Tryg

Annual report 2016

Contents – Management’s review

| MANAGEMENT'S REVIEW
3 Income overview
4 Introduction by Chairman and CEO
5 Events in 2016
6 Targets and strategy
9 Financial targets and outlook
10 Tryg’s results
15 Private | 17 Commercial
19 Corporate
21 Sweden
23 Investment activities
25 Capital and risk management
27 Shareholder information
29 Corporate governance
33 Supervisory Board | 35 Executive Board
36 Corporate Social Responsibility in Tryg

FINANCIAL STATEMENTS
39 Financial statements
109 Group chart
110 Glossary
111 Product overview | Learn more
Reference to further information at tryg.com.
Reference to further information in the annual report.
Reference to contents. |
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Tryg is the second-largest non-life insurance company in the Nordic region.

We offer a broad range of insurance products to both private individuals and businesses.

Our 3,300 employees provide peace of mind for more than 3 million customers and handle approximately 950,000 claims annually.

Our ambition is to become the world’s best insurance company.

Editor Investor Relations | Publication 20 January 2017 | Layout amo design | Proofreading TextMinded

Annual report 2016 | Tryg A/S

Income overview

DKKm	Q4 2016	Q4 2015	2016	2015	2014	2013	2012
Gross premium income	4,504	4,393	17,707	17,977	18,652	19,504	20,314
Gross claims	-3,245	-2,988	-11,619	-13,562	-12,650	-14,411	-14,675
Total insurance operating costs	-802	-615	-2,737	-2,720	-2,689	-3,008	-3,295
Profit/loss on gross business	457	790	3,351	1,695	3,313	2,085	2,344
Profit/loss on ceded business	-140	-272	-951	710	-341	349	86
Insurance technical interest, net of reinsurance	-3	4	-10	18	60	62	62
Technical result	314	522	2,390	2,423	3,032	2,496	2,492
Investment return after insurance technical interest	598	242	987	-22	360	588	585
Other income and costs	-112	-19	-157	-91	-90	-91	-60
Profit/loss before tax	800	745	3,220	2,310	3,302	2,993	3,017
Tax	-240	3	-748	-390	-755	-620	-837
Profit/loss on continuing business	560	748	2,472	1,920	2,547	2,373	2,180
Profit/loss on discontinued and divested business after tax	0	6	-1	49	10	-4	28
Profit/loss	560	754	2,471	1,969	2,557	2,369	2,208
Run-off gains/losses, net of reinsurance	301	241	1,239	1,212	1,131	970	1,015
Key figures
Total equity	9,437	9,644	9,437	9,644	11,119	11,107	10,979
Return on equity after tax (%)^{a)}	24.1	23.0	26.2	20.0	23.7	21.8	22.3
Number of shares 31 December (1,000)	274,595	282,316	274,595	282,316	289,120	296,870	303,474
Earnings per share (DKK)	2.03	2.19	8.84	6.91	8.74	7.88	7.30
Net asset value per share (DKK)			34.37	34.16	38.46	37.41	36.18
Ordinary dividend per share (DKK)			6.20^{b)}	6.00	5.80	5.40	5.20
Proposed extraordinary dividend per share (DKK)			3.54
Premium growth in local currencies	1.7	-1.6	0.1	-0.8	-1.1	-2.7	-0.1
Gross claims ratio	72.0	68.0	65.6	75.4	67.8	73.9	72.2
Net reinsurance ratio	3.1	6.2	5.4	-3.9	1.8	-1.8	-0.4
Claims ratio, net of ceded business	75.1	74.2	71.0	71.5	69.6	72.1	71.8
Gross expense ratio	18.0	14.2	15.7	15.3	14.6	15.6	16.4
Combined ratio	93.1	88.4	86.7	86.8	84.2	87.7	88.2
Run-off, net of reinsurance (%)	-6.7	-5.5	-7.0	-6.7	-6.1	-5.0	-5.0
Large claims, net of reinsurance (%)	4.4	3.1	2.2	3.4	3.1	2.1	2.3
Weather claims, net of reinsurance (%)	2.6	5.4	2.0	3.4	2.4	3.2	1.8
Combined ratio on business areas
Private	83.6	87.0	83.8	85.4	82.5	86.0	87.7
Commercial	82.8	85.0	82.1	83.6	79.4	85.4	81.3
Corporate	99.1	99.4	88.8	90.7	89.8	91.7	91.4
Sweden	92.9	73.2	90.7	83.5	92.0	91.2	95.3

a) From 1 January 2016, Tryg has implemented Executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA, which prescribes applying a new yield curve and a new way of calculating Return on equity after tax (%). Comparative figures have been restated accordingly. Please refer to details of the new yield curve in note 31 Accounting policies.
b) Ordinary dividend per share in 2016 includes dividend paid out in July of DKK 2.60 and proposed ordinary dividend of DKK 3.60.

Contents – Management's review

Annual report 2016 | Tryg A/S | 3

Customer focus

2016 was characterised by many initiatives with a focus on customers. To accelerate decision-making processes for the benefit of customers, our organisational structure was changed with more responsibilities and decision-making powers being delegated to the management teams in the individual countries early in the year. This has, among other things, resulted in the establishment by the Private organisations in both Denmark and Norway of a front-office function, which ensures that customers are met by employees who can process claims, provide advisory services and effect sales. In summer 2016, our Danish customers received the first member's bonus payout by TryghedsGruppen, amounting to 8% of total premiums for 2015. Tryg is continuously following up on customer satisfaction as reflected in our Net Promoter Score (NPS), and we are pleased with our 2016 NPS score of 22, which already meets our target of 22 for 2017. Tryg also measures NPS immediately after customers have been in touch with Tryg, and our NPS score here was 49.

Good results in 2016

We posted a profit of DKK 2,471, which was an improvement compared to 2015. The results were achieved through customer focus, improved products and further optimisation of operations.

New products

Tryg has a strong focus on developing and marketing new products. New products have been launched in areas with growth potential, such as children and pets. Commercial and Corporate launched a new cyber insurance product to meet businesses' new insurance need. As a source of inspiration for future insurance solutions, Tryg has rented out an area at our head office in Denmark to smaller start-up enterprises focusing on innovation. Tryg has in recent years focused strongly on developing existing products to better meet customer needs and to ensure more risk-based pricing. In 2016, the majority of our customers had the most up-to-date products as more than 500,000 policies were updated.

Efficient operations and risk management

Tryg continues to work concertedly to reduce costs and to negotiate favourable agreements for the procurement of claims services, ensuring that Tryg operates as efficiently as possible for the benefit of customers and shareholders. Risk management is in many ways key to running an insurance business – covering everything from the overall risk management of Tryg as a company to the pricing of our products.

2016 was the first year with the Solvency II rules, and according to these rules Tryg has a solid capital base. This creates peace of mind for customers and supports Tryg's dividend policy.

Stable and increasing dividends for shareholders

Being a shareholder in Tryg must be attractive, and we attach importance to distributing stable and increasing dividends to shareholders in accordance with Tryg's dividend policy. The Supervisory Board therefore proposes a dividend of DKK 3.60 per share for the second half of 2016, resulting in a total payout of DKK 6.20 per share in 2016. Based on our good results and solid capital position, the Supervisory Board has decided to propose that an extraordinary dividend of DKK 1,000m for 2016 be paid in 2017 concurrently with the introduction of quarterly dividend payments.

World-class employees

The good results, the many new initiatives and the high customer satisfaction scores have only been possible through the committed efforts of Tryg's employees, and both the Supervisory Board and the Executive Board would like to thank them for their hard work.

Jørgen Huno Rasmussen
Chairman

Morten Hübbe
Group CEO

Annual report 2016 | Tryg A/S

Events in 2016

New bond issue

Tryg Forsikring A/S took out a Solvency II-compliant Tier 2 subordinated call-able bond issue of SEK 1bn (approx. DKK 800m) in the Swedish market.

New motorcycle app

Moderna launched the Moderna Smart MC app. The app records the driver's driving style, and the motorcycle insurance price is then differentiated accordingly. Driving safely triggers a discount the following year.

New jointly produced Tryg family film

For the first time, Tryg, TryghedsGruppen and TrygFonden released a film together based on a true story about saving a life. As a Tryg customer, you contribute to saving lives. Tryg's Danish customers are members of TryghedsGruppen, which is behind TrygFonden and involved in hundreds of peace-of-mind activities in Denmark.

New jointly produced Tryg family film

Contents – Management's review

Annual report 2016 | Tryg A/S | 5

Targets and strategy

Tryg's purpose is to create peace of mind and value for customers, employees and shareholders.

Our ambition

To become the world's best insurance company.

Our values

Our values are highly integrated in our culture and consistent with our purpose.

We meet people with respect, openness and trust
We show initiative, share knowledge and take responsibility
We deliver solutions based on quality and simplicity
We create sustainable results

Tryg's purpose is to create peace of mind and value for customers, employees and shareholders, and this must be at the core of everything we do. Tryg's ambition is to become the world's best insurance company.

Our customers – our most important asset

Our customers are our most important asset. Tryg strives to continuously strengthen customer relations through our advisory services, products, concepts, claims handling procedures and claims prevention measures. In 2016, we had a strong focus on initiatives supporting the customer targets for 2017.

Our employees – our most important resource

Our employees are our most important resource and key to realising our vision of becoming the world's best insurance company. As an important step towards achieving this, all our employees must feel that they have an opportunity to be successful. Clear and ambitious targets must be set for each individual employee, and regular feedback must be provided. Aiming for the highest level of employee satisfaction in the financial sector in the Nordic region, Tryg was pleased to note a continued high level of employee satisfaction in 2016, with

Tryg surpassing the general level of employee satisfaction in the financial sector in the region.

Value creation for our shareholders

Tryg's shareholders must see Tryg as a company with ambitious targets disbursing stable and increasing dividends. Tryg delivered a strong result in 2016 and is on track to achieving its ambitious financial targets for 2017.

Tryg's business model

Tryg creates peace of mind for its customers by offering them insurance against risk, efficient claims handling, and advice and services to prevent claims from arising in the first place. By ensuring our customers' peace of mind, we benefit all of Tryg's stakeholders. Via TryghedsGruppen's 60% ownership of Tryg, part of the company's profit is returned to customers, who are also members of TryghedsGruppen.

Tryg's business model

Tryg is a pure non-life insurer creating peace of mind and value for our customers, employees and shareholders.

OUR AMBITION

To become the world's best insurance company.

GEOGRAPHY

SEGMENTS

Private, Commercial and Corporate

Contents – Management's review

Annual report 2016 | Tryg A/S | 6

Contents – Management's review
Annual report 2016 | Tryg A/S | 7

Stable Nordic insurance market

The Nordic insurance market is characterised by consumers and businesses that have largely covered their insurance needs, combined with relatively low rates of economic growth. Profitability in the insurance industry is generally high as the vast majority of companies focus on earnings rather than growth. Customers are generally loyal to their insurance company based on good customer service and claims handling processes. For customers looking for a new insurance provider, competition is always intense, generally combined also with a focus on profitability.

Motor insurance accounts for a significant share of the non-life insurance market, and the insurance business therefore closely monitors how technical developments affect this area. With the development of the autonomous car, the motor insurance market is expected to shrink in the future. What exactly the impact will be on the insurance business remains an open question. So far, the development of more technically advanced cars has led to a reduction in the number of people who are injured in car accidents, but at the same time it is also clear that the more advanced cars are much more expensive to repair.

Contrary to developments in motor insurance, other areas are expected to grow in the future. This goes, especially, for the insurance of people, pets and technology. Based on these developments, Tryg has been actively acquiring companies in these areas and developing new child insurance, pet insurance and cyber insurance products.

In Norway, the weakened economy affected the overall premiums development, and at the same time a number of very aggressive insurers ended up into financial difficulties. In general, the impact of aggregators continues to be limited in both Denmark and Norway. Market developments differed in Denmark and Norway in 2016. In Denmark, consumer sentiment was quite stable, which led to slightly increasing real estate prices and a lower unemployment rate of around 4.2% at the end of 2016. Total car sales were up 7.4% in 2016 compared with 2015, and a shift from sales of small cars to medium-sized cars was observed. The Norwegian economy remained challenged in 2016, especially in the oil-related areas, although the Norwegian economy is generally very strong. The unemployment rate was largely unchanged at around 4.8%. Car sales in Norway were up 2.6% in 2016.

Financial targets 2017

Return on equity of ≥21% after tax
Combined ratio ≤87
Expense ratio ≤14

Customer targets 2017

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

Targets

Tryg has a strong focus on both financials and customers, and targets have therefore been set for both areas. Financial and customer targets are inextricably linked. Loyal customers mean high retention rates, keeping the expenses associated with attracting new customers low, thereby contributing to a low expense ratio. With the financial results posted for 2016, Tryg is on track to meeting the financial targets defined for 2017. In 2016, Tryg had a strong focus on improving the customer experience in all parts of the organisation to improve its performance on customer-related parameters.

Strategic initiatives

Tryg has set up four strategic initiatives to support its financial and customer targets. The strategic initiatives for 2017 are unchanged from 2016.

Strategic initiatives 2017

Next level pricing
Customer journey & success culture
Leading in efficiency
Digitalisation

Next level pricing

Next level pricing (price differentiation) has been an ongoing initiative and Tryg's most important initiative in recent years. Tryg has developed more than 35 new price-differentiated products since defining this as a strategic initiative. In 2016, focus was on converting Private customers to the new and updated products. At the end of 2016, 88% of customers had the new and updated products. Tryg will continue to enhance its products to support the target of being ahead of peers for 25% of products and on a par with peers for the remaining products in 2017.

Customer journey & success culture

In 2016, Tryg has continued its many initiatives to improve the customer experience. Tryg sent out approximately 900,000 text messages to customers asking them to rate their experience, and more than 440,000 responded. Eighty-two per cent rated Tryg between 9 and 10 on a scale of 1-10 where 10 is best. This is a strong feedback on the good service provided by our customer service and claims representatives. Tryg's overall NPS score was 22, and thus Tryg has already met the target of an NPS of 22 as set at the Capital Markets Day in 2014.

Tryg continues to capture feedback in order to further improve the customer experience. Key initiatives evolving from this are projects aimed at improving customer loyalty. The feedback has also shown an appetite for closer and better dialogue with Tryg, which has contributed to changes to the way in which Tryg approaches both consumers and businesses in order to improve customer loyalty and advocacy.

To develop the skills and boost the motivation of managers and employees, Tryg continued to use the SuccessFactors suite of tools in 2016, which allows corporate KPIs to be cascaded down throughout all management and employee levels. An important SuccessFactors tool which was implemented in 2016 is People Review. People reviews are carried out for all managers and

employees in the organisation, the purpose being to work systematically with feedback and to support the development of managers and employees. In Tryg, we want to acknowledge employees who deliver an extraordinary performance, and an employee recognition programme was therefore implemented in 2016 with the aim of celebrating employees who are supportive of Tryg's targets.

Leading in efficiency

Tryg launched a new efficiency programme in 2015 with the aim of further reducing claims and direct costs by DKK 750m by the end of 2017, with DKK 500m relating to claims and DKK 250m to expenses. The programme is on track, and significant structural changes were implemented in 2016 in both the Norwegian and Danish organisations. In Norway, two major structural initiatives were implemented in 2016, and in Denmark the merger of customer service and claims handling for the less complicated products was a significant initiative. The continued development of digital solutions and initiatives directed against fraud will also support reaching the targets for 2017.

Efficiency programme up until 2017

Digitalisation

Digitalisation is one of the key drivers for improved customer service and claims handling processes. In 2016, focus was on self-service, automation, lead generation and cross-sales. Tryg developed many digital solutions in 2016 shown in the chart Digitalisation of Tryg. Tryg was named Best Digital Finance Company of the Year among insurance companies by FinansWatch (Danish media) and Wilke (Analysis institute).

With more than 80% of customers having signed up for digital communication in Denmark and Norway, Tryg has a very high level of digital customers. This is reflected in more than 1 million online visits in 2016. For direct customers, all relevant claims can be filed online. Tryg will continue to develop digital solutions in 2017 and going forward capitalise on the developed solutions to reduce expenses and claims costs.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) is an integrated part of Tryg's core business. Through insurance, claims handling and prevention, we work to create peace of mind and value for our customers, employees and shareholders. This means that CSR plays a constant role in the decisions we make, in the improvement and development of our products and services, in the optimisation of our operations and in the positive contributions which we make to society at large through our activities. Read more on pages 36-38.

Digitalisation of Tryg

Contents - Management's review

Annual report 2016 | Tryg A/S

Financial targets and outlook

Financial targets 2017

Return on equity of ≥21% after tax
Combined ratio ≤87
Expense ratio ≤14

The return on equity for 2016 was 26.2%, and the combined ratio was 86.7. Tryg is well-positioned for meeting the targets for 2017.

Tryg expects growth in gross premium income of 0-2% in local currencies in 2017.

Tryg will continue to take an active approach to acquiring smaller portfolios and developing the market for products which are expected to see higher growth rates such as pet and child insurance.

Tryg has a solid reserve position, and at the Capital Markets Day in November 2014, Tryg therefore announced that the run-off level going forward was likely to be higher than the run-off level during the pre-2015 period. Tryg expects this to be the case until the end of 2017. Hereafter, we expect the run-off level to gradually converge towards the long-term level of 2.5-3%.

In 2017, weather claims net of reinsurance and large claims are expected to be DKK 500m and DKK 550m, respectively, which is unchanged relative to 2016.

The interest rate used to discount Tryg's technical provisions is historically low. An interest rate increase will have a positive effect on Tryg's results. Generally speaking, an interest rate increase of 1 percentage point will increase the pre-tax result by around DKK 300m and vice versa.

For the purpose of realising the financial targets, Tryg has launched an efficiency programme aimed at realising savings of DKK 750m, with DKK 500m relating to the procurement of claims services and administration and DKK 250m relating to expenses. The target is DKK 375m in 2017 after targets for 2015 and 2016 of DKK 125m and DKK 250m.

Some of the claims initiatives relate to previous claims years and will therefore impact the run-off.

At the end of 2016, a tax on salaries for financial companies was approved in Norway. The tax will have an impact of approximately NOK 40m for 2017, which will hit claims costs and expenses.

The investment portfolio is divided into a match portfolio corresponding to the technical provisions, and a free portfolio. The objective is for the return on the match portfolio and changes in the technical provisions due to interest rate changes to be close to zero.

From 2016, the curve used for discounting technical provisions changed due to the implementation of the Solvency II directive, and this might result in slightly more volatile match portfolio net results. The new curve increases the interest rate risk of the technical provisions, thereby introducing a larger difference between the match return and the changes in the technical provisions.

The return on bonds in the free portfolio will vary, but given current interest rate levels, a low return is expected. For shares, the expected return is around 7% with the MSCI World Index as the benchmark, while the expected return for property is around 6%. Investment activities also include other types of investment income and expenses, especially the cost of managing investments, the cost of currency hedges and interest paid on loans.

There has been a gradual lowering of tax rates in Denmark, Norway and Sweden in recent years. In Denmark, the tax rate was 22 in 2016, and this will also be the level for 2017. The Norwegian tax rate was 25 in 2016, while the Swedish rate was 22. When calculating the total tax payable, account should also be taken of the fact that gains and losses on shareholdings are not taxed in Norway. All in all, this causes the expected tax payable for an average year to be around 22-23% in 2017.

Weather claims, net of reinsurance

Large claims, net of reinsurance

Contents – Management's review

Annual report 2016 | Tryg A/S | 9

Tryg's results

Financial highlights 2016

Profit after tax of DKK 2,471m (DKK 1,969m)
Return on equity after tax of 26.2% (20.0%)
Technical result of DKK 2,640m (DKK 2,543m) adjusted for one-offs
Combined ratio of 85.3 (86.1) adjusted for one-offs
Premium income increased by 0.1% in local currency (-0.8%)
Expense ratio of 14.8 (14.9) adjusted for one-offs
Investment return of DKK 987 (DKK -22m) impacted by sale of investment properties and domiciles and high returns on several asset classes
Proposed H2 dividend of DKK 3.60 and DKK 6.20 per share for 2016
DKK 1bn share buy back completed. Proposed DKK 1bn extraordinary dividend to be paid after the AGM in 2017
Quarterly dividend from Q1 2017

A result after tax of DKK 2,471m impacted by one-offs. Proposed H2 dividend of DKK 3.60 per share equivalent to a full-year dividend of DKK 6.20 per share for 2016. Extraordinary dividend of DKK 1,000m for 2016. Solvency ratio of 194 after H2 dividend and extraordinary dividend.

Results

At the beginning of 2016, Tryg announced a new country-based organisation. This has created a more agile organisation, as reflected in the many business initiatives launched in 2016 in Denmark, Norway and Sweden.

A profit after tax of DKK 2,471m (DKK 1,969m) was posted, together with a return on equity of 26.2% (20.0%) and a combined ratio of 86.7 (86.8). The results show that Tryg is on the track to meet its financial targets for 2017 with a return on equity at or above 21% and a combined ratio at or below 87. The expense ratio was 14.8 (14.9) adjusted for one-offs, primarily related to write-downs on intangible assets in 2016 and one-off costs in 2015. Tryg launched many new initiatives in 2016, which – in combination with further initiatives in 2017 – will support an expense ratio target at or below 14 in 2017. The technical result was DKK 2,390m (DKK 2,423m), positively affected by the ongoing efficiency programme, which contributed savings of DKK 210m in 2016 against a target of DKK 225m. The efficiency programme and price adjustments of around 3% had a positive impact on profitability as reflected in an improved trend through-out the year. The total effect of weather claims, large claims and run-off was much lower than in 2015.

In 2016, a slightly higher level of claims inflation was observed for the profitable motor insurance area. Tryg believes that this is driven by an increase in accident numbers as well as the use of more expensive spare parts primarily in medium/high-end models. For extended warranty insurance of electronic goods, a smaller product area, claims inflation was also observed. To improve the underlying claims level, and following on from the price adjustments made in 2016, Tryg will be implementing further price adjustments corresponding to around 3% in 2017.

Customer highlights 2016

NPS unchanged at 22
Retention rate dropped slightly from 88.1 to 88.0
Number of customers with three or more products up from 56.7% to 57.2%
First year with TryghedsGruppen's members' bonus for Danish customers
The majority of customers now have Tryg's most updated products

The investment result was impacted by the sale of investment properties and domiciles, which had a positive impact on the investment result of DKK 500m. Adjusted for gains on investment properties and domiciles, an investment result of DKK 487m was posted, boosted strongly by positive capital market developments.

Key figures adjusted for write-downs on intangibles and one-offs

DKKm	Q4 2016 adjusted	Q4 2015	2016 adjusted	2015 adjusted
Technical result	564	522	2,640	2,543
Investment income	98	242	487	-22
Other income/costs	-12	-19	-57	-91
Pre-tax result	650	745	3,070	2,430
Claims ratio, net	73.2	74.2	70.5	71.2
Gross expense ratio	14.4	14.2	14.8	14.9
Combined ratio	87.6	88.4	85.3	86.1

2016 adjusted for DKK 250m, primarily related to write-downs on intangibles and DKK 500m extraordinary capital gain on the sale of properties. 2015 adjusted for the one-off charge of DKK120m related to the efficiency programme.

Contents – Management's review

Annual report 2016 | Tryg A/S | 10

Tryg has a strong focus on the customer targets for 2017. Our customer targets are generally strongly linked to our financial targets and have been perceived as very appealing by the organisation.

The Net Promoter Score (NPS) was unchanged at 22 at the end of 2016. There was a positive development for especially Private customers in Denmark and a slight drop for Private Norway. For Commercial, the NPS score dropped slightly, primarily in the Danish part of Commercial. Tryg also measures customer satisfaction after customers have been in contact with Tryg, defined as the Transactional Net Promotor Score or TNPS. The figure was 49 in 2016.

At 88.0, the retention rate in 2016 was slightly lower than in 2015 at 88.1. The retention level was more or less unchanged for Private in Denmark and Norway. The retention rate dropped somewhat for Commercial in Denmark due to selected price initiatives whereas for Commercial Norway, the retention rate improved due to improved customer focus.

The share of customers with three or more products increased from 56.7% to 57.2%. In Denmark, the number increased by 1 percentage point whereas there was a drop in Norway. To reverse the trend in Norway, a more focused approach for cross-selling to customers who have bought motor insurance through the car sales channel has been initiated.

In 2016, Danish customers received their first members' bonus from TryghedsGruppen. The 8% bonus has been well received by customers, and Tryg expects the bonus to provide an important competitive advantage by improving customer loyalty and customer targets. TryghedsGruppen has announced that they expect to make recurring bonus payouts, but that payouts will be decided each year by TryghedsGruppen.

Price differentiation has been a very important initiative for Tryg in recent years. In 2016, focus was on updating customers to the improved products which have been developed over the past few years. More than 500,000 policies were updated in 2016, meaning that the majority of Private customers now have the most recent products.

In 2016, many new products were added to Tryg's product portfolio. Tryg bought a child insurance portfolio from Skandia in Sweden. The product is very profitable, and with a good sales potential.

Customer targets

	2016	2015	Target 2017
Net Promoter Score (NPS)	22	22	22
Retention rate	88.0	88.1	88.9
Customers with ≥3 products (%)	57.2	56.7	61.3

Having acquired the Skandia portfolio, in autumn 2016 Tryg also launched a new child insurance product for the Danish market. For Commercial and Corporate customers, Tryg launched a cyber insurance product in autumn of 2016. Going forward, Tryg expects cyber insurance to become increasingly important for both small and large companies. Sweden Private continued its innovative product development and developed three new smart app products for car, motorcycle and health.

In Private in both Denmark and Norway, a structural initiative was implemented involving the integration of customer service and claims handling for the most simple products. This integration supports Tryg's overall ambition of first-contact resolution as employees can handle claims and also advise customers about their insurance needs. The integration also supports up-selling and increasing the number of customers with three or more products.

In Commercial, a more specialised structure was implemented with the aim of providing customers with more professional customer services. The new structure segments customers into large accounts, the liberal professions, technique and agriculture.

In both Commercial and Corporate, Tryg's cooperation with brokers is strong. For the fourth year running, Corporate Sweden was nominated as the best non-life insurance company. Corporate implemented a new concept, which means that customers can both be served by Tryg's own sales organisation and by brokers as customers in some instances prefer this set-up.

In the course of 2016, many new digital solutions were developed (see page 8) which both make it more convenient for customers to buy and change products and also report claims. The digital solutions also support cross-selling by suggesting that customers buy additional covers based on their expected insurance needs.

Premiums

Premium income totalled DKK 17,707m (DKK 17,977m), representing premium growth income of 0.1% (-0.8%) when measured in local currencies. The development in premium income improved for Private and Sweden, but was somewhat lower for Commercial and Corporate. It is positive that after a challenging period Tryg achieved a positive development in premium growth, despite the economic situation in Norway and falling average prices for motor insurance in Denmark.

In 2016, Private saw improved growth of 0.8% (0.3%), which was driven by the development in the Danish Private business, which posted premium growth of 1.8%. The members' bonus supported this development, and at the same time the successful conversion of customers to new products resulted in many customers buying add-on covers, thereby increasing premium levels. Premium growth for Private Norway was slightly negative by 0.5%, which was ascribable to the competitive situation and a weakened economic situation in Norway. The development was also due to a lack of distribution power, and several structural initiatives were initiated in 2016 to address this. The initiatives reduced back-office costs, and some of the savings were invested in more distribution power through an upscale of the

Contents - Management's review

Annual report 2016 | Tryg A/S | 11

franchise distribution. Also, our co-operation with Nordea was strengthened through the establishment of outbound teams in Nordea branches.

Premium income in Commercial was down 1.3% (-2.9%) in local currencies, with a slightly bigger drop in the Norway. In order to increase premium income, the back-office organisation in Norway was reduced, and some of the savings were invested in more distribution power. In Denmark, customer segmentation, a new agreement with Nordea and the delegation of more powers to the sales organisation were important initiatives aimed at increasing Tryg's distribution power.

Corporate saw a drop in premium income of 1.2% (0.0%) in local currencies. In general, more substantial fluctuations in premium income for this area are expected on account of the competitive situation and the impact of gaining or losing major clients. Developments were generally more positive in Corporate in Denmark as customers welcomed TryghedsGruppen's members' bonus.

The Swedish business realised an increase in premium income of 3.4% (-3.1%) in local currencies. The acquisition of Skandia's child insurance portfolio had a positive impact of approximately 5% in 2016. The Swedish business compensated for the loss of distribution power following the loss of two large affinity agreements through an increase in sales via our own sales channels.

Claims

The gross claims ratio was 65.6 (75.4), with a claims ratio, net of ceded business, which covers both claims and business ceded as a percentage of gross premiums, of 71.0 (71.5). Adjusted for one-off effects, the claims ratio, net of ceded business, was 70.5 (71.2). The claims level was positively impacted by the efficiency programme in the amount of DKK 145m due to a combination of the improved procurement of claims services and claims administration. The negative impact from large claims and weather claims was more than offset by higher run-offs and had a positive 2.8 percentage point net impact on the claims ratio.

In 2016, a number of initiatives were implemented to mitigate the claims inflation seen especially for property claims. A team dedicated to controlling pipe claims had a positive impact on the development in claims, but at the same time, an increase was seen in salaries for construction workers in Denmark due, among other things, to public building projects.

Motor insurance continues to be very profitable, but in 2016 an increased claims frequency was seen, while it is also apparent that average repair costs for cars will increase due to the use of more advanced electronic solutions in cars. As mentioned, the development in claims will be mitigated through price adjustments averaging 3% in 2017.

The claims-related measures implemented in 2016 included initiatives that bring injured policyholders back to work. This initiative is positive for the injured policyholder and for the employer getting the employee back to work, and also for Tryg through a reduction of claims expenses. As these claims typically relate to claims for previous years, the savings support the run-off level. In 2016, the use of the In4mo system continued to generate savings in different areas, for example from cash settlements.

In 2016, large claims totalled 2.2% (3.4%) and weather claims 2.0% (3.4%). In Q4 2016, the storm Urd hit Denmark and Norway with an estimated impact of DKK 60m. Large and weather claims were approximately DKK 300m lower than average level of DKK 1,050m a year. The run-off level was 7.0% (6.7%), which underlines Tryg's solid provision level.

Expenses

The expense ratio was 15.7 (15.3). Adjusted for one-off costs, the expense ratio was 14.8 (14.9). No steep drop in the expense ratio was expected in 2016 as the organisation has been very focused on implementing initiatives that have limited effect in 2016, but which support the target of an expense ratio at or below 14 in 2017. The initiatives have been most visible in the Norwegian part of the organisation. The initiatives introduced in both the first and second half of 2016 generally focused on reducing back-office functions with the aim of reducing expense levels and increasing distribution power. In Denmark, the initiatives centred mostly around the integration of our customer service and claims handling functions. In Q4, the Danish part of Commercial reduced the number of support functions in sales, while at the same time delegating more powers to the sales force. In the Danish part of Corporate, the number of sales departments were reduced from three to two, reducing the number of back-office employees.

The efficiency programme contributed DKK 65m in 2016, corresponding to an impact on the expense ratio of 0.4 percentage points. Initiatives launched comprised cost reductions and general optimisations following the implementation of the new country-based structure at the beginning of 2016, in addition to the effects from sourcing of staff functions and to a lesser extent business sourcing.

In Q4 2016, Tryg announced a write-down of intangible assets by approximately DKK 250m. The write-down relates predominantly to IT systems for payment, digitalisation and IT system integration. The write-down is generally due to the annual assessment of intangible assets, according to which the related system development costs will be higher, while for some of the systems, benefits are also expected to be lower.

In 2016, the number of employees was reduced from 3,359 to 3,264.

Investment return

The investment return was positive by DKK 987m (DKK -22m) in 2016. The match portfolio totalled DKK 29,105m and is made up of bonds which match the insurance provisions so that fluctuations resulting from interest rate changes are offset to the greatest possible extent. At 31 December 2016, the value of the free portfolio totalled DKK 11,995m. The return on the match portfolio was DKK 210m (DKK -16m) after transfer to insurance technical interest. The return on the free investment portfolio was DKK 939m (DKK 232m). The return on the equity portfolio was positive at 8.4%, which was significantly higher than in 2015, which saw a return of 3.4%.

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Annual report 2016 | Tryg A/S | 12

In Q4 2016, Tryg sold some of its bigger investment properties and domiciles in Denmark and Norway. This resulted in a gain of DKK 600m, of which DKK 500m is recognised as investment income and DKK 100m in shareholders' equity. The main purpose was to create a more diversified investment portfolio in accordance with Tryg's overall risk profile, and also to enter into less risky and more flexible agreements for the domiciles.

Other income and costs

Other income and costs were primarily impacted by write-down of goodwill of DKK 100m related to the acquisition of Securator.

Profit/loss on discontinued business

DKK -1m (DKK 49m) was realised on discontinued business, comprising adjustments on provisions, primarily relating to the marine run-off business.

Tax

Tax on profit for the year totalled DKK 748m (DKK 390m), or 23% of the profit before tax. In 2016, Tryg paid DKK 529m in income tax as well as various payroll taxes totalling DKK 417m, resulting in total tax payments of DKK 946m.

Capital position

Tryg's solvency capital requirement (SCR) was DKK 5.1bn at the end of 2016, which is on a par with the level as at 1 January 2016, when Solvency II went live. At the end of 2016, Tryg's own funds were DKK 9,850m (after deducting the H2 dividend and the proposed extraordinary dividend of DKK 1bn) against DKK 10.3bn on 1 January 2016. During the year, own funds were mostly impacted positively by net profits and negatively by dividends and buy backs. Additionally, Tryg issued SEK 1.0bn subordinated, Solvency II-compliant debt. This boosted Own funds in its Tier 2 component. The Solvency ratio was 194 at year-end 2016.

The key components of Tryg's own funds are shareholders' equity, intangibles, Tier 2 instruments (subordinated debt and natural perils pool), ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryg's own funds are constituted by shareholders' equity. The Tier 2 capacity has been fully utilised after the SEK 1bn subordinated debt issue in May 2016. Currently, some DKK 200m of Tier 2 instruments are not included in the own funds as they exceed the 50% SCR cap. Tryg has an additional ATier 1 capacity of DKK 1.0bn at the end of 2016.

Tryg's solvency ratio displays low sensitivities to capital market movements. The highest sensitivity is towards spread risk, where a widening/tightening of 100 basis points would impact the solvency ratio by approximately 14 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate movements. A change in the UFR (Ultimate Forward Curve) would have a very modest impact as the solvency ratio would fall 1 percentage point. This in unsurprising considering that Tryg underwrites only non-life risks, and the duration of the business is below four years.

The Supervisory Board regularly assesses the need for capital adjustments. In 2017, Tryg has decided to announce the payment of DKK 1bn in extraordinary dividend after assessing the company's capital plan, in which the SCR is projected on the basis of Tryg's forecasts. The projections include initiatives set out in the company's strategy for the coming years, and also the most significant risks identified by the company. The adequacy is measured in relation to Tryg's strategic targets, including return on equity and dividend policy.

Dividend policy

According to Tryg's dividend policy, the aim is for the dividend to be steadily increased. For H2 2016, a dividend of DKK 3.60 per share is proposed, corresponding to a total dividend of DKK 6.20 (DKK 6.00) per share based on the 2016 results. This equates to total dividend payments of DKK 1,770 or 72% of the profit for the year. In 2016, a DKK 1bn (3.5 per share) buy back was completed, while Tryg will pay a DKK 1bn extraordinary dividend in 2017. Going forward, any extraordinary payments will be effected as dividends rather than buy backs. Additionally, Tryg has decided to pay a quarterly dividend starting from Q1 2017. The dividend will be evenly distributed across the year.

Moody's rating upgraded

In December 2016, Moody's upgraded Tryg Forsikring's insurance financial strength rating (IFSR) from 'A2' to 'A1' with a stable outlook. In its press release, Moody's noted that the 'A1' IFSR reflects Tryg's leadership position in Property & Casualty (P&C) insurance in the Nordic region, its strong profitability both from a return on capital and underwriting (combined ratio) perspective, very good asset quality and relatively low financial leverage.

Results Q4 2016

The profit after tax totalled DKK 560m (DKK 754m) based on a technical result of DKK 314m (DKK 522m) and an investment result of DKK 598m (DKK 242). Adjusted for one-offs, the profit after tax totalled DKK 410m (DKK 754m) based on a technical result of DKK 564m (DKK 522m) and an investment result of DKK 98m (DKK 242).

Profit after tax was positively affected by the ongoing efficiency programme, which had an impact of DKK 59m in Q4. The net effect of weather claims, large claims and run-off was 0.3 percentage points due mainly to a high level of weather and large claims.

Premiums

Premiums developed positively by 1.7% (-1.6%) in local currencies. In Private, the positive development continued with growth of 1.3% (1.1%) in local currencies, reflecting strong growth of 2.7% in the Danish part of Private. In Commercial, premiums declined by 0.8% (-5.0%) in local currencies, reflecting an improved development especially in Denmark, whereas Commercial in Norway was impacted by the economic situation. The growth figures for Q4 2015 were negatively impacted by the individual regulation of a number of large accounts. In Corporate, premium growth was positive at 0.9% (-2.1%) in local currencies, reflecting a positive premium development in Q4 2016. The Swedish business saw an increase in premium income of 12.2% (-6.1%) in local currencies due to the Skandia child insurance portfolio. Excluding Skandia, premium income dropped by 4.2%, which was an improvement compared to the prior-year period.

