SavaRe-Annual-Report-En-2018

Letter from the Chairman of the Management Board¹

Year of premium growth in all markets

The Sava Re Group has again achieved growth in gross premiums written in 2017 – and across all of our operating segments. Compared to the previous year, we generated 5.5% more premium income, exceeding our target growth rate.

For Zavarovalnica Sava, this was the first year following the successful merger of the Group’s EU-based insurance companies from which it emerged with a new name and visual identity. We believe that it performed well, exceeding its planned synergy gains related to the merger as reflected in the favourable ratio of expenses to gross premiums written. In Slovenia, non-life insurance premiums grew by 5.7%, while life insurance premiums rose by 3.7%.

We are also satisfied with the almost 10% growth posted by our insurance companies abroad, and this in both key segments of our insurance operations.

And, of course, we are satisfied with the return figure achieved in the face of the number of large weather-related events that occurred in 2017. While the profit of Zavarovalnica Sava was impacted by storm losses, the performance of the reinsurance portfolio (excluding exchange differences) fell short of the 2016 result owing to a number of large loss events in the international market (such as the storms in the USA and the flooding of mines in Russia). The Group generated a net profit of €31.1 million, corresponding to a 10.1% return on equity. With a 19.5% increase in the share price over the year and a 5.1% dividend yield, we feel the Sava Re POSR share is becoming an attractive investment opportunity for both institutional and retail investors.

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Year of growth and expansion into complementary areas

In line with its adopted strategy, the Sava Re Group entered the assistance services market in 2017, which will give the Group members further room to unlock synergy benefits related to motor, health and homeowners insurance. By acquiring the company TBS Team 24, the Group gained an efficient and high-quality call centre of international repute, with many years of experience providing assistance services. I believe that this will provide our products with an additional competitive advantage and our policyholders with better service in case of loss events.

To expand our pension insurance activities, Sava Re signed a deal to acquire 100% of the Macedonia-based NLB Nov penziski fond from Skopje, thus gaining a foothold in the Macedonian pension insurance market. Increasing pension business remains a strategic focus of Sava Re, and we will, therefore, remain open to growth opportunities in this segment in the region. After all, this expansion takes advantage of the marketing and sales synergies in the Group, while our goal is to acquire more companies and become the number two pension player in the region.

Adoption of new strategy until 2019

We know that the insurance market is changing fast. For this reason, we have made ambitious plans for the medium term. As we are placing the client at the centre of our services and ways of working, we want to strengthen activities for developing products that cater to client needs. It is important to us that our services are widely accessible, which is why we are seeking out new distribution channels and investing great efforts in digitising all areas of the Group’s operations. A satisfied client is key to our success; therefore, it is vital for us to use an advanced approach and transparent business processes.

Another step towards digitising was our decision to join the B3i (Blockchain Insurance Industry Initiative) initiative launched by major insurance and reinsurance players in order to test the blockchain platform. It is an initiative that has been joined by all key global insurance and reinsurance groups.

Furthermore, we are focused on growing and developing health services through acquisitions or direct investments in medical centres, health insurance companies and health service providers.

The most important ingredient in reinsurance operations is trust, which is why we continue to nurture long-term partnerships. We will be entering new markets gradually, guided by long-term profitability, all the while keeping an eye on geographic diversification.

Another strategic focus of the Group is sustainable development. We are integrating a culture of sustainability in our business processes. Under the slogan “Never alone”, the Sava Re Group is promoting its role as a force for social responsibility and community cohesion. We are working systematically to develop a comprehensive sustainable development strategy in line with principles and policies of recognised international organisations. In the year, sustainability development has been set up as a business area with an appointed administrator, and I myself am directly responsible for it. Hence, I am personally committed to upholding our sustainability principles and meeting the targets we have set ourselves.

Enhancing financial strength and long-term financial stability

2017 did not bring about the desired upturn in financial markets in terms of return on investment. Interest rates have remained low, but there are early indications of a turn in the trend. In our asset management activities, we give priority to security and liquidity to ensure that we will be able to meet our obligations arising out of insurance contracts.

