KBW European Financials Conference London, 19 September 2012 Tor Magne Lønnum - CFO Download presentation 1 on tryg.com
Disclaimer Certain statements in this presentation are based on the beliefs of our management as well as assumptions made by and information currently available to the management. Forward-looking statements (other than statements of historical fact) regarding our future results of operations, financial condition, cash flows, business strategy, plans and future objectives can generally be identified by terminology such as targets, believes, expects, aims, intends, plans, seeks, will, may, anticipates, continues or similar expressions. A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this presentation including but not limited to general economic developments, changes in the competitive environment, developments in the financial markets, extraordinary events such as natural disasters or terrorist attacks, changes in legislation or case law and reinsurance. We urge you to read our annual report available on tryg.com for a discussion of some of the factors that could affect our future performance and the industry in which we operate. Should one or more of these risks or uncertainties materialise or should any underlying assumptions prove to be incorrect, our actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. We are not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. 2
Tryg at a glance Tryg goes back to 18th century The current Tryg was formed in 2002 by sale of Nordea s non-life activities with a continuing strategic partnership Non-life insurance in the Nordics Gross premium split by products - 2011 13.7 23.6 9.0 Motor - TPL Motor - casco Workers' comp. Health & accident 4.4 Liability 12.5 Fire & property - private 10.7 Fire & property - comm. 6.0 20.1 Other IPO Oct. 2005 on Nasdaq OMX Cph Majority owner: TryghedsGruppen (60%) a mutual foundation rooted in DK Turnover 2011: DKK 20.6bn (~EUR 2.8bn) CEO: Morten Hübbe 4,318 employees Gross premium split by geography - 2011 Norway Market position: #3 Market share: 16.1% CR in 2011: 93.4 Sweden Market position: #5 Market share: 3.9% CR in 2011: 104.9 Finland Market share: 2.2% CR in 2011: 106.2 9.9 3.1 38.4 48.6 Denmark Norway Sweden Finland Denmark Market position: #1 Market share: 20.7% CR in 2011: 90.3 3
Structure of the Nordic insurance markets Denmark DKK 47.8bn/ EUR 6.4bn (Q2 11) Norway NOK 46.5 bn/ EUR 6.0bn (Q1 12) If 5.8 Other 27.4 Other 19.6 Tryg 16.1 Gjensdige 5.7 Tryg 20.7 Sparebank1 Percent 11.3 Alm. Brand Nordic 9.8 EUR 21.6bn (Q4 10) Codan 12.6 Topdanmark 18 Topdanmark 5.3 Other 38.5 Gjensidige 26 Percent If 25 Sweden SEK 63.4bn/ EUR 7.0bn (Q1 12) Other 15.8 Gjensidige 1.2 Moderna 3.9 Länsförsäkringar 8.5 Gjensidige 9.1 Codan 9.4 Percent If 17.4 Tryg 11.8 Finland EUR 3.7bn (Q4 11) Other 17.6 Tryg 2.2 Folksam Länsforsäkringar Fennia 9.7 15.3 Percent 28.4 Percent If 23.9 Codan 15.9 If 18.8 Tapiola 18 Pohjola 28.6 4
5 Short term results - Q2 2012
Highlights Q2 2012 - Pre-tax profit up by 45% and technical result up by 65% Pre-tax profit of DKK 708m (DKK 487m). Technical result of DKK 835m (DKK 507m). Positive impact from weather and large claims and reinsurance. CR improvement of 6.6 pp to 84.7. DKKm 1,500 1,200 900 600 300 487 Pre-tax profit 708 848 1,429 Lower interest rate level affected CR negatively by 1.4 pp. Premium growth of 0.3% (1.3% in DKK). Return of DKK 41m in match portfolio. Return of 0.8% in the free portfolio. Revaluation of own domiciles. Return on equity of 21.5% after tax. S&P reconfirmed A-/stable rating. 0 100 95 90 85 80 DKKm 250 150 50-50 -150 Q2 2011 Q2 2012 H1 2011 H1 2012 Combined ratio 93.7 91.3 89.3 84.7 Q2 2011 Q2 2012 H1 2011 H1 2012 Investment after technical interest 259 105-8 -108 Q2 2011 Q2 2012 H1 2011 H1 2012 6