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Contents – Management's review
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Claims

The gross claims ratio was 72.0 (68.0) and 70.1 before one-offs. The claims ratio, net of ceded business, which covers both claims and business ceded as a percentage of gross premiums, was 75.1 (74.2) and 73.2 before one-offs. The lower claims level after one-offs was due to a lower weather claims level of 2.6% (5.4%). In Q4, Tryg was hit by the storm Urd with an impact of approximately DKK 60m, which was significantly less than the storm in Q4 2015 with an impact of approximately DKK 180m.

The underlying claims level adjusted for one-offs was 0.7 percentage points higher for the Group and 0.3 percentage points higher for Private, confirming the positive trend seen recently of an underlying claims ratio which is still deteriorating but less so compared to previous quarters. Tryg still expects an improvement in the underlying claims ratio in 2017.

Expenses

The expense ratio was 18.0 (14.2) and 14.4 after one-offs. The efficiency programme contributed DKK 18m in the quarter, corresponding to an impact on the expense ratio of 0.4 percentage points. In Q4, Commercial in Denmark restructured the organisation, leading to a reduced number of back-office employees in sales and the delegation of more powers to the sales organisation. The number of employees was further reduced in the quarter by 46, leaving 3,264 employees at the end of the year.

Investments

The investment return was positive by DKK 598m (DKK 242m) in Q4 2016. The return of the match portfolio was 8m (DKK 85m), and the return on the free investment portfolio was DKK 541m (DKK 201m).

Financial highlights Q4 2016

Profit after tax of DKK 560m (DKK 754m)
Technical result of DKK 314m (DKK 522m)
Combined ratio of 87.6 (88.4) adjusted for one-offs
Premium growth of 1.7 (-1.6) in local currencies
Expense ratio of 14.4 (14.2) adjusted for one-offs
Investment return of DKK 598m (DKK 242m) impacted by sale of investment properties and domiciles and high returns on several asset classes
Proposed H2 dividend of DKK 3.60 per share and DKK 6.20 per share for the full year
DKK 1bn share buy back completed. Proposed DKK 1bn extraordinary dividend to be paid after the AGM in 2017

On 26 December 2016, Denmark was hit by the storm 'Urd'. Northern Jutland and the Copenhagen area were hit the hardest. The event was officially recognised as a flood event. Tryg received 1,600 claims, which impacted the result by approximately DKK 60m.

Private

Financial highlights 2016

Technical result of DKK 1,404m (DKK 1,298m)
Combined ratio of 83.8 (85.4)
Gross premiums increased by 0.8% (0.3%) in local currencies
Expense ratio of 14.2 (14.7)

Results

The technical result for 2016 was DKK 1,404m (DKK 1,298m), with a combined ratio of 83.8 (85.4). The development was attributable to a combination of positive impacts from the efficiency programme, a lower level of weather claims and a higher level of claims especially from the property lines of business. The development in premiums was positive and improved compared to 2015, and the expense ratio was at a significantly lower level.

Premiums

The gross premium income development improved by 0.8% (0.3%) in local currencies, which was in line with the improvements seen since 2013. Premiums increased by 1.8% in Denmark, which was very satisfactory given also that the average price of motor insurance continued to fall by 0.6 percentage points. In Norway, premium income declined by 0.5% in local currencies mainly due to the competitive market situation and the weakened Norwegian economy.

Customer focus is very strong in both Denmark and Norway, as evidenced by the continued improvement in Tryg's Net Promoter Score (NPS) to 29 in 2016 (26). This development was significant in Denmark whereas there was a slight drop in Norway. In Denmark, the NPS score improved from 29 to 35, and in Norway there was a slight drop from 22 to 21. The members' bonus from TryghedsGruppen is expected to have a positive impact on customer loyalty among Private customers in Denmark. In 2016, more than 500,000 insurance policies were converted to new and more updated products. As the products are more correctly priced, this also means that some customers will experience a higher price, and the conversion is therefore expected to have a slightly negative impact on retention rates. The retention rate in Denmark dropped slightly to 89.7 from 89.9, while in Norway the retention rate was unchanged at 86.4. The number of customers with three or more products increased from 56.7% to 57.1% with a significant increase of 1 percentage point for Private customers in Denmark and a drop in the number of customers with three or more products to Norway. To improve the level of customers with three or more products in Norway, the car sales channel, where many customers have few products, was restructured with the aim, among other things, of increasing cross-selling to these customers.

Claims

The gross claims ratio totalled 67.8 (69.0), with a claims ratio, net of ceded business, of 69.6 (70.7). The improvement was ascribable to the efficiency programme and a lower level of weather claims. House insurance was still under pressure despite positive results from the claims team focusing on pipe claims. In fact, claims inflation increased due to higher construction costs because of wage increases for construction workers, and in Norway higher prices for materials due to the weakened pipe claims.

Private encompasses the sale of insurance products to private individuals in Denmark and Norway. Sales are effected via call centres, the Internet, Tryg's own agents, franchisees (Norway), interest organisations, car dealers, estate agents and Nordea branches. The business area accounts for 49% of the Group's total premium income.

Key figures – Private

DKKm	Q4 2016	Q4 2015	2016	2015
Gross premium income	2,235	2,172	8,710	8,803
Gross claims	-1,518	-1,548	-5,904	-6,074
Gross expenses	-310	-290	-1,240	-1,291
Profit/loss on gross business	407	334	1,566	1,438
Profit/loss on ceded business	-40	-51	-158	-148
Insurance technical interest, net of reinsurance	-1	2	-4	8
Technical result	366	285	1,404	1,298
Run-off gains/losses, net of reinsurance	61	49	312	324
Key ratios
Premium growth in local currencies	1.3	1.1	0.8	0.3
Gross claims ratio	67.9	71.3	67.8	69.0
Net reinsurance ratio	1.8	2.3	1.8	1.7
Claims ratio, net of ceded business	69.7	73.6	69.6	70.7
Gross expense ratio	13.9	13.4	14.2	14.7
Combined ratio	83.6	87.0	83.8	85.4
Combined ratio exclusive of run-off	86.3	89.3	87.4	89.1
Run-off, net of reinsurance (%)	-2.7	-2.3	-3.6	-3.7
Large claims, net of reinsurance (%)	0.0	0.4	0.0	0.3
Weather claims, net of reinsurance (%)	3.8	7.6	2.8	4.5

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Annual report 2016 | Tryg A/S | 15

Norwegian currency. Tryg has a strong focus on developments in motor insurance, and throughout the year we saw slightly higher claims inflation due to higher frequency levels and higher average claims for cars with more advanced electronic systems. Against this background, Tryg has decided to introduce price adjustments of approximately 3% to mitigate this development and improve profitability.

Expenses

The expense ratio was 14.2 (14.7). This development resulted from a consistent focus on improving expense levels, and many initiatives were implemented in 2016. In both Denmark and Norway, customer service and claims handling functions were integrated to improve customer loyalty, while at the same time reducing expense levels. In Norway, many initiatives were implemented which will reduce employee numbers by a total of 60, the primary impact of which will be seen in 2017 after almost no impact in 2016. Employee numbers were reduced from 933 at the end of 2015 to 929 in 2016, mainly through job cuts in back-office functions but also transfer of employees from the Claims department as part of the integration of customer service and claims handling.

Financial highlights Q4 2016

Technical result of DKK 366m (DKK 285m)
Combined ratio of 83.6 (87.0)
Claims ratio, net of ceded business, of 69.7 (73.6)
Expense ratio of 13.9 (13.4)

Results Q4 2016

The technical result totalled DKK 366m (DKK 285m), with a combined ratio of 83.6 (87.0), and was positively affected by a significantly lower level of weather claims than in 2015.

Premiums

Gross premiums increased by 1.3% (1.1%) in local currencies. Continued premium growth at a rate of 2.7% was seen in Denmark, whereas premium income for Norway dropped by 0.5% due to a competitive market situation and the weakened Norwegian economy. The positive development in the NPS score continued in Q4 with an improvement of six percentage points to 35 in Denmark and a slight drop from 22 to 21 in Norway. The retention rate in Denmark dropped slightly from 89.9 to 89.7, whereas the retention rate in Norway was stable at 86.4.

Claims

The gross claims ratio was 67.9 (71.3), and the claims ratio, net of ceded business, was 69.7 (73.6). The lower level was primarily due to mild weather in Denmark and Norway despite the storm Urd, which had a much lower impact than the storm in Q4 2015. We saw a slight increase in motor claims in Denmark, which underpins the importance of implementing both price and claims prevention initiatives from 2017.

Expenses

The expense ratio was 13.9 (13.4). As mentioned, focus in 2016 was on implementing initiatives that will reduce expenses in 2017. Employee numbers increased by 16 in Q4 2016 to 929 due to the transfer of claims employees to the Private area.

In 2016, Norway launched an updated Tryg Pluss benefits programme for private customers. The programme offers three main benefits:

Tryg Service – Helping customers if they believe or know that their identity has been misused
Tryg Care – Professional help from psychologists for customers experiencing a personal crisis
Tryg Home Operations – Advisory services and access to Tryg's network of building experts

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Annual report 2016 | Tryg A/S | 16

Commercial

Financial highlights 2016

Technical result of DKK 695m (DKK 658m)
Combined ratio of 82.1 (83.6)
Gross premiums reduced by 1.3% (-2.9%)
Expense ratio of 17.0 (17.1)

Results

The technical result for 2016 was DKK 695m (DKK 658m), with a combined ratio of 82.1 (83.6). The combined ratio was positively affected by a lower level of weather and large claims but also a lower level of run-off. The development in premiums improved in 2016, but was still not satisfactory.

Premiums

The development in gross premium income was negative by 1.3% (-2.9%) in local currencies, which was a significant improvement compared with 2015, but at the same time an unsatisfactory development. The drop in premiums was slightly higher in the Norwegian part of Commercial. The development in the Danish part was affected by price hikes to improve profitability for property, which among other things led to a drop in the market share for large agricultural customers. In Norway, the market was generally very competitive and also impacted by the slowdown in the Norwegian economy. In both Norway and Denmark, structural initiatives were implemented to support an improved development in premiums.

The Net Promoter Score (NPS) decreased to 6 in 2016 (12). In Denmark, the NPS score decreased from 18 to 6, and in Norway an improvement from -1 to 9 was seen. The development in the NPS score also reflected retention rates. The retention rate for Commercial in Denmark fell from 87.9 to 87.1, and in Norway, the retention rate improved significantly from 87.1 to 87.5. The negative development for Commercial in Denmark can be ascribed to price initiatives aimed at improving profitability, whereas the improvement in Norway can be ascribed to a more focused organisation with improved customer contact.

Claims

The gross claims ratio totalled 61.1 (65.4), with a claims ratio, net of ceded business, of 65.1 (66.5). The lower claims level was ascribable to a combination of lower weather and large claims, but also a lower run-off result. The claims level for property improved through the selected price and pruning initiatives. Due to price increases, exposure to the segment of large agricultural customers was reduced, which had a positive impact on profitability. There is still a need for selected price adjustments in the Commercial area, especially for property. These price adjustments will be implemented in 2017.

Expenses

The expense ratio was 17.0 (17.1). The expense level is generally too high for Commercial, and initiatives were therefore implemented to improve this in 2016. The most significant steps were taken by Commercial in Norway, where employee numbers were reduced by approximately 40 employees. In Denmark, the number of employees was reduced by approximately ten

Commercial encompasses the sale of insurance products to small and medium-sized businesses in Denmark and Norway. Sales are effected via Tryg's own sales force, brokers, franchisees (Norway), customer centres as well as group agreements. The business area accounts for 22% of the Group's total premium income.

Key figures – Commercial

DKKm	Q4 2016	Q4 2015	2016	2015
Gross premium income	972	970	3,893	3,992
Gross claims	-567	-604	-2,380	-2,612
Gross expenses	-160	-167	-663	-683
Profit/loss on gross business	245	199	850	697
Profit/loss on ceded business	-78	-53	-154	-44
Insurance technical interest, net of reinsurance	-1	1	-1	5
Technical result	166	147	695	658
Run-off gains/losses, net of reinsurance	91	61	304	388
Key ratios
Premium growth in local currencies	-0.8	-5.0	-1.3	-2.9
Gross claims ratio	58.3	62.3	61.1	65.4
Net reinsurance ratio	8.0	5.5	4.0	1.1
Claims ratio, net of ceded business	66.3	67.8	65.1	66.5
Gross expense ratio	16.5	17.2	17.0	17.1
Combined ratio	82.8	85.0	82.1	83.6
Combined ratio exclusive of run-off	92.2	91.3	89.9	93.3
Run-off, net of reinsurance (%)	-9.4	-6.3	-7.8	-9.7
Large claims, net of reinsurance (%)	2.8	1.9	2.2	6.7
Weather claims, net of reinsurance (%)	1.9	4.8	1.6	2.8

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through a reduction in back-office functions. Total employee numbers were reduced from 527 at the end of 2015 to 474 in 2016.

Results Q4 2016

The technical result totalled DKK 166m (DKK 147m), with a combined ratio of 82.8 (85.0). The result was positively affected by a low level of weather claims and large claims, but also a much higher level of run-off gains. Premium growth was negative by 0.8% (-5.0%), and the expense level was 16.5 (17.2).

Premiums

Gross premiums declined by 0.8% (-5.0%) in local currencies based on a slight increase of 0.1% in Denmark and a drop in Norway of 3.3% in local currencies as a result of the competitive market situation in general and the weakened Norwegian economy. In Norway, the NPS score was improved from -1 to 9, whereas the NPS score dropped in Denmark from 18 to 6. The retention rate in Denmark dropped to 87.1 (87.9), while the retention rate in Norway improved significantly to 87.5 (87.1).

Claims

The gross claims ratio was 58.3 (62.3), with a claims ratio, net of ceded business, of 66.3 (67.8). The low level was primarily due to benign weather in both Denmark and Norway, while large claims were at a higher level and run-off gains at a higher level.

Expenses

The expense ratio was 16.5 (17.2), and the number of employees was reduced by 13 to 474 in Q4 2016.

Financial highlights Q4 2016

Technical result of DKK 166m (DKK 147m)
Combined ratio of 82.8 (85.0)
Claims ratio, net of ceded business, of 66.3 (67.8)
Expense ratio of 16.5 (17.2)

In 2016, Tryg launched a cyber risk insurance product in Commercial and Corporate in Denmark, Norway and Sweden. With this cyber insurance product, Tryg can help customers manage cyber-attacks, while also covering any economic losses sustained as a result of such attacks.

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Corporate

Financial highlights 2016

Technical result of DKK 421m (DKK 369m)
Combined ratio of 88.8 (90.7)
Gross premiums dropped by 1.2% (0.0%)
Expense ratio of 11.0 (10.8)

Results

The technical result for 2016 was DKK 421m (DKK 369m), with a combined ratio of 88.8 (90.7). The result was positively affected by a higher run-off level and a slightly lower level of weather claims, whereas large claims were at the same level as in 2015. The moderate development in premiums seen in recent years continued in 2016 with a drop of 1.2% (0.0%), measured in local currencies.

Premiums

The development in gross premium income saw a drop of 1.2% (0.0%) in local currencies. Premiums increased by around 2.4% in Denmark, whereas in Norway, premium income declined by 4.9% in local currencies due to the loss of some large customers, a competitive market situation, especially for the broker channel, and the weakened Norwegian economy. In Sweden, which accounts for only 20% of the total Corporate business, premium income was zero (6.2%) due to price increases and pruning of the portfolio. In Corporate, there is a strong focus on the relations with brokers as they constitute an important distribution channel. In Sweden, the Swedish brokers ranked Moderna's Corporate business as the best corporate company for the fourth year running. In both Denmark and Norway, there was a strong focus on improving broker relations. In Denmark, it was possible for customers to be served either by brokers or through direct distribution as customers in some cases find this is the best solution.

Claims

The gross claims ratio totalled 60.8 (102.4), with a claims ratio, net of ceded business, of 77.8 (79.9). The lower claims level was primarily due to a high level of run-off gains as large claims and weather claims declined slightly. In 2016, in Denmark and Norway, as part of the normal renewals process, Corporate increased prices, adjusted retention levels and changed coverage to improve profitability. In Sweden, more significant steps were taken to improve profitability, especially for some of the large accounts. In 2017, these initiatives will, in general, follow the normal process with individual customer initiatives in all markets although in the Swedish market, priority will be given to initiatives targeting motor insurance.

Expenses

The expense ratio was 11.0 (10.8) as a result of the reduced premium income. Although expense levels are quite low, Corporate also has a strong focus on reducing expenses as a way of improving the competitive position. In Denmark, the structure of the sales organisation was optimised, leading to a reduction in employee numbers by five employees.

Corporate sells insurance products to corporate customers under the brands 'Tryg' in Denmark and Norway, 'Moderna' in Sweden and 'Tryg Garanti'. Sales are effected both via Tryg's own sales force and via insurance brokers. Moreover, customers with international insurance needs are served by Corporate through its cooperation with the AXA Group. The business area accounts for 22% of the Group's total premium income.

The number of employees was reduced from 265 at the end of 2015 to 257 in 2016.

Key figures – Corporate

DKKm	Q4 2016	Q4 2015	2016	2015
Gross premium income	966	949	3,775	3,894
Gross claims	-814	-657	-2,295	-3,987
Gross expenses	-102	-92	-416	-420
Profit/loss on gross business	50	200	1,064	-513
Profit/loss on ceded business	-41	-195	-643	877
Insurance technical interest, net of reinsurance	0	0	0	5
Technical result	9	5	421	369
Run-off gains/losses, net of reinsurance	121	65	506	351
Key ratios
Premium growth in local currencies	0.9	-2.1	-1.2	0,0
Gross claims ratio	84.3	69.2	60.8	102.4
Net reinsurance ratio	4.2	20.5	17.0	-22.5
Claims ratio, net of ceded business	88.5	89.7	77.8	79.9
Gross expense ratio	10.6	9.7	11.0	10.8
Combined ratio	99.1	99.4	88.8	90.7
Combined ratio exclusive of run-off	111.6	106.2	102.2	99.7
Run-off, net of reinsurance (%)	-12.5	-6.8	-13.4	-9.0
Large claims, net of reinsurance (%)	17.6	11.3	8.1	8.2
Weather claims, net of reinsurance (%)	0.9	2.0	1.0	2.2

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In 2016, Tryg introduced DNA marking for Commercial and Corporate customers. DNA marking is an excellent tool to prevent theft from construction sites, for example. With DNA marking, the owner of stolen copper cables, for example, is easily identified, which saves the contractor having to order new custom-made cables for the job.

Results Q4 2016

The technical result amounted to DKK 9m (DKK 5m), with a combined ratio of 99.1 (99.4), and was negatively affected by a high level of large claims. Premium growth was positive by 0.9% (-2.1%).

Premiums

Gross premiums increased by 0.9% (-2.1%) in local currencies based on an increase in Denmark and a drop in Norway in local currencies, reflecting a competitive market situation and the weakened Norwegian economy. Competition remains more pronounced in the broker channel, although competition from some of the smaller players has eased somewhat. The quarter was, as always, impacted by preparations for the customer renewals process starting on 1 January 2017.

Claims

The gross claims ratio was 84.3 (69.2), with a claims ratio, net of ceded business, of 88.5 (89.7). The high level was primarily due to a high level of large claims in all countries. The high large claims level did not represent a trend, but normal volatility for large-sized claims.

Expenses

The expense ratio was 10.6 (9.7), which is higher than last year due to normal fluctuations in expense levels. The number of employees was 257, down 8 in Q4 2016.

Financial highlights Q4 2016

Technical result of DKK 9m (DKK 5m)
Combined ratio of 99.1 (99.4)
Claims ratio, net of ceded business, of 88.5 (89.7)
Expense ratio of 10.6 (9.7)

Contents — Management's review

Annual report 2016 | Tryg A/S | 20

Sweden

Financial highlights 2016

Technical result of DKK 120m (DKK 218m)
Combined ratio of 90.7 (83.5)
Gross premiums increased by 3.4% (-3.1%)
Expense ratio of 19.0 (18.7)

Results

Sweden Private posted a result of DKK 120m (DKK 218m) for 2016, which represented a significant reduction compared to the prior-year result. This was mainly due to a harmonisation of reserving models in 2015, resulting in a positive impact of approximately DKK 70m. The result for 2016 was also impacted by persistent challenges with extended warranty insurance for electronic products and profit-sharing agreements. The profit-sharing relates to prior-year results. The combined ratio was 90.7 (83.5), and premium income increased by 3.4% (-3.1%) due to the acquisition of Skandia's child insurance portfolio. With the acquisition of Skandia's child insurance portfolio, Tryg continues to improve its market position in Sweden through an active M&A approach.

Premiums

Premium income rose by 3.4% (-3.1%) in local currencies. This was due to the acquisition of Skandia's child insurance portfolio, which is highly profitable and characterised by high retention levels. The acquisition also supports Tryg's aim of growth in the Nordics as child insurance has considerable growth potential in both Denmark and Norway. Through 2016, focus was on mitigating the loss of a number of large affinity agreements and the impact on distribution. The Swedish organisation was able to offset this through higher sales in Q4 2016 compared with Q4 2015, partly through cross-selling to customers in the boat and motorcycle insurance niche segments.

Claims

The gross claims ratio totalled 71.5 (64.7) and was affected by higher claims levels, especially for extended warranty insurance products. Initiatives encompassing price hikes, claims prevention and adjustment of terms have been implemented. The claims level was also impacted by a profit-sharing agreement based on prior-year results, which impacted the claims ratio by 1.7 percentage points. The various initiatives will continue in 2017 with the aim of improving profitability, especially for extended warranty insurance of electronic products.

Expenses

The expense ratio was slightly higher at 19.0 (18.7). Integration and efficiency initiatives will support a lower expense ratio and strengthen Tryg's competitive position.

The number of employees was 337 (338) at the end of 2016, which was almost unchanged despite the acquisition of Skandia.

Sweden comprises the sale of insurance products to private customers under the 'Moderna' brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC, Securator, Moderna Barnförsäkringar and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres, partners and online. The business area accounts for 7% of the Group's total premium income.

Key figures – Sweden

DKKm	Q4 2016	Q4 2015	2016	2015
Gross premium income	337	313	1,348	1,317
Gross claims	-245	-162	-964	-852
Gross expenses	-68	-66	-256	-246
Profit/loss on gross business	24	85	128	219
Profit/loss on ceded business	0	-1	-3	-1
Insurance technical interest, net of reinsurance	-1	1	-5	0
Technical result	23	85	120	218
Run-off gains/losses, net of reinsurance	28	66	117	149
Key ratios
Premium growth in local currencies	12.2	-6.1	3.4	-3.1
Gross claims ratio	72.7	51.8	71.5	64.7
Net reinsurance ratio	0.0	0.3	0.2	0.1
Claims ratio, net of ceded business	72.7	52.1	71.7	64.8
Gross expense ratio	20.2	21.1	19.0	18.7
Combined ratio	92.9	73.2	90.7	83.5
Combined ratio exclusive of run-off	101.2	94.3	99.4	94.8
Run-off, net of reinsurance (%)	-8.3	-21.1	-8.7	-11.3
Weather claims, net of reinsurance (%)	0.9	1.6	0.8	1.7

Contents – Management's review

Annual report 2016 | Tryg A/S | 21

Results Q4 2016

The technical result totalled DKK 23m (DKK 85m), with a combined ratio of 92.9 (73.2). In Q4 2015, a harmonisation of claims reserving models led to a run-off of approximately DKK 70m, which is the main reason for the higher result this year. Weather claims were at a slightly lower level. Premium growth was positive by 12.2% (-6.1%). The expense level improved to 20.2 (21.1), primarily as a result of the acquisition of the Skandia business.

Premiums

Gross premiums increased by 12.2% (-6.1%) in local currencies, which was due to the acquisition of the Skandia insurance portfolio with an impact of approximately 16%. The portfolio was still impacted by the loss of a number of large agreements. Sales were at a higher level than before the loss of these large agreements.

Claims

The gross claims ratio was 72.7 (51.8) and net of ceded business 72.7 (52.1). The low claims ratio in Q4 2015 was due to the harmonisation of the models used to calculate the claims reserves. The claims level for extended warranty insurance of electronic goods was still high, but as mentioned earlier, initiatives have been introduced to bring down this level.

Expenses

The expense ratio was 20.2 (21.1), reflecting the fact that Skandia's child insurance portfolio is now part of the business and with a low expense level.

The number of employees was 337(349), reflecting a decrease of 12 employees in Q4 2016 despite the acquisition of Skandia.

Financial highlights Q4 2016

Technical result of DKK 23m (DKK 85m)
Combined ratio of 92.9 (73.2)
Claims ratio, net of ceded business, of 72.7 (52.1)
Expense ratio of 20.2 (21.1)

Contents – Management's review

Annual report 2016 | Tryg A/S | 22

Investment activities

Financial highlights 2016

Investment return of DKK 987m (DKK -22m)
Return on free portfolio of DKK 939m (DKK 232m)
Return on match portfolio of DKK 210m (DKK -16m)

2016 was an eventful year characterised by volatility caused primarily by important political events such as the 'Brexit' referendum in the UK and the US presidential election. After some initial turmoil, equity markets recovered, and overall reactions can be said to be relatively moderate. The highest-ever spread between US and German rates was seen towards the end of December with US 10-year notes yielding more than 230bps compared to German notes. One noticeable area of turbulence was the currency markets where the British pound and EM currencies weakened significantly.

Tryg's investment activities produced an overall result of DKK 987m (DKK -22m), boosted by a capital gain in Q4 of DKK 500m, plus a DKK 100m increase of shareholders' equity on the sale of a property portfolio. The purpose of the investment strategy is to support a high and stable technical result and thus to reduce overall volatility to the greatest possible extent. Since 2010, this purpose has been supported by the strategic split of the investment portfolio into a match portfolio (assets matching the insurance reserves) and a free portfolio (the capital of the company). Tryg reported a DKK 939m (DKK 232m) return on the free portfolio, a DKK 210m (DKK -16m) return on the match portfolio and other financial income and expenses of DKK -162m (DKK -238m).

Match result

The result of the match portfolio is the difference between the return on the portfolio and the amount transferred to the technical result. The 'net' result can be split into a 'regulatory deviation' and a 'performance' component. The most important driver of the 'regulatory deviation' is the yield difference between Euro swap rates and Danish swap rates. In Norway and Sweden, Tryg hedges using local swaps corresponding to the EIOPA curve; hence, only the Danish exposure is relevant. Since the beginning of 2016, Tryg has started to hedge the interest rate risk of its Danish liabilities, partly using Danish swaps and partly also Euro swaps. When the yield difference between Danish and Euro swap rates decreases, the regulatory deviation should produce a positive result; however, when the yield difference increases, the result is likely to be negative. In 2016, the spread narrowed by 5 basis points, driving a regulatory deviation of DKK 47m.

The most important driver of 'performance' is the difference in yields between Danish, Norwegian and Swedish covered bonds and equivalent swap rates. If spreads narrow (versus swap rates), the overall performance is positive; otherwise the overall performance is negative. Tryg seeks to maintain stability in its covered-bonds portfolio, also in terms of maturity; hence, spread movement should be a good indicator of overall performance. In 2016, the 'performance' result was an unusually high DKK 163m. Spreads narrowed substantially, driven by the so-called 'quantitative easing' enabled by the bond-buying programme of the ECB.

Free portfolio result

In 2016, financial markets were influenced by several significant events such as the UK referendum on continued membership of the European Union and the US presidential election. The market digested the unexpected outcomes fairly quickly and the year ended on a positive note. The result of the free portfolio was very strong in 2016, helped also by the capital gain in Q4 on the sale of a property portfolio of DKK 500m. The result, excluding the extraordinary capital gain, was driven primarily by interest rate and credit exposure (DKK 196m) and equities (DKK 194m).

Interest rates decreased to historically low levels in 2016. The yield of the 10-year German government bond touched -0.19% at the end of June before moving up to 0.25% in December. High-yield bonds (approximately 6% of the free portfolio and less than 2% of total investments) produced a return in excess of 10.6%, while emerging-markets bonds (USD-denominated sovereign bonds) produced a return just below 9.5%. Equity markets had a volatile year, but produced overall solid returns, and Tryg's equity portfolio was up 8.4%, resulting in an overall DKK 194m return. The sale of three investment properties in central Copenhagen boosted the investment result by DKK 420m; a highly concentrated property portfolio has been swapped for a globally diversified portfolio which is more carefully aligned with Tryg's overarching investment strategy. The overall property exposure remains unchanged after the aforementioned transaction.

Contents – Management's review

Annual report 2016 | Tryg A/S | 23

Return – match portfolio

DKKm	Q4 2016	Q4 2015	2016	2015
Return, match portfolio	-275	63	547	140
Value adjustments, changed discount rate	323	86	-188	103
Transferred to insurance technical interest	-40	-64	-149	-259
Match, regulatory deviation and performance	8	85	210	-16
Hereof:
Match, regulatory deviation	8	76	47	12
Match, performance	0	9	163	-28

Other financial income and expenses

The other financial income and expenses component is primarily made up of interest expenses related to outstanding subordinated debt, the cost of the currency hedge to protect our shareholders' equity and the cost of running our investment operations. These are the main elements included in other financial income and expenses. The other financial income and expenses line produced a result of DKK -162m. Tryg issued additional subordinated debt of SEK 1bn in 2016, but the overall interest expenses on the subordinated debt remained largely unchanged thanks to the falling interest rates. Expenses from the hedging of the foreign currency exposure on Tryg's equity totalled DKK -57m, and interest expenses on Tryg's subordinated loans were DKK -88 m.

Investment activities in Q4 2016

In Q4, the positive sentiment after the US election in November was predominant. Additionally, the financial markets were influenced by the interest rate hike from the US central bank. This led to increasing equity markets, with e.g. MSCI All Countries returning 3.7%, while high-yields also did well. The US dollar appreciated by almost 7%. On the other hand, inflation-linked, emerging-market and investment-grade bonds tumbled at the beginning of Q4 due to nervousness prior to the US election and sharply increasing interest rates.

For the free portfolio, this resulted in a return on the equity and bond portfolio of DKK 115m and DKK -42m, respectively. The negative contribution of DKK -42m is primarily explained by negative returns from emerging-market, inflation-linked and investment-grade bonds of DKK -59m, whereas the interest rate increases in Q4 did not have much impact on the portfolio of covered bonds. The investment return is positively influenced by the sale of investment properties with a return on the free portfolio of DKK 541m (DKK 201m).

The match portfolio returned DKK 8m (DKK 85m) after transfer to the insurance part, which is in line with expectations.

Other financial income and expenses of DKK 49m (DKK -44m) were impacted by the sale of domiciles in Bergen and Ballerup in the amount of DKK 93m. All in all, the return on Tryg's investment activities totalled DKK 598m in Q4 2016 (DKK 242m).

Financial highlights Q4 2016

Investment return of DKK 598m (DKK 242m)
Return on free portfolio of DKK 541m (DKK 201m)
Return on match portfolio of DKK 8m (DKK 85m)

Return – free portfolio

DKKm	Q4 2016	Q4 2016 (%)	Q4 2015	Q4 2015 (%)	2016	2016 (%)	2015	2015 (%)	Investment assets
									30.12.2016	31.12.2015
Government bonds	0	0.0	4	1.6	1	0.4	4	1.4	322	265
Covered bonds	6	0.1	7	0.2	69	1.8	-26	-0.6	4,464	3,602
Inflation linked bonds	-20	-3.5	-4	-0.9	41	8.1	-1	-0.2	539	484
Investment grade credit	-21	-4.2	0	0.0	-14	-0.9	0	0.0	546	0
Emerging market bonds	-18	-4.1	6	1.5	41	9.5	2	0.5	447	412
High-yield bonds	13	1.8	-4	-0.5	81	10.6	-8	-0.8	730	837
Othera	-2		10	1.4	-23		19	2.1	220	712
Interest rate and credit exposure	-42	-0.6	19	0.3	196	2.8	-10	-0.1	7,268	6,312
Equity exposureb)	115	5.3	111	4.5	194	8.4	91	3.4	2,187	2,374
Investment property	468	22.2	71	3.5	549	26.1	151	7.2	2,540	2,052
Total gross return	541	4.7	201	1.8	939	8.0	232	1.9	11,995	10,738

a) Senior/Bank deposits less than 1 year and derivative financial instruments hedging interest rate risk and credit risk.
b) In addition to the equity portfolio exposure is futures contracts of DKK 97m.

Contents – Management's review

Annual report 2016 | Tryg A/S | 24

Capital and risk management

Risk management is based on Tryg's targets and strategies and the risk exposure limits decided by the Supervisory Board. The assessment and management of Tryg's aggregated risk and the associated capital requirements therefore constitute a central element in the management of the company. Tryg's Supervisory Board defines the framework for the company's target risk appetite and thereby the capital which must be available to cover any losses. Risk management is primarily focused on insurance risk, investment risk and operational risk.

Insurance risk

The insurance risk is managed by limiting the size of single large commitments and through the use of reinsurance, thus reducing the maximum cost of large claims. Furthermore, the insurance risk is managed through geographical limitations and by refraining from offering certain types of insurance such as aviation and marine hull insurance. Operating within these boundaries, Tryg's risk depends on the company's choice of exposure within different segments and industries in the insurance market. Tryg operates in a relatively stable line of business. Quarterly fluctuations are driven mainly by large claims and weather events, and reinsurance is used extensively to smooth the impact on earnings.

Investment risk

The investment risk is managed by looking at total exposure and capital consumption by asset classes (bonds, shares, properties etc.). A very important element in managing Tryg's investment risk is the company's matching strategy, according to which invested assets corresponding to the technical provisions must be invested in interest-bearing assets, where the interest rate sensitivity of these assets matches and thereby hedges the interest rate sensitivity of the discounted provisions as closely as possible. The so-called match portfolio represents approximately 70% of total group investments, while the free portfolio (the capital of the company) represents the remaining 30%.

Operational risk

The operational risk covers several different areas of Tryg's operations. The most important ones are physical security, fraud, whitewash, crisis management, competencies and processes, and IT security. The Operational Risk Policy is approved by the Supervisory Board while the Operational Risk Committee (ORC) reports directly to the Risk Committee. The ORC is responsible for all operational risks and is under an obligation to report high risks to the Risk Committee. Fraud is a priority focus area in Tryg, when it comes to both regular insurance fraud and internal fraud. A dedicated unit in the Claims department covers the insurance fraud angle, and a special Corporate Security unit covers the internal fraud angle. Intensive controls are carried out based on fraud scenarios, and dedicated persons in Corporate Security investigate the outcome.

IT security is a major operational risk area. Tryg's IT security policy is based on the ISO 27000 framework, and Tryg has a dedicated second-level Corporate Security unit performing security assessments of projects, controlling outsourcing partners and performing regular IT risk analyses. We also have a strong focus on user awareness as social engineering is the criminals' preferred way of penetrating company IT systems. Furthermore, Tryg has a whistleblower line, which allows employees, customers and business partners to report any serious wrongdoings or suspected irregularities.

Solvency II

The Solvency II regime emphasises the need for sound risk management and introduces additional requirements concerning risk governance, consistency across the Group and top management reporting and involvement. Tryg has been working towards implementing the principles of Solvency II for years and has, amongst other things, carried out risk identification routines, written ORSA (Own Risk and Solvency Assessment) reports, acted in a setup comprising three lines of defence and appointed a special Risk Committee under the Supervisory Board which focuses on capital and risk management. Tryg's partial internal Solvency II model was approved by the Danish FSA in November 2015. Read more about Tryg's risk management in Note 1 on page 50.

Capital management

Capital management is based on Tryg's partial internal capital model, which was approved by the supervisory authorities in November 2015. Tryg has modelled the insurance risk internally, while using the standard formula for all other risks. The capital model is based on the risk profile, and therefore takes into consideration the composition of Tryg's insurance portfolio, geographical diversification, its claims reserves profile, reinsurance programme, investment mix and Tryg's profitability in general.

The Solvency Capital Requirement (SCR) is calculated in such a way that Tryg would statistically be able to honour its obligations in 199 out of 200 years. In other words, Tryg could have a loss greater than DKK 5.1bn (the SCR) in 1 out of 200 years.

Tryg's SCR was DKK 5.1bn at the end of 2016, which is the same level as on 1 January 2016, when Solvency II went live. At the end of 2016, Tryg's Own funds were DKK 9,850m (after deducting the H2 dividend and the proposed extraordinary

Contents – Management's review

Annual report 2016 | Tryg A/S | 25

dividend of DKK 1bn) against DKK 10.3bn at 1 January 2016. Own funds during the year have mostly been impacted positively by net profits and negatively by dividends and buy backs. Additionally, Tryq issued SEK 1.0bn subordinated, Solvency II-compliant debt. This boosted the Own funds in its Tier 2 component. The Solvency ratio was 194 at year-end 2016.

The key components of Tryq's Own funds are shareholders' equity, intangibles, Tier 2 instruments (subordinated debt and natural perils pool),

Own funds

Solvency capital requirement

ATier 1 instruments (old subordinated debt which has been grandfathered) and future profits. The vast majority of Tryq's Own funds are represented by shareholders' equity.

