Interim report Q1-Q3 2013

Transcription

1 Interim report Q1-Q3 2013

2 Contents Interim report Q1-Q Page Management s review Highlights 1 Income overview 2 Tryg s results 3 Private 8 Commercial 10 Corporate 12 Sweden 14 Investment activities 16 Capital 18 Outlook 19 Disclaimer 20 Financial statements Statement by the Supervisory Board and the Executive Management 22 Financial highlights 23 Income statement 24 Statement of comprehensive income 25 Statement of financial position 26 Equity 28 Cash flow statement 30 Notes 31 Quarterly outline 40 Further information 42 Webcast and teleconference Tryg hosts a webcast and teleconference on Thursday 10 October 2013 at 9.30 CET. View the webcast at tryg.com. Financial analysts and investors may attend in person at Grange City Hotel in London or on tel. +44 (0) or , where questions can be asked. The webcast and teleconference will be held in English and can subsequently be viewed at tryg.com. This report constitutes Tryg A/S s consolidated financial statements and has not been audited. Unless otherwise indicated, all comparisons are made to Q Comparative figures for Q are generally stated in brackets. Editors Design Layout Investor Relations e-types amo design This is a translation of the Danish interim report Q1-Q In case of any discrepancy between the Danish and the English version of the interim report Q1-Q3 2013, the Danish version shall apply.

3 Highlights Consistent improvement in results achieved through efficiency programme, and cost cuts ensured attainment of the announced target of a combined ratio of 90 or lower from Q Highlights for Q Profit before tax of DKK 907m (DKK 976m). Technical result of DKK 766m (DKK 652m). Combined ratio improved by 2.9 percentage points to 84.8 (87.7). Own internal efficiency programme improved results by DKK 110m. Decline in premium income of 3.4% impacted by profitability measures and profit sharing. Expense ratio improved to 15.5 (16.4). The match portfolio yielded a negative result of DKK 33m, while the return on the free investment portfolio totalled 2.0%. Return on equity of 27.0% p.a. after tax (29.4%). Highlights for Q1-Q Profit before tax of DKK 2,354m (DKK 2,379m). Technical result of DKK 1,950m (DKK 1,844m). Combined ratio improved by 1.2 percentage points to 87.3 (88.5). Own internal efficiency programme improved results by DKK 270m. 2.9% decline in premium income. Expense ratio improved to 15.7 (16.5). Return of DKK 2m on the match portfolio, and a free investment portfolio return of 5.3%. Return on equity of 22.0% p.a. after tax (24.8%). Combined ratio target attained New initiatives during the quarter The target of a combined ratio of 90 or lower from Q has been attained at the agreed level. Moving forward, the target remains of a return on equity after tax of 20% to be achieved by delivering a full-year combined ratio of 90 or lower. Updated financial targets attained Efficiency programme on track Combined ratio for Sweden under 90 Tryg Plus customer programme introduced in Norway Parking cover introduced in Norway Changed office structure in Nordic region decided New Group Executive Vice President, Commercial Tryg A/S Interim report Q1-Q

4 Income overview Q3 Q3 Q1-Q3 Q1-Q3 FY DKKm Gross premium income 5,196 4,867 15,238 14,767 20,314 Technical result ,844 1,950 2,492 Investment return after insurance technical interest Profit/loss for the period before tax ,379 2,354 3,017 Profit/loss for the period, continuing business ,786 1,809 2,180 Profit/loss for the period ,804 1,804 2,208 Run-off gains/losses, net of reinsurance ,015 Key ratios Total equity 10,365 10,854 10,365 10,854 10,979 Return on equity after tax (%) Number of shares, end of period (1,000) 60,598 59,880 60,598 59,880 60,695 Earnings per share of DKK Premium growth in local currency Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Large claims, net of reinsurance (%) Weather claims, net of reinsurance (%) Combined ratio on business areas Private Commercial Corporate Sweden Interim report Q1-Q Tryg A/S

