Corporate governance

In 2007, TrygVesta’s Supervisory Board focused on creating more room for forward-looking activities at Board meetings and at the annual Board seminar. This was done without neglecting the Board’s follow-up and supervisory duties. In its work, the Group Executive Management focused on involving the Group’s other management staff in the strategic efforts to ensure quality and ownership and to facilitate implementation of the strategy at an even faster pace.

The Supervisory Board believes that TrygVesta complies with the corporate governance recommendations published by OMX Nordic Exchange Copenhagen. The Supervisory Board considers that each Board member has adequate time and resources to serve as a Board member of TrygVesta in a satisfactory manner.

Stakeholders

TrygVesta strives to develop and maintain strong relations to all relevant stakeholders as they are key to the Group’s future performance and potential. This includes that we emphasise open and honest communication, and that we reply to all enquiries in an accommodating  manner.

TrygVesta issues press releases and company announcements on a regular basis and publishes quarterly and half-year interim reports and annual reports in order to best enable stakeholders to form an adequate impression of the Group and its performance. All financial announcements are released simultaneously in Danish and English. Management organises regular investor presentations, live teleconferences and webcasts in a partnership with Investor Relations. All material is available at www.trygvesta.com, which also offers stakeholders to receive the latest news as RSS feeds or to download webcasts and teleconferences as Podcasts. TrygVesta continuously seeks to make the website more userfriendly and improve its contents.

TrygVesta has adopted a number of guidelines and policies in order to ensure that we provide correct and adequate information to all the Group’s stakeholders. In 2007, TrygVesta worked on defining a CSR (Corporate Social Responsibility) policy and set up a CSR organisation with a CSR board chaired by our Group CEO. The CSR board will report to the Supervisory Board once a year.

The Supervisory Board regularly considers the adequacy of TrygVesta’s capital structure to align it with the interests of the Group and of our shareholders and to ensure compliance with the requirements applicable to TrygVesta as a financial undertaking. The Supervisory Board optimises our capitalisation on an ongoing basis while duly safeguarding the interests of our policyholders and shareholders and leaving the Group sufficient scope in which to develop and grow.

The Supervisory Board intends to consider any public takeover bid that may be made as prescribed by legislation and, depending on the nature of such bid, to convene an extraordinary general meeting of shareholders in accordance with applicable requirements and rules. TrygVesta’s annual general meeting is held every year before the end of April. The Supervisory Board convenes the annual general meeting giving not less than eight days’ notice. Shareholders may register to receive an electronic notice of the general meeting. The notice includes the time and place of the meeting and sets out the agenda, which as a minimum comprises the following items:

• Report of the Supervisory Board on the activities of the company during the past financial year
• Presentation of the annual report for approval, including determination of the Supervisory Board’s remuneration
• Adoption of a resolution as to the distribution of profit or covering of loss, as the case may be, according to the annual report
• Any proposals from the Supervisory Board or from shareholders
• Election of members to the Supervisory Board
• Appointment of auditors
• Any other business

Further details to the notice of the meeting can be found in the complete proposals, which are available for download at www.trygvesta.com and to all shareholders on request. The complete proposals also include the Supervisory Board’s proposed dividend payment with respect to the past financial year.

All shareholders are urged to attend the annual general meeting. Shareholders may vote in  person at the general meeting or appoint the Supervisory Board or a third party as their proxy. TrygVesta makes a proxy form to the Supervisory Board available, which allows shareholders to decide on the individual items of the agenda. The proxy form will be available at www.trygvesta.com from 14 March 2008.

The composition of the Supervisory Board

The Supervisory Board has 12 members, including eight members elected by the shareholders for a term of one year. Four of the eight members are non-affiliated. The Supervisory Board is composed as follows:

• four members are elected among the members of the Supervisory Board of Tryg i Danmark smba
• four members are elected among candidates without any affiliation with Tryg i Danmark smba, and
• four representatives are elected among the employees, who according to agreement in 2007 between the Danish and Norwegian employee associations include two representatives of the Group’s Danish employees and two representativeS of the Norwegian employees.

The chairman and the deputy chairman are in charge of the Supervisory Board’s work.

To ensure replacement on the Supervisory Board, members elected by the shareholders may hold office for a maximum of nine years. Furthermore, members of the Supervisory Board must retire at the first general meeting following their 70th birthday.

Prior to the election of new members, the Supervisory Board prepares a description of the candidates’ background as part of the final proposals to be submitted to shareholders at the annual general meeting. The description outlines the recruitment criteria established, including requirements with respect to the candidates’ professional qualifications and international experience. When taking up office, new Board members are given an introduction to the Group. Information about Board members’ profiles and shareholdings is set out in the section on Members of the Supervisory Board and is also available at www.trygvesta.com.

