Carnegie Seminar Stockholm 7 September 2011 IR Manager Lars Møller Presentation can be downloaded at www.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 Formed in 2002 by sale of Nordea s non-life activities with a continuing strategic partnership Only Non-life insurance in the Nordic area Listed (Oct. 10 2005) on Nasdaq OMX Copenhagen Sweden Market position #5 Market share 3.9% CR 2010 107.8 Majority owner : TryghedsGruppen (60%) a mutual foundation rooted in Denmark Turnover 2010: DKK 19.5bn (~EUR 2.6bn) CEO: Morten Hübbe Chairman: Mikael Olufsen Norway Market position #3 Market share 16.9% CR 2010 95.5 Denmark Market position #1 Market share 20.8% CR 2010 98.8 Finland Market share 2.4% CR 2010 111.0 3
Structure of the Nordic insurance markets Denmark DKK 47.0bn/ EUR 6.3bn (as at -10) Norway NOK 43.0bn/ EUR 5.5bn (as at -11) If 5.3 Other 26.9 Other 19.7 Tryg 16.9 Gjensdige 5.8 Alm. Brand 10.0 Codan 13.2 Percentage Tryg 20.8 Topdanmark 18.0 Nordic EUR 21.6bn (as at Q4-10) Topdanmark 5.2 Other 38.3 Sparebank 1 10.9 Gjensidige 27.2 Percentage If 25.3 Sweden SEK 60.4bn/ EUR 6.5bn (as at -11) Gjensidige 1.3 Folksam 14.9 Other 17.3 Percentage Moderna 3.9 Länsforsäkringar 28,4 Länsförsäkringar 8,5 Gjensidige 9.1 Codan 9.6 Percentage If 17.5 Tryg 11.8 Finland EUR 3.5bn (as at Q4-10) incl. Tryg (EUR 84m) Tryg 2.4 Other 17.8 If 24.2 Fennia 9.5 Percentage Codan 15.5 If 18.7 Tapiola 18.5 Pohjola 27.6 4
5 Short term results 2011
Headlines 2011 After tax result improved from DKK 128m to DKK 362m driven by price initiatives Combined ratio of 91.5 vs 92.5 in 2010 3.5% premium growth driven by Private Nordic with 6.2% growth Claims ratio net of 74.5 compared with 75.2 in 2010 Cost ratio of 17.0 vs 17.3 in 2010 impacted by redundancy payments New organisation implemented in with unambiguous focus on profitability Strong capital position with 13% buffer to A- range % Premium growth in local currency Combined ratio 6 120 5 110 4 100 92.5 91.5 3 90 2 Q4 Q4 10 * 10 10** Q4 10 11 11 80 Q4 Q4 10 10 10 Q4 10 11 11 * Excl acquisitions ** before adjustment for change of ownership insurance 6
Segment performance in 2011 Private Nordic - CR Commercial Nordic - CR Corporate Nordic - CR 100 90 80 92.1 91.2 91.4 110 100 90 99.8 105.2 96.5 100 90 80 70 60 Large claims 83.9 84.6 87.4 3.3 9.3 11.4 81.2 78.1 69.4 70 20 2010 2011 80 20 2010 2011 50 20 2010 2011 6.2% premium growth in local currency (8.3% in DKK) Average premium per customer increased 7% in Denmark and 3% in Norway Claims ratio net improved from 75.7 to 75.4 CR impacted by fluctuations in cost ratio Higher level of weather claims in Norway 0.6% premium growth in local currency (1.3% in DKK) Initiatives progresses as planned but customer retention impacted in DK Lower level of large claim in 2011 Positive influence from premium hikes made in autumn 2010 0.8% growth in premiums (DK: -1.8%, NO: 3% SE: 3.9%) Still tough market conditions in all countries Decrease in portfolio on workers compensation 2011 hit by higher level of large claims Underlying claims development improved 7
Status on Copenhagen cloudburst in July 18,500 claims reported mid August Reinsurance will limit net claims to DKK 100m + reinstatement of around DKK 90m New reinsurance feature established from 1 July to protect from multiple events (> DKK 400m) Claims prevention is key focus Claims assessors advises customers on claims prevention Requirement of anti-flood device based on indvidual assessment Reduced max coverage in basements Changed requirements regarding use of water resistent materials in basements 8
Assets allocation Total assets Match portfolio 23 4 2 6 5 Percentage 9 57 Equities Real estate Cov. Bonds Govt. Deposits High yield Other 28 5 Percentage 67 Cov. Bonds Govt. Deposits Free portfolio (exposure) 6 7 19 24 Percentage 44 26% in 2011 Equities Real estate Cov. Bonds Govt. High yield Equity exposure reduced in 2011 by DKK 200m No exposure to sovereign bonds in Italy, Spain, Greece or US 9
Longer term development
Claims inflation emphasises need for premium hikes In addition to single events in 2010 such as winter Examples 90 2004-07 High claims inflation in housing/construction 85 80 2007- Burglary claims increase significantly 75 70 65 20-10 Change of ownership insurance claims rise much more than anticipated Danish workers compensation 60 55 06 06 07 07 Gross claims ratio 10 10 Underlying claims ratio 11 20-10 Lower interest rates have diluted claims ratio by approx 2 percentage points due to discounting 11
Extraordinary events 2010 Extraordinary events (DKKm) 1500 1000 500 Extraordinary events DKK 1.4bn. 0 Winter Q4 Ruling workers' compensation Cloudburst Winter 12
Premium hikes and combined ratio 110 105 Premium hikes Combined ratio Premium hikes Annual impact from price increases 2010 100 95 Smaller adjustments New ruling workers comp. Extraordinary winter DKK ~0.9bn 2011 DKK ~1.0bn 90 2012 DKK ~1.0bn 85 Mid-term target 80 2000 2001 2002 2003 2004 2004* 2005 2006 2007 20 20 2010 2011 2011 2012 2013 2002-2004 premium increases of DKK 2.1bn implemented. Reduced combined ratio from 107 to 94 (DK GAAP) 20-2012 premium increases will improve combined ratio going forward *IFRS from 2004. Previous years are Danish GAAP Data before 20 is not corrected for the sale of Marine Hull business 13
