Letter from the chairman of the management board1
Letter from the chairman of the management board1
We are looking backon an exceptionally good year
I am very pleased to announce that the Sava Re Group has generated a profit of EUR 43 million in 2018, which is 38.3% higher than in the previous year and almost 10% better than planned. We produced an excellent return on equity of 13.1% in 2018. These results reflect a remarkable performance by the entire Sava Re Group, with better profitability in every segment.
The Group’s operating revenues grew by 9.8% in 2018, the result of growth in premiums of the existing Group companies as well as the operations of new Group companies that joined the Group in 2018. In the first quarter, we managed to finalise three acquisitions: the pension company NLB Nov Penziski Fond based in North Macedonia and subsequently renamed Sava Penzisko Društvo; the Serbia-based insurer Energoprojekt Garant, which was merged with the Group’s Serbian non-life insurer Sava Neživotno Osiguranje (SRB); and the Slovenian-based assistance service provider TBS Team 24. The successful integration of these companies has already contributed to better profitability. The expansion of the Group within the insurance sector and through ancillary services proved effective, as this is the way we can broaden our product range and improve the quality of our services, evolving into a comprehensive service provider for our customers at all stages of their lives.
Record net profit
€43 million
Premium growth andimproved profitability
The Sava Re Group grew gross premiums written by 5.6% in 2018. The bulk of this growth was contributed by the 10.9% growth of the non-life business of Zavarovalnica Sava in Slovenia, which is also the result of the successful merger of Zavarovalnica Maribor and Zavarovalnica Tilia into one insurer under a single brand recognisable across Slovenia. The operations of Zavarovalnica Sava are also more profitable thanks to our unlocking of the synergistic benefits from the combined insurer.
By contrast, the gross life premiums written in Slovenia shrank by 2.9% year on year. This decline in Zavarovalnica Sava is mainly due to the large number of policy maturities, part of which we managed to compensate with new policies written.
In 2018, we are particularly proud of the fact that we improved the profitability of our foreign operations and achieved high premium growth. International non-life business grew by 12.5%, while international life business saw growth of 17.8%. In recent years, we see our non-Slovenian markets grow faster than mature markets, which provides the Sava Re Group with good income growth opportunities.
Gross premiums written in the reinsurance segment fell by 7.2% in 2018 as the result of strict underwriting discipline and selective underwriting. Our strategy of designing a balanced reinsurance portfolio with selective underwriting proved adequate in 2018, as this segment too saw a solid growth in profits.
2018 was a year of relatively low incidence of large claims for our insurance and reinsurance business, as reflected in more favourable incurred loss and combined ratios, as well as in the Group’s improved performance.
Strengthening customer satisfactionand brand loyalty
The year 2018 was also dedicated to strengthening the brands under the Sava Re umbrella. In line with our strategy of putting the customer in the centre of everything we do and through our modernisation and digitisation projects at Zavarovalnica Sava in Slovenia, we improved the claims reporting process, streamlined damage removal and strengthened customer communication using the latest media to attract the younger generations.
Following its adopted strategy, in 2018 Sava Re acquired TBS Team 24, entering the assistance services market, which will give the Group members more room to take advantage of synergy benefits in motor, health and home owners insurance. In this way, Zavarovalnica Sava could offer our own assistance covers, and thus shorten the time required to confirm services, which in turn increased customer satisfaction among policyholders, with an improvement in both response times and services in all areas. In 2019 we are planning to roll out our assistance services to the countries of the Adria region where the Group has insurance operations.
Our pension insurance services in North Macedonia perfectly complement our product range for our customers in this market. And the number of insured persons covered under the second and third pillar pension system in North Macedonia strengthens the Sava Re brand significantly.
Improved credit ratings reflectingthe Group’s strong capital position
We are also very proud of the improved credit ratings awarded in 2018. Following their regular annual rating reviews in 2018, the rating agencies Standard & Poor’s and AM Best both raised their financial strength ratings for Sava Re to “A”, which reflects the Group’s strong capital position over a longer period, its improved market position and profitability achieved as a result of its expansion through organic growth and acquisitions. Standard & Poor’s also gave a favourable assessment of the completed acquisitions in the markets where the Group is already present, which further bolstered the Group’s market position.
The responses we have received so far to our improved ratings confirm our expectations that they will support our strategy of selective and profitable growth in international reinsurance markets.
Striving for continuousprogress and innovation
We performed exceptionally well in 2018 but raised the bar even higher for 2019, planning growth in operating revenues and profit while maintaining a strong capital position.
While the Group is currently working hard to deliver on its strategy of bringing the customer into the centre of its activities, we are aware that striving to meet our customers’ high expectations will always be our priority. This aspect of our business remains key to our future success.
Our development efforts will remain focused on Group expansion. At the end of 2018, we signed a deal to acquire a majority stake in KBM Infond, an asset management company, to complete the Group’s range of financial services under our strategy for the Slovenian market.
Sustainability is another aspect of our business that is becoming more prominent in all our activities. Aware of the changes in our environment and their effect on our business, we will continue to explore investment opportunities in environmental and sustainability-oriented projects – and this underpins our sustainability efforts in the communities and environment of which we are a part.
I would like to take this opportunity to thank all our stakeholders for the support and trust placed in us. We will do our best to honour this trust with our continued commitment to quality services for our customers and superior business performance at all levels.
Marko Jazbec
Chairman of the Management Board of Sava Re d.d.
Key guidelines set out in the strategy:
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digitalisation and technological modernisation of operations to place the client in the centre;
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growth through acquisitions;
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seeking opportunities in environmentally/sustainability-oriented investment projects;
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closing the gap between intrinsic value and market price of shares.
Long-term strategic targets:
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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.).
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In the period 2017–2019, the solvency ratio at the Group level will be in the range of 170% and 230% (between the lower end of the optimum/target range and the upper end of suboptimal capital).
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Non-life business of the Group will achieve a three-year average combined ratio of not more than 95%, while reinsurance24 will achieve a combined ratio of not more than 93%.
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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).
24: 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.
Key targets for 2019
Index/difference
in p.p. 2019/18
All income, other than from investments
Profit or loss, net of tax
Investment return, excluding the effect of exchange differences
Net expense ratio (reins. + non-life + life)
Net incurred loss ratio, excluding the effect of exchange differences (reins. + non-life)
Net combined ratio, excluding the effect of exchange differences (reins. + non-life)
Both credit rating agencies that regularly issue ratings on Sava Re have improved their financial strength ratings on Sava Re in 2018. The improved rating reflected a strong capital position over a longer period both under the rating agency’s model and Solvency II, which was further supported by a stable dividend policy. The rating also reflects the Group’s solid market position and operating profitability. Furthermore, both agencies assessed the completed acquisitions as positive.
Financial strength rating of Sava Re
July 2018: improved rating
November 2018: improved rating
3: 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.AM 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).
