Tryg Forsikring A/S Tier 2 subordinated bond issue Company - - PowerPoint PPT Presentation

Company presentation

Tryg Forsikring A/S

Tier 2 subordinated bond issue

October 2015

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Certain statements in today’s presentations 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 the presentations 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 financial reports 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 presented as anticipated, believed, estimated or expected. We are not under any duty to update any of the forward-looking statements

• r to conform such statements to actual results, except as may be required

by law.

Important information

Disclaimer

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Strong value propositions

Proven distribution platform | High profitability | Low balance sheet risk I II III IV V VI

Solid and stable earnings and profitability Leading Scandinavian non-life insurance player Strong capitalization – “A-” rating from S&P Low risk balance sheet with stable return on investment Strong customer relationships with high customer retention Attractive market fundamentals

Stable inflow of cash Favorable combined ratio development

Note(*): 2015 year-to-date || Note(**): Moderna Försäkringar is included from 2 April 2009

Return on Equity (%) DKKbn

5% 10% 15% 20% 25% 30% 35% 5 10 15 20 25 30 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15*

• Acc. share buy-back
• Acc. dividends

Equity Return on Equity 75% 80% 85% 90% 95% 100% 105% 110% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15* Denmark Norway Sweden**

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Tryg Forsikring A/S at a glance (I)

Leading Nordic non-life insurance company

• Tryg’s history dates back to the

18th century

• Focuses on non-life insurance in

Denmark, Norway and Sweden

• Primarily provides insurance to private

individuals but are also active towards the commercial and corporate sector

• Motor, retail & commercial property

and health & accident are Tryg’s main product lines

• TryghedsGruppen, a mutual foundation

rooted in Denmark, has a 60% stake in the company

• The foundation recently implemented

a members’ bonus scheme

• Unrivaled brand strength and

recognition with significant local goodwill due to TryghedsGruppen

• Employees: 3,425
• Customers: 2.7 million
• Premiums earned 2014: DKK 18,652m
• Current market cap.: DKK 35,963m
• Total equity as of Q3-15: DKK 9,235m

31% 24% 14% 11% 20% Motor Private property Commercial property Health & Accident Other 56% 23% 21% Private Commercial Corporate Customer Satisfaction Brand Strength Attractive Products Distribution Network Employee Satisfaction 47% 41% 12% Denmark Norway Sweden

Tryg’s operating fundamentals 2014 premiums split by COUNTRY 2014 premiums split by BUSINESS MIX 2014 premiums split by PRODUCT LINE

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Tryg Forsikring A/S at a glance (II)

Operating in attractive market fundamentals

Market share DENMARK

Norway Sweden Denmark

Market position: Market share: Employees: Premiums earned: Technical result: Combined ratio: #1 18.0% 1,903 DKK 9,361m DKK 1,510m 81.2 TOP3 13.5% 1,131 DKK 7,337m DKK 1,478m 84.8 TOP5 3.0% 391 DKK 1,975m DKK 44m 89.0 #1 TOP3 TOP5

Market share NORWAY Market share SWEDEN

18% 18% 12% 10% 6% 6% 31% Tryg Topdanmark Codan Alm Brand. Gjensidige If Other

EUR 6.9bn

25% 22% 14% 10% 29% Gjensidige If Tryg Sparebank1 Other

EUR 6.4bn

Tryg figures

30% 18% 17% 16% 3% 2% 16% Länds- forsikringar If Folksam Trygg-Hansa (Codan) Moderna (Tryg) Gjensidige Other

EUR 7.7bn

1. Solid macroeconomic environment 2. High degree of customer loyalty and acceptance for product bundling 3. Consolidated and mature markets 4. Structurally high operational and underwriting efficiency among key players in the industry 5. Established and rational key players 6. Considerable barriers to entry Market combined ratio development Key market characteristics

Source: Forsikringogpension (DK), FNO (NO), Svenskforsakring (SE)

80% 85% 90% 95% 100% '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Norway Denmark Sweden

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Tryg Forsikring A/S at a glance (III)

Attractive equity story

Tryg will consecutively deliver long term profitable growth resulting in attractive shareholder value creation

Leading in efficiency Leading Scandinavian insurer with strong track record

• Efficiency programme of DKK 750m
• Claims procurement
• Reducing expense level

Financial targets 2017

• ROE: ≥21%
• Combined ratio: ≤87%
• Expense ratio: ≤14%

Customer targets 2017

• NPS +100%
• Retention rate +1 pp
• ≥ 3 products +5 pp

Dividend policy

• Payout ratio of 60-90%
• Aiming for a nominal stable increasing dividend

Low risk and high returns

• Matching assets and liabilities
• Low risk investment portfolio

Customer care worth recommending

• 90% first contact resolution
• Annual coverage check

Next level pricing

• 25% of tariffs above peers in 2017
• Differentiated product offering

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Solid track record

Proven operations ensure stable inflow of cash

Note(*): *IFRS from 2004 - previous years are Danish GAAP || Note(general): data before 2009 is not corrected for the sale of Marine Hull business, and Finland before 2008