5 Tryg s results Tryg posted a profit before tax for Q of DKK 907m (DKK 976m) with results being positively impacted by improvements achieved through the internal efficiency programme as well as a low level of large claims after reinsurance. The investment return totalled DKK 152m (DKK 338m), due to a high return on equities, but return on bonds was at a significantly lower level than in The technical result was improved by 17% to DKK 766m in Q (DKK 652m) and reflects the effect of the efficiency programme implemented, which, taken in isolation, had an effect of DKK 110m eqalling 2.3% of the total improvement. The target for the total reduction in claims costs and expenses is savings of DKK 1bn in the period up to 2015, and with the results achieved in Q3 2013, total savings of DKK 455m have so far been realised. Our strategy aims at making Tryg stronger and more competitive and to ensuring continuous improvements in earnings. Having introduced significant price increases in recent years, Tryg will in future focus, in particular, on improving performance through the internal efficiency programme and cost cuts, the continued development of price-differentiated products and improved customer programmes. Further price measures will be introduced, but will selectively target schemes or products which are not profitable. However, the general expectation is that ordinary price increases in line with inflation will suffice. The combined ratio for the quarter was 84.8 (87.7), which was lower than for the same period in 2012, and includes a 2.3 percentage point improvement as a consequence of the efficiency programme implemented. Furthermore, a lower level of weather claims and large claims improved the combined ratio by 1.7 percentage points (4.6). The expense ratio improved markedly from 16.4 to 15.5 as a result of the cost-cutting measures implemented. The improvement was achieved during a period with negative premium growth. With a combined ratio of 84.8 for Q3 2013, Tryg has fulfilled the target of an annual combined ratio of 90 or lower from Q3 2013, and the long-term target is an annual level of 90 or lower to underpin a return on equity of 20%. The investment return was DKK 152m (DKK 338m), consisting of a negative match portfolio return of DKK 33m, a free investment portfolio return of DKK 243m and a negative impact from other financial income and expenses of DKK 58m. The profit after tax totalled DKK 715m in Q (DKK 733m), corresponding to a return on equity of 27.0% (29.4%). The Danish market is characterised by a slightly higher level of consumer confidence and slightly increasing residential property prices, but a continued unemplyment at approximately 6 %. Car sales in Denmark are dominated by small cars. The Norwegian economy is characterised by a low level of unemployment (approximately 3%), low interest rates and rising real wages, which for Tryg entails a continued focus on the risk of claims inflation and the resulting need for price adjustments. High customer satisfaction is very important for Tryg, and we are therefore pleased that the customers have embraced our new pricedifferentiated products and the new customer concept in the Danish market, which was announced in Q In Q3, special focus was on the Norwegian market, which saw the introduction of a new motor insurance product with parking cover. Parking cover ensures that the customer claims are covered without loss of bonus. Experience from the differentiated products has been positive, and markedly increased sales rates have been realised through improved selection and risk-based pricing. The sales rates for the Travel insurance and Caravan insurance products are thus up by between 20% and 30%. The special benefits programme, Tryg Plus, which was launched in Q2 in Denmark, was given a very satisfactory reception by customers. Customers have shown particularly satisfactory interest in the Tryg Home Alarm programme whereby special benefit-customers, who have an alarm installed in their homes, pay a reduced premium for their contents insurance due to the lower risk of being burgled or incurring water and fire damages. A customer concept has been developed for the Norwegian market, which is very similar to the Tryg Plus concept. The concept comprises Tryg ID, Tryg Home Alarm and Tryg Backup. Tryg A/S Interim report Q1-Q

6 Premiums Gross premium income was DKK 4,867m in Q3 2013, corresponding to a reduction of 3.4% in local currencies (-1.4%). The negative development in premium income was in line with expectations and emphasises Tryg s focus on profitability. A considerable increase in bonus and premium discounts was a contributory factor to the low premium growth. This must be seen in light of the improved profitability of a number of major group agreements, and of the introduction of a profit sharing element in the agreement with Nordea, whereas the earlier agreement was based primarily on the paying of commission on new business. Exclusive of bonus and premium discounts, negative growth of 2.2% was posted for Q in local currencies. Further, the reduced premium income must be seen in light of the profitability-improving measures introduced earlier and which in 2012 resulted in an increased outflow of business and lower sales in both the Private and Commercial business areas. The development in premium income is also affected by macroeconomic developments in Denmark, which have, among other things, impacted private consumption and increased the demand for small cars. This translates into a reduction in premium income, but also in claims as safety levels are generally high, reducing the risk of claims. Moreover, the commercial market in Denmark has been negatively impacted in particular by lower private consumption, which has led to hard times for this segment, resulting in job cuts and thereby a declining demand for workers compensation insurance. This decline in the demand for insurance has had a negative impact on premium income. In 2013, developments in the private market were affected by a higher level of sales, but also by a slightly higher than expected customer outflow due to the fierce competitive situation. Sales in the commercial market were in line with expectations, given the intensifying competition. In the corporate market, premium income was lower than in 2012 due to the loss of a number of large customers. Unchanged profitability is the focus area for the Cor porate segment, which will lead to premium income fluctuations over time. This is due, among other things, to the regular entry of foreign players on this market, leading to a loss of business for Tryg due to its focus on profitability. Claims The gross claims ratio was 75.9 (70.3). The claims ratio, net of ceded business, was 69.3 (71.3). The substantial difference between the gross claims ratio and the claims ratio, net of ceded business, is attributable to a large claim within guarantee insurance in respect of the firm of contractors Pihl & Søn, which is expected to add approximatey DKK 0.7bn to gross claims. Due to the nature of the guarantee insurance business, reinsurance is used more widely within this segment than within the rest of the general insurance segment. This means that the effect on results will be limited to DKK 30m. Moreover, Q3 was impacted by a low level of weather claims and large claims corres ponding to 1.7% (4.6%). The improved claims ratio, net of ceded business, can be ascribed, in particular, to the measures implemented within the procurement of claims services and cost cuts. Measures worth DKK 90m were implemented in Q3, corresponding to an improvement of 1.8 percen t - age points. Relative to the target of claims prevention measures totalling DKK 350m at the end of 2013, measures totalling DKK 330m had been realised at the end of Q3. The combined target for the period up to 2015 is DKK 700m. While the measures have previously centred primarily on motor, in Q3 greater focus was on the procurement of claims services within building and contents insurance, among other things through the use of Scalepoint. Moreover, the aim is to leverage Tryg s purchasing strength and to enter into agreements with craftsmen based on fixed prices for pre-defined jobs. Tryg has extended an offer to customers whereby they can have their basements checked by an authorised sewer contractor with a view to assessing ways of reducing the risk of weather-related claims. Moreover, Tryg has introduced Tryg Burglary check, offering burglary checks conducted in collaboration with the Danish Locksmith Federation. The target group has been customers who have been burgled in the past 20 months. The initiatives have been welcomed by customers who would generally be happy to recommend the initiatives to other customers. The large claims ratio was 1.7 (3.5) and was thus lower than the approximately 2.3 expected for an average quarter. As mentioned earlier, this includes a guarantee insurance claim, which has a considerable impact on the gross claims ratio, but which has only a limited impact on the results due to reinsurance. 4 Interim report Q1-Q Tryg A/S

