Annual report 2013
Annual report 2013
Management’s review Company information
Financial statements Statement by the Supervisory Board and the Executive Management
Independent auditor’s report
Statement of financial position
Company information Supervisory Board Truls Holm Olsen, Group Executive Vice President, Chairman Per Fornander, Group Executive Vice President Ole Hesselager, Head of Group Risk Tor Magne Lønnum, Group CFO
Internal audit Jens Galsgaard
Executive Management Mads Dalsgaard Løgstrup
Ownership Tryg Garantiforsikring A/S forms part of the Tryg Forsikring Group, and the share capital of DKK 45m is wholly owned by Tryg Forsikring A/S, Ballerup, Denmark.
CVR no. 10163714
Tryg Garantiforsikring A/S Klausdalsbrovej 601 DK-2750 Ballerup
Tel. +45 44 20 39 00 Fax +45 44 20 66 98 tryggaranti.com
Audit Deloitte, Statsautoriseret Revisionsaktieselskab
Editors Design Layout
Tryg Garanti e-types amo design
General information The company operates in the fields of guarantee and credit insur-
The company uses reinsurance extensively, which means that
ance. The company has a local presence in Denmark, Norway,
the company is highly robust in relation to fluctuations in results
Sweden and Finland.
in its gross business due to changing economic trends or major single events.
The company’s business model centres on the provision of guarantees for counterparty risk in connection with commercial agreements.
In 2013, the economic climate was challenging in the company’s
Our guarantee insurance products include performance bonds for
main market, which is performance bonds for Danish contractors.
developers to guarantee satisfactory completion of a project by a
More major claims were seen than in previous years, and more bank-
contractor. In credit insurance, financial compensation is paid to the
ruptcies have led to a marked increase in gross claims expenses.
insured if a debtor does not meet his payment obligations. The underlying claims ratio is lower than for the previous year, The company markets itself under the ‘Tryg Garanti’ brand, except
but still at a higher-than-normal level for the industry.
in Sweden, where the company uses the ‘Moderna Garanti’ brand in accordance with the Tryg Group’s branding strategy.
The technical result for the year is DKK 16.8m. This is slightly better than the previous year, but does not meet expectations
As a result of the company’s activities, the company’s financial
at the beginning of the year.
development depends to some extent on economic trends. When the economy is doing well, claims levels are usually lower than
Profit before tax was DKK 19.6m against DKK 26.5m the
during economic downturns. The economic climate can also
impact the demand for and pricing of the company’s products.
Tryg Garanti A/S | Annual report 2013 | 1
Gross premium income 173.6 203.5 250.7 297.5 317.1 Gross claims -37.1 -63.4 -167.6 -200.5 -886.9 Total insurance operating costs -54.4 -52.1 -64.6 -59.4 -45.6 Profit on gross business 82.1 88.0 18.5 37.6 -615.4 Profit on ceded business -38.7 -31.4 -18.6 -26.2 630.4 Insurance technical interest, net of reinsurance 1.8 1.8 1.7 2.8 1.8 Technical result 45.2 58.4 1.6 14.2 16.8 Investment return after insurance technical interest 31.5 16.3 19.5 12.3 2.8 Profit before tax 76.7 74.7 21.1 26.5 19.6 Tax -21.2 -18.3 -6.5 -5.9 -3.4 Net profit for the year 55.5 56.4 14.6 20.6 16.2 Run-off gains/losses, net of reinsurance 10.1 18.7 1.9 5.4 0.1 Relative run-off gains/losses 11.6 19.6 1.7 3.7 0.1 Statement of financial position Total provisions for insurance contracts 181.2 236.9 291.2 430.0 852.1 Total reinsurers’ share of provisions for insurance contracts 80.0 114.6 130.0 201.7 620.8 Total equity 443.7 415.7 430.5 450.8 418.5 Total assets 683.0 762.4 803.6 1,018.4 1,590.4 Key ratios Gross claims ratio 21.4 31.2 66.8 67.4 279.7 Net reinsurance ratio 22.3 15.4 7.4 8.8 -198.8 Claims ratio, net of ceded business Gross expense ratio
Operating ratio 74.3 71.6 99.4 95.2 94.7 Other information Percentage return on equity 13.3 13.1 3.4 4.7 3.7 Solvency coverage ratio (Solvency I) 12.5 11.6 13.1 10.8 6.1
2 | Annual report 2013 | Tryg Garanti A/S
Financial highlights of Tryg Garantiforsikring A/S
Net profit for the year and equity
Tryg Garanti’s net profit for the year totalled DKK 16.2m (DKK 20.6m
Investment return before transfer of insurance technical interest was
in 2012), which corresponds to a return on equity of 3.7% (4.7% in
DKK 4.5m in 2013 (DKK 13.8m in 2012) and is markedly lower than
2012). The result is based on a slight increase in the technical result
for previous years. Interest income amounts to DKK 15.2m (DKK
of DKK 2.6m and a markedly lower investment return than in previous
14.9m in 2012). Realised and unrealised investment gains and losses
years. The net profit for the year was achieved despite a markedly
were DKK -10.5m (DKK -0.1m in 2012).
higher gross claims level due to a single large claim in the course of the year. At 95.3, the combined ratio is up slightly on last year (96.1).
