Tryg Garantiforsikring A/S is part of the Tryg Group. Tryg is listed on OMX The Nordic Exchange.

Transcription

1 ANNUAL REPORT 2012

2 Company details Supervisory Board Tor Magne Lønnum, Group CFO, Chairman Per Fornander, Group Executive Vice President Truls Holm Olsen, Group Executive Vice President Ole Hesselager, Head of Group Risk Tryg Garantiforsikring A/S is part of the Tryg Group. Tryg is listed on OMX The Nordic Exchange. Executive Management Mads Dalsgaard Løgstrup Internal audit Jens Galsgaard Independent auditors Deloitte, Statsautoriseret Revisionsaktieselskab 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. Address Tryg Garantiforsikring A/S Klausdalsbrovej 601 DK-2750 Ballerup Phone: Fax: Contents Company information Management's review Statement by the Supervisory Board and the Executive Management Independent auditor's report Income statement Statement of financial position Equity Notes

3 Management s review General information The company operates in the field of guarantee and credit insurance. The company has a local presence in Denmark, Norway, Sweden and Finland. In the field of guarantee insurance, guarantees are provided to third parties for policyholders' fulfilment of agreements concluded. In the credit insurance field, cover is provided for policyholders' risks in relation to losses on receivables arising from ordinary commercial trading. The company markets itself under the 'Tryg Garanti' brand in all countries with the exception of Sweden, where the company uses the brand 'Moderna Garanti' in accordance with the Tryg Group's branding strategy. As a result of the company's activities, the company's financial development depends to some extent on economic trends. The level of claims is typically lower in a positive economic climate than in a negative one, and the economic trends may also impact the demand for the company's products. In the past financial year, claims remained at the same high level as in the previous year, which is deemed to reflect a continued difficult economic climate in the company's main markets. The company uses reinsurance extensively, which means that the company is highly robust in relation to fluctuations in results in its gross business. Credit insurance, which presently constitutes a minor part of the company's revenue, is developing satisfactorily, in terms of both revenue and claims costs. Credit insurance is distributed in cooperation with the parent group, primarily to small and medium-sized businesses. Profit for the year and shareholders' equity Profit for the year amounts to DKK 20.6m (DKK 14.6m in 2011). Equity was DKK 450.8m at year-end (DKK 430.5m in 2011) after transfer of profit for the year of DKK 20.6m. Financial highlights and key ratios of Tryg Garantiforsikring A/S DKKm Income Statement Income Statement Gross premium income Gross claims Total insurance operating costs Profit/loss on gross business Profit/loss on ceded business Insurance technical interest, net of reinsurance Technical result Investment return after insurance technical interest Profit/loss before tax Tax Profit/loss for the year Run-off gains/losses. net of reinsurance Statement of financial position Total provisions for insurance contracts Total reinsurers' share of provisions for insurance contracts Total equity Total assets ,018.4 Key ratios Gross claims ratio Net reinsurance ratio Claims ratio. net of ceded business Gross expense ratio Combined ratio Other information Percentage return on equity