Moderate premium growth better balanced technical result Moderate growth as expected of 0.3% in local currency (1.3% in DKK). Positive impact from price increases - negative impacted from a reduction in Commercial portfolio. Private up 1.6% in local currency (2.9% in DKK). Positive impact from price increases and higher retention level in Norway. Technical result grew from DKK 507m to DKK 835m; positively impacted by price increases and better balanced contribution from all areas. Gross earned premiums, DKKm Technical result, DKKm 6,000 5,000 4,000 3,000 2,000 1,000 0 571 570 1,313 1,312 929 930 2,338 2,405 Q2 11 Q2 12 1,000 800 600 400 200 0 Total 835 32 168 Total 507 284 104 176 351 221 Q2 11 Q2 12 Private Commercial Corporate Sweden/Finland Privat Corporate Commercial Sweden/Finland 7
Large claims, weather claims and run-off - Run-off impacted by extraordinary reinsurance recovery Large claims, gross DKKm Weather claims, DKKm 1,000 800 858 1,800 1,400 600 400 200 0 Expected full year level 2012 353 152 2011 H1 11 H1 12-200 2011(Gross) 2011(Net) H1 11 H1 12 Q1 Q2 Q1 Q2 1,000 600 200 Expected full year level 2012 226 187 Run-off net, DKKm Run-off net, effect on combined ratio 1,200 800 400 0 944 792 800 824 683 583 315 2007 2008 2009 2010 2011 H1 11 H1 12 Q1 Q2 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 4.9% 4.7% 4.6% 4.6% 4.2% 3.8% 2007 2008 2009 2010 2011 Q1 12 Q2 12 6.7% 5.0% Excl. extraordinary impact from sidways reins. recovery 8
9 Longer term development
New value drivers Premium increases Size/influence Cost reductions Premium increases Commercial initiatives Premium increases Cost reductions New House Insurance Commercial initiatives New House Insurance Premium increases New Nordic Contents Next Level Sourcing Next Level Sourcing 2009 2010 2011 2012 2013 2014 2015 10
Retention remains high and average premiums going up Private - retention rate Car insurance average premium (index 2005 = 100) 92% 90% 120 110 Average premium growth in past 12 months 0% 6.3% 88% 100 86% 84% 90 82% Q3 05 Q2 06 Q1 07 Q4 07 Q3 08 Q2 09 Q1 10 Q4 10 Q3 11 Q2 12 80 2005 2006 2007 2008 2009 2010 2011 2012 Commercial - retention rate House insurance average premium (index 2005 = 100) 11 92% 90% 88% 86% 84% 82% Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 150 140 130 120 110 100 90 Average premium growth in past 12 months 8.7% 6.2% 2005 2006 2007 2008 2009 2010 2011 2012
Combined ratio performance 110 105 Premium hikes Premium hikes Annual impact from price increases 2012 DKK ~1.0bn 100 95 Smaller adjustments 90 85 80 2000 2001 2002 2003 2004 2004* 2005 2006 2007 2008 2009 2010 2011 H1 2011 H1 2012 2002-2004 price increases of DKK 2.1bn implemented. Reduced combined ratio from 107 to 94 (DK GAAP). Reductions in costs and claims expenses will improve combined ratio going forward. *IFRS from 2004. Previous years are Danish GAAP. Data before 2009 is not corrected for the sale of Marine Hull business. 12