Interest rate sensitivity on the bond portfolio and insurance liability provisions is DKK 4.9m (DKK 6.9m in 2012) in the event of an inter-
Proposed resolutions for the annual general meeting
est rate change of 1 percentage point. The duration of the company’s
Against the background of the net profit for the year, the Supervisory
bond portfolio is 1.0 years at the end of the year (1.5 years in 2012).
Board proposes that no dividend be paid for the financial year. Capital and ownership Premium
Tryg Garantiforsikring A/S is a company in the Tryg Forsikring Group,
Total gross premium income for 2013 is DKK 317.1m (DKK 297.5m
which forms part of the Tryg Group. The Tryg share is listed on Nas-
in 2012). The increase in gross premiums written, corresponding to
daq OMX Copenhagen.
a growth in premiums of 7.1% in local currencies relative to 2012, reflects increased activity and price levels. Premium income from
The company’s share capital amounts to DKK 45m and is wholly
branches outside Denmark amounts to a combined approx. 30%,
owned by Tryg Forsikring A/S, Ballerup, Denmark. The company’s
which is on a par with the year before. Premiums are impacted by
equity totalled DKK 418.5m at 31 December 2013 (DKK 450.8m at
the reclassification of fee income from gross premium income to
31 December 2012). The annualised return on equity was 3.7% in
gross expenses (DKK 18.5m).
2013 (4.7 % in 2012).
The company’s capital base, which is DKK 327.3m (DKK 301.7m
Gross claims total DKK -886.9m (DKK -200.5m in 2012).
in 2012), exceeds the statutory solvency requirement of DKK 53.3m
The increase is attributable almost exclusively to one large claim in
by DKK 274.0m.
the Danish guarantee insurance business with an impact of approx. DKK 700m. Due to the reinsurance programme, the claim is reduced
The company’s capital management is based on the calculation of
to a net amount of DKK 30m. The claims ratio totals 80.9 against
the individual solvency requirement. As part of the preparations for
76.2 the previous year.
the future Solvency II rules, which are expected to come into force on 1 January 2016, Tryg Garanti calculates the individual solvency
requirement according to the Solvency II standard formula for credit
Claims received from reinsurers amount to DKK 765.3m
and surety providers. As at 31 December 2013, the individual solvency
(DKK 89.6m in 2012). For further information about the overall
requirement amounted to DKK 242.2m (DKK 215.7m in 2012).
reinsurance programme, see Note 1 ‘Risk management’. Due to the repeated postponement of Solvency II, the Danish FiInsurance operating costs
nancial Supervisory Authority has implemented the most important
The expense ratio was 14.4 in 2013 (19.9 in 2012) and is impacted
elements through the revised Executive Order on Solvency and
by the reclassification of fee income from gross premium income to
Operating Plans for Insurance Companies which took effect on
gross expenses (DKK 18.5m). Expense levels are deemed to be satis-
1 January 2014. The executive order contains provisions on the
factory in relation to the increasing premium levels for the year.
use of the standard formula for calculating the individual solvency
Tryg Garanti A/S | Annual report 2013 | 3
requirement. As Tryg Garanti has already taken account of the
Events after the statement of financial position date
future Solvency II rules in connection with the calculation of the
No events have occurred since the statement of financial position
company’s capital requirements, the new executive order will not
date which are deemed to impact the assessment of the company’s
have any significant bearing on the calculation of the company’s
situation described in this annual report.
individual solvency requirement. Activities abroad The executive order also contains provisions on the calculation of
The company has branches in Norway, Sweden and Finland. The
‘an adequate capital base’ based on the capital base with the addi-
branches are registered in the local company registers.
tion and deduction of the most important capital elements from the Solvency II rules. This change is expected to result in a not immate-
The company’s activities abroad may also take the form of cross-
rial increase in the company’s capital for covering the individual
border services in accordance with licences granted by the Danish
Financial Supervisory Authority within the framework of the Danish Financial Business Act (Lov om finansiel virksomhed). Information
In addition to complying with Danish statutory requirements,
on licences granted appears from the Danish Financial Supervisory
Tryg Garanti is rated by Standard & Poors. Tryg Garanti’s most
recent rating is an ‘A-’ with a stable outlook. Outlook The annual report forms part of the consolidated financial state-
The company maintains its focus on further developing its position
ments of TryghedsGruppen smba, Tryg A/S and Tryg Forsikring A/S,
as a provider of guarantee and credit insurance solutions to custom-
Ballerup, Denmark (www.tryghedsgruppen.dk, www.tryg.com and
ers in the Nordic countries.
www.tryg.dk). As in previous years, the most important factor impacting the comOther information
pany’s financial development will be the economic developments.
The administration of the company is handled in part by Tryg For-
The economy is currently expected to improve slightly, which is
sikring A/S, which charges a fee for its services based on resource
expected to have a positive impact on the company’s results.
consumption. No fees are paid to the Supervisory Board of Tryg Garantiforsikring.
Claims levels are expected to be lower than for the past year.
