Private & Commercial Norway

Private & Commercial Norway sells insurances to private households and small and medium-sized enterprises in Norway under the TrygVesta and Enter brand names. Sales are handled by 85 franchise offices, our own sales agents, three regional customer centres, 35 local sales centres, car dealers and Nordea’s branches. Private & Commercial Norway has around 1,100 employees excluding some 300 franchise office staff. The business area contributes around 30% of the Group’s total gross earned premiums.

Financial results in 2007

Private & Commercial Norway reported results during 2007 that were among the best in the market. The business performed favourably in Q4 2007, generating premium growth of 1.0% in local currency (6.0% in DKK) and a technical result that was DKK 2m higher than in 2006. However, the technical result for the full year was reduced by DKK 65m to DKK 692m in 2007, mainly due to more claims and falling average premiums at the beginning of the year.

The renewal rate was up from 84.4 at the beginning of 2007 to 85.8 at the end of the year. The improvement was driven, in particular, by a customer benefit programme we launched in the summer of 2006. Implemented over a year, the benefit programme now helps retain customers by offering additional benefits. 
 

Average premiums affect premium growth

Gross earned premiums fell by 0.2% in local currency (0.4% in DKK) in 2007. Premium growth in H1 2007 was adversely affected by declining average premiums while Q4, saw positive premium growth driven, among other things, by the effect of recent years’ sales initiatives and premium increases from 1 July 2007. This was the first time since 2004 we increased premiums in Norway, and we will continue this trend in 2008, increasing premiums in selected building segments with effect from 1 January 2008.

Premium growth in 2007 was mainly driven by our commercial business which recorded premium growth of 3.3% and a high growth in sales through Nordea. The negative growth of 1.4% in the private business was still affected by the abolition in late 2005 of introductory discounts to new customers. We subsequently recorded higher renewal rates, an indication that customers prefer to have a better overview of what they pay for. As from 1 January 2008 insurers are required to inform customers of premium changes from year to year. We expect that the new rules will make the market more transparent, which we believe will benefit TrygVesta’s transparent pricing system.

The number of policies sold performed favourably in 2007 with a net inflow of 39,500 new private policies, including a large affinity group which left us in early 2007. The inflow of new policies was attributable to new customers, focus on selected geographical areas, and existing customers buying more policies. On average, each customer has 3.4 policies.

Claims expenses

Total claims expenses were up by DKK 96m in 2007 to DKK 2,962m. The claims ratio continued at a low level but increased by 2.4 percentage points to 66.0. The increase was mainly attributable to expenses relating to large claims, which were DKK 121m in 2007 compared with DKK 20m in 2006. Thus, large claims had an adverse impact of 2.7 percentage points on the claims ratio in 2007 compared to 0.4 percentage point in 2006. Weather-related claims had a negative impact of 0.8 percentage point against 0.9 percentage point in 2006.

Run-off gains from prior-year losses amounted to DKK 91m with a positive effect of 2.0 percentage points on the claims ratio compared to 2.2 percentage points in 2006. Run-off gains mainly related to motor and accident insurance, while increased provisions were still required for workers’ compensation. We discounted the provisions for claims during 2007, resulting in a positive impact from higher interest rates and improving the claims ratio by around 0.6 percentage point relative to 2006.

The average building claim increased by some 9% in 2007 due to general pressure in the building sector, pushing up prices of building materials and skilled craftsmen. The average motor claim rose by only a few percentage points in 2007, which was in line with inflation in the industry. Building insurance saw a flat development in the claims frequency, while it was slightly lower for motor.

 
 

Continued low combined ratio

The combined ratio was lower than expected in 2007 at 88.6, but increased 2.9 percentage points on 2006 due to an increased number of claims. Weather-related and large claims had a negative impact of 3.2 percentage points on the combined ratio, while run-off gains had a positive impact of 2 percentage points. The corresponding impact from large claims and run-off gains was 0.4 and 2.1 percentage points, respectively, in 2006.

Expenses

The gross expense ratio was 20.8 in 2007, which was 0.4 percentage point higher, mainly due to the relatively high wage inflation of 5.6%. A new IT supported process will be implemented in early 2008 to make our sales processes more efficient and enable us to finalise 90% of all sales at the customer’s premises. The process will entail cost reductions of around DKK 60m over the next two years.
 

Focus areas in 2008

In line with Private & Commercial Denmark, Private & Commercial Norway also began implementing the LEAN principle in parts of the organisation in 2007. We will continue to implement LEAN over the next few years.

In order to achieve the ambition of increasing our market share in 2008 we intend to focus on Health Care, on developing our sales channels further and introduce several targeted sales efforts to new as well as existing customers. In this context, we intend to focus on specific geographical areas, including in particular the Oslo area.