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Tryg Investor Presentation 2017
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Investor Presentation
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Tryg – Strengthening the Core, while Embracing the Future
Capital Markets Day
London, 20 November 2017
Agenda
Tryg | C
09:30-11:30
Targets and initiatives
- Follow-up on CMD targets and initiatives 2015 – 2017 3
- Targets and initiatives 2018 – 2020 9
Tryg – Strengthening the Core, while Embracing the Future 11
- Claims Excellence 14
- Digital Empowerment of Customers 19
- Product & Service Innovation 24
- Distribution Efficiency 29
Balance sheet optimisation 36
Concluding remarks 41
Capital Markets Day 2017
Tryg | C
Follow-up on CMD targets and initiatives 2015 - 2017
Tryg | C
Tryg 2015 – 2017: Aiming for world class
Target picture 2015 - 2017: Simultaneously providing world class earnings and customer experiences
- Utilising the mutual benefits of a cost effective operation and customer experiences that strengthen loyalty
Target drivers 2015 - 2017
Capital Markets Day 2017
Delivering on 2017 targets
Tryg | C
Targets presented on Capital Markets Day, 5 November 2014
| Category | Key Performance Indicators | Targets 2017 | Q1-Q3 2017 | Comments |
|---|---|---|---|---|
| Combined ratio | ≤ 87 | 83.8 | Delivered as promised | |
| Expense ratio | ≤ 14 | 14.1 | Delivered as promised | |
| Return on equity | ≥ 21% | 30.9% | Delivered as promised | |
| Efficiency programme | DKK 750m | DKK 633m | On schedule | |
| Net Promoter Score | +100% (22) | 22 | Delivered as promised | |
| Retention rate | +1pp (88.9) | 87.8 | Delivered in DK, not in NO | |
| ≥3 products | +5pp (61.3) | 58.9 | Delivered in DK, not in NO |
Capital Markets Day 2017
Tryg|Q
Solid performance across all core businesses
Combined ratio - Private (DK & NO)
Combined ratio - Commercial (DK & NO)
Combined ratio - Corporate
Combined ratio - Sweden (Private)
Capital Markets Day 2017
Tryg | C
World class achieved on earnings
Combined ratio: Strong Nordic performance
Expense ratio: Best in class
Likewise a strong performance on ROE – benchmark top 3 Nordic players
Return on equity (Q1-Q3 2017)
Capital Markets Day 2017
Tryg|C
Number of products drives value
Customer targets put into perspective (case: Private Denmark)
Net Promoter Score (NPS)
- A ≥3 product engagement correlates to a 3X satisfaction score
Avg. customer lifetime (years)
- A ≥3 product engagement increases avg. customer lifetime by ~3X
Lifetime value following number of products
- A ≥3 product engagement renders a value increase of 12.9X
Capital Markets Day 2017
Targets and initiatives 2018-2020
Introducing a new guiding purpose for Tryg
Tryg
Purpose
Clarity, unity, differentiation = Value creation
"Tryg(hed)"
Feeling protected and cared for
"As the world changes, we make it easier to be tryg"
Grasping opportunities to develop rather than defend our business i.e.:
- Digitalisation
- New products
- Analytics
Adjusting to customer preferences and needs i.e.:
- Self-service
- Straight through processes
- Packaging of products
Staying relevant to maximise share of wallet i.e.:
- Product innovation
- Prevention
- Add-on services
Capital Markets Day 2017
Tryg 2018 - 2020: Strengthening the core, while embracing the future
Tryg
Target picture 2018 - 2020: Continuously aiming for a healthy balance between earnings and customers
Targets 2020
| Earnings | |
|---|---|
| Technical result | DKK 2.8bn |
| Combined ratio | ≤ 87 |
| Expense ratio | ~14 reaffirmed |
| ROE | ≥ 23% |
| Customers | |
| --- | --- |
| TNPS* | 70 |
| No. products per customer | +10% |
- Measured as level of satisfaction in point of contact
Capital Markets Day 2017
Tryg|Q
Targeting the highest technical result before run-off ever
Technical result: Historical performance vs. 2020 target
Run-off levels will return to normal with a 3 - 5% run-off level in most years going forward
- Current strategy period run-off level of 6-7%
- Next strategy period elevated run-off level gradually reducing
- Expected 2020 run-off to be in range 3-5%
Capital Markets Day 2017
Strategic target drivers & key performance indicators
Tryg|C
1 Claims Excellence
KPI: DKK 600m in claims cost reduction
2 Digital Empowerment of Customers
KPI: Straight through processing level of 50% on claims
KPI: Self-service level of 70% on all contacts
3 Product & Service Innovation
KPI: Portfolio of DKK 1bn from new products and services (2020+ ambition)
4 Distribution Efficiency
KPI: DKK 150m in technical result impact
IT investment
DKK 0.5bn investment in IT 2018 – 2020: Infrastructure, digitalisation & data analytics
Capital Markets Day 2017
Strategic Theme: Claims Excellence
Tryg
Why is claims excellence important?