Executive Management functions
All in all, the company is deemed to be able to realise satisfactory
Please refer to Note 20 ‘Related parties’ for information on the
Executive Management’s functions. As has been the case in previous years, the results may be impacted The underrepresented gender In 2013, the Supervisory Board adopted a target for increasing the share of members of the underrepresented gender on the Supervisory Board to a minimum of 25%. The aim is to realise this target before the end of 2016. The continuous evaluation of the composition of the Supervisory Board has not given rise to changing the composition of the Supervisory Board; on 31 December 2013 the Supervisory Board therefore consists only of men.
4 | Annual report 2013 | Tryg Garanti A/S
by major single events affecting the insurance activities.
Contents – Financial statements
Financial statements 2013 Page Statement by the Supervisory Board and the Executive Management
Independent auditor’s report
Statement of financial position
Tryg Garanti A/S | Annual report 2013 | 5
Statement by the Supervisory Board and the Executive Management
The Supervisory Board and the Executive Management have today
Furthermore, in our opinion the management’s review gives a true
considered and adopted the annual report for 2013 of Tryg Garanti-
and fair view of developments in the activities and financial position
forsikring A/S. The annual report is prepared in accordance with the
of the company, the results for the year and of the company’s financial
Danish Financial Business Act.
position in general and describes significant risk and uncertainty factors that may affect the company.
In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the company’s
We recommend that the annual report be adopted by the shareholders
assets, liabilities and financial position at 31 December 2013 and
at the annual general meeting.
of the results of the company’s operations for the financial year 1 January - 31 December 2013.
Ballerup, 7 February 2014
Mads Løgstrup Chief Executive Officer
Truls Holm Olsen
6 | Annual report 2013 | Tryg Garanti A/S
Tor Magne Lønnum
Independent auditor’s reports
To the shareholders of Tryg Garantiforsikring A/S
the effectiveness of the entity’s internal control. An audit also includes
Report on the financial statements
evaluating the appropriateness of accounting policies used and the
We have audited the financial statements of Tryg Garantiforsikring A/S
reasonableness of accounting estimates made by management, as well
for the financial year 1 January - 31 December 2013, which comprise
as the overall presentation of the financial statements.
the accounting policies, income statement, statement of comprehensive income, statement of financial position, statement of changes in
We believe that the audit evidence is sufficient and appropriate to
equity and notes. The financial statements are prepared in accordance
provide a basis for our audit opinion.
with the Danish Financial Business Act. Our audit has not resulted in any qualification. Management’s responsibility for the financial statements Management is responsible for the preparation of financial statements
that give a true and fair view in accordance with the Danish Financial
In our opinion, the financial statements give a true and fair view of the
Business Act, and for such internal control as management determines
company’s financial position at 31 December 2013, and of the results
is necessary to enable the preparation and fair presentation of financial
of its operations for the financial year 1 January - 31 December 2013
statements that are free from material misstatement, whether due to
in accordance with the Danish Financial Business Act.
fraud or error. Statement on the management’s review Auditor’s responsibility
Pursuant to the Danish Financial Business Act, we have read the
Our responsibility is to express an opinion on the financial statements
management’s review. We have not performed any further procedures
based on our audit. We conducted our audit in accordance with Interna-
in addition to the audit of the financial statements.
tional Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements
On this basis, it is our opinion that the information provided in the
and plan and perform the audit to obtain reasonable assurance about
management’s review is consistent with the financial statements.
whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence
Copenhagen, 7 February 2014
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgement, including
the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair
Lone Møller Olsen
view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
Tryg Garanti A/S | Annual report 2013 | 7
DKKm 2012 2013 Notes General insurance Gross premiums written 300.0 327.1 Ceded insurance premiums -184.7 -212.6 Change in premium provisions -2.5 -10.0 Change in reinsurers’ share of premium provisions 1.5 5.3
Premium income, net of reinsurance
3 Insurance technical interest, net of reinsurance 2.8 1.8 Claims paid -69.1 -454.5 Reinsurance cover received 21.8 341.5 Change in claims provisions -131.4 -432.4 Change in reinsurers’ share of claims provisions 67.8 423.8
Claims, net of reinsurance
Acquisition costs -35.3 -27.2 Administration expenses -24.1 -18.4
Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers
Insurance operating costs, net of reinsurance