The Tier 2 capacity has been fully utilised after the SEK 1bn subordinated debt issue in May 2016. Currently, some DKK 200m of Tier 2 instruments are not included in the Own funds as they exceed the 50% SCR cap. Tryq had additional ATier 1 capacity of DKK 1.0bn at the end of 2016.

Tryq's solvency ratio displays low sensitivities to capital market movements. The highest sensitivity is towards spread risk, where a widening/tightening of 100 basis points would impact the solvency ratio by approximately 12 percentage points. Lower sensitivities are displayed towards equity market falls and interest rate movements.

A change in the UFR (Ultimate Forward Curve) would have a very modest impact as the solvency ratio would fall 1 percentage point. This is unsurprising considering that Tryq underwrites only non-life risks with low duration.

Ordinary and extraordinary dividend

The Supervisory Board regularly assesses the need for capital adjustments. In 2017, Tryq has decided to announce a DKK 1bn (DKK 3.54 per share) extraordinary dividend after assessing the company's capital plan, in which the SCR is projected on the basis of Tryq's forecasts. The projections include initiatives set out in the

company's strategy for the coming years, and also on the most significant risks identified by the company. The adequacy is measured in relation to Tryq's strategic targets, including return on equity and dividend policy.

At the annual general meeting to be held on 8 March 2017, Tryq's Supervisory Board will propose an H2 dividend of DKK 3.60 per share. In 2016, Tryq also paid a semi-annual dividend of DKK 2.60 per share. The full-year dividend is thus DKK 6.20 per share, equivalent to the total distribution of DKK 1,770m.

In conjunction with the capital plan, a contingency plan is made. It describes specific measures that may be introduced in the near term, should the company's desired capital position be threatened. Tryq's Supervisory Board has approved both the capital plan and the contingency plan. Read more about Tryq's risk management and Solvency II in note 1 on page 50.

Shareholder remuneration

Moody's rating

In 2016, Tryq decided to terminate the rating agreement with Standard and Poor's and acquire a rating from Moody's. At the end of April, Tryq was assigned an 'A2' financial strength rating with a positive outlook. The rating was upgraded in December 2016 to an 'A1' financial strength rating with a stable outlook. In its press release, Moody's noted that the A1 IFSR reflects Tryq's leadership position in Property & Casualty (P&C) insurance in the Nordic region, its strong profitability both from a return on capital and underwriting (combined ratio) perspective, very good asset quality and relatively low financial leverage.

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Annual report 2016 | Tryq A/S | 26

Shareholder information

Investor Relations (IR) is responsible for Tryg's communication with the capital markets. It is important that investors, analysts and other stakeholders are able to form a true and fair view of developments, including Tryg's financial results. For this reason, we strive to be as open and transparent as possible to ensure that stakeholders' information requirements are met at the highest possible level. IR is in charge of communication with equity investors, fixed-income investors and rating agencies. Tryg's IR policy is available at tryg.com/investor.

After the publication of quarterly and annual reports, Tryg's management and IR team travel extensively to meet with shareholders and potential investors. Quarterly analyst presentations are also held in Copenhagen and London. Tryg also attends various financial conferences. In 2016, we held almost 300 investor meetings – mostly one-to-ones but also some group meetings in Europe, the USA, Canada and Asia (Japan and Singapore). The Tryg share is covered by 21 analysts, who continuously update their recommendations and earnings forecasts. See a list of analysts and their recommendations at tryg.com/investor.

The Tryg share

The Tryg share is listed on NASDAQ Copenhagen. In accordance with the recommendations issued by NASDAQ Copenhagen, Tryg does not comment on the company's financial results or outlook two weeks before the publication of interim reports and four weeks before the publication of the annual report. Company announcements, press releases and transaction statements are published in both Danish and English, whereas interims and annual reports are published in English. It is possible to subscribe to all financial information on tryg.com. Follow @TrygIR on Twitter.

The Tryg share started the year at a price of DKK 137.4 and ended 2016 at DKK 127.7. The total return of the share including dividends was -2.6%. The Tryg share followed an unusually volatile pattern in 2016, to some extent due to a number of remarkable political events which sharply impacted financial stocks.

Brexit and the US presidential election resulted in large swings in the equity markets, in particular for banks' and insurers' stocks. Additionally, insurance investors remained very focused on Solvency II (the new capital regime introduced on 1 January 2016), adding an increased level of scrutiny to European insurers' balance sheets. This remains particularly true for the traditional life insurers whose business model is under heavy pressure from the extremely low interest rate levels.

NASDAQ Copenhagen remains the primary exchange for trading in the Tryg share. In 2016, NASDAQ Copenhagen accounted for 59.3% of the turnover of the Tryg share. This means that approximately 41% of all trading in 2016 was carried out on alternative exchanges (MTF trades), led by Turquoise as the largest alternative exchange. Average daily turnover on NASDAQ was DKK 58m and average daily volume was 1,498. The numbers were higher in 2015 impacted, amongst other things, by Tryg's 1:5 share split.

Share capital and ownership

Tryg's share capital totalled 1,412,706,020 on 31 December 2016. It comprised one share class (282,541,204 shares with a nominal value of DKK 5), and all shares rank pari passu.

The majority shareholder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the share capital. TryghedsGruppen invests in peace-of-mind and healthcare providers in the Nordic region, and supports non-profit-making activities.

At the end of 2016, and after completion of the share buy back programme, Tryg held 7,946,118 own shares, corresponding to 2.7% of the share capital. At the annual general meeting, the Supervisory Board will propose the cancellation of the repurchased shares.

TrygFonden

TrygFonden works actively to create peace of mind in Denmark, supporting around 800 activities that contribute to this, such as coastal lifeguards and defibrillators. Behind TrygFonden is TryghedsGruppen, which owns 60% of the shares in Tryg and contributed DKK 550m to projects that create peace of mind throughout Denmark in 2016. The amount will be increased to DKK 600m in 2017.

TryghedsGruppen

In 2016, Tryg's majority shareholder, TryghedsGruppen, paid out a members' bonus to Tryg's Danish customers corresponding to 8% of the annual premium paid for 2015.

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Annual report 2016 | Tryg A/S | 27

Quarterly dividends from 2017

Tryg paid out semi-annual dividends in 2015 and 2016 and will start paying out quarterly dividends in 2017. Tryg's share has a distinct income profile; the business generally grows in line with GDP, producing high margins, which are mostly returned to shareholders. The prolonged period of very low interest rates means that investors, all else being equal, attach even greater importance to dividends than in more normal environments. From an investment perspective, a quarterly dividend will be a clear reminder of the high profitability of the business and its focus on returning capital to shareholders. Tryg's dividend policy is based on the following assumptions:

A general objective of creating long-term value for the company's shareholders.
A competitive dividend policy in comparison with the policies of our Nordic competitors.

Shareholders

At 31 December 2016

TryghedsGruppen
- Lyngs Danish shareholders
- Lyngs International shareholders
- Small shareholders

a) Shareholders holding more than 10,000 shares.

An aspiration to distribute steadily increasing dividend in nominal terms on a full-year basis.
Annual distribution of 60-90% of the profit after tax.
The capital level must at all times reflect the return on equity targets and the statutory capital requirements.
The capital level may be adjusted via extraordinary dividends.

Based on Tryg's dividend policy and the satisfactory 2016 results, the Supervisory Board will propose an H2 dividend of DKK 3.60 per share at the annual general meeting on 8 March 2017. The full-year dividend corresponds to a payout of 72% of the profit after tax.

Extraordinary dividends from 2017

Starting 2017, Tryg has decided to move from effecting extraordinary buy backs to paying out extraordinary dividends when the capital position

Free float – geographical distribution

At 31 December 2016

Denmark
UK
USA
Nordic region
Others

Free float is exclusive of TryghedsGruppen.

Distribution

DKKm	2016	2015	2014	2013	2012
Dividend	1,770	1,759	1,731	1,656	1,594
Dividend per share (DKK) a)	6.2	6.0	5.8	5.4	5.2
Payout ratio	72%	89%	68%	70%	72%
Extraordinary share buy back	0	1,000	1,000	1,000	800
Extraordinary dividend b)	1,000

a) Dividend per share includes dividend for H1 of DKK 2.60 paid out in July 2016 and dividend of DKK 3.60 proposed by the Supervisory Board for adoption by the annual general meeting. b) Proposed by the Supervisory Board for adoption by the annual general meeting.

allows such extraordinary payments. Based on many investor meetings in 2016, it has become clear that in general, there is a higher preference for dividends than buy backs. The proposed extraordinary dividend payout in 2017 will total DKK 1bn corresponding to a dividend of DKK 3.54 per share.

Annual general meeting

Tryg's annual general meeting will be held on 8 March 2017 at 15:00 CET at Tryg's head office, Klausdalsbrovej 601, 2750 Ballerup, Denmark. The notice will be advertised in the daily press in February 2017 and will be sent to shareholders upon request. The annual general meeting will also be announced at tryg.com.

The company announcements issued in 2016 can be seen at tryg.com > Investor > News.

Financial calendar 2017

8 Mar. 2017	Annual general meeting
9 Mar. 2017	Tryg shares are traded ex-dividend
13 Mar. 2017	Payment of H2 2016 dividend and extraordinary dividend
7 Apr. 2017	Interim report Q1 2017
10 Apr. 2017	Tryg shares are traded ex-dividend
12 Apr. 2017	Payment of Q1 dividend
11 July 2017	Interim report Q2 and H1 2017
12 July 2017	Tryg shares are traded ex-dividend
14 July 2017	Payment of Q2 dividend
10 Oct. 2017	Interim report Q1-Q3 2017
11 Oct. 2017	Tryg shares are traded ex-dividend
13 Oct. 2017	Payment of Q3 dividend

Contents – Management's review

Annual report 2016 | Tryg A/S | 28

Corporate governance

Tryg focuses on managing the company in accordance with the principles of good corporate governance and generally complies with the Danish recommendations prepared by the Committee on Corporate Governance. The Recommendations on Corporate Governance are available at corporate-governance.dk. At tryg.com, Tryg has published its statutory corporate governance report based on the 'comply-or-explain' principle for each individual recommendation. This section on corporate governance is an excerpt of the corporate governance report, [ID] Download Tryg's statutory corporate governance report at tryg.com > Investor > Download.

Dialogue between Tryg, shareholders and other stakeholders

The Investor Relations (IR) department maintains regular contact with analysts and investors. Together with the Executive Board, IR organises investor meetings and conference calls and participates in conferences in Denmark and abroad. IR also communicates with stakeholders in the social media via Twitter@TrygIR. The Supervisory Board is informed about the dialogue with investors and other stakeholders on a regular basis. Tryg has adopted an IR policy, which states, among other things, that all company announcements are published in Danish and English. Tryg publishes quarterly interim reports in English. Furthermore, Tryg publishes an annual profile in Danish, English and Norwegian. The profile is addressed to Tryg's private shareholders, customers, employees and other stakeholders and is published on 26 January 2017. Moreover, Tryg prepares quarterly investor presentations, which are used in the dialogue with investors and analysts. All announcements, financial reports, presentations and newsletters are available at tryg.com. This material provides all stakeholders with a comprehensive picture of Tryg's position and performance. The consolidated financial reports are presented in accordance with IFRS. At tryg.com, stakeholders are invited to subscribe to press releases, company announcements as well as insider trading announcements. A number of internal guidelines ensure that the disclosure of price-sensitive information complies with legislation and the stock exchange's codes of conduct. Tryg has adopted a number of policies describing the relationship between different stakeholders. [ID] See the IR policy at tryg.com > Investor > IR contacts > IR policy, [ID] and the CSR policy at tryg.com > CSR > CSR strategy > CSR policy.

Annual general meeting

Tryg holds an annual general meeting (AGM) every year. As required by the Danish Companies Act and the Articles of Association, the AGM is convened via a company announcement and at tryg.com subject to at least three weeks' notice. Shareholders may also opt to receive the notice by post or email. The notice contains information about time and venue as well as an agenda for the meeting.

All shareholders are encouraged to attend the AGM. The AGM is held by personal attendance as the Supervisory Board values personal contact with the Group's shareholders. Shareholders may propose items to be included on the agenda for the annual general meeting, and may ask questions before and at the meeting. Shareholders may vote in person at the annual general meeting, by post or appoint the Supervisory Board or a third party as their proxy. Shareholders may consider each item on the agenda. The proxy form and form for voting by post are available at tryg.com prior to the AGM.

Share and capital structure

Tryg's share capital comprises a single share class, and all shares rank pari passu. The majority shareholder, TryghedsGruppen smba, owns 60% of the shares and is the only shareholder owning more than 5% of the company's shares. The Supervisory Board ensures that Tryg's capital structure is aligned with the needs of the Group and the interests of its shareholders and that it complies with the requirements applicable to Tryg as a financial undertaking. Tryg has adopted a capital plan and a contingency capital plan, which are reviewed annually by the Supervisory Board.

Depending on the development in results, each year the Supervisory Board proposes the distribution of semi-annual dividend, and possibly an extraordinary share buy back if further adjustment of the capital structure is required. From Q1 2017, Tryg will introduce a quarterly dividend. At the annual general meeting in 2016, the shareholders authorised the Supervisory Board to allow Tryg to acquire own shares amounting to up to 10% of the share capital during the period up until 31 December 2017. On 6 April 2016, Tryg initiated a share buy back programme, which ran until 16 December 2016. Tryg acquired own shares for an amount of DKK 1bn. Starting 2017, Tryg has decided to move from extraordinary buy backs to extraordinary dividends when the capital position allows extraordinary payments. The proposed extraordinary dividend is DKK 1bn in 2017.

Duties, responsibilities and composition of the Supervisory Board

The Supervisory Board is responsible for the central strategic management and financial control of Tryg and for ensuring that the business is organised in a sound way. This is achieved by monitoring targets and frameworks on the basis of regular and systematic reviews of the strategy and risks. The Executive Board reports to the Supervisory Board on strategies and action plans, market developments and Group performance, funding issues, capital resources and special risks. The Supervisory Board holds one annual strategy seminar to decide on and/or adjust the Group's strategy with a view to sustaining value creation in the company. The Executive Board works with the Supervisory Board to ensure that the Group's strategy is developed and

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monitored. The Supervisory Board ensures that the necessary skills and financial resources are available for Tryg to achieve its strategic targets. The Supervisory Board specifies its activities in a set of rules of procedure and an annual cycle for its work.

Eight members of the Supervisory Board are elected by the annual general meeting for a term of one year. Of the eight members elected at the annual general meeting, four are independent persons as stated in recommendation 3.2.1 in Recommendations on Corporate Governance, while the other four members are dependent persons as they are appointed by the majority shareholder TryghedsGruppen. See pages 33-34 for information on when the individual members joined the Supervisory Board, were re-elected and when their current election period ends. To ensure the integration of new talent on the Supervisory Board, members elected by the annual general meeting may hold office for a maximum of nine years. Furthermore, members of the Supervisory Board must retire at the first annual general meeting following their 70th birthday. The Supervisory Board has 12 members, seven men and five women (including two male and two female employee representatives). Women are thus not underrepresented on Tryg's Supervisory Board. The Supervisory Board has members from Denmark, Sweden and Norway. [1] See details about the independent board members in the section Supervisory Board on pages 33-34 and at tryg.com > Governance > Management > Supervisory Board.

The Supervisory Board performs an annual evaluation of its work and skills to ensure that it possesses the expertise required to perform its duties in the best possible way. The Supervisory Board focuses primarily on the following qualifications and skills: management experience, financial insight, organisation, IT, product development, communication, market insight, international experience, knowledge of insurance, reinsurance, capital requirements, general accounting insight and accounting principles (GAAP), including regulations and principles designed for the insurance industry and M&A experience. [1] See CV's and descriptions of the skills in the section Supervisory Board on pages 33-34 and at tryg.com > Governance > Management > Supervisory Board.

Duties and composition of the Executive Board

Each year, the Supervisory Board reviews and adopts the rules of procedure of the Supervisory Board and the Executive Board with relevant policies, guidelines and instructions describing reporting requirements and requirements for communication with the Executive Board. Financial legislation also requires the Executive Board to disclose all relevant information to the Supervisory Board and report on compliance with limits defined by the Supervisory Board and in legislation.

The Supervisory Board considers the composition, development, risk and succession plans of the Executive Board in connection with the annual evaluation of the Executive Board, and regularly in connection with board meetings. Each year, the Supervisory Board discusses Tryg's activities to guarantee diversity at management levels. Tryg attaches importance to diversity at all management levels. Tryg has prepared an action plan, which sets out specific targets to ensure diversity and equal opportunities and access to management positions for qualified men and women.

In 2016, the proportion of women at management level was 36.4% against 35.4% in 2015. The target for 2016 of 38% or more women at management level was therefore not met. Tryg maintains the target to increase the total proportion of women at management level to 38% or more in 2017. [20] See the action plan at tryg.com > CSR > Thematic areas > People.

Board committees

Tryg has an Audit Committee, a Risk Committee, a Nomination Committee and a Remuneration Committee. In 2016, Tryg set up a temporary IT Committee to allow the Board to work more closely with Tryg's IT strategy. The framework of the committees' work is defined in their terms of reference. [20] The board committees' terms of reference can be found at tryg.com > Governance > Management > Supervisory Board > Board committees, including descriptions of members, meeting frequency, responsibilities and activities during the year. [20] See the tasks of the board committees in 2016 at tryg.com > Governance > Management > Supervisory Board > Board committees.

Three out of four members of the Audit Committee and three out of five members of the Risk Committee, including the chairman of the committees, are independent persons. Of the four members of the Remuneration Committee, one member is an independent person, while one out of two members of the Nomination Committee is independent. Board committee members are elected primarily based on special skills that are considered important by the Supervisory Board. Involvement of the employee representatives in the committees is also considered important. The committees exclusively prepare matters for decision by the entire Supervisory Board. [20] The special skills of all members are also described at tryg.com.

Remuneration of Management

Tryg has adopted a remuneration policy for the Supervisory Board and the Executive Board, including general guidelines for incentive pay. The remuneration policy for 2016 was adopted by the Supervisory Board in January 2016 and approved by the annual general meeting on 16 March 2016. The Chairman of the Supervisory Board reports on Tryg's remuneration policy each year in connection with the review of the annual report at the annual general meeting. The Board's proposal for the remuneration of the Supervisory Board for the current financial year is also submitted for approval by the shareholders at the annual general meeting. [20] See the remuneration policy at tryg.com > Governance > Remuneration.

Remuneration of Supervisory Board

Members of Tryg's Supervisory Board receive a fixed fee and are not comprised by any form of incentive or severance programme or pension

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Total remuneration of the Supervisory Board in 2016

DKK	Fee	Audit Committee	Risk Committee^{a)}	Remuneration Committee^{a)}	Total
Jørgen Huno Rasmussen	1,061,371			146,895	1,208,266
Torben Nielsen	707,581	225,000	197,581		1,130,162
Tom Eileng^{b)}	285,484			79,301	364,785
Lone Hansen	353,790				353,790
Anders Hjulmand^{b)}	285,484				285,484
Jesper Hjulmand	353,790	150,000	131,720		635,510
Ida Sofie Jensen	353,790			75,430	429,220
Bill-Owe Johansson	353,790				353,790
Lene Skole	353,790	150,000	131,720		635,510
Tina Snejbjerg	353,790		131,720		485,510
Mari Thjømøe	353,790	150,000	131,720		635,510
Carl-Viggo Östlund	353,790			97,930	451,720
Anya Eskildsen^{c)}	68,307			18,629	86,936
Vigdis Fossehagen^{c)}	68,307			18,629	86,936

a) Fee increased as from 1 April 2016
b) Joined the Supervisory Board in March 2016
c) Resigned from the Supervisory Board in March 2016

scheme. Their remuneration is based on trends in peer companies, taking into account the required skills, efforts and the scope of the Supervisory Board's work, including the number of meetings held. The remuneration received by the Chairman of the Board is three times that received by ordinary members, while the Deputy Chairman's

remuneration is twice that received by ordinary members of the Supervisory Board.

Remuneration of Executive Board

Members of the Executive Board are employed on a contractual basis, and all terms of their remuneration are established by the Supervisory Board

within the framework of the approved remuneration policy. Tryg wants to strike an appropriate balance between management remuneration, predictable risk and value creation for the shareholders in the short and long term.

The Executive Board's remuneration consists of a base salary, a pension contribution of 25% of the base salary and other benefits. The base salary must be competitive and appropriate for the market and provide sufficient motivation for all members of the Executive Board to do their best to achieve the company's defined targets. The Supervisory Board can decide that the base salary should be supplemented with a variable pay element of up to 25% of the fixed base salary including pension.

The variable pay element consists of a Matching Shares Programme. The Executive Board may, using taxed funds, buy shares (so-called investment shares) in Tryg A/S at market price for a predefined amount. Four years after the purchase, Tryg will grant one matching share per investment share free of charge. Matching is conditional upon

Total remuneration of the Executive Board in 2016

DKK	Base salary	Pension	Car allowance	Other benefits	Total fixed salary	Share-based remuneration^{a)}	Total fee
Morten Hübbe	9,701,848	2,425,462	255,000	26,000	12,408,310	2,000,000	14,408,310
Lars Bonde	4,811,092	1,202,773	255,000	26,000	6,294,865	938,000	7,232,865
Christian Baltzer^{b)}	2,125,000	531,250	180,625	18,417	2,855,292	531,250	3,386,542
Tor Magne Lønnum^{c)}	1,757,715	391,578	45,081	7,583	2,201,957		2,201,597

a) The maximum investment opportunity offered under the Matching Shares Programme at the beginning of 2017 (performance year 2016)
b) Group CFO as of 15 April 2016
c) Resigned as Group CFO on 15 April 2016. Tor Magne Lønnum's base salary includes a non-relocation allowance of DKK 191,403.

fulfilment of additional conditions such as continued employment and back testing (a testing prior to matching, to ensure that the criteria forming the basis of the calculation of the variable salary are still met at the time of matching). The purpose of the Matching Shares Programme is to ensure alignment of interests between the Executive Board and the company's shareholders.

Each year the Supervisory Board evaluates the performance of the Executive Board against the targets set by the Supervisory Board for the fiscal year. The overall fulfilment of the weighted targets determines the number of investment shares offered to each member of the Executive Board. The targets for 2016 were a combination of long-term strategic targets and developmental targets, 60% weighted on the year's fulfilment of Tryg's CMD 2017 targets, which were specified as combined ratio, expense ratio, premium growth, Net Promotor Score (NPS) and employee satisfaction, and 40% weighted on development targets, including targets such as moving closer to the customers (higher degree of customers who are fully insured in Tryg), creating a strong customer centre, empowering the different lines of business, achieving high levels of innovation and development of products/services and the impact and success of Tryg's leaders. Read more about the Matching Shares Programme in the remuneration policy at tryg.com

> Governance > Remuneration.

Financial reporting, risk management and auditing

Being an insurance business, Tryg is subject to the risk management requirements of the Danish Financial Business Act and Solvency II. In its

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policies, the Supervisory Board defines Tryg's risk management framework as regards insurance risk, investment risk and operational risk, as well as IT security, and issues guidelines to the Executive Board. Risks associated with new financial reporting rules and accounting policies are monitored and considered by the Audit Committee, the finance management and the internal auditors. Material legal and tax-related issues and the financial reporting of such issues are assessed on an ongoing basis. 1 Other risks associated with the financial reporting are described in the section Capital and risk management on pages 25-26 1 and in Note 1 Risk management on page 50.

Tryg engages in ongoing risk identification, mapping insurance risks and other risks which may endanger the realisation of Tryg's strategy or which may potentially have a substantial impact on Tryg's financial position. The process involves identifying and continually monitoring the risks identified. As in previous years, Tryg undertook an Own Risk and Solvency Assessment (ORSA) in 2016. The purpose of the ORSA is to ensure and demonstrate a link between strategy, risk management, risk appetite, solvency and capital planning over the planning period.

The Supervisory Board and the Executive Board approve and monitor the Group's overall policies and guidelines, procedures and controls in important risk areas. They receive reports about developments in these areas and about the ways in which the frameworks are applied. The Supervisory Board checks that the company's risk management and internal controls are effective. The Board receives

reports on non-compliance with the frameworks and guidelines established by the Supervisory Board. The Risk Committee monitors the risk management on an ongoing basis and reports quarterly to the Supervisory Board.

The Group's internal control systems are based on clear organisational structures and guidelines, general IT controls and segregation of functions, which are supervised by the internal auditors.

As part of the internal control system, Tryg has established independent risk management, compliance and actuarial functions. The functions report to the Executive Board and the Supervisory Board's Risk Committee. Tryg has a decentralised set-up whereby risk managers in the business areas carry out controlling tasks for the risk management and compliance functions.

Risk management is an integral part of Tryg's business operations. The Group seeks at all times to minimise the risk of unnecessary losses in order to optimise returns on the company's capital. 1 Read more about Tryg's risk management in the section Capital and risk management on pages 25-26 1 and in Note 1 on page 50.

Whistleblower line

Tryg has a whistleblower line, which allows employees, customers and business partners to report any serious wrongdoings or suspected irregularities. Reporting takes place in confidence to the Chairman of the Audit Committee and the Head of Compliance. Read more about Tryg's whistleblower line at tryg.com > Governance > Whistleblower line.

Independent and internal audit

The Supervisory Board ensures monitoring by competent and independent auditors. The Group's internal auditor attends all Board meetings. The independent auditor attends the annual Board meeting at which the annual report is presented.

The annual general meeting annually appoints an independent auditor recommended by the Supervisory Board. The internal and independent auditors attend the Audit and Risk Committee meetings, and at least once a year the auditors meet with the Audit Committee without the presence of the Executive Board. The Chairman of the Audit Committee deals with any matters that need to be reported to the Supervisory Board.

Tryg's internal audit department regularly reviews the quality of the Group's internal control systems and business procedures. It is responsible for planning, performing and reporting on the audit work to the Supervisory Board.

Deviations and explanations

Tryg complies with the Recommendations on Corporate Governance with the exception of the recommendation concerning the number of independent members of the board committees, with which Tryg complies partially; see recommendation 3.4.2 of the Recommendations on Corporate Governance. The deviation is explained in Tryg's statutory corporate governance report, which is available at tryg.com > Investor > Download.

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Annual report 2016 | Tryg A/S | 32

Supervisory Board

Jørgen Huno Rasmussen

Chairman

Born in 1952. Joined: 2012. Danish citizen. Professional board member. Adjunct professor, CBS. Former CEO of the FLSmidth Group.

Education: B.Com. (Organisation), MSc (Civ. Eng.), PhD (Constr. Man.).

Chairman: Tryg A/S, Tryg Forsikring A/S, TryghedsGruppen smba, Lundbeckfonden and Lundbeckfond Invest A/S.

Deputy Chairman: Terma A/S, Rambøll Group A/S and Haldor Topsøe A/S.

Board member: Bladt Industries A/S, Otto Mønsted A/S and Thomas B. Thriges Fond.

Committee memberships: Chairman of Tryg's Remuneration and Nomination Committees and the Remuneration Committee in Haldor Topsøe A/S.

Number of shares held: 1,830

Change in portfolio 2016: 0

As former CEO of FLSmidth, Jørgen Huno Rasmussen has experience in international management of listed companies and special skills within strategy, business development, communication, risk management and finance.

Torben Nielsen

Deputy Chairman

Born in 1947. Joined: 2011. Danish citizen. Professional board member, Adjunct Professor, CBS. Former Governor of Danmarks Nationalbank (Danish Central Bank).

Education: Savings bank training, Graduate Diplomas in Organisation, Work Sociology, Credit and Financing.

Chairman: Sydbank A/S, Investeringsforeningen Sparinvest DK, EIK banki p/f and Museum South East Denmark.

Deputy Chairman: Tryg A/S and Tryg Forsikring A/S.

Board member: Sampension KP Livsforsikring A/S, Dansk Landbrugs Realkredit and a member of the Executive Management of Bombebøssen.

Committee memberships: Tryg's Audit Committee (Chairman), Risk Committee (Chairman) and Remuneration Committee.

Number of shares held: 20,000

Change in portfolio 2016: +1,000

Torben Nielsen has special skills in the fields of management, finance, financial services and risk management as former Governor of Danmarks Nationalbank.

Anders Hjulmand

Born in 1951. Joined: 2016. Danish citizen. Lawyer and partner at HjulmandKaptajn.

Education: LL.M.

Chairman: B&E STÅL A/S, Brdr. Schlie's Fiskeksport A/S, Conscius A/S, CPS A/S, Danish Label Coating A/S, Friis & Moltke A/S, Lastvogn & Trailer Center A/S, Nordjyske Jernbaner A/S, Palle Mørch A/S, Pava Produkter A/S, Seafood International Holding A/S, Scan Fish Danmark A/S, Utzon Center A/S, Kunsten – Museum of Modern Art, PSC A/S and a number of subsidiaries.

Deputy Chairman: The Royal Danish Theatre.

Board member: Tryg A/S and Tryg Forsikring A/S, TryghedsGruppen smba, Flemming Christensens Fond, FDE Fonden, Effer Krancenter A/S, Sawo A/S and Utzon Fond.

Number of shares held: 1,168

Change in portfolio 2016: +1,168

Anders Hjulmand is experienced in the counselling of a number of Danish and international, privately and publicly owned companies and foundations, and he is experienced within the areas of law, management, strategy and business development.

Ida Sofie Jensen

Born in 1958. Joined: 2013. Danish citizen. CEO of Lif (Danish Association of the Pharmaceutical Industry), the subsidiary DLI A/S (Danish Medicine Information) and the subsidiary ENLI ApS (Ethical Board for the Pharmaceutical Industry).

Education: MSC in Political Science, European Health Leadership Programme INSEAD, Executive Management Programme INSEAD, Executive Program Columbia Business School, Executive Program Singularity University.

Board member: Tryg A/S and Tryg Forsikring A/S, TryghedsGruppen smba, Plouqmann & Vingtoft A/S and Hans Knudsen Institutet (business trust).

Committee memberships: Remuneration Committee in Tryg.

Number of shares held: 1,175

Change in portfolio 2016: 0

Ida Sofie Jensen has experience from business operations and the healthcare sector as well as management, strategy, politics and finance.

Lone Hansen

Employee representative

Born in 1966. Joined: 2012. Danish citizen. Employed since 1990.

Education: Certified commercial insurance agent. Various insurance and sales courses and negotiation training.

Chairman: The Association for Tied Agents and Key Account Managers in Tryg.

Board member: Tryg A/S and Tryg Forsikring A/S.

Member of the Tied Agents' District Board of the Financial Services Union Denmark.

Number of shares held: 695

Change in portfolio 2016: 0

Bill-Owe Johansson

Employee representative

Born in 1959. Joined: 2010. Swedish citizen. Claims handler in Atlantica (Moderna, Swedish subsidiary). Employed since 2002.

Education: Insurance training.

Board member: Tryg A/S and Tryg Forsikring A/S.

Number of shares held: 1,500

Change in portfolio 2016: +235

Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. An employee election was held in 2016.

a) Dependent member of the Supervisory Board.
b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance.

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Annual report 2016 | Tryg A/S | 33

Supervisory Board

Jesper Hjulmand

Born in 1963. Joined: 2010. Danish citizen. CEO of SEAS-NVE A.m.b.A.

Education: MSc in Economic and Business Administration, Lieutenant-Colonel Royal Danish Air Force Reserve, Pathfinder.

Chairman: Employers association of Danish utility companies (DEA), Energi Danmark A/S, Fibia P/S, and SEAS-NVE Net A/S

Deputy Chairman: Tryghedsgruppen smba

Board member: Tryg A/S, Tryg Forsikring A/S, DI Executive Committee and Executive Committee of the Danish Energy Association.

Committee memberships: Audit Committee and Risk Committee in Tryg, Executive Committee of Danish Energy Association (Chairman), member of the Board of Representatives in Tryghedsgruppen and in Nykredit.

Number of shares held: 8,750

Change in portfolio 2016: 0

From his positions with SEAS-NVE, Jesper Hjulmand has experience within M&A, strategy, organisational and management development, communication and business development.

Lene Skole

Born in 1959. Joined: 2010. Danish citizen. CEO of Lundbeckfonden and Lundbeckfond Invest A/S.

Education: The A.P. Møller Group International shipping education, Graduate Diploma in Finance and various international management programmes.

Chairman: LFI Equity A/S

Deputy Chairman: Dong Energy A/S, H. Lundbeck A/S, ALK-Abelló A/S and Falck A/S

Board member: Tryg A/S and Tryg Forsikring A/S

Committee memberships: Audit Committee and Risk Committee in Tryg, the Audit & Nomination Committee in ALK-Abelló A/S and the Audit and Remuneration Committee in H. Lundbeck A/S, Audit Committee in Falck A/S

Number of shares held: 5,525

Change in portfolio 2016: 0

Lene Skole has experience from international companies, among other things through her previous work in Coloplast and The Maersk Company Ltd., UK. Lene Skole has skills within strategy, financing and communication.

Mari Thjømøe

Born in 1962. Joined: 2012. Norwegian citizen. Professional board member and independent advisor.

Education: Master's degree in Economy and Business Administration, Chartered Financial Analyst (CFA) as well as Senior Executive Programmes from London Business School and Harvard Business School.

Chairman: Seilsport Maritimt Forlag AS, Færder Nasjonalparksenter IKS, ThjømøeKranen AS.

Board member: Tryg A/S, Tryg Forsikring A/S, Nordic Mining ASA, Forskningskonsernet Sintef, E-CO Energi and Scatec Solar ASA.

Committee memberships: Audit Committee and Risk Committee in Tryg, Audit Committee of E-CO (Chairman), Scatec Solar ASA.

Number of shares held: 3,300

Change in portfolio 2016: +1,500

Mari Thjømøe has experience from financial planning and control, restructuring/financing, investment analysis, investor relations, asset management, strategic planning and special knowledge of the insurance market. As a Norwegian citizen, she has special insights into Norwegian markets.

Carl-Viggo Östlund

Born in 1955. Joined: 2015. Swedish citizen. Professional Board member and independent advisor. Former CEO of Nordnet and the insurance company SalusAnsvar.

Education: Bachelor of Science, education in International Business and Finance & Accounting.

Chairman: BLKCHN Scandinavia AB, Bridge Scandinavia Ventures AB, Creador AB, FCG Fonder AB, HappyX AB, Insiderfonder AB, Our Interest AB, The PAUSE Foundation, Wunderbar AB.

Board member: DBT Capital AB, Havsgaard AB, Holmo Fastigheter AB, Ponture AB, Tryg A/S, Tryg Forsikring A/S, Wonderbox AB.

Advisory Board member: Daniel Wellington AB

Committee memberships: Remuneration Committee

Number of shares held: 170

Change in portfolio 2016: +170

Carl-Viggo Östlund has experience from the packaging industry, logistics, insurance, finance and banking, from leading positions in listed and private companies. As a Swedish citizen, Carl-Viggo Östlund has special knowledge of Swedish market conditions.

Tom Eileng

Employee representative

Born in 1954. Joined: 2016
Norwegian citizen. Employed since 1986.

Education: Business Economist

Chairman: Chairman of Finansforbundet, Tryg and Senior Commercial Advisor

Board member: Tryg A/S, Tryg Forsikring A/S and Vesta Støttefond.

Committee memberships: Remuneration Committee in Tryg A/S

Number of shares held: 265

Change in portfolio 2016: 0

Tina Snejbjerg

Employee representative

Born in 1962. Employed since 1987. Joined the Supervisory Board in 2010. Danish citizen. Officer of Tryg's Personnel Department.

Education: Insurance training.

Board member: Tryg A/S and Tryg Forsikring A/S.

Committee memberships: Trygs Audit Committee and the Central Board of Forsikringsforbundet.

Number of shares held: 695

Change in portfolio 2016: 0

Members of the Supervisory Board are elected for a term of one year. Employee representatives are, however, elected for a term of four years. An employee election was held in 2016.

a) Dependent member of the Supervisory Board.
b) Independent member of the Supervisory Board, as per the definition in Recommendations on Corporate Governance.

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Annual report 2016 | Tryg A/S | 34

Executive Board

Morten Hübbe

Group CEO

Born in 1972. Joined Tryg in 2002.
Joined the Executive Board in 2003.

Education: BSc in International Business Administration and Modern Languages, MSc in Finance and Accounting and management programme at Wharton.
Board member: Tjenestemændenes Forsikring, KMD A/S and KMD Holding A/S.

Number of shares held: 111,510
Change in portfolio in 2016: +25,770

Christian Baltzer

Group CFO

Born 1978. Joined Tryg in 2009.
Joined the Executive Board in 2016.

Education: Masters in Insurance Science.

Number of shares held: 3,235
Change in portfolio in 2016: +1,400

Lars Bonde

Group COO

Born in 1965. Joined Tryg in 1998.
Joined the Executive Board in 2006.

Education: Insurance training, LL.M.
Chairman: Tryg Liv og The Faroe Insurance Company
Board member: Danish Employers' Association for the Financial Sector, Tjenestemændenes Forsikring, Forsikringsakademiet, the Danish Insurance Association and Cphbusiness.