Targets the bulk of our cost (Q1-Q3 2017)
A bulwark against claims inflation jumps
Bumper prices 2011 – 2016, Ford Focus (DKK 1,000m)
Utilises scale
Avg. claim cost car – Tryg vs. others
Capital Markets Day 2017
Tryg|C
What will improve claims excellence?
New efficiency programme 2018 – 2020: DKK 600m
DKK 600m
50%
25%
25%
- Procurement: Continuous leverage of scale
- Fraud: Automating detection and broadening competences
- Steering & Administration: Claims steering and administration of compensation
Capital Markets Day 2017
Tryg | C
How procurement supports claims excellence
Concept: Targeting unaddressed spend
2012 – 2017: Harvesting the low-hanging fruits
- Renegotiating supplier network
- Outsourcing
- E-auction, Scalepoint
2018 – 2020: Reaching for the upper branches
- Further reducing number of suppliers
- Multi-supplier industries e.g. Health
- Large and complex claims
Evidence: Savings of DKK 1.2bn realised
Potential: Bringing total saving to DKK 1.5bn
Capital Markets Day 2017
Tryg
How fraud and claims steering supports claims excellence
Fraud
Concept: Broadening competences and introducing automation
Only ~20% of claims employees excel in fraud detection
Evidence: Employees generated improvement in fraud detection
Potential: Targeted 2020 detection level
Claims steering
Concept: Better steering of claims to Tryg partners for lower cost
Evidence: Improved steering of car glass claims
Potential: Targeted 2020 cost reductions
Capital Markets Day 2017
Tryg | C
Strategic Theme: Digital Empowerment of Customers
Tryg|C
Why digital customer empowerment?
Customers increasingly request...
Growing interest in, and use of Tryg's digital solutions
Capital Markets Day 2017
Tryg | C
What are we doing to empower our customers?
Tryg's digital journey
Digital targets 2020
- 50% Straight Through Processing on claims
- 70% Self-service level on all contacts
Total benefit 2020 = ~DKK 100m
Capital Markets Day 2017
Tryg
How to work with straight through processing
Concept: STP if simple, automation if complex
Distribution of claims (number) and claims handling cost
Evidence: STP - Travel, NO (low complexity)
Evidence: Automation – Private Car, DK (high complexity)
= Automation level
Total automation = 34%
Potential: STP = 50% / ~DKK 70m by 2020
Capital Markets Day 2017
Tryg|C
How to work with self-service
Concept: Empowerment & fewer non-value contacts
Empowerment across functionalities
Evidence: My Page / My Company
Potential: Self-service = 70% / ~DKK 30m by 2020
Capital Markets Day 2017
Tryg | C
Strategic Theme: Product & Service Innovation
Tryg|C
Why is product and service innovation important?
