Address by the President of the Management Board
Solid performance in line with strategic goals
In a conversation, Mr Andrej Slapar, the President of the Management Board of Zavarovalnica Triglav, commented on the results achieved in the 115th year of business and the future plans of the Triglav Group:
How would you assess the achieved results with regard to the set objectives and the results of the previous year?
Primarily I believe that we successfully implemented the set strategy geared towards the profitability and safety of our operations, which is reflected in the Group’s financial stability. By implementing the priorities, we managed to achieve results that were above the 2014 level and plans.
Insurance companies within the Group, particularly those outside Slovenia, booked a higher total written premium from insurance and reinsurance. Progress was made in the health and pension insurance segment, of key importance for development. This included the acquisition of Skupna pokojninska družba, the second largest provider of voluntary pension insurance in Slovenia. The absence of mass loss events improved the results, but on the other hand, they were marked by the relatively unfavourable conditions on the capital markets.
We are satisfied with the profitability level achieved. The Group’s profit before tax of EUR 102.5 million exceeded the plans by 20% and was 2% higher than the profit earned in 2014. The Group’s net profit of EUR 88.9 million surpassed the planned level by 24% and was 4% higher than in 2014. The Group’s equity increased by 2% and the return on equity was 12.8%.
The year 2015 was definitely notable for the solid business results achieved by the Group, its reaffirmed high credit ratings and the good dividend yield for 2014.
How did your core business do?
It should be noted that the Triglav Group’s focus on insurance operations once again yielded the desired outcome. The written premium from insurance and co-insurance contracts amounting to EUR 919.1 million exceeded the planned level by 4% and was 3% higher than in 2014. The Group’s combined ratio in the non-life segment reached 92.8%, which was 3.5 percentage points better than we planned for 2014, and was just over 2 percentage points below the strategic level. Gross claims paid in 2015 were 7% lower than planned and 3% lower than in 2014.
The Company’s business results are also affected by various financial investments that account for most total assets. Due to uncertainty on the capital markets, combined with extremely low interest rates, average return on financial instruments in our portfolio declined further and is expected to keep falling over the coming years. In 2015, return on financial investments – excluding yields from unit-linked life insurance – decreased by 16% compared to 2014, primarily as a result of fair value changes of financial investments and lower net interest income. I should also mention permanent impairments of only EUR 3.8 million, which is 40% less than in 2014.
Which activities were in the focus of attention of the Triglav Group?
Regarding projects, I need to highlight the successful completion of development activities for implementing Solvency II requirements. I reiterate that the acquisition of Skupna pokojninska družba was an important strategic goal, allowing us to consolidate our position on the pension insurance market in Slovenia. With the sale of the Czech subsidiary now completed, the Group withdrew from the Czech market. We continued with the consolidation processes, including divestments from companies no longer compatible with the Group's strategy, the optimisation of asset management and the consolidation of subsidiary ownership within the Group. As at the end of 2015, the Group comprised the parent company and 40 subsidiaries and associates, which is 4 less than in 2014.
Triglav is an insurance company boasting 115 years’ worth of tradition, expertise and experience. Development, digitisation and quality products and services are among your priorities. How did you improve your services in 2015?
Satisfied policyholders are our main concern and at the heart of all our activities. Bearing them in mind we developed new insurance products and upgraded and simplified the existing ones. We paid great attention to adjusting our products to specific markets and market conditions. Most new products were launched in life, health and pension insurance. As in previous years, professional and simple claim handling processes were again of particular relevance to us.
Developing our sales channels is important to us. The sales network, giving us a competitive edge in Slovenia, is also being strengthened in markets outside Slovenia. The volume of online business is also on the rise, making our sales channels and support services more accessible and diverse. A number of new solutions were launched, including an online tutorial on personal insurance, a web application for employers wishing to take out group voluntary pension insurance and the advisory web portal Everything Will Be Alright (Vse bo v redu).
I should specifically highlight telematics, where Zavarovalnica Triglav is the forerunner among insurance companies in Slovenia and the Adria region. We developed a mobile application called DRAJV to make driving safer and it became quite popular with drivers. The application is available to all drivers, and Triglav policyholders who use it are rewarded for their safe driving with a lower car insurance premium. In general, we embrace smart and connected services, which are changing our relations to clients and business. In 2015 preparations were concluded for two new applications to be launched in 2016. Together with the Slovenian Environment Agency, we developed the mobile application Triglav Weather (Triglav Vreme) that gives weather warnings to the general public. Our policyholders will benefit from an upgraded mobile application for filing car and home insurance claims that will refer them to the ever broader range of assistance services and speed up settlement.
How much premium do insurance classes account in the Group total and have you noticed any changes in their shares?
The structure of the premium changed somewhat, primarily in favour of life insurance. With 65.1% non-life insurance continues to represent the bulk of total premium and car insurance is the most significant insurance class. Compared to 2014, the share of non-life insurance premium fell by 2 percentage points, primarily due to the sale of the Czech subsidiary. The share of life insurance, on the other hand, increased from 21% to 23%, mostly due to the acquisition of Skupna pokojninska družba. Health insurance represents the third and smallest premium segment, accounting for 12% of total premium. We believe that this segment has a growth potential, particularly in the light of possible structural changes.
Premium growth was recorded in all three segments, resulting in a 3% increase of total premium. The volume of non-life premium and health premium increased by 1%, while life insurance premium grew by as much as 14%, mainly thanks to the acquisition of Skupna pokojninska družba.
What premium trends did you detect in insurance markets outside Slovenia?