Number of shares held: 42,600
Change in portfolio in 2016: +5,755

| Contents – Management's review

Annual report 2016 | Tryg A/S

Corporate Social Responsibility in Tryg

Statutory Corporate Social Responsibility report

Tryg's Corporate Social Responsibility (CSR) initiatives focus on peace of mind, people, business ethics as well as the environment and climate. These areas are closely linked to our business model (see page 6), since CSR concerns issues relating to our focus on insurance, prevention and claims handling. By addressing some of the areas most closely linked to our business model, CSR is actively ensuring that Tryg is working in a responsible way with both internal and external processes, while always focusing on creating products and solutions that generate value for Tryg, our customers and society. Find our CSR policy at tryg.com > CSR > CSR strategy > CSR policy Read more about CSR at tryg.com > CSR

Peace of mind

Tryg's overall vision is to create peace of mind for our customers and for society as a whole. In order to improve the way we work and achieve satisfied customers, it is important always to focus on our dialogue with customers. A major point of contact is our claims handling process, where we have processes in place to ensure the equal treatment of all customers. If customers are not satisfied with our services, we also have processes in place

to ensure that they can fill in a complaint. Even though claims handling is key to our business, we still believe it creates peace of mind if we can prevent claims from arising in the first place, which is why we focus on claims prevention. We focus on safety, health and climate, and in 2016 we increased our focus on preventing break-ins and fires, while also seeking to improve safety at the seaside, for cyclist and among young people in public spaces. Find Tryg's complaint process at tryg.dk > Om Tryg > Kontakt os > Klagemuligheder

It is important for us to engage in prevention, since the potential negative effects of no prevention represents a risk for our customers and society. It is also a risk for Tryg since no prevention can result in an increased number of claims. However, opportunities exist in this area – as the proactive prevention of risks creates opportunities for educating and involving the community in Tryg's work. Read more about prevention at tryg.dk > Skader > Forebyg skade

Lifebuoys

The red and white lifebuoy has become a symbol of safety along the Norwegian coastline since 1952 and has prevented more than 1,000 drownings. This

year, the lifebuoys saved three lives. Tryg has donated more than 40,000 lifebuoys over the years and over 2,000 lifebuoys in 2016. Read more at tryg.com > CSR > Thematic areas > Peace of mind > Society

Night Ravens

The Night Ravens are volunteers who walk the streets at night to prevent violence and crime in Norway. A total of approximately 370 local groups are involved in this preventive work. Tryg acts partly as a secretary for the Night Ravens, while also paying for clothing and other necessary materials and supporting operations and events. Read more at tryg.com > CSR > Thematic areas > Peace of mind > Society

DNA marking

Break-ins are a concern for the Danish population and pose a great problem for Tryg, our customers and society as a whole, which is why we want to help prevent break-ins from happening. Synthetic DNA marking and labelling is one simple preventive mechanism that has proved rather effective in preventing break-ins and theft. In 2017, we will continue to focus on the area and try to establish large-scale DNA-marking projects.

To test the effect of synthetic DNA marking, we started a pilot project in Sønderborg, Denmark, in 2014. Our results from 2016 show an almost 40% decline in the number of break-ins for the 90 properties using DNA marking throughout the test period compared to an average decline of 24% in the entire city of Sønderborg. These statistics indicate that DNA marking can – to some extent – help prevent break-ins in residential areas.

Our focus on DNA marking is also evident in Norway. In 2016, we joined forces with the Norwegian police in handing out DNA kits to private house owners in Bergen. In collaboration with the police, we have also increased our focus on burglaries in the construction industry, which is seeing an increase in the number of burglaries and thefts of expensive tools from construction sites and from work vans. In an attempt to prevent this problem, Tryg, the police and the construction industry recommend synthetic DNA marking and labelling of special tools and machines. As a first major project, construction sites along the E39 between Bergen and Os in Hordaland have started using DNA marking. To encourage more large customers to use DNA marking, Tryg has handed out DNA kits to customers all across Norway.

Bicycle safety

We focus on safety for cyclists and road safety in general. In 2016, we further highlighted the importance of wearing a helmet and being visible to others when riding a bike, for example by using reflectors. To increase awareness of the importance of using reflectors, we launched Facebook campaigns in both Norway and Denmark in 2016. In Denmark, we also created an online universe offering advice and information on bicycle safety. Our ambition is to further develop our focus on bicycle safety with more activities in 2017. Find more information on bicycle safety at tryg.dk > Forebyg skade > Cykel

Educating society

In order to engage society in prevention, we believe it is necessary to offer education for different groups in society. In 2016, we invited 60 students from the local community in Ballerup to participate in an

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Annual report 2016 | Tryg A/S | 36

innovation workshop focusing on fire prevention. The workshop was well-received, and most of the students felt that their newly acquired knowledge would be useful for them in their everyday lives. Fire prevention is also the focus of the new free 'VR HouseFire' app which Tryq launched in 2016. It is a virtual reality app, and the first of its kind in Norway. The ambition is to make people more aware of how to prevent fires from starting, and how to handle fires if they occur. The app has been downloaded close to 1,900 times in 2016 and is also used by the Norwegian fire department to teach people how to handle and prevent fires. Download the app for iPhone or Download it for Android

People

As clearly set out in our business model, we believe our employees are one of our most important resources and assets, and that they should be treated as such. In Tryq, we focus on the well-being of our employees and their right to a healthy and safe workplace. We welcome diversity and ensure non-discrimination through equal treatment of all our employees regardless of gender, age, disabilities, ethnic origin, sexual orientation and religion. We see our different perspectives as an asset that increases the quality of our services through ensuring a better understanding of our customers' needs. Read more about people at tryq.com > CSR > Thematic areas > People

Employee satisfaction

In Tryq, we believe that satisfied employees are key to improving our business and services. We are actively working to minimise the risks of dissatisfaction, discrimination and stress among our

employees. By addressing these issues, we think it is possible to improve the well-being and development of our employees, which is positive for retention rates as well as Tryq's business as a whole. We support our employees by offering flexible working hours and the possibility of working from home. At the same time, we offer education and training in order to upgrade our employees' qualifications and improve their career prospects. To monitor developments in employee satisfaction, we conduct an internal employee satisfaction survey each year. Despite the organisational changes which took place in 2016, employee satisfaction increased from index 73 in 2015 to index 74 in 2016, 6 index points higher than the Nordic financial market benchmark.

Equal opportunities

In Tryq, processes are in place to ensure that men and women enjoy equal treatment in terms of pay levels and career opportunities. Our initiatives include, for example, an action plan aimed at ensuring the recruitment and promotion of more women in management roles. Both internal recruiters and external agencies are instructed to work actively to present qualified candidates of both genders.

In 2016, we had an ambitious target of 38% women at management level. Through organisation changes and our focus on equal representation in recruitment, we achieved 36.4% women at management levels, 5.4% higher than the 2015 Danish financial market benchmark. In 2017, we will maintain our focus on this issue, and to qualify and motivate more women to apply for management jobs, we have signed an agreement with the Danish Diversity Council. This means that we will be entering into a partnership

with a number of Danish companies with the aim of sharing knowledge on how to develop the next generation of female leaders. At the same time, we are motivating women in Tryq to apply for next-level management jobs by sending five women to the Danish Diversity Council women's leadership programme in 2017. With this programme, our ambition is to develop role models and motivate female leaders to reach for the next level of management.

Our target for 2017 is to attain 38% women at management levels. In addition, we already have an equal gender distribution on our Supervisory Board with three of the eight members appointed by the annual general meeting being women.

In addition to focusing on equal opportunities for our employees, we also want to engage with the local community in order to share our knowledge and help more people to get a chance to enter the Danish labour market. In 2016, Tryq worked with the Municipality of Ballerup to help prepare refugees for entering the Danish labour market. In early 2016,

a) Non-Western background has been compiled by Statistics Denmark.

Tryq welcomed three refugees to a six-month part-time internship focusing on language training and job culture. The internship was a combination of language school and job training. By the end of 2016, three more refugees were a part of a preparatory 13-week internship. After a successful start, we are looking forward to continuing our efforts in 2017 by welcoming more refugees to participate in the internship.

Business ethics

In Tryq, we work in a responsible way by respecting both human and labour rights, while also focusing on anti-corruption. At the same time, we acknowledge our responsibility for the climate and the environment. Therefore, it is important that our employees and external partners adhere to our standards at all times. Tryq has formulated a CSR Code of Conduct based on the UN Global Compact, which we expect suppliers to comply with. We also have another Code of Conduct, which all employees must know and adhere to. To avoid corruption, Tryq has laid down an anti-corruption policy stating that all employees and everyone acting on behalf of Tryq must comply with existing anti-corruption legislation.

Read more about business ethics at tryq.com
> CSR > Thematic areas > Business Ethics
Find our anti-corruption policy at tryq.com > CSR > CSR strategy > CSR policy

Employees and business ethics

It is important that our employees follow our Code of Conduct at all times. This includes, for example, policies on good practices for marketing, handling of personal data, anti-discrimination, diversity and anti-corruption, including gifts. In order to mitigate

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Annual report 2016 | Tryq A/S

the risks associated with our working processes, Tryg is actively working to educate our employees in using the guidelines in the Code of Conduct to ensure that they can handle the risks associated with their position. Find our Code of Conduct here at tryg.com > CSR > CSR strategy > CSR policy

To educate our employees on how to handle information online, in 2016 we launched a campaign focusing on IT security covering everything from hacking and social media to general data protection and phishing. As part of the campaign, we introduced a phishing button which employees can use to report phishing. To test awareness, all users were a part of a major phishing exercise. This showed that employees were more aware than was the case in 2015 since more than 200 reported phishing. In 2017, we are planning to maintain our focus on raising awareness in this area.

To encourage employees and external partners to report any activities that do not comply with our Code of Conduct or applicable legislation, Tryg has set up a whistleblower line that can be used in confidentiality. In 2016, the whistleblower line was used four times. All incidents are evaluated by the Legal & Compliance Department before any further action is taken. Find Tryg's whistleblower line at tryg.com > Governance > Whistleblower Line

Offshoring and supply chain

We expect our employees and our suppliers to work in a responsible way. It is therefore important to make it clear to our suppliers that they must respect our guidelines and Code of Conduct as part of their obligations towards Tryg. In 2016, we introduced

a new monitoring system, asking six offshoring partners to hand in a report focusing on their CSR obligations towards Tryg. These reports will provide a starting point for our monitoring efforts, which involve continuous dialogue with our partners and regular visits to follow up on their commitments.

Investments

Tryg's is a non-life insurance company, and our main activities are naturally related to all aspects of insurance such as claims handling and prevention. This also means that investments only account for a small part of our business, which is one of the reasons why we have decided to have external portfolio managers handle our investments. 80% of Tryg's investments are Nordic AAA covered or government bonds. This means only minor investments in lower-grade risk assets, which are well-diversified and listed global government or corporate bonds or equities. We are internally very observant when it comes to our investments, due to the underlying risk of Tryg violating international standards such as the UN Global Compact or ESG when investing. To the best of our knowledge we believe that there are no major challenges nor violations when it comes to our investments.

Taxes

Tryg contributes to the society of which we are part, and we pay our taxes according to national legislation. To ensure compliance with legislation at all times, internal processes are in place to ensure we pay all relevant taxes. Aiming to be as transparent as possible, we have published our tax policy. Find our tax policy at tryg.com > CSR > CSR strategy > CSR Policy

Climate and environment

Tryg is highly affected by more extreme weather conditions since they can increase the number and frequency of climate-related claims. This represents a risk to Tryg since it will increase our claims costs. The risk becomes even greater if we do not have the necessary focus on claims prevention. Therefore, Tryg continuously focuses on finding solutions which can prevent damage from happening in the first place. Our aim is to use our knowledge to offer solutions and advice on prevention for society and customers so that everybody is better prepared for more extreme weather events.

Read more about environment and climate at tryg.com > CSR > Climate and environment

Hordaklim

The Hordaklim project is one initiative in which we contribute with new perspectives on climate-related issues. The project is a research partnership which involves Tryg helping and advising a number of local authorities in Hordaland, Norway, on how to identify areas that are most affected by climate change. Our property claims statistics are valuable in this process and can help the authorities prevent damage to existing buildings while at the same time planning for a safer future. The aim of the project is to produce new data that can be useful for the rest of Western Norway.

Reducing Tryg's carbon footprint

Since Tryg is highly affected by more extreme weather events, it is important for us to take part in the global community's endeavours to minimise greenhouse gas emissions. Our target is to reduce

our emissions by 1% a year. Even though we want to minimise our negative impact on the climate, the overall effect of our efforts is likely to be limited since Tryg's carbon emissions are mainly associated with heating and electricity use at our offices and with car, train, and air travel. Tryg is therefore not an energy-intensive company. Nevertheless, we are still endeavouring to minimise the environmental impact of our daily operations by trying to minimise food waste in canteens and by renting new energy-efficient office premises, for example. Reducing our energy consumption also means cost reductions, which is further motivating us to attain our target each year. In 2016, Tryg's total estimated carbon emissions were 4267.5 tonnes compared to an actual emission of 4481.5 tonnes in 2015. Our estimated reduction was therefore 4.78%. Thus, we achieved our goal of a 1% reduction, which is mainly associated with a decrease in travel activities. In 2017, our target is a 1% reduction compared to 2016. Read more at tryg.com > CSR > Thematic areas > Climate and environment > CO2 reduction

Carbon emissions
The carbon emissions chart covers both Norway and Denmark; air travel and train also include Sweden while motor only applies for Denmark.

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Annual report 2016 | Tryg A/S | 38

Contents – Financial statements 2016

TRYG GROUP			5	Claims, net of reinsurance	66	19	Claims provisions	81	TRYG A/S (PARENT COMPANY)
Note	Statement by the Supervisory		6	Insurance operating costs, net of reinsurance	66	20	Pensions and similar liabilities	82	Income statement – Tryg A/S (parent company) 99
	Board and the Executive Board	40				21	Deferred tax	84
	Independent auditor's reports	41	6	Share option programme	68	22	Other provisions	84	Statement of financial position
	Financial highlights	44	6	Matching shares	69	23	Amounts owed to credit institutions	84	– Tryg A/S (parent company) 100
	Income statement	45	7	Interest income and dividends etc.	70	24	Debt relating to unsettled funds transactions and repos	84	Statement of changes in equity (parent company) 101
	Statement of comprehensive income	46	8	Value adjustments	70				Notes (parent company) 102
	Statement of financial position	47	9	Tax	70	25	Earnings per share	84
	Statement of changes in equity	48	10	Profit/loss on discontinued and divested business	70	26	Sale of properties	85	REPORTING FOR Q4
	Cash flow statement	49				27	Contractual obligations, collateral and contingent liabilities	85	Quarterly outline 105 Geographical segments 107
1	Risk and capital management	50	11	Intangible assets	71
2	Operating segments	60	12	Property, plant and equipment	74
2	Geographical segments	62	13	Investment property	75	28	Acquisition of subsidiaries	88
2	Technical result, net of reinsurance, by line of business	64	14	Equity investments in associates	75	29	Related parties	88	INFORMATION
			15	Financial assets	77	30	Financial highlights	89	Other key ratios 108
3	Premium income, net of reinsurance	66	16	Reinsurers' share	79	31	Accounting policies	90	Group chart 109
			17	Current tax	79				Glossary 110
4	Insurance technical interest, net of reinsurance	66	18	Equity	79				Product overview 111
			19	Premium provisions	80				Disclaimer 112

Tryg's Group consolidated financial statements are prepared in accordance with IFRS.

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Annual report 2016 | Tryg A/S | 39

Statement by the Supervisory Board and the Executive Board

The Supervisory Board and the Executive Board have today considered and adopted the annual report for 2016 of Tryq A/S and the Tryq Group.

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the EU, and the financial statements of the parent company have been prepared in accordance with the Danish Financial Business Act and the requirements of the NASDAQ Copenhagen for the presentation of financial statement of listed companies. In addition, the annual report has been presented in accordance with additional Danish disclosure requirements for the annual reports of listed financial enterprises.

In our opinion, the accounting policies applied are appropriate, and the annual report gives a true and fair view of the Group's and the parent company's assets, liabilities and financial position at 31 December 2016 and of the results of the Group's and the parent company's operations and the cash flows of the Group for the financial year 1 January-31 December 2016.

Furthermore, in our opinion the Management's review gives a true and fair view of developments in the activities and financial position of the Group and the parent company, the results for the year and of the Group's and the parent company's financial position in general and describes significant risk and uncertainty factors that may affect the Group and the parent company.

We recommend that the annual report be adopted by the shareholders at the annual general meeting.

Ballerup, 20 January 2017

Executive Board

Morten Hübøe
Group CEO

Christian Baltzer
Group CFO

Lars Bonde
Group COO

Supervisory Board

Jørgen Huno Rasmussen
Chairman

Torben Nielsen
Deputy Chairman

Tom Eileng

Lone Hansen

Anders Hjulmand

Jesper Hjulmand

Ida Sofie Jensen

Bill-Owe Johansson

Lene Skole

T. Snejbjerg
Tina Snejbjerg

Mari Thjømøe

Carl-Viggo Östlund

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Annual report 2016 | Tryq A/S | 40

Independent auditor's report

To the shareholders of Tryg A/S

Opinion

We have audited the consolidated financial statements and the parent financial statements of Tryg A/S for the financial year 1 January to 31 December 2016, pages 44-104, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity and notes, including a summary of significant accounting policies, for the Group as well as the Parent and the cash flow statement of the Group. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish requirements for listed financial companies, and the parent financial statements are prepared in accordance with the Danish Financial Business Act.

In our opinion, the consolidated financial statements give a true and fair view of the Group's financial position at 31 December 2016 and of the results of its operations and cash flows for the financial year 1 January to 31 December 2016 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial companies.

Further, in our opinion, the parent financial statements give a true and fair view of the Parent's financial position at 31 December 2016, and of the results of its operations for the financial year 1 January to 31 December 2016 in accordance with the Danish Financial Business Act.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor's report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 January to 31 December 2016. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Claims provisions	How the matter was addressed in the audit
Management's estimates of the claims provisions are based on actuarial methods and involve complex statistical methods as well as estimates of future events. Changes in methods and assumptions may result in a material impact on the size of the claims provisions. Consequently, the audit of the claims provisions is considered a key audit matter.

The claims provisions amount to DKK 25,452m at 31 December 2016 (2015: DKK 25,670m).

Management has specified the risks etc. related to the estimates of the claims provisions in note 1 "Risk and capital management" on pages 51-52 and in "Accounting policies", note 31 on pages 90-91. The principles of estimating the claims provisions have been specified in "Accounting policies", note 31 on page 97, and further specified in note 1 on pages 53-56 and in note 19.

The estimates of the claims provisions depend on accurate and complete insurance data of current and historical claims, including the development in claims and payment patterns, as these data are used to establish the expectations for future claims for the purpose of the statistical models.

The most important assessments and assumptions of future events relate to:
- Estimated future claims payments, which are based on the completeness and the accuracy of historical claims and payment patterns, among other things.
- Expectations for future inflation.
- Determination of the margin included in Management's estimate of the claims provisions to address the uncertainty related to the actuarial estimates. | • Assessment and test of controls related to the processes of claims handling and the recognition and measurement of provisions for known claims.
• In cooperation with our own internationally qualified actuaries, we have tested controls related to the actuarial estimates of the claims provisions of selected lines of business.
• We have tested the accuracy and the completeness of the data that are included in the actuarial estimates of the claims provisions.
• In cooperation with our own internationally qualified actuaries and based on our knowledge of the industry, experience and historical observations, we have assessed the statistical models applied to estimate the claims provisions and we have tested significant estimates and assumptions focusing on consistency and possible changes.
• Based on the actuarial estimates of the claims provisions and analyses and in cooperation with our own internationally qualified actuaries, we have assessed the development in the claims provisions, including run-off gains/losses and the development in the size of the margin included in Management's estimate of the claims provisions. |

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Annual report 2016 | Tryg A/S | 41

Menu – Financial statements
Annual report 2016 | Tryg A/S | 42

Statement on the management's review

Management is responsible for the management's review.

Our opinion on the consolidated financial statements and the parent financial statements does not cover the management's review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management's review and, in doing so, consider whether the management's review is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Moreover, it is our responsibility to consider whether the management's review provides the information required under the Danish Financial Business Act.

Based on the work we have performed, we conclude that the management's review is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Business Act. We did not identify any material misstatement of the management's review.

Solvency ratio

Management is responsible for the key figure "Solvency ratio" evident from the statement of financial highlights and key figures on page 44 of the annual report.

As disclosed in the statement of financial highlights and key figures, the solvency ratio is exempt from the requirement to be audited. Consequently, our opinion on the consolidated financial statements and the parent financial statements does not cover the solvency ratio, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to consider whether the solvency ratio is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on this, we conclude that the solvency ratio is materially misstated, we are required to report on this. We have nothing to report in this respect.

Management's responsibility for the consolidated financial statements and the parent financial statements

Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed financial companies as well as the preparation of parent financial statements that give a true and fair view in accordance with the Danish Financial Business Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group's and the Parent's ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Parent or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing and additional requirements applicable in Denmark will always detect a material misstatement when it exits. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and these parent financial statements.

As part of an audit in accordance with International Standards on Auditing and additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the going concern basis of accounting in the preparation of the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Parent to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with Those Charged with Governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide Those Charged with Governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with Those Charged with Governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Ballerup, 20 January 2017

Deloitte

Statsautoriseret Revisionspartnerselskab
Business Registration No 33 96 35 56

Jens Ringbæk
State Authorised Public Accountant

Kasper Bruhn Udam
State Authorised Public Accountant

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Annual report 2016 | Tryg A/S | 43

Financial highlights

DKKm	2016	2015	2014	2013	2012
Gross premium income	17,707	17,977	18,652	19,504	20,314
Gross claims	-11,619	-13,562	-12,650	-14,411	-14,675
Total insurance operating costs	-2,737	-2,720	-2,689	-3,008	-3,295
Profit/loss on gross business	3,351	1,695	3,313	2,085	2,344
Profit/loss on ceded business	-951	710	-341	349	86
Insurance technical interest, net of reinsurance	-10	18	60	62	62
Technical result	2,390	2,423	3,032	2,496	2,492
Investment return after insurance technical interest	987	-22	360	588	585
Other income and costs	-157	-91	-90	-91	-60
Profit/loss before tax	3,220	2,310	3,302	2,993	3,017
Tax	-748	-390	-755	-620	-837
Profit/loss on continuing business	2,472	1,920	2,547	2,373	2,180
Profit/loss on discontinued and divested business after tax)a)	-1	49	10	-4	28
Profit/loss	2,471	1,969	2,557	2,369	2,208
Run-off gains/losses, net of reinsurance	1,239	1,212	1,131	970	1,015
Statement of financial position
Total provisions for insurance contracts	31,527	31,814	31,692	32,939	34,355
Total reinsurers' share of provisions for insurance contracts	2,034	3,176	1,938	2,620	2,317
Total equity	9,437	9,644	11,119	11,107	10,979
Total assets	49,861	51,281	52,224	53,371	55,022
Key ratios
Gross claims ratio	65.6	75.4	67.8	73.9	72.2
Net reinsurance ratio	5.4	-3.9	1.8	-1.8	-0.4
Claims ratio, net of ceded business	71.0	71.5	69.6	72.1	71.8
Gross expense ratio	15.7	15.3	14.6	15.6	16.4
Combined ratio	86.7	86.8	84.2	87.7	88.2
Gross expense ratio without adjustment	15.5	15.1	14.4	15.4	16.2
Operating ratio	86.5	86.5	83.8	87.2	87.8
Relative run-off gains/losses	5.5	5.1	4.8	3.9	4.1
Return on equity after tax (%)	26.2	20.0	23.7	21.8	22.3
Solvency ratiob)	194	108	87	90	90

The gross expense ratio without adjustment is calculated as the ratio of actual gross insurance operating costs to gross premium income.

Other key ratios are calculated in accordance with "Recommendations & Financial Ratios 2015" issued by the Danish Society of Financial Analysts.

The adjustment, which is made pursuant to the Danish Financial Supervisory Authority's and the Danish Society of Financial Analysts' definitions of expense ratio and combined ratio, involves the addition of a calculated expense (rent) in respect of owner-occupied property based on a calculated market rent and the deduction of actual depreciation and operating costs on owner-occupied property. The sale of owner-occupied property in December 2016 does not affect the calculation.

a) Profit/loss on discontinued and divested business after tax includes mainly Marine Hull insurance and the Finnish branch of Tryg Forsikring, which was sold in 2012.
b) Solvency I ratios in 2012-2015 are the ratio between base capital and weighted assets and are audited. Solvency II ratio in 2016 is the ratio between own funds and the solvency capital requirement and is exempt from the requirement for auditing and thus not audited.

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Annual report 2016 | Tryg A/S | 44

Income statement

DKKm		2016	2015
Note	General insurance
	Gross premiums written	17,842	18,150
	Ceded insurance premiums	-1,210	-1,165
	Change in premium provisions	151	61
	Change in reinsurers' share of premium provisions	13	1
3	Premium income, net of reinsurance	16,796	17,047
4	Insurance technical interest, net of reinsurance	-10	18
	Claims paid	-13,947	-13,095
	Reinsurance cover received	1,260	471
	Change in claims provisions	2,328	-467
	Change in the reinsurers' share of claims provisions	-1,164	1,301
5	Claims, net of reinsurance	-11,523	-11,790
	Bonus and premium discounts	-286	-234
	Acquisition costs	-2,029	-2,042
	Administration expenses	-708	-678
	Acquisition costs and administration expenses	-2,737	-2,720
	Reinsurance commissions and profit participation from reinsurers	150	102
6	Insurance operating costs, net of reinsurance	-2,587	-2,618
2	Technical result	2,390	2,423
DKKm		2016	2015
---	---	---	---
Note	Investment activities
14	Income from associates	42	42
	Income from investment property	105	94
7	Interest income and dividends	671	794
8	Value adjustments	518	-510
7	Interest expenses	-113	-95
	Administration expenses in connection with investment activities	-87	-88
	Total investment return	1,136	237
4	Return on insurance provisions	-149	-259
	Total investment return after insurance technical interest	987	-22
	Other income	104	81
	Other costs	-261	-172
	Profit/loss before tax	3,220	2,310
9	Tax	-748	-390
	Profit/loss on continuing business	2,472	1,920
10	Profit/loss on discontinued and divested business	-1	49
	Profit/loss for the year	2,471	1,969
25	Earnings per share – continuing business	8.84	6.74
	Diluted earnings per share – continuing business	8.84	6.73
	Earnings per share	8.84	6.91
	Diluted earnings per share	8.84	6.91

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Annual report 2016 | Tryg A/S | 45

Statement of comprehensive income

DKKm		2016	2015
Note	Profit/loss for the year	2,471	1,969
	Other comprehensive income
	Other comprehensive income which cannot subsequently be reclassified as profit or loss
	Change in equalisation provision and other provisions	15	21
	Change in taxrates on security provisions	0	141
	Sale of owner-occupied propertya)	215	0
	Sale of owner-occupied property, revaluation from previous yearsa)	-115	4
	Tax on sale of owner-occupied property	-53	0
	Tax on revaluation of owner-occupied property from previous years	29	2
	Actuarial gains/losses on defined-benefit pension plans	-95	-12
	Tax on actuarial gains/losses on defined-benefit pension plans	24	3
		20	159
	Other comprehensive income which can subsequently be reclassified as profit or loss
	Exchange rate adjustments of foreign entities for the year	51	-89
	Hedging of currency risk in foreign entities for the year	-50	86
	Tax on hedging of currency risk in foreign entities for the year	11	-21
		12	-24
	Total other comprehensive income	32	135
	Comprehensive income	2,503	2,104

a) Please refer to note 26 Sale of properties.

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Annual report 2016 | Tryg A/S

Statement of financial position

DKKm		2016	2015
Note	Assets
11	Intangible assets	884	1,038
	Operating equipment	49	62
	Owner-occupied property	0	1,144
	Assets under construction	0	2
12	Total property, plant and equipment	49	1,208
13	Investment property	2,323	1,838
14	Equity investments in associates	218	229
	Total investments in associates	218	229
	Equity investments	48	138
	Unit trust units	3,950	3,589
	Bonds	35,254	35,705
	Derivative financial instruments	1,000	843
	Total other financial investment assets	40,252	40,275
15	Total investment assets	42,793	42,342
	Reinsurers' share of premium provisions	214	173
19	Reinsurers' share of claims provisions	1,820	3,003
16	Total reinsurers' share of provisions for insurance contracts	2,034	3,176
	Receivables from policyholders	1,108	1,261
	Total receivables in connection with direct insurance contracts	1,108	1,261
	Receivables from insurance enterprises	183	199
	Other receivables	1,646	871
15	Total receivables	2,937	2,331
17	Current tax assets	0	118
	Cash at bank and in hand	475	471
	Total other assets	475	589
	Interest and rent receivable	224	281
	Other prepayments and accrued income	465	316
	Total prepayments and accrued income	689	597
	Total assets	49,861	51,281
DKKm		2016	2015
---	---	---	---
Note	Equity and liabilities
18	Equity	9,437	9,644
1	Subordinate loan capital	2,567	1,698
19	Premium provisions	5,487	5,571
19	Claims provisions	25,452	25,670
	Provisions for bonuses and premium discounts	588	573
	Total provisions for insurance contracts	31,527	31,814
20	Pensions and similar obligations	345	264
21	Deferred tax liability	702	645
22	Other provisions	125	132
	Total provisions	1,172	1,041
	Debt relating to direct insurance	555	603
	Debt relating to reinsurance	426	330
23	Amounts owed to credit institutions	178	64
24	Debt relating to unsettled funds transactions and repos	1,732	4,074
15	Derivative financial instruments	702	612
17	Current tax liabilities	317	357
	Other debt	1,203	1,001
	Total debt	5,113	7,041
	Accruals and deferred income	45	43
	Total equity and liabilities	49,861	51,281
1	Risk and capital management
26	Sale of properties
27	Contractual obligations, collateral and contingent liabilities
28	Acquisition of activities
29	Related parties
30	Financial highlights
31	Accounting policies

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Annual report 2016 | Tryg A/S

Statement of changes in equity

DKKm	Share capital	Revaluation-reserves	Reserve for exchange rate adjustment	Equalisation-reserve	Other reserves^{a)}	Retained earnings	Proposed dividend	Total
Equity at 31 December 2015	1,448	86	-9	127	766	6,213	1,013	9,644
2016
Adjustment 01.01.2016^{b)}				-127		127		0
Profit/loss for the year					56	-355	2,770	2,471
Other comprehensive income		-86	12			106		32
Total comprehensive income	0	-86	12	-127	56	-122	2,770	2,503
Nullification of own shares	-35					35		0
Dividend paid							-1,766	-1,766
Dividend own shares						52		52
Purchase and sale of own shares						-1,000		-1,000
Exercise of share options						1		1
Issue of share options and matching shares						3		3
Total changes in equity in 2016	-35	-86	12	-127	56	-1,031	1,004	-207
Equity at 31 December 2016	1,413	0	3	0	822	5,182	2,017	9,437
Equity at 31 December 2014	1,492	80	15	106	848	6,847	1,731	11,119
2015
Adjustment 1.1.2015^{c)}						-175		-175
Profit/loss for the year				22	-104	292	1,759	1,969
Other comprehensive income		6	-24	-1	22	132		135
Total comprehensive income	0	6	-24	21	-82	424	1,759	2,104
Nullification of own shares	-44					44		0
Dividend paid							-2,477	-2,477
Dividend, own shares						97		97
Purchase and sale of own shares						-1,044		-1,044
Exercise of share options						13		13
Issue of employee shares						2		2
Issue of share options and matching shares						5		5
Total changes in equity in 2015	-44	6	-24	21	-82	-634	-718	-1,475
Equity at 31 December 2015	1,448	86	-9	127	766	6,213	1,013	9,644

Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00 in 2015) and extraordinary dividend of DKK 3.54. Proposed dividend per share is calculated as the dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (282,541,204 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.

The possible payment of dividend from Tryg Forsikring A/S to Tryg A/S is influenced by contingency fund provisions of DKK 1,774m (DKK 2,516m in 2015). The contingency fund provisions can be used to cover losses in connection with the settlement of insurance provisions or otherwise for the benefit of the insured.

a) Other reserves contains Norwegian Natural Perils Pool.
b) A new executive order from the Danish FSA from 1 January 2016 has abolished the requirements of equalisation reserves in credit and guarantee insurance.
c) New executive order from the Danish FSA on yield curves based on EIOPA. Please refer to note 31 Accounting policies.

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Annual report 2016 | Tryg A/S | 48

Cash flow statement

DKKm		2016	2015
Note	Cash from operating activities
	Premiums	17,729	17,721
	Claims	-13,744	-13,040
	Ceded business	340	-412
	Costs	-2,699	-2,771
	Change in other debt and other amounts receivable	-129	-158
	Cash flow from insurance activities	1,497	1,340
	Interest income	723	807
	Interest expenses	-113	-95
	Dividend received	25	47
	Taxes	-529	-765
	Other income and costs	-56	-91
	Cash from operating activities, continuing business	1,547	1,243
	Cash from operating activities, discontinued and divested business	-1	-32
	Total cash flow from operating activities	1,546	1,211
	Investments
	Purchase and refurbishment of property	-122	-46
	Sale of property	6	10
	Purchase/sale of equity investments and unit trust units (net)	147	480
	Purchase/sale of bonds (net)	413	1,070
	Deposits with credit institutions	0	641
	Purchase/sale of operating equipment (net)	-1	0
	Acquisition of intangible assets	-135	0
	Hedging of currency risk	-50	86
	Investments, continuing business	258	2,241
	Investments, discontinued and divested business	0	-37
	Total investments	258	2,204
DKKm		2016	2015
---	---	---	---
Note	Financing
	Exercise of share options/purchase of own shares (net)	-999	-1,031
	Subordinate loan capital	800	12
	Dividend paid	-1,714	-2,380
	Change in amounts owed to credit institutions	115	-53
	Financing, continuing business	-1,798	-3,452
	Total financing	-1,798	-3,452
	Change in cash and cash equivalents, net	6	-37
	Exchange rate adjustment of cash and cash equivalents, 1 January	-2	3
	Change in cash and cash equivalents, gross	4	-34
	Cash and cash equivalents at 1 January	471	505
	Cash and cash equivalents at 31 December	475	471
	Liabilities arising from financing activities
2016	Subordinated loans	Amounts owed to credit institutions	Total
Carrying amount at 1 January	1,698	64	1,762
Exchange rate adjustments	69	-1	68
Cash flow	800	115	915
Carrying amount at 31 December	2,567	178	2,745
2015
Carrying amount at 1 January	1,768	116	1,884
Exchange rate adjustments	-82	1	-81
Cash flow	12	-53	-41
Carrying amount at 31 December	1,698	64	1,762

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Annual report 2016 | Tryg A/S | 49

Notes

1 Risk and capital management

Risk management in Tryg

The Supervisory Board defines the company's risk appetite through its business model and strategy, and this is operationalised through the company's policies. The company's risk management forms the basis for the risk profile being in line with the specified risk appetite at all times.

Tryg's risk profile is continuously measured, quantified and reported to the management and the Supervisory Board. Given the extensive requirements for the Supervisory Board's involvement in capital and risk management, Tryg's Supervisory Board has decided to set up a special Supervisory Board Risk Committee to address these topics separately during the year. The Committee meets minimum four times a year for a detailed review of various risk management topics and regularly keeps the entire Supervisory Board up-to-date on the status.

Tryg's risk management is organised into three levels of control. The first level of control is handled in the business where the company's policies are implemented, and day-to-day compliance is verified. The risk management function is the second level of control, supported by decentralised risk managers affiliated with the individual business areas. The risk management function ensures a consistent approach across the organization, risk assessment at group level and reporting to the management and the Supervisory Board. This involves an ongoing identification and assessment of the most significant risks in the company. Furthermore, the function prepares specific recommendations in relation to capital management, reinsurance, investment risk management and more. Tryg's risk management function is also responsible for determining the company's capital requirement. The third level consists of the internal audit which performs independent assessments of the entire control environment.

Capital management

Tryg's capital management is based on the key business objectives:

A solid capital base, supporting both the statutory requirements and a single 'A' rating from Moody's.
Support of a steadily increasing nominal dividend per share, with a payout ratio in the interval 60-90%.
Return on the average equity of at least 21% after tax.

Lines of defence

Tryg's risk management environment

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Annual report 2016 | Tryg A/5 | 50

Notes

The capital base is continuously measured against the capital requirement calculated on the basis of Tryq's partial internal model, where insurance risks are modelled using an internal model, while other risks are described using the Solvency II standard model.

The model calculates Tryq's capital requirement with 99.5% solvency level with a 1-year horizon, which means that Tryq will be able to fulfil its obligations in 199 out of 200 years. The partial internal model has been used for a number of years, and was approved by the Danish Financial Supervisory Authority in 2015.

The introduction of Solvency II had a major influence on Tryq's solvency ratio in various areas. The Solvency capital requirement decreased by approximately DKK 1,200m due to the inclusion of the loss absorbency capacity of deferred tax. The capital base increased by approximately DKK 500m due to the inclusion of expected future profits (DKK 700m) and the transition to a new Solvency II discounting curve (DKK -200m). The net impact from these new elements increased the solvency ratio of the Group.

Tryq has three subordinated loans that amount to DKK 2,567m. The first is a NOK 1,400m loan that was issued in November 2015 and the second is a SEK 1,000m loan which was issued in May 2016. Both classified as a Tier 2 element under Solvency II. The third is a NOK 800m loan that was issued in March 2013 and is according to the grandfathering rules treated as a Tier 1 element under Solvency II.