Transformation of traditional risk pools
Denmark: Premium development 2007 – 2016 (index: 2008)*
* Source: F&P (incl. Workers' Comp., Car, House/Contents, Accident)
- Drivers: Safety, loss prevention, technology
- Further impact from technology in the long-term e.g.:
- Car: Assisted driving
- Home/Contents: IOT devices like intelligent alarms
...and emergence of new ones
Example: Health insurance market DK & NO 2008 - 2016
Source: F&P ; FNO.no
Tryg: Avg. claims ratio on Health 2014 - 2016
Capital Markets Day 2017
Tryg | C
What will boost product and service innovation?
Expanding existing business
Development of new products
Add-on services
Strong traction in new growth products (index = 2014)
Target 2020+: DKK 1bn in new products & services
Capital Markets Day 2017
Tryg|C
How to expand existing business
Concept: Expanding Tryg Garanti's market
- Offers surety contracts and trade credit insurance with very strong performance ratios (Q1-Q3 2017):
6.5
Expense ratio
61
Combined ratio
63
Net Promoter Score
Potential: Topline growth of 20% in 2020 (CAGR)
Evidence: Cost ratio benchmark (2015)
Evidence: Market characteristics - Germany
- Expense ratio 30
- Claims ratio 43
- Average price twice as high vs. Nordics
- Banks to face increasing capital requirements
Capital Markets Day 2017
Tryg|G
How to add new products and services
Child insurance – Private DK
Concept: Child insurance packages (Minimum, Basic, Super)
Evidence: number of policies sold since launch
Potential: Targeted portfolio of DKK 26m in 2020
SME cyber insurance, DK
Concept: Cyber product in coop. with numerous domain experts
Evidence: number of policies sold since launch (SME, DK)
Potential: Targeted portfolio of DKK 100m in 2020 (Nordic)
Capital Markets Day 2017
Tryg | C
Strategic Theme: Distribution Efficiency
Tryg
Why is distribution efficiency important?
Constitute half of total cost
Distribution cost as a % of total cost:
- Claims & admin. cost
- Distribution cost
Need for improving both cost and sale
Distribution cost improved the least since 2012
A continuation of previous efforts
Capital Markets Day 2017
Tryg
What will increase distribution efficiency?
| Focus areas | Levers (examples) | Target 2020 |
|---|---|---|
| ## DKK 150m in technical result impact |
150
- Digital integration to partners
- Analytics |
| | | # DKK 150m in technical result impact
150
- Packaging
-
Pay as you go |
| | | # Exploring new channels -
Integrating claims and sales
- Online |
Capital Markets Day 2017
Tryg
How to boost efficiency through technology
Concept: Moving from push to pull through digital integration to partners
Total Nordic portfolio of large partners
Utilising partners' customer relation to leverage digital sale
Partner
- Direct integration
- Sale
- Service
- Claims
-
Create call to action
-
Broad range of online offers and services
- Unbiased advisor
Evidence (case: large Norwegian partner):
17 percentage points increase in pull distribution year 1
Potential (case: large Norwegian partner):
Distribution cost
Technical result impact 2020 (delta)
Capital Markets Day 2017
Tryg|C
How to simplify products and explore new channels
Concept: Packaging of products
Evidence: Increase in avg. number of products sold
Potential: Technical result impact 2020 (delta)
Concept: Sales & low complexity claims handling
Evidence: Win-rates improved 13pp on average
Potential: Technical result impact 2020 (delta)
Capital Markets Day 2017
Tryg
Financial impact of strategic initiatives
Tryg
Total financial impact of strategic initiatives
- Normalised assumptions for weather claims and large claims
Capital Markets Day 2017
Balance sheet optimisation
Tryg|C
Shareholder return & balance sheet optimisation
Sustained focus on shareholder return
- Maintain ordinary dividend policy: Nominal stable growing dividend
- ROE target increased from 21% to 23%
- Extraordinary dividend to adjust capital structure
Extraordinary dividends of DKK 1bn
(to be paid after AGM 2018)
Historical shareholder remuneration
Balance sheet optimisation remains core
- New dividend policy
- Reduced investment volatility
- Side-way reinsurance cover
- SII and partial internal model
- Increased subordinated debt
- Quarterly dividend
- SCR improvement
- Potential Tier 1 issue
- IT investment
Capital Markets Day 2017
Tryg
SCR reduction, potential Tier 1 issue & IT investment
SCR reduction through model improvements
- SCR using partial internal model. Further optimisation = ~ -10%
- Workers’ Comp. DK approval = ~ DKK -100m (all else equal)
- Further work to be done on Sweden and other parts of the model
Potential Tier 1 issue
- Outstanding Tier 1 capacity of approximately DKK 1.1bn
- Potential Tier 1 issue H1 2018 subject to market conditions, amount likely to be ~ DKK 500m to retain some financial flexibility
IT investment supporting 2020 targets
- Increased IT spend impact P&L within 14% expense ratio, DKK 0.5bn impact balance sheet.
