TrygVesta's capital strategy

TrygVesta follows an active capital strategy and coordinates the capital planning with risk management. Both capital planning and risk management is supported by the internal ALM framework. The capital structure is continuously optimised while maintaining the necessary security for the stakeholders in TrygVesta and room for growth and development in the Group.

 

TrygVesta is rated once a year by Standard & Poor’s and Moody’s. This rating is the basis for the capital target. The targeted rating is to sustain a minimum rating of “A-“ and A3 respectively. This target satisfies the demand for security by the corporate customers and broker sales channel and gives a high degree of certainty that TrygVesta will be able to execute the business strategy and still service our debtors.

 

TrygVesta’s dividend policy is to pay out a minimum of 50% of the results as a cash dividend and to return any excess capital to the shareholders as share buy-backs. The dividend policy is thereby also based on risk management and is derived from the capital strategy.

 

The ratings from Standard & Poor’s and Moody’s are given as part of an interactive rating process. Standard & Poor’s uses a capital model, however, only as one of several criteria and parameters on which TrygVesta is examined. Other criteria may be risk profile, risk management, strategy, management, current and potential profitability. Moody’s does not use an explicit capital model.

 

Standard & Poor’s new capital model determines a target capital required per rating class (‘AAA‘, ’AA‘, ’A‘ and ‘BBB’) reflecting different confidence levels in the risk distribution. The capital model is a multi-factor model with a required capital based on insurance related risks (Liability Risk) and investment and credit risk (Asset Risk) including diversification effects between the asset and liability risks, however, with a 50% hair-cut of the effect.

 

The available capital is based on the equity position adjusted for different accounting measures and hybrid equity. In the capital model, TrygVesta’s targeted rating of ’A-‘ corresponds to the minimum required capital for an ’A‘ level. To avoid adverse changes to the rating, the capital target is set at 5 % above the minimum level by building a smaller buffer to the ’A‘ target. With the current business mix and investment profile, the target capital of ’A-‘ corresponds to an equity plus hybrid capital less dividend of 52% - 56% of the net premiums.

Last update: 11 November 2008