TrygVesta and the external community

The year 2007 was characterised by discussions about public health care systems, record-low unemployment, climate changes and topics such as financial crisis, risk management and stricter capital requirements were also high on the agenda during the year.

The market shares among the largest companies in Denmark did not change significantly in 2007. In motor insurance, where the competition is fiercest, focus is on additional parameters such as annual mileage. In Norway, TrygVesta increased its share of the market in 2007. The earnings profile for the market overall showed decreased profitability, however, TrygVesta had the best earnings capacity among the large companies. A new player entered the market in 2007, and Norway’s largest bank will also start selling insurances in 2008. TrygVesta has small, but rapidly growing market shares in Sweden and Finland. The markets are characterised by the four top insurers in each market holding more than 70% of the market between them.
 

Private health care insurance

The populations in the Nordic countries are aging, and citizens making increasingly heavy demands on the quality of public services. Businesses are also taking an ever stronger interest in this area. Businesses are prepared to pay for health care insurance to ensure that their employees return sooner to work if they fall ill or are hit by an accident. Being an insurance business, it is obvious that we should explore the possibilities of developing products and services to supplement the public systems and help close the growing gap between the public’s expectations to health care systems and the current situation.

At 31 December 2007, some 700,000 Danes were covered by private health care insurance, around 65% more than at the beginning of 2006. Demand is rising, and we see great potential within this area in the years ahead. We began selling health care insurance in Norway in late 2007, and we plan to start selling health care insurance in Sweden and Norway within the next few years.

Challenging Nordic labour markets

Unemployment in the Nordic region reached record lows, and many businesses found it difficult to recruit the number of new employees they required. The challenge of recruiting qualified employees may lead to wage pressure, impacting corporate expenses negatively. The pay to skilled craftsmen makes up a large part of the companies’ total claim expenses. Recession in construction in Denmark may consequently have a positive effect in the medium term.

At TrygVesta, we pay a lot of attention to labour market trends. Over the next few years, we intend to upgrade the workplaces in Denmark and Norway, ensuring that the physical facilities of our workplace make it attractive to be at work. We have also launched an employee branding project to ensure that we focus strongly on recruitment and employee retention. As part of the project we will look at obstacles that may prevent some potential employee groups from becoming part of the labour market.

Climate focus

As an insurance group, we have an obvious interest in following climate developments. Our business has extensive records describing historic performance of storm and other weather-related claims in the Nordic countries. Such knowledge may be useful for charting areas with increased risk of, for instance, flooding and for improving building regulations or setting up early warning systems for areas with high risk exposure.

The growing awareness of climate issues induced several investment funds to set up climate indices, and a number of pension funds began screening their portfolios to ensure environmentally responsible conduct. So far, only a small proportion of Danish businesses prepare climate accounts, but we see a growing trend towards and interest in working systematically with and reporting about corporate environmental issues.

TrygVesta established an environmental organisation in 2007, defining climate targets for the Group, including a reduction of CO₂ emissions by 10% from 2008 to 2010.

The sub-prime crisis

It became increasingly clear during 2007 that the USA had seen aggressive lending during the property market boom over several years. The property market began to show signs of weakness with an increasing number of non-performing mortgages, thus triggering sub-prime crisis. Spreading like ripples in water since the summer of 2007, the financial crisis triggered the widespread expectations of an economic slowdown in several parts of the Western world towards the end of 2007, causing financial markets to become increasingly unstable.
 

Solvency II and Individual Solvency

In recent years, a new EU Solvency II regime has been prepared. In 2007, the EU Commission issued the first draft of the directive that will regulate the implementation of Solvency II in the individual member states. The new rules are expected to come into effect in 2010, at  the earliest, with final implementation in the individual countries being completed by 2012. Solvency II will impact the capital structure of insurance companies and impose stricter requirements with respect to risk management and risk control. We have for several years taken part in the Solvency II hearings through the Danish Insurance Association, Forsikring & Pension, and in 2007 we were involved in drafting QIS3 (Quantitative Impact Study), part of the preparatory work for the final Solvency II directive. With these efforts and the work with our internal models we aim to provide the best possible preparation for the introduction of the new solvency rules.

The Danish Financial Business Act was amended to the effect that, as from 1 January 2008, companies are required to make their own determination of their capital requirements, the socalled Individual Solvency Requirements. The rules are intended as a first step towards the implementation of Solvency II. While the Individual Solvency Requirement rules allow companies to apply their own methods, we expect Solvency II to impose stricter requirements. The Individual Solvency Requirement rules aim at ensuring that Danish companies have the necessary capital available and, in relation to the insurance industry, to minimise the risk of customers incurring losses. Companies must report their Individual Solvency Requirements to the Danish Financial Supervisory Authority at least twice a year. The first reporting will be in March 2008. For purposes of determining the Individual Solvency Requirement we use a number of calculations in the ALM model and Standard & Poor’s capital model in combination with several other quantitative assessments. We furthermore add a buffer to ensure with reasonable probability that we remain solvent in the event of adverse fluctuations.