Selected financial results Combined ratio

• 1,500
• 1,000
• 500

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Investment result Technical result Pre-tax profit 80 85 90 95 100 105 110 '00 '01 '02 '03 '04 '04* '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E

Premium hikes Premium hikes Smaller adjustments Efficiency program Customer and efficiency focus

Established premium portfolio with high retention rate

III II I IV V

Attractive underlying underwriting profitability Conservative asset allocation with favorable return Stable pre-tax profit and lucrative return

• n equity

Hands-on management and lean organization - well suited to efficiently cope with change

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Sustainable efficiency program 2015-17E

Expense and claims reduction of more than DKK 750m within 3 years

Annual cost savings 2012-17E Overview of efficiency program 2015-17E Development in FTEs New initiatives towards 2017

4,077 3,914 3,703 3,599 3,425 2011 2012 2013 2014 Q3 2015 Claims reduction Expense reduction DKK 750m DKK 250m DKK 500m 150 73 225 375 175 388 395 45 2012 2013 2014 2015 Q1-Q3 2015 2016 2017 Achieved Target Q3 H1

OLD program NEW program

• Utilization of Nordic

procurement volume

• Sourcing
• Simplification
• First contact resolutions
• Improved retention rates
• Enhanced fraud detection

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Sound investment approach and related return

Conservative asset allocation and low return volatility provides consistency

Standard deviation of Return on Investment 2011-13

0% 10% 20% 30% 40% 50% 60% DLG Aviva Allianz Talanx Tryg Mapfrre RSA Zürich Gjensidige Sampo Vienna Generali Topdanmark PZU AXA

• Tryg aims to be world class in insurance
• Aim of investment is to support insurance
• Less risk on investments requires discipline on

the insurance result

• Allows focus on core business
• Matching of assets and liabilities implies lower net capital

requirement in Solvency II

• High Return on Risk-Adjusted Capital (RORAC)

MAX and MIN deviation in quarterly return 2007-15YTD Portfolio Q3 2015 (DKK 39.7bn) Key comments

• Cov. Bonds

68.6% Bonds/deposits 4.2% Equities 5.8% HY 2.2% EM 1.0%

• Inv. Property

5.1% Bonds/deposits 13.0%

Free 10.6bn 27% Match 29.0bn 73%

• 5.0%
• 2.5%

0.0% 2.5% 5.0% Topdk If Gjensidige Alm.Br. Tryg Min Max Average

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Disciplined capitalization

Sizable capital buffer already in place ensuring comfortable headroom

Increasing capital buffer Key comments Stable underlying capitalization

• Tryg’s individual solvency capital buffer was 59%

at the end of Q3 2015

• The individual capital buffer has increased over 30

percentage points from approx. 30% in the start of 2012

• Tryg’s underlying capitalization shows a stable

individual capital buffer of ~50%

• Based on the Solvency II standard model the capital

buffer was ~26% in Q3-15

• Reinsurance protects capital position against large claims
• Supports a solid “A-” rating from S&P
• Leverage in low / mid compared to peers
• Solvency II unsolved issues:

 Internal model expected to be approved by 31 December 2015  Inclusion of notional deferred tax and expected future surplus  Eligibility of Norwegian Natural Perils Pool

10% 30% 50% 70% 90% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 Individual solvecy buffer Standard formula buffer Individual solvency buffer 51% 48% 49% 50% 7% 2% 9% 5% 3% 10% 30% 50% 70% 90% Q4 2014 Q1 2015 Q2 2015 Q3 2015 Underlying buffer Retained cash dividend Underlying share buy-back

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Solid rating from Standard & Poor’s*

Low business & financial risk together with stable outlook yields an A- rating

Source: Standard & Poor’s Rating Services (21.07.2015) || Note(*) for more details see appendix

Key comments Rating and underlying rationale Rating

Financial Strength Rating

• Standard & Poor’s expects that Tryg will:
• defend its strong competitive position
• maintain moderately strong capital adequacy
• continue generating strong earnings
• focus on profitable growth through selected premium

rate increases and efficiency initiatives

• Given the current level of the financial risk profile and

the competitive strengths underlying the business risk profile, S&P view a negative rating action as remote

• ver the next 24 months

Rationale

A– (stable)

Counterparty Credit Rating

A– (stable)