4 Proposed resolutions for the annual general meeting The Supervisory Board proposes that DKK 50.0m be distributed as dividend for the financial year. Premium income Total gross premium income for 2012 is DKK 297.5m (DKK 250.7m in 2011). Claims Gross claims total DKK 200.5m (DKK 167.6m in 2011). Claims are higher than expected at the beginning of the year. Ceded business Claims received from reinsurers amount to DKK 89.6m (DKK 79.7m in 2011). Insurance operating costs Acquisition costs and administration expenses total DKK 59.4m (DKK 64.6m in 2011). Reinsurance commissions and profit participation from reinsurers totalled DKK 67.4m (DKK 55.2m in 2011). Investment activities Investment return before transfer of insurance technical interest was DKK 13.8m in 2012 (DKK 21.1m in 2011). Interest income amounts to DKK 14.9m (DKK 15.1m in 2011). Realised and unrea - lised price adjustments were DKK -0.1m (DKK 6.4m in 2011). Interest rate sensitivity on the bond portfolio is DKK 6.9m (DKK 6.0m in 2011) in the event of an interest rate change of 1 percentage point. The duration of the company's bond portfolio is 1.5 years at the end of the year (1.5 years in 2011). Capital and ownership Tryg Garantiforsikring A/S is a company in the Tryg Forsikring Group, which forms part of the Tryg Group. The Tryg share is listed on Nasdaq OMX Copenhagen. The company's share capital amounts to DKK 45m and is wholly owned by Tryg Forsikring A/S, Ballerup, Denmark. The company's equity totalled DKK 450.8m at 31 December 2012 (DKK 430.5m at 31 December 2011). The annualised return on equity was 4.7% in 2012 (3.4% in 2011). The company's capital base, which is DKK 301.7m (DKK 343.1m in 2011), exceeds the statutory solvency requirement of DKK 26.1m by DKK 275.6m. In addition to the requirements imposed by the credit rating agencies, the Danish authorities demand active capital management based on the calculation of an individual solvency need. These requirements are precursors of the future Solvency II rules. Tryg Garanti's calculation of its individual solvency need is based on the expected Solvency II standard model for capital requirements for credit and guarantee companies with addition of the capital requi - red while taking account of the actual business mix, reinsurance protection and investment mix. The individual solvency need is calculated on a quarterly basis and reported to the Danish Financial Supervisory Authority. The individual solvency need was DKK 215.7m at 31 December 2012 (DKK 333.3m in 2011). The reduction in the individual solvency need relative to 2011 is due to the introduc - tion of the Solvency II calculation method as the basis for the calculation of the individual solvency. The annual report forms part of the consolidated financial statements of TryghedsGruppen smba, Tryg A/S and Tryg Forsikring A/S, Ballerup, Denmark ( and Other information The administration of the company is handled in part by Tryg Forsikring A/S, which charges a fee for its services based on resource consumption. No fees are paid to the Supervisory Board of Tryg Garantiforsikring. Executive Management functions Please refer to Note 20 'Related parties' for information on the Executive Management's functions. Events after the statement of financial position date No events have occurred since the statement of financial position date which are deemed to impact the assessment of the company's situation described in this annual report. Activities abroad The company's activities in Norway, Sweden and Finland are organised into branches, which are registered in the national company registers. The company may also operate abroad in the form of the provision of cross-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 on licences granted appears from the Danish Financial Supervisory Authority's website, 4

5 Outlook The company maintains its focus on further deve - loping its position as a provider of guarantee and credit insurance solutions to customers in the Nordic countries. As in previous years, the most important factors impacting the company's financial development will be the development in premium income and claims. The level of claims is expected to be lower than in 2012, but nevertheless at a higher level than could have been expected in a more normal economic climate. Overall, the company expects improved results at a satisfactory level for the coming year. For the 2013 financial year, premium income is expected to see a moderate increase, as a continued weak development in demand in Denmark is expec ted to be offset by increased activity levels outside Denmark. 5

6 Statement by the Supervisory Board and the Executive Management The Supervisory Board and the Executive Management have today considered and adopted the annual report for 2012 of Tryg Garantiforsikring A/S. The annual report is prepared in accordance with the Danish Financial Business Act. In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the company's assets, liabilities and financial position at 31 December 2012 and of the results of the company's operations for the financial year 1 January - 31 December Furthermore, in our opinion the management's review gives a true and fair view of developments in the activities and financial position of the company, the results for the year and of the company's financial position in general and describes significant risk and uncertainty factors that may affect the company. We recommend that the annual report be adopted by the shareholders at the annual general meeting. Ballerup, 31 January 2013 Executive Management Mads Løgstrup Chief Executive Officer Supervisory Board Tor Magne Lønnum Chairman Ole Hesselager Per Fornander Truls Holm Olsen 6

7 Independent auditors report To the shareholder of Tryg Garantiforsikring A/S Report on the financial statements We have audited the financial statements of Tryg Garantiforsikring A/S for the financial year 1 January - 31 December 2012, which comprise the accounting policies, income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and notes. The financial statements are prepared in accordance with the Danish Financial Business Act. 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 Business Act, and for such internal control as management determines is necessary to enable the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence 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 view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the financial statements. We believe that the audit evidence is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the financial statements give a true and fair view of the company's financial position at 31 December 2012, and of the results of its operations for the financial year 1 January to 31 December 2012 in accordance with the Danish Financial Business Act. Statement on the management's commentary Pursuant to the Danish Financial Business Act, we have read the management commentary. We have not performed any further procedures in addition to the audit of the financial statements. On this basis, it is our opinion that the information provided in the management commentary is consistent with the financial statements. Copenhagen, 31 January 2013 Deloitte Statsautoriseret Revisionsaktieselskab Lars Kronow State Authorised Public Accountant Lone Møller Olsen State Authorised Public Accountant 7