6 Technical result 14.2 16.8 Investment activities 7 Interest income and dividends 14.9 15.2 8 Value adjustments -0.1 -10.5 7 Interest expenses 0.0 0.2 Administration expenses in connection with investment activities -1.0 -0.4 Total investment return 13.8 4.5 3 Return on insurance provisions -1.5 -1.7 Total investment return after insurance technical interest 12.3 2.8 Profit before tax 26.5 19.6 9 Tax -5.9 -3.4 Net profit for the year 20.6 16.2 Proposed distribution for the year: Dividend 50.0 0.0 Transferred to retained profit -29.4 16.2 20.6 16.2
8 | Annual report 2013 | Tryg Garanti A/S
Statement of comprehensive income
DKKm 2012 2013 Notes
Net profit for the year
Other comprehensive income Exchange rate adjustment of foreign entities for the year -0.3 1.5
Total other comprehensive income
Total comprehensive income 20.3 17.7
Tryg Garanti A/S | Annual report 2013 | 9
Statement of financial position
DKKm 2012 2013 Notes Assets 10 Intangible assets 2.9 1.4 11 Investment property 1.2 0.7 Bonds 728.0 761.3 Financial derivatives 0.9 0.0 12
Total other financial investment assets
Total investment assets 730.1 762.0 13 Reinsurers’ share of premium provisions 14.6 17.7 14 Reinsurers’ share of claims provisions 187.1 603.1
Total reinsurers’ share of provisions for insurance contracts
Receivables from policyholders 6.6 3.7 Total receivables in connection with direct insurance contracts 6.6 3.7 Receivables from insurance enterprises 0.6 168.3 Other receivables 1.0 2.2 Total receivables 8.2 174.2 Current tax assets 3.4 4.7 Deferred tax assets 12.7 6.0 Cash at bank and in hand 47.5 8.7 Total other assets 63.6 19.4 Interest and rent receivable 11.9 12.5 Other prepayments and accrued income 0.0 0.1
Total prepayments and accrued income
Total assets 1,018.4 1,590.4
10 | Annual report 2013 | Tryg Garanti A/S
Statement of financial position
DKKm 2012 2013 Note s Equity and liabilities Total equity 450.8 418.5 Premium provisions 29.8 35.8 14 Claims provisions 400.2 816.3
Total provisions for insurance contracts
15 Deferred tax liability 20.3 17.8 Total provisions 20.3 17.8 Debt relating to direct insurance 0.1 0.0 Debt relating to reinsurance 23.1 0.0 Debt to credit institutions 0.0 5.2 16 Debt to Group undertakings 42.0 254.5 Current tax liabilities 0.3 0.0 17 Other debt 47.6 37.6 Total debt 113.1 297.3 Accruals and deferred income 4.2 4.7 Total equity and liabilities 1,018.4 1,590.4 1 Risk management 18 Solvency margin and capital base 19 Contractual obligations and collateral 20 Related parties 21 Financial highlights of Tryg Garantiforsikring 22 Accounting policies
Tryg Garanti A/S | Annual report 2013 | 11
Equity (Danish Financial Supervisory Authority)
Reserve for exchange Share Other rate Equalisation Retained Proposed DKKm capital reserves adjustment reserve earnings dividend Total Equity at 31 December 2011 45.0 139.0 -0.8 81.7 165.6 0.0 430.5 2012 Net profit for the year -29.4 50.0 Exchange rate adjustment of foreign entities for the year -0.3
Total comprehensive income 0.0 0.0 -0.3 0.0 -29.4 50.0 20.3 Dividend paid 0.0 0.0 Total changes in equity in 2012
Equity at 31 December 2012
Equity at 31 December 2012 45.0 139.0 -1.1 81.7 136.2 50.0 450.8 2013 Net profit for the year 16.2 Exchange rate adjustment of foreign entities for the year 1.5
Total comprehensive income 0.0 0.0 1.5 0.0 16.2 0.0 17.7 Dividend paid -50.0 -50.0 Total changes in equity in 2013
Equity at 31 December 2013
Tryg Garantiforsikring A/S has a contingency fund provision amounting to DKK 139m, which is included in the company’s equity. The contingency fund can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured.
12 | Annual report 2013 | Tryg Garanti A/S
1 Risk management As part of Tryg Forsikring, Tryg Garanti is subject to the same risk management activities as Tryg Forsikring. Each year, Tryg Garanti’s management group thus engages in a risk identification process aimed at identifying the most important risks for the area. These risks are monitored on an ongoing basis and are included in the biannual risk reporting by Tryg Garanti and provides input for the overall risk reporting for Tryg Forsikring. Moreover, a number of internal controls are carried out by the company, among other things ensuring that the hedging and handling of insurance risks fall within the company’s adopted guidelines. In addition to following Tryg Forsikring’s risk management methods, Tryg Garanti also monitors selected risk parameters. Particular focus is on the credit quality of individual risks in the insurance portfolio. If a declining credit quality is observed, preventive measures are introduced, for example a reduction of the scope of the risk assumed. Tryg Garanti complies with the reinsurance policy applicable for Tryg Forsikring, which means, for example, that no more than 25% of a given risk is
placed with an individual reinsurer or a consolidated group of reinsurers, and that all reinsurers must have a certain rating from an external rating agency. The reinsurance programme limits the probable loss per risk to a maximum of DKK 30.0m. Tryg Garanti’s capital plan is part of the company’s capital planning. The capital plan is based on assessments of Tryg Garanti’s capital position and a projection of the individual solvency requirement based on the company’s budgets and stresses with scenarios in which the budgetary assumptions do not hold or the company is hit by major negative events. The capital plan informs decisions concerning the distribution of dividend. In conjunction with the capital plan, a capital contingency plan has been prepared which describes specific measures which may be introduced in the short term, should the company’s desired capital position be threatened. The Supervisory Board assesses the relationship between the company’s capital base and solvency requirement quarterly.