Development in average premiums Average price has declined for a number of years. Increase past 12 months: 2.4% Motor insurance average premium (index 2005 = 100) 120 110 100 90 3.9% 80 2005 2006 2007 20 20 2010 2011 Pricing in house lagging claims development. Increase past 12 months: 13.5% House insurance average premium (index 2005 = 100) 140 130 120 110 7.6% 100 90 2005 2006 2007 20 20 2010 2011 14
Customer retention Private and Commercial Private Retention rate in Denmark gradually improving Retention rate stable in Norway Private - retention rate 92% 90% 88% Retention primarily decreasing among customers with only one product 86% 84% Commercial 82% 05 06 06 07 07 10 10 11 Retention rate stable and strong Danish retention rate marginally impacted by announced premium hikes by 1 October 2010 Commercial - retention rate High retention support competitive strength and cost ratio 90.0 89.0 88.0 87.0 86.0 85.0 84.0 Q4 Q4 10 10 10 Q4 10 11 11 15
Large and weather claims development Large claims, gross DKKm Weather claims, gross DKKm 1,000 800 466 597 537 491 813 373 350 500 400 202 332 112 121 290 5 100 600 300 400 200 0 2006 2007 20 20 2010 H1 2010 H1 2011 200 100 0 2006 2007 20 20 2010* H1 2010* H1 2011 Expected full year level based on history Expected full year level based on history *Excluding extraordinary winter claims Large claims gross amounted to DKK 300m in 2011 against DKK 236m in 2010. Large claims net amounted to DKK 123m in 2011 against DKK 180m in 2010. Weather claims especially related to heavy flooding and landslides in Norway in June. hit by heayy rain in Copenhagen will impact net earnings by DKK 180-200m. 16
Major claims initiatives and Next Level Sourcing Claims Process initiatives Specialised organisation Recourse Reduce fraud personal lines Procurement initiatives E-auction Emergency assistance agreement Road assistance Windscreen claims Reduce loaner car costs DKK 100m DKK 100m Next Level Sourcing Strengthen capabilities of sourcing Review internal processes and procedures Establish and further develop supplier relationships 17
Expenses Highlights Expense ratio improved from 17.3 in 2010 to 17 in 2011 Expenses impacted by redundancy payments Number of employees grew in Sweden and Finland and number of claims handlers in DK/NO Expense ratio 50.0 16.6 60.4 16.2 64.5 15.5 45.8 16.4 30.1 24.1 15.6 16.0 26.1 16.0 2005 2006 2007 20 20 2010 YTD 2010 Danmark & Norway Sweden & Finland 21.6 15.9 YTD 2011 Breakdown of group expense ratio 16.9 16.8 16.8 17.1 17.2 17.0 17.3 0.4 0.8 1.3 1.5 2.7 2.9 2.9 16.8 2.8 16.5 16.0 15.5 15.6 14.5 14.1 14.4 14.0 2005 2006 2007 20 20 2010 YTD 10 YTD 11 Denmark & Norway Finland & Sweden 18 Data before 20 is not corrected for the sale of Marine Hull business.
Provisions and run-off Run-off net, DKKm Insurance provision, DKKm 1,200 800 283 561 792 800 683 824 327 315 5,183 5,173 5,403 5,100 6,2 6,819 8,820 400 21,261 20,410 21,104 19,715 22,470 24,883 25,007 0 2005 2006 2007 20 20 2010 1H 2010 1H 2011 2005 2006 2007 20 20 2010 2011 Claims provisions Premium provisions Relative run-off 4.2% 4.1% 3.6% 3.9% 3.0% 3.1% 2.7% 1.8% 2005 2006 2007 20 20 2010 1H 2010 1H 2011 annualised 19
20 Capitalisation DKKm 12,000 11,000 10,000 9,000 8,000 7,000 20 before payout 20 before payout 2010 2010 2010 2010 before payout 2011 2011 6,000 Capital requirement Buffer (5%) Surplus capital 13%
Solvency II and capital requirements Solvency II is right around the corner Latest QIS5 predictions indicates a capital requirement of approx. 40% of net premiums Tryg is engaged in the pre-approval process with Danish FSA regarding internal model Tryg is applying for partial internal model Pct. of premiums * 50% 16% Capital models QIS ICA Solvency I 2007 2010 2012 The Solvency II puzzle S&P A QIS Typically sizeable difference Typical internal model 21 * Different approach to premiums whether it s S&P or QIS definitions which are uesd
Outlook Mid-term ROE after tax Mid-term target is return on equity of more than 20% after tax. 40% 30% 20% Mid-term target This implies a combined ratio level of 90% including potential run-off and at current interest rate level. 10% 0% 2003 2004 2005 2006 2007 20 20 2010 1H 2011 2012 2013 2014 Normal maintenance called for additional and selective price initiatives of DKK 400m. Continued focus on claims initiatives will give further comfort in reaching planned mid-term target Increasing interest rates will support lower combined ratio Annual impact from price increases 2011 2012 Before DKK 1bn DKK 0.6bn New DKK 1bn DKK 1.0bn 22
Summary Premium hikes and claims initiatives will improve earnings going forward Strong focus on cost improving initiatives Profitability to be gradually restored in coming years Growth opportunities in Sweden and Finland Strong capital position approaching Solvency II 23
Questions? 24