Board committees

The Supervisory Board has set up an audit committee. The three-member committee is chaired by an independent member of the Supervisory Board. In 2007, members of the audit committee were Bodil Nyboe Andersen (chairman), Per Skov and Håkon J. Huseklepp.

The audit committee supports the Supervisory Board in its work with and supervision of:

• the annual report, including checking the accuracy of financial information disclosed in the annual report, and ensuring that accounting policies are relevant and applied consistently
• internal control and risk management. In this context the audit committee reviews and assesses management’s guidelines for identifying, monitoring and managing the most important risks at least once a year, including an assessment and review of internal control and risk management systems
• internal and external audit, including a review and discussion of the results of the work of the internal and external auditors and the auditors’ observations and conclusions. The committee supervises management’s follow-up on the recommendations to management reported by the internal and external auditors
• the Group being monitored by independent auditors.

The audit committee works with historical data, and it is not involved in forward-looking events such as outlook and budgets. The audit committee shall to a reasonable extent discuss and review with management significant financial information in the Group’s financial statements.

The audit committee meets at least four times a year and reports to the Supervisory Board on a regular basis. The committee makes an annual assessment of the preceding year’s work to assess if any changes should be made to its areas of responsibility.

The Supervisory Board does not have a nomination committee, but in 2007 the chairman and deputy chairman functioned as the nomination committee without receiving any fees.

Tasks and responsibilities of the Board

The Supervisory Board is responsible for the overall management and financial control of TrygVesta. In this work, the Supervisory Board uses targets and framework management based on regular and systematic consideration of strategies and risks.

The Executive Management reports regularly to the Supervisory Board on strategies and action plans, market developments and the Group’s performance, funding issues, capital  resources and special risks. The Supervisory Board cooperates with the Executive Management on a regular basis to ensure development of and follow-up on the Group’s strategies.

The Supervisory Board holds at least six annual meetings and an annual strategy seminar to discuss and define strategies and goals for the years ahead.

The Supervisory Board carries out an annual evaluation of the work and results of the Executive Management and of the cooperation between the Supervisory Board and the Executive Management. The Supervisory Board also reviews and approves the rules of procedure of the Supervisory Board and the Executive Management each year to ensure they are consistent with TrygVesta’s requirements. In the rules of procedure, the Supervisory Board has defined an evaluation procedure providing for the work and results of the Supervisory Board, the chairman of the Supervisory Board and the individual members and for the composition of the Supervisory Board to be assessed for the purpose of optimising the Board’s work. The evaluation procedure includes individual interviews to be held in January between the chairman of the Supervisory Board and the individual members and a discussion of the overall results of these interviews at the first subsequent Board meeting.

The duties of the chairman and the deputy chairman of the Supervisory Board are defined in the rules of procedure of the Supervisory Board, and include preparing Board meetings and performing evaluations of the Supervisory Board’s work and the cooperation with the  Executive Management. The chairman acts as spokesman for the Supervisory Board for external purposes.

In 2007 the shareholders at the annual general meeting authorised the Supervisory Board to buy own shares within 10% of the share capital up to the next annual general meeting. The Supervisory Board is also authorised to distribute extraordinary dividends pursuant to the rules of the Danish Public Companies Act.

Risk management

TrygVesta is an insurance group subject to the requirements of the Danish Financial Business Act on risk management and the involvement of the Supervisory Board and the Executive Management. The Supervisory Board defines the framework for risk management in TrygVesta with respect to insurance risk/reinsurance, investment risk and operational risk, including IT security. This framework is then implemented in risk policies that define detailed guidelines for the Group’s risk management. The risk management committee comprising the Group CEO, Group CFO and selected senior executives monitors the risk management environment. The Executive Management reports to the Supervisory Board on how the framework for the Group’s risk management is implemented. A more detailed review of the Group’s risk management principles is set out in the section on Risk management and at www.trygvesta.com.

Audit

The Supervisory Board ensures that the Group is monitored by competent and independent auditors. Each year, the annual general meeting appoints external auditors recommended by the Supervisory Board. The Supervisory Board, the audit committee and the Executive Management make a critical assessment of the auditors’ independence and competence.

TrygVesta also has an internal audit department which reviews the quality of the Group’s internal control systems and business procedures on a regular basis and is responsible for planning, performing and reporting the audit work to the Supervisory Board. The internal and external auditors’ long-form reports are reviewed by the Supervisory Board.