Tryg Garanti A/S | Annual report 2013 | 13
DKKm 2012 2013 2 Premium income, net of reinsurance Direct gross premiums 297.5 317.1 Ceded direct insurance -183.2 -207.3 114.3 109.8
Direct insurance, by location of risk
Gross Ceded Gross Ceded Denmark 198.9 -119.1 205.1 -128.8 Other EU countries 45.3 -29.3 53.2 -34.8 Other countries 53.3 -34.8 58.8 -43.7 297.5 -183.2 317.1 -207.3 3 Insurance technical interest, net of reinsurance 2012 2013
Return on insurance provisions Discounting of claims provisions
2.8 1.8 4 Claims, net of reinsurance Claims -208.3 -886.6 Run-off previous years, gross 7.8 -0.3 -200.5 -886.9 Reinsurance cover received, adjusted for change in provisions 92.0 764.9 Run-off previous years, reinsurers’ share -2.4 0.4 -110.9 -121.6 5 Insurance operating costs, net of reinsurance Acquisition costs -35.3 -27.2 Administration expenses -24.1 -18.4 Insurance operating costs, gross -59.4 -45.6 Commission from reinsurers 67.4 72.4 8.0 26.8 For a specification of the auditors’ fee, please refer to Note 7 ‘Insurance operating costs’, Tryg Forsikring Group.
14 | Annual report 2013 | Tryg Garanti A/S
DKKm 2012 2013 5 Insurance operating costs, gross, classified by type Staff expenses 47.0 46.7 Other staff expenses 3.8 3.8 Office expenses, headquarter expenses 7.8 7.8 IT operating and maintenance costs, software expenses 0.4 0.7 Depreciation, amortisation, impairment losses and write-downs 1.3 1.1 Other expenses and income -0.9 -14.5 Total 59.4 45.6 Insurance operating costs and claims include the following staff expenses: Salaries and wages 36.8 37.1 Allocated share options a) 0.1 0.0 Pension 5.4 5.3 Payroll tax 4.7 5.0 47.0 47.4 Remuneration for the Supervisory Board and Executive Management is disclosed in Note 20 ‘Related parties’.
Average number of full-time employees during the year
a) The expense concerns share options allocated in the years 2006-2011. No share options were allocated in 2012 and 2013.
6 Technical result, by line of business The company’s total technical result is recognised as direct insurance under credit and guarantee insurance. Total claims, average claims and claims frequency Claims Average 2013 frequency a) claims b) Total claims Credit and guarantee insurance 0.3% 7.0 127 2012 Credit and guarantee insurance 0.3% 2.5 83 a) T he 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. No. of claims concerning credit insurance is 69 (26 in 2012). No. of credit insurance contracts is 37,278 (24,031). b) Average claims are total claims before run-off relative to the number of claims incurred. Total gross claims for credit insurance amounted to DKK 18.2m (DKK 2.1m in 2012).
Tryg Garanti A/S | Annual report 2013 | 15
DKKm 2012 2013 7 Interest income Interest income and dividends Interest income, bonds 14.9 15.2 14.9 15.2 Interest expenses Interest expenses, subordinate loan capital and credit institutions 0.0 0.2 0.0 0.2 14.9 15.4 8 Value adjustments Investment property -0.2 0.0 Bonds 3.5 -18.0 Other statement of financial position items -2.5 7.7 Discounting -0.9 -0.2 -0.1 -10.5 9 Tax Tax on accounting profit -6.6 -4.9 Difference between Danish and foreign tax rates 1.4 -0.4 Change in valuation of tax assets -0.5 -0.3 Tax adjustment, previous years -0.1 0.0 Change in tax rate 0.0 2.2 Tax on non-taxable income and costs -0.1 0.0 -5.9 -3.4 Effective tax rate % %
Tax on accounting profit Difference between Danish and foreign tax rates Change in valuation of tax assets Change in tax rate
25 -5 2 0
25 2 1 -11
16 | Annual report 2013 | Tryg Garanti A/S
DKKm 2012 2013 10 Intangible assets Software Balance at 1 January 20.3 20.3
Balance at 31 December
Amortisation and impairment Balance at 1 January -15.9 -17.4 Amortisation for the year -1.5 -1.5
Balance at 31 December
Carrying amount at 31 December 2.9 1.4 Amortisation is recognised in the income statement under insurance operating costs and under claims. Impairment test At 31 December 2013, management performed a test of the carrying amount of software. The impairment test compares the carrying amount with the estimated present value of future cash flows. The impairment test performed for intangible assets did not indicate any impairment.
11 Investment property Fair value at 1 January 1.4 1.2 Disposals for the year 0.0 -0.5 Value adjustments for the year -0.2 0.0
Fair value at 31 December
No external experts were involved in valuing the investment property. Total rental income for 2013 is DKK 0.05m (DKK 0.08m in 2012). Total expenses for 2013 are DKK 0.02m (DKK 0.05m in 2012).
