Private & Commercial Denmark

Private & Commercial Denmark sells insurances to private households and small and medium-sized enterprises in Denmark under the Tryg brand name. Sales are handled by five customer centres/call centres, 16 local service centres, our own sales agents, Nordea’s branches, affinity groups, car dealers and real estate agents. Private & Commercial Denmark has around 1,400 employees.

Performance at a sustained high level in 2008 despite rising claims inflation
The technical result amounted to DKK 1,098m in 2008, which was DKK 342m lower than in 2007, but around DKK 100m higher than in 2006. The performance was impacted by significantly lower run-off gains, which were DKK 164m lower in 2008 than in 2007, and high claims inflation at the beginning of 2008, which subsided towards the end of 2008.

The higher average claims on building insurance presented one of the major challenges in 2008 due to higher wage to skilled craftsmen and higher costs of materials, a changed claims mix and run-off losses from an increase of provisions for cloudburst claims from 2007. However, the rapid economic slowdown reduced demand for craftsmen services during the year, thereby curbing claims inflation. TrygVesta has implemented price increases on building insurance as a result of the change in claims patterns in connection with the climate changes.

2008 was yet another year with health in focus
Gross earned premiums rose by 1.8% to DKK 6,605m in 2008, which was lower than anticipated. In 2008, growth in gross premiums was affected by lower premiums on motor insurance and competition from small insurers in particular. Going forward, price competition from small insurers is expected to tail off as a result of changed market conditions under which losses on investments and higher combined ratios are likely to lead to a stronger focus on striking the balance between earned premiums/growth and the related claims expenses.

2008 was yet another year with health care in focus. Health care insurance premiums grew by more than 70%, and TrygVesta further strengthened its position in this market. The Private & Commercial and Corporate portfolios total more than DKK 200m.

Private & Commercial Denmark also recorded strong growth within so-called industry agreements with the business sector as a result of recent years’ efforts to target selected segments of the business sector. These agreements are characterised by a high degree of customer loyalty and good profitability.

In 2008, the retention rate for private customers stabilised at a high level of around 91, which means that 91 out of 100 private customers chose to renew their policies with us. The high retention rate made a positive contribution to the performance, as a high retention rate is important in relation to the development of premiums, claims and costs.

The implementation of the changed tariff parameters for motor insurance in Denmark resulted in a decline in the average motor premium throughout 2008. However, it stabilised towards the end of the year. Although the implementation of the new tariff parameters began in late 2006, it takes time before the entire portfolio has been transferred. The new parameters are based on the age of the car, the annual mileage and the age and gender of the driver, all of which facilitates a better risk assessment. The level of average motor insurance premiums is expected to remain largely unchanged in 2009. Average premiums will be favourably affected by the general increase in prices (index), totalling 4.4% in 2009, but adversely impacted by the ongoing portfolio restructuring and premium reductions to customers as they build up their driving seniority. The motor portfolio is characterised by a large proportion of high seniority customers, for whom the continuous shift towards lower premiums is connected with a high degree of loyalty and good profitability.

In 2008, Private & Commercial Denmark launched a number of initiatives to further enhance the customer experience. As a result, Tryg Vejhjælp was added to the motor insurance coverage of some 300,000 concept customers as a customer benefit at no additional cost. The extended Tryg Vejhjælp provides additional peace-of-mind services, such as changing of winter and summer tyres, taxi and hotel service and safety checks on the car. Sales of the extended Tryg Vejhjælp have exceeded expectations, thereby confirming that customers welcome the Group’s ambition to continuously improve the quality and service it provides.

In 2008, TrygVesta signed a cooperation agreement with DLG, Denmark’s leading supplier of feedstuffs for the agricultural sector, for the distribution of insurance products in Denmark and Sweden. DLG, which also sells telecommunications, food products and machinery, generates annual revenue of DKK 38bn and has 5,000 employees. The agreement is expected to contribute to earned premiums and earnings beginning in 2009.

Claims affected by claims inflation
In 2008, total claims expenses at DKK 4,443m were up by 9.9% relative to 2007, and the gross claims ratio increased from 62.3 to 67.3. Despite the increase we are still at an acceptable level. In this connection, it should be emphasised that the claims ratio was exceptionally low in 2007. The increase in 2008 was primarily attributable to higher building and health insurance claims and significantly reduced run-off gains as compared with 2007.

The average claim in building insurance rose by around 20 percentage points in 2008, which was one of the most important reasons for the increase in claims expenses. Average claims rose as a consequence of higher payroll and material costs and a change in the claims mix, with TrygVesta recording a higher number of costly claims, which gave rise to run-off losses in 2008, primarily attributable to increased provisions for cloudburst claims from 2007.

The claims frequency for building policies dropped by 5 percentage points in 2008, mainly as a result of fewer weather related claims. Due to the higher claims expenses, premium increases of approximately 11% were implemented on building policies at the end of 2008. The time lag from implementation of a price increase until it feeds through as a gross earned premium is up to two years, and the effect of such price increases will therefore only begin to materialise in the second half-year of 2009 and be fully recognised in the financial statements for 2010.

The claims frequency for motor policies fell by around 3 percentage points in 2008 compared with 2007, and the average claim was up by around 4 percentage points. TrygVesta’s cooperation with selected garages helps keep average claims expenses at a competitive level, while ensuring that customers receive high-quality service.

Expenses for weather related claims fell, as 2008 saw fewer cloudburst and storm claims as compared with previous years. Large claims totalled DKK 83m in 2008 compared with DKK 78m in 2007.

Run-off gains from prior-year claims positively impacted the 2008 performance by a gross amount of DKK 391m (DKK 414m net) against a gross amount of DKK 551m (DKK 578m net) in 2007. Motor and workers’ compensation recorded positive run-off gains, whereas reserves for building policies were strengthened. Run-off gains had a favourable impact on the combined ratio of 6.3 percentage points compared with 8.9 percentage points in 2007.

Expenses
Expenses rose to DKK 1,155m in 2008 from DKK 1,086m in 2007 due to high wage inflation, increased initiation of IT projects and expenses of DKK 24m incurred in connection with “The Living House” in the fourth quarter of 2008. Excluding the expense in connection with “The Living House”, the expense ratio was 17.1 against 16.7 the year before.

Combined ratio of 86.1
The combined ratio was 86.1, an increase relative to the exceptionally low level of 80.3 recorded in 2007.

A large part of this difference was attributable to higher run-off gains in 2007, as, in relative terms, a 2.6 percentage point higher positive impact was recorded in 2007 as compared with 2008. Moreover, the underlying claims inflation contributed to the higher combined ratio in 2008 relative to 2007. Premium initiatives already implemented and additional planned initiatives are intended to enable the strong earnings to be retained going forward. .