The Triglav Group and Zavarovalnica Triglav d.d. Annual Report 2021

Conversation with Uroš Ivanc, Management Board member

Zavarovalnica Triglav Management Board member Uroš Ivanc spoke to Helena Ulaga Kitek, Head of IR at Zavarovalnica Triglav, about the Triglav Group’s operations in 2021 and its plans for the future

Listen to the conversation

Published on 31 March 2022 simultaneously with the Triglav Group and Zavarovalnica Triglav d.d. Annual Report 2021.

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Helena Ulaga Kitek: Hello, I'm Helena Ulaga Kitek, Head of Investor relations at Triglav Group. Thank you for joining me today to discuss Triglav Group's performance in 2021 as well as our future perspective. I'm joined by Uroš Ivanc, member of the management board and CFO at Triglav Group. 

Uroš, thank you for sharing your views on Triglav Group’s performance in 2021. Let me start with a general question. Was 2021 a difficult year?

Uroš Ivanc: Hello, and thanks for inviting me. Yes, it was, but not so much from the results perspective, as it was from the ongoing business perspective. We still had to operate under strict COVID-19 conditions including lockdowns, especially in the first half of the year. The challenging market conditions also continued, with aggressive price competition in all our insurance markets. Next, there was the influence of trends in the capital markets, which still remained unfavourable in terms of interest income. 

Despite these circumstances, we were able to achieve very strong results. Our pre-tax profit reached nearly 133 million euros, 46% more than in 2020. With that, we outperformed our annual profit plans. We generated 1.46 billion in total revenue, which is a 10% growth on a year-on-year basis. The growth was seen across all segments. GWP grew 10%, other insurance income almost 20% and other income around 22%, within that the revenue in assets management business grew by 27%. 

Now, regarding our market position: it remained stable, even slightly increased on some of the markets, which is in line with our focus of our activities in recent years. 

Our operations showed flexibility and resilience. We maintained our financial strength with capital adequacy within the target range at the end of the year. We were also once again given “A” credit ratings from both credit rating agencies, S&P and AM Best. 

And finally, something which is very important to us, I am happy to say, that in 2021 both employee and client satisfaction, which are continuously monitored, not only increased but also reached the highest levels ever measured. 

Ulaga Kitek: OK, despite being a difficult year, it appears to have been a successful one. How did Triglav Group achieve these strong results?

Ivanc: Well, in a nutshell, they arise both from underwriting activities and asset management business. Now, several factors contributed to them. 

First, we increased the volume of business. Our gross written premium grew in all insurance segments and in all markets. 

Second, we achieved strong underwriting profitability, especially of non-life and health insurance business, and that was despite the fact that we were extra conservative reserving in Health business, as we expect higher follow-on claims after the end of the pandemic. 

Next, there was the impact of reserving for low interest rates in our Life & Pensions, in businesses with guarantees. As interest rates bottomed out there was no need to form new such reserves for those purposes as in earlier periods, we even released some of them. 

And finally, our asset management business achieved strong results. Now in this widest sense, the asset management business, in our case, includes the management of insurance portfolios, own assets and direct client asset management. Let me start by commenting on the first two. We achieved much lower net realised investment gains compared to previous year, but on the other hand, all liability adequacy tests and other tests that we do, showed not only sufficiency of our reserves in terms of serving guarantees in the future, but in some cases even some surpluses of them. So, as I mentioned before, we made some reserve releases and that had a relatively big impact on investment profit, especially in life& pensions, if we compare it to 2020. And that is also the main reason for increased profit from the investment activities on the year-on-year basis. Behind that, there was this continuing trend of lower interest income due to low interest rates. 

Now, regarding our direct client asset management, we had strong growth of volume and thereby fees and that´s why the profits in asset management business increased as well. These additional profits were gained due to the synergies from the Alta merger as well, made a couple of years ago. We believe that the importance of asset management business will further increase, particularly because of the need for additional savings and ensuring the sources of income in later stages of life of our clients.

Furthermore, regarding our costs. Our cost management approach remained strict. Costs grew due to the growth of the volume of our business, naturally. The growth also reflects the impact of pandemic and lockdowns on prior annual costs. Nevertheless, costs still grew at a lower rate compared to the growth of sales. The growth in costs predominantly related to premium acquisition activities, digitalisation and also investments in information technology. 

So to sum up, with relatively high profits and prudent reserving policies we retained also our financial strength. 

Ulaga Kitek: Thank you Uroš. Well, you just mentioned the Group's business growth, could you emphasise a little more on how this was achieved.

Ivanc: Of course. Our consistent implementation of sales strategy and client focus resulted in premium growth and in all three insurance segments, basically, and in all markets. The non-life insurance premium increased by 12% and life and pensions premium by 8%, so in both segments we achieved quite strong growth. At the same time, we remain focused on our underwriting discipline.

The growth was present even in health insurance, where the complementary insurance business was basically stagnating due to pandemic. For some years now we have invested in other segments of our health insurance business, that is in supplementary insurance, where we are seeing, on the other hand, very high growth rates. This part of our business has even started to show some visible impact on our overall figures. 

Now in terms of our markets, we grew 4% in Slovenia, which is one percentage point above the market, and around 15% in other parts of Adria market and, further on, 40% in our international business. With that I mean the premium based on the principle of freedom of services across EU and inward reinsurance premium.

And then, regarding the diversification of our insurance business, we stayed focused on its balanced structure in terms of our markets, the insurance segments, the sales channels and also client-wise. We are very balanced which creates resilience of our underwriting profitability.