7 Costs The expense ratio was 15.5 (16.4), which represents a marked improvement relative to the prior-year period and which must be seen in the context of an expense ratio target of less than 15 in The lower expence ratio is to contribute to ensure competitive products to the benefit of both costomers and shareholders. The improved expense ratio is attributable, in particular, to the efficiency programme implemented, which aims at reducing costs by DKK 300m in the period up until The cost reductions have primarily been achieved through job cuts in staff support functions. The ongoing efforts to reduce cost levels for the Group focus on the IT area. With the aim of ensuring stable IT operations and creating scope for innovation, both the IT operations contract and central IT development activities have been put out to tender. Furthermore, decisions concerning the future office structure are also expected to contribute to increasing efficiency and thereby reducing costs. The new office structure is adabted to the customers needs and has resulted in a reduction in the number of offices. Structural changes focusing on the establishment of larger units can increase efficiency, while at the same time reduce dependence on single resources and improve the scope for collaboration. As a result of the efficiency programme, Q3 saw further cost reductions of DKK 20m, with the combined cost reductions now standing at DKK 115m. The total cost reduction target is DKK 125m by the end of In addition to the cost reductions in the effiency programme, the premium level has been streamlined, which should be seen in light of the expense ratio target of less than 15 in 2015 and the development in premium income. The Group s nominal cost level was reduced by almost DKK 100m as a result of the efficiency programme implemented, the general streamlining of cost levels and the provision in Q of DKK 60m for restructuring costs incidental to the efficiency programme. At the end of Q3 2013, the number of employees was 3,757, corresponding to a reduction of 53 employees since Q and a total of 156 employees since the beginning of the year. Targets claims Targets expenses DKKm Total savings on claims 2012 Achieved Achieved DKKm Total savings and expenses Achieved Opnået Target Achieved in Q (45 DKKm) Achieved in Q (75 DKKm) Achieved in Q (90 DKKm) Target Achieved in 2012 (55 DKKm) Achieved in Q (20 DKKm) Achieved in Q (20 DKKm) Achieved in Q (20 DKKm) Tryg A/S Interim report Q1-Q

8 As mentioned above, focus has been on reducing staff support function costs, while some business areas have taken on more employees to strengthen distribution. Investment return Tryg discounts technical provisions and matches the disbursement profile of the provisions with bonds. Investment assets other than those included in the match portfolio are included in the free investment portfolio and are invested broadly. improved from 88.5 to 87.3, ascribable to the results of the efficiency programme which more than compensated for a higher level of large claims. Run-off was 4.9%, which is about the same level as in 2012 when run-off was 5.1. The claims ratio, net of ceded business, was 71.6 (72.0) and was positively impacted by the efficiency programme, which more than compensated for a higher level of weather claims and large claims in all. The return on the match portfolio was negative at DKK 33m. The free investment portfolio totalled DKK 12.3bn at the end of Q and yielded a gross return in the period of DKK 243m, corresponding to a return of 2.0% (8.0% p.a.) on the average invested capital. Profit before and after tax Profit before tax was DKK 907m (DKK 976m). The profit for the period after tax and discontinued business was thus DKK 715m (DKK 733m). Tax on continuing business constituted an expense of DKK 196m, corresponding to a tax rate of 21.6%. The measures implemented as part of the efficiency programme have been supplemented by a large number of customer-oriented initiatives in the form of new customer concepts and new differentiated products in both the Danish and Norwegian markets. Capital Tryg s equity totalled DKK 10,854m at the end of Q Tryg determines the individual solvency need according to the Danish Financial Supervisory Authority s guidelines. The individual solvency requirement totalled DKK 6,424m at the end of Q and should be seen in relation to a capital base of DKK 11,622m. Tryg thus has a surplus cover of DKK 5,198m, corres ponding to a buffer of 81%. Results for Q1-Q Profit before tax was DKK 2,354m (DKK 2,379m). The slightly lower result of DKK 25m is attributable to an improved technical result of DKK 106m, whereas the investment return totalled DKK 434m against DKK 580m in the prior-year period. The combined ratio was Mid-March, Tryg initiated a share buy back in the amount of DKK 800m, with 1,103,890 shares at a total amount of DKK 540m having been bought back at the end of Q The buy back will be completed at the end of Interim report Q1-Q Tryg A/S