In order to ensure a high level of security while maintaining appropriate profitability, in 2017 we repaid a major part of the subordinate loan taken out in 2006 and 2007 to finance the Group’s expansion abroad. The Group managed to maintain a high solvency ratio despite the repayment of €24 million.

Also last year, our financial strength and capital adequacy was affirmed by rating agencies. In July 2017, after its regular annual rating review, the rating agency Standard & Poor’s affirmed Sava Re’s existing “A–” (excellent) issuer credit and financial strength ratings but upgraded the outlook from “stable” to “positive”.

We have ambitious goals

We have delivered on our plans for 2017. But we are looking at new opportunities ahead. We will continue to draw inspiration from our vision and value system, to seek motivation in our environment and earn the respect of our customers.

I thank everybody who has contributed to the Group’s development in the 40 years of its operation, and all who trust and believe in our future. I also thank our shareholders, business partners and other stakeholders who have continued to place their trust in our Group over the course of many years.

Marko Jazbec
Chairman of the Management Board
of Sava Re, d.d.

1: GRI 102-14

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Sava Re Group strategy highlights

The Sava Re Group defines its strategy in terms of four pillars:

Key guidelines set out in the strategy:

digitalisation and technological modernisation of operations to place the client at the centre;
growth through acquisitions;
seeking opportunities in environmentally/sustainability-oriented investment projects;
closing the gap between intrinsic value and market price of shares.

Long-term strategic targets:

The long-term objective is to achieve, at the Group level and in terms of a 3-year average, a return on equity (ROE) that at is at least equal to the cost of capital. The internally-calculated cost of equity of the Sava Re Group with regard to its composition is 10.4% (+/– 0.5 p.p.).

In the period 2017–2019, the solvency ratio at the Group level will be in the range of 170% and 230% (between the bottom of the optimum/target range and the top of the suboptimal capital range).

Non-life business of the Group will achieve a three-year average combined ratio of not more than 95%, while reinsurance²⁵ will achieve a combined ratio of not more than 93%.

As regards life insurance business, the profitability of new policies written by Zavarovalnica Sava and insurers outside Slovenia will be at least 5% and 2.5%, respectively (ratio of the value of new policies to the present value of expected premiums of such new policies).

Pomembnejše načrtovane postavke v letu 2018

(€ million)	2016	2017	2018 plan	Index/difference in p.p. 2018 plan/2017
Gross written premiums	490.2	517.2	>520.0	100.5
Growth/decline in premiums	0.8%	5.5%	2.8%	-
Net expense ratio	34.0%	32.7%	31.4-31.7%	-1.0 o.t.
Net incurred loss ratio, excluding exchange differences	58.2%	60.5%	59.4-59.9%	-0.6 o.t.
Net combined ratio, excluding exchange differences	94.6%	95.5%	94.0-94.5%	-1.0 o.t.
Profit/loss, net of tax	32.9	31.1	37.0-39.0	119.0
Investment return, excluding exchange differences	2.2%	2.0%	1.7%	-0.3 o.t.
Return on equity	11.3%	10.1%	>11.0%	0.9 o.t.

* The net incurred loss ratio and the net combined ratio are given for the reinsurance and non-life insurance operating segments.

25: When calculating the combined ratio based on the planning financial statements for Sava Re, it is necessary to exclude part of the expenses relating to the administration of the Group that are not related to reinsurance business.

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Strategic focus and goals

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Presence of the group⁵

As at 31 December 2017, the insurance part of the Sava Re Group comprised – in addition to the controlling company Sava Re – seven insurers based in Slovenia and other countries of the Adria region, and one pension company based in Slovenia.

Composition of the Sava Re Group as at 31 December 2017

Sava Re

Registered office:

Dunajska 56, 1001 Ljubljana, Slovenia

Business activity:

composite insurer

Market share:

55.3%

Zavarovalnica Sava

Registered office:

Cankarjeva 3, 2507 Maribor, Slovenia

Business activity:

composite insurer

Equity interests:

Sava Re: 100.0 %

Market share:

Slovenia: 16.1%

Croatia: 1.2%

Sava pokojninska

Registered office:

Ulica Vita Kraigherja 5, 2103 Maribor, Slovenia

Business activity:

pension company

Equity interests:

Sava Re: 100.0 %

ZS Svetovanje

Registered office:

Karantanska ulica 35, 2000 Maribor, Slovenia

Business activity:

insurance agency

Equity interests:

Zavarovalnica Sava: 100.0 %

Zavarovalnica Sava

Registered office:

Cankarjeva 3, 2507 Maribor, Slovenia

Business activity:

composite insurer

Equity interests:

Sava Re: 100.0 %

Market share:

Slovenia: 16.1%

Croatia: 1.2%

Sava neživotno osiguranje (SRB)

Registered office:

Bulevar vojvode Mišića 51, 11040 Beograd, Serbia

Business activity:

non-life insurer

Equity interests:

Sava Re: 100.0 %

Market share:

1-9/2017: 2.1%

Sava životno osiguranje (SRB)

Registered office:

Bulevar vojvode Mišića 51, 11040 Beograd, Serbia

Business activity:

life insurer

Equity interests:

Sava Re: 100.0 %

Market share:

1-9/2017: 0.2%

Sava osiguranje (MNE)

Registered office:

PC Kruševac, Rimski trg 70, 81000 Podgorica, Montenegro

Business activity:

non-life insurer

Equity interests:

Sava Re: 100.0 %

Market share:

15.1%

Sava Car

Registered office:

PC Kruševac, Rimski trg 70, 81000 Podgorica, Montenegro

Business activity:

technical testing and analysis

Equity interests:

Sava osiguranje (MNE): 100.0 %

Sava Agent

Registered office:

PC Kruševac, Rimski trg 70, 81000 Podgorica, Montenegro

Business activity:

insurance agent & broker services

Equity interests:

Sava Re: 100.0 %

Sava osiguruvanje (MKD)

Registered office:

Zagrebska br.28 A, 1000 Skopje, Macedonia

Business activity:

non-life insurer

Equity interests:

Sava Re: 92.57 %

Market share:

1-9/2017: 8.8%

Sava Station

Registered office:

Zagrebska br.28 A, 1000 Skopje, Macedonia

Business activity:

technical testing and analysis

Equity interests:

Sava Re: 100.0 %

Illyria

Registered office:

Sheshi Nëna Terezë 33, 10000 Priština, Kosovo

Business activity:

premoženjska zavarovalnica

Equity interests:

Sava Re: 100.0 %

Market share:

9.5%

Illyria Life

Registered office:

Sheshi Nëna Terezë 33, 10000 Priština, Kosovo

Business activity:

življenjska zavarovalnica

Equity interests:

Sava Re: 100.0 %

Market share:

1.9%

Illyria Hospital

Registered office:

Sheshi Nëna Terezë 33, 10000 Priština, Kosovo

Business activity:

trenutno ne opravlja nobene dejavnosti

Equity interests:

Sava Re: 100.0 %

5: GRI 102-45

Profile of the Sava Re Group

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The Slovenian capital market (SBITOP) ended the year with a gain similar to other global capital markets. This gain was driven by the good financial performance of companies and above-average dividend yields.

