Adress by the President of the Management Board
Dear shareholders, business partners and colleagues,
During the period of trials and challenges, as the last five years could be described, the Triglav Group has successfully overcome obstacles in the economic environment. We ended 2013 with sound financial results, even though a deep economic crisis continued in Slovenia and Croatia, while other countries in South-East Europe experienced only weak economic growth. In crisis conditions, the Triglav Group continued to implement its strategy, placing focus on the core insurance business, profitability and safety of operations.
Stable financial position and good credit ratings
The Triglav Group managed to keep high financial stability achieved by prudent management of business and financial risks, as confirmed by credit rating agencies Standard & Poor’s and A.M. Best, which both upgraded the credit ratings of Zavarovalnica Triglav and Pozavarovalnica Triglav Re to »A-«. Both ratings were assigned a stable medium-term outlook and reflect their supportive risk-adjusted capitalisation, good operating performance and strong competitive position of the Triglav Group within the Slovene market.
An overview of key categories also shows the Group’s high financial stability. As at 31 December 2013, the total equity capital, which is crucial for safe insurance operations, amounted to EUR 590.5 million or 3% more than one year earlier. Gross insurance technical provisions, the basis for balanced operations and the guarantee of long-term safety of policyholders, totalled EUR 2,261.4 million.
The Triglav Group maintained the required capital adequacy throughout 2013 and even improved it compared to 2012. The minimum required capital-to-available-capital ratio of Zavarovalnica Triglav as at 31 December 2013 was 362% in non-life insurance and 183% in life insurance.
Surpassed budgeted net profit
Achieving good business results was not an easy task, given the continuing very tight economic situation in the Group’s key markets as expected. Despite extremely unfavourable conditions, the Triglav Group earned 27% higher net profit than planned, which amounted to EUR 69.9 million. Compared to 2012, the record-high year in the history of the Triglav Group, this was 5% less, but still enough for a very high 12.0% return on equity, despite a difficult economic situation.
Net return on equity of the Triglav Group in %
Intensive management of the non-life insurance portfolio led to a favourable combined ratio. Therefore, the combined ratio of the Triglav Group – a measure of profitability in core insurance operations – reached 91.0%, exceeding the budgeted level by 3.7 percentage points.
Combined ratio in non-life insurance of the Triglav Group
Strategic guidelines: an effective tool to challenge crisis
Changing market terms and conditions required more frequent reviews of development scenarios and business strategy revisions. An upgraded strategy of the Triglav Group for the 2013–2017 period again focused on achieving the highest possible profitability and safety of operations. This revised strategy deepens and elaborates the existing policies and measures, with the primary emphasis on client focus, instead of the previous insurance class focus.
In addition to efficient corporate governance, the selective growth of the Group should be pointed out as one of its strategic guidelines. We pay attention not only to portfolio profitability and structure, but also to prudent development of the markets covered by the Triglav Group. The Group’s objective is to gradually win at least a 10% market share and rank among top three insurance companies (in terms of premium) in all its key markets. We remain open to possible alliances with a strong strategic partner, who would acquire a shareholding in the Triglav INT holding company and share risks on the promising insurance markets of South-East Europe. In the Slovene market, Triglav is focused on profitability, whilst still intent on keeping the largest market share. We will also pay special attention to the development of health and pension insurance products.
The Group’s revised strategy further defined common values, around which the companies of the Triglav Group are centred and which are lived in personal relations and relations with the environment. Simplicity is a new value, which we added to professionalism, security and corporate social responsibility. We want everything we do to bring benefit and generate value. The principle of simplicity is the key to financial products and services which are understandable for clients and their understanding is one of the key aspects of corporate social responsibility of any financial organisation.
Client portfolio, sales channels, brand management, financial stability and economy of scale are clear comparative advantages of the Triglav Group. Their verification and maintenance are an on-going process, essential for achieving the mission of the Triglav Group.
Keeping to the vision and commitments to profitability and safety of operations in 2017 was linked with clearly defined strategic indicators and their projections to the target year.
Triglav’s vision for the 2017 target year was translated to measurable indicators of return on equity and combined ratio in non-life insurance. The combined ratio is planned to reach 95%, and return on equity stay above 10% through the entire period. The Supervisory Board adopted the revised strategy in the second half of 2013. Its implementation period started on a solid foundation as the return on equity and the combined ratio of the Triglav Group in 2013 were significantly better than the strategy targets.
Stronger investor confidence
An additional mirror of our success is the price of Zavarovalnica Triglav’s share on the Ljubljana Stock Exchange Prime Market. The year 2013 was marked by an increased confidence of stock market investors, in which lead to an encouraging growth of ZVTG share price and liquidity. The price of Zavarovalnica Triglav’s share increased by 15% since the end of 2012 and equalled EUR 19 at the end of 2013. The ZVTG share was the second most traded equity on the Ljubljana Stock Exchange, accounting for 16% of total trading volume. The share of international investors in the Company’s ownership structure increased, now holding almost a 17% stake. It is estimated that the driving force behind investors’ interest is financial stability, stable business results and the dividend policy of the Company, based on the targeted level of capital adequacy.
Market and premium trends marked by lower demand
In an unstable environment, high financial security ensured by Zavarovalnica Triglav’s insurance products is even more important for clients. However, a declining economic activity and falling purchasing power of households are understandably reflected in lower demand for insurance products. The economic and financial crisis is a challenging test for individuals, companies and entrepreneurs. This is especially true for Slovenia, as it is affected not only by adverse macroeconomic conditions but also by an increasing number of mass loss events caused by wind storms, floods and other natural factors. Similar can be said of developments on other markets of the Group.
In 2013, the Triglav Group collected EUR 900.9 million in premium or 4% less than in 2012. Gross health insurance premiums increased by 14%, while non-life insurance premiums and life insurance premiums decreased by 5% and 6% respectively. A substantial growth in health insurance written premiums stems from the good performance of Triglav, Zdravstvena Zavarovalnica: a higher number of policyholders, successful marketing of supplemental health insurance products and higher premium in July 2012. Apart from careful risk management, the most important internal factors that contributed to such a strong performance were intensive development, sales and marketing activities, combined with insurance portfolio management.
The Group’s gross claims paid were 2% higher compared to 2012 and totalled EUR 627.5 million. The profit level in the non-life insurance segment was also affected by individual mass loss events, consequences of snow and wind storms, frost, hail and floods, which have become more frequent in recent years. The increase in claims paid from life insurance was caused by a higher number of maturities due to the aging of the portfolio, surrenders and withdrawals, mostly as a result of the economic crisis. These claims are paid up to the amount of formed mathematical provisions and therefore do not affect net profit.
Our business results are strongly influenced by the situation on capital markets, as diverse financial investments represent the majority of our total assets. The return on financial investments in 2013 was lower than in 2012, primarily as a result of high permanent impairments of financial investments amounting to EUR 28.1 million and a lower return on the long-term business fund of unit-linked life insurance. It has to be emphasized that the Triglav Group is no longer exposed to risks arising from subordinated and hybrid bonds of Slovene issuers.
Intensive development and sales activities
The negative premium trend is expected to continue in 2014, which is followed by greater attention and activities. In addition to the impact of the economic crisis, the Triglav Group will face competition tensions and pressures on its leading position in the region where it operates. Due to a weak increase in new clients in present circumstances, our competitors have focused on our existing clients. The management of the Group and of the parent company believe that willingness to change and good responsiveness are crucial for keeping and improving our competitiveness. Much attention and many development activities are focused on clients’ needs and their behaviour, which correlates with internal consolidation and harmonisation of processes and standards. Thus, the 2013 crisis year was in all segments marked by strong action and development drive.
Premium policy amendments, redesigning the existing products and launching new ones that address new financial risks and individual market features all make part of our regular activities in all insurance classes. Cheaper prices of products and bonus programmes strongly impact our marketing policy, including sales promotion, while at the same time brand consolidation, sales channel enhancement and a unified approach across markets are being implemented.
Enhanced sales network, IT support and close ties with clients
It was once again obvious that challenges are also opportunities. Our connections with our clients are stronger than before the crisis, as evidenced by more than 450 thousand policyholders in Slovenia included in the Triglav Komplet bonus programme. An extensive own sales network remains the source of our advantages in the domestic market and we are very pleased with improved relationships with our external sales partners. This is something we have to achieve also in other markets, where the expansion of sales network is closely connected to market development, awareness building that regards the importance of financial security and higher demand for insurance services.
The economic crisis did not affect the expansion of new information and communication technologies. They certainly already have a great impact on client behaviour in Slovenia and their role will increase in South-East Europe as markets develop. New mobile applications, widened range of online products and services and raised quality of user experience serve as the basis to further enhance alternative sales channels. They have also greatly helped simplify the claim settlement procedure, which is a distinctive quality factor in Triglav’s services and as such essential to client satisfaction.
A substantial part of new ICT solutions takes place in the background, in the context of strategic projects for process and organisation improvements. At the forefront there are projects for the development of the client relationship management system, Solvency II and the introduction of standard IT support to the central business functions and companies. Investments in ICT solutions have therefore remained a priority.
Focus on ethical and responsible business
As an insurance company with more than 110 years of tradition and an ambition to further strengthen its role in the region, we are aware of the importance of prevention activities and risk management, which goes beyond our own business. Through its presence in the region, Triglav expands prevention activities as its first contribution to local communities and the social environment. More frequent mass loss events caused by natural factors are another reason why Triglav actively raises awareness on the impact of climate change.
It is difficult or even impossible to separate sustainable guidelines from the regular business policies of the Triglav Group, efforts for safe operations, strengthening the Group's value, and for providing quality, transparent and accessible financial services. Of all values of the Triglav Group, corporate social responsibility is most clearly linked to sustainable business. As a matter of fact sustainability is closely linked with corporate culture, which is also built on the principles of safety, professionalism and simplicity.
We are proud that by improving access, equipment and employee training, Triglav became friendly to people with disabilities. At the same time, Zavarovalnica Triglav as the parent company is aware of its future tasks in disseminating uniform policies and in-house practices to the entire Group.
Among the wide range of activities related to understanding the Group’s sustainable development, strengthening the compliance function and responsibility for ethical practices deserve special attention. In 2013, Zavarovalnica Triglav made significant progress in personal data protection of policyholders, safeguarding the integrity of employees and fight against corruption and insurance fraud.
A look ahead
In 2014, loss events are expected to further increase and the crisis situation to continue, accompanied by all the existing consequences, especially premium cutting pressures, and the occurrence of new risks. The profitability indicators planned for 2014 are lower than for 2013, but still very ambitious in present conditions and set above the results achieved in a more favourable business environment. Profit before tax of the Triglav Group is planned at EUR 75.9 million, whereas net profit is estimated at EUR 65.6 million.
We are convinced that by implementing the adopted strategy and with a clear vision we are well prepared for the long run.
Let me thank the shareholders, policyholders and clients for the trust you have placed in Triglav and thank my fellow employees for successful and selfless work in demanding circumstances.
President of the Management Board of Zavarovalnica Triglav d.d.