8 Income Statement Note General insurance Gross premiums written Ceded insurance premiums Change in premium provisions Change in reinsurers' share of premium provisions Premium income, net of reinsurance Insurance technical interest, net of reinsurance Claims paid Reinsurance cover received Change in claims provisions Change in reinsurers' share of claims provisions Claims, net of reinsurance Acquisition costs Administration expenses Acquisition costs and administration expenses Reinsurance commissions and profit participation from reinsurers Insurance operating costs, net of reinsurance Technical result Investment activities Income from investment property Interest income and dividends Price adjustments Interest expenses Administration expenses in connection with investment activities Total investment return Return on insurance provisions Total investment return after insurance technical interest Profit/loss before tax Tax Profit/loss for the year Proposed distribution for the year: Dividend Transferred to retained profit Statement of comprehensive income Profit/loss for the year Other comprehensive income Change in equalisation reserve for the year Foreign currency translation adjustment of foreign entities for the year Tax on changes in equity Total other comprehensive income Total comprehensive income

9 Statement of financial position Note Assets Intangible assets Investment property Bonds Financial derivatives Total other financial investment assets Total investment assets Reinsurers' share of premium provisions Reinsurers' share of claims provisions Total reinsurers' share of provisions for insurance contracts Receivables from policyholders Total receivables in connection with direct insurance contracts Receivables from insurance enterprises Other receivables Total receivables Current tax assets Deferred tax assets Cash at bank and in hand Total other assets Interest and rent receivable Other prepayments and accrued income Total prepayments and accrued income Total assets ,018.4 Equity and liabilities Total equity Premium provisions Claims provisions Total provisions for insurance contracts Pensions and similar liabilities Deferred tax liability Total provisions Debt relating to direct insurance Debt relating to reinsurance Debt to Group undertakings Current tax liabilities Other debt Total debt Accruals and deferred income Total equity and liabilities ,018.4 Risk management 1 Capital adequacy 18 Contingent liabilities and collateral 19 Related parties 20 Financial highlights of Tryg Garantiforsikring 21 Accounting policies 22 9

10 Equity (Danish Financial Supervisory Authority) Reserve for foreign currency Equalisa- Share Other translation tion Retained Proposed DKKm capital reserves adj. reserve earnings dividends Total Equity at 31 December Profit/loss for the year Change in equalisation reserve for the year 0.0 Foreign currency translation adjustment of foreign entities for the year Tax on changes in equity 0.0 Total comprehensive income Dividend paid Total changes in equity in Equity at 31 December Equity at 31 December Profit/loss for the year Change in equalisation reserve for the year 0.0 Foreign currency translation adjustment of foreign entities for the year Total comprehensive income Dividend paid Total changes in equity in Equity at 31 December 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. 10

11 Note 1 Risk management The company continuously monitors its insurance liability portfolio. This monitoring includes periodic valuation of the portfolio and of the quality of individual risks. If the quality of individual risks declines, claim-reducing measures, such as adaptations to the scope of guarantees, are implemented. The insurance liabilities in the continuing business are covered by the company's reinsurance programme, which limits the probable loss per risk to a maximum of DKK 30.0m. The company complies with the reinsurance policy applicable for the Tryg Forsikring Group, which means, for example, that no more than 20% of a given risk is placed with an individual reinsurer or a consolidated group of reinsurers, and that all reinsurers must meet established security requirements. The company's Supervisory Board has adopted a capital resources policy according to which, for example, the adequacy of the capital base must be assessed in the event of major individual claims or major changes in provisions. Material changes in the value of assets or the magnitude of risk exposure from the insurance business also give rise to an assessment of the capital situation. The Supervisory Board assesses the relationship between the company's capital base and solvency need on a quarterly basis. 11