Company's own risk assessment 'ORSA' (Own Risk and Solvency Assessment)

ORSA is the company's own risk assessment based on the Solvency II principles, which implies that Tryq must assess all material risks that the company is or may be exposed to. The ORSA report also contains an assessment of whether the calculation of solvency capital requirement is reasonable and is reflecting Tryq's actual risk profile. Moreover, the projected capital requirement is also assessed over the company's strategic planning period. Tryq's risk activities are implemented via continuous risk management processes, where the main results are reported to the Supervisory Board and the risk committee during the year, while the ORSA report is an annual summary document assessing all these processes.

Insurance risk

Insurance risk comprises two main types of risks: underwriting risk and provisioning risk.

Underwriting risk

Underwriting risk is the risk that insurance premiums will not be sufficient to cover the compensations and other costs associated with the insurance business. Underwriting risk is managed primarily through the company's insurance policy defined by the Supervisory Board, and administered through business procedures, underwriting guidelines etc. Underwriting risk is assessed in Tryq's capital model, determining the capital impact from insurance products. Reinsurance is used to reduce the underwriting risk in situations where this can not be achieved to a sufficient degree via ordinary diversification. In case of major events involving damage to buildings and contents, Tryq's reinsurance programme provides protection for up to DKK 5.75bn, which statistically is sufficient to cover at least a 250-year event. Retention for such events is DKK 150m. In the event of a frequency of natural disasters, Tryq is covered for up to DKK 600m for, after total annual retention of DKK 300m. Tryq has also taken out reinsurance for the risk of large claims occurring in sectors with very large sums insured. Tryq's largest individual building and contents risks are covered by up to DKK 2bn. Retention for large claims is DKK 100m, gradually dropping to DKK 25m. Single risks exceeding DKK 2bn are covered individually.

Tryq has combined the minimum cover of other sectors into a joint cover with retention of DKK 100m for the first claim and DKK 25m for subsequent claims. For the individual sectors, individual cover has subsequently been taken out as needed. The use of reinsurance creates a natural counterparty risk. This risk is handled by applying a wide range of reinsurers with at least an 'A' rating and DKK 750m in capital.

Reserving risk

Reserving risk relates to the risk of Tryq's insurance provisions being inadequate. The Supervisory Board lays down the overall framework for the handling of reserving risk in the insurance policy, while the overall risk is measured in the capital model. The uncertainty associated with the calculation of claims reserves affects Tryq's results through the run-off on reserves. Long-tailed reserves in particular are subject to interest rate and inflation risk. Interest rate risk is hedged by means of Tryq's match portfolio which corresponds to the discounted claims reserves. In order to manage the inflation risk of Danish workers' compensation claims reserves, Tryq has bought zero coupon inflation swaps. Tryq determines the claims reserves via statistical methods as well as individual assessments. At the end of 2016, Tryq's claims reserves totalled DKK 25,452m with an average duration of approximately 4 years.

Investment risk

The overall framework for managing investment risk is defined by the Supervisory Board in Tryq's investment policy. In overall terms, Tryq's investment portfolio is divided into a match portfolio and a free portfolio. The match portfolio corresponds to the value of the discounted claims reserves and is designed to hedge the interest rate sensitivity of these as closely as possible. Tryq carries out daily monitoring, follow-up and risk management of the Group's interest rate risk. The swap and bond portfolio is thus adjusted continuously to minimise the net interest rate risk. The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. The purpose of the free portfolio is to achieve the highest possible return relative to risk. Tryq's equity portfolio constitutes the company's largest investment risk. At the end of 2016, the equity portfolio accounted for 5.4% of the total investment assets. Tryq's property portfolio comprises investment properties, the value of which is adjusted based on the conditions on the property market through internal valuations backed by external valuations. At the end of 2016, investment properties accounted for 6.3%. Tryq does not wish to speculate in foreign currency, but since Tryq invests and operates its insurance business in other currencies than Danish kroner, Tryq is exposed to currency risk. Tryq is primarily exposed to fluctuations in the other Scandinavian currencies due to its ongoing insurance activities.

Premiums earned and claims paid in other currencies create a natural currency hedge, for which reason other risk mitigation measures are not required in this area. However, the part of equity held in other currencies than Danish kroner will be exposed to currency risk. This risk is hedged on an ongoing basis using currency swaps. In addition to the above-mentioned risks, Tryq is exposed to credit, counterparty and concentration risk. These risks primarily relate to exposures in high-yield bonds, emerging market debt exposures as well as Tryq's investments in AAA-rated Nordic and European government and mortgage bonds. These risks are also managed through the investment policy and the framework for reinsurance defined in the insurance policy. For a non-life insurance company like Tryq, liquidity risk is practically non-existent, as premium payments fall due before claims payments. The only significant assets on Tryq's balance sheet, which by nature is somewhat illiquid, are the property portfolio.

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Annual report 2016 | Tryq A/S | 51

Notes

Operational risk

Operational risk relates to errors or failures in internal procedures, fraud, breakdown of infrastructure, IT security and similar factors. As operational risks are mainly internal, Tryg focuses on an adequate control environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines covering the various aspects of the Group's operations. The Supervisory Board defines the overall framework for managing operational risk in Tryg's Operational risk policy. These risks are controlled via the Operational Risk Committee. A special crisis management structure is set up to deal with the eventuality that Tryg is hit by major crises. This comprises a Crisis Management Team at Group level, national contingency teams at country level and finally business contingency in the individual areas. Tryg has prepared contingency plans to address the most important areas. In addition, comprehensive IT contingency plans have been established, primarily focusing on the business-critical systems.

Other risks

Strategic risk

The strategic risk is the risk of loss as a result of Tryg's chosen strategic position. The strategic position covers both business transactions, IT strategy, choice of business partners and changed market conditions. Tryg's strategic position is determined by Tryg's Supervisory Board in close collaboration with the Executive Board. Before determining the strategic position, the strategic decisions are subject to a risk assessment, explaining the risk of the chosen strategy to Tryg's Supervisory Board and Executive Board.

Compliance risk

Compliance risk is the risk of loss as a result of lack of compliance with rules, regulations, market standards or internal guidelines. The handling of compliance risk is coordinated centrally via the Group's Compliance & Legal department, which, among other things, sits on industry committees in connection with legislative monitoring, ensures implementation of regulation in Tryg through business procedures, provides ongoing training in compliance matters and performs compliance controls within the organisation. Compliance risks and the result of the performed compliance controls are reported to the Supervisory Board's Risk Committee.

Emerging risk

Emerging risk cover new risks or known risks, with changing characteristics. The management of this type of risk will be handled in the individual business areas, which monitor the market and adapt the products as the conditions change. In the event of a change in insurance terms, it is ensured that Tryg's reinsurance cover is consistent with the new conditions.

Sensitivity analysis

Insurance risk

DKKm	2016	2015
Effect of 1 percentage point change in:
Combined ratio (1 percentage point)	+/- 175	+/- 177
Premium rates	+/- 173	+/-175
Provisioning risk
1% change in inflation on person-related lines of business a)	+/- 436	+/- 476
10% error in the assessment of long-tailed lines of business (workers' compensation, motor liability, liability, accident)	+/- 1,800	+/- 1,671

Investment risk

Interest rate market

Effect of 1% increase in interest curve:
Impact of interest-bearing securities	-1,131	-940
Higher discounting of claims provisions	1,061	947
Net effect of interest rate rise	-70	7
Impact of Norwegian pension obligation b)	173	153

Equity market

15% decline in equity market	-365	-341
Impact of derivatives	-15	-7

Real estate market

15% decline in real estate markets	-229	-480

Currency market

Equity:
15% decline in exposed currency (exclusive of EUR) relative to DKK	-763	-647
Impact of derivatives	728	614
Net impact of exchange rate decline	-35	-33
Technical result per year:
Impact of 15% change in NOK and SEK exchange rates relative to DKK	+/- 158	+/- 176

a) Including the effect of the zero coupon inflation swap.
b) Additional sensitivity information in note 20 'Pensions and similar obligations'.

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Annual report 2016 | Tryg A/S | 52

Notes

Claims provisions – estimated accumulated claims – DKKm

Gross	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
Estimated accumulated claims
End of year	10,928	11,853	12,420	13,772	16,008	16,338	13,860	13,710	13,030	15,066	13,130
1 year later	11,188	12,436	13,737	14,413	16,106	16,734	13,831	14,022	13,376	15,003
2 year later	10,723	12,985	13,607	14,431	16,055	16,727	13,768	13,858	13,153
3 year later	10,929	12,961	13,618	14,221	15,934	16,678	13,617	13,666
4 year later	10,865	12,960	13,577	14,103	15,845	16,514	13,356
5 year later	10,856	12,865	13,486	14,002	15,780	16,569
6 year later	10,834	12,739	13,454	13,985	15,778
7 year later	10,797	12,731	13,203	13,867
8 year later	10,613	12,663	13,074
9 year later	10,546	12,613
10 year later	10,444
	10,444	12,613	13,074	13,867	15,778	16,569	13,356	13,666	13,153	15,003	13,130
Cumulative payments to date	-9,948	-11,824	-12,042	-12,644	-14,287	-14,744	-11,550	-11,542	-10,481	-11,127	-6,590
Provisions before discounting, end of year	496	789	1,032	1,223	1,492	1,825	1,806	2,124	2,672	3,876	6,541
Discounting	-41	-63	-86	-97	-108	-116	-111	-113	-135	-131	-157
Reserves from 2005 and prior years											2,378
Other reserves a)											358
Gross provisions for claims, end of year											25,452

a) Other provisions comprise the claims provisions for guarantee insurance.

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Annual report 2016 | Tryg A/S | 53

Notes

Claims provisions – estimated accumulated claims – DKKm

Ceded business	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
Estimated accumulated claims
End of year	278	502	162	286	672	1,464	239	555	260	2,088	176
1 year later	278	468	226	355	749	2,169	270	968	313	1,893
2 year later	264	482	192	333	742	2,290	309	949	289
3 year later	295	487	182	289	719	2,331	316	946
4 year later	296	507	182	292	728	2,295	310
5 year later	291	478	169	297	751	2,292
6 year later	289	506	175	293	756
7 year later	291	497	168	293
8 year later	289	497	168
9 year later	289	497
10 year later	288
	288	497	168	293	756	2,292	310	946	289	1,893	176
Cumulative payments to date	-281	-484	-162	-283	-701	-2,208	-284	-861	-236	-880	-31
Provisions before discounting, end of year	7	13	6	10	55	84	26	85	52	1,014	145
Discounting	0	-1	0	0	0	-1	0	0	0	-2	-1
Reserves from 2005 and prior years											211
Other reserves a)											120
Provisions for claims, end of year											1,820

a) Other provisions comprise the claims provisions for guarantee insurance.

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Annual report 2016 | Tryg A/S | 54

Notes

Claims provisions – estimated accumulated claims – DKKm

Net of reinsurance	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
Estimated accumulated claims
End of year	10,651	11,351	12,258	13,486	15,336	14,874	13,622	13,155	12,770	12,979	12,955
1 year later	10,911	11,968	13,512	14,058	15,357	14,565	13,561	13,053	13,063	13,109
2 year later	10,458	12,503	13,415	14,098	15,313	14,438	13,459	12,909	12,864
3 year later	10,633	12,474	13,436	13,932	15,215	14,347	13,301	12,720
4 year later	10,569	12,454	13,396	13,811	15,116	14,219	13,045
5 year later	10,565	12,388	13,317	13,705	15,029	14,277
6 year later	10,544	12,233	13,279	13,692	15,023
7 year later	10,506	12,234	13,035	13,575
8 year later	10,324	12,166	12,906
9 year later	10,257	12,116
10 year later	10,156
	10,156	12,116	12,906	13,575	15,023	14,277	13,045	12,720	12,864	13,109	12,955
Cumulative payments to date	-9,667	-11,340	-11,880	-12,361	-13,586	-12,535	-11,266	-10,681	-10,244	-10,247	-6,560
Provisions before
discounting, end of year	489	776	1,025	1,213	1,437	1,741	1,779	2,039	2,619	2,862	6,396
Discounting	-41	-62	-86	-97	-108	-116	-111	-112	-135	-129	-155
Reserves from 2005
and prior years											2,168
Other reserves a)											238
Provisions for claims, net of reinsurance, end of the year

a) Other provisions comprise the claims provisions for guarantee insurance.

The amounts in foreign currency in the table are translated to Danish kroner using the exchange rate at 31 December 2016 to prevent the impact of exchange rate fluctuations.

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Annual report 2016 | Tryg A/S | 55

Notes

Claims provisions (continued)

DKKm	Expected cash flow, not discounted			> 3 years	Other a)	Total
	0-1 year	1-2 years	2-3 years
2016
Premium provisions, gross	5,234	114	56	21	62	5,487
Premium provisions, ceded	-182	0	0	0	-32	-214
Claims provisions, gross	8,071	4,001	2,685	11,642	358	26,757
Claims provisions, ceded	-833	-379	-215	-287	-120	-1,835
	12,290	3,736	2,526	11,376	268	30,195
2015
Premium provisions, gross	5,149	126	67	87	142	5,571
Premium provisions, ceded	-146	0	0	0	-28	-174
Claims provisions, gross	9,045	4,029	2,646	11,150	357	27,227
Claims provisions, ceded	-1,959	-395	-213	-311	-151	-3,029
	12,089	3,760	2,500	10,926	320	29,595

a) Other comprises guarantee insurance and in 2015 premium provisions in Securator A/S.

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Annual report 2016 | Tryg A/S | 56

Notes

DKKm	2016	2015
Investment risk
Bond portfolio including interest derivatives
Duration 1 year or less	14,758	14,856
Duration 1 year - 5 years	13,692	13,011
Duration 5 - 10 years	5,373	4,175
Duration more than 10 years	2,369	2,363
Total	36,192	34,405
Duration	2.9	2.5

The option adjusted duration is used to measure duration. The option adjustment relates primarily to Danish mortgage bonds and reflects the expected duration-shortening effect of the borrower's option to cause the bond to be redeemed through the mortgage institution at any point in time.

Listed shares	2016	2015
Nordic countries	47	52
United Kingdom	95	90
Rest of Europe	283	501
United States	1,533	1,165
Asia etc.	426	516
Total	2,384	2,324
The portfolio of unlisted shares totals	48	138

The share portfolio includes exposure from share derivatives of DKK 97m (DKK 47m in 2015)

Unlisted equity investments are based on an estimated market price.

Exposure to exchange rate risk
	2016			2015
	Assets and debt	Hedge	Exposure	Assets and debt	Hedge	Exposure
USD	2,960	-2,872	88	2,355	-2,313	42
EUR	1,231	-1,203	28	633	-524	109
GBP	263	-254	9	197	-189	8
NOK	2,808	-2,623	185	1,991	-1,867	124
SEK	346	-314	32	1,114	-1,007	107
Other	525	-469	56	477	-429	48
Total			398			438

Impact of exchange rate fluctuations in SEK and NOK on technical result

	2016	2015	Change	Currency effect	Change excl. currency effect
Gross premium income	17,707	17,977	-270	-293	23
Gross claims	-11,619	-13,562	1,943	190	1,753
Total insurance operating costs	-2,737	-2,720	-17	45	-62
Profit/loss on gross business	3,351	1,695	1,656	-58	1,714
Profit/loss on ceded business	-951	710	-1,661	15	-1,676
Insurance technical interest, net of reinsurance	-10	18	-28	0	-28
Technical result	2,390	2,423	-33	-43	10
	2015	2014	Change	Currency effect	Change excl. currency effect
Gross premium income	17,977	18,652	-675	-534	-141
Gross claims	-13,562	-12,650	-912	374	-1,286
Total insurance operating costs	-2,720	-2,689	-31	81	-112
Profit/loss on gross business	1,695	3,313	-1,618	-79	-1,539
Profit/loss on ceded business	710	-341	1,051	11	1,040
Insurance technical interest, net of reinsurance	18	60	-42	-2	-40
Technical result	2,423	3,032	-609	-70	-539

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Annual report 2016 | Tryg A/S

Notes

Impact of exchange rate fluctuations in SEK and NOK on the statement of financial position

DKKm	2016	2015	Change	Currency effect	Change excl. currency effect
Assets
Intangible assets	884	1,038	-154	-21	-133
Total property, plant and equipment	49	1,208	-1,159	0	-1,159
Investment property	2,323	1,838	485	19	466
Investments in associates	218	229	-11	0	-11
Other financial investment assets	40,252	40,275	-23	563	-586
Reinsurers' share of provisions for insurance contracts	2,034	3,176	-1,142	31	-1,173
Receivables	2,937	2,331	606	6	600
Other assets	475	589	-114	2	-116
Prepayments and accrued income	689	597	92	11	81
Total assets	49,861	51,281	-1,420	611	-2,031

Equity and liabilities

Equity	9,437	9,644	-207	0	-207
Subordinate loan capital	2,567	1,698	869	71	798
Provisions for insurance contracts	31,527	31,814	-287	353	-640
Other provisions	1,172	1,041	131	45	86
Other debt	5,113	7,041	-1,928	143	-2,071
Accruals and deferred income	45	43	2	-1	3
Total equity and liabilities	49,861	51,281	-1,420	611	-2,031

Credit risk

Bond portfolio by ratings	2016 DKKm	%	2015 DKKm	%
AAA to A	35,233	99.9	35,181	98.5
Other	20	0.1	523	1.5
Not rated	1	-	1	0.0
Total	35,254	100.0	35,705	100.0

Reinsurance balances

AAA to A	1,536	90.7	2,772	95.9
Other	0	-	0	0.0
Not rated	157	9,3	120	4.1
Total	1,693	100.0	2,892	100.0

Liquidity risk
Maturity of the Group's financial obligations including interest

2016	0-1 years	1-5 years	> 5 years	Total
Subordinate loan capital a)	98	392	3,547	4,037
Amounts owed to credit institutions	178	0	0	178
Debt relating to unsettled funds transactions and repos	1,732	0	0	1,732
Derivative financial instruments	650	112	-53	709
Other debt	2,501	0	0	2,501
	5,159	504	3,494	9,157

2015

Subordinate loan capital a)	66	263	3,362	3,691
Amounts owed to credit institutions	64	0	0	64
Debt relating to unsettled funds transactions and repos	4,074	0	0	4,074
Derivative financial instruments	181	219	259	659
Other debt	2,291	0	0	2,291
	6,676	482	3,621	10,779

a) Interest on loans for a perpetual term has been recognised for the first fifteen years.

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Annual report 2016 | Tryg A/S | 58

Notes

Subordinate loan capital	Bond loan		Bond loan		Bond loan
	NOK 800m		NOK 1,400m		SEK 1,000m
DKKm	2016	2015	2016	2015	2016	2015
The fair value of the loan at the statement of financial position date	685	671	1,124	1,086	796	-
The fair value of the loan at the statement of financial position dates is based on a price of Total capital losses and costs at the statement of the financial position date	105	108	98	100	102	-
Interest expenses for the year	32	34	46	3	10	-
Effective interest rate	4.9%	3.6%	3.8%	3.9%	2.2%	-
Loan terms:
Lender	Listed bonds		Listed bonds		Listed bonds
Principal	NOK 800m		NOK 1,400m		SEK 1,000m
Issue price	100		100		100
Issue date	March 2013		November 2015		May 2016
Maturity year	Perpetual		2045		2046
Loan may be called by lender as from	2023		2025		2021
Repayment profile	Interest-only		Interest-only		Interest-only
Interest structure	3.75 % above NIBOR 3M (until 2023)		2.75 % above NIBOR 3M (until 2025)		2.75% above STIBOR 3M (until 2026)
	4.75 % above NIBOR 3M (from 2023)		3.75 % above NIBOR 3M (from 2025)		3.75% above STIBOR 3M (from 2026)

The share of capital included in the calculation of the capital base totals DKK 2,371m (DKK 1,707m in 2015). The loans are initially recognised at fair value on the date on which a loan is entered and subsequently measured at amortised cost.

The loans are taken by Tryg Forsikring A/S. The creditors have no option to call the loans before maturity or otherwise terminate the loan agreements. The loans are automatically accelerated upon the liquidation or bankruptcy of Tryg Forsikring A/S.

Prices used for determination of fair value in respect of both loans are based on actual traded prices from Bloomberg.

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Annual report 2016 | Tryg A/S | 59

Notes

DKKm	Private	Commercial	Corporate	Sweden	Other a)	Group
2 Operating segments
2016
Gross premium income	8,710	3,893	3,775	1,348	-19	17,707
Gross claims	-5,904	-2,380	-2,295	-964	-76	-11,619
Gross operating expenses	-1,240	-663	-416	-256	-162	-2,737
Profit/loss on ceded business	-158	-154	-643	-3	7	-951
Insurance technical interest, net of reinsurance	-4	-1	0	-5	0	-10
Technical result	1,404	695	421	120	-250	2,390
Other items						81
Profit/loss						2,471
Run-off gains/losses, net of reinsurance	312	304	506	117	0	1,239
Intangible assets		29		596	259	884
Equity investments in associates					218	218
Reinsurers' share of premium provisions	16	24	174	0	0	214
Reinsurers' share of claims provisions	67	247	1,476	30	0	1,820
Other assets					46,725	46,725
Total assets						49,861
Premium provisions	2,236	1,292	1,092	867	0	5,487
Claims provisions	5,655	6,637	10,255	2,905	0	25,452
Provisions for bonuses and premium discounts	461	61	53	13	0	588
Other liabilities					8,897	8,897
Total liabilities						40,424

Description of segments
Please refer to the accounting principles for a description of operating segments.

Costs are allocated according to specific keys, which are believed to provide the best estimate of assessed resource consumption.

a) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments. Other assets and liabilities are managed at Group level and are not allocated to the individual segments but are included under 'Other'.

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Annual report 2016 | Tryg A/S | 60

Notes

DKKm	Private	Commercial	Corporate	Sweden	Other a)	Group
2 Operating segments
2015
Gross premium income	8,803	3,992	3,894	1,317	-29	17,977
Gross claims	-6,074	-2,612	-3,987	-852	-37	-13,562
Gross operating expenses	-1,291	-683	-420	-246	-80	-2,720
Profit/loss on ceded business	-148	-44	877	-1	26	710
Insurance technical interest, net of reinsurance	8	5	5	0	0	18
Technical result	1,298	658	369	218	-120	2,423
Other items						-454
Profit/loss						1,969
Run-off gains/losses, net of reinsurance	324	388	351	149	0	1,212
Intangible assets		33		597	408	1,038
Equity investments in associates					229	229
Reinsurers' share of premium provisions	17	16	140	0	0	173
Reinsurers' share of claims provisions	141	408	2,422	32	0	3,003
Other assets					46,838	46,838
Total assets						51,281
Premium provisions	2,342	1,318	1,062	849	0	5,571
Claims provisions	5,827	6,688	11,505	1,650	0	25,670
Provisions for bonuses and premium discounts	457	54	50	12	0	573
Other liabilities					9,823	9,823
Total liabilities						41,637

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Annual report 2016 | Tryg A/S | 61

Notes

DKKm	2016	2015	2014	2013	2012
2 Geographical segments
Danish general insurance a)
Gross premium income	9,467	9,346	9,361	9,534	9,910
Technical result	1,587	1,371	1,510	1,202	1,441
Run-off gains/losses, net of reinsurance	509	512	564	566	571
Key ratios
Gross claims ratio	63.7	80.5	66.9	79.5	71.1
Net reinsurance ratio	6.0	-9.2	2.1	-7.0	-0.2
Claims ratio, net of ceded business	69.7	71.3	69.0	72.5	70.9
Gross expense ratio	13.4	13.9	15.1	15.0	14.5
Combined ratio	83.1	85.2	84.1	87.5	85.4
Run-off, net of reinsurance (%)	-5.4	-5.5	-6.0	-5.9	-5.8
Number of full-time employees 31 December	1,839	1,859	2,007	2,046	2,187
Norwegian general insurance
Gross premium income	6,371	6,766	7,337	7,819	8,239
Technical result	1,013	844	1,478	1,258	1,017
Run-off gains/losses, net of reinsurance	678	492	501	387	465
Key ratios
Gross claims ratio	63.9	70.9	66.5	65.1	72.4
Net reinsurance ratio	5.1	2.1	1.4	4.1	-1.0
Claims ratio, net of ceded business	69.0	73.0	67.9	69.2	71.4
Gross expense ratio	15.2	14.9	12.5	15.3	16.8
Combined ratio	84.2	87.9	80.4	84.5	88.2
Run-off, net of reinsurance (%)	-10.6	-7.3	-6.8	-4.9	-5.6
Number of full-time employees 31 December	1,040	1,113	1,167	1,199	1,282

a) Includes Danish general insurance and Finnish guarantee insurance.

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Annual report 2016 | Tryg A/S | 62

Notes

DKKm	2016	2015	2014	2013	2012
2 Geographical segments
Swedish general insurance
Gross premium income	1,888	1,894	1,975	2,169	2,183
Technical result	40	328	44	36	131
Run-off gains/losses, net of reinsurance	52	208	66	17	-21
Key ratios
Gross claims ratio	76.4	63.5	77.6	80.6	75.3
Net reinsurance ratio	3.3	1.7	2.2	0.7	1.5
Claims ratio, net of ceded business	79.7	65.2	79.8	81.3	76.8
Gross expense ratio	17.8	17.5	18.4	17.6	18.6
Combined ratio	97.5	82.7	98.2	98.9	95.4
Run-off, net of reinsurance (%)	-2.8	-11.0	-3.3	-0.8	1.0
Number of full-time employees 31 Dec.	385	387	425	458	444
Other(4)
Gross premium income	-19	-29	-21	-18	-18
Technical result	-250	-120	0	0	-97
Tryg
Gross premium income	17,707	17,977	18,652	19,504	20,314
Technical result	2,390	2,423	3,032	2,496	2,492
Investment return	987	-22	360	588	585
Other income and costs	-157	-91	-90	-91	-60
Profit/loss before tax	3,220	2,310	3,302	2,993	3,017
Run-off gains/losses, net of reinsurance	1,239	1,212	1,131	970	1,015
Key ratios
Gross claims ratio	65.6	75.4	67.8	73.9	72.2
Net reinsurance ratio	5.4	-3.9	1.8	-1.8	-0.4
Claims ratio, net of ceded business	71.0	71.5	69.6	72.1	71.8
Gross expense ratio(1)	15.7	15.3	14.6	15.6	16.4
Combined ratio	86.7	86.8	84.2	87.7	88.2
Run-off, net of reinsurance (%)	-7.0	-6.7	-6.1	-5.0	-5.0
Number of full-time employees, continuing business at 31 Dec.	3,264	3,359	3,599	3,703	3,913
Number of full-time employees, discontinued and divested business at 31 Dec.	0	0	0	0	189

b) Amounts relating to eliminations and one-off items. In 2012 discontinued business and restructuring expenses were included under 'Other'. In 2015 costs and claims were negatively affected by DKK 80m and DKK 40m respectively due to provisioning for the efficiency programme. In 2016 costs and claims were negatively affected by DKK 162m and DKK 88m respectively, mainly due to impairment of software.

c) Adjustment of gross expense ratio included only in 'Tryg'. The adjustment is explained in a footnote to Financial highlights.

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Annual report 2016 | Tryg A/S

Notes

2 Technical result, net of reinsurance, by line of business

DKKm	Accident and health c)		Health care		Worker's compensation		Motor TPL		Motor comprehensive insurance		Marine, aviation and cargo insurance
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
Gross premiums written	1,741	1,652	338	321	860	890	1,779	1,980	3,545	3,680	275	332
Gross premium income	1,666	1,629	332	316	858	893	1,839	1,963	3,537	3,573	274	337
Gross claims	-960	-1,026	-308	-255	-191	-85	-1,167	-1,164	-2,407	-2,446	-113	-218
Gross operating expenses	-223	-219	-41	-32	-98	-103	-321	-339	-532	-542	-39	-41
Profit/loss on ceded business	-7	-4	-1	-1	-8	-10	-44	-33	-24	-2	-130	-53
Insurance tech. interest, net of reinsurance	-1	2	0	0	0	1	-1	2	-2	3	0	1
Technical result	475	382	-18	28	561	696	306	429	572	586	-8	26
Gross claims ratio	57.6	63.0	92.8	80.7	22.3	9.5	63.5	59.3	68.1	68.5	41.2	64.7
Combined ratio	71.4	76.7	105.4	91.1	34.6	22.2	83.3	78.2	83.8	83.7	102.9	92.6
Claims frequency a)	4.7%	4.4%	115.2%	130.3%	19.8%	17.6%	6.0%	5.5%	20.2%	17.9%	24.7%	21.2%
Average claims DKK b)	25,091	29,968	4,558	3,905	72,474	65,254	17,913	17,846	9,837	10,110	57,384	75,653
Total claims	46,883	40,135	57,186	56,697	11,008	10,469	77,441	77,164	250,450	241,311	2,896	2,871
	Fire and contents (Private)		Fire and contents (Commercial)		Change of ownership		Liability insurance		Credit and guarantee insurance		Tourist assistance insurance
---	---	---	---	---	---	---	---	---	---	---	---	---
	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
Gross premiums written	4,266	4,363	2,426	2,427	55	62	1,025	962	398	352	655	610
Gross premium income	4,221	4,328	2,408	2,442	61	64	1,000	958	390	347	650	607
Gross claims	-3,250	-3,130	-1,474	-3,750	-55	-118	-658	-612	-82	247	-497	-580
Gross operating expenses	-617	-647	-365	-363	-8	-10	-148	-153	-31	-45	-90	-81
Profit/loss on ceded business	-129	-117	-439	1,438	0	0	-47	-67	-96	-392	-2	-2
Insurance tech. interest, net of reinsurance	-6	2	-1	2	-1	0	-1	1	0	0	0	1
Technical result	219	436	129	-231	-3	-64	146	127	181	157	61	-55
Gross claims ratio	77.0	72.3	61.2	153.6	90.2	184.4	65.8	63.9	21.0	-71.2	76.5	95.6
Combined ratio	94.7	90.0	94.6	109.5	103.3	200.0	85.3	86.8	53.6	54.8	90.6	109.2
Claims frequency a)	8.9%	7.9%	16.2%	16.1%	11.3%	9.9%	11.6%	10.2%	0.1%	0.1%	19.9%	19.6%
Average claims DKK b)	9,036	8,742	53,344	116,003	21,846	26,008	64,807	68,006	765,692	790,685	5,716	5,893
Total claims	363,113	370,685	30,020	32,331	3,807	4,275	10,917	10,454	120	111	96,868	96,774

a) The claims frequency is calculated as the number of claims incurred in the year in proportion to the average number of insurance contracts in the year.
b) Average claims are total claims before run-off in the year relative to the number of claims in the year.
c) Including the acquired insurance portfolio from Skandia.

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Annual report 2016 | Tryg A/S

Notes

2 Technical result, net of reinsurance, by line of business

DKKm	Other insurance d)		Total exclusive of Norwegian Group Life		Norwegian Group Life one-year policies		Total
	2016	2015	2016	2015	2016	2015	2016	2015
Gross premiums written	57	59	17,420	17,690	422	460	17,842	18,150
Gross premium income	55	60	17,291	17,517	416	460	17,707	17,977
Gross claims	-95	-46	-11,257	-13,183	-362	-379	-11,619	-13,562
Gross operating expenses	-179	-95	-2,692	-2,670	-45	-50	-2,737	-2,720
Profit/loss on ceded business	-23	-46	-950	711	-1	-1	-951	710
Insurance tech. interest, net of reinsurance	2	1	-11	16	1	2	-10	18
Technical result	-240	-126	2,381	2,391	9	32	2,390	2,423
Gross claims ratio	172.7	76.7	65.1	75.3	87.0	82.4	65.6	75.4
Combined ratio	540.0	311.7	86.2	86.4	98.1	93.5	86.7	86.8
Average claims DKK b)	958,750	392,147
Total claims	12	34

b) Average claims are total claims before run-off in the year relative to the number of claims in the year.
d) Other insurance, gross claims and gross operating expenses are negatively affected by DKK 88m and DKK 162m in 2016, mainly by impairment of software. (DKK 40m and DKK 80m, mainly due to accruals for efficiency programme, in 2015).

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Annual report 2016 | Tryg A/S | 65

Notes

DKKm			2016	2015
3	Premium income, net of reinsurance
	Direct insurance		17,949	18,166
	Indirect insurance		43	44
	Unexpired risk provision		17,992	18,210
			1	1
	Ceded direct insurance		17,993	18,211
	Ceded indirect insurance		-1,178	-1,103
			-19	-61
			16,796	17,047
	Direct insurance, by location of risk	2016	2015
		Gross	Ceded	Gross
	Denmark	9,533	-613	9,419
	Other EU countries	1,928	-110	1,893
	Other countries a)	6,489	-455	6,855
		17,950	-1,178	18,167
	a) Mainly Norway
DKKm			2016	2015
4	Insurance technical interest, net of reinsurance
	Return on insurance provisions		149	259
	Discounting transferred from claims provisions		-159	-241
			-10	18
5	Claims, net of reinsurance
	Claims		-13,048	-15,062
	Run-off previous years, gross		1,429	1,500
			-11,619	-13,562
	Reinsurance cover received		286	2,060
	Run-off previous years, reinsurers' share		-190	-288
			-11,523	-11,790
DKKm	2016	2015
---	---	---
6 Insurance operating costs, net of reinsurance
Commissions regarding direct insurance contracts	-296	-368
Other acquisition costs	-1,733	-1,674
Total acquisition costs	-2,029	-2,042
Administration expenses	-708	-678
Insurance operating costs, gross	-2,737	-2,720
Commission from reinsurers	150	102
	-2,587	-2,618
Administrative expenses include fee to the auditors appointed by the annual general meeting:
Deloitte	-7	-7
	-7	-7
The fee is divided into:
Statutory audit	-3	-3
Other audit assignments	-1	0
Tax advice	-1	-2
Other services	-2	-2
	-7	-7
Expenses have been incurred for the Group’s Internal Audit Department.	-9	-9

In the calculation of the expense ratio, costs are stated exclusive of depreciation and operating costs on the owner-occupied property but including a calculated rent concerning the owner-occupied property based on a calculated market rent of DKK 36m (DKK 36m in 2015).

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Annual report 2016 | Tryg A/S | 66

Notes

DKKm	2016	2015
6 Insurance operating costs, gross, classified by type
Commissions	-296	-368
Staff expenses	-1,615	-1,680
Other staff expenses	-164	-179
Office expenses, fees and headquarter expenses	-416	-364
IT operating and maintenance costs, software expenses	-249	-261
Depreciation, amortisation and impairment losses and write-downs	-223	-102
Other income	226	234
	-2,737	-2,720
Total lease expenses amount to DKK 26m (DKK 27m in 2015)
Insurance operating costs and claims include the following staff expenses:
Salaries and wages	-2,036	-2,108
Commision	-8	-6
Allocated share options and matching shares	-3	-5
Pension plans^{a)}	-286	-300
Other social security costs	-4	-4
Payroll tax	-354	-371
	-2,691	-2,794
a) In 2016 defined benefit plans were included with DKK 33m (DKK 40m in 2015).
Remuneration for the Supervisory Board and Executive Board is disclosed in note 29 ‘Related parties’.
Average number of full-time employees during the year (continuing business)	3,306	3,472

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Annual report 2016 | Tryg A/S | 67

Notes

DKKm

Share option programmes
Spec. of outstanding options:					Fair value
Total numbers a)		Executive Board	Other senior employees	Other employees	Total	Per option at time of allocation DKK	Total value at time of allocation DKKm
2016
Allocation 2011
Allocated in 2011, 1 January	0	12,085	3,685	15,770	14	0	0
Exercised	0	-12,085	-3,450	-15,535	14	0	0
Expired	0	0	-235	-235	14	0	0
Outstanding options from 2011 allocation 31 Dec. 2016	0	0	0	0		0	0
Number of options exercisable 31 Dec. 2016	0	0	0	0
2015
Allocation 2010-2011
Allocated in 2010-2011, 1 January	113,450	132,860	20,590	266,900	15/14	4	55/44
Exercised	-113,450	-120,775	-13,570	-247,795	15/14	-4	55/44
Expired	0	0	-3,335	-3,335	15/14	0	55/44
Outstanding options from 2010-2011 allocation 31 Dec. 2015	0	12,085	3,685	15,770		0	1
Number of options exercisable 31 Dec. 2015	0	12,085	3,685	15,770

Tryg did not allocate share options in 2016. At 31 December 2016, the share option plan comprised 0 share options (15,770 share options at 31 December 2015).

In 2016, the fair value of share options recognised in the income statement amounted to DKK 0m (DKK 0m in 2015).

a) In May 2015 each share with a nominal value of DKK 25 was replaced by five new shares with a nominal value of DKK 5. The share split does not change the Group's share capital. Comparative figures have been restated to reflect the change in trading unit.