Follow up on cost reduction programme - Q2 2012 - Next level sourcing starting to deliver No. of employees 5,000 4,000 3,000 4,065 154 10 5 1,4 50 4,310 4,291 4,318 4,255 19 4 19 7 2 4 9 425 414 423 1,3 9 8 1,3 3 8 1,3 3 8 225 440 1,3 13 Targeted and achieved savings in expenses DKKm From FTE reductions in Group Finance 25 300 125 2,000 1,000 2,356 2,293 2,342 2,308 2,277 125 0 2008 2009 2010 2011 Q2-2012 Denmark Norway Sweden Finland Group Total savings expenses 50 2013 Achieved 2014 2015 Target % Car - Claims repair and referrals DK 75 Increased from 47 to 65% 65 55 Targeted and achieved savings on claims DKKm 20 100 700 250 45 250 35 Jan- 11 Apr - 11 Jul- 11 Okt 11 Jan- 12 Apr - 12 Jul- 12 Total savings on claims 100 2012 Achieved 2013 2014 2015 Target 13
Assets allocation Total assets Q2 2012 2 4 11 5 Equities 7 Percentage Real estate Cov. Bonds Govt. Bonds 71 Bank deposits/bonds High yield Free portfolio Q2 2012 Match portfolio Q2 2012 32 Equities 12 12 2 7 Percentage 25 22 Real estate Bank deposits/bonds Govt. Bonds High yield Cov. Bonds 8 Percentage 80 Cov. Bonds Govt. Bank deposits/bonds 14
Capitalisation S&P model IS model Capital buffer based on S&P s capital model increased to 13% (Q1: 9%) and impacted by: DKKm 12,000 10,000 13% buffer Strong Q2 2012 result Strengthening of pension obligation in Norway of DKK 143m post tax. 8,000 6,000 TAC S&P A-level Available capital S&P A-level Buffer (5%) Surplus capital 37% buffer IS requirement Lower capital requirement related reallocation of bond portfolio to better rating classes. Capital buffer based on the Individual Solvency (IS) model increased to 37% (Q1: 26%). Pension scheme Norway - discounting rate % 5.0 4.0 4.4 3.8 3.9 3.3 3 3.0 2.7 2.4 2.0 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 15
Growth consumes capital DKKm 21,000 20,000 19,000 18,000 17,000 16,000 15,000 Gross earned premiums 2005 2006 2007 2008 2009 2010 2011 DKKm Capital 11,000 10,000 9,000 8,000 2005 2006 2007 2008 2009 2010 2011 16
Combined ratio target % 92 90 < 90 88 86 84 82 80 17 < 90 CR at 90 or below from Q3 2013 ROE 20% CR target 2014 2013 Uncertainty CR target Q3 2013 Expense/claims initiatives Claims inflation above CPI Weather and large claims Legislation etc (WC, taxes..) Interest ROE after tax 40% 30% 20% 10% 0% ROE target 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 2011 H1 2012
Discounting effect lower in Q2 12 vs. Q2 11 % 6.0 5.0 4.0 3.0 2.0 1.0 2006 2007 2008 2009 2010 2011 2012 1% increase in interest rate level will: Increase pre-tax result by around DKK 300m. Improve combined ratio by approx. 1 pp. Lower NO pension obligation affecting capital base by around DKK 300m. 18
Payout model - transparent but unstable Tryg s payout model has been transparent, but has also been vulnerable to: Fluctuations in technical and investment result Change in interest rates (effect on Norwegian pension scheme) DKK per share 40 35 30 25 20 15 Shareholder remuneration 21 12.5 33 Average 2006-2011 Payout DKK 1.3bn Payout ratio 76% Per share DKK 20 10 5 0 21 17 15.5 6.5 4 6.52 2005 2006 2007 2008 2009 2010 2011 19 Cash dividend Share buy back
Summary From growth to profitability focus Claims costs - Reductions of DKK 700m and claims ratio target, net <75% Expenses Reductions of DKK 300m and expense ratio target <15% in 2015 Combined ratio at 90 or below from Q3 2013 Strong capital position Aiming for a more stable payout model 20
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