Basic details about the POSR share

	31/12/2017	31/12/2016
Share capital	71,856,376	71,856,376
No. of shares	17,219,662	17,219,662
Ticker symbol	POSR	POSR
No. of shareholders	4,061	4,308
Type of share	Ordinary
Listing	Ljubljana Stock Exchange, prime market
Number of own shares	1,721,966	1,721,966
Consolidated net earnings per share (€)	2.00	2.08
Consolidated book value per share (€)	20.40	18.81
Share price at end of period (€)	15.80	13.22
	1-12/2017	1-12/2016
Average share price in reporting period (€)	15.86	13.74
Minimum share price in reporting period (€)	13.35	11.80
Maximum share price in reporting period (€)	17.20	15.00
Trade volume in reporting period (€)	14,384,835	19,072,516

Details on dividends

(€)	For 2013	For 2014	For 2015	For 2016
Dividend payouts	4,386,985	9,065,978	12,398,157	12,398,157
Dividend/share	0.26	0.55	ordinary: 0.65 special: 0.15	0.80
Dividend yield	2.0%	3.8%	5.8%	5.0%

Ten largest shareholders as at 31/12/2017²¹

	Shareholder	No. of shares	Holding (%)
1	Slovenian Sovereign Holding	3,043,883	17.7%
2	Zagrebačka banka, d.d. – fiduciary account	2,439,852	14.2%
3	Republic of Slovenia	1,737,436	10.1%
4	Sava Re, d.d. (treasury shares)*	1,721,966	10.0%
5	European Bank for Reconstruction and Development (EBRD)	1,071,429	6.2%
6	Raiffeisen Bank Austria, d.d. (fiduciary account)	784,710	4.6%
7	Modra Zavarovalnica d.d.	714,285	4.1%
8	Abanka, d.d.	655,000	3.8%
9	East Capital – East Capital Balkans	359,147	2.1%
10	Modra Zavarovalnica, d.d. – ZVPS	320,346	1.9%
	Total	12,848,054	74.6%

Source: Central securities register KDD d.d.
* Treasury shares carry no voting rights.

21: GRI 102-5

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Shareholders and share trading

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Sava Re rating profile

Sava Re is rated by two rating agencies, Standard & Poor’s and A.M. Best.

Financial strength rating of Sava Re

Agency	Rating4	Outlook	Latest review
Standard & Poor’s	A–	positive	July 2017: improved outlook
A.M. Best	A–	stable	October 2017: affirmed existing rating

4: Credit rating agency Standard & Poor’s uses the following scale for assessing financial strength: AAA (extremely strong), AA (very strong), A (strong), BBB (adequate), BB (less vulnerable), B (more vulnerable), CCC (currently vulnerable), CC (highly vulnerable), R (under regulatory supervision), SD (selectively defaulted), D (defaulted), NR (not rated). Plus (+) or minus (–) following the credit rating from AA to CCC indicates the relative ranking within the major credit categories.
A.M. Best uses the following categories to assess financial strength: A++, A+ (superior), A, A– (excellent), B++, B+ (Good), B, B– (fair), C++, C+ (marginal), C, C– (weak), D (poor), E (under regulatory supervision), F (in liquidation), S (suspended).

OPERATIONS

Povzetek pomembnejših postavk poslovanja

(€)	Sava Re Group
	2017	2016
Gross premiums written	517,233,431	490,205,154
Year-on-year change (%)	5.5 %	0.8 %
Net premiums earned	470,865,993	458,101,526
Year-on-year change (%)	2.8 %	2.4 %

(€)
Gross claims paid	309,727,160	269,445,796
Year-on-year change (%)	14.9 %	-0.8 %
Net claims incurred	296,103,320	268,393,776
Year-on-year change (%)	10.3 %	-1.7 %
(€)
Net incurred loss ratio	58.9 %	58.6 %
Net incurred loss ratio, excluding exchange differences	60.5 %	58.2 %
(€)
Operating expenses, including reinsurance commission income	154,091,460	155,830,879
Year-on-year change (%)	-1.1 %	7.3 %
Net expense ratio	32.7 %	34.0 %