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Annual report 2016 | Tryg A/S | 68

Notes

DKKm

6	Matching shares	Total numbers (a)	Fair value
Executive Board	Other senior employees	Total	Average per matching share at grant date DKK
	2016
	Allocated in 2016	17,233	15,562
	Matching shares allocated in 2016 at 31.12.16	17,233	15,562
	Allocated in 2011-2015	106,045	125,635
	Category changes	1,835	-1,835
	Cancelled	-15,355	-17,130
	Exercised	-54,635	-39,245
	Matching shares allocated in 2011-2015 at 31.12.16	37,890	67,425
	Number of Matching shares exercisable 31 Dec. 2016	0	0
	2015
	Allocated in 2015	14,415	33,740
	Matching shares allocated in 2015 at 31.12.15	14,415	33,740
	Allocated in 2011-2014	91,630	91,895
	Cancelled	0	-19,000
	Exercised	-18,000	-19,540
	Matching shares allocated in 2011-2014 at 31.12.15	73,630	53,355
	Number of Matching shares exercisable 31 Dec. 2015	6,895	5,500

In 2011-2016, Tryg entered into an agreement on matching shares for the Executive Board and selected other senior employees as a consequence of the Group's remuneration policy. The Executive Board and Other senior employees are allocated one share in Tryg A/S for each share that the Executive Board member or Other senior employees acquires in Tryg A/S at market rate for liquid cash at a contractually agreed sum. The shares are reported at market value and are accrued over the 3- or 4-year maturation period. In 2016, the reported fair value of matching shares for the Group amounted to DKK 3m (DKK 5m in 2015). At 31 December 2016, a total amount of DKK 16m was recognised for matching shares.

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Annual report 2016 | Tryg A/S | 69

Notes

DKKm	2016	2015
7 Interest and dividends
Interest income and dividends
Dividends	25	47
Interest income, cash at bank and in hand	1	2
Interest income, bonds	642	742
Interest income, other	3	3
	671	794
Interest expenses
Interest expenses subordinate loan capital and credit institutions	-88	-89
Interest expenses, other	-25	-6
	-113	-95
	558	699
8 Value adjustments
Value adjustments concerning financial assets or liabilities at fair value with value adjustment in the income statement:
Equity investments	78	13
Unit trust units	190	57
Share derivatives	-19	14
Bonds	-83	-608
Interest derivatives	81	-42
	247	-566
Value adjustments concerning assets or liabilities that cannot be attributed to IAS 39:
Investment property	431	17
Owner-occupied propertya)	93	0
Discounting	-188	103
Other statement of financial position items	-65	-64
	271	56
	518	-510
Exchange rate adjustments concerning financial assets or liabilities which cannot be stated at fair value total DKK 1m (DKK 58m in 2015)
a) Please refer to note 26 Sale of properties
DKKm	2016	2015
---	---	---
9 Tax
Tax on accounting profit/loss	-708	-543
Difference between Danish and foreign tax rates	-40	-26
Tax adjustment, previous years	8	0
Adjustment of non-taxable income and costs	-24	-15
Change in valuation of tax assets	17	129
Change in tax rate	0	65
Other taxes	-1	0
	-748	-390
Effective tax rate	%	%
Tax on accounting profit/loss	22.0	23.5
Difference between Danish and foreign tax rates	1.0	1.0
Adjustment of non-taxable income and costs	1.0	1.0
Change in valuation of tax assets	-1.0	-5.5
Change in tax rate	0.0	-3.0
	23.0	17.0
10 Profit/loss on discontinued and divested business
Gross premium income	0	3
Gross claims	1	54
Total insurance operating costs	-2	7
Profit/loss before tax	-1	64
Tax	0	-15
Profit/loss on discontinued and divested business	-1	49
Profit/loss on discontinued and divested business primarily relates to Marine Hull insurance.

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Annual report 2016 | Tryg A/S | 70

Notes

DKKm
11	Intangible assets	Trademarks and customer relations	Software a)	Assets under construction a)	Total
	2016
	Cost
	Cost at 1 January	558	205	1,153	297
	Exchange rate adjustments	-16	-6	7	3
	Transferred from assets under construction	0	0	246	-246
	Additions for the year	77	58	12	131
	Cost at 31 December	619	257	1,418	185
	Amortisation and write-downs
	Amortisation and write-downs at 1 January	-4	-129	-950	-92
	Exchange rate adjustments	0	5	-8	0
	Amortisation for the year	0	-23	-94	0
	Impairment losses and write-downs for the year	-100	0	-200	0
	Amortisation and write-downs at 31 December	-104	-147	-1,252	-92
	Carrying amount at 31 December	515	110	166	93
DKKm
---	---	---	---	---	---
11	Intangible assets	Trademarks and customer relations	Software a)	Assets under construction a)	Total
	2015
	Cost
	Cost at 1 January	546	200	1,028	290
	Exchange rate adjustments	12	5	-9	0
	Transferred from asset under construction	0	0	127	-127
	Additions for the year	0	0	7	134
	Cost at 31 December	558	205	1,153	297
	Amortisation and write-downs
	Amortisation and write-downs at 1 January	-4	-104	-880	-92
	Exchange rate adjustments	0	-3	8	0
	Amortisation for the year	0	-22	-78	0
	Amortisation and write-downs at 31 December	-4	-129	-950	-92
	Carrying amount at 31 December	554	76	203	205

a) Hereof proprietary software DKK 203m (DKK 317m at 31 December 2015)

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Annual report 2016 | Tryg A/S | 71

Notes

DKKm

11 Intangible assets (continued)

Impairment test

Goodwill

In 2016, Tryg acquired Skandia's child and adult accident insurance portfolio. The insurance activities were incorporated into the Tryg Group's business structure from 1 september 2016.

In 2014, Tryg acquired Securator A/S, Optimal Djurförsäkring i Norr AB and Codan's agricultural portfolio. The insurance activities were incorporated into the Tryg Group's business structure and merged into Tryg in 2015.

At 31 December 2016, management performed an impairment test of the carrying amount of goodwill based on the allocation of the cost of goodwill to the cash-generating unit, which consists of Moderna, Securator and the Skandia portfolio, respectively.

The Value-in-use method is used.

Primary assumptions for impairment test:

When assessing the cash flow management has based its estimates of premiums earned on the insurance portfolio adjusted to reflect the expected effect of business decisions and market development from past experiences. The portfolio is indexed with the wage and salary index. Claims incurred are based on expected claims ratios, which corresponds to current levels. Moderna is adjusted for weather and large-scale claims as well. Reinsurance is taken into account when looking at the overall technical result together with the expected cost ratio. Required returns are based on management's own requirements for returns of the individual cash generation units and are not expected to change significantly in the near future.

Moderna

Comprises the sale of insurance products to private customers under the 'Moderna' brand. Moreover, insurance is sold under the brands Atlantica, Bilsport & MC and Moderna Djurförsäkringar. Sales take place through its own sales force, call centres and online.

The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Moderna. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market's expectations for the Group.

The impairment test shows a calculated value in use of approximately DKK 1.2bn (DKK 1.3bn) relative to a recognised goodwill of DKK 354m (DKK 368m) and Equity of DKK 0.7bn (DKK 0.6bn) and does not indicate any impairment in 2016.

DKKm	2016	2015
- Earned premium assumed CAGR 0 – 10 years	2%	2%
- Earned premium assumed CAGR > 10 years	1%	1%
- Required return before tax	13%	13%
- Expected level of Combined ratio	93%	93%
Sensitivity information
Impact on equity from the following changes:
CAGR +1.0 percentage point (0-10 years)	16	25
CAGR -1.0 percentage point (0-10 years)	-15	-24
Required return +1.0 percentage point	-157	-161
Required return -1.0 percentage point	199	189
Combined ratio +1.0 percentage point	-146	-144
Combined ratio -1.0 percentage point	147	144

Securator

In 2014, Tryg acquired Securator A/S. The insurance activities were incorporated into the Tryg Group's business structure in 2014 and are reported under Sweden. In 2015, Securator was merged into Tryg Forsikring A/S and is reported as part of the Swedish affinity portfolio. Securator is a Danish market leader within the sale and brokering of multi-annual product insurance via dealers in the electronics and telecommunications sector and supermarket chains.

The cash flows appearing from the latest prognosis approved by management for the next 6 quarters are used when calculating the value in use of Securator. The cash flows in the latest budget period have been extrapolated for financial years after the budget periods (terminal period) and adjusted for expected growth rates determined on the basis of expectations for the general economic growth. The required return is based on an assessment of the risk profile of the tested business activities compared with the market's expectations for the Group.

The impairment test shows a calculated value in use of approximately DKK 84m (DKK 184m) relative to a recognised goodwill of DKK 84m (DKK 184m) and equity of DKK 138m (DKK 174m) which have led to an impairment in 2016 of DKK 100m which is recognised in other costs. The impairment is due to a lower sale of electronics, than expected and the loss of two major partners, which has led to a decline in the assumptions used.

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Annual report 2016 | Tryg A/S | 72

Notes

DKKm	2016	2015
- Earned premium assumed CAGR 0 – 10 years	10%	13%
- Earned premium assumed CAGR > 10 years	3%	3%
- Required return before tax	12%	11%
- Expected level of Combined ratio	89-91%	83-91%

Sensitivity information

Impact on equity from the following changes:

CAGR +1.0 percentage point (0-10 years) 6 6

CAGR -1.0 percentage point (0-10 years) -6 -5

Required return +1.0 percentage point -15 -35

Required return -1.0 percentage point 20 48

Combined ratio +1.0 percentage point -11 -16

Combined ratio -1.0 percentage point 10 17

An increase in the required return or combined ratio will result in a write-down of the goodwill associated with Securator. We do not expect an increase in these assumptions.

Skandia child and adult accident insurance

The impairment test at year-end for Skandia portfolio is based on the valuation at the time of acquisition due to the short ownership period and the lack of indications of impairment since the acquisition. Goodwill recognised DKK 77m. Please refer to note 28.

The assets and liabilities have not changed significantly since the latest calculation and the recoverable amount calculated would exceed the carrying amount with the same margin or very close to that margin.

Trademarks and customer relations

As at 31 December 2016 management performed a test of the carrying amounts of trademarks and customer relations as an integral part of the Moderna and Skandia portfolio goodwill test.

The impairment test of the acquired agricultural portfolio is based on renewal and retention rates, which are on the expected level. The test did not indicate any impairment.

DKKm

Software and assets under construction

As at 31 December 2016 management performed a test of the carrying amounts of software and assets under construction. The impairment test compares the carrying amount with the estimated present value of future cash flows. The test did indicate an impairment of DKK 200m due to revaluation of the groups it-systems. The write-down relates predominantly to IT systems for payment, digitalisation and IT integration. The write-down is due to related systems development cost will be higher, while for some of the systems benefits are also expected to be lower. The cost is recognised as write-downs under depreciations in the income statement. Assets under construction are not depreciated but tested once a year for impairment or when there is any indication of a decrease in value. Software with a limited useful lifetime is amortised over 4 years using the straight-line method. Amortised software is assessed for impairment at the balance sheet date or when there are indications that the future cash flow cannot justify the carrying amount. In the event that the recoverable amount is lower than the carrying amount, the difference is recognised in the income statement.

The recoverable amount is the higher of fair value less sales costs and value in use.

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Annual report 2016 | Tryg A/S | 73

Notes

12 Property, plant and equipment

DKKm	Operating equipment	Owner-occupied property	Assets under construction	Total
2016
Cost
Cost at 1 January	235	1,715	83	2,033
Exchange rate adjustments	3	20	2	25
Additions for the year	1	75	12	88
Disposals for the year	0	-1,810	-97	-1,907
Cost at 31 December	239	0	0	239
Accumulated depreciation and value adjustments
Accumulated depreciation and value adjustments at 1 January	-173	-571	-81	-825
Exchange rate adjustments	-2	3	-2	-1
Depreciation for the year	-15	-17	0	-32
Value adjustments for the year at revalued amount in income statement	0	53	0	53
Value adjustments for the year at revalued amount in other comprehensive income	0	100	0	100
Reversed depreciation and value adjustments	0	432	83	515
Accumulated depreciation and value adjustments at 31 December	-190	0	0	-190
Carrying amount at 31 December	49	0	0	49
2015
Cost
Cost at 1 January	241	1,711	94	2,046
Exchange rate adjustments	-2	-22	-2	-26
Transferred from assets under construction	0	11	-11	0
Additions for the year	0	15	2	17
Disposals for the year	-4	0	0	-4
Cost at 31 December	235	1,715	83	2,033
Accumulated depreciation and value adjustments
Accumulated depreciation and value adjustments at 1 January	-144	-558	-83	-785
Exchange rate adjustments	1	-3	2	0
Depreciation for the year	-34	-14	0	-48
Value adjustments for the year at revalued amount in other comprehensive income	0	4	0	4
Reversed depreciation	4	0	0	4
Accumulated depreciation and value adjustments at 31 December	-173	-571	-81	-825
Carrying amount at 31 December	62	1,144	2	1,208

The owner-occupied properties were sold in December 2016. Please refer to note 26 Sale of properties.

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Annual report 2016 | Tryg A/S | 74

Notes

DKKm		2016	2015
13	Investment property
	Fair value at 1 January	1,838	1,828
	Exchange rate adjustments	16	-19
	Additions for the year	47	31
	Disposals for the year	-6	-17
	Value adjustments for the year	431	8
	Reversed on sale	-3	7
	Fair value at 31 December	2,323	1,838
	Total rental income for 2016 is DKK 129m (DKK 120m in 2015).
	Total expenses for 2016 are DKK 24m (DKK 31m in 2015). Of this amount, expenses for non-let property total DKK 0m (DKK 0m in 2015), total expenses for the income-generating investment property are DKK 24m (DKK 31m in 2015).
	Value adjustments of DKK 420m and a fair value as at 31 December 2016 of DKK 1,017m relates to sale of property in 2016. External experts were involved in valuing the majority of the other investment properties.
	In determining the fair value of the properties, not only publicly available market data are included, corresponding to the ‘non-observable input’ in the fair value hierarchy. No reclassifications have been made between this category and other categories in the fair value hierarchy during the year.
	The following return percentages were used for each property category:
	Return percentages, weighted average	2016	2015
	Business property	6.9	7.0
	Office property	6.9	6.5
	Residential property	6.0	6.0
	Total	6.8	6.5
DKKm	2016	2015
---	---	---
13	Investment property (continued)
	Sensitivity
	Tryg's property valuations are based on the market-based rental income and operating expenses of the individual property relative to the required rate of return. The most important factors impacting the valuations are the applied rates of return, annual net rental income and occupancy rates. The average rates of return applied are stated above. The sensitivity in 2016 is exclusive of the property sold.
	Impacts on the fair value of properties	2016
	Increase in applied rate of return of 0.25%	-51
	Decrease in applied rate of return of 0.25%	57
	Decrease in net rental income of 3%	-37
	Decrease in occupancy rate of 3%	-9
14	Equity investments in associates
	Cost
	Cost at 1 January	201
	Cost at 31 December	201
	Revaluations at net asset value
	Revaluations at 1 January	28
	Exchange rate adjustments	0
	Dividend received, this year	-10
	Reversed on sale	-14
	Value adjustments for the year	13
	Revaluations at 31 December	17
	Carrying amount at 31 December	218

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Annual report 2016 | Tryg A/S | 75

Notes

DKKm

14 Equity investments in associates (continued)

Shares in associates according to the latest annual report:

Name and registered office	Assets	Liabilities	Equity	Revenue	Profit/loss for the year	Ownership share in %
2016
Komplementarselskabet af 1. marts 2006 ApS, Denmark	0	0	0	0	0	50
Ejendomsselskabet af 1. marts 2006 P/S, Denmark	1,106	234	872	66	54	25
2015
Komplementarselskabet af 1. marts 2006 ApS, Denmark	0	0	0	0	0	50
Ejendomsselskabet af 1. marts 2006 P/S, Denmark	1,107	248	859	60	150	25
AS Eidsvåg Fabrikker, Norway	47	7	40	16	5	28

Individual estimates are made of the degree of influence under the contracts made.

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Annual report 2016 | Tryg A/S | 76

Notes

DKKm	2016	2015
15 Financial assets
Financial assets at fair value with value adjustments in the income statement	40,252	40,220
Derivative financial instruments at fair value used for hedge accounting with value adjustment in other comprehensive income	0	55
Receivables measured at amortised cost with value adjustment in the income statement	3,412	2,920
Total financial assets	43,664	43,195
Financial assets at amortised cost only deviate to a minor extent from fair value.
Financial liabilities
Derivative financial instruments at fair value with value adjustments in the income statement	681	598
Derivative financial instruments at fair value with value adjustments in other comprehensive income	21	14
Financial liabilities at amortised cost with value adjustment in the income statement	6,978	8,127
Total financial liabilities	7,680	8,739
Information on valuation of subordinate loan capital at fair value is stated in note 1. Other financial liabilities measured at amortised cost only deviate to a minor extent from fair value.

DKKm

| 15 Financial assets (Continued)
Fair value hierarchy for financial instruments measured at fair value in the statement of financial position | | | | |
| --- | --- | --- | --- | --- |
| | Quoted market price | Observable input | Non-observable input | Total |
| 2016 | | | | |
| Equity investments | 0 | 0 | 48 | 48 |
| Unit trust units | 2,999 | 942 | 9 | 3,950 |
| Bonds | 17,555 | 17,698 | 1 | 35,254 |
| Derivative financial instruments, assets | 0 | 1,000 | 0 | 1,000 |
| Derivative financial instruments, debt | 0 | -702 | 0 | -702 |
| | 20,554 | 18,938 | 58 | 39,550 |
| 2015 | | | | |
| Equity investments | 0 | 0 | 138 | 138 |
| Unit trust units | 3,589 | 0 | 0 | 3,589 |
| Bonds | 18,254 | 17,450 | 1 | 35,705 |
| Derivative financial instruments, assets | 0 | 843 | 0 | 843 |
| Derivative financial instruments, debt | 0 | -612 | 0 | -612 |
| | 21,843 | 17,681 | 139 | 39,663 |
| Financial instruments measured at fair value in the statement of financial position on the basis of non-observable input: | | | 2016 | 2015 |
| Carrying amount at 1 January | | | 139 | 129 |
| Exchange rate adjustments | | | 3 | -1 |
| Gains/losses in the income statement | | | 36 | 3 |
| Purchases | | | 32 | 11 |
| Sales | | | -152 | -3 |
| Carrying amount at 31 December | | | 58 | 139 |
| Gains/losses in the income statement for assets held at the statement of financial position date recognised in value adjustments | | | -39 | 2 |
| Bonds measured on the basis of observable inputs consist of Norwegian bonds issued by banks and to some extent Danish semi-liquid bonds, where no quoted prices based on actual trades are available. In 2016 a few large unit trust units were not traded recently before 31.12.16 and thus transferred to category Observable input. Inflation derivatives are measured at fair value on the basis of non-observable input and are included under claims provisions at a fair value of DKK -398m (DKK -417m in 2015). | | | | |

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Annual report 2016 | Tryg A/S | 77

Notes

DKKm	2016	2015

15 Financial assets (continued)

Sensitivity information

Impact on equity from the following changes:

Interest rate increase of 0.7-1.0 percentage point -199 -153
Interest rate fall of 0.7-1.0 percentage point -150 -161
Equity price fall of 12% -275 -297
Fall in property prices of 8% (exclusive of property sold). -104 -239
Exchange rate risk (VaR 99) -14 -14
Loss on counterparties of 8% -466 -372

The impact on the income statement is similar to the impact on equity. The statement complies with the disclosure requirements set out in the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish FSA.

Derivative financial instruments

Derivatives with value adjustments in the income statement at fair value:

	2016		2015
	Nominal	Fair value in statement of financial position	Nominal	Fair value in statement of financial position
Interest derivatives	32,889	347	27,415	283
Share derivatives	607	7	47	0
Exchange rate derivatives	7,735	-56	7,993	-52
Derivatives according to statement of financial position	41,231	298	35,455	231
Inflation derivatives, recognised in claims provisions	3,143	-398	2,683	-417
Total derivative financial instruments	44,374	-100	38,138	-186
Due after less than 1 year	18,508	-91	17,038	-56
Due within 1 to 5 years	10,754	-16	9,606	-106
Due after more than 5 years	15,112	7	11,494	-24

Derivatives, repos and reverses are used continuously as part of the cash and risk management carried out by Tryg and its portfolio managers.

DKKm

15 Financial assets (continued)

Derivative financial instruments used in connection with hedging of foreign entities for accounting purposes

Gains and losses on hedges charged to other comprehensive income:

2016	Gains	Losses	Net
Gains and losses at 1 January	2,496	-2,420	76
Reversed hedges in profit/loss		-23	-23
Value adjustments for the year	156	-183	-27
Gains and losses at 31 December	2,652	-2,626	26
2015	Gains	Losses	Net
---	---	---	---
Gains and losses at 1 January	2,152	-2,162	-10
Reversed hedges in profit/loss
Value adjustments for the year	344	-258	86
Gains and losses at 31 December	2,496	-2,420	76

Value adjustments

Value adjustments of foreign entities recognised in other comprehensive income in the amount of:

	2016	2015
Value adjustments at 1 January	-66	23
Value adjustment for the year	26	-89
Exchange rate adjustment for the year recognised in profit/loss	25	0
Value adjustments at 31 December	-15	-66

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Annual report 2016 | Tryg A/S | 78

Notes

DKKm	2016	2015
15 Financial assets (continued)
Receivables
Total receivables in connection with direct insurance contracts	1,108	1,261
Receivables from insurance enterprises	183	199
Unsettled transactions	0	120
Reverse repos	0	370
Other receivables	1,646	381
	2,937	2,331
Specification of write-downs on receivables from insurance contracts:
Write-downs at 1 January	116	107
Exchange rate adjustments	3	-3
Write-downs and reversed write-downs for the year	-2	12
Write-downs at 31 December	117	116
Receivables are written down in full when submitted for debt collection. The write-down is reversed if payment is subsequently received from debt collection and amounts to DKK 50m (DKK 53m in 2015).
Receivables in connection with insurance contracts include overdue receivables totalling:
Falling due:
Within 90 days	116	116
After 90 days	137	135
	253	251
Other receivables do not contain overdue receivables
16 Reinsurer's share
Impairment test
As at 31 December 2016, management performed a test of the carrying amount of total reinsurers' share of provisions for insurance contracts and receivables. The impairment test resulted in impairment charges totalling DKK 2m (DKK 3m in 2015). The use of reinsurance creates a natural counterparty risk. The Risk will be handled by applying a wide range of reinsurers with at least an 'A' rating.
DKKm	2016	2015
---	---	---
17 Current tax
Net current tax at 1 January	-239	-429
Exchange rate adjustments	-9	16
Current tax for the year	-636	-495
Current tax on equity entries	0	-96
Adjustment of current tax in respect of previous years	38	0
Tax paid for the year	529	765
Net current tax at 31 December	-317	-239
Current tax is recognised in the statement of financial position as follows:
Under assets, current tax	0	118
Under liabilities, current tax	-317	-357
Net current tax	-317	-239
18 Equity
---	---	---
Number of shares	Shares outstanding
Number of shares of DKK 5 (1,000)	2016	2015
Number of shares at 1 January	282,316	289,120
Bought during the year	-7,793	-7,074
Cancellation in connection with buyback programme	0	0
Used in connection with exercise of incentive programme	72	270
Number of shares at 31 December	274,595	282,316
Number of shares as a percentage of issued shares at 31 December	97.19	97.50
Nominal value at 31 December (DKKm)	1,373	1,412

Pursuant to the authorisation granted by the shareholders, Tryg may acquire up to 10.0% of the share capital in the period up until 31 December 2017. Own shares are acquired for use in the Group's incentive programme and as part of the share buyback programme.

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Annual report 2016 | Tryg A/S | 79

Notes

DKKm	2016	2015
18 Equity (continued)
2016
Own funds
From 1 January 2016 new Solvency II rules are effective:
Equity according to annual report	9,437
Proposed dividend	-2,017
Intangible assets	-884
Profit margin, solvency purpose	970
Taxes	-27
Subordinate loan capital	2,371
Own funds	9,850
2015
Capital adequacy
For 2015 the calculation is based on the Solvency I rules:
Equity according to annual report		9,831
Proposed dividend		-1,013
Solvency requirements of subsidiaries – 50%		-3,868
Tier 1 Capital		4,950
Subordinate loan capital		1,707
Solvency requirements of subsidiaries – 50%		-3,868
Capital base		2,789

The capital base and the solvency ratio are calculated in accordance with the Danish Financial Business Act. The calculation of 2015 Solvency I ratio has not been adjusted for the FSA executive order on yield curves from 1 January 2016.

DKKm	2016	2015
19 Premium provisions
Premium provision at 1 January	5,517	5,767
Adjustment regarding Norwegian Group life beginning of year	0	-124
Addition on acquisition of Skandia activity	35	0
Value adjustments of provisions, beginning of year	32	-54
Paid in the financial year	17,570	17,399
Change in premiums in the financial year	-17,742	-17,458
Exchange rate adjustments	13	-13
Premium provisions at 31 December	5,425	5,517
Other a)	62	54
	5,487	5,571

a) Comprises premium provisions for guarantee insurance.

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Annual report 2016 | Tryg A/S | 80

Notes

DKKm	Gross	Ceded	Net of reinsurance
19 Claims provisions
2016
Claims provisions at 1 January	25,315	-2,852	22,463
Addition, purchase of Skandia portfolio	1,362	0	1,362
Value adjustments of provisions, beginning of year	392	-36	356
	27,069	-2,888	24,181
Paid in the financial year in respect of the current year	-6,812	30	-6,782
Paid in the financial year in respect of prior years	-7,045	1,100	-5,945
	-13,857	1,130	-12,727
Change in claims in the financial year in respect of the current year	12,961	-175	12,786
Change in claims in the financial year in respect of prior years	-1,432	180	-1,252
	11,529	5	11,534
Discounting and exchange rate adjustments	353	53	406
Claims provisions at 31 December	25,096	-1,700	23,396
Other 1)	358	-120	238
	25,452	-1,820	23,632
DKKm	Gross	Ceded	Net of reinsurance
---	---	---	---
19 Claims provisions
2015
Claims provisions at 1 January	24,601	-1,272	23,329
Adjustment 1.1.2015 regarding new yield curves.
Please refer to note 31 Accounting policies.	226	0	226
Adjustment regarding Norwegian Group life
beginning of year	124	0	124
Value adjustments of provisions, beginning of year	-464	32	-432
	24,487	-1,240	23,247
Paid in the financial year in respect of the current year	-6,676	37	-6,639
Paid in the financial year in respect of prior years	-6,011	414	-5,597
	-12,687	451	-12,236
Change in claims in the financial year in respect of the current year	14,606	-2,021	12,585
Change in claims in the financial year in respect of prior years	-1,232	15	-1,217
	13,374	-2,006	11,368
Discounting and exchange rate adjustment	141	-57	84
Claims provisions at 31 December	25,315	-2,852	22,463
Other a)	355	-151	204
	25,670	-3,003	22,667

a) Comprises claims provisions for guarantee insurance.

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Annual report 2016 | Tryg A/S | 81

Notes

DKKm	2016	2015
20 Pensions and similar obligations
Jubilees	37	50
Recognised liability	37	50
Defined-benefit pension plans:
Present value of pension obligations funded through operations	70	62
Present value of pension obligations funded through establishment of funds	1,198	1,130
Pension obligation, gross	1,268	1,192
Fair value of plan assets	960	978
Pension obligation, net	308	214
Specification of change in recognised pension obligations:
Recognised pension obligation at 1 January	1,192	1,290
Adjustment regarding plan changes not recognised in the income statement and expected estimate deviation a)	37	-10
Exchange rate adjustments	64	-74
Present value of pensions earned during the year	18	35
Capital cost of previously earned pensions	22	29
Acturial gains/losses	-8	-23
Paid during the period	-57	-55
Recognised pension obligation at 31 December	1,268	1,192
Change in carrying amount of plan assets:
Carrying amount of plan assets at 1 January	978	1,010
Exchange rate adjustments	51	-58
Investments in the year	34	91
Estimated return on pension funds	7	25
Acturial gains/losses	-66	-49
Paid during the period	-44	-41
Carrying amount of plan assets at 31 December	960	978
Total pensions and similar obligations at 31 December	308	214
Total recognised obligation at 31 December	345	264

a) The change of the pension scheme in Norway is carried out in the same way as has been done for other major financial companies in Norway and causes a reduction in the provision.

DKKm	2016	2015
20 Pensions and similar obligations (continued)
Specification of pension cost for the year:
Present value of pensions earned during the year	11	31
Interest expense on accrued pension obligation	22	30
Expected return on plan assets	-6	-26
Accrued employer contributions	6	5
Total year's cost of defined-benefit plans	33	40
The premium for the following financial years is estimated at	49	53
Number of active persons	517	595
Number of pensioners	637	586
Average expected remaining service time (years)	8.00	7.81
Estimated distribution of plan assets:	%	%
Shares	8	10
Bonds	76	73
Property	12	15
Other	3	2
Average return on plan assets	0.7	2.6
Weighted average duration of the defined benefit obligation (years)	13	18
Assumptions used
Discount rate	1.4	1.9
Estimated return on pension funds	1.4	1.9
Salary adjustments	2.3	2.5
G adjustments	2.0	2.3
Turnover	7.0	7.0
Employer contributions	14.0	14.1
Mortality table	K2013	K2013

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Annual report 2016 | Tryg A/S

Notes

DKKm
2016
2015

20 Pensions and similar obligations (continued)

Sensitivity information

The sensitivity analysis is based on a change in one of the assumptions, assuming that all other assumptions remain constant. In reality, this is rarely the case, and changes to some assumptions may be subject to covariance. The sensitivity analysis has been carried out using the same method as the actuarial calculation of the pension provisions in the statement of financial position.

Impact on equity from the following changes:

Interest rate increase of 0.3 percentage point	52	46
Interest rate decrease of 0.3 percentage point	-55	-49
Pay increase rate, increase of 1 percentage point	-103	-99
Pay increase rate, decrease of 1 percentage point	88	83
Turnover, increase of 2 percentage point	31	25
Turnover, decrease of 2 percentage point	-33	-29

Description of the Norwegian plan

In the Norwegian part of the Group, about half of the employees have a defined-benefit pension plan. The plans are based on the employees' expected final pay, providing the members of the plan with a guaranteed level of pension benefits throughout their lives. The pension benefits are determined by the employees' term of employment and salary at the time of retiring. Employees having made contributions for a full period of contribution are guaranteed a pension corresponding to 66% of their final pay. As of 2014, pensions being disbursed are no longer regulated in step with the basic amount of old-age pension paid in Norway (G regulation), but are subject to a minimum regulation. The plan are closed for new business. Under the present defined-benefit plan, members earn a free policy entitlement comprising disability cover, spouse and cohabitant cover and children's pension.

The pension funds are managed by Nordea Liv & Pension and regulated by local legislation and practice.

DKKm

20 Pensions and similar obligations (continued)

Description of the Swedish plan

Moderna Försäkringar, a branch of Tryg Forsikring A/S, complies with the Swedish industry pension agreement, the FTP plan, which is insured with Försäkringsbranschens Pensionskassa – FPK.

Under the terms of the agreement, the Group's Swedish branch has undertaken, along with the other businesses in the collaboration, to pay the pensions of the individual employees in accordance with the applicable rules.

The FTP plan is primarily a defined-benefit plan in terms of the future pension benefits. FPK is unable to provide sufficient information for the Group to use defined-benefit accounting. For this reason, the Group has accounted for the plan as if it were a defined-contribution plan in accordance with IAS 19.30.

This years premium paid to FPK amounted to DKK 19m, which is about 3,9% of the annual premium in FPK (2015). FPK writes in its interim report for 2016 that it had a collective consolidation ratio of 128 at 30 June 2016 (consolidation ratio of 114 at 30 June 2015).

The collective consolidation ratio is defined as the fair value of the plan assets relative to the total collective pension obligations.

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Notes

DKKm	2016	2015
21 Deferred tax
Tax asset
Operating equipment	8	8
Debt and provisions	30	91
Capitalised tax loss	1	1
	39	100
Tax liability
Intangible rights	33	77
Land and buildings	70	96
Bonds	38	-40
Contingency funds	600	612
	741	745
Deferred tax	702	645
Unaccrued timing differences of statement of financial position items	0	20
Development in deferred tax
Deferred tax at 1 January	645	1,022
Adjustment 1.1.2015 regarding new yield curves.
Please refer to note 31 Accounting policies.		-51
Exchange rate adjustments	24	-116
Change in deferred tax relating to change in tax rate	0	13
Change in deferred tax previous years	31	0
Change in deferred tax taken to the income statement	60	-63
Change in valuation of tax asset	-17	-128
Change in deferred tax taken to equity	-41	-32
Deferred tax at 31 December	702	645
Tax value of non-capitalised tax loss
Denmark	16	16
Sweden	0	0
The loss in Tryg A/S cannot be utilised in the Danish joint taxation scheme. The loss can be carried forward indefinitely. Loss determined according to Swedish rules can be carried forward indefinitely.
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax loss. The total current and deferred tax relating to items recognised in equity is recognised in the statement of financial position in the amount of DKK -30m (DKK 32m at 31 December 2015).
DKKm	2016	2015
---	---	---
22 Other provisions
Other provisions at 1 January	132	83
Change in provisions	-7	49
Other provisions 31 December	125	132
Other provisions relate to provisions for the Group's own insurance claims and restructuring costs. Additions to the provision for restructuring costs during the year amounts to DKK 50m and reassessment of the beginning of year balance amounts to DKK -57m. The balance as at 31 December 2016 amounts to DKK 123m (DKK 130m at 31 December 2015).
23 Amounts owed to credit institutions
Overdraft facilities	178	64
	178	64
24 Debt relating to unsettled funds transactions and repos
Unsettled fund transactions	258	290
Repo debt	1,474	3,784
	1,732	4,074
Unsettled fund transactions include debt for bonds purchased in 2015 and 2016, however, with settlement in 2016 and 2017, respectively.
25 Earnings per share
Profit/loss from continuing business	2,472	1,920
Profit/loss on discontinued and divested business	-1	49
Profit/loss for the year	2,471	1,969
Average number of shares (1,000)	279,399	285,073
Diluted number of shares (1,000)	0	28
Diluted average number of shares (1,000)	279,399	285,101
Earnings per share, continuing business	8.84	6.74
Diluted earnings per share, continuing business	8.84	6.73
Earnings per share	8.84	6.91
Diluted earnings per share	8.84	6.91
Earnings per share, discontinued and divested business	0.00	0.17
Diluted earnings per share, discontinued and divested business	0.00	0.18

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Annual report 2016 | Tryg A/S

Notes

DKKm

26 Sale of properties

In December 2016, Tryg signed sales contracts of its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. The recognition in the accounts in 2016 is:

	Recognised in
	Carrying amount 1 Jan. 2016	Other comprehensive income	Income statement value adjustments	Carrying amount 31 Dec. 2016
Investment property, sold	597		420	1,017
Owner-occupied property, sold^{a)}	1,144	100	93	-
Total property sold	1,741	100	513	1,017
Other estimated costs concerning the sales			-13
Total impact in 2016		100	500

New lease contracts for the continued rental of both owner-occupied properties have been signed in 2016.

a) Carrying amount is recognised in other receivables.

DKKm

27 Contractual obligations, collateral and contingent liabilities

Contractual obligations

2016	<1 year	Obligations due by period			Total
		1-3 years	3-5 years	>5 years
Operating leases	140	246	299	260	945
Other contractual obligations	202	0	0	0	202
	342	246	299	260	1,147
2015
Operating leases	66	110	76	56	308
Other contractual obligations	282	103	0	0	385
	348	213	76	56	693

2016

Tryg has signed the following contracts with amounts above DKK 50m:

In December 2016 Tryg signed sales contracts about its two owner-occupied properties in Ballerup and Bergen and 3 investment properties. Please also refer to note 26 Sale of properties.

Outsourcing agreement with TCS for DKK 64m for a 4 year period, which expires in 2017.

2015

In august 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia's activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsakringar. The transaction was subject to regulatory approvals and the parties completed it in second half 2016. Thereafter Tryg took over the control of the portfolios. The acquisition had no effect on the financial statement for 2015.

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Annual report 2016 | Tryg A/S | 85

Notes

DKKm	2016	2015
27 Contractual obligations, collateral and contingent liabilities (continued)
Collateral
The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
Tryg Forsikring A/S and Tryg Livsforsikring A/S have registered the following assets as having been held as security for the insurance provisions:
Equity investments in associates	0	14
Equity investments	36	138
Unit trust units	3,950	3,589
Bonds	33,534	32,121
Interest and rent receivable	224	281
Equity investments in and receivables from Group undertakings which have been eliminated in the consolidated financial statements	3,172	2,706
Total	40,916	38,849

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Annual report 2016 | Tryg A/S | 86

Notes

DKKm

27 Contractual obligations, collateral and contingent liabilities (continued)
Offsetting and collateral in relation to financial assets and obligations

	Gross amount before offsetting	Offsetting	According to the statement of financial position	Bonds as collateral for repos/reverse repos	Collateral in cash	Net amount
2016
Assets
Derivative financial instruments	1,000	0	1,000	0	-1,004	-4
Inflation derivatives, recognised in claims provisions	16	0	16	0	-13	3
	1,016	0	1,016	0	-1,017	-1
Liabilities
Repo debt	1,474	0	1,474	-1,474	-4	-4
Derivative financial instruments	702	0	702	0	-727	-25
Inflation derivatives, recognised in claims provisions	414	0	414	0	-425	-11
	2,590	0	2,590	-1,474	-1,156	-40
2015
Assets
Reverse repos	370	0	370	-370	0	0
Derivative financial instruments	843	0	843	0	-940	-97
	1,213	0	1,213	-370	-940	-97
Liabilities
Repo debt	3,784	0	3,784	-3,784	-1	-1
Derivative financial instruments	612	0	612	0	-641	-29
Inflation derivatives, recognised in claims provisions	417	0	417	0	-421	-4
	4,813	0	4,813	-3,784	-1,063	-34

Contingent liabilities

Companies in the Tryq Group are party to a number of disputes.