Tryg Garanti A/S | Annual report 2013 | 17
DKKm 2012 2013 12 Other financial investment assets Carrying amount Bonds Danish bonds 728.0 761.3 728.0 761.3 Adjusted duration of bond portfolio Duration < 1 year 186.8 341.2 Duration 1-5 years 541.2 420.1 Total duration 1.5 1.0 Derivative financial instruments Market values Market value in 2013 Nominal financial position Exchange rate derivatives 108.4 -2.3 Due within 1 year 108.4 -2.3 2012 Exchange rate derivatives 69.7 0.9 Forward exchange contracts and currency swaps are used for currency hedging of bond portfolios and insurance statement of financial position items. Due within 1 year 69.7 0.9
2012 2013 Sensitivity information Impact on equity from the following changes: Interest rate increase of 0.7-1.0 percentage point -6.9 -4.9 Interest rate fall of 0.7-1.0 percentage point 6.9 4.9 Equity price fall of 12% 0.0 0.0 Fall in property prices of 8% -0.1 -0.1 Exchange rate risk (VaR 99) -1.0 0.0 Loss on counterparties of 8% -5.7 -4.7
13 Reinsurers’ share Reinsurers’ share of premium provisions Balance at 1 January 11.6 14.6 Exchange rate adjustments 1.5 -2.2 Ceded insurance premiums 184.7 212.6 Paid in the financial year -183.2 -207.3
Balance at 31 December
At 31 December 2013, management performed a test of the carrying amount of total reinsurers’ share of provisions for insurance contracts totalling DKK 620.8m (DKK 201.7m in 2012). The impairment test resulted in impairment charges totalling DKK 8.0m (DKK 1.4m in 2012). Write-downs for the year include reversed write-downs totalling DKK 0m (DKK 0m in 2012).
18 | Annual report 2013 | Tryg Garanti A/S
DKKm 2012 2013 14 Claims provisions Value of assets charged to the company to offset any future claims Bonds -8.4 -15.9 Cash and cash equivalents -9.6 -9.4 Other -0.2 -0.1 -18.2 -25.4 Reinsurers’ share of offsetable assets, for any future claims 9.0 12.7 Claims provisions, gross 400.2 816.3 Reinsurers’ share of claims provisions -187.1 -603.1 Claims provisions, net of reinsurance 213.1 213.2 15 Deferred tax Tax asset Intangible assets 0.1 0.0 Capitalised tax losses 13.0 5.8 Debt and provisions 0.4 0.7 13.5 6.5 Tax liability Intangible assets 0.7 0.3 Contingency funds and equalisation reserve 20.4 18.0 21.1 18.3 Deferred tax, end of year 7.6 11.8 Reconciliation of deferred tax Deferred tax, beginning of year 21.6 7.6 Exchange rate adjustments 0.0 1.6 Change in deferred tax relating to change in tax rate 0.0 -2.2 Change in deferred tax, previous years -0.1 0.0 Change in capitalised tax loss -13.2 0.3 Change in deferred tax taken to the income statement -0.7 -0.5 Change in valuation of tax assets 0.0 5.0 7.6 11.8 In addition to the deferred tax appearing from the statement of financial position, deferred tax relating to the contingency fund, which is not expected to trigger taxation within a foreseeable period of time, amounts to DKK 15.3m (DKK 17.4m in 2012).
Tryg Garanti A/S | Annual report 2013 | 19
DKKm 2012 2013 16
Debt to Group undertakings Debt to Tryg Forsikring A/S 40.6 Debt to other branches in Tryg Forsikring A/S 1.4
42.0 254.5 Of which debt falling due within 1 year. 42.0 254.5 17 Other debt Unsettled transactions 40.7 28.1 Other debt 6.9 9.5 47.6 37.6 Of which debt falling due within 1 year. 47.6 37.6 18 Solvency margin and capital base Equity according to annual report 450.8 418.5 Tier 1 capital 450.8 418.5 Proposed dividend -50.0 0.0 Value of intangible assets -2.9 -1.4 Value of deferred tax asset -12.7 -6.0 Discounting of claims provisions -1.8 -2.1 Equalisation reserve -81.7 -81.7 Capital base 301.7 327.3 Solvency margin 27.8 53.3 Solvency coverage ratio 10.8 6.1 19 Contractual obligations and collateral Collateral Tryg Garantiforsikring A/S has registered the following assets as having been furnished as security for the insurance provisions: Bonds 415.0 564.5 Interest receivable 7.6 10.2 Reinsurance 154.7 584.9 Total 577.3 1,159.6 Contractual obligations Tryg Garantiforsikring A/S has concluded a contract on the provision of information services of DKK 1.9m. The contract expires in 2015. Tryg Garantiforsikring A/S is taxed jointly with TryghedsGruppen smba. As of 1 July 2012, the company is thus jointly and severally liable together with the other jointly taxed companies for any obligation to withhold tax deducted at source on interest, royalties and dividends in respect of the jointly taxed companies.