Junior Subordinated

BBB

Subordinated

BBB

Business risk profile

STRONG

Financial risk profile

MODERATELY STRONG

Outlook

STABLE

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Achievable long-term business plan

Well defined strategic targets reveal ambitious plans for the company

Note(*): excluding one-off effects || Note(**): private (DK & NO)

Financial targets Customer targets Shareholder remuneration target ROE development 2005-15YTD-2017

I II III I II III I II

5% 15% 25% 35% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD 2015E 2016E 2017E

Return on Equity (ROE) after tax 2015: = 20% 2017: ≥ 21% Combined ratio 2015: ≤ 90 2017: ≤ 87 Expense ratio* 2015: < 15 2017: ≤ 14 Net Promoter Score (NPS) 2017: + 100 Retention rate 2017: + 1pp Customers ≥ 3 products** 2017: + 5pp Payout ratio 60% – 90% Aiming for a nominal stable increasing dividend

III

Share buy-back May occur as extraordinary events

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Transaction summary

Key terms

Source: Tryg, Pareto Securities, Danske Bank Markets

Issuer:

Tryg Forsikring A/S

Instrument:

Solvency 2 Compliant Subordinated bond issue (Tier 2 Capital)

S&P Ratings:

A- (Issuer Rating) / BBB (Expected Instrument Rating)

Volume:

NOK [Benchmark]

Maturity:

[] 2045

Issuer’s Call option:

Ordinary calls on [] [2025], and any interest payment date thereafter. Conditional calls on either a Capital Disqualification Event, or a Rating Agency Event; or a Taxation Event

Coupon rate:

3 months NIBOR + [Margin]

Margin:

[]% p.a. until [] 2025 and thereafter []% p.a. + 1.00% p.a.

Deferral of Interest Payments:

At the Issuer’s option, subject to 6 months dividend pusher. Mandatory in the event of breach of Solvency requirements. Arrears of Interest will be cumulative

Loss Absorption:

Applicable until 1 January 2016

Listing:

An application will be made for the Bonds to be listed on [Oslo Børs]

Bond Trustee:

Nordic Trustee ASA

Governing law / Denominations:

Danish law / NOK 1,000,000

Arranger:

Danske Bank & Pareto Securities

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Key investment considerations

Nordic footprint | Lean operations | High profitability | Strong capitalization

1 2 3 4 5 6 7

Dedicated Nordic non-life insurance company, with proven operations and favourable outlook, diversified across both countries and products Operates in mature markets, with high entry barriers and customer retention rates, dominated by established key players focusing on lowering cost Profitability has been high and improving in recent years due to efficiency programmes and benign market for raising premiums Aiming to achieve a combined ratio of ≤ 87 and expense ratio of ≤ 14 from 2017 and onwards ROE after tax has been 18.1% on average the last six years and Tryg aims to achieve ≥ 21.0% within 2017 Only one quarterly pre-tax loss since 2006 due to heavy winter. Re-insurance protects Tryg from large claims and single events Low risk through strong capitalization, conservative investment policy and stable profitability resulting in a solid “A-” rating from Standard & Poor’s

Appendix

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Norway Denmark Sweden

Distribution of new sales 2014

Broad distribution power through diverse sales channels is key

Source: Tryg, Pareto Securities, Danske Bank Markets

Corporate

63% 24% 13% Own sales Affinity Nordea 56% 4% 26% 14% Own sales External partners Online & others Atlantica / Bilsport MC 45% 15% 32% 8% Own sales Car dealers Affinity Nordea 43% 57% Own sales Brokers

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Key financial figures and consensus 2011-17E

Overview

Note(*): DKK 15.3m excluding one-offs || Note(**): based on 13 standalone estimates

DKKm 2011 2012 2013 2014 2015E 2016E 2017E Gross premium income 19,948 20,314 19,504 18,652 18,028 18,014 18,284 Technical result 1,572 2,492 2,496 3,032 2,623 2,748 2,887 Investment income, net 61 585 588 360 116 248 249 Pre-tax profit 1,603 3,017 2,993 3,302 2,644 2,930 3,070 Net income 1,140 2,208 2,369 2,557 2,044 2,260 2,367 Combined ratio 93.2 88.2 87.7 84.2 85.9 85.0 84.4 Expense ratio 16.6 16.4 15.6 14.6 * 15.2 14.5 14.2 Total insurance provision 34,220 34,355 32,939 31,692 n.a. n.a. n.a. Shareholders’ equity 9,007 10,979 11,107 11,119 n.a. n.a. n.a. Earnings per share 3.8 7.3 7.9 8.7 7.2 8.1 8.7 Dividend per share 1.3 5.2 5.4 5.8 6.1 6.4 6.8 Share buy back

• 800

1,000 1,000 1,060 785 556 CONSENSUS **

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Established ownership structure