Management believes that the outcome of these disputes will not affect the Group's financial position significantly beyond the obligations recognized in the statement of financial position at 31 December 2016.

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Annual report 2016 | Tryq A/S | 87

Notes

DKKm

28 Acquisition of subsidiaries 2016

In august 2015 Tryg and Skandia signed an agreement whereby Tryg acquired Skandia's activities within child and adult accident insurance and integrated them into its Swedish business, Moderna Forsåkringar. The transaction was approved by the Danish FSA and implemented 1 September 2016. The acquisition affects the Financial statement from 1 September 2016:

Net assets acquired	2016
Intangible assets	58
Cash and cash equivalents	1,471
Total provisions for insurance contracts	-1,389
Net assets acquired	140
Goodwill	77
Purchase price	217

The Group has not incurred any significant acquisition costs in connection with the acquisition. The purchase price is final. In connection with the acquisition, a sum was paid which exceeds the fair value of the identifiable acquired assets and total provisions for insurance contracts. This positive balance is mainly attributable to customer relations and to expected synergies between the portfolios in the acquired activities and the Group's existing activities, which are not separately identifiable.

If the activities were included with a full year, the premium income would amount to approx. DKK 200m and the technical result would be approx. DKK 30-60m. Management believes that these pro forma figures reflect the Group's earnings level after the acquisition of the activities and that the amounts may form the basis for comparisons in subsequent financial years.

The determination of the pro forma amounts for premium income and technical result for the period is based on the following significant assumptions:

Premiums and claims have been calculated on the basis of the fair values determined in the acquisition balance sheets for premium and claims provisions, rather than the original carrying amounts.
Other costs, including amortisation of intangible assets, have been calculated on the basis of the fair values determined in the acquisition balance sheets, rather than the original carrying amounts.

DKKm	2016	2015
29 Related parties
The group has no related parties with a decisive influence other than the parent company, Trygheds-Gruppen smba and the subsidiaries of TryghedsGruppen smba (other related parties). Related parties with significant influence include the Supervisory Board, the Executive Board and their members' family.
Premium income
- Parent company (TryghedsGruppen smba)	0.5	0.3
- Key management	0.4	0.3
- Other related parties	3.7	1.9
Claims payments
- Parent company (TryghedsGruppen smba)	0.0	0.1
- Key management	0.1	0.0
- Other related parties	1.8	0.5

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Annual report 2016 | Tryg A/S | 88

Notes

DKKm

29 Related parties (continued)

Specification of remuneration

2016	Number of persons	Basis salary	Variable salary a)	Pension	Total
Supervisory Board	14	7	0	0	7
Executive Board	4	19	2	5	26
Risk-takers	8	15	0	2	17
	26	41	2	7	50

a) Including charges for matching shares allocated in 2016 for fiscal year 2015.

See section "Corporate governance" in Management review for matching shares allocated in 2017 for fiscal year 2016.

Of which retired:	Number of persons	Severance pay
Supervisory Board	2	0
Executive Board	1	0
Risk-takers	1	0
	4	0
2015	Number of persons	Basis salary
---	---	---
Supervisory Board	13	6
Executive Board	3	21
Risk-takers	8	19
	24	46

a) Exclusive of severance pay

Of which retired:	Number of persons	Severance pay
Supervisory Board	1	0
Risk-takers	3	14
	4	14

The maximum amount paid in severance pay to an individual is DKK 7m.

DKKm

29 Related parties (continued)

Fees are charges incurred during the financial year. Variable salary includes the charges for matching shares, which are recognised over 3-4 years and share options, which are recognised over 3 years. Reference is made to section 'Corporate governance' of the management's review on the corresponding disbursements. The Executive Board and risk-takers are included in incentive programmes. Please refer to note 6 for information concerning this.

The members of the Supervisory Board in Tryq A/S are paid with a fixed remuneration and are not covered by the incentive schemes.

The Executive Board is paid a fixed remuneration and pension. The variable salary is awarded in the form of a matching share programme, see 'Corporate governance'. Besides this, the Executive Board have free car appropriate to their position as well as other market conformal employee benefits.

Each member of the Executive Board is entitled to 12 months' notice and severance pay equal to 12 months' salary plus pension contribution (Group CEO is entitled to severance pay equal to 18 months' salary).

Risk-takers are defined as employees whose activities have a significant influence on the company's risk profile. The Supervisory Board decides which employees should be considered to be risk-takers.

Parent company

Tryghedsgruppen smba

TryghedsGruppen smba controls 60% of the shares in Tryq A/S.

Intra-group trading involved:	2016	2015
- Providing and receiving services	0	0

Transactions between TryghedsGruppen smba and Tryq A/S are conducted on an arm's length basis.

Intra-group transactions:

Administration fee, etc. is fixed on a cost-recovery basis. Intra-group accounts are offset and carry interest on market terms.

The companies in the Tryq Group have entered into reinsurance contracts on market terms.

Transactions with Group undertakings have been eliminated in the consolidated financial statements in accordance with the accounting policies.

30 Financial highlights

Please refer to page 44.

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Annual report 2016 | Tryq A/S | 89

Notes

31 Accounting policies

The consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as per adopted by the EU on 31 December 2016 and in accordance with the Danish Statutory Order on Adoption of IFRS.

The annual report of the parent company is prepared in accordance with the executive order on financial reports presented by insurance companies and lateral pension funds issued by the Danish FSA. The deviations from the recognition and measurement requirements of IFRS are:

The Danish FSA's executive order does not allow provisions for deferred tax of contingency reserves allocated from untaxed funds. Deferred tax and the other comprehensive income of the parent company have been adjusted accordingly on the transition to IFRS.

Change in accounting policies

Tryg has implemented the amendments which prescribes applying a new yield curve from the Executive order on financial reports by insurance companies and lateral pension funds issued by the Danish FSA from 1 January 2016. The executive order prescribes a change from applying a yield curve issued by the Danish Financial Supervisory Authority to applying a new yield curve published by EIOPA.

For Tryg, this means applying a yield curve at a lower level. The comparative figures for 2015 are restated accordingly. Figures for previous years have not been restated as this is impracticable due to the non existence of the new yield curve published by EIOPA before 01.01.2015.

The comparative figures have been restated for 2015 with the following amounts:

Income statement

DKKm	2015
Total Investment return after insurance technical interest	-17
Tax	5
Profit and loss for the period	-12

Statement of financial position

DKKm	1.1.2015	31.12.15
Equity	-175	-187
Insurance provisions	226	243
Deferred tax liabilities	-51	-56

It is Tryg's assessment that the amendments to the Executive Order from 2016 can be accommodated within IFRS. Except as noted above, the accounting policies have been applied consistently with last year.

Accounting regulation

Implementation of changes to accounting standards and interpretation in 2016

The International Accounting Standards Board (IASB) has issued a number of changes to the international accounting standards, and the International Financial Reporting Interpretations Committee (IFRIC) has also issued a number of interpretations. No standards or interpretations have been implemented for the first time for the accounting year that began on 1st January 2016 that will have a significant impact on the group.

There has not been implemented any new or amended standards and interpretations that have affected the group significantly.

Future orders, standards and interpretations that the group has not implemented and which have still not entered into force but could effect the group significantly:

IFRS 16 'Leases' a)
IFRS 9 'Financial Instruments' b)

a) enters into force for the accounting year commencing 1 January 2019.
b) enters into force for the accounting year commencing 1 January 2018 or later insurance companies are expected to be allowed to postpone the implementation.

The implementation of IFRS 9 'financial instruments' IFRS 16 'leases' is not expected to significantly change the group's financial position.

However, IFRS 16 will change the composition of the statement of financial position, but without adding new risks. Regarding IFRS 16 Tryg expects to get more assets and liabilities in the balance sheet but it is not expected to have a significant impact on either profit or loss or equity. Tryg will primarily be effected by lease agreements related to cars and premises. The total impact on the balance sheet is being analysed in relation to the length of the lease agreements and amounts payable.

Regarding IFRS 9 the assessment of no significant impact on the statement of financial position or profit and loss is based on the assumption that Tryg already carry all financial instruments at fair value through profit and loss. The implementation of IFRS 9, will not effect Tryg's recognition and measurement.

The changes will be implemented going forward from the effective date

The new executive order will only have effect on recognition and measurement in the Group's financial reporting in the following area.

Claims provisions

The claims provisions has changed following the transition to a new interest curve. The executive order prescribes a change from applying a yield curve issued by the Danish Financial Supervisory Authority to applying a new yield curve published by EIOPA – the new yield curve is at a lower level.

It is Tryg's assessment that the amendments to the Executive Order from 2016 can be accommodated within IFRS, therefore there are not any differences between the Parent Company and the consolidated financial statements as a result of the new accounting regulation.

Changes to accounting estimates

There have been no changes to the accounting estimates in 2016.

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Annual report 2016 | Tryg A/S | 90

Notes

Significant accounting estimates and assessments

The preparation of financial statements under IFRS requires the use of certain critical accounting estimates and requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are:

Liabilities under insurance contracts
Valuation of defined benefit plans
Fair value of financial assets and liabilities
Valuation of property
Measurement of goodwill, Trademarks and Customer relations
Control of subsidiaries

Liabilities under insurance contracts

Estimates of provisions for insurance contracts represent the Group's most critical accounting estimates, as these provisions involve a number of uncertainty factors.

Claims provisions are management's best estimate based on actuarial and statistical projections of claims and administration of claims including a margin incorporating the uncertainty related to the range of actuarial scenarios and other short and long-term risks not reflected in standard actuarial models. The projections are based on Tryg's knowledge of historical developments, payment patterns, reporting delays, duration of the claims settlement process and other factors that might influence future developments in the liabilities.

The Group makes claims provisions, in addition to provisions for known claims, which cover estimated compensation for losses that have been incurred, but not yet reported to the Group (known as IBNR reserves) and future developments in claims which are known to the Group but have not been finally settled. Claims provisions also include direct and indirect claims settlement costs or loss adjustment expenses that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to Tryg.

The calculation of the claims provisions is therefore inherently uncertain and, by necessity, relies upon the making of certain assumptions as regards factors such as court decisions, amendments to legislation, social inflation and other economic trends, including inflation. The Group's actual liability for losses may therefore be subject to material positive or negative deviations relative to the initially estimated claims provisions.

Claims provisions are discounted. As a result, initial changes in discount rates or changes in the duration of the claims provisions could have positive or negative effects on earnings. Discounting affects the motor third-party liability, general third-party liability, workers' compensation classes, including sickness and personal accident, in particular.

The Financial Supervisory Authority's discount curve, which is based on Eiopa's yield curves, is used to discount Danish, Norwegian and Swedish claims provisions in relation to the relevant functional currencies.

Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. This has the greatest impact on assumptions regarding interest rates and inflation.

Defined benefit pension schemes

The Group operates a defined-benefit plan in Norway. A defined-benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, depending on age, years of service and salary.

The net obligation with respect to the defined-benefit plan is based on actuarial calculations involving a number of assumptions. The assumptions include discount interest rate, expected future salary and pension adjustments, turnover, mortality and disability.

Fair value of financial assets and liabilities

Measurements of financial assets and liabilities for which prices are quoted in an active market or which are based on generally accepted models with observable market data are not subject to material estimates. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using a current OTC price of a similar financial instrument or using a model calculation. The valuation models include the discounting of the instrument cash flow using an appropriate market interest rate with due consideration for credit and liquidity premiums.

Valuation of property

Property is divided into owner-occupied property and investment property. Owner-occupied property is assessed at the reassessed value that is equivalent to the fair value at the time of reassessment, with a deduction for depreciation and write-downs. The fair value is calculated based on a market-determined rental income, as well as operating expenses in proportion to the property's required rate of return in per cent. Investment property is recognised at fair value. The calculation of fair value is based on market prices, taking into consideration the type of property, location and maintenance standard, and based on a market-determined rental income as well as operating expenses in proportion to the property's required rate of return. Cf. note 12 and 13.

Measurement of goodwill, Trademarks and Customer relations

Goodwill, Trademarks and customer relations was acquired in connection with acquisition of businesses. Goodwill is allocated to the cash-generating units under which management manages the investment. The carrying amount is tested for impairment at least annually. Impairment testing involves estimates of future cash flows and is affected by a number of factors, including discount rates and other circumstances dependent on economic trends, such as customer behaviour and competition. Cf. note 11.

Control of subsidiaries

Control of subsidiaries is assessed yearly. Hence whether a subsidiary should still be part of the consolidation on line by line basis or as a single line item in the balance sheet.

Description of accounting policies

Recognition and measurement

The annual report has been prepared under the historical cost convention, as modified by the revaluation of owner-occupied property, where increases are recognised in other comprehensive income, and revaluation of investment property, financial assets held for trading and financial assets and financial liabilities (including derivative instruments) at fair value in the income statement.

Assets are recognised in the statement of financial position when it is probable that future economic benefits will flow to the Group, and the value of such assets can be measured reliably. Liabilities are recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a prior event, and it is probable that future economic benefits will flow out of the Group, and the value of such liabilities can be measured reliably.

On initial recognition, assets and liabilities are measured at cost, with the exception of financial assets, which are recognised at fair value. Measurement subsequent to initial recognition is effected as described below for each item. Anticipated risks and losses that arise before the time of presentation of the annual report and that confirm or invalidate affairs and conditions existing at the statement of financial position date are considered at recognition and measurement.

Income is recognised in the income statement as earned, whereas costs are recognised by the amounts attributable to this financial year. Value adjustments of financial assets and liabilities are recognised in the income statement unless otherwise described below.

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All amounts in the notes are shown in millions of DKK, unless otherwise stated.

Consolidation

Consolidated financial statements

The consolidated financial statements comprise the financial statements of Tryg A/S (the parent company) and the enterprises (subsidiaries) controlled by the parent company. The parent company is regarded as controlling an enterprise when it i) exercises a controlling influence over the relevant activities in the enterprise in question, ii) is exposed to or has the right to a variable return on its investment, and iii) can exercise its controlling influence to affect the variable return.

Enterprises in which the Group directly or indirectly holds between 20% and 50% of the voting rights and exercises significant influence but no controlling influence are classified as associates.

Basis of consolidation

The consolidated financial statements are prepared on the basis of the financial statements of Tryg A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for the consolidation are prepared in accordance with the Group's accounting policies.

On consolidation, intra-group income and costs, intra-group accounts and dividends, and gains and losses arising on transactions between the consolidated enterprises are eliminated.

Items of subsidiaries are fully recognised in the consolidated financial statements.

Business combinations

Newly acquired or newly established enterprises are recognised in the consolidated financial statements from the date of acquisition and the date of formation, respectively. The date of acquisition is the date on which control of the acquired enterprise actually passes to Tryg. Divested or discontinued enterprises are recognised in the consolidated statement of comprehensive income up to the date of disposal or the settlement date. The date of disposal is the date on which control of the divested enterprise actually passes to a third party.

The purchase method is applied for new acquisitions if the Group gains control of the acquired enterprise. Subsequently, identifiable assets, liabilities and contingent liabilities in the acquired enterprises are measured at fair value at the date of acquisition. Non-current assets which are acquired with the intention of selling them are, however, measured at fair value less expected selling costs. Restructuring costs are recognised in the pre-acquisition balance sheet only if they constitute an obligation for the acquired enterprise. The tax effect of revaluations is taken into account. The acquisition price of an enterprise consists of the fair value of the price paid for the acquired enterprise. If the final determination of the price is conditional upon one or more future events, such events are recognised at their fair values at the date of acquisition. Costs relating to the acquisition are recognised in the income statement as incurred.

Any positive balances (goodwill) between the acquisition price of the acquired enterprise, the value of minority interests in the acquired enterprise and the fair value of previously acquired equity investments, on the one hand, and the fair value of the acquired assets, liabilities and contingent liabilities, on the other hand, are recognised as an asset under intangible assets, and are tested for impairment at least once a year. If the carrying amount of the asset exceeds its recoverable amount, it is impaired to the lower recoverable amount.

In the event of negative balances (negative goodwill), the calculated fair values, the calculated acquisition price of the enterprise, the value of minority interests in the acquired enterprise and the fair value of previously acquired equity investments are revalued. If the balance is still negative, the amount is recognised as income in the income statement.

If, at the date of acquisition, there is uncertainty as to the identification or measurement of acquired assets, liabilities or contingent liabilities or the determination of the acquisition price, initial recognition is based on a preliminary determination of values. The preliminarily determined values may be adjusted or additional assets or liabilities may be recognised up to 12 months after the acquisition, provided that new information has come to light regarding matters existing at the date of acquisition which would have affected the determination of the values at the date of acquisition, had such information been known.

As a general rule, subsequent changes in estimates of conditional acquisition prices are recognised directly in the income statement.

Currency translation

A functional currency is determined for each of the reporting entities in the Group. The functional currency is the currency used in the primary economic environment in which the reporting entity operates. Transactions in currencies other than the functional currency are transactions in foreign currencies.

On initial recognition, transactions in foreign currencies are translated into the functional currency using the exchange rate applicable at the transaction date. Assets and liabilities denominated in foreign currencies are translated using the exchange rates applicable at the statement of financial position date. Translation differences are recognised in the income statement under price adjustments.

On consolidation, the assets and liabilities of the Group's foreign operations are translated using the exchange rates applicable at the statement of financial position date. Income and expense items are translated using the average exchange rates for the period. Exchange rate differences arising on translation are classified as other comprehensive income and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the activities are divested. All other foreign currency translation gains and losses are recognised in the income statement.

The presentation currency in the annual report is DKK.

Segment reporting

Segment information is based on the Group's management and internal financial reporting system and supports the management decisions on allocation of resources and assessment of the Group's results divided into segments.

The operational business segments in the Tryg are Private, Commercial, Corporate and Sweden. Private encompasses the sale of insurances to private individuals in Denmark and Norway. Commercial encompasses the sale of insurances to small and medium sized businesses, in Denmark and Norway. Corporate sells insurances to industrial clients primarily in Denmark, Norway and Sweden. In addition, Corporate handles all business involving brokers. Sweden encompasses the sale of insurance products to private individuals in Sweden as well as sale of Product insurances in the nordic region.

Geographical information is presented on the basis of the economic environment in which the Tryg Group operates. The geographical areas are Denmark, Norway and Sweden.

Segment income and segment costs as well as segment assets and liabilities comprise those items that can be directly attributed to each individual segment and those items that can be allocated to the individual segments on a reliable basis. Unallocated items primarily comprise assets and liabilities concerning investment activity managed at Group level.

Key ratios

Earnings per share (EPS) are calculated according to IAS 33. This and other key ratios are calculated in accordance with Recommendations and Ratios 2015

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issued by the Danish Society of Financial Analysts and the Executive Order on Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds issued by the Danish Financial Supervisory Authority.

Income statement

Premiums

Premium income represents gross premiums written during the year, net of reinsurance premiums and adjusted for changes in premium provisions, corresponding to an accrual of premiums to the risk period of the policies, and in the reinsurers' share of the premium provisions.

Premiums are calculated as premium income in accordance with the risk exposure over the cover period, calculated separately for each individual insurance contract. The calculation is generally based on the pro rata method, although this is adjusted for an unevenly divided risk between lines of business with strong seasonal variations or for policies lasting many years.

The portion of premiums received on contracts that relate to unexpired risks at the statement of financial position date is reported under premium provisions.

The portion of premiums paid to reinsurers that relate to unexpired risks at the statement of financial position date is reported as the reinsurers' share of premium provisions.

Technical interest

According to the Danish FSA's executive order, technical interest is presented as a calculated return on the year's average insurance liability provisions, net of reinsurance. The calculated interest return for grouped classes of risks is calculated as the monthly average provision plus an actual interest from the present yield curve for each individual group of risks. The interest is applied according to the expected run-off pattern of the provisions.

Insurance technical interest is reduced by the portion of the increase in net provisions that relates to unwinding.

Claims

Claims are claims paid during the year and adjusted for changes in claims provisions less the reinsurers' share. In addition, the item includes run-off gains/losses in respect of previous years. The portion of the increase in provisions which can be ascribed to unwinding is transferred to insurance technical interest.

Claims are shown inclusive of direct and indirect claims handling costs, including costs of inspecting and assessing claims, costs to combat and mitigate damage and other direct and indirect costs associated with the handling of claims incurred.

Changes in claims provisions due to changes in yield curve and exchange rates are recognised as a price adjustment.

Tryg hedges the risk of changes in future pay and price figures for provisions for workers' compensation. Tryg uses zero coupon inflation swaps acquired with a view to hedging the inflation risk. Value adjustments of these swaps are included in claims, thereby reducing the effect of changes to inflation expectations under claims.

Bonus and premium discounts

Bonuses and premium discounts represent anticipated and refunded premiums to policyholders, where the amount refunded depends on the claims record, and for which the criteria for payment have been defined prior to the financial year or when the insurance was taken out.

Insurance operating expenses

Insurance operating costs represent acquisition costs and administration expenses less reinsurance commissions received. Expenses relating to acquiring and renewing the insurance portfolio are recognised at the time of writing the business. Underwriting commission is recognised when a legal obligation occurs. Administration expenses are all other expenses attributable to the administration of the insurance portfolio. Administration expenses are accrued to match the financial year.

Leasing

Leases are classified either as operating or finance leases. The assessment of the lease is based on criteria such as ownership, right of purchase when the lease term expires, considerations as to whether the asset is custom made, the lease term and the present value of the lease payments.

Assets held under operating leases are not recognised in the statement of financial position, but the lease payments are recognised in the income statement over the term of the lease, corresponding to the economic lifetime of the asset. The Group has no assets held under finance leases.

Sale and lease back of owner-occupied property – operating lease

Sale and lease back transactions are carried out at fair value and any gains or losses are recognised immediately either in the income statement or other comprehensive income.

Losses are recognised in the income statement unless it is a reversal of a write up previously recognised in other comprehensive income. Gains are recognised in other comprehensive income unless it is a reversal of write down previously recognised in the income statement.

Share-based payment

The Tryg Group's incentive programmes comprise share option programmes, employee shares and matching shares.

Share option programme

The share option programme was closed in 2012 and the share option plan comprised no share options at the end of 2016.

The value of services received as consideration for options granted is measured at the fair value of the options.

Equity-settled share options are measured at fair value at the time of allocation and recognised under staff expenses over the period from the time of allocation until vesting. The balancing item is recognised directly in equity.

The options are issued at an exercise price that corresponds to the market price of the Group's shares at the time of allocation plus 10%. No other vesting conditions apply. Special provisions are in place concerning sickness and death and in case of change to the Group's capital position etc.

The share option agreement entitles the employee to the options unless the employee resigns his position or is dismissed due to breach of the contract of employment. In case of termination due to restructuring or retirement, the employee is still entitled to the options.

The share options are exercisable exclusively during a 13-day period, which starts the day after the publication of full-year, half-year and quarterly reports and in accordance with Tryg's in-house rules on trading in the Group's shares. The options are settled in shares. A part of the Group's holding of own shares is reserved for settlement of the options allocated.

The fair value of the options granted is estimated using the Black & Scholes option model. The calculation takes into account the terms and conditions of the share options granted.

Employee shares

According to established rules, the Group's employees can be granted a bonus in the form of employee shares. When the bonus is granted, employees can choose between receiving shares or cash. The expected value of the shares will be expensed over the vesting period. The scheme will be treated as a complex financial instrument, consisting of the right to

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cash settlement and the right to request delivery of shares. The difference between the value of shares and the cash payment is recognised in equity and is not remeasured. The remainder is treated as a liability and is remeasured until the time of exercise, such that the total recognition is based on the actual number of shares or the actual cash amount.

Matching shares

Members of Executive Board and other senior employees have been allocated shares in accordance with the "Matching shares" scheme. Under Matching shares, the individual Executive Board member or other senior employee is allocated one share in Tryq A/S for each share he or she acquires in Tryq A/S at the market rate for certain liquid cash at a contractually agreed sum in connection with the Matching share programme.

The holder acquires the shares in the open window following publication of the annual report for the previous year. The shares (matching shares) are provided free of charge, three or four years after the time of purchase of the investment Shares. The holder may not sell the shares until six months after the matching time.

The shares are recognised at market value and are accrued over the four and tree year maturation period, based on the market price at the time of acquisition. Recognition is from the end of the month of acquisition under staff expenses with a balancing entry directly in equity. If the holder retires during the maturation period but remains entitled to shares, the remaining expense is recognised in the current accounting year.

Investment activities

Income from associates includes the Group's share of the associates' net profit.

Income from investment properties before fair value adjustment represents the profit from property operations less property management expenses.

Interest and dividends represent interest earned and dividends received during the financial year. Realised and unrealised investment gains and losses, including gains and losses on derivative financial instruments, value adjustment of investment property, foreign currency translation adjustments and the effect of movements in the yield curve used for discounting, are recognised as price adjustments.

Investment management charges represent expenses relating to the management of investments including salary and management fees on the investment area.

Other income and expenses

Other income and expenses include income and expenses which cannot be ascribed to the Group's insurance portfolio or investment assets, including the sale of products for Nordea Liv & Pension.

Discontinued and divested business

Discontinued and divested business is consolidated in one item in the income statement and supplemented with disclosure of the discontinued and divested business in a note to the financial statements. Discontinued and divested business includes gross premiums, gross claims, gross costs, profit/loss on ceded business, insurance technical interest net of reinsurance, investment return after insurance technical interest, other income and costs and tax in respect of the discontinued business. Any reversal of earlier impairment is recognised under other income and costs.

The statement of financial position items concerning discontinued activities are reported unchanged under the respective entries whereas assets and liabilities concerning divested activities are consolidated under one item as assets held for sale and liabilities held for sale.

The comparative figures, including five-year financial highlights and key ratios, have been restated to reflect discontinued business. Discontinued and divested business in the income statement includes the profit/loss after tax of the run-off for the marine hull business and the divested activities in the Finnish branch. Discontinued business also comprises the Tryq Forsikring A/S run-off business.

Statement of financial position

Intangible assets

Goodwill

Goodwill was acquired in connection with acquisition of business. Goodwill is calculated as the difference between the cost of the undertaking and the fair value of acquired identifiable assets, liabilities and contingent liabilities at the time of acquisition. Goodwill is allocated to the cash-generating units under which management manages the investment and is recognised under intangible assets. Goodwill is not amortised but is tested for depreciation at least once per year.

Trademarks and customer relations

Trademarks and customer relations have been identified as intangible assets on acquisition. The intangible assets are recognised at fair value at the time of acquisition and amortised on a straight-line basis over the expected economic lifetime of 5–12 years.

Software

Acquired computer software licences are capitalised on the basis of the costs incidental to acquiring and bringing to use the specific software. The costs are amortised based on an estimated economic lifetime of up to 4 years.

Costs for group developed software that are directly connected with the production of identifiable and unique software products, where there is sufficient certainty that future earnings will exceed the costs in more than one year, are reported as intangible assets. Direct costs include personnel costs for software development and directly attributable relevant fixed costs. All other costs connected with the development or maintenance of software are continuously charged as expenses.

After completion of the development work, the asset is amortised according to the straight-line method over the assessed economic lifetime, though over a maximum of 4 years. The amortisation basis is reduced by any impairment and write-downs.

Assets under construction

Group-developed intangibles are recorded under the entry "Assets under construction" until they are put into use, whereupon they are reclassified as software and are amortized in accordance with the amortization periods stated above.

Fixed assets

Operating equipment

Fixtures and operating equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost encompasses the purchase price and costs directly attributable to the acquisition of the relevant assets until the time when such assets are ready to be brought into use. Depreciation of operating equipment is calculated using the straight-line method over its estimated economic lifetime as follows:

IT, 4–8 years
Vehicles, 5 years
Furniture, fittings and equipment, 5–10 years

Leasehold improvements are depreciated over the expected economic lifetime, however maximally the term of the lease.

Gains and losses on disposals and retired assets are determined by comparing proceeds with carrying amounts. Gains and losses are recognised in the income statement. When revalued assets are sold, the amounts included in the revaluation reserves are transferred to retained earnings.

Land and buildings

Land and buildings are divided into owner-occupied property and investment property. The Group's

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owner-occupied properties consist of the head office buildings in Ballerup and Bergen and a small number of holiday homes. The remaining properties are classified as investment property.

Owner-occupied property

Owner-occupied property is property that is used in the Group's operations. Owner-occupied properties are measured in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and impairment losses. Revaluations are performed regularly to avoid material differences between the carrying amounts and fair values of owner-occupied property at the statement of financial position date. The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity.

Increases in the revalued carrying amounts of owner-occupied property are recognised in the revaluation reserve in equity. Decreases that offset previous revaluations of the same asset are charged against the revaluation reserves directly in equity; all other decreases are charged to the income statement.

Costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, when it is probable that future economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. Ordinary repair and maintenance costs are expensed in the income statement when incurred.

Depreciation on owner-occupied property is calculated based on the straight-line method and using an estimated economic lifetime of up to 50 years. Land is not depreciated.

Assets under construction

In connection with the refurbishment of owner-occupied property, costs to be capitalised are recognised at cost under owner-occupied property. On completion of the project, it is reclassified as owner-occupied property, and depreciation is made on a straight-line basis over the expected economic lifetime, up to the number of years stated under the individual categories.

Investment property

Properties held for renting yields that are not occupied by the Group are classified as investment properties.

Investment property is recognised at fair value. Fair value is based on market prices, adjusted for any differences in the nature, location or maintenance condition of specific assets. If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections and recent prices in the market.

The fair value is calculated on the basis of market-specific rental income per property and typical operating expenses for the coming year. The resulting operating income is divided by the required return on the property in per cent, which is adjusted to reflect market interest rates and property characteristics, corresponding to the present value of a perpetual annuity. The value is subsequently adjusted with the value in use of the return on prepayments and deposits and adjustments for specific property issues such as vacant premises or special tenant terms and conditions.

Changes in fair values are recorded in the income statement.

Impairment test for intangible assets, property and operating equipment

Operating equipment and intangible assets are assessed at least once per year to ensure that the depreciation method and the depreciation period that is used are connected to the expected economic lifetime. This also applies to the salvage value. Write-down is performed if depreciation has been demonstrated. A continuous assessment of owner-occupied property is performed.

Goodwill is tested annually for impairment, or more often if there are indications of impairment, and impairment testing is performed for each cash-generating unit to which the asset belongs. The present value is normally established using budgeted cash flows based on business plans. The business plans are based on past experience and expected market developments.

Equity investments in Group undertakings

The parent company's equity investments in subsidiaries are recognised and measured using the equity method. The parent company's share of the enterprises' profits or losses after elimination of unrealised intra-group profits and losses is recognised in the income statement. In the statement of financial position, equity investments are measured at the pro rata share of the enterprises' equity.

Subsidiaries with a negative net asset value are recognised at zero value. Any receivables from these enterprises are written down by the parent company's share of such negative net asset value where the receivables are deemed irrecoverable. If the negative net asset value exceeds the amount receivable, the remaining amount is recognised under provisions if the parent company has a legal or constructive obligation to cover the liabilities of the relevant enterprise.

Net revaluation of equity investments in subsidiaries is taken to reserve for net revaluation under equity if the carrying amount exceeds cost.

The results of foreign subsidiaries are based on translation of the items in the income statement using average exchange rates for the period unless they deviate significantly from the transaction day exchange rates. Income and costs in domestic enterprises denominated in foreign currencies are translated using the exchange rates applicable on the transaction date.

Statement of financial position items of foreign subsidiaries are translated using the exchange rates applicable at the statement of financial position date.

When is it assessed that the parent company no longer has control over the subsidiary, it will be transferred to either assets held for sale or unquoted shares and when sold, it will be derecognised.

Equity investments in associates

Associates are enterprises in which the Group has significant influence but not control, generally in the form of an ownership interest of between 20% and 50% of the voting rights. Equity investments in associates are measured using the equity method so that the carrying amount of the investment represents the Group's proportionate share of the enterprises' net assets.

Profit after tax from equity investments in associates is included as a separate line in the income statement. Income is made up after elimination of unrealised intra-group profits and losses.

Associates with a negative net asset value are measured at zero value. If the Group has a legal or constructive obligation to cover the associate's negative balance, such obligation is recognised under liabilities.

Investments

Investments include financial assets at fair value which are recognised in the income statement. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this at every reporting date.

Financial assets measured at fair value with recognition of value adjustments in the income statement comprise assets that form part of a trading portfolio and financial assets designated at fair value with value adjustment via the income statement.

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Financial assets at fair value recognised in income statement

Financial assets are recognised at fair value on initial recognition if they are entered in a portfolio that is managed in accordance with fair value. Derivative financial instruments are similarly classified as financial assets held for sale, unless they are classified as security.

Realised and unrealised profits and losses that may arise as a result of changes in the fair value for the category financial assets at fair value are recognised in the income statement in the period in which they arise.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired, or if they have been transferred, and the Group has also transferred substantially all risks and rewards of ownership. Financial assets are recognised and derecognised on a trade date basis, the date on which the Group commits to purchase or sell the asset.

The fair values of quoted securities are based on stock exchange prices at the statement of financial position date. For securities that are not listed on a stock exchange, or for which no stock exchange price is quoted that reflects the fair value of the instrument, the fair value is determined using valuation techniques. These include the use of similar recent arm's length transactions, reference to other similar instruments or discounted cash flow analysis.

Derivative financial instruments and hedge accounting

The Group's activities expose it to financial risks, including changes in share prices, foreign exchange rates, interest rates and inflation. Forward exchange contracts and currency swaps are used for currency hedging of portfolios of shares, bonds, hedging of foreign entities and insurance statement of financial position items. Interest rate derivatives in the form of futures, forward contracts, repos, swaps and FRAs are used to manage cash flows and interest rate risks related to the portfolio of bonds and insurance provisions. Share derivatives in the form of futures and options are used from time to time to adjust share exposures.

Derivative financial instruments are reported from the trading date and are measured in the statement of financial position at fair value. Positive fair values of derivatives are recognised as derivative financial instruments under assets. Negative fair values of derivatives are recognised under derivative financial instruments under liabilities. Positive and negative values are only offset when the company is entitled or intends to make net settlement of more financial instruments.

Calculation of value is generally performed on the basis of rates supplied by Danske Bank with relevant information providers and is checked by the Group's valuation technicians. Discounting on the basis of market interest rates is applied in the case of derivative financial instruments involving an expected future cash flow.

Recognition of the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of investments in foreign entities. Changes in the fair value of derivatives that are designated and qualify as net investment hedges in foreign entities and which provide effective currency hedging of the net investment are recognised directly in equity. The net asset value of the foreign entities estimated at the beginning of the financial year is hedged 90-100% by entering into short-term forward exchange contracts according to the requirements of hedge accounting. Changes in the fair value relating to the ineffective portion are recognised in the income statement. Gains and losses accumulated in equity are included in the income statement on disposal of the foreign entity.

Reinsurers' share of provisions for insurance contracts

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurers' share of provisions for insurance contracts. Contracts that do not meet these classification requirements are classified as financial assets.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as assets and reported as reinsurers' share of provisions for insurance contracts.

Amounts receivable from reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract.

Changes due to unwinding are recognised in insurance technical interest. Changes due to changes in the yield curve or foreign exchange rates are recognised as price adjustments.

The Group continuously assesses its reinsurance assets for impairment. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount. Impairment losses are recognised in the income statement.

Receivables

Total receivables comprise accounts receivable from policyholders and insurance companies as well as other accounts receivable. Other receivables primarily contain accounts receivable in connection with property.

Receivables that arise as a result of insurance contracts are classified in this category and are reviewed for impairment as a part of the impairment test of accounts receivable.

Receivables are recognised initially at fair value and are subsequently assessed at amortised cost. The income statement includes an estimated reservation for expected unobtainable sums when there is a clear indication of asset impairment. The reservation entered is assessed as the difference between the carrying amount of an asset and the present value of expected future cash flows.

Other assets

Other assets include current tax assets and cash at bank and in hand. Current tax assets are receivables concerning tax for the year adjusted for on-account payments and any prior-year adjustments. Cash at bank and in hand is recognised at nominal value at the statement of financial position date.

Prepayments and accrued income

Prepayments include expenses paid in respect of subsequent financial years and interest receivable. Accrued underwriting commission relating to the sale of insurance products is also included.

Equity

Share capital

Shares are classified as equity when there is no obligation to transfer cash or other assets. Costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax.

Revaluation reserves

Revaluation of owner-occupied property is recognised in other comprehensive income unless the revaluation offsets a previous impairment loss.

Foreign currency translation reserve

Assets and liabilities of foreign entities are recognised using the exchange rate applicable at the statement of financial position date. Income and expense items are recognised using the average monthly exchange rates for the period. Any resulting differences are recognised in Other comprehensive income.

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When an entity is wound up, the balance is transferred to the income statement. The hedging of the currency risk in respect of foreign entities is also offset in other comprehensive income in respect of the part that concerns the hedge.