The Group earned the bulk of consolidated premium in the Slovene insurance market, which accounted for around 83%, including the 5.2% of premium charged by Pozavarovalnica Triglav Re mainly in the European and Asian markets. The written premium charged by the parent company in the Slovene market went down by 1%, whereas Triglav, Zdravstvena zavarovalnica recorded a 1% increase. The new subsidiary Skupna pokojninska družba generated 3.2% of the non-consolidated premium.
Triglav launched an overhauled corporate and business governance model for insurance companies outside Slovenia, now fully owned by the holding company Triglav INT. The upgraded approach better accounts for differences between individual markets and initial results are good. We recorded positive trends and premium growth in most of our markets. In Croatia, the largest market outside Slovenia accounting for 5.1% of total non-consolidated premium, there was an 8% premium growth. In Serbia premium increased by 24%, while an increase of 13% was recorded in Macedonia, where the Group sells only non-life insurance. Premium growth rates in Montenegro and Bosnia and Herzegovina were 10% and 9% respectively.
The strategic goal of the Triglav Group is to remain the market leader in Slovenia and consolidate its position in other markets in the region. How well did you perform in that area?
With a 36% market share, the Triglav Group remains clearly in the lead in the Slovene insurance market served by the parent company, Triglav, Zdravstvena zavarovalnica and the new subsidiary Skupna pokojninska družba. In Slovenia, the Group holds a market share of 44% in non-life insurance, 35% in life insurance and 23% in health insurance.
In markets outside Slovenia, we strive to capitalize on the comparative advantage of the Group and Triglav brand. Our aim is to ensure long-term return on assets as well as to exploit synergies and economies of scale. Thanks to premium growth, the Group consolidated its position outside Slovenia and the market shares of subsidiaries grew in all markets except for the Republic of Srpska. We are the market leader in Montenegro and Macedonia, we strengthened our position in Croatia and Bosnia and Herzegovina and maintained the market share in Serbia.
In 2015, you received excellent credit ratings from renowned rating agencies. What are these ratings based on and what is the medium-term outlook for the Triglav Group?
Achieving a high credit rating is one of the most important strategic goals of the Triglav Group. We are pleased to have attained this goal once again. Both S&P and A.M. Best confirmed the Group’s »A–« rating, citing the Group’s financial strength and solid performance as justification.
Both credit agencies assigned the Triglav Group a positive medium-term outlook, with S&P upgrading its assessment from stable to positive. The positive outlook is based on the Group’s leading market position in Slovenia and the Adria region, the strong brand, an extensive sales network, a good business outlook, the quality of the existing portfolio and robust risk management.
The Solvency II Regulation will bring significant changes to the insurance markets of the 28 EU Member States. How well is the Triglav Group prepared for these changes?
The harmonisation of insurance legislation in the European Union will be of benefit to all stakeholders, particularly policyholders, who will enjoy a higher level of protection. Policyholder protection and financial stability are precisely the purpose of upgraded risk management systems and the required impact assessment of business decisions on the risk profile, capital and financial standing of an insurance company.
Zavarovalnica Triglav introduced a risk management system adapted to these requirements. Our product portfolio was adequately balanced by taking account of the modified ratio between the risk and profitability of individual products, so as to ensure the long-term financial stability and profitability of operations.
To ensure effective risk management of all risk types, an insurance company’s capital must correspond to its specific risk profile. The Own Risk and Solvency Assessment made by Zavarovalnica Triglav shows that the Triglav Group has sufficient capital to comply with the capital requirements under the new legislation at any given time.
On the basis of the new corporate governance model for insurance companies introduced by Solvency II, we built a solid and reliable governance system that is founded on a transparent organisational structure, clear allocation of responsibilities and improved decision-making processes in key integrated areas. These include the risk management function, the compliance function, the internal audit function and the actuarial function.
We also laid foundations for enhanced reporting to supervisory bodies. In this respect, I should mention the creation of a data warehouse and standardised reporting to decision-making bodies, which allowed us to ensure a more up-to-date and centralised access to risk-related information.
What are the plans of the Triglav Group for 2016?
Our efforts will centre around the implementation of the set strategic guidelines. Priorities will include maintaining financial stability, safety of operations and credit rating at high levels, remaining the market leader in Slovenia and strengthening and consolidating our market positions outside Slovenia.
We are prepared to operate in a highly competitive and demanding environment where the specificities of individual insurance markets will play an important role. We expect the frequency and extent of individual loss events to remain at approximately the same level as in previous years. Our client-focused approach and the efforts to improve the efficiency of our sales network will continue. We intend to improve the accessibility of simple, advanced and responsible insurance services and be active in the field of prevention. In accordance with the business strategy, the key segments in terms of development will be pension and health insurance in Slovenia as well as in the markets of South-East Europe.
No significant changes are expected on capital markets, particularly on bond markets. The existing, relatively conservative, investment structure focusing on fixed-return investments will be slightly increased. We will continue to invest in the financial markets that provide highest liquidity, appropriate diversification and expected returns. The Triglav Group’s investment policy will be based on adequate levels of investment security and liquidity, followed by the criterion of profitability.
The Group’s business plan for 2016 takes into account the challenging and highly competitive conditions on the insurance markets we cover, the expected loss result and the returns on financial investments that will be lower than in 2015. The macroeconomic conditions in the countries where the Group operates are improving, but the recovery of the insurance markets will come with a time lag and gradually. In the light of all of the above, the Group’s profit before tax is planned between EUR 80 to 90 million, the consolidated gross premium at around EUR 900 million and the combined ratio at approximately 95%.