- IT investment support:
- IT infrastructure upgrade
- Analytics
- Channel digitalisation
- New products & services
- Fraud detection
Capital Markets Day 2017
Tryg
Pro-forma solvency ratio of 213 supports further shareholder returns
SCR Own funds
39 | Capital Markets Day 2017
Tryg
Portfolio rebalancing and M&A
Solvency ratio improvement via portfolio rebalancing
- Portfolio overview as of Q3 2017
- Portfolio optimisation across businesses, segments and products
- Constantly seeking to allocate capital for highest returns
Continuously considering M&A opportunities
Long history of M&A
Strict criteria for value creating M&A
☑ Value creative
☑ Potential synergies
☑ Strategically supportive
☑ Product / distribution enhancing
Capital Markets Day 2017
Concluding remarks
Delivering on 2017 targets
Tryg | C
Targets presented on Capital Markets Day, 5 November 2014
| Category | Key Performance Indicators | Targets 2017 | Q1-Q3 2017 | Comments |
|---|---|---|---|---|
| Combined ratio | ≤ 87 | 83.8 | Delivered as promised | |
| Expense ratio | ≤ 14 | 14.1 | Delivered as promised | |
| Return on equity | ≥ 21% | 30.9% | Delivered as promised | |
| Efficiency programme | DKK 750m | DKK 633m | On schedule | |
| Net Promoter Score | +100% (22) | 22 | Delivered as promised | |
| Retention rate | +1pp (88.9) | 87.8 | Delivered in DK, Not in NO | |
| ≥3 products | +5pp (61.3) | 58.9 | Delivered in DK, not in NO |
Capital Markets Day 2017
Tryg
Tryg's equity story – a leading Scandinavian non-life insurer
| Claims Excellence
DKK 600m in claims cost reduction | Tryg 2018 – 2020:
Strengthening the core, while embracing the future | Product & Service Innovation
+DKK 1bn in new products by 2020+ |
| --- | --- | --- |
| Digital Empowerment of Customers
STP on claims: 50%
Self-service: 70% | Financial targets 2020
• Technical result: DKK 2.8bn
• Combined ratio: ≤87
• Expense ratio: ~14
• ROE: ≥23%
Dividend policy
• Targeting a nominal stable increasing dividend
• Extraordinary dividend to further adjust the capital structure | Distribution Efficiency
DKK 150m in technical result impact |
Long term profitable growth and attractive shareholder value creation
Capital Markets Day 2017
Tryg
Tryg: A dividend stock
Tryg's historical yield 2013 – 2016
- Continuous and attractive shareholder remuneration
- Nominally stable and increasing ordinary dividend
- Potential extraordinary dividend to further adjust the capital structure
Benchmark of combined ratio vs. volatility
- Leading combination of CR and volatility
Avg. combined ratio 2012 – Q1-Q3 2017
"Do you know the only thing that gives me pleasure? It's to see my dividend coming in".
- John D. Rockefeller
Capital Markets Day 2017