(€)
Net combined ratio	94.3 %	95.0 %
Net combined ratio, excluding exchange differences	95.5 %	94.6 %
(€)
Net inv. income of the investment portfolio	15,731,567	24,612,812
Return on the investment portfolio	1.5%	2.4%
Net inv. income of the investment portfolio, excluding exchange differences	21,662,931	23,122,262
Return on the investment portfolio, excluding exchange differences	2.0%	2.2%
Profit or loss before tax	39,880,983	40,669,987
Year-on-year change (%)	-1.9 %	1.4 %
Profit/loss, net of tax	31,094,908	32,918,213
Year-on-year change (%)	-5.5 %	-1.3 %
Comprehensive income	32,790,903	37,660,245
Year-on-year change (%)	-12.9 %	36.4 %
(€)
Return on equity	10.1 %	11.3 %


	31/12/2017	31/12/2016
Total assets	1,708,348,067	1,671,189,179
Change on 31 Dec of prior year (%)	2.2 %	4.0 %
(€)
Shareholders’ equity	316,116,895	297,038,327
Change on 31 Dec of prior year (%)	6.4 %	3.7 %
(€)
Net technical provisions	1,127,139,014	1,109,770,895
Change on 31 Dec of prior year (%)	1.6 %	3.6 %
(€)
Book value per share	20.40	18.81
Net earnings/loss per share	2.00	2.08
(€)
No. of employees (full-time equivalent basis)	2,388.77	2,487.94
(€)
Solvency ratio under Solvency II rules	-	204 %

Notes:
For details on the calculation of ratios and the net investment income, see the glossary in Appendix C.
The net investment income of the investment portfolio does not include the net investment income relating to assets of policyholders who bear the investment risk since such assets do not affect the income statement. The mathematical provision of policyholders who bear the investment risk moves in line with this line item.

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Sava Re Group Business Report

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(€)	Sava Re
	2017	2016
Gross premiums written	153,219,752	147,426,893
Year-on-year change (%)	3.9 %	-3.0 %
Net premiums earned	130,864,620	133,428,875
Year-on-year change (%)	-1.9 %	6.3 %

(€)
Gross claims paid	83,525,449	85,165,592
Year-on-year change (%)	-1.9 %	-5.0 %
Net claims incurred	78,583,967	81,781,565
Year-on-year change (%)	-3.9 %	-5.7 %
(€)
Net incurred loss ratio	60.2 %	61.3 %
Net incurred loss ratio, excluding exchange differences	65.0 %	60.2 %
(€)
Operating expenses, including reinsurance commission income	41,178,447	44,475,032
Year-on-year change (%)	-7.4 %	18.2 %
Net expense ratio	31.5 %	33.3 %

(€)
Net combined ratio	93.1 %	94.9 %
Net combined ratio, excluding exchange differences	96.5 %	93.6 %
(€)
Net inv. income of the investment portfolio	25,332,985	27,684,549
Return on the investment portfolio	5.6%	6.0%
Net inv. income of the investment portfolio, excluding exchange differences	30,816,526	26,323,674
Return on the investment portfolio, excluding exchange differences	6.8%	5.8%
Profit or loss before tax	34,763,864	34,977,140
Year-on-year change (%)	-0.6 %	109.0 %
Profit/loss, net of tax	32,974,192	32,873,817
Year-on-year change (%)	0.3 %	103.0 %
Comprehensive income	33,008,694	33,693,737
Year-on-year change (%)	-2.0 %	127.4 %
(€)
Return on equity	11.7 %	12.3 %


	31/12/2017	31/12/2016
Total assets	580,886,180	568,147,764
Change on 31 Dec of prior year (%)	2.2 %	-0.5 %
(€)
Shareholders’ equity	290,966,155	270,355,622
Change on 31 Dec of prior year (%)	7.6 %	2.5 %
(€)
Net technical provisions	212,565,592	208,003,567
Change on 31 Dec of prior year (%)	2.2 %	1.5 %
(€)
Book value per share	18.77	17.12
Net earnings/loss per share	2.13	2.08
(€)
No. of employees (full-time equivalent basis)	96.50	94.58
(€)
Solvency ratio under Solvency II rules	-	264 %

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Sava Re Business Report

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Risk management⁷⁰

The Sava Re Group management is aware that risk management is key to achieving operational and strategic objectives and to ensuring the long-term solvency of the Group. Therefore, the Sava Re Group is continuously upgrading the risk management system both in all Group companies and at the Group level.

The Group companies’ strong risk culture and awareness of the risks to which they are exposed is essential to the security and financial soundness of the companies and the Group as a whole. In order to establish good risk management practices, the Group promotes a risk management culture with appropriately defined remuneration for employees, employee training, and relevant internal information flow, both at the individual company and Group level.

The Sava Re Group has implemented a risk strategy that defines the Group’s risk appetite and policies that cover the entire framework of risk management, own risk and solvency assessments, and risk management for each risk category. Based on the Group’s risk strategy and policies, individual Group companies set up their own risk strategies and policies, taking into account their specificities.

The risk management system both in individual Group companies and at the Group level is subject to continuous improvements. Particular attention is paid to:

clearly-expressed risk appetite in the framework of the risk strategy and on this basis also operational limits,
development of own risk assessment models and upgrading of the own risk and solvency assessment (hereinafter: ORSA),
integration of the ORSA and risk strategy in the framework of business planning and shaping of the business strategy,
integration of risk management processes into business processes,
establishment of high risk management standards in large Group companies and at least minimal standards in small Group companies.

In compliance with the requirements of the Solvency II regime a number of activities were conducted in 2017, both in all EU companies and at the Group level, namely:

calculation of eligible own funds, the solvency capital requirement and the solvency ratio in line with the standard Solvency II formula as at 31 December 2016;
the first official reporting on solvency and financial condition in line with Solvency II as at 31 December 2016. The calculations revealed a high level of capitalisation of the Group. The Company’s Solvency and financial condition report was reviewed also by external auditors;
the first regular supervisory report prepared in 2017;
we conducted and reported the ORSA, which is conducted at least on an annual basis, as required by legislation. ORSA includes the development of own models for quantifying risks with an emphasis on measuring underwriting and market risks, which are the key risks to which the Group is exposed.

70: GRI 102-11

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Sustainable development at the Sava Re Group

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The following is the first comprehensive Sava Re sustainability report prepared in accordance with the international sustainability reporting standards Global Reporting Initiative (GRI) (Core option); it provides a straightforward and honest overview of the character, values and strategic pursuits of the Company and the Group as a whole.

In addition to general disclosures it provides, in accordance with prescribed principles, disclosures on the economic, environmental and social aspects that are of vital importance for Sava Re and that relate directly to the Group strategy.

71: GRI 102-54

REFLECTING
A SUCCESSFUL
YEAR

Each of us plays a part in shaping our progress and securing a stable future.

Sava Re Group strategy highlights

Sava Re

Zavarovalnica Sava

Sava pokojninska

ZS Svetovanje

Zavarovalnica Sava

Sava neživotno osiguranje (SRB)

Sava životno osiguranje (SRB)

Sava osiguranje (MNE)

Sava Car

Sava Agent

Sava osiguruvanje (MKD)

Sava Station

Illyria

Illyria Life

Illyria Hospital

Share

Sava Re rating profile

OPERATIONS

Povzetek pomembnejših postavk poslovanja

FINANCIAL STATEMENTS

SUSTAINABLE DEVELOPMENT

REFLECTINGA SUCCESSFULYEAR

Each of us plays a part in shaping our progress and securing a stable future.

Sava Re Group strategy highlights

Sava Re

Zavarovalnica Sava

Sava pokojninska

ZS Svetovanje

Zavarovalnica Sava

Sava neživotno osiguranje (SRB)

Sava životno osiguranje (SRB)

Sava osiguranje (MNE)

Sava Car

Sava Agent

Sava osiguruvanje (MKD)

Sava Station

Illyria

Illyria Life

Illyria Hospital

Share

Sava Re rating profile

OPERATIONS

Povzetek pomembnejših postavk poslovanja

FINANCIAL STATEMENTS

SUSTAINABLE DEVELOPMENT

REFLECTING
A SUCCESSFUL
YEAR