20 | Annual report 2013 | Tryg Garanti A/S
DKKm 20 Related parties The company has no related parties with a decisive influence other than the parent company, Tryg Forsikring A/S. Related parties with a significant influence include the Supervisory Board, the Executive Management and their members’ family. Tryg Garantiforsikring A/S is controlled by Tryg Forsikring A/S, which owns all the shares in Tryg Garantiforsikring A/S. Administration fees are determined on a cost-recovery basis. The companies in the Tryg Forsikring Group have entered into reinsurance contracts and agreements for payment of interest on balances on market terms. Assets are transferred on market terms. Guarantee agreements with related parties 2012 2013 TryghedsGruppen - Commitment 1.1 1.1 - Use, end of year 1.1 1.1 - Premium 0.0 0.0 Tryg Forsikring A/S - Commitment 60.0 40.0 - Use, end of year 0.3 0.0 - Premium 0.0 0.0 The guarantees provided cover policyholders’ financial obligations in accordance with contracts concluded. Following individual assessment, all guarantees are provided without additional security. There is full recourse to the individual companies. No provisions have been made for non-performing guarantees, and no expenses were incurred in 2013. The guarantee agreements are concluded on market terms. Specification of remuneration 2013 Number of persons
Supervisory Board Executive Management
Basic salary Variable salary 0.0 2.2
5 2.2 0.0 0.5 2.7 2012
Supervisory Board Executive Management
5 2.2 0.0 0.5 2.7 Fees are charges incurred during the financial year. The expense corresponds to the payouts during the year. Members of the Supervisory Board are paid a fixed salary and pension and are not covered by incentive schemes. Members of the Supervisory Board of Tryg Garantiforsikring are not paid any fees. Member of the Supervisory Board Tor Magne Lønnum’s total remuneration as a member of the Executive Management in Tryg Forsikring A/S and Tryg A/S amounts to DKK 6.4m and is expensed in the parent company Tryg Forsikring A/S. The total remuneration consists of a fixed pay element (DKK 5.0m), pension (DKK 0.9m) and a variable pay element (DKK 0.5m).
Tryg Garanti A/S | Annual report 2013 | 21
DKKm 20 Related parties (continued) A deviation has been made from the disclosure obligation regarding information on salaries paid to risk-takers in Tryg Garantiforsikring pursuant to Section 116(2), Item 3, of the Executive Order, as compliance with the disclosure requirement will entail the disclosure of information on salaries of individuals. Information on salaries paid to other risk-takers in the Tryg Forsikring Group handling functions on behalf of Tryg Garantiforsikring A/S is disclosed in the Tryg Forsikring Group’s financial statements. Executive Management functions Pursuant to Section 80 of the Danish Financial Business Act, the Supervisory Board has approved that the Executive Management has the following executive functions: Mads Løgstrup, CEO CEO, Aps Malø I. The members of the Supervisory Board have the following executive functions: Tor Magne Lønnum is a member of the Executive Management of Tryg A/S and Tryg Forsikring A/S. Per Fornander and Truls Holm Olsen are members of the Group Executive Management of Tryg Forsikring. Ole Hesselager is Head of Group Risk and Group CFO of Tryg Forsikring. 21 Financial highlights of Tryg Garantiforsikring See page 3 of the management’s review. 22 Accounting policies
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Accounting policies General information The annual report of Tryg Garantiforsikring A/S is prepared in accordance with the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Financial Supervisory Authority. Fee income in connection with the establishment and change of guarantees, case-related or non-recurring fees in connection with the conclusion of agreements are reclassified from gross premiums written to insurance operating costs (DKK 18.5m). The change has been implemented in 2013 and comparative figures are not affected. Except as noted above, the accounting policies have been applied consistently with 2012. Recognition and measurement The annual report has been prepared under the historical cost convention, as modified by the revaluation of investment property, financial assets held for trading and financial assets and financial liabilities at fair value in the income statement.
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 value adjustments. On consolidation, the assets and liabilities of the company’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 differences arising on translation are classified as other comprehensive income and transferred to the company’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.
Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the company, and the value of such assets can be measured reliably. Liabilities are recognised in the statement of financial position when the company has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the company, and the value of such liabilities can be measured reliably.
Key ratios Key ratios are prepared in accordance with the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Financial Supervisory Authority.’
On initial recognition, assets and liabilities are measured at cost, with the exception of financial assets, which are measured at fair value. Measurement subsequent to initial recognition is effected as described below for each item. Anticipated risks and losses that arise before the time of presentation of the annual report and that confirm or invalidate affairs and conditions existing at the statement of financial position date are considered at recognition and measurement.
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.
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.
Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual insurance contract using the pro rata method and, if necessary, adjusted to reflect any variation in the incidence of risk in the period covered by the contract.
All amounts in the notes are shown in millions of DKK, unless otherwise stated.
The portion of premiums received on contracts that relate to unexpired risks at the statement of financial position date is reported under premium provisions.
Intra-group transactions Intra-group transactions are settled on a cost-recovery basis. Balances accrue interest on market terms.
The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the reinsurers’ share of premium provisions.
Foreign currency translation A functional currency is determined for each of the reporting entities in the company. The functional currency is the currency used in the primary
Insurance technical interest According to the Danish Financial Supervisory Authority’s executive order, insurance technical interest is presented as a calculated return on the year’s
Tryg Garanti A/S | Annual report 2013 | 23
average insurance liability provisions, net of reinsurance. The calculated yield for grouped classes of risks is calculated based on the monthly average provision plus interest under the present yield curve for each individual group of risks taking into account the provisions’ expected run-off pattern.