12 Notes Note 2: Premium income, net of reinsurance Direct gross premiums written Ceded direct insurance Direct insurance, by location of risk Gross Ceded Gross Ceded Denmark Other EU countries Other countries Note 3: Insurance technical interest, net of reinsurance Return on insurance provisions Discounting of claims provisions Note 4: Claims, net of reinsurance Claims Run-off previous years, gross Reinsurance cover received, adjusted for change in provisions Run-off previous years, reinsurers' share Note 5: Insurance operating costs, net of reinsurance Acquisition costs Administration expenses Insurance operating costs, gross Commission from reinsurers For a specification of the auditors' fee, please refer to Note 7 'Insurance operating costs', Tryg Forsikring Group. Insurance operating costs, gross, classified by type Commissions Staff expenses Other staff expenses Office expenses. headquarter expenses IT operating and maintenance costs. software expenses Depreciation. amortisation. impairment losses and write-downs Other expenses and income Total

13 Notes Note 5: Insurance operating costs, net of reinsurance Insurance operating costs and claims include the following staff costs: Salaries and wages Allocated share options * Pension Payroll tax Remuneration for the Supervisory Board and Executive Management is disclosed in Note 22 'Related parties'. Average number of full-time employees during the year * The expense concerns share options allocated in the years No share options were allocated in Note 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 2012 Claim Average Number of frequency * claims ** claims Credit and guarantee insurance 1.2% Credit and guarantee insurance 1.1% ** The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance ** contracts in the year. ** Average claims are total claims before run-off relative to the number of claims incurred. Note 7: Interest Interest income Interest income cash at bank and in hand Interest income bonds Interest income other Interest expenses other Note 8: Price adjustments Investment property Bonds Other statement of financial position items Discounting Value gains Value losses Price adjustments, net

14 Notes Note 9: Tax Tax on accounting profit/loss Difference between Danish and foreign tax rates Change in valuation of tax assets Tax adjustment, previous years Tax on non-taxable income and costs Effective tax rate % % Tax on accounting profit/loss Difference between Danish and foreign tax rates 1-5 Change in valuation of tax assets 2 2 Tax adjustment. previous years 2 0 Tax on non-taxable income and costs Note 10: Intangible assets Software Balance at 1 January Additions for the year Balance at 31 December Amortisation and write-downs Balance at 1 January Amortisation for the year Balance at 31 December Carrying amount at 31 December Amortisation is recognised in the income statement under insurance operating costs and under claims. Impairment test The impairment test performed for intangible assets did not indicate any impairment. Note 11: Investment properties Fair value at 1 January Disposals for the year Value adjustments for the year Fair value at 31 December No external experts were involved in valuing the investment property. The calculated return on property is -8.6% (4.1% in 2011). Total rental income for 2012 is DKK 0.08m (DKK 0.09m in 2011). Total expenses for 2012 are DKK 0.05m (DKK 0.03m in 2011). 14

15 Notes Note 12: Other financial investment assets Carrying amount Bonds Danish bonds Adjusted duration of bond portfolio Duration < 1 year Duration 1-5 years Duration > 5 years Total duration Derivative financial instruments Market values Market value in statement of financial Nominal position 2012 Exchange rate derivatives Due within 1 year Exchange rate derivatives 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 Sensitivity information Impact on equity from the following changes: Interest rate increase of percentage point Interest rate fall of percentage point Equity price fall of 12% Fall in property prices of 8% Exchange rate risk (VaR 99) Loss on counterparties of 8%

16 Notes Note 13: Reinsurers' share Reinsurers' share of provisions for unearned premiums Reinsurers' share of premium provisions Balance at 1 January Foreign currency translation adjustments Ceded insurance premiums Paid in the financial year Balance at 31 December At 31 December 2012, management performed a test of the carrying amount of total reinsurers' share of provisions for insurance contracts totalling DKK 201.7m (DKK 130.0m in 2011). The impairment test resulted in impairment charges totalling DKK 1.4m (DKK 0.9m in 2011). Write-downs for the year include reversed write-downs totalling DKK 0m (DKK 0m in 2011). Note 14: Claims provisions Value of assets charged to the company to offset any future claims Bonds Cash and cash equivalents Other Reinsurers' share of offsetable assets. for any future claims Claims provisions. gross Reinsurers' share of claims provisions Claims provisions, net of reinsurance