60% owned by TryghedsGruppen (foundation) and 40% free float

Note(*): from Ipreo’s Big Dough database || Note(**): large shareholders = more than 10,000 shares (~0.017%)

Geographical distribution of free float (40%) year-end 2014 TOP10 shareholders* Shareholder overview year-end 2014**

TryghedsGruppen

60.00 %

Tryg A/S

52% 14% 14% 6% 14% Denmark UK US Nordics Other

Danske Capital Norges Bank Investment Management Industriens Pensionsforsikring BlackRock Fund Advisors ATP Investment Management The Vanguard Group Skandinaviska Enskilda Banken Sampension Administrationsselskab

1.89 % 1.65 % 1.22 % 0.97 % 0.85 % 0.83 % 0.70 % 0.63 % 0.62 %

TOTAL TOP10

69.35%

60% 14% 9% 17% TryghedsGruppen Large international shareholders Large Danish shareholders Small shareholders

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Solid rating from Standard & Poor’s

Low business & financial risk together with stable outlook yields an A- rating

Source: Standard & Poor’s Rating Services (21.07.2015)

Base-case scenario assumptions and methodology Rating and underlying rationale

• Strong underwriting profitability supports capital & earnings
• Capital adequacy is moderately strong
• Tryg benefits from a conservative investment strategy
• Moderate financial leverage = strong ability to service debt
• Stable outlook for Tryg in the Nordic markets
• Will defend its strong competitive position and maintain

moderately strong capital adequacy

• Continued strong earnings through profitable growth by

utilizing premium rate increases & efficiency initiatives

• Given current financial risk and competitive strengths S&P

views a negative rating action as remote over next 2 years

• One of the largest non-life insurers in the Nordic region
• Market leader within Danish non-life
• Strong operating performance
• Diverse product and distribution strategies

Rating Rationale Business risk profile: STRONG Financial risk profile: MODERATELY STRONG Outlook: STABLE

Junior Subordinated Subordinated Counterparty Credit Rating Financial Strength Rating

BBB A– (stable) BBB A– (stable)

Macroeconomic assumptions

• Expect the Danish economy to further recover
• Real GDP will increase by 1.5% in 2015 and by 2.2% in 2016
• Danish 10-y gov. bond yield will remain low over the next 2 years

Company-specific assumptions

• Premiums will decline less in 2015 with volumes contracting by up

to 1% and then slightly increase in 2016-17 by 0%-2% p.a.

• Net combined (loss and expense) ratio of 87% or less by 2017
• ROE will be above 20% in 2015-17 and above 21% after 2017
• We expect Tryg's financial leverage will remain stable. Tryg will

most likely refinance its maturing subordinated debt in 2015, and potentially add subordinated debt in 2016-2017

Key Metrics

2012 2013 2014 2015E 2016E Gro ss premiums written (D KKm) 20,1 28 1 9,820 1 8,672 ~1 8,500 ~1 8,500 N et inco me (D KKm) 2,1 80 2,373 2,547 >2,300 >2,300 R eturn o n equity (%) 21 .9 21 .6 23.1 >20 >20 P / C net co mbined ratio (%) 87.5 87.0 83.3 <90 <90 N et investment yield (%) 2.6 2.3 2.1 ~1 .9 ~1 .9 S&P capital adequacy M oderately strong M oderately strong M oderately strong M oderately strong M oderately strong F ixed-charge co verage 26.7 23.6 30.8 >30 >25 F inancial leverage (%) 23.0 23.4 22.0 <30 <35

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Key economic figures in the Nordic region

Stable outlook

Norway Sweden Denmark

#1 TOP3 TOP5 Tryg exposure Source: Economic Outlook, Nordea Markets

Denmark Norway Sweden % 2015E 2016E GDP Growth 1.5 2.0 Inflation 0.6 1.5 Unemployment 4.7 4.3 Current account balance in % of GDP 6.3 5.6 Budget balance in % of GDP

• 2.3
• 1.9

Public debt in % of GDP 39.1 41.0 % 2015E 2016E GDP Growth 1.2 1.3 Inflation 2.1 2.2 Unemployment 4.4 4.8 Current account balance in % of GDP 5.7 5.9 Budget balance in % of GDP 6.1 6.3 Public debt in % of GDP 0.0 0.0 % 2015E 2016E GDP Growth 2.8 2.8 Inflation 0.0 1.1 Unemployment 7.6 7.3 Current account balance in % of GDP 7.0 7.5 Budget balance in % of GDP

• 1.6
• 1.1

Public debt in % of GDP 43.8 43.1

Tryg Forsikring A/S | Klausdalsbrovej 601 | 2750 Ballerup | Denmark | Tel: +4570112020

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