Remuneration policy for the Supervisory Board and the Executive Management

TrygVesta has adopted a policy with respect to remuneration of the members of the Supervisory Board and the Executive Management of TrygVesta A/S and has also prepared overall guidelines for an incentive structure, which will be submitted for shareholder approval at the annual general meeting to be held on 3 April 2008. The complete text of the remuneration policy is posted at www.trygvesta.com.

^{* Christian Brinch joined the Supervisory Board in March, and his remuneration therefore only covers the last three quarters of 2007.}

Members of the audit committee received a fee of DKK 100,000 in 2007, and the chairman of the audit committee received DKK 150,000.

Remuneration of the Executive Management

The Executive Management comprises three members. The remuneration paid to the Executive Management reflects a wish to secure a profitable and stable performance for the Group in the short term as well as in the longer term, including to induce the Executive Management to focus on increasing value creation for shareholders.

The remuneration includes an element of performancerelated bonus and comprises a bonus plan providing for up to three months’ additional salary (four months’ for the Group CEO). The bonus is directly linked to achievement of pre-defined benchmarks. The assessment of the individual member’s target achievement includes the TrygVesta Group’s overall performance as well the individual member’s performance within the business area he or she is responsible for. Specific benchmarks are defined within all four perspectives of the  balanced scorecard (financial, customer, processes and learning). These benchmarks reflect the strategic focus areas of the Group and the individual business areas, including growth, profitability, cost reduction, customer satisfaction, customer loyalty, image, processes, communication, employee satisfaction and development, and innovation. Members of the Executive Management may chosse to receive their bonus by acquiring TrygVesta shares at a discount to the market price or they may elect to receive a cash payment. Members of the Executive Management who elect to receive their bonus by acquiring shares at a discount to the market price can buy the shares at par with a total discount equal to the bonus for which the individual member is eligible. TrygVesta believes it is appropriate that part of the Executive Management’s remuneration consists of stock option based payment in order to ensure focus on share price performance and build loyalty and motivation.

Any grant of stock options is based on the principle that the exercise price may not be lower than the market price. The most recent grant was based on the market price plus 10%. The annual dividends are deducted from the exercise price. Options cannot be exercised earlier than three years  after the date of grant and not later than five years after the date of grant. Exercise must take place during the open trading windows in connection with the full-year and half-year profit announcements. On exercise, the value of the options calculated as the difference between the exercise price and the market price must not exceed 200% of the recipient’s fixed annual salary.

The Supervisory Board granted 25,700 stock options to the Executive Management in 2007, entitling the holders to acquire shares at the average price of TrygVesta shares (“all trades”) on OMX Nordic Exchange Copenhagen on 27 February 2007 which was DKK 456.76 plus a 10% supplement. The options were granted on 28 February 2007, and each option entitles the holder to acquire one share at the exercise price. We buy treasury shares to cover our stock option programmes.

Members of the Executive Management are also entitled to company cars. A contribution of 25% of the fixed salary of the Executive Management is paid into a pension scheme.

Members of the Executive Management are entitled to 12 months’ notice of termination and to 12 months’ severance pay. However, the Group CEO is entitled to 12 months’ notice of termination and to 18 months’ severance pay plus pension contributions during such period.

Incentive pay to the Group Executive Management and senior executives

Like the Executive Management, the remaining members of the Group Executive Management and senior executives of TrygVesta are offered a performance-related bonus of up to three months’ salary. Executives may elect to receive the bonus as shares at a discount to the market price or in cash. Furthermore, TrygVesta has set up a stock option programme for certain senior executives and employees to reward outstanding performance.

In 2007, TrygVesta granted 91,039 stock options to the Group Executive Management and senior executives and 18,000 stock options to employees to reward outstanding performance. Options granted in 2007 entitle the holders to acquire shares at the average price of TrygVesta shares (“all trades”) on OMX Nordic Exchange Copenhagen on 27 February 2007 plus a supplement of 10%, and each option entitles the holder to acquire one share at the exercise price. Options cannot be exercised earlier than three years after the date of grant and not later than five years after the date of grant. TrygVesta expects to grant a stock option programme of a similar value in 2008.

Employee bonus

It is important to TrygVesta that all employees see their own efforts relative to the Group’s overall targets, and for this purpose we have an employee bonus programme for all employees. Employee bonus benchmarks were combined ratio and growth in 2007, and our performance triggered shares at a discount to the market price with a discount element equal to DKK 10,000 to each employee. A similar programme will be offered in 2008.