Contingency fund reserves

Contingency fund reserves are recognised as part of retained earnings under equity. The reserves may only be used when so permitted by the Danish Financial Supervisory Authority and when it is for the benefit of the policyholders. The Norwegian contingency fund reserves include provisions for the Norwegian Natural Perils Pool and security reserve. The Danish and Swedish provisions comprise contingency fund provisions. Deferred tax on the Norwegian and Swedish contingency fund reserves is allocated.

Dividends

Proposed dividend is recognised as a liability at the time of adoption by the shareholders at the annual general meeting (date of declaration).

Own shares

The purchase and sale sums of own shares and dividends thereon are taken directly to retained earnings under equity. Own shares include shares acquired for incentive programmes and share buy-back programme.

Proceeds from the sale of own shares in connection with the exercise of share options or matching shares are taken directly to equity.

Subordinate loan capital

Subordinate loan capital is recognised initially at fair value, net of transaction costs incurred. Subordinate loan capital is subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the borrowing period using the effective interest method.

Provisions for insurance contracts

Premiums written are recognised in the income statement (premium income) proportionally over the period of coverage and, where necessary, adjusted to reflect any time variation of the risk. The portion of premiums received on in-force contracts that relates to unexpired risks at the statement of financial position date is reported as premium provisions. Premium provisions are generally calculated according to a best estimate of expected payments throughout the agreed risk period; however, as a minimum as the part of the premium calculated using the pro rata temporis principle until the next payment date. Adjustments are made to reflect any risk variations. This applies to gross as well as ceded business.

Claims and claims handling costs are expensed in the income statement as incurred based on the estimated liability for compensation owed to policyholders or third parties sustaining losses at the hands of the policy-holders. They include direct and indirect claims handling costs that arise from events that have occurred up to the statement of financial position date even if they have not yet been reported to the Group. Claims provisions are estimated using the input of assessments for individual cases reported to the Group and statistical analyses for the claims incurred but not reported and the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions). The provisions include claims handling costs.

Claims provisions are discounted. Discounting is based on a yield curve reflecting duration applied to the expected future payments from the provision. Discounting affects the motor liability, professional liability, workers' compensation and personal accident and health insurance classes, in particular.

Provisions for bonuses and premium discounts etc. represent amounts expected to be paid to policyholders in view of the claims experience during the financial year.

Claims provisions are determined for each line of business based on actuarial methods. Where such business lines encompass more than one business area, short-tailed claims provisions are distributed based on number of claims reported while long-tailed claims provisions are distributed based on premiums earned. The models currently used are Chain-Ladder, Bornhuetter-Ferguson, the Loss Ratio method and De Vylder's credibility method. Chain-Ladder techniques are used for lines of business with a stable run-off pattern. The Bornhuetter-Ferguson method, and sometimes the Loss Ratio method, are used for claims years in which the previous run-off provides insufficient information about the future run-off performance. De Vylder's credibility method is used for areas that are somewhere in between the Chain-Ladder and Bornhuetter-Ferguson/Loss Ratio methods, and may also be used in situations that call for the use of exposure targets other than premium volume, for example the number of insured.

The provision for annuities under workers' compensation insurance is calculated on the basis of a mortality corresponding to the G82 calculation basis (official mortality table).

In some instances, the historic data used in the actuarial models is not necessarily predictive of the expected future development of claims. For example, this is the case with legislative changes where an a priori estimate is used for premium increases related to the expected increase in claims. In connection with legislative changes, the same estimate is used for determining the change in the level of claims. Subsequently, this estimate is maintained until new loss history materialises which can be used for re-estimation.

Several assumptions and estimates underlying the calculation of the claims provisions are mutually dependent. Most importantly, this can be expected to be the case for assumptions relating to interest rates and inflation.

Workers' compensation is an area in which explicit inflation assumptions are used, with annuities for the insured being indexed based on the workers' compensation index. An inflation curve that reflects the market's inflation expectations plus a real wage spread is used as an approximation to the workers' compensation index.

For other lines of business, the inflation assumptions, because present only implicitly in the actuarial models, will cause a certain lag in predicting the level of future losses when a change in inflation occurs. On the other hand, the effect of discounting will show immediately as a consequence of inflation changes to the extent that such changes affect the interest rate.

Other correlations are not deemed to be significant.

Liability adequacy test

Tests are continuously performed to ensure the adequacy of the insurance provisions. In performing these tests, current best estimates of future cash flows of claims, gains and direct and indirect claims handling costs are used. Any deficiency results in an increase in the relevant provision, and the adjustment is recognised in the income statement.

Employee benefits

Pension obligations

The Group operates various pension schemes. The schemes are funded through contributions to insurance companies or trustee-administered funds. In Norway, the Group operates a defined-benefit plan. In Denmark, the Group operates a defined-contribution plan. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions. In Sweden, the Group complies with the industry pension agreement, FTP-Planen. FTP-Planen is primarily a defined-benefit plan as regards the future pension benefits. Försäkringsbranschens Pensionskassa (FPK) is

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Annual report 2016 | Tryg A/S | 97

Notes

unable to provide sufficient information for the Group to use defined-benefit accounting. The plan is therefore accounted for as a defined-contribution plan.

For the defined-benefit plan recognised in the statement of financial position, an annual actuarial calculation is made of the capital value of the future benefits to which employees are entitled as a result of their employment with the group so far and which must be disbursed according to the plan. The capital value is calculated using the Projected Unit Credit Method, which are based on input Cf. note 20.

The capital value of the pension obligations less the fair value of any plan assets is recognised in the statement of financial position under pension assets and pension obligations, respectively, depending on whether the net amount is an asset or a liability.

In case of changes to assumptions concerning the discounting factor, inflation, mortality and disability or in case of differences between expected and realised returns on pension assets, actuarial gains or losses ensue. These gains and losses are recognised under other comprehensive income.

In case of changes to the benefits stemming from the employees' employment with the group so far, a change is seen in the actuarially calculated capital value which is considered as pension costs for previous financial years. The change is recognised in the results immediately. Net finance costs for the year are recognised in the investment return. All other costs are recognised under insurance operating costs. The plan is closed for new business.

Other employee benefits

Employees of the Group are entitled to a fixed payment when they reach retirement and when they have been employed with the Group for 25 and for 40 years. The Group recognises this liability at the time of signing the contract of employment.

In special instances, the employee can enter into a contract with the Group to receive compensation for loss of pension benefits caused by reduced working hours. The Group recognises this liability based on statistical models.

Income tax and deferred tax

The Group expenses current tax according to the tax laws of the jurisdictions in which it operates. Current tax liabilities and current tax receivables are recognised in the statement of financial position as estimated tax on the taxable income for the year, adjusted for change in tax on prior years' taxable income and for tax paid under the on-account tax scheme.

Deferred tax is measured according to the statement of financial position liability method on all timing differences between the tax and accounting value of assets and liabilities. Deferred income tax is measured using the tax rules and tax rates that apply in the relevant countries on the statement of financial position date when the deferred tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets, including the tax value of tax losses carried forward, are recognised to the extent that it is probable that future taxable profit will be realised against which the temporary differences can be offset.

Deferred income tax is provided on temporary differences concerning investments, except where Tryg controls when the temporary difference will be realised, and it is probable that the temporary difference will not be realised in the foreseeable future.

Other provisions

Provisions are recognised when the Group has a legal or constructive obligation as a result of an event prior to or at the statement of financial position date, and it is probable that future economic benefits will flow out of the Group. Provisions are measured at the

best estimate by management of the expenditure required to settle the present obligation.

Provisions for restructurings are recognised as obligations when a detailed formal restructuring plan has been announced prior to or at the statement of financial position date at the latest to the persons affected by the plan.

Own insurance is included under other provisions. The provisions apply to the Group's own insurance claims and are reported when the damage occurs according to the same principle as the Group's other claims provisions.

Debt

Debt comprises debt in connection with direct insurance and reinsurance, amounts owed to credit institutions, current tax obligations and other debt. Derivative financial instruments are assessed at fair value according to the same practice that applies to financial assets. Other liabilities are assessed at amortised cost based on the effective interest method.

Cash flow statement

The consolidated cash flow statement is presented using the direct method and shows cash flows from operating, investing and financing activities as well as the Group's cash and cash equivalents at the beginning and end of the financial year. No separate cash flow statement has been prepared for the parent company because it is included in the consolidated cash flow statement.

Cash flows from operating activities are calculated whereby major classes of gross cash receipts and gross cash payments are disclosed.

Cash flows from investing activities comprise payments in connection with the purchase and sale of intangible assets, property, plant and equipment as well as financial assets and deposits with credit institutions.

Cash flows from financing activities comprise changes in the size or composition of Tryg's share capital and related costs as well as the raising of loans, repayments of interest-bearing debt and the payment of dividends.

Cash and cash equivalents comprise cash and demand deposits.

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Annual report 2016 | Tryg A/S | 98

Income statement for Tryg A/S (parent company)

DKKm		2016	2015
Note	Investment activities
1	Income from Group undertakings	2,525	2,032
	Interest expenses	0	1
	Administration expenses in connection with investment activities	-6	-7
	Total investment return	2,519	2,026
2	Other expenses	-63	-75
	Profit/loss before tax	2,456	1,951
3	Tax	15	18
	Profit/loss on continuing business	2,471	1,969
	Profit/loss for the year	2,471	1,969
	Proposed distribution for the year:
	Dividend	2,770	1,759
	Transferred to reserve for net revaluation according to the equity method	-25	-1,668
	Transferred to retained earnings	-274	1,878
		2,471	1,969
DKKm		2016	2015
---	---	---	---
Note	Statement of comprehensive income
	Profit/loss for the year	2,471	1,969
	Other comprehensive income
	Other comprehensive income which cannot subsequently be reclassified as profit or loss
	Change in equalisation provision and other provisions	0	21
	Change in taxrates on security provisions	0	141
	Sale of owner-occupied property a)	215	0
	Sale of owner-occupied property, revaluation from previous years a)	-115	4
	Tax on sale of owner-occupied property	-53	0
	Tax on revaluation of owner-occupied property from previous years	29	2
	Actuarial gains/losses on defined-benefit pension plans	-95	-12
	Tax on actuarial gains/losses on defined-benefit pension plans	24	3
		5	159
	Other comprehensive income which can subsequently be reclassified as profit or loss
	Exchange rate adjustments of foreign entities for the year	51	-89
	Hedging of currency risk in foreign entities for the year	-50	86
	Tax on hedging of currency risk in foreign entities for the year	11	-21
		12	-24
	Total other comprehensive income	17	135
	Comprehensive income	2,488	2,104

a) Please refer to note 26 Sale of properties in the Tryg Group.

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Annual report 2016 | Tryg A/S | 99

Statement of financial position for Tryg A/S (parent company)

DKKm		2016	2015
Note	Assets
	Equity investments in Group undertakings	10,127	10,135
	Total investments in Group undertakings	10,127	10,135
	Total investment assets	10,127	10,135
	Other receivables	1	0
	Total receivables	1	0
5	Current tax assets	15	18
	Cash at bank and in hand	0	1
	Total other assets	15	19
	Total assets	10,143	10,154
	Equity and liabilities
	Equity	9,437	9,659
	Debt to Group undertakings	701	487
	Other debt	5	8
	Total debt	706	495
	Total equity and liabilities	10,143	10,154
6	Deferred tax assets
7	Own funds
8	Contractual obligations, contingent liabilities and collateral
9	Related parties
10	Reconciliation of profit/loss and equity
11	Accounting policies

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Annual report 2016 | Tryg A/S | 100

Statement of changes in equity (parent company)

DKKm	Share capital	Revaluation reserves	Retained earnings	Proposed dividend	Total
Equity at 31 December 2015	1,448	3,148	4,050	1,013	9,659
2016
Profit/loss for the year		-25	-274	2,770	2,471
Other comprehensive income		17			17
Total comprehensive income	0	-8	-274	2,770	2,488
Nullification of own shares	-35		35		0
Dividend paid				-1,766	-1,766
Dividend own shares			52		52
Purchase and sale of own shares			-1,000		-1,000
Exercise of share options			1		1
Issue of share options and matching shares			3		3
Total changes in equity in 2016	-35	-8	-1,183	1,004	-222
Equity at 31 December 2016	1,413	3,140	2,867	2,017	9,437
Equity at 31 December 2014	1,492	4,856	3,055	1,731	11,134
2015
Adjustment 1.1.2015		-175			-175
Profit/loss for the year		-1,668	1,878	1,759	1,969
Other comprehensive income		135			135
Total comprehensive income	0	-1,533	1,878	1,759	2,104
Nullification of own shares	-44		44		0
Dividend paid				-2,477	-2,477
Dividend, own shares			97		97
Purchase and sale of own shares			-1,044		-1,044
Exercise of share options			13		13
Issue of employee shares			2		2
Issue of share options and matching shares			5		5
Total changes in equity in 2015	-44	-1,708	995	-718	-1,475
Equity at 31 December 2015	1,448	3,148	4,050	1,013	9,659

Dividend per share in 2016 includes ordinary dividend paid out in July of DKK 2.60, proposed ordinary dividend of DKK 3.60, totalling DKK 6.20 (DKK 6.00) and proposed extraordinary dividend of DKK 3.54.

Proposed dividend per share of DKK 3.60 is calculated as the total dividend proposed by the Supervisory Board after the end of the financial year divided by the total number of shares at the end of the year (282,541,204 shares). The dividend is not paid until approved by the shareholders at the annual general meeting.

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Annual report 2016 | Tryg A/S | 101

Notes

DKKm		2016	2015
1	Income from Group undertakings
	Tryg Forsikring A/S	2,525	2,032
		2,525	2,032
2	Other expenses
	Administration expenses	-63	-75
		-63	-75
	Remuneration for the Executive Board is paid partly by Tryg A/S and partly by Tryg Forsikring A/S and Tryg Forsikring, a Norwegian branch of Tryg Forsikring A/S and is charged to Tryg A/S via the cost allocation.
	Remuneration for the Supervisory Board, the Executive Board and risk-takers can be seen from note 29 concerning related parties of the Tryg Group. Refer to Note 6 for the Tryg Group for a specification of the audit fee.
	Average number of full-time employees for the year	15	15
3	Tax
	Reconciliation of tax costs
	Tax on profit/loss for the year	15	19
	Tax adjustments, previous years	0	-1
		15	18
		%	%
	Effective tax rate
	Tax on profit/loss for the year	22.0	23.5
	Tax adjustment, previous years	0.0	-1.0
		22.0	22.5
DKKm		2016	2015
---	---	---	---
4	Equity investments in Group undertakings
	Cost
	Cost at 1 January	6,987	6,987
	Cost at 31 December	6,987	6,987
	Revaluation and impairment to net asset value
	Revaluation and impairment at 1 January	3,148	4,681
	Revaluations for the year	2,542	2,167
	Dividend paid	-2,550	-3,700
	Revaluation and impairment at 31 December	3,140	3,148
	Carrying amount at 31 December	10,127	10,135
	Name and registered office	Ownership share in %	Equity
	2016
	Tryg Forsikring A/S, Ballerup	100	10,127
	2015
	Tryg Forsikring A/S, Ballerup	100	10,135
DKKm		2016	2015
5	Current tax assets
	Tax receivable at 1 January	18	14
	Current tax for the year	15	18
	Tax paid for the year	-18	-14
	Tax receivable at 31 December	15	18

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Annual report 2016 | Tryg A/S | 102

Notes

DKKm	2016	2015
6 Deferred tax assets
Capitalised tax losses
Tryg A/S	0	0
Non-capitalised tax losses
Tryg A/S	16	16
The loss in Tryg A/S can only be utilised in Tryg A/S.
The loss can be carried forward indefinitely.
The losses are not recognised as tax assets until it has been substantiated that the company can generate sufficient future taxable income to offset the tax losses.
7 Own funds
2016
Please refer to note 18 in the Tryg Group on Solvency II own funds.
2015
Capital adequacy
Equity according to annual report 2015	9,846
Proposed dividend	-1,013
Solvency requirements of subsidiaries – 50%	-3,868
Tier 1 capital	4,965
Subordinate loan capital	1,707
Solvency requirements of subsidiaries – 50%	-3,868
Capital base	2,804
Weighted items	2,586
Solvency ratio (Solvency I – ratio between capital base and weighted assets)	108

The calculation of the 2015 Solvency I – ratio has not been adjusted for the FSA executive order on yield curves from 1 January 2016.

DKKm	2016	2015
8 Contractual obligations, contingent liabilities and collateral
The Danish companies in the Tryg Group are jointly taxed with TryghedsGruppen smba. The companies and the other jointly taxed companies are liable for any obligations to withhold taxes at source on interest, royalties, dividends and income taxes etc. in respect of the jointly taxed companies.
Companies in the Tryg Group are party to a number of disputes in Denmark, Norway and Sweden. Management believes that the outcome of these disputes will not affect the Group's financial position over and above the receivables and liabilities recognised in the statement of financial position at 31 December 2016.
9 Related parties
Tryg A/S has no related parties with a controlling influence other than the parent company, TryghedsGruppen smba. Related parties with a significant influence include the Supervisory Board, the Executive Board and their members' related family. Related parties are the same as for the Tryg Group; please see note 29 in the Tryg Group.
Parent company
TryghedsGruppen smba
TryghedsGruppen smba controls 60% of the shares in Tryg A/S.
Transactions with Group undertakings and associates
Tryg A/S exercises full control over Tryg Forsikring A/S.
Intra-group trading involved
- Providing and receiving services	16	13
- Intra-group accounts	-701	-487
Administration fee, etc. is settled on a cost-recovery basis.
Intra-group accounts are offset and carry interest on market terms.

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Annual report 2016 | Tryg A/S | 103

Notes

DKKm	2016	2015
10 Reconciliation of profit/loss and equity
The executive order on application of International Financial Reporting Standards for companies subject to the Danish Financial Business Act issued by the Danish FSA requires disclosure of differences between the format of the annual report under International Financial Reporting Standards (IFRS) and the rules issued by the Danish FSA, however, there are no differences on profit/loss.
The following is a reconciliation of equity.
Reconciliation of equity
Equity – IFRS	9,437	9,644
Deferred tax provisions for contingency funds	15	15
Change during the year of deferred tax provisions for contingency funds	-15	0
Equity – Danish FSA executive order	9,437	9,659

11 Accounting policies

Please refer to Tryg Group's accounting policies.

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Annual report 2016 | Tryg A/S | 104

Q4 2016 | Quarterly outline

DKKm	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014
Private
Gross premium income	2,235	2,190	2,148	2,137	2,172	2,211	2,226	2,194	2,249
Technical result	366	447	393	198	285	398	434	181	400
Key ratios
Gross claims ratio	67.9	63.2	65.9	74.2	71.3	65.1	63.3	76.5	65.3
Net reinsurance ratio	1.8	2.1	1.2	2.2	2.3	2.3	2.1	0.0	2.1
Claims ratio, net of reinsurance	69.7	65.3	67.1	76.4	73.6	67.4	65.4	76.5	67.4
Gross expense ratio	13.9	14.3	14.5	14.3	13.4	14.7	15.3	15.3	15.0
Combined ratio	83.6	79.6	81.6	90.7	87.0	82.1	80.7	91.8	82.4
Combined ratio exclusive of run-off	86.3	84.5	84.9	94.1	89.3	86.5	83.7	96.8	84.5
Commercial
Gross premium income	972	977	977	967	970	1,022	997	1,003	1,050
Technical result	166	142	172	215	147	136	220	155	270
Key ratios
Gross claims ratio	58.3	65.5	64.1	56.6	62.3	77.1	55.7	66.3	55.2
Net reinsurance ratio	8.0	3.4	0.7	3.7	5.5	-6.8	5.2	0.9	3.7
Claims ratio, net of reinsurance	66.3	68.9	64.8	60.3	67.8	70.3	60.9	67.2	58.9
Gross expense ratio	16.5	16.6	17.6	17.5	17.2	16.6	17.2	17.4	15.6
Combined ratio	82.8	85.5	82.4	77.8	85.0	86.9	78.1	84.6	74.5
Combined ratio exclusive of run-off	92.2	92.8	84.7	90.2	91.3	98.6	84.5	98.9	86.5
Corporate
Gross premium income	966	968	921	920	949	984	993	968	1,015
Technical result	9	117	156	139	5	195	99	70	98
Key ratios
Gross claims ratio	84.3	42.9	60.6	55.2	69.2	99.9	170.5	67.6	67.2
Net reinsurance ratio	4.2	34.0	11.6	18.0	20.5	-30.1	-91.2	13.4	12.6
Claims ratio, net of reinsurance	88.5	76.9	72.2	73.2	89.7	69.8	79.3	81.0	79.8
Gross expense ratio	10.6	11.1	10.9	11.6	9.7	10.6	11.0	11.9	10.6
Combined ratio	99.1	88.0	83.1	84.8	99.4	80.4	90.3	92.9	90.4
Combined ratio exclusive of run-off	111.6	98.3	98.0	100.9	106.2	98.1	94.5	100.1	106.4

A further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables

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Annual report 2016 | Tryg A/S | 105

Q4 2016 | Quarterly outline

DKKm	Q4 2016	Q3 2016	Q2 2016	Q1 2016	Q4 2015	Q3 2015	Q2 2015	Q1 2015	Q4 2014
Sweden
Gross premium income	337	384	338	289	313	373	342	289	338
Technical result	23	38	49	10	85	38	72	23	7
Key ratios
Gross claims ratio	72.7	72.9	65.7	75.1	51.8	73.2	61.1	72.0	74.6
Net reinsurance ratio	0.0	0.5	0.3	0.0	0.3	0.5	0.0	-0.7	1.5
Claims ratio, net of reinsurance	72.7	73.4	66.0	75.1	52.1	73.7	61.1	71.3	76.1
Gross expense ratio	20.2	16.1	19.2	21.1	21.1	15.8	17.8	20.8	22.2
Combined ratio	92.9	89.5	85.2	96.2	73.2	89.5	78.9	92.1	98.3
Combined ratio exclusive of run-off	101.2	92.1	100.3	105.9	94.3	92.4	93.2	100.1	99.2
Other a)
Gross premium income	-6	-5	-5	-3	-11	-7	-8	-3	-6
Technical result	-250	0	0	0	0	-120	0	0	0
Tryg
Gross premium income	4,504	4,514	4,379	4,310	4,393	4,583	4,550	4,451	4,646
Technical result	314	744	770	562	522	647	825	429	775
Investment return	598	191	181	17	242	-441	-84	261	13
Other income and costs	-112	-12	-17	-16	-19	-20	-27	-25	-20
Profit/loss before tax	800	923	934	563	745	186	714	665	768
Profit/loss	560	732	734	445	754	110	580	525	640
Key ratios
Gross claims ratio	72.0	59.7	64.5	66.3	68.0	76.6	84.8	72.0	64.1
Net reinsurance ratio	3.1	9.5	3.1	5.7	6.2	-6.8	-17.8	3.1	4.7
Claims ratio, net of reinsurance	75.1	69.2	67.6	72.0	74.2	69.8	67.0	75.1	68.8
Gross expense ratio	18.0	14.5	15.0	15.1	14.2	16.3	15.2	15.6	14.9
Combined ratio	93.1	83.7	82.6	87.1	88.4	86.1	82.2	90.7	83.7
Combined ratio exclusive of run-off	99.8	90.1	89.0	95.7	93.9	94.9	87.1	98.5	91.0

a) Amounts relating to eliminations and one-off items are included under 'Other'. Please refer to note 2 Geographical segments.

a) A further detailed version of the presentation can be downloaded from tryg.com/uk > investor > Downloads > tables

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Annual report 2016 | Tryg A/S | 106

Q4 2016 | Geographical segments

DKKm	Q4 2016	Q4 2015	2016	2015
Danish general insurance a)
Gross premium income	2,407	2,330	9,467	9,346
Technical result	441	289	1,587	1,371
Run-off gains/losses, net of reinsurance	144	116	509	512
Key ratios
Gross claims ratio	66.4	65.2	63.7	80.5
Net reinsurance ratio	2.6	9.3	6.0	-9.2
Claims ratio, net of ceded business	69.0	74.5	69.7	71.3
Gross expense ratio	12.5	13.1	13.4	13.9
Combined ratio	81.5	87.6	83.1	85.2
Run-off, net of reinsurance (%)	-6.0	-5.0	-5.4	-5.5
Number of full-time employees 31 Dec.			1,839	1,859
Norwegian general insurance
Gross premium income	1,640	1,611	6,371	6,766
Technical result	149	124	1,013	844
Run-off gains/losses, net of reinsurance	164	44	678	492
Key ratios
Gross claims ratio	70.0	74.4	63.9	70.9
Net reinsurance ratio	5.6	4.3	5.1	2.1
Claims ratio, net of ceded business	75.6	78.7	69.0	73.0
Gross expense ratio	15.5	13.8	15.2	14.9
Combined ratio	91.1	92.5	84.2	87.9
Run-off, net of reinsurance (%)	-10.0	-2.7	-10.6	-7.3
Number of full-time employees 31 Dec.			1,040	1,113
Swedish general insurance
Gross premium income	463	463	1,888	1,894
Technical result	-26	109	40	328
Run-off gains/losses, net of reinsurance	-7	81	52	208
Key ratios
Gross claims ratio	85.7	54.6	76.4	63.5
Net reinsurance ratio	0.9	3.0	3.3	1.7
Claims ratio, net of ceded business	86.6	57.6	79.7	65.2
Gross expense ratio	18.6	19.0	17.8	17.5
Combined ratio	105.2	76.6	97.5	82.7
Run-off, net of reinsurance (%)	1.5	-17.5	-2.8	-11.0
Number of full-time employees 31 Dec.			385	387
DKKm	Q4 2016	Q4 2015	2016	2015
---	---	---	---	---
Other b)
Gross premium income	-6	-11	-19	-29
Technical result	-250	0	-250	-120
Tryg
Gross premium income	4,504	4,393	17,707	17,977
Technical result	314	522	2,390	2,423
Investment return	598	242	987	-22
Other income and costs	-112	-19	-157	-91
Profit/loss before tax	800	745	3,220	2,310
Run-off gains/losses, net of reinsurance	301	241	1,239	1,212
Key ratios
Gross claims ratio	72.0	68.0	65.6	75.4
Net reinsurance ratio	3.1	6.2	5.4	-3.9
Claims ratio, net of ceded business	75.1	74.2	71.0	71.5
Gross expense ratio c)	18.0	14.2	15.7	15.3
Combined ratio	93.1	88.4	86.7	86.8
Run-off, net of reinsurance (%)	-6.7	-5.5	-7.0	-6.7
Number of full-time employees, continuing business at 31 Dec.			3,264	3,359

a) Includes Danish general insurance and Finnish guarantee insurance.
b) Amounts relating to eliminations and one-off items. Details of amounts in note 2 Geographical segments.
c) Adjustment of gross expense ratio included only in 'Tryg'. The adjustment is explained in a footnote to Financial highlights.

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Other key figures

	2016	2015	2014	2013	2012
Share performance
Earnings per share (DKK)	8.84	6.91	8.74	7.88	7.30
Diluted earnings per share (DKK)	8.84	6.91	8.73	7.86	7.27
Earnings per share of continuing business (DKK)	8.84	6.74	8.70	7.89	7.21
Number of shares (1,000)	274,595	282,316	289,120	296,870	303,474
Average number of shares (1,000)	279,399	285,073	292,521	300,777	302,455
Diluted average number of shares (1,000)	279,399	285,101	292,788	301,295	303,571
Share price (DKK)	127.20	137.40	137.80	104.90	85.30
Net asset value per share (DKK)	34.37	34.16	38.46	37.41	36.18
Market price/net asset value	3.7	4.0	3.6	2.8	2.4
Ordinary dividend per share (DKK)	6.20	6.00	5.80	5.40	5.20
Extraordinary dividend per share (DKK)	3.54
Price/Earnings	14.4	20.4	15.8	13.3	11.8
Number of full-time employees, continued business, at 31 December	3,264	3,359	3,599	3,703	3,913
Number of full-time employees, discontinued and divested business, at 31 December	0	0	0	0	189

Key ratios are calculated in accordance with 'Recommendations & Financial Ratios 2015' issued by the Danish Society of Financial Analysts.

Menu – Financial statements

Annual report 2016 | Tryg A/S | 108

Group chart

Group chart at 1 January 2017. Companies and branches are wholly owned by Danish owners and domiciled in Denmark, unless otherwise stated.

Company

Branch

Contents – Management's review

Annual report 2016 | Tryg A/S | 109

Glossary

The financial highlights and key ratios of Tryq have been prepared in accordance with the Executive Order issued by the Danish Financial Supervisory Authority on the Financial Reports for Insurance Companies and Multi-Employer Occupational Pension Funds and also comply with ‘Recommendations & Financial Ratios 2015’ issued by the Danish Society of Financial Analysts.

Claims ratio, net of ceded business

Gross claims ratio + net reinsurance ratio

Combined ratio

The sum of the gross claims ratio, the net reinsurance ratio and the gross expense ratio.

Danish general insurance

Comprises the legal entities Tryq Forsikring A/S (including Finnish guarantee branch and Tryq Livsforsikring A/S and excluding the Norwegian and Swedish branches).

Diluted average number of shares

Average number of shares adjusted for number of share options which may potentially dilute.

Discounting

Expresses recognition in the financial statements of expected future payments at a value below the nominal amount, as the recognised amount carries interest until payment. The size of the discount depends on the market-based discount rate applied and the expected time to payment.

Dividend per share

Proposed dividend

Number of shares at year-end

Earnings per share

Profit or loss for the year x 100

Average number of shares

Earnings per share of continuing business

Diluted earnings from continuing business after tax

Diluted average number of shares

Gross claims ratio

Gross claims x 100

Gross premium income

Gross expense ratio

Calculated as the ratio of gross insurance operating costs, including adjustment and gross premium income. The adjustment involves the deduction of depreciation and operating costs on the owner-occupied property and the addition of a calculated cost (rent) concerning the owner-occupied property based on a calculated market rent.

Gross insurance operating costs with adjustment x 100

Gross premium income

Gross expense ratio without adjustment

Gross insurance operating costs x 100

Gross premium income

Calculated as gross premium income adjusted for change in gross premium provisions, less bonuses and premium discounts.

Market price/net asset value

Share price

Net asset value per share

Year-end equity

Number of shares at year-end

Net reinsurance ratio

Profit or loss from reinsurance x 100

Gross premium income

Norwegian general insurance

Comprises Tryq Forsikring A/S, Norwegian branch..

Operating ratio

Calculated as the combined ratio plus insurance technical interest in the denominator.

Claims + insurance operating costs + profit or loss from reinsurance x 100

Gross premium income + insurance technical interest

Own funds

Equity plus share of subordinate loan capital and profit margin (solvency purpose), less intangible assets, tax asset and proposed dividend.

Price/Earnings

Share price

Earnings per share

Relative run-off gains/losses

Run-off gains/losses net of reinsurance relative to claims provisions net of reinsurance, beginning of year.

Return on equity after tax (%)

Profit for the year after tax x 100

Average equity

Run-off gains/losses

The difference between the claims provisions at the beginning of the financial year (adjusted for foreign currency translation adjustments and discounting effects) and the sum of the claims paid during the financial year and that part of the claims provisions at the end of the financial year pertaining to injuries and damage occurring in earlier financial years.

Solvency II

New solvency requirements for insurance companies issued by the EU Commission. The new rules came into force at 1 January 2016.

Solvency ratio

Ratio between own funds and the capital requirement.

Swedish general insurance

Comprises Tryq Forsikring A/S, Swedish branch.

Tier 1 capital

Equity less proposed dividend and share of capital claims in subsidiaries.

Total reserve ratio

Reserve ratio, claims provisions + premium provisions

Unwinding

Unwinding of discounting takes place with the passage of time as the expected time to payment is reduced. The closer the time of payment, the smaller the discount. This gradual increase of the provision is not recognised under claims, but under technical interest in the income statement.

Contents – Management's review

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Product overview

Being one of the largest insurance companies in the Nordic region, Tryg offers a broad range of insurance products to both private individuals and businesses. Tryg continuously develops new products and adapts existing peace of mind solutions to customer requirements and developments in society. Also, Tryg focuses strongly at all times on striking a better balance between price and risk.

Tryg sells its products primarily via its own sales channels such as call centres, the Internet, tied agents, franchisees (Norway), interest organisations, car dealers, real estate agents, insurance brokers and Nordea branches. Moreover, Tryg engages in international cooperation with the AXA Group. It is an important element of Tryg's distribution strategy to be available in places where customers want it and that most distribution takes place via the company's own sales channels.

Motor insurance

Motor insurance accounts for 30% of total premium income and comprises mandatory third-party liability insurance providing cover for injuries to a third party or damage to a third party's property, and a voluntary comprehensive insurance policy that provides cover for damage to the customer's own vehicle from collision, fire or theft.

In Denmark, motor insurance taken out by concept customers includes Tryg's roadside assistance, such as towing and battery jump-start.

Fire and contents – Private

Fire and contents insurance for private customers represents 24% of total premium income and includes, for example, house and contents insurance.

House insurance covers damage to properties caused by, for example, fire, storm or water, legal assistance and the customer's liability as owner of the property. The contents insurance covers loss of or damage to private household contents and covers in and outside of the home. Moreover, the insurance includes liability and legal assistance, to which can be added a number of supplementary covers, for example cover of sudden damage and damage to electronic equipment.

Personal accident insurance

Personal accident insurance accounts for 9% of total premium income and covers accidental bodily injury and death resulting from accidents.

Compensation takes the form of a lump sum intended to help the customer cope with the financial consequences of an accident, thereby making their daily lives easier. The insurance can include a number of supplementary covers, including treatment by a physiotherapist or chiropractor.

Fire and contents – Commercial

Commercial fire and contents insurance, which includes building insurance, represents 14% of total premium income and covers the loss of or damage to the buildings, stock or equipment of commercial customers. Moreover, Tryg provides cover for operating losses in connection with covered claims.

Workers' compensation insurance

Workers' compensation insurance accounts for 5% of total premium income and covers employees against bodily injury sustained at work (in Norway, also occupational diseases). Workers' compensation insurance is mandatory and covers a company's employees (except for public sector employees and persons working for sole proprietors).

General third-party liability insurance

General third-party liability insurance represents 6% of total premium income and covers various types of liability, including claims incurred by a company arising from the conduct of its business or in connection with its products, and third-party liability for professionals.

Transport insurance

Transport insurance represents 2% of total premium income and covers damage to goods in transit due to the collision, overturning or crashing of the means of transport.

Health insurance

Health insurance represents 2% of total premium income. The insurance covers the costs of examinations, treatment, medicine, surgery and rehabilitation at a private health facility.

Contents – Management's review

Annual report 2016 | Tryg A/S | 111

Disclaimer

Certain statements in this annual report are based on the beliefs of our management as well as assumptions made by and information currently available to management. Statements regarding Tryg's future operating results, financial position, cash flows, business strategy, plans and future objectives other than statements of historical fact can generally be identified by the use of words such as 'targets', 'believes', 'expects', 'aims', 'intends', 'plans', 'seeks', 'will', 'may', 'anticipates', 'would', 'could', 'continues' or similar expressions.

A number of different factors may cause the actual performance to deviate significantly from the forward-looking statements in this annual report, 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. Should one or more of these risks or uncertainties materialise, or should any underlying assumptions prove to be incorrect, Tryg's actual financial condition or results of operations could materially differ from that described herein as anticipated, believed, estimated or expected. Tryg is not under any duty to update any of the forward-looking statements or to conform such statements to actual results, except as may be required by law. 1 Read more in the chapter Capital and risk management on page 25-26, and 1 in Note 1 on page 50, for a description of some of the factors which may affect the Group's performance or the insurance industry.

Contents - Management's review

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Tryg — Annual Report 2016

3389_rns_2017-01-20_74aeb1e7-c187-4697-a78a-516f79494a25.pdf

Annual report 2016

Customer focus

Good results in 2016

New products

Efficient operations and risk management

Stable and increasing dividends for shareholders

World-class employees

Events in 2016

New bond issue

New motorcycle app

New jointly produced Tryg family film

New jointly produced Tryg family film

Targets and strategy

Our ambition

Our values

Our customers – our most important asset

Our employees – our most important resource

Value creation for our shareholders

Tryg's business model

Tryg's business model

OUR AMBITION

GEOGRAPHY

SEGMENTS

Stable Nordic insurance market

Financial targets 2017

Customer targets 2017

Targets

Strategic initiatives

Strategic initiatives 2017

Next level pricing

Customer journey & success culture

Leading in efficiency

Digitalisation

Corporate Social Responsibility

Financial targets and outlook

Financial targets 2017

Financial highlights 2016

Results

Customer highlights 2016

Premiums

Claims

Expenses

Investment return

Other income and costs

Profit/loss on discontinued business

Tax

Capital position

Dividend policy

Moody's rating upgraded

Results Q4 2016

Premiums

Claims

Expenses

Investments

Financial highlights Q4 2016

Financial highlights 2016

Results

Premiums

Claims

Key figures – Private

Expenses

Financial highlights Q4 2016

Results Q4 2016

Premiums

Claims

Expenses

Commercial

Financial highlights 2016

Results

Premiums

Claims

Expenses

Key figures – Commercial

Results Q4 2016

Premiums

Claims

Expenses

Tryg Annual Report 2016