17 Notes Note 15: Deferred tax Tax assets Intangible assets Operating equipment Capitalised tax losses Debt and provisions Tax liability Intangible assets Land and buildings Contingency funds and equalisation reserve Provisions Deferred tax, end of year Reconciliation of deferred tax Deferred tax, beginning of year Change in deferred tax previous years Change in capitalised tax loss Change in deferred tax taken to the income statement 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 17.4m (DKK 17.4m in 2011). 17

18 Notes Note 16: Debt to Group undertakings Debt to Tryg Forsikring A/S Debt to other branches in Tryg Forsikring A/S Note 17: Other payables Unsettled transactions Other debt Of which debt falling due within 1 year Note 18: Capital adequacy Equity according to annual report Tier 1 capital Proposed dividend Value of intangible assets Value of deferred tax Discounting of claims provisions Equalisation reserve Capital base Solvency margin Solvency coverage ratio Note 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 Cash at bank and in hand Interest receivable Reinsurance Total Tryg Garantiforsikring A/S has concluded a contract on the provision of information services of DKK 3.5m. The contract expires in 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. 18

19 Notes Note 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 TryghedsGruppen - Commitment Use, end of year Premium Tryg Forsikring A/S - Commitment Use, end of year Premium 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 The guarantee agreements are concluded on market terms. Specification of remuneration 2012 Basic salary Variable salary Pension Total Supervisory Board Executive Management Basic salary Variable salary Pension Total Supervisory Board Executive Management There is one member of the Executive Management. The Supervisory Board comprises four members. Members of the Supervisory Board of Tryg Garantiforsikring are not paid any Fees. The salary information disclosed for the Supervisory Board covers member of the Supervisory Board Tor Magne Lønnum s total remuneration as member of the Executive Management in Tryg Forsikring A/S and Tryg A/S. Fees are charges incurred during the financial year. 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. 19

20 Notes Note 20: Related parties Executive Management functions Pursuant to Section 80 of the Danish Financial Business Act (Lov om finansiel virksomhed), the Supervisory Board has approved that the Executive Management has the following executive functions: Mads Løgstrup. CEO Director, Aps Malø I The members of the Supervisory Board have the following executive functions: Tor Magne Lønnum is 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, Group Finance of Tryg Forsikring. Note 21: Financial highlights of Tryg Garantiforsikring See page 3 of the management's review. Note 22: Accounting policies 20

21 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. Accounting policies are unchanged compared to the annual report 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. 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. 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. 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 other - wise described below. All amounts in the notes are shown in millions of DKK, unless otherwise stated. Intra-group transactions Intra-group transactions are settled on a cost-recovery basis. Balances accrue interest on market terms. 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 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 recog - nised in the income statement under price 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. 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. 21

22 Income statement Premiums Premium income represents gross premiums written during the year, net of ceded reinsurance premiums and adjusted for changes in premium provisions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers' share of the premium provisions. Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual insurance contract 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. The portion of premiums received on contracts that relate to unexpired risks at the statement of financial position date is reported under premium provisions. The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the reinsurers' share of premium provisions. 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 average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus a co-weighted interest from the present yield curve for each individual group of risks. The interest is weighted according to the expected run-off pattern of the provisions. Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding. 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 price 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 accrued to match the financial year. 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 Tryg Garanti Group allocates the share options to the employees. The share options 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 2011 and 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. 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. The share options are exercisable exclusively during a 15-day period following 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. 22

23 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, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as price 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 the estimated useful life (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 and write-downs. 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 available, 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 assess - ment 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 re-evaluates 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 23

24 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 price adjustments. The company continuously assesses 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 include expenses paid in respect of subsequent financial years and interest receivable. 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 deduc - tion 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 of 14 December Dividend Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration). 24

25 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 through out the agreed risk period; however, as a minimum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any 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. 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 sett led. 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 under - takings and other debt are assessed at amortised cost. Claims provisions are discounted. Discounting is based on a yield curve reflecting the duration applied to the expected future payments from the provision. Reserve 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. 25