Risk Management

The underwriting risk is the risk relating to the conclusion of insurance contracts and thus the risk that premium income does not adequately cover the claims that Tryg is obliged to pay when damage has occurred. This risk can to a certain extent be assessed based on statistical analyses of historical experience within various business sectors. 

The insurance premium must be adequate to cover expected claims, but must also comprise a risk premium equal to the return on the part of Tryg’s capital that is used to protect against random fluctuations. All things being equal, this means that insurance sectors or areas which, from experience, are subject to major fluctuations, must comprise a larger risk premium as these require a larger capital base. 

The Supervisory Board defines the overall framework for the underwriting risk.

Reinsurance is used to reduce the risk in areas where a special need for this exists. The need for reinsurance is assessed on an ongoing basis using Tryg’s internal capital model, in which the price of reinsurance is compared with the reduction in the capital requirement that can be achieved. 

The Supervisory Board defines the framework for the reinsurance programme.

At the end of the term of insurance, the insurance risk relates to the claims provisions made to cover future payments in respect of damage which has already occurred. When damage occurs, there may be a certain delay before the customer submits a claim. Depending on the complexity of the claim, a longer or shorter period of time may pass before the size of the claim is finally agreed. This may be a prolonged process, particularly for personal injuries. Even once the claim has been settled, there is a risk that it will be reopened at a later date, triggering further payments. 

The calculation of claims provisions will always be subject to uncertainty. Historically, many insurers have experienced substantial positive as well as negative impacts on profit (run-off) resulting from provisioning risk, and this is also expected to be the case in future. 

The Supervisory Board defines the overall framework for managing provision risk in Tryg’s policy for insurance risk.

The investment risk is defined as the risk of loss as a consequence of volatility in the financial markets. 

In overall terms, Tryg’s investment portfolio is divided into a match portfolio and a free portfolio. 

The match portfolio corresponds to the value of the discounted claims provisions and is designed to hedge the interest rate sensitivity of these to the widest possible extent. 

The free portfolio is subject to the framework defined by the Supervisory Board through the investment policy. Tryg’s largest investment risks pertain to its shareholdings, property investments as well as high yield bonds. 

The Supervisory Board defines the framework for the investment 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 establishing an adequate control environment for its operations. In practice, this work is organised by means of procedures, controls and guidelines that cover the various aspects of Tryg’s operations, including the IT security policy. Tryg has also set up a security and investigation unit to handle internal fraud, IT security, physical security and contingency plans. 

The Supervisory Board defines the framework for the operational risk.

Strategic risk relates to Tryg’s choice of strategic position, including IT strategy, flexibility relative to the market, business partners and reputation, as well as changed market conditions. 

The Supervisory Board is closely involved in the management of strategic risk.