Ulaga Kitek: We’ve spoken about sales. And how were claims in 2021? 

Ivanc: Well, the whole claims development in 2021 remained still a bit distorted due to the COVID-19 pandemic. Some additional notes on that. So, in some segments we had a lower frequency of claims, for example, claims in non-life insurance grew by only 3%, despite much higher growth in sales. And in some of the markets the claims even stagnated. 

Then, in life and pensions, the claims grew, not due to the growth in mortalities, as someone would expect, but on the account of saving policies and our active management of old insurance policies with higher guarantees. We have been successfully practising that approach actually for a couple of years now. Please do note here, that in the insurance accounting framework all the pay-outs, buybacks or surrenders of savings policies are actually counted as gross claims.

Next, I will comment on Health insurance claims. Due to their huge suppression in 2020, in 2021 we experienced growth, and I must add, the level of claims in 2021 was still lower than we would normally expect on the size of our business.  

And finally, regarding the CAT events, which every year everyone is interested in, in 2021 it was not an intense catastrophic year.  

Ulaga Kitek: The Combined ratio in non-life and health insurance was very low, even below 90%. Can you comment on this?

Ivanc: Sure. Yes, the combined ratio in non-life and health insurance reached 88.9%, this is a very favourable value. Its improvement is the result of both - improvements in the claims ratio and improvement in the expense ratio. 

Regarding the expense ratio, to put it plainly, we managed to keep costs under control and despite the relatively high growth of our business. On the other hand, the combined ratio was even more influenced by lower net claims ratio. Why? Well, first of all, we continued with our regular prudent underwriting practises. Then, the frequency of claims was still lower than we could normally expect based on the volume of our business. And finally, there was the effect of positive run-off of reserves, which we built in previous years. Namely, one of Triglav’s strength has always been prudent reserving, and we were even a bit more conservative in the first year of the pandemic due to extremely high uncertainty. 

Ulaga Kitek: Uroš, what about the structure of investment portfolio? Did you make any major changes?

Ivanc: Yes, structurally you can see a slight shift in our total investment portfolio from debt instruments to equities. This shift was mainly caused by the fact, that in general prices of equities increased in 2021 and prices of debt securities decreased as the consequence of a slight increase of interest rates. So that shift in the structure of main investment classes in our overall investment portfolio was caused mostly by the movements in capitals markets and not our investment decisions. Our strategic asset allocations remain similar to previous years.

We were more active within asset classes though. We increased the share of alternative investments in fixed income securities and in equities. Within debt securities, we increased the share of the higher graded bonds, especially towards the end of the year. In a nutshell, 68% of our investment portfolio is represented by bonds, invested in developed markets, 91% of which have an investment grade credit rating of at least “BBB” and 59% with a credit rating of at least “A”.

Ulaga Kitek: Now, let's move to the dividend policy. How did you implement it in 2021?

Ivanc: Well, we have been following our dividend policy since its inception, and in 2021 we were actually very happy to implement it again by paying dividends. Despite certain turmoil in the markets and concerns raised by regulators due to ongoing uncertainty we decided to go through with the dividend proposal. We made the case in front of the regulators as required and we succeeded. The dividend pay-out in the end was 53% and represented a 5% dividend yield. 

Ulaga Kitek: Uroš, in 2021 Triglav Group was also active in the area of ESG. Can you share more details on Group's activities?

Ivanc: Sure. Sustainability has always been integrated into our operations; it is expressed in our mission of building a safer future. With a revised strategy ESG has gained importance also formally as a stand-alone chapter in the strategy; we felt the need for more structure and transparency, and that’s why we did it. We have defined our ESG ambitions and goals by 2025. All activities are now coordinated on the group level by the sustainability development coordinator who works together with the compliance and sustainable development committee and of course the management board.

We believe, that by pursuing sustainable development, we are creating a long-term stable basis for our profitable and safe operations, promoting the transition to sustainable society and also reducing our impact on climate change. And our ambition is to play a leading role in our region in integrating the best global ESG practices into our operations. That’s why we are integrating processes that manage risks and opportunities related to ESG in our everyday business, like for example, we are incorporating ESG factors in our investment process. Then, we also made some improvement of our ESG reporting by using not only GRI standards but also SASB, we are considering additional disclosures according to CDP and TCFD metrics. All of that are extremely important to our investors.

We expressed our commitment also publicly by signing the UN principles for Sustainable Insurance and by joining a partnership for carbon accounting financials. 

Ulaga Kitek: Now, for my final question, I cannot end without asking you about Group's expectations for 2022 and for the strategic period leading to 2025. So?

Ivanc: So, in a nutshell, in 2022 we are planning to continue with safe and profitable operations in line with our strategic guidelines. We plan to increase written premium volume to over 1.4 billion, our profit before tax between 120 and 130 million and to achieve a favourable combined ratio of below 93%.  

Client centricity is one of our key strategic guidelines. As I mentioned, we will focus on stable and profitable operations throughout the strategic period. By the end of 2025 we aim for our target total revenues to be above 1.6 billion, and throughout the strategic period the return on equity of 10%. 

Triglav wants to be a synonym for outstanding client experience, and that is what we are going to build our competitive advantage around. We are going to focus on further digital transformation and development of service-oriented business models. In terms of market position, we will stay the market leader in our core region. 

So far, we delivered on our strategic targets and we firmly believe, we will do so also in the future. 

Ulaga Kitek: Uroš, thank you for sharing your insights. 

Ivanc: Pleasure. Thank you too.