9 Tryg A/S Interim report Q1-Q

10 Private 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, franchisees (Norway), interest organisations, car dealers, estate agents and Nordea s branches. The business area accounts for 48% of the Group s total premium income. Results for Q Private posted a technical result of DKK 440m (DKK 404m), corresponding to an increase of approx. 10%, which is attributable, in particular, to the efficiency programme implemented. The level of weather claims and run-off gains was on roughly the same level as in the prior-year period, and the underlying improvement in the combined ratio totalled 1.5%. In Q3, the Private market in Denmark was characterised by budding optimism and also by slightly higher activity levels in the housing market. Sales of private cars plummeted in July, but August saw the same positive trends as last year, and so far sales of new cars are up 5.2% in 2013 relative to last year. Sales were still dominated by strong sales of small cars with more safety features, resulting in lower average insurance premiums. The Norwegian economy remains characterised by growth, a high level of private consumption, low unemployment and pay increases of approx. 4%. All in all, car sales for the months of July and August were about 2% down on the prior-year period, whereas 2013 has seen growth of 0.6% to date. Norwegian inflation remains low, but as the development in pay levels has a bearing on many repairs, Tryg continues to monitor this development closely in order to be able to adjust the tariffs for the individual products. Key figures Private DKKm Q Q Q1-Q Q1-Q FY 2012 Gross premium income 2,478 2,329 7,284 7,076 9,733 Gross claims -1,709-1,507-5,367-4,865-7,084 Gross expenses ,141-1,084-1,524 Profit/loss on gross business ,127 1,125 Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result ,049 1,233 Run-off gains/losses, net of reinsurance Key ratios Premium growth in local currency Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance 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 (%) Interim report Q1-Q Tryg A/S

11 Premiums Gross premium income decreased by 2.9% and was affected by both the competitive situation, profit sharing and the new distrib ution agreement with Nordea. Initiatives introduced in recent years to improve profitability have also resulted in improved results in group agreements that include a profit-sharing element. This means, of course, that the level of profit sharing is higher than previously, while the distribution agreement with Nordea also includes profit sharing. Exclusive of bonus and premium discounts, negative growth of 1.4% was posted for Q The strong sales of small cars with many safety features also mean that premium income is reduced, as the risk and thus the price of insurance are lower. motor insurance cover which means that customers no longer lose bonus points in connection with damage to their parked car caused by another car, and where it is not known who caused the damage. Tryg is the first company to launch this cover, and many customers have welcomed this step. In the Danish market, Tryg launched a new special benefits programme in Q2 (Tryg Plus), which in addition to the well-known benefits is very much based on customer needs. This has led to the benefits Tryg ID, Tryg Safe in Life, Tryg Home Alarm and Tryg Backup. The new concept has been well received, with customers already showing a lot of interest in Tryg Home Alarm in particular. The renewal rate was at a high level, though a slight decrease was recorded in Denmark. In the Norwegian market Private has seen a positive inflow of customers. The development in premium income is also influenced by the profitability-enhancing initiatives introduced in recent years, leading to a small fall in retention rate which, moreover, has been increasing for several years. In the Private segment, continued focus has been on developing price-differentiated products and new customer concepts in the form of special benefits programmes for customers. The more pricedifferentiated products are, among other things, characterised by the inclusion of significantly more parameters in calculating the right price. Thus, the number of parameters included for travel insurance have been increased from 1 to 4, and for leisure house insurance the number of parameters has been increased from 2 to 14. It has also been important that many of the additional parameters are accessed via external data. In our contact with potential customers, we can clearly see that the rate of sales has been higher than for the old nondifferentiated products. The high sales rate has also been positively influenced by the significantly better selcetion of potential customers. Initially, the focus has been directed at the Danish market, and the customers reaction to the new price-differentiated products within contents, travel insurance, leisure house and caravan insurance shows that it is right to develop these products. A new house insurance was launched in the Norwegian market in Q2, and in Q3 Tryg was the first company to introduce a new type of In the Norwegian market, a Tryg Plus concept has just been launched which is structured much like the Danish concept. Claims The gross claims ratio was 64.7 (69.0). The claims ratio, net of ceded business, was improved from 68.9 to 66.4, with most of the 2.5 percentage point improvement being ascribed to the ongoing efficiency programme, which addresses both improved procurement of claims services and a more efficient claims handling organisation. The underlying level was thus improved by 1.6 percentage points. Costs The expense ratio for Private was 15.1 (15.0) as a result of continued improvements following the streamlining of staff support functions and lower up-front commissions to Nordea. Striking the right balance between profitability and new business is still Tryg s main focus. However, owing to a need to strengthen sales efforts, the number of employees has been increased, and at the end of Q3 totals 930 against 919 at the end of Q2. Results for Q1-Q A profit of DKK 1,049m (DKK 907m) was posted for Q3 as a result of the initiatives implemented. The combined ratio for Q1-Q was 85.5 (87.9), representing an improvement of 2.4 percentage points. All in all, the Private segment results for Q1-Q3 are very satisfactory and provide a sound basis for the continued work on product differentiation and the continued development of customer concepts. Tryg A/S Interim report Q1-Q

12 Commercial Commercial encompasses the sale of insurance products to small and medium-sized businesses in Denmark and Norway. Sales are effected by Tryg s own sales force, franchisees (Norway), customer centres as well as through group agreements. The business area accounts for 18% of the Group s total premium income. Results The technical result for Commercial was DKK 177m (DKK 193m). This is satisfactory and demonstrates the effect of the initiatives implemented, the structural adjustments to improve cost levels, as well as the streamlining of the distribution. Commercial will continue to focus on the streamlining of internal processes and on the ongoing streamlining of distribution. Concurrently, efforts will continue to improve the segmentation and the pricing of key products. In this context, Commercial has observed a positive effect of an improved tariff within workers compensation insurance, which has contributed to increasing competitiveness and selection and thereby activity levels in the distribution. The combined ratio was 79.9 (79.2), which is a very low level and which is partly attributable to the fact that Q3 is usually better than the year as a whole. The market situation for the commercial area did not change significantly in Q and is still very different in Denmark and Norway. Despite a slightly higher level of consumer confidence, the Danish market is characterised by a low level of private consumption, investment caution and a restrained appetite for lending by the banks, which all in all impacts business negatively. The situation in Norway is largely unchanged with a positive market for small and medium-sized businesses based on a high level of private consumption. Premiums Gross premium income for Q3 amounted to DKK 859m (DKK 931m), corresponding to a decrease of 5.8% in local currencies. The negative development in premium income was expected following the profitability measures implemented. The growth is also impacted by profit Key figures Commercial DKKm Q Q Q1-Q Q1-Q FY 2012 Gross premium income ,781 2,666 3,687 Gross claims ,830-1,747-2,372 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 currency Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance 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 (%) Interim report Q1-Q Tryg A/S

13 sharing and the regulation of some products in the Norwegian part of the business, the combined effect being 1.7%. Activity levels improved in the past quarter, while customer retention developed positively in both Denmark and Norway. In addition to the profitability measures implemented, a new workers compensation tariff has been introduced in both Denmark and Norway, which far better reflects variations in risk for the various segments and thus the preparation of quotes for different segments. This is also reflected in the fact that tariff adjustments in the form of either price reductions or increases are now far less common. Commercial s share of the Norwegian market is considerably lower than its share in the Danish market, and the distribution setup will therefore be strengthened in Norway with a view to increasing this share, while at the same time focusing on maintaining the profitability which has been attained. Claims The gross claims ratio was 55.3 (56.8), and the claims ratio, net of ceded business, was 59.4 (59.1). The development in the claims ratio, net of ceded business, is due to Tryg s own measures to improve the claims procedure within, in particular, the building and contents insurance market as well as a reduction in the number of employees involved in claims handling. Costs The expense ratio was 20.5, representing an increase which must be seen in light of the lower premiums. However, the nominal cost level has been reduced by about 6%, which must be seen in the context of the objective of improving cost levels for the purpose of improving Commercial s competitiveness. As mentioned above, cost levels must be improved through process optimisation in Commercial and more efficient distribution, which is to be achieved, among other things, through a redefinition of the tasks to be performed by Commercial insurance agents and those to be performed by service centres and outbound sales channels. The number of employees in Commercial was 507 at the end of Q3, down by 57 since the beginning of 2013, when the number of employees was 564. Results for Q1-Q A profit of DKK 369m (DKK 448m) was posted for Q1-Q3, resulting from an improvement in profit, based on measures within pricing, pruning of the loss-making portfolio and the effect of the cost and claims measures implemented, but which was also negatively impacted by a considerably higher level of weather claims and large claims. The higher large claims level is due to the fire damage to a listed manor house in Denmark. The combined ratio was 86.4 in Q1-Q (84.2), which, adjusted for the level of large claims, weather claims and run-off as well as the interest rate level, corresponds to an improvement of 2 percentage points. Generally, Q1-Q progressed as expected with an underlying improvement of the combined ratio as a result of profitability measures and efficiency-improving measures as well as an expected small reduction in business volume due to price increases, pruning and lower economic growth. Tryg A/S Interim report Q1-Q

14 Corporate Corporate sells insurance products to corporate customers under the brand Tryg and Tryg Garanti in Denmark and Norway and Moderna in Sweden. Sales are effected both via Tryg s own sales force and via insurance brokers. Moreover, customers with international insurance needs are served by Corporate through its cooperation with the AXA Group. The business area accounts for 26% of the Group s total premium income. Results for Q A profit of DKK 95m (DKK 95m) was posted and influenced, among other things, by a large claim within Tryg Garanti, which significantly impacted the gross claims level by DKK 0.7bn. The impact on profit is limited, however, as it has been decided to maintain a higher reinsurance level for this type of business. This is due to the fact that guarantee insurance is more market-sensitive than Corporate s other business activities. The results from the guarantee insurance business have generally been satisfactory and will have contributed positively to Tryg s earnings, also after recognition of this claim. The combined ratio was 92.8 (92.6) and was affected by a higher level of medium-sized claims, which can especially be referred to motor, liability insurance and property. The run-off level was somewhat higher than in Q As a consequence of the longer duration and thus higher level of provisions in Corporate s portfolio, the run-off result will normally be higher than for the other business areas. The Danish Corporate segment is affected by the difficult economic situation in the Danish market. The insurance needs of Danish businesses are growing only slightly, and factors such as a rising number of bankruptcies and foreign acquisitions have contributed to reducing business volume. The Norwegian market continues to be positively affected by solid domestic growth. The economic Key figures Corporate DKKm Q Q Q1-Q Q1-Q FY 2012 Gross premium income 1,311 1,241 3,928 3,798 5,258 Gross claims -1,025-1,387-2,894-3,326-3,929 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 currency Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance 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 (%) Interim report Q1-Q Tryg A/S

15 situation in Sweden has no major impact on the Corporate portfolio as the portfolio is still in the development phase. Premiums Premium income was DKK 1,241m (DKK 1,311m), representing a drop of 2.1% in local currencies. The reduction in premium income is mainly due to the measures implemented to improve the portfolio s profitability. The largest outflow of customers was seen in the segments served by brokers, and the Norwegian market saw particularly fierce price competition within personal injury insurance. It is difficult to price this type of business correctly, and Tryg has chosen to maintain a profitable price level based on Tryg s experience. For some time, this has made it difficult to attract new business as price levels in the market have been too low. In the course of 2013, however, an improvement has been seen in these conditions, and Tryg has successfully entered into new agreements with a number of major customers. To increase loyalty, self-service solutions have been developed for specifically Norwegian personal injury insurance customers, offering customers their own portal and thus a place where they can easily gain an overview of their entire insurance programme. Tryg s customers appreciate the simple approach to insurance, and, in addition to forging closer ties with customers, the solution is also an asset in connection with sales to new customers. The Swedish Corporate segment posted growth of approximately 8%, reflecting continued controlled growth with focus on profitability. In this context, it is a strength that many brokers view Moderna as the preferred company. Claims The gross claims ratio stood at (78.2), while the claims ratio, net of ceded business, was 80.5 (80.7). The high gross claims level can be attributed to the claim mentioned within Tryg Garanti. The run-off level was high for the quarter, but on a par with previous quarters, and medium-sized claims were also at a higher level, as mentioned. Costs The expense ratio totalled 12.3 (11.9), and the higher level is mainly attributable to the reduction in business volume, which is also reflected in a reduction in the nominal cost level. Results for Q1-Q The profit for Q1-Q totalled DKK 427m (DKK 529m). The combined ratio for Q1-Q3 was 89.0 (86.8) and can primarily be ascribed to the higher large claims level. All in all, the results are satisfactory, and the lower premium level emphasises Tryg s focus on profitability, which is also reflected in an improved underlying claims level, while activities will be implemented with a view to tailoring costs to the lower premium level. Tryg A/S Interim report Q1-Q

16 Sweden Sweden comprises the sale of insurance products to private customers under the Moderna brand. Sales are effected via Tryg s own sales people, call centres and the Internet. This business area accounts for 8% of the Group s total premium income. Results for Q The profit for Sweden was DKK 54m (DKK 48m). The profit is satisfactory thanks to the many profitability measures implemented in the Swedish business. The niche areas comprising leisure boats, car sports/motorcycles and product insurance reported good results. The results for the Private segment as such were satisfactory. The combined ratio was reduced to 87.8 (90.8), thus being the first time a combined ratio under 90 for Sweden was attained. The low combined ratio was made up by a solid improvement in the level of claims and a slightly higher cost level, which, however, was at a very satisfactory level. Premiums Premium income was DKK 442m (DKK 477m) in Q3 2013, representing a fall of 4.7% in local currencies. The negative development in premium income was expected as a consequence of the structural measures implemented in the form of the termination of the distribution agreement with Nordea and the relocation of the distribution from Luleå to Malmö. These measures contributed significantly to improving profitability. Key figures Sweden DKKm Q Q Q1-Q Q1-Q FY 2012 Gross premium income ,255 1,239 1,654 Gross claims ,267 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 currency Gross claims ratio Net reinsurance ratio Claims ratio, net of reinsurance Gross expense ratio Combined ratio Combined ratio exclusive of run-off Run-off, net of reinsurance (%) Weather claims, net of reinsurance (%) Interim report Q1-Q Tryg A/S

17 The work on establishing an efficient distribution channel in Malmö continues as planned, but the final structure is not expected to be fully in place until the end of the year. The closing of the Luleå office is also proceeding according to plan, and negotiations have been initiated with a third party about the takeover of premises and employees. An agreement with new partners in replacement of the discontinued one with Nordea is in progress. Moderna s new benefits programme, Moderna Bonuskund, has resulted in more policies being taken out and more products being sold per customer. In September, a new product structure was launched, which is divided into small, medium and large. The large product has received an excellent ranking from the Swedish consumer organisation. To achieve synergies in the distribution, cross-selling of private insurance has been initiated between the leisure boat insurance and car sports/motorcycle niche areas, which has progressed satisfactorily. In general, sales of leisure boats are up, which can be attributed to a good summer which stimulated interest in the leisure boat market. Claims The claims ratio for Q was 72.6 (75.3), which is an expected positive development owing to the profitability measures implemented. Moderna is characterised by high claims handling efficiency, with 35-45% of all claims being finalised on the day of reporting. Costs The expense ratio was 14.7 (14.5), which is a very satisfactory level, particularly in light of the business volume. The integration of the IT systems from the original Swedish business and the acquired Moderna s systems has progressed satisfactorily and will improve efficiency going forward. Results for Q1-Q The profit for Q1-Q totalled DKK 105m (DKK 48m). The combined ratio was 92.2 in Q1-Q (97.8). The improvement can be ascribed to the above profitability measures and measures aimed at reducing nominal costs. The results posted by the Swedish business are very satisfactory and were achieved concurrently with the launch of new customer concepts, which have been well received by the Swedish market. The cross-selling activities are also promising. Tryg A/S Interim report Q1-Q

18 Investment activities In Q3 2013, Tryg s total investment portfolio of DKK 43.9bn yielded a gross return of DKK 302m (DKK 703m), corresponding to a return of 0.7% on the average invested capital during the period. After transfers to insurance technical interest, the net investment return totalled DKK 210m (DKK 396m). Other financial income and expenses was negative with DKK 58m in Q (DKK -58m), including expenses of DKK 23m to the subordinate loan capital. This brings the total investment return to DKK 152m in Q3 (DKK 338m). The results were achieved against a background of extremely positive equity markets and positive developments in the credit markets. Therefor, in spite of the conflict in Syria, rising interest rates and the increasing uncertainty about the US budget and debt ceiling, Tryg achieved satisfactory results of DKK 243m in the free portfolio (DKK 370m), from which a negative mismatch of DKK 33m should be deducted in Q3 (DKK 26m). Match portfolio Tryg matches the insurance provisions with the assets in the match portfolio so that changes in interest rate levels affect Tryg s results as little as possible. This leads to generally lower variation in the results and will under Solvency II reduce the capital requirement needed to accommodate fluctuations. The return on the match portfolio must cover price adjustments of the claims provisions and the insurance technical interest. Tryg s aim is to reduce deviations as much as possible, which in Q was reflected in a negative mismatch of DKK 33m, corresponding to a deviation of around 0.1% of the securities in the match portfolio. In the generally optimistic environment in Q3, the Nordic region s status as a safe haven has come to play a clearly less important role to especially foreign investors. Thus, the Danish/German and the Norwegian/German interest rate gaps widened significantly during the quarter, and the Nordic bonds lost ground to the German bonds. With a local swap hedge in the match portfolio, the mismatch of DKK 35m in H1 was reduced to DKK 2m year to date. The match portfolio was reduced by DKK 0.5bn in the period, amounting to just over DKK 31.6bn at the end of Q The reduction in the match portfolio primarily results from a reduction in the value of Tryg s provisions, which are typically reduced in the course of the calendar year and then increase again in January. Key figures Investment activities Return Return Q Investment assets DKKm Q Total Match Free Bonds, cash deposits, etc ,431 39,095 Equities ,444 2,779 Real estate ,082 2,055 Total ,957 43,929 Value adjustments, changed discount rate Transferred to insurance technical interest Total investment return before other financial items Other financial income and expenses, investments* Total investment return Other financial income and expenses, non-investment a) Total investment a) The item comprises interest on operating assets and bank debt, exchange rate adjustments of insurance items and costs of investment activities. 16 Interim report Q1-Q Tryg A/S

19 Free investment portfolio The free investment portfolio is mainly made up of equities, real estate and bonds and in Q generated a total gross return of DKK 243m, corresponding to 2.0% (8.0% p.a.) on the average invested capital. The free portfolio amounted to approx. DKK 12.3bn at the end of Q3 2013, up DKK 0.4bn compared to the end of Q Other financial income and expenses Other financial income and expenses were negative at DKK 58m in Q This is attributable, among other things, to Tryg s currency hedging of the Swedish and Norwegian branches capital of DKK 12m, as well as expenses relating to Tryg s subordinate loans of DKK 23m. The political uncertainty in the USA, in terms of both fiscal and monetary policy, had an impact on the return on Tryg s free portfolio in Q3. The postponement of the US Federal Reserve s gradual reduction of bond purchases came as a surprise to the financial markets, but also served to curb rising interest rates. Thus, the concern about developments in emerging market securities was also allayed, resulting in a return on Tryg s free bond portfolio of DKK 60m. The equity markets were also boosted by the US Federal Reserve rhetoric, and Tryg s free equity portfolio generated a positive return of DKK 160m in Q3, corresponding to 6.3% (25% p.a.). In comparison, the global index yielded a return of 6.4% in Q3. Results for Q1-Q Tryg s total investment portfolio yielded a gross return of DKK 693m (DKK 1,721m). After transfers to insurance technical interest, the net investment return totalled DKK 610m (DKK 930m). The bond port folio as a whole yielded a return of DKK 221m in the first three quarters of Year-to-date, the match portfolio has delivered a lower but positive mismatch of DKK 2m. The free investment portfolio yielded a total return of DKK 608m in the first three quarters of 2013, with equities accounting for DKK 136m, shares DKK 401m and the real estate portfolio for DKK 71m. The real estate portfolio, comprising Danish and Norwegian investment properties, generated a return of DKK 23m in Q3 2013, which was in line with expectations. Key figures Investment activities Return Return Q1-Q Investment assets DKKm Q1-Q Total Match Free Bonds, cash deposits, etc. 1, ,431 39,095 Equities ,444 2,779 Real estate ,082 2,055 Total 1, ,957 43,929 Value adjustments, changed discount rate Transferred to insurance technical interest Total investment return before other financial items Other financial income and expenses, investments* Total investment return Other financial income and expenses, non-investment a) Total investment a) The item comprises interest on operating assets and bank debt, exchange rate adjustments of insurance items and costs of investment activities. Tryg A/S Interim report Q1-Q

20 Capital Tryg calculates the capital requirement under two different capital regimes. One capital regime concerns the statutory capital as defined in the Danish Financial Business Act (Lov om finansiel virksomhed), in which the Danish authorities require active capital management through the quarterly calculation of an individual solvency need. Tryg s calculation of the individual solvency need is based on the Group s internal capital model. The other capital regime concerns the future Solvency II, where Tryg calculates the capital requirement according to the latest version of the standard model under Solvency II. Tryg has an interactive A- rating from Standard & Poor s, and the capital will be sufficient to support this rating. Statutory capital The individual solvency need was DKK 6,424m in Q against DKK 6,486m in Q This should be seen in light of the capital base, which stood at DKK 11,622m in Q At the end of Q2 2013, the capital base was DKK 10,841m. This entails a surplus cover of DKK 5,198m, corresponding to a buffer of 81% in Q against a surplus cover of DKK 4,355m, corresponding to a buffer of 67%, at the end of Q Solvency II standard model The capital requirement under the standard model (SCR) was DKK 8,132m in Q against DKK 8,140m in Q Own funds were DKK 12,479m in Q3 2013, resulting in a surplus cover of DKK 4,347m, or a buffer of 53%. At the end of Q2 2013, own funds amounted to DKK 12,008m, corresponding to a surplus cover of DKK 3,868m, or a buffer of 48%. New individual solvency calculation rules The Danish Financial Supervisory Authority is preparing new individual solvency need calculation rules which are scheduled to take effect on 1 January The rules are currently subject to a public consultation, and Tryg takes part in this process. There is still considerable uncertainty as to the wording of the final Act, but the main aim is to ensure a uniform confidence level corresponding to a 99.5% confidence level over a one-year time horizon, based on the forthcoming Solvency II standard model. Furthermore, it will be possible to use internal models if it can be demonstrated that such models guarantee the same level of confidence as a minimum. Share buy back Mid-March, Tryg initiated a share buy back in the amount of DKK 800m, with 1,103,890 shares at a total amount of DKK 540m having been bought back at the end of Q The share buy back will be realised at the end of Capital DKKm 12,000 10,000 8,000 6,000 4,000 2, ,198 6,424 Individual Solvency 4,347 8,132 Solvency II Capital requirement Buffer 18 Interim report Q1-Q Tryg A/S