for impairment. Lease liability The lease liability is initially measured at the present value of the lease payments that are not paid at the com- mencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, Tryg uses its incremental borrowing rate. Subsequently, the lease liability is measured at amortised cost using the ef- fective interest method and is presented as part of other debt. It is remeasured when there is a change in future lease payments. A corresponding adjustment is made to the carrying amount of the ROU asset. Land and buildings Land and buildings are divided into owner-occupied prop- erty and investment property. The Group’s owner-occupied properties consist of an office building in Høje Taastrup and a small number of holiday homes. The remaining properties are classified as Investment property. 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 based on market- specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, 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 revaluations of the same asset are charged against the revaluation reserves directly in equity; all other decreases are charged to the income statement. Costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, when it is probable that future 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 estimated economic lifetime of up to 50 years. Land is not depreciated. Investment property Properties held for renting yields that are not occupied by the Group are classified as investment properties. Owner-occupied property Owner-occupied property is property that is used in the Group’s operations. Owner-occupied properties Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in Contents – Financial statements 99 NotesAnnual report 2019 | Tryg A/S | 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 model and recent prices in the market. losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the statement of financial position, equity investments are measured at the pro rata share of the enterprises’ equity. ured using the equity method so the carrying amount of the investment represents the Group’s proportionate share of the enterprises’ net assets. The fair value is calculated on the basis of market- specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, 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. Cf. note 15. Changes in fair values are recorded in the income statement. Impairment test for intangible assets, property and operating equipment Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic lifetime. This also applies to the salvage value. Write-down is performed if impairment has been demonstrated. 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. Subsidiaries with a negative net asset value are recognised at zero value. Any receivables from these enterprises are written down by the parent company’s share of such negative net asset value where the receivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the remaining amount is recognised under provisions if the parent company has a legal or constructive obligation to cover the liabilities of the relevant enterprise. Net revaluation of equity investments in subsidiaries is taken to reserve for net revaluation under equity if the carrying amount exceeds cost. The results of foreign subsidiaries are based on translation of the items in the income statement using average exchange rates for the period unless they deviate significantly from the transaction day exchange rates. Income and costs in domestic enterprises denominated in foreign currencies are translated using the exchange rates applicable on the transaction date. Statement of financial position items of foreign subsidi- aries are translated using the exchange rates applicable at the statement of financial position date. When it is assessed that the parent company no longer has control over the subsidiary, it will be transferred to either assets held for sale or unquoted shares and when sold, it will be derecognised. Equity investments in Group undertakings The parent company’s equity investments in subsidiaries are recognised and measured using the equity method. The parent company’s share of the enterprises’ profits or 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 meas- 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 recognition and re-evaluates this at every reporting date. Financial assets measured at fair value with recognition of value adjustments in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment via the income statement. Financial assets at fair value recognised in income statement Financial assets are recognised at fair value on initial recognition if they are entered in a portfolio that is managed 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 because of changes in the fair value for the category financial assets at fair value are recognised in the income statement in the period in which they arise. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired, or if they have been transferred, and the Group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis, the date on which the Group commits to purchase or sell the asset. The fair values of quoted securities are based on stock exchange prices at the statement of financial position date. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using valuation techniques. These include the use of similar recent arm’s length transactions, reference to other similar instruments or discounted cash flow analysis. Derivative financial instruments and hedge accounting The Group’s activities expose it to financial risks, includ- ing 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 provisions. Share derivatives in the form of futures and options are used from time to time to adjust share exposures. Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Positive fair values of derivatives are recognised as derivative financial instru- ments under assets. Negative fair values of derivatives are recognised under derivative financial instruments under liabilities. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments. Contents – Financial statements 100 NotesAnnual report 2019 | Tryg A/S | Calculation of value is generally performed based on rates supplied by Danske Bank with relevant informa- tion providers and is checked by the Group’s valuation technicians. Discounting based on market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow. Recognition of the resulting gain or loss depends on whether the 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 in other comprehensive income. 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 classifica- tion requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Con- tracts that do not meet these classification requirements are classified as financial assets. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts. Amounts receivable from reinsurers are measured con- sistently 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 recoverable 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 contains accounts receivable in connection with property. Receivables that arise because of insurance contracts are classified in this category and are reviewed for impairment as a part of the impairment test of accounts receivable. Receivables are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when a clear indication of asset impair- ment is observated. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows. Other assets Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date. Prepayments and accrued income Prepayments include expenses paid in respect of 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 obligation 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 revaluation offsets a previous impairment loss. Foreign currency translation reserve Assets and liabilities of foreign entities are recognised using the exchange rate applicable at the statement of financial position date. Income and expense items are rec- ognised using the average monthly exchange rates for the period. Any resulting differences are recognised in Other comprehensive income. When an entity is wound up, the balance is transferred to the income statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive 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 Author- ity 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 provisions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated. Dividends Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meet- ing (date of declaration). Own shares The purchase and sale sums of own shares and dividends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buyback programme. 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 transaction 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 state- ment (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 position date is reported as premium provisions. Premium provisions are gener- ally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any risk variations. This applies to gross as well as ceded business. Contents – Financial statements 101 NotesAnnual report 2019 | Tryg A/S | Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the policyhold- ers. They include direct and indirect claims handling costs that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be af- fected by external factors (such as court decisions). The provisions include claims handling costs. Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the ex- pected future payments from the provision. Discounting affects the motor liability, professional liability, workers’ com-pensation and personal accident and health insur- ance classes, in particular. Provisions for bonuses and premium discounts etc. represent amounts expected to be paid to policyholders in view of the claims experience during the financial year. Claims provisions are determined for each line of busi- ness based on actuarial methods. Where such business lines encompass more than one business area, short- tailed claims provisions are distributed based on number of claims reported while long-tailed claims provisions are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method. 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. The provision for annuities under workers’ compensation insurance is calculated on the basis of a mortality corres- ponding to the G82 calculation basis (official mortality table). 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. in case of differences between expected and realised returns on pension assets, actuarial gains or losses en- sue. These gains and losses are recognised under other comprehensive income. In some instances, the historic data used in the actuarial models is not necessarily predictive of the expected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected increase in claims. In connection with legislative changes, the same estimate is used for determining the change in the level of claims. Subsequently, this estimate is maintained until new loss history materialises which can be used for re-estimation. Several assumptions and estimates underlying the calcu- lation 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 models, 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 Employee benefits Pension obligations The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan regards the future pension benefits. Försäkrings- branschens Pensionskassa (FPK) is unable to provide sufficient information for the Group to use defined- benefit accounting. The plan is therefore accounted for as a defined-contribution plan. For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the Group so far and which must be disbursed ac- cording to the plan. The capital value is calculated using the Projected Unit Credit Method, 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 statement of financial position under pension assets and pension obligations, respectively, depending on whether the net amount is an asset or a liability. In case of changes to assumptions concerning the discounting factor, inflation, mortality and disability or In case of 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 previous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs. The plan is closed for new business. Other employee benefits Employees of the Group are entitled to a fixed payment when they reach retirement and when they have been employed with the Group for 25 and for 40 years. The Group recognises this liability at the time of signing the contract of employment. In special instances, the employee can enter into a contract with the Group to receive compensation for loss of pension benefits caused by reduced working hours. The Group recognises this liability based on statistical models. Income tax and deferred tax The Group expenses current tax according to the tax laws of the 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. 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 Contents – Financial statements 102 NotesAnnual report 2019 | Tryg A/S | using the tax rules and tax rates that apply in the relevant countries on the statement of financial position date when the deferred tax asset is realised, or the deferred income tax liability is settled. Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxable profit will be realised against which the temporary differences can be offset. Deferred income tax is provided on temporary dif- ferences concerning investments, except where Tryg controls, when the temporary difference will be realised, and it is probable that the temporary difference will not be realised in the foreseeable future. Other provisions Provisions are recognised when the Group has a legal or constructive obligation because of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the best estimate by management of the expenditure required to settle the present obligation. Provisions for restructurings are recognised as 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. Debt Debt comprises debt in connection with direct insurance and reinsurance, amounts owed to credit institutions, current tax obligations, debt to group undertakings and other debt. Derivative financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are assessed at amortised cost based on the effective interest method. Debt related to leasing and the external investors share of Kapitalforeningen Tryg Invest are included in Other debt. The External investors share of Kapitalforeningen Tryg Invest relates to shares, bonds and investment properties. Cash flow statement The consolidated cash flow statement is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the Group’s cash and cash equivalents at the 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. 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. Other The amounts in the report are disclosed in whole num- bers of DKKm, unless otherwise stated. The amounts have been rounded and consequently the sum of the rounded amounts and totals may differ slightly. Contents – Financial statements 103 NotesAnnual report 2019 | Tryg A/S | Income statement for Tryg A/S (parent company) 2019 2018 DKKm 2019 2018 DKKm Note 1 Investment activities Income from Group undertakings Administration expenses in connection with investment activities Total investment return 2 Other expenses 2,903 -5 2,899 -74 1,783 -1 1,782 -65 Profit/loss before tax 2,825 1,717 3 Tax 18 14 Profit/loss for the year 2,843 1,731 Proposed distribution for the year: Dividend Transferred to reserve for net revaluation according to the equity method Transferred to retained earnings 2,553 865 -575 2,843 1,996 347 -612 1,731 Note Statement of comprehensive income Profit/loss for the year Other comprehensive income 2,843 1,731 Other comprehensive income which cannot subsequently be reclassified as profit or loss 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 -76 19 -57 32 -19 4 18 -39 -5 1 -4 -50 49 -11 -12 -16 2,804 1,715 Contents – Financial statements 104 Annual report 2019 | Tryg A/S | Statement of financial position for Tryg A/S (parent company) DKKm 2019 2018 DKKm 2019 2018 Note 4 5 Assets Intangible assets Equity investments in Group undertakings Total investments in Group undertakings 1 12,234 12,234 1 11,407 11,407 Total investment assets 12,234 11,407 Note Equity and liabilities Equity Debt to Group undertakings Other debt Total debt 12,085 11,334 163 7 170 76 12 88 6 Current tax assets Other Total other assets Total prepayments and accrued income 17 1 18 2 14 0 14 1 Total assets 12,255 11,422 Total equity and liabilities 12,255 11,422 7 8 9 10 11 12 Deferred tax assets Own funds Contractual obligations, contingent liabilities and collateral Related parties Reconciliation of profit/loss and equity Accounting policies Contents – Financial statements 105 Annual report 2019 | Tryg A/S | Proposed dividend per share is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (302,147,991 shares). Statement of changes in equity (parent company) DKKm Share capital Revaluation reserves Retained earnings Proposed dividend Non-controlling interest Equity at 31 December 2018 1,511 2,412 6,912 499 2019 Profit/loss for the year Other comprehensive income Total comprehensive income Dividend paid Dividend own shares Purchase and sale of own shares Issue of share options and matching shares Non-controlling interest Total changes in equity in 2019 Equity at 31 December 2019 865 -39 826 0 0 1,511 826 3,238 -575 -575 1 -42 27 -589 6,323 2,553 2,553 -2,040 514 1,013 Equity at 31 December 2017 1,511 2,081 7,541 1,483 2018 Profit/loss for the year Other comprehensive income Total comprehensive income Dividend paid Purchase and sale of own shares Issue of share options and matching shares Total changes in equity in 2018 Equity at 31 December 2018 347 -16 331 331 2,412 -612 -612 -27 10 -629 6,912 1,996 1,996 -2,980 -984 499 0 0 1,511 0 0 0 1 1 1 0 0 0 Total 11,334 2,843 -39 2,804 -2,040 1 -42 27 1 751 12,085 12,616 1,731 -16 1,715 -2,980 -27 10 -1,282 11,334 Contents – Financial statements 106 Annual report 2019 | Tryg A/S | Notes DKKm 1 Income from Group undertakings Tryg Invest A/S Tryg Forsikring A/S 2 Other expenses Administration expenses Remuneration for the Executive Board is paid partly by Tryg A/S and partly by Tryg Forsikring A/S and is charged to Tryg A/S via the cost allocation. 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 Adjustment of non-taxable income and costs 2019 2018 DKKm 2019 2018 9 2,895 2,903 -74 -74 9 17 1 18 % 22 1 23 4 Intangible assets Assets under construction Cost Cost at 1 January Additions for the year Cost at 31 December Amortisation and write-downs Amortisation and write-downs at 1 January Amortisation for the year Amortisation and write-downs at 31 December Carrying amount at 31 December 5 Equity investments in Group undertakings Cost Cost at 1 January Additions for the year 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 1 1,782 1,783 -65 -65 13 14 0 14 % 22 0 22 1 0 1 0 0 0 1 8,995 0 8,995 2,412 2,866 -2,039 3,238 0 1 1 0 0 0 1 6,995 2,000 8,995 2,081 1,768 -1,437 2,412 Carrying amount at 31 December 12,234 11,407 Contents – Financial statements 107 Annual report 2019 | Tryg A/S | Notes DKKm 5 Equity investments in Group undertakings (continued) Name, registered office and activity Ownership share in % Profit/loss Equity 2019 Tryg Invest A/S, Ballerup Tryg Forsikring A/S, Ballerup 2018 Tryg Invest A/S, Ballerup Tryg Forsikring A/S, Ballerup 100 100 100 100 9 2,895 1 1,782 20 12,214 11 11,395 DKKm 6 Current tax assets Tax receivable at 1 January Current tax for the year Adjustment of current tax in respect of previous years Tax paid for the year Tax receivable at 31 December 7 Deferred tax assets Capitalised tax losses Tryg A/S Tax value of non-capitalised tax losses Tryg A/S 2019 2018 14 17 1 -14 17 0 16 17 14 0 -17 14 0 16 The loss in Tryg A/S can only be utilised in Tryg A/S. The loss can be carried forward indefinitely. The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax losses. 8 Own funds Tryg A/S calculates solvency ratio and own funds on Group level according to Solvency II rules. Please refer to note 18 in the Tryg Group on Solvency II own funds. 9 Contractual obligations, contingent liabilities and 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. Companies in the Tryg Group are party to a number of disputes in Denmark, Norway and Sweden. Manage- ment believes that the outcome of these disputes will not affect the Group's financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2019. Contents – Financial statements 108 Annual report 2019 | Tryg A/S | DKKm 10 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 Executive Board and their members’ related family. Specification of remuneration 2019 Supervisory Board Executive Board b) Risk-takers c) Base salary Share-based variable Number of persons incl. car allowance salary a) 14 4 1 19 9 27 0 36 0 5 0 5 Cash variable salary 0 0 0 0 Pension Total 0 7 0 7 9 39 0 48 a) Total expenses recognised in 2019 for matching shares and conditional shares allocated in 2019 and previous year. For matching shares and conditional shares allocated to Executive Board in 2019 see Section ’Corporate governance’ in Management review. b) Barbara Plucnar Jensen took up the position as CFO on 1 March 2019. c) Risk-takers in Tryg A/S includes only one employee, wherefore salary and pension is not presented. The amounts are included in note 27 for the Group. Of which retired Supervisory Board Executive Board Risk-takers Number of persons Severance pay 2 0 0 2 0 0 0 0 DKKm 10 Related parties (continued) 2018 Supervisory Board Executive Board b) Risk-takers Number of persons Base salary incl. car allowance Share-based variable salary a) Cash variable salary 13 4 4 21 8 25 6 39 0 3 0 3 0 3 0 3 Pension Total 0 6 1 7 8 37 7 52 a) Total expenses recognised in 2018 for matching shares and conditional shares allocated in 2018 and previous year. Of which retired Number of persons Severance pay Supervisory Board Executive Management Risk-takers 1 1 0 2 0 0 0 0 Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares and conditional shares, which are recognised over 4 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for the Tryg Group 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, car allowance and pension. The variable salary is awarded in the form of share-based remuneration and cash. see 'Corporate governance'. 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). If a change of control clause is actioned CEO and COO are instead entitled to Severance pay equal to 36 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. Contents – Financial statements 109 Annual report 2019 | Tryg A/S | Notes 2019 2018 DKKm 10 Related parties (continued) 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 and Tryg Invest A/S. In 2019 Tryg Forsikring A/S paid Tryg A/S DKK 2,039m and Tryg A/S paid TryghedsGruppen smba DKK 1,224m in dividends. Intra-group trading involved - Providing and receiving services - Intra-group accounts 18 163 13 76 The intra-group trading is primarily against Tryg Forsikring A/S. Administration fee, etc. is settled on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms. 11 Reconciliation of profit/loss and equity The executive order on application of International Financial Reporting Standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differences between the format of the annual report under International Financial Reporting Standards and the rules issued by the Danish FSA. There is no difference in profit/loss or equity recognised after Danish FSA and IFRS. 12 Accounting policies Please refer to Tryg Group's accounting policies. Contents – Financial statements 110 Annual report 2019 | Tryg A/S | Q4 2019 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 Contents – Financial statements Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 Download a further detailed version of the presenta- tion at tryg.com/uk > investor > Downloads > tables 3,059 494 3,055 458 3,010 593 2,897 406 2,679 531 2,309 467 2,257 483 2,221 253 2,203 394 67.9 2.5 70.4 13.4 83.8 84.9 69.2 1.8 71.0 13.9 84.9 85.4 64.8 1.8 66.5 13.8 80.3 83.1 70.7 1.6 72.3 13.8 86.1 89.8 64.2 2.4 66.6 13.5 80.1 83.0 1,079 105 1,083 154 1,062 196 1,050 111 1,044 270 69.1 3.8 72.8 17.4 90.3 93.6 987 73 86.1 -5.7 80.4 12.1 92.6 100.7 70.6 -2.3 68.3 17.4 85.7 94.3 1,032 204 59.7 11.6 71.3 8.9 80.2 92.1 60.8 3.4 64.2 17.5 81.7 89.7 994 130 62.0 14.2 76.2 11.1 87.2 93.5 67.6 4.0 71.6 17.8 89.4 98.4 966 89 76.0 5.2 81.2 9.6 90.8 105.3 52.2 4.5 56.7 17.5 74.2 89.6 987 -117 92.7 8.8 101.5 10.3 111.8 106.3 63.5 2.2 65.7 13.9 79.6 84.9 994 174 61.0 4.3 65.3 17.2 82.5 93.3 991 63 96.8 -12.3 84.5 9.3 93.8 108.2 62.2 2.5 64.7 13.9 78.6 83.5 978 169 59.7 4.2 63.9 18.8 82.7 92.3 977 109 58.8 20.5 79.2 9.6 88.9 95.0 72.4 2.2 74.6 14.0 88.6 92.4 955 171 61.9 3.6 65.4 16.5 82.0 89.5 942 118 70.7 6.4 77.1 10.3 87.4 65.7 2.6 68.3 13.7 82.0 84.2 977 138 66.3 3.7 70.0 15.9 85.9 94.9 965 60 74.6 9.1 83.7 10.1 93.8 100.4 100.2 111 Annual report 2019 | Tryg A/S | a) Amounts relating to eliminations and one-off items are included under 'Other’. Please refer to note 2 Geographical segments. Download a further detailed version of the presenta- tion at tryg.com/uk > investor > Downloads > tables Q4 2019 Quarterly outline DKKm Sweden Gross premium income Technical result Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Other a) Gross premium income Technical result Tryg Gross premium income Technical result Investment return Other income and costs Profit/loss before tax Profit/loss Key ratios Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2 2018 Q1 2018 Q4 2017 364 90 53.1 0.8 53.8 21.5 75.3 104.8 -11 0 422 54 70.5 0.3 70.8 16.5 87.3 98.8 -9 0 392 61 66.5 1.3 67.8 16.6 84.4 98.2 -6 0 343 26 76.4 0.3 76.7 15.7 92.4 102.9 -28 -6 361 38 71.7 0.3 72.0 17.2 89.2 95.3 -18 -126 411 57 69.6 0.2 69.8 16.1 85.9 94.7 -9 0 375 85 61.6 0.3 61.9 14.7 76.6 89.7 -16 0 324 21 76.5 0.3 76.8 16.7 93.5 98.1 -22 0 355 30 73.0 0.6 73.6 17.7 91.3 97.2 -12 0 5,479 5,583 5,451 5,228 5,053 4,696 4,571 4,420 4,488 762 198 -20 940 705 70.3 1.2 71.5 14.6 86.1 90.7 870 -29 -62 779 599 67.8 2.7 70.5 13.9 84.4 89.4 979 57 -57 979 782 63.6 4.3 67.9 14.2 82.1 87.4 626 353 -49 930 757 71.8 2.2 74.0 14.0 88.0 95.1 596 -330 -117 149 110 69.0 3.6 72.6 15.6 88.2 92.3 761 79 -15 825 627 69.9 0.0 69.9 13.9 83.8 92.5 846 -90 -21 735 568 61.3 6.0 67.3 14.1 81.4 88.2 563 9 -19 553 426 69.4 3.7 73.1 14.0 87.1 93.7 622 86 -23 685 527 68.5 3.8 72.3 13.7 86.0 90.9 Contents – Financial statements 112 Annual report 2019 | Tryg A/S | Q4 2019 Geographical segments DKKm Q4 2019 Q4 2018 2019 2018 DKKm Q4 2019 Q4 2018 2019 2018 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 NOK/DKK, average rate for the period 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 3,341 544 118 69.2 1.6 70.8 12.7 83.5 -3.5 74.07 1,636 153 44 70.0 4.2 74.2 16.8 91.0 -2.7 2,931 555 178 63.7 3.7 67.4 13.6 81.0 -6.1 77.84 1,629 242 98 66.0 5.3 71.3 14.0 85.3 -6.0 13,204 2,606 712 10,430 2,007 710 64.7 1.7 66.4 13.7 80.1 -5.4 2,650 75.80 6,472 469 283 73.7 5.1 78.8 14.4 93.1 -4.4 1,083 61.2 5.5 66.7 13.9 80.6 -6.8 2,520 77.53 6,302 791 520 72.6 1.2 73.8 13.9 87.7 -8.3 1,105 a) Includes Danish general insurance and German, Dutch, Austrian and Finnish guarantee insurance. The gross premium income related to those branches amounts to DKK 78m (DKK 54m in 2018). Swedish general insurance SEK/DKK, average rate for the period 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 Other b) Gross premium income Technical result Tryg 70.14 512 66 93 79.2 -11.2 68.0 19.2 87.2 -18.2 -10 1 Gross premium income 5,479 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 Combined ratio Run-off, net of reinsurance (%) Number of full-time employees, continuing business at 31 December 762 198 -20 940 256 70.3 1.2 71.5 14.6 86.1 -4.7 72.12 511 -75 -69 96.9 1.2 98.1 16.4 114.5 13.5 -18 -126 5,053 596 -330 -117 149 207 69.0 3.6 72.6 15.6 88.2 -4.1 70.62 2,120 169 205 74.0 2.0 75.9 16.1 92.0 -9.7 419 -54 -6 21,741 3,237 579 -188 3,628 1,194 68.3 2.6 70.9 14.2 85.1 -5.5 72.67 2,073 94 -9 82.3 -1.7 80.6 14.6 95.2 0.4 402 -65 -126 18,740 2,766 -332 -172 2,262 1,221 67.4 3.3 70.7 14.4 85.1 -6.5 4,151 4,027 b) Amounts relating to eliminations and one-off items. In 2018 Cost, Claims and Other Costs were negatively affected by DKK 75m, DKK 49m, DKK 76m. The costs are related to integration and transaction costs for the aquirement of Alka. Contents – Financial statements 113 Annual report 2019 | Tryg A/S | Other key figures 2019 2018 2017 2016 2015 Key ratios are calculated in accordance with ’Recommendations & Financial Ratios’ issued by the Danish Society of Financial Analysts. 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 employees, continued business, at 31 December 9.42 9.42 9.42 301,700 301,954 301,954 197.50 40.05 4.9 6.80 1.65 21.0 4,151 5.73 5.73 5.74 301,743 302,043 302,043 163.90 37.56 4.4 6.60 28.6 4,027 9.12 9.12 9.12 301,945 276,080 276,080 155.20 41.78 3.7 6.40 3.31 17.0 8.84 8.84 8.84 274,595 279,399 279,399 127.70 34.37 3.7 6.20 3.54 14.4 3,373 3,264 6.91 6.91 6.74 282,316 285,073 285,101 137.40 34.16 4.0 6.00 20.4 3,359 Contents – Financial statements 114 Annual report 2019 | Tryg A/S | Group chart Tryg A/S (Denmark) Tryg Forsikring A/S (Denmark) Tryg Invest A/S (Denmark) Tryg Forsikring (Branch Germany) Tryg Forsikring (Branch Finland) Moderna Försäkringar (Branch Sweden) Tryg Forsikring incl. Enter (Branch Norway) Tryg Livsforsikring A/S (Denmark) Kapitalforeningen Tryg Invest (80%) (Denmark) TI Real Estate KL (73%) (Denmark) TI Short Term Placement KL (Denmark) Tryg Forsikring (Branch Austria) Tryg Forsikring (Branch Netherland) Tryg Real Estate Invest Norway AS (Norway) Respons Inkasso AS (Norway) Tryg Real Estate Invest Holding A/S (Denmark) Tryg Real Estate Fund 2 A/S (Denmark) Tryg Real Estate Fund 1 A/S (Denmark) Tryg Real Estate Invest Denmark A/S (Denmark) Group chart at 1 January 2020. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated. Company Branch Contents – Management’s review Forsikrings- Aktieselskabet Alka Liv II A/S (Denmark) Tryg Ejendomme A/S (Denmark) 115 Annual report 2019 | 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 & Ratios’ issued by the CFA Society Denmark. Claims ratio, net of ceded business Gross claims ratio + net reinsurance ratio. Combined ratio The sum of the gross claims ratio, the net reinsurance ratio and the gross expense ratio. Danish general insurance Comprises the legal entities Tryg Forsikring A/S (including Finnish, Netherlands, Austria and German 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 Profit or loss for the year x 100 Average number of shares Earnings per share of continuing business Diluted earnings from continuing business after tax Diluted average number of shares Gross claims ratio Gross claims 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. Market price/net asset value Share price Net asset value per share Net asset value per share Equity at year-end Number of shares at year-end Net reinsurance ratio Profit or loss from reinsurance x 100 Gross premium income Norwegian general insurance Comprises Tryg Forsikring A/S, Norwegian branch. Operating ratio Calculated as the combined ratio plus insurance tech- nical interest in the denominator. Claims + insurance operating costs + profit or loss from reinsurance x 100 Gross premium income + insurance technical interest Own funds Equity plus share of qualifying solvency debt and profit margin (solvency purpose), less intangible assets, tax asset and proposed dividend. Price/Earnings Share price Earnings per share Relative run-off result Run-off gains/losses net of reinsurance divided by 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 the part of the claims provisions at the end of the financial year pertaining to injuries and damage occurring in earlier financial years. Solvency II Solvency requirements for insurance companies is- sued by the EU Commission. The new rules came into force at 1 January 2016. Solvency ratio Ratio between own funds and capital requirement. Swedish general insurance Comprises Tryg Forsikring A/S, Swedish branch. Total reserve ratio Reserve ratio, claims provisions + premium provisions divided by premium income. Unwinding Unwinding of discounting takes place with the pas- sage of time as the expected time to payment is re- duced. The closer the time of payment, the smaller the discount. This gradual increase of the provision is not recognised under claims, but under technical in- terest in the income statement. Contents – Management’s review 116 Annual report 2019 | 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 distribution 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 25% 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. Commercial fire and contents insurance, which includes building insurance, represents 12% 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 4% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occupational diseases). Workers’ compensation insurance is mandatory and covers a company’s employees (except for public sector employees and persons working for sole proprietors). General third-party liability insurance General third-party liability insurance represents 5% of total premium income and covers various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products, and third-party liability for professionals. Personal accident insurance Personal accident insurance accounts for 11% of total premium income and covers accidental bodily injury and death resulting from accidents. 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. 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. Contents – Management’s review 117 Annual report 2019 | Tryg A/S | Disclaimer Should one or more of these risks or uncertainties materialise, or should any underlying assump- tions prove to be incorrect, Tryg’s actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. Tryg is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. Read more in the chapter Capital and risk man- agement on pages 30-31, and in Note 1 on page 58-66, for a description of some of the factors which may affect the Group’s performance or the insurance industry. Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding Tryg’s future operating results, financial position, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by the use of words such as ‘targets’, ‘believes’, ‘expects’, ‘aims’, ‘intends’, ‘plans’, ‘seeks’, ‘will’, ‘may’, ‘anticipates’, ‘would’, ‘could’, ‘continues’ or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, including but not limited to general economic developments, changes in the competitive envi- ronment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. Contents – Management’s review 118 Annual report 2019 | Tryg A/S | 

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