The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the contract of employment. In case of termination due to restructuring or retirement, the employee is still entitled to the options.
Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding.
The share options are exercisable exclusively during a 13-day period starting the day after the publication of full-year, interim and quarterly reports in Tryg A/S and in accordance with Tryg A/S’s internal rules on trading in Tryg A/S’s shares. The options are settled in shares.
Claims Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers’ share. In addition, the item includes run-off gains/losses in respect of previous years. The portion of the increase in provisions which can be ascribed to 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 value adjustment. Insurance operating costs Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year. Fee income in connection with the establishment and change of guarantees, case-related or non-recurring fees in connection with the conclusion of agreements are reclassified from gross premiums written to insurance operating costs. Share option programme The value of services received as consideration for options granted is measured at the fair value of the options. Share options are measured at fair value at the time of allocation and recognised under staff costs over the period from the time of allocation until vesting. The balancing item is recognised as debt. The share options allocated in previous years are issued by Tryg A/S and are settled between Tryg Garantiforsikring A/S and Tryg A/S. The share option scheme is classified as a debt scheme in Tryg Garantiforsikring. No share options were allocated in 2012 and 2013. The options are issued at an exercise price that corresponds to the market price of the Group’s shares at the time of allocation plus 10%. No other vesting conditions apply. Special provisions are in place concerning sickness and death and in case of change to the Group’s capital position etc.
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On initial recognition of the share options, the number of options expected to vest for employees and members of the Executive Management is estimated. Subsequently, adjustment is made for changes in the estimated number of vested options to the effect that the total amount recognised is based on the actual number of vested options. The value for retired employees who retain their right to options is reported for the remaining period of the financial year in which the employee retires. The fair value of the options granted is estimated using the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted. Investment activities Income from investment property 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, exchange rate 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.
Statement of financial position Intangible assets 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 life-time of up to 4 years. Costs for company-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 staff costs for software development and a proportion of directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are expensed on an ongoing basis.
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. Investment property Rental properties that are not occupied by the company are classified as investment property. Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not a vailable, the company uses alternative valuation methods such as discounted cash flow projections and recent prices in less active markets. Changes in fair values are recorded in the income statement. Impairment of intangible assets and investment property Plant and equipment, owner-occupied property and intangible assets are assessed at least once a year to ensure that the depreciation and amortisation methods and the depreciation and amortisation periods used are in line with the expected economic lifetimes. This also applies to the residual value. Impairment is performed if a decrease in value has been demonstrated. A continuous assessment of owner-occupied property is performed using the same method as for investment property. 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 the investments on initial recognition and reevaluates this at every reporting date. 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 as a result 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 company 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 company commits to purchase or sell the asset. Recognised at the fair value at the date of transaction. 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 or using OTC prices. These include the use of similar recent arm’s-length transactions, reference to other instruments that are substantially the same and a discounted cash flow analysis. Reinsurers’ share of provisions for insurance contracts Contracts entered into by the company with reinsurers under which the company is compensated for losses on one or more contracts issued by the company and that meet the classification requirements for insurance contracts are classified as reinsurers’ share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets. The benefits to which the company is entitled under its reinsurance contracts are recognised as assets and reported as reinsurers’ share of provisions for insurance contracts. Amounts payable by reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Changes due to unwinding are recognised in insurance technical interest. Changes due to changes in the yield curve or foreign exchange rates are recognised as value adjustments. The company continuously tests its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the company reduces the carrying amount of the reinsurance asset to its recoverable amount. The impairment loss is recognised in the income statement. Additional impairment losses are recognised according to a standardised impairment process which depends on the debtor rating. Receivables Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contain accounts receivable in connection with financial assets and property. Receivables are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when there is a clear indication of asset impairment. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows. 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 and accrued income recognised under assets include expenses paid in respect of subsequent financial years and interest receivable.
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Equity Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Other reserves Other reserves consist of contingency funds which are recognised as part of retained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Supervisory Authority and when it is for the benefit of the policyholders. Other reserves also include equalisation reserves which have arisen in connection with the transfer of equalisation reserves in the opening statement of financial position for 2005 pursuant to executive order no. 1405 of 14 December 2004. Dividend Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration). Provisions for insurance contracts Premiums written are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any variation in the incidence of 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 generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum at the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any variations in the incidence of risk. This applies to gross as well as ceded business. Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to Policyholders. They include direct and indirect claims handling costs and arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the company. Claims provisions are estimated using the input of assessments for individual cases reported to the company and the expected ultimate cost of more complex claims that may be affected 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 the duration applied to the expected future payments from the provision.
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Provision adequacy test Tests are continuously performed to ensure the adequacy of the insurance provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency results in an increase in the relevant provision, and the adjustment is recognised in the income statement. Any positive deviations are also recognised in the income statement. Income tax and deferred tax The company 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 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. Debt Other liabilities such as debt in connection with direct insurance, reinsurance, debt to group undertakings and other debt are assessed at amortised cost.