Arranged by: Tryg Forsikring A/S. Tier 2 subordinated bond issue. Company presentation May 2016

Transcription

1 Arranged by: Tryg Forsikring A/S Tier 2 subordinated bond issue Company presentation May 2016

2 Important information Disclaimer Certain statements in today s presentations are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, financial condition, cash flows, business strategy, plans and future objectives can generally be identified by terminology such as targets, believes, expects, aims, intends, plans, seeks, will, may, anticipates, continues or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in the presentations including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. We urge you to read our financial reports available on tryg.com for a discussion of some of the factors that could affect our future performance and the industry in which we operate. Should one or more of these risks or uncertainties materialise or should any underlying assumptions prove to be incorrect, our actual financial condition or results of operations could materially differ from that presented as anticipated, believed, estimated or expected. We are 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. 2

3 Strong value propositions High profitability Strong customer retention Low balance sheet risk Stable inflow of cash I Leading Scandinavian non-life insurer DKK bn 35 Return on Equity (%) II Strong earnings and high profitability III Robust capitalization and low leverage assigned A2 rating with positive outlook by Moody s 0 Equity Acc share buy-back Acc dividends ROE 0 IV V VI Low risk balance sheet with conservative investments allocation Strong customer relationships with very high retention Highly attractive market fundamentals Tryg s combined ratio development Sweden * Norway Denmark Note(*): Moderna Försäkringar is included from 2 April 2009 Source: Company reporting 3

4 Tryg Forsikring A/S at a glance (I) Leading Nordic non-life insurance company Tryg s operating fundamentals 2015 premiums split by COUNTRY Tryg s history dates back to the 18th century Customer Satisfaction Pure non-life insurer active in Denmark, Norway and Sweden Retail is approx. 80% of total premiums Attractive Products Brand Strength 11% Denmark Norway Motor, Property and Accident & Health are Tryg s main product lines 38% 52% Sweden TryghedsGruppen, a mutual foundation rooted in Denmark, has a 60% stake in the company Employee Satisfaction Distribution Network Bonus scheme recently introduced expected to boost retention long term 2015 premiums split by BUSINESS MIX 2015 premiums split by PRODUCT LINE Unrivaled brand strength and recognition with significant local goodwill due to TryghedsGruppen Employees: 3,359 Customers: 2.8 million Premiums earned 2015: DKK 17,977m Combined ratio 2015: 86.7 Total equity Q1-2016: DKK 9,111m 22% 22% 56% Private Commercial Corporate 5% 10% 5% 11% 14% 24% 31% Motor Fire & property - private Fire & property - comm. Health & accident Worker' comp Liability Other Source: Company reporting 4

5 Market share SWEDEN Q4 15 Market share NORWAY Q4 15 Market share DENMARK Q1 15 Market share Nordics Q4 14 Tryg Forsikring A/S at a glance (II) Operating in attractive market fundamentals Sweden 42% EUR 25.7bn 9% 9% 5% 9% 9% 17% Tryg Topdanmark If Codan Gjensidige Länsforsikringar Other Tryg s combined ratio development Norway TOP3 Tryg is operating in Sweden through the following brands: TOP5 18% 31% Tryg 10% 7% EUR 7.0bn 6% 11% 17% Topdanmark If Codan Gjensidige Alm. Brand Other * Sweden Norway Denmark Denmark #1 Acquisition of Skandia s child insurance portfolio during 2015: 14% 29% Tryg EUR 6.2bn 22% If Gjensidige Sparebank1 Key market characteristics 1. Solid macroeconomic environment 2. Consolidated and mature markets 10% Other 3. High degree of customer loyalty Market position: #1 TOP3 TOP5 25% 4. Rational key players and most of them listed Market share: Employees: Premiums earned: Technical result: Combined ratio: 18.0% 1,859 DKK 9,346m DKK 1,371m % 1,113 DKK 6,766m DKK 844m % 387 DKK 1,894m DKK 328m % 16% 3% EUR 7.9bn 18% 2% 15% Moderna (Tryg) If Trygg-Hansa (Codan) Gjensidige Länsforsikringar 5. High efficiency level with some of the lowest expense ratios in the world 6. High profitability and stable business 7. Considerable barriers to entry 30% Note(*): Moderna Försäkringar is included from 2 April 2009 Source: Forsikringogpension (DK), FNO (NO), Svenskforsäkring (SE), Company reporting 5

6 Tryg Forsikring A/S at a glance (III) Long term profitable growth Leading Scandinavian insurer with strong track record Low risk and high returns Financial targets 2017 ROE: 21% Customer targets 2017 NPS +100% Customer care worth recommending Matching assets and liabilities Low risk investment portfolio Combined ratio: 87% Expense ratio: 14% Dividend policy Retention rate +1 pp 3 products +5 pp 90% first contact resolution Annual coverage check Payout ratio of 60-90% Aiming for a nominal stable increasing dividend Leading in efficiency Next level pricing Efficiency programme of DKK 750m Claims procurement Reducing expense level 25% of tariffs above peers in 2017 Differentiated product offering Tryg strives to deliver long term profitable growth resulting in attractive value creation for all stakeholders Source: Company reporting 6

7 Combined ratio Selected financial results Resilient business model through cycles Proven operations ensure stable inflow of cash Pre-tax profit Technical result Investment result 4,000 3,000 I High quality portfolio with high retention rate 2,000 1,000 0 II Highly attractive underlying profitability -1,000-2, Premium hikes Smaller adjustments Premium hikes Efficiency program Customer and efficiency focus III IV Conservative asset allocation Stable operating result and proven track record of a solid cash flow generation * Combined ratio target : < V Only one quarterly loss in the last ten years due to extreme winter weather Note(*): IFRS from previous years are Danish GAAP Note(general): data before 2009 is not corrected for the sale of Marine Hull business, and Finland before 2008 Source: Company reporting 7

8 Sustainable efficiency program E Expense and claims reduction of more than DKK 750m within 3 years Overview of efficiency program E Annual cost savings E Old program New program DKK 250m DKK 500m Expense reduction Claims reduction Development in FTEs New initiatives towards 2017 DKK 750m Target 2015 Expense Claims Target Q1' Target ,000 3,800 3,600 3,400 3,914 3,703 3,599 3,359 3,333 Utilization of Nordic procurement volume Sourcing Simplification First contact resolutions 3,200 Improved retention rates 3, Q1'16 Enhanced fraud detection Source: Company reporting 8

9 Tryg s strategic business initiatives Focus on customer retention while increasing prices and product mix Private Customer retention 92% DK I High customer retention level at 85-90% 90% 88% 86% 84% NO II Price increases of 3% to offset claims inflation and improve profitability 82% Commercial Customer retention 92% III Product portfolio diversification focused on recent acquisition of Skandia s child insurance portfolio, Nordic extended warranty and pet insurance 90% 88% 86% 84% 82% DK NO IV V Continued development of digitalization a key strategic initiative from Tryg Danish members bonus to be paid on the 1 st of June 2016 and equal to approximately 8% of average premium paid Source: Company reporting 9

10 Sound investment approach and related return Conservative asset allocation and low return volatility provides consistency Portfolio Q1 16 (DKK 40bn) Annual gross return* Equities, 6.2% Bonds/deposits, 5.7% (match) 7% 6.8% EM, 1.1% Inv. Property, 5.2% Bonds/deposits, 13.7% (free) HY, 2.1% Free 11.3bn 29% Match 28.7bn 71% Covered bonds, 67.5% 6% 5% 4% 3% 2% 1% 4.1% 3.5% 4.4% 4.8% 4.6% 2.8% 4.3% 1.1% 0% Key comments MAX and MIN deviation in quarterly return YTD Aim of investment is to support insurance world class ambition Return 5.0% Min Max Average Low interest rates requires more focus on the insurance business 2.5% 3.3% 4.6% 2.9% 2.1% 2.4% Above average return despite lower risk Matching of assets and liabilities implies lower net capital requirement in Solvency II 0.0% -2.5% -1.7% -1.5% -1.9% -0.7% -4.1% -5.0% Peer 1 Peer 2 Peer 3 Peer 4 Tryg Source: Company reporting * calculated as gross return before discounting / average investment assets 10

11 Solvency II and Capital (I/IV) Solvency II finally went alive on January 1, 2016 Solvency Capital Requirement and Own Funds Q1 16, DKKm 12,000 10,000 8, ,173 6, ,531-2,663 10,794 4,000 2,000 2,209 5,098 2,041 0 Key comments Deferred tax Market Health Default Non-Life Operational Diversification SCR Q1'16 Own funds Q1'16 Tryg s partial internal model was approved in November 2015 by the Danish FSA Tryg models internally only the non-life risk, the rest is calculated using standard formulas. - As a consequence, the Solvency Capital Requirement before diversification is much in line with the standard charges specified in Solvency II regulations The Solvency ratio with the approved internal model and the standard formula was 212% (199% adjusting for the Skandia s child insurance acquisition) and 173% respectively as of Q1 16 The Danish FSA has stated that a solvency ratio of 125% or below would result in additional supervision. - Tryg has significant buffers before any potential intervention by the FSA Source: Company reporting 11

12 Solvency II and Capital (II/IV) A strong Solvency II position and a solid capitalization Solvency ratio development Q1 15 Q1 16 Solvency ratio in a peer context Q1 16* 250% 250% 200% 150% 100% 155% 151% 159% 154% 212% 199% ** 200% 150% 100% 139% 181% 154% 212% 198% Update with Q1 numbers and remove 173% adj. PIM after company reportings of Q1 177% 175% 181% 50% 50% 0% Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q1'16 (adjusted for Skandia's child insurance portfolio) 0% SF PIM SF PIM SF PIM SF PIM SF PIM SF PIM Gjensidige Group (under (under transationl transitional rules) IF P&C Tryg Alm. Brand Forsikring Storebrand Group (under transtional rules) Topdanmark ** Own Funds composition (% of Solvency Capital Requirement) Key comments 250% 200% 150% 100% 50% 0% Tier 2 Tier 1 Core equity 212%, DKK 10,749bn 37% 12% 163% Q1'16 own funds composition Tryg holds a very strong Solvency II position following the adjustments to the new regulations The overall impact following an inclusion of Skandia s child insurance portfolio, awaiting regulatory approval, will lower the Solvency 2 ratio from 212% to 199% The classification of the Norwegian Natural Perils funds as Tier 2 capital was approved during Q The Solvency Capital Requirement can be met by 50% tier 2 capital resulting in a potential room to issue additional Tier 2 capital of approximately DKK 900m corresponding to SEK 1bn Note(*) Solvency Capital requirement based on SF = Standard Formula, PIM = Partial Internal model Note(**) Before adjustments for the acquisition of Skandia s child insurance portfolio Source: Company reporting 12

13 Solvency II and capital (III/IV) Solvency II ratio displays low sensitivities to market movements Solvency ratio sensitivity 250% 200% 212% 215% 209% 220% 203% 210% 213% 200% 223% 207% 150% 100% 50% 0% Q1 +20% -20% +20% -20% +100 bps -100 bps +100 bps -100 bps -100 bps 2016 Equity Property Interest Spread UFR Key comments Tryg is using the standard model from Solvency II to calculate the capital requirement on the Market risk module The Solvency II ratio is not highly sensitive to equity markets movements as most of the Own funds hit from a sharp fall in equity markets would be offset by a lower equity capital charge The Solvency II ratio shows the highest sensitivity to spread risk* Interest rate risk is very low due to matching strategy A change in the UFR (Ultimate Forward Curve) from 4.2% to 3.2% would reduce the Solvency ratio from 212% to 207% *Assumption is for a 100bps widening/narrowing of our entire fixed income book (Danish government bonds, Danish mortgage bonds, Norwegian government bonds, high yield etc.) Source: Company reporting 13

14 Solvency II and Capital (IV/IV) Subordinated debt in SEK will improve Tryg s risk management Own funds impact from a 10% increase in local currencies Own Funds NOK/DKK SEK/DKK + Equity No sensitivity due to hedge strategy - Intangible assets Negative Negative + Expected future profits Positive Positive + Subordinted debt Positive Positive = Own Funds Q1 16 DKK 190m DKK -30m Sensitivity from 10% increase in currencies Q1 16*, DKKm Key comments Tryg s presence in the three Nordic countries means exposure to fluctuations in the local currencies NOK and SEK in regards to both financial results and solvency ratio Tryg has chosen a currency hedge strategy that is focusing on mitigating the currency impact on financial results. However this introduces increased volatility with regards to the solvency ratio The overall impact (net move of Own Funds and Solvency Capital Requirement) of a 10% move in NOK/DKK is limited due to Tryg s current outstanding subordinated debt in NOK The overall impact of a 10% move in SEK/DKK is higher, but would be reduced sharply through the issuance of subordinated debt in SEK Own Funds SCR Own Funds SCR Own Funds SCR NOK/DKK SEK/DKK SEK/DKK (post SEK 1bn subordinated) Note(*) Before adjustments for the acquisition of Skandia s child insurance portfolio Source: Company reporting 14

15 Tryg in a peer group context Better capitalized and more profitable than most financial peers Equity to total assets 2015 Return on average equity % 25% 20% 15% 10% 5% 30% 25% 20% 15% 10% 5% 0% * * * 0% * * * * Combined ratio 2015 Key comments * The equity base in relation to total assets is in line with other strong Nordic P&C peers and more robust than both Nordic life insurers and banks Same goes for profitability and combined ratio where Tryg is in a leading position versus peers Risk of default in a P&C insurance company due to liquidity issues is very remote as the nature of the cash flow is such that premiums are received first and claims are paid in the future Note(*) Group Source: Company reporting 15

16 Rating Strong A2 rating with positive outlook from Moody s reflecting our leading position, strong profitability, strong asset quality & low leverage Rating and underlying rationale Key comments Insurance Financial Strength Rating (IFSR) Outstanding subordinated rating A2 (positive outlook) Expected subordinated rating Moody s assigned an A2 rating with a positive outlook reflecting Tryg s: - Leadership position in P&C insurance in the Nordic region - Strong profitability both from a return on capital and underwriting (combined ratio) perspective - Very good asset quality - Relatively low financial leverage - The positive outlook reflects Moody s expectation that Tryg s strengths are likely to continue, and that capitalisation will remain robust Baa1 (hyb) Baa1 (hyb) Source: Moody s 16

17 Achievable long-term business plan Well defined strategic targets reveal ambitious plans for the company Financial targets Customer targets I Return on Equity (ROE) after tax 2017: 21% I Net Promoter Score (NPS) 2017: II Combined ratio 2017: 87 II Retention rate 2017: + 1pp III Expense ratio* 2017: 14 III Customers 3 products** 2017: + 5pp ROE 2005 to 2015 (target 2017) Shareholder remuneration target 40 I Payout ratio 60% 90% II Aiming for a nominal stable increasing dividend 0 III Share buy-back May occur as extraordinary events Note(*): excluding one-off effects Note(**): private (DK & NO) Source: Company reporting 17

18 Transaction summary Indicative key terms Issuer: Instrument: Moody s Ratings: Volume: Tryg Forsikring A/S Solvency 2 Compliant Subordinated bond issue (Tier 2 Capital) A2 (Issuer Rating) / [Baa1] (Expected Instrument Rating) SEK [Benchmark] Maturity Date: [ ] 2046 Issuer s Call option: Coupon rate: Margin: Deferral of Interest Payments: Listing: Ordinary calls on [ ] [2021], and any interest payment date thereafter. Conditional calls on either a Capital Disqualification Event; or a Rating Agency Event; or a Taxation Event Tranche A) 3 months STIBOR + [Margin], payable quarterly in arrears Tranche B) Mid swap + [Margin] up to and including the first optional redemption date, thereafter 3 months Stibor + [Margin] [ ]% until [ ] 2026, thereafter [1.00]% increase to [ ]% At the Issuer s option, subject to 6 months dividend pusher. Mandatory in the event of breach of solvency requirements. Arrears of Interest will be cumulative An application will be made for the Bonds to be listed on [Oslo Børs] Bond Trustee: Nordic Trustee ASA Governing law / Denominations: Danish law / SEK 1,000,000 Arrangers: Nordea & SEB Source: Tryg, Nordea, SEB 18

19 Key investment considerations Nordic footprint Lean operations High profitability Strong capitalization 1 Dedicated Nordic non-life insurance company, with proven operations and favourable outlook, diversified across both countries and products 2 Operates in mature markets, with high entry barriers and customer retention rates, dominated by established key players focusing on lowering cost 3 Profitability has been high and improving in recent years due to efficiency programmes and low customer price sensitivity Aiming to achieve a combined ratio of 87 and expense ratio of 14 from 2017 and onwards ROE after tax has been 19% on average the last 10 years and Tryg aims to achieve 21.0% within 2017 Only one quarterly pre-tax loss since 2006 due to heavy winter. Re-insurance protects Tryg from large claims and single events Assigned A2 rating with a positive outlook by Moody s following Tryg s leading position in P&C insurance in the Nordic region, its strong profitability both from return on capital and underwriting, very good asset quality and a relatively low financial leverage 8 Strong solvency capital position of 212%, which implies a considerable buffer to any potential intervention by the FSA 9 The classification of the NNP funds as Tier 2 capital leaves a potential room for issuing approximately DKK 900m Tier 2 subordinated debt Source: Company reporting 19

20 Appendix

21 Distribution of new sales 2015 Broad distribution power through diverse sales channels is key Denmark Norway 14% 6% Own sales Own sales 57% Affinity 38% 44% Car dealers 29% Nordea Affinity 12% Nordea Sweden Corporate 15% Own sales External partners Own sales 31% 51% Online & others 55% 45% Brokers Atlantica/Bilsport MC 3% Source: Company reporting 21

22 Key financial figures and consensus E Overview Consensus(***) DKKm E 2017 E 2018 E Gross premium income 19,948 20,314 19,504 18,652 17,977 17,789 18,004 18,240 Technical result 1,572 2,492 2,496 3,032 2,423 2,623 2,789 2,768 Investment income, net Profit/loss before tax 1,603 3,017 2,993 3,302 2,327 2,666 2,932 2,904 Profit/loss 1,140 2,208 2,369 2,557 1,981 2,085 2,293 2,269 Combined ratio Gross expense ratio (*) 15.3(**) Total insurance provision 34,220 34,355 32,939 31,692 31,571 n.a n.a n.a Shareholder's equity 11,107 11,119 9,831 9,396 9,111 n.a n.a n.a Earnings per share Dividend per share Share buy back ,000 1,000 1, Note(*): DKK 15.3m excluding one-offs Note(**): 14.9 excluding one-off Note (***): Based on 16 standalone estimates ahead of Q Source: Company reporting 22

23 Established ownership structure 60% owned by TryghedsGruppen (foundation) and 40% free float TOP 10 shareholders Q (*) Geographical distribution of free float (40%) 2015(**) TryghedsGruppen % 3% Tryg A/S Black Rock Fund Advisors 1.78 % 1.42% 12% 14% 12% 59% Denmark UK US Other Nordea Bank AB 0.99% Nordic region Norges Bank Investment Management 0.82 % The Vanguard Group 0.79 % Shareholders overview year-end 2015(**) (***) Danske Bank A/S Handelsbanken Fonder 0.78 % 0.53 % 12% 16% TryghedsGruppen Large Danish shareholders Skandinaviska Enskilda Banken Massachusettes Mutual Life INS 0.50 % 0.49 % 11% 61% Large international sharegholders Small shareholders TOTAL TOP % Note(*): from Bloomberg Note(**): from Ipreo s Big Dough database Note(***): large shareholders = more than 10,000 shares (~0.017%) 23

24 Rationale Rating Strong A2 rating with positive outlook from Moody s reflecting our leading position, strong profitability, strong asset quality & low leverage Rating and underlying rationale Base-case scenario assumptions and methodology Insurance Financial Strength Rating A2 (positive) Market position, Brand and Distributions: A Strong market position in the Nordic region albeit less diversified than larger continental peers Product risk and Diversification: A Good product risk albeit concentration in property and motor and in the Nordics Asset Quality: A Relatively conservative investment philosophy compared to direct Nordic peers, supported by low level of reinsurance and intangible assets Capital Adequacy: A Robust capitalisation albeit constrained by the relatively high dividend policy and share buy-back program Profitability: A Profitability expected to remain strong, notwithstanding some headwinds Reserve Adequacy: A Consistent reserve releases over the last few years Financial Flexibility: A Current Subordinated debt Baa1 Insurance Financial Strength Rating Expected new Subordinated debt Baa1 Relatively low financial leverage although access to capital markets not comparable to the largest European players Factors that can lead to an upgrade The positive outlook could translate into a rating upgrade from: Maintenance of the reported combined ratio below 90% and/or Sustaining Solvency II coverage above 180% and gross underwriting leverage below 4x and/or Adjust financial leverage above 20% Factors that can lead to an downgrade Although currently seen as unlikely given the positive outlook, negative pressure could arise from: A material weakening of market position and/or Meaningful reduced capital adequacy with gross underwriting leverage of above 6x on sustained basis and/or Solvency II coverage below 130% and/or Meaningful deterioration in profitability with combined ratio consistently above 95% and/or Adjust financial leverage consistently above 30% Select Key Metrics Select Key metrics Gross premium written (DKKm) 20,192 20,128 19,820 28,672 28,150 Net Income (DKKm) 19,069 18,981 18,600 17,613 16,985 Return on average capital (ROC) 9.8% 16.9% 17.0% 16.3% 15.5% Gross underwriting leverage 5.5x 4.6x 4.3x 4.1x 4.5x Financial leverage 24.8% 21.5% 19.1% 16.6% 15.0% Total leverage 24.8% 21.5% 20.4% 17.9% 18.6% Earnings coverage 13.1x 23.9x 23.8x 27.8x 23.2x Source: Moody s 24

25 Sweden Norway Denmark Key economic figures in the Nordic region Stable outlook Tryg exposure % 2016E 2017E GDP Growth Inflation Unemployment Current account balance in % of GDP Budget balance in % of GDP Public debt in % of GDP TOP5 Sweden % 2016E 2017E GDP Growth Inflation Unemployment TOP3 Norway Current account balance in % of GDP Budget balance in % of GDP Public debt in % of GDP % 2016E 2017E GDP Growth Inflation #1 Denmark Unemployment Current account balance in % of GDP Budget balance in % of GDP Public debt in % of GDP Source: Economic Outlook, Nordea Markets

26 Arranged by: Tryg Forsikring A/S Klausdalsbrovej